<PAGE> 1
Filed Pursuant To Rule 424(b)(2)
Registration No. 333-79499
PROSPECTUS
591,308 SHARES OF
ZERO COUPON CONVERTIBLE PREFERRED STOCK DUE 2013
AND
5,763,845 SHARES OF
CLASS A COMMON STOCK
OF
NEXTEL COMMUNICATIONS, INC.
This prospectus relates to the offering of Nextel's zero coupon convertible
preferred stock due 2013 or the common stock issued upon conversion of the zero
coupon convertible preferred stock and common stock to be issued as liquidated
damages under the applicable registration rights agreement, from time to time,
by the selling stockholders listed on page 24. The selling stockholders may
offer these securities at fixed prices, at prevailing market prices, varying
prices and negotiated prices. Nextel will not receive any cash proceeds from the
sales of these securities.
- The zero coupon convertible preferred stock is convertible into Nextel's
Class A common stock, at a current rate of 9.7441 shares of common stock
for each share of zero coupon convertible preferred stock.
- No dividends will be paid on the zero coupon convertible preferred stock.
Instead, the liquidation price, which was $265.5431 on June 23, 1999,
will increase over time at an annual rate of 9.25% compounded quarterly,
to a maximum of $1,000.
- There is currently no established market for trading the zero coupon
convertible preferred stock. Nextel's common stock is listed on the
Nasdaq National Market under the symbol "NXTL."
- On August 13, 1999, the last reported sale price of the common stock was
$54.25.
AS A PROSPECTIVE PURCHASER OF THESE SECURITIES, YOU SHOULD CAREFULLY
CONSIDER THE DISCUSSION OF "RISK FACTORS" THAT BEGINS ON PAGE 10 OF THIS
PROSPECTUS.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE ZERO COUPON CONVERTIBLE PREFERRED STOCK OR COMMON
STOCK TO BE DISTRIBUTED UNDER THIS PROSPECTUS, NOR HAVE ANY OF THESE
ORGANIZATIONS DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS AUGUST 16, 1999.
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REFERENCES TO ADDITIONAL INFORMATION
THIS PROSPECTUS INCORPORATES IMPORTANT BUSINESS AND FINANCIAL INFORMATION
ABOUT NEXTEL THAT IS NOT INCLUDED IN OR DELIVERED WITH THIS PROSPECTUS. YOU MAY
OBTAIN DOCUMENTS THAT ARE FILED BY NEXTEL WITH THE SECURITIES AND EXCHANGE
COMMISSION AND INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN WRITING OR BY
TELEPHONE FROM:
NEXTEL COMMUNICATIONS, INC.
2001 EDMUND HALLEY DRIVE
RESTON, VIRGINIA 20191
ATTENTION: INVESTOR RELATIONS
TELEPHONE: (703) 433-4000
SEE "XII. WHERE YOU CAN GET MORE INFORMATION."
"Nextel," "Nextel Direct Connect" and "Nextel Online" are trademarks or
service marks of Nextel. "Motorola," "i1000" and "i1000plus" are trademarks of
Motorola, Inc. "Microsoft" is a trademark of Microsoft Corporation.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C> <C>
I. Summary.............................................................. 4
A. Nextel.................................................... 4
B. Use of Proceeds........................................... 5
C. The Zero Coupon Convertible Preferred Stock............... 5
D. Summary Financial Information............................. 7
II. Risk Factors......................................................... 10
A. Risk Factors Relating to Nextel........................... 10
B. Risk Factors Relating to the Zero Coupon Convertible
Preferred Stock........................................... 19
C. Nextel's Forward Looking Statements Are Subject to a
Variety of Factors That Could Cause Actual Results to
Differ Materially from Current Beliefs.................... 23
III. Use of Proceeds...................................................... 24
IV. Selling Stockholders................................................. 24
V. Description of Zero Coupon Convertible Preferred Stock............... 27
A. General................................................... 27
B. Ranking................................................... 27
C. Dividends and Liquidation Preference...................... 28
D. Voting Rights............................................. 30
E. Merger, Consolidation and Sale of Assets.................. 31
F. Conversion................................................ 31
G. Optional Redemption by Nextel............................. 35
H. Mandatory Conversion...................................... 36
I. Mandatory Redemption...................................... 37
J. Payments in Common Stock.................................. 37
K. Change of Control......................................... 38
L. Conversion or Tender at the Option of the Holder.......... 42
M. Liquidation Rights........................................ 44
N. Reports................................................... 45
O. Transfer and Exchange..................................... 45
P. Amendment, Supplement and Waiver.......................... 45
Q. Reissuance................................................ 46
VI. Terms of Existing Nextel Preferred Stock............................. 47
A. General................................................... 47
B. Class A Preferred Stock................................... 47
C. Class B Preferred Stock................................... 48
D. Class C Preferred Stock................................... 48
E. Series D Preferred Stock.................................. 49
F. Series E Preferred Stock.................................. 49
VII. Dilution............................................................. 49
VIII. United States Federal Tax Consequences............................... 50
A. General................................................... 51
B. U.S. Holders.............................................. 53
C. Persons Who Do Not Qualify as U.S. Holders................ 55
D. Information Reporting and Backup Withholding.............. 57
IX. Plan of Distribution................................................. 58
X. Legal Matters........................................................ 59
XI. Experts.............................................................. 59
XII. Where You Can Get More Information................................... 59
A. Available Information..................................... 59
B. Incorporation of Documents by Reference................... 59
</TABLE>
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I. SUMMARY
This summary highlights basic information about Nextel and the securities
offered by the selling stockholders, but does not contain all information
important to you. You should read the more detailed information and consolidated
financial statements and the related notes appearing elsewhere in this
prospectus and incorporated by reference into this prospectus.
A. NEXTEL
Nextel provides a wide array of digital and analog wireless communications
services throughout the United States. Nextel offers a differentiated,
integrated package of digital wireless communications services under the Nextel
brand name, primarily to business users. Nextel's digital mobile network
constitutes one of the largest integrated wireless communications systems
utilizing a single transmission technology in the United States.
A customer using Nextel's digital mobile network is able to access:
- digital mobile telephone service;
- digital two-way radio dispatch, which provides instant conferencing
capabilities and is marketed as "Nextel Direct Connect" service;
- paging; and
- short-messaging service.
We refer to the handset device on which we deliver these services as a
subscriber unit.
As of March 31, 1999:
- Nextel provided service to about 3,152,900 digital subscriber units in
the United States;
- Nextel's digital mobile network or the compatible digital mobile network
of Nextel Partners, Inc. was operational in areas in and around 92 of the
top 100 metropolitan statistical areas in the United States; and
- Nextel operated analog wireless networks that provide analog specialized
mobile radio services throughout the continental United States to about
292,000 analog specialized mobile radio subscriber units.
Nextel announced its plans and anticipated schedule to offer its customers
access to new digital two-way mobile data and Internet connectivity services in
selected test markets in late 1999. A new handset developed and manufactured by
Motorola, the i1000plus, was introduced in June 1999 and is the first in a
product line that will incorporate wireless modem dial-up features, combined
with capability to support Internet access and other mobile data applications,
to be used in connection with the new "Nextel Online" service offering.
In addition to its domestic operations, Nextel has ownership interests in
international wireless companies through its subsidiary, Nextel International,
Inc. The subsidiaries of Nextel International, Inc., or other entities in which
Nextel International, Inc. holds equity or equivalent interests, own and operate
wireless communications systems in and around various major metropolitan market
areas in Latin America, Asia and Canada. Nextel International, Inc., together
with Nextel, provides service in ten of the world's 25 largest cities.
Nextel's principal executive and administrative facility is located at 2001
Edmund Halley Drive, Reston, Virginia, and its telephone number is (703)
433-4000.
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B. USE OF PROCEEDS
Nextel will not receive any cash proceeds from the sale of the securities
being offered by the selling stockholders.
C. THE ZERO COUPON CONVERTIBLE PREFERRED STOCK
SECURITIES OFFERED.............. 591,308 shares of zero coupon convertible
preferred stock due 2013. There will be no
dividends paid on the zero coupon
convertible preferred stock; instead, the
liquidation preference will accrete at an
annual rate of 9.25%, compounded quarterly.
See "V.C. Description of Zero Coupon
Convertible Preferred Stock -- Dividends and
Liquidation Preference."
RANKING......................... The zero coupon convertible preferred stock
ranks with respect to payment of dividends,
if any, and distributions upon the
liquidation, dissolution, or winding up of
Nextel:
- senior to all common stock and any other
capital stock of Nextel that states that
it will be junior to the zero coupon
convertible preferred stock;
- equally with each class of Nextel's
outstanding preferred stock, except for
specified dividend accruals on Nextel's
class A convertible redeemable preferred
stock and a $25.0 million cash payment on
Nextel's class B convertible preferred
stock, and any capital stock of Nextel
that states that it will rank equally
with the zero coupon convertible
preferred stock; and
- junior to the payments regarding the
class A convertible redeemable preferred
stock and class B convertible preferred
stock described above and any capital
stock of Nextel that states that it will
rank senior to the zero coupon
convertible preferred stock.
VOTING RIGHTS................... The holders of the zero coupon convertible
preferred stock will have no voting rights
except as required by law and as specified
in the certificate of designations relating
to the zero coupon convertible preferred
stock. The holders of zero coupon
convertible preferred stock will be entitled
to elect an aggregate of two additional
members to Nextel's board of directors if:
- Nextel fails to comply with its
obligations to holders of the zero coupon
convertible preferred stock in the event
of specified changes of control of Nextel
as described under "V.K. Description
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of Zero Coupon Convertible Preferred
Stock -- Change of Control" or
"V.L. -- Conversion or Tender at the
Option of the Holder," or
- a default in the payment of the
liquidation preference of the zero coupon
convertible preferred stock on December
23, 2013.
LIQUIDATION RIGHTS.............. Upon any liquidation, dissolution or winding
up of the affairs of Nextel, the holders of
the zero coupon convertible preferred stock
will have a liquidation preference,
described later in this prospectus, equal to
the liquidation preference on the date of
that event before any distribution is made
on any junior securities. See "V.M.
Description of Zero Coupon Convertible
Preferred Stock -- Liquidation Rights."
CONVERSION RIGHTS............... Unless previously redeemed or otherwise
acquired by Nextel, the zero coupon
convertible preferred stock is convertible,
at the option of the holder, at any time
prior to maturity into common stock at an
initial conversion rate of 9.7441 shares per
share of zero coupon convertible preferred
stock. The conversion rate is subject to
adjustment in specified events. Because the
number of shares of common stock issuable
upon conversion of each share of zero coupon
convertible preferred stock will not
increase even though the liquidation
preference increases over time, the implied
effective conversion price will increase
over time. See "V.F. Description of Zero
Coupon Convertible Preferred
Stock -- Conversion."
REDEMPTION...................... Nextel cannot redeem the zero coupon
convertible preferred stock prior to
December 23, 2005. Beginning on December 23,
2005, the zero coupon convertible preferred
stock is redeemable, subject to some
restrictions, at any time at the option of
Nextel, in whole or in part, at a redemption
price equal to the liquidation preference on
the redemption date. Nextel may elect,
subject to specified conditions, to pay any
redemption price in cash and/or common
stock. See "V.G. Description of Zero Coupon
Convertible Preferred Stock -- Optional
Redemption by Nextel."
CHANGE OF CONTROL............... Upon the occurrence of specified events
constituting a change of control, as defined
later in this prospectus, the zero coupon
convertible preferred stock may be
repurchased or converted at specified times.
See "V.K. Description of Zero Coupon
Convertible Preferred Stock -- Change of
Control."
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CONVERSION OR TENDER AT THE
OPTION OF THE HOLDER............ Nextel will purchase zero coupon convertible
preferred stock at the option of the
holder on December 23, 2005 and December
23, 2008 at tender prices equal to the
liquidation preference on the acquisition
date. Nextel may elect, subject to specified
conditions, to pay any tender price in cash
and/or common stock. See "V.L. Description
of Zero Coupon Convertible Preferred Stock
-- Conversion or Tender at the Option of
the Holder."
MANDATORY CONVERSION............ Zero coupon convertible preferred stock will
be convertible at the option of Nextel into
common stock at the conversion rate then in
effect if it is held by or on account of a
holder who does not qualify as a U.S.
holder, as described later in this
prospectus, on or after the later of January
1, 2001 and the date 90 days after Nextel
gives notice that it may have earnings and
profits for United States federal income tax
purposes. Certificates representing zero
coupon convertible preferred stock will bear
legends regarding this mandatory conversion.
In addition, this mandatory conversion will
preempt any conversion or tender rights that
the holder would otherwise have in respect
of its zero coupon convertible preferred
stock. See "V.H. Description of Zero Coupon
Convertible Preferred Stock -- Mandatory
Conversion."
D. SUMMARY FINANCIAL INFORMATION
The financial information below for the nine months ended December 31,
1994, which reflects the change in Nextel's fiscal year end from March 31 to
December 31, and the years ended December 31, 1995, 1996, 1997 and 1998 have
been derived from the audited consolidated financial statements of Nextel. The
financial information for the three months ended March 31, 1998 and 1999 is
derived from the unaudited financial statements of Nextel and reflects only
normal recurring adjustments necessary for the fair presentation of this
information. You should not expect the results of operations of interim periods
to be an indication of results for a full year. This information is only a
summary and should be read in conjunction with Nextel's historical financial
statements contained in reports filed with the Commission. See "XII. Where You
Can Get More Information."
As you read this summary financial information, you should note that during
1995 Nextel undertook a corporate reorganization that resulted in a one-time
charge to operations. In addition, Nextel's results were affected by business
combinations, acquisitions and investments made with both domestic and
international companies. In July 1995, Nextel completed the acquisition of
substantially all of Motorola's 800 MHz specialized mobile radio licenses in the
continental United States and mergers with OneComm Corporation and American
Mobile Systems, Incorporated. Additional information regarding acquisitions
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completed in 1996, 1997 and 1998 can be found in note 2 to the consolidated
financial statements in Nextel's Annual Report on Form 10-K for the year ended
December 31, 1998.
Other income (expense), net includes:
- $15.0 million write-down of the investment in Corporacion Mobilcom S.A.
de C.V., a subsidiary of Nextel, as a result of the devaluation of the
Mexican peso in 1995;
- equity in the losses of some foreign investments accounted for under the
equity method in 1996. Additional information can be found in note 2 to
the financial statements in Nextel's Annual Report on Form 10-K for the
year ended December 31, 1998;
- losses on interest rate protection activities of $46.9 million in 1998;
and
- foreign currency transaction losses primarily resulting from the
devaluation of the Brazilian real in 1999.
As a result of the change in useful lives of some intangible assets and
recent operating results, Nextel increased its valuation allowance for deferred
tax assets resulting in a tax provision of about $258.7 million in 1997.
Additional information can be found in note 10 to the consolidated financial
statements in Nextel's Annual Report on Form 10-K for the year ended December
31, 1998.
For the purpose of computing the ratio of earnings to fixed charges and
preferred stock dividends, earnings consist of loss before income taxes less
income (loss) from equity method investments and loss (income) attributable to
minority interests. Fixed charges consist of:
- interest on all indebtedness and amortization of deferred financing costs
and amortization of original issue discount;
- that portion of rental expense which Nextel believes to be representative
of interest; and
- preferred stock dividends.
The deficiency of earnings to cover fixed charges and preferred stock
dividends for the nine months ended December 31, 1994 was $218.5 million, for
the year ended December 31, 1995 was $562.8 million, for the year ended December
31, 1996 was $884.9 million, for the year ended December 31, 1997 was $1,377.6
million, for the year ended December 31, 1998 was $1,905.0 million, for the
three months ended March 31, 1998 was $458.8 million and for the three months
ended March 31, 1999 was $509.3 million.
About $109.0 million of cash and cash equivalents held by Nextel
International and its subsidiaries as of March 31, 1999 included below are not
available to fund any of the cash needs of Nextel's domestic digital mobile and
analog specialized mobile radio businesses.
You should review notes 12 and 13 to the consolidated financial statements
in Nextel's Annual Report on Form 10-K for the year ended December 31, 1998 for
a detailed discussion of Nextel's capital stock.
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<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS ENDED
ENDED YEAR ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, ----------------------------------------------------- -------------------------
1994 1995 1996 1997 1998 1998 1999
------------ ----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
RESULT OF OPERATIONS:
Operating revenues..... $ 74,857 $ 171,703 $ 332,938 $ 738,897 $ 1,846,758 $ 327,134 $ 663,805
Cost of revenues....... 51,406 151,718 247,717 288,752 516,393 102,428 162,320
Selling, general and
administrative....... 85,077 193,321 330,256 861,588 1,550,323 329,739 465,665
Expenses related to
corporate
reorganization....... -- 17,372 -- -- -- -- --
Depreciation and
amortization......... 94,147 236,178 400,831 526,377 832,299 184,495 228,440
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating loss......... (155,773) (426,886) (645,866) (937,820) (1,052,257) (289,528) (192,620)
Interest (expense),
net.................. (41,454) (89,509) (206,480) (378,032) (622,056) (131,027) (194,632)
Other, net............. 33 (15,372) (10,866) 6,511 (36,462) 53 (62,027)
Income tax benefit
(provision).......... 71,345 200,602 307,192 (258,726) 191,912 33,640 9,839
----------- ----------- ----------- ----------- ----------- ----------- -----------
Loss before
extraordinary item... (125,849) (331,165) (556,020) (1,568,067) (1,518,863) (386,862) (439,440)
Extraordinary item --
loss on early
retirement of debt... -- -- -- (45,787) (133,225) -- --
Mandatorily redeemable
preferred stock
dividends............ -- -- -- (29,119) (149,161) (28,088) (46,034)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Loss attributable to
common
stockholders......... $ (125,849) $ (331,165) $ (556,020) $(1,642,973) $(1,801,249) $ (414,950) $ (485,474)
=========== =========== =========== =========== =========== =========== ===========
Loss per share
attributable to
common stockholders,
basic and diluted:
Loss before
extraordinary item
attributable to
common
stockholders......... $ (1.25) $ (2.31) $ (2.50) $ (6.41) $ (5.98) $ (1.53) $ (1.66)
Extraordinary item..... -- -- -- (0.18) (0.48) -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
$ (1.25) $ (2.31) $ (2.50) $ (6.59) $ (6.46) $ (1.53) $ (1.66)
=========== =========== =========== =========== =========== =========== ===========
Weighted average number
of common shares
outstanding.......... 100,639,000 143,283,000 222,779,000 249,320,000 278,643,000 270,385,000 291,625,000
=========== =========== =========== =========== =========== =========== ===========
OTHER FINANCIAL DATA:
Ratio of earnings to
fixed charges and
preferred stock
dividends (see
discussion above).... -- -- -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
1999
--------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 245,758
Current assets.............................................. 888,576
Intangible assets, net...................................... 4,671,545
Total assets................................................ 11,421,586
Long-term debt (excluding current portion of $6.7
million).................................................. 8,005,738
Mandatorily redeemable preferred stock...................... 1,624,287
Stockholders' deficit....................................... (343,574)
</TABLE>
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II. RISK FACTORS
You should carefully consider the following risk factors and all other
information contained in this prospectus or incorporated by reference into this
prospectus before deciding to invest in the securities offered by this
prospectus.
A. RISK FACTORS RELATING TO NEXTEL
1. NEXTEL HAS A HISTORY OF NET LOSSES AND NEGATIVE CASH FLOW AND MAY NEVER
BE ABLE TO SATISFY ITS CASH NEEDS FROM OPERATIONS.
Nextel has never been profitable and has experienced negative cash flow
since its start in 1987. If this continues indefinitely, the value of the zero
coupon convertible preferred stock and common stock may be adversely affected.
Nextel had net losses attributable to common stockholders of about $1.8 billion
during 1998 and about $485.5 million for the three months ended March 31, 1999.
Nextel's accumulated deficit was about $4.8 billion at March 31, 1999. Nextel
expects that losses will continue over the next several years. Nextel cannot
know when, if ever, net cash generated by its internal business operations will
support its growth and continued operations.
2. IF NEXTEL DOES NOT OBTAIN SUFFICIENT ADDITIONAL FINANCING COMMITMENTS TO
MEET ITS LONG-TERM NEEDS, YOUR INVESTMENT MAY BE ADVERSELY AFFECTED.
a. REASONS NEXTEL WILL NEED CASH.
Nextel anticipates that it will need substantial amounts of cash for:
- capital expenditures to build and enhance its digital mobile network;
- operating expenses relating to its digital mobile network and analog
specialized mobile radio business;
- potential acquisitions, including acquisition of rights to radio
spectrum, which Nextel requires to conduct its wireless communications
business;
- debt service requirements; and
- other general corporate purposes.
If Nextel can't fund these needs, its growth plans and operations, and the
value of the zero coupon convertible preferred stock and common stock, may be
adversely affected. Nextel expects its cash needs will exceed its cash flows
from operating activities through 1999. In addition, Nextel may need to revise
its business plan to respond to competitive and other factors, so its need for
cash may increase.
b. NEXTEL'S CURRENT CREDIT FACILITIES ARE LIMITED AND CONTAIN
RESTRICTIONS ON ADDITIONAL FINANCINGS THAT MAY RESTRICT GROWTH AND
ADVERSELY AFFECT OPERATIONS.
Nextel's long-term cash needs are much greater than its availability under
its existing financing agreements. As a result, Nextel will have to raise
substantial amounts of additional funds, in the form of equity or debt, in the
future to support its growth and operations. If it is unable to do so, Nextel
may not be able to expand the coverage and capacity of its network to meet the
demands of Nextel's plans for sustained growth. Nextel's inability to achieve
contemplated levels of growth would adversely affect its financial results and
may adversely affect the value of the zero coupon convertible preferred stock
and the common stock. Under its bank credit agreement as in effect on March 31,
1999, Nextel may borrow
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up to $3.295 billion in secured financing from its bank lenders provided that
Nextel satisfies financial and other conditions. As of May 31, 1999, about $1.8
billion of this secured financing had been drawn. The availability of this
financing is also subject to Nextel satisfying covenants under indentures
relating to Nextel's public notes. Nextel's access to additional funds may be
limited by the terms of its existing financing agreements, including:
- covenants that restrict the amount of additional borrowings, including
additional borrowings under existing financing arrangements;
- covenants that restrict Nextel's grant of liens on assets that affect
Nextel's ability to obtain new secured financing; and
- existing debt service requirements.
c. FUNDING REQUIREMENTS FOR INTERNATIONAL OPERATIONS AND GROWTH MAY CAUSE
EVEN GREATER CASH NEEDS, WHICH MAY RESULT IN LESS FUNDING AVAILABLE
FOR NEXTEL'S DOMESTIC GROWTH AND OPERATIONS.
Based on Nextel International, Inc.'s assessment of the business activity
and related cash needs of its operating subsidiaries that are controlled by or
that rely substantially on Nextel International, Inc. for further funding,
Nextel International, Inc. believes that it will have adequate funding to
continue its operations only through the end of 1999. If sufficient additional
financing does not become available at times or in amounts required to meet
Nextel International, Inc.'s needs that are not met by its existing funding
sources, Nextel may fund some or all of Nextel International, Inc.'s cash needs.
This would increase Nextel's own cash needs, which could result in a lesser the
amount of cash available to Nextel for domestic use.
d. OTHER FACTORS MAY ADVERSELY AFFECT NEXTEL'S ACCESS TO ADDITIONAL
FINANCING AND NEXTEL MAY HAVE TO CURTAIL ITS BUSINESS IF IT CANNOT
ACCESS ADDITIONAL FUNDING.
Nextel's access to additional funds also may be limited by:
- general market conditions that adversely affect the availability or cost
of financings;
- market conditions affecting the telecommunications industry in general;
and
- specific factors affecting Nextel's attractiveness as a borrower or
investment vehicle, including:
1. the terms of Nextel's arrangements with Motorola that relate to
Motorola's ownership interest in Nextel, and the terms of options and
warrants issued to others, that may make equity financings more
difficult;
2. the ability to relocate current spectrum licensees from some
frequencies in order to remove them from spectrum as to which Nextel
was the highest bidder at an auction;
3. the potential commercial opportunities and risks associated with
implementation of Nextel's business plan;
4. the market's perception of Nextel's performance and assets; and
5. the actual amount of cash needed by Nextel to pursue its business
strategy.
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e. FUNDING FOR NEXTEL'S CAPITAL NEEDS IS NOT ASSURED AND NEXTEL MAY HAVE
TO CURTAIL ITS BUSINESS IF IT CANNOT FIND ADEQUATE FUNDING.
Currently, other than under its existing bank facility, Nextel has no
legally binding commitments or understandings with any third parties to obtain
any material amount of additional equity or debt financing. Nextel cannot assure
you that it will be able to obtain any additional financing in the amounts or at
the times that it may require the financing, or if Nextel does obtain any
financing, that it would be on acceptable terms. As a result, Nextel cannot
assure you that it will have adequate capital to implement the contemplated
expansion and enhancement of its digital mobile network or to maintain its
current levels of operation. Nextel's failure to obtain sufficient additional
financing could result in the delay or abandonment of some or all of its
development, expansion and acquisition plans and expenditures, which could have
an adverse effect on Nextel and on the value of the zero coupon convertible
preferred stock and the common stock.
3. NEXTEL'S FUTURE PERFORMANCE, AND THE VALUE OF YOUR INVESTMENT, WILL
DEPEND ON ITS ABILITY TO SUCCEED IN THE HIGHLY COMPETITIVE WIRELESS
COMMUNICATIONS TRANSMISSION INDUSTRY.
Nextel's ability to compete effectively with established and prospective
wireless communications service providers depends on many factors, including:
- -IF NEXTEL'S WIRELESS COMMUNICATIONS TECHNOLOGY DOES NOT PERFORM IN A MANNER
THAT MEETS CUSTOMER EXPECTATIONS, NEXTEL WILL BE UNABLE TO ATTRACT AND RETAIN
CUSTOMERS, WHICH WOULD ADVERSELY AFFECT YOUR INVESTMENT. Customer acceptance of
the services Nextel offers is and will continue to be affected by
technology-based differences and by the operational performance and reliability
of system transmissions on Nextel's digital mobile network. If Nextel is unable
to address and resolve satisfactorily performance or other transmission quality
issues as they arise, or if these issues limit Nextel's ability to expand its
network coverage as currently planned, or if these issues were to place Nextel
at a competitive disadvantage to other wireless service providers in its
markets, Nextel may have difficulty attracting and retaining customers, which
would adversely affect the value of the zero coupon convertible preferred stock
and the common stock.
- -IF NEXTEL CANNOT EXPAND, PROVIDE AND MAINTAIN ITS SYSTEM COVERAGE, THEN ITS
GROWTH AND OPERATIONS, AND THE VALUE OF YOUR INVESTMENT, WOULD BE ADVERSELY
AFFECTED. Nextel will not be able to provide roaming system coverage comparable
to that currently available through roaming arrangements from cellular and some
personal communication services operators, unless and until a nationwide
digital mobile network build-out is substantially completed. This places Nextel
at a competitive disadvantage, as some other providers currently have roaming
agreements that provide coverage of each other's markets throughout the United
States. In addition, some of our competitors provide their customers with
subscriber units with both digital and analog capability, which expands their
coverage while Nextel has only digital capability. Nextel cannot assure you
that it will be able to achieve sufficient system coverage or that a sufficient
number of customers or potential customers will be willing to accept system
coverage limitations as a trade-off for the enhanced multi-function wireless
communications package Nextel provides on its nationwide digital mobile
network.
- -NEXTEL DOES NOT HAVE THE EXTENSIVE DIRECT AND INDIRECT CHANNELS OF DISTRIBUTION
FOR ITS DIGITAL MOBILE NETWORK PRODUCTS AND SERVICES THAT SOME OF ITS
COMPETITORS HAVE, WHICH MAY ADVERSELY AFFECT NEXTEL'S OPERATING RESULTS AND
COULD ADVERSELY AFFECT THE VALUE OF
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YOUR INVESTMENT. Many of Nextel's competitors have established extensive
networks of retail locations and multiple distribution channels, and so enjoy a
competitive advantage over Nextel in these areas. Nextel has increased the
proportion of its digital mobile network customers that it obtains through its
indirect distributor network, and Nextel currently anticipates that it will
rely more heavily on indirect distribution channels to achieve greater market
penetration for its digital wireless service offerings. However, as Nextel
expands its retail subscriber base through increased reliance on indirect
distribution channels, and as price competition in the wireless industry
intensifies, Nextel's average revenue per subscriber unit may decrease and its
churn rate of subscribers may increase.
- -NEXTEL'S INABILITY TO MAINTAIN PRICING PACKAGES ATTRACTIVE TO CUSTOMERS MAY
ADVERSELY AFFECT OPERATING RESULTS, WHICH COULD ADVERSELY AFFECT THE VALUE OF
YOUR INVESTMENT. Nextel faces price competition.
a.SOME OF NEXTEL'S COMPETITORS ARE FINANCIALLY STRONGER THAN NEXTEL,
WHICH ALLOWS THEM TO PRICE THEIR SERVICE PACKAGES AT LEVELS BELOW THOSE
THAT NEXTEL CAN OR IS WILLING TO MATCH.
Nextel's ability to compete based on the price of its digital mobile
network subscriber units and service offerings will be limited. This could
adversely affect Nextel's growth and the value of the zero coupon convertible
preferred stock and common stock.
b.NEXTEL'S EQUIPMENT IS MORE EXPENSIVE THAN SOME COMPETITORS', WHICH MAY
ADVERSELY AFFECT GROWTH AND OPERATING RESULTS.
Nextel currently markets multi-function subscriber handsets, providing
mobile telephone and private and group dispatch service, in addition to paging
and alphanumeric short-text messaging. Nextel's handsets are, and are likely to
remain, significantly more expensive than analog handsets and are, and are
likely to remain, somewhat more expensive than digital cellular or personal
communication services handsets that do not incorporate a comparable
multi-function capability. Although Nextel believes that its multi-function
subscriber handsets currently are competitively priced compared to
multi-function digital cellular and personal communication services handsets,
the higher cost of Nextel's equipment may make it more difficult or less
profitable to attract customers who do not place a high value on Nextel's unique
multi-service offering. This may reduce Nextel's growth opportunities or
profitability and may adversely affect the value of the zero coupon convertible
preferred stock and common stock.
c.NEXTEL MAY FACE CONTINUING PRESSURE TO REDUCE PRICES, WHICH WOULD
ADVERSELY AFFECT OPERATING RESULTS AND THE VALUE OF YOUR INVESTMENT.
Over the past several years as the number of wireless communications
providers in Nextel's market areas has increased, its competitors' prices in
these markets have generally decreased. Nextel may encounter further market
pressures:
- to reduce its digital mobile network service offering prices;
- to restructure its digital mobile network service offering packages to
offer more value;
- to respond to particular short term, market specific situations, for
example, special introductory pricing or packages that may be offered by
new providers launching their service in a particular market; or
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- to remain competitive in the event that wireless service providers
generally continue to reduce the prices charged to their customers.
- -NEXTEL'S EFFORTS TO KEEP PACE WITH TECHNOLOGICAL CHANGE MAY BE UNSUCCESSFUL OR
MAY ADVERSELY AFFECT OPERATING RESULTS, WHICH WOULD ADVERSELY AFFECT THE VALUE
OF YOUR INVESTMENT. Nextel's digital technology could become obsolete. Nextel
relies on digital technology that is not compatible with, and competes with,
other forms of digital and non-digital voice communication technology.
Competition among these differing technologies can:
- segment the user markets, which could reduce demand for specific
technologies, including Nextel's;
- reduce the resources devoted by third party suppliers, including
Motorola, which supplies all of Nextel's current digital technology,
in developing or improving the technology for Nextel's systems; and
- adversely affect market acceptance of Nextel's services.
Nextel cannot assure you that its digital voice technology will
successfully compete with the other forms of digital and non-digital voice
communication systems. Further, new digital or non-digital voice communication
transmission technology may develop that will cause Nextel's existing systems
technology to be obsolete or otherwise impair market acceptance of its
technology.
- -NEXTEL'S GROWTH MAY EXCEED THE CAPABILITIES OF ITS SYSTEMS, HURTING ITS
PERFORMANCE, AND THE VALUE OF YOUR INVESTMENT.
a.NEXTEL FACES LIMITATIONS ON ITS ABILITY TO INCREASE SUBSCRIBERS, WHICH
CAN LIMIT ITS GROWTH AND PERFORMANCE.
Nextel's ability to continue to increase the number of subscribers on its
digital mobile network depends on a variety of factors, including:
- the ability to successfully plan for additional system capacity at levels
needed to meet anticipated new subscribers and the related increases in
system usage;
- the ability to obtain additional radio spectrum when and where required;
and
- the availability of a sufficient quantity of cell sites, system
infrastructure equipment and subscriber units, of the appropriate models
and types, to meet the demands and preferences of potential subscribers
to the digital mobile network.
b.NEXTEL MAY FACE LIMITATIONS ON AVAILABILITY OF CELL SITES AND
EQUIPMENT, WHICH MAY ADVERSELY AFFECT ITS GROWTH AND PERFORMANCE.
Although Nextel believes it has secured sufficient cell sites at
appropriate locations in its markets to meet planned system coverage and
capacity targets, Nextel cannot assure you that it will meet those needs in the
future. Nextel generally has been able to obtain adequate quantities of base
radios and other system infrastructure equipment from Motorola and other
suppliers, and adequate volumes and mix of subscriber units and related
accessories from Motorola, to meet subscriber and system loading rates, but
Nextel cannot assure you that quantities will be sufficient in the future.
Additionally, Nextel has contractual arrangements with Nextel International,
Inc. and Nextel Partners, Inc. that contemplate that, in the event of
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shortages of that equipment, available supplies would be allocated
proportionately among Nextel and those entities.
c. NEXTEL HAS POTENTIAL SYSTEMS LIMITATIONS ON ADDING CUSTOMERS, WHICH
MAY ADVERSELY AFFECT ITS GROWTH AND PERFORMANCE.
Other factors affecting Nextel's ability to successfully add customers to
its digital mobile network include:
- the adequacy and efficiency of Nextel's information systems, business
processes and related support functions;
- the length of time between customer order to activation of service on the
digital mobile network, which currently is much longer than that of some
of its competitors; and
- Nextel's ability to improve the efficiency and speed of the processes for
Nextel's customer service and accounts receivable collection functions.
Customer reliance on Nextel's customer service functions may increase as
Nextel adds digital mobile network customers through indirect distribution
channels and through direct sales channels not involving direct face-to-face
contact with a sales representative, for example, phone order sales or sales
through web sites. Nextel's inability to timely and efficiently meet the demands
for its services could decrease or postpone subscriber growth, or delay or
otherwise impede billing and collection of amounts owed, which would adversely
affect Nextel.
- -IF COMPETITORS PROVIDE TWO-WAY RADIO DISPATCH SERVICES, NEXTEL WILL LOSE A
COMPETITIVE ADVANTAGE. Nextel's two-way radio dispatch services are currently
not available through traditional cellular or personal communication services
providers; however, if either personal communication services or cellular
operators provide two-way radio dispatch services in the future, Nextel's
competitive advantage may be impaired.
Nextel cannot predict the competitive effect that any of these factors, or
any combination of these factors, will have on it or whether it will compete
successfully in the future.
4. REGULATORY AND OTHER FACTORS COULD DELAY OR PREVENT NEXTEL FROM OFFERING
SERVICES IN NEW MARKET AREAS, WHICH MAY ADVERSELY AFFECT NEXTEL'S GROWTH
AND THE VALUE OF YOUR INVESTMENT.
Before fully implementing Nextel's digital mobile network in a new market
area, Nextel must complete systems design work, find appropriate sites and
construct necessary transmission structures, receive regulatory approvals, free
up frequency channels now devoted to non-digital transmissions and begin systems
optimization. These processes take weeks or months to complete, and may be
hindered or delayed by many factors, including unavailability of antenna sites
at optimal locations, land use and zoning controversies and limitations of
available frequencies. Nextel cannot know when, if ever, its digital technology
will be available for commercial use in new markets.
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5. NEXTEL RELIES ON MOTOROLA FOR SUBSTANTIALLY ALL OF ITS EQUIPMENT AND
TECHNOLOGY AND ANY FAILURE OF MOTOROLA TO PERFORM WOULD ADVERSELY AFFECT
NEXTEL'S OPERATING RESULTS AND THE VALUE OF YOUR INVESTMENT.
There is a risk that the failure by Motorola to deliver necessary
technology improvements and enhancements and system infrastructure and
subscriber equipment on a timely, cost-effective basis would have an adverse
effect on Nextel's growth and operations and would adversely affect your
investment. Motorola is currently Nextel's sole source for the infrastructure
and subscriber handset equipment used by Nextel throughout its markets. Nextel
expects to rely on Motorola for the manufacture of a substantial portion of the
equipment necessary to construct its digital mobile network and handset
equipment for the next several years. If Motorola does not provide the necessary
equipment to Nextel, then Nextel may not be able to service its existing
subscribers nor add new subscribers. Nextel expects that for the next few years,
Motorola and competing manufacturers who are licensed by Motorola will be the
only manufacturers of subscriber equipment that is compatible with Nextel's
digital mobile network.
6. AGREEMENTS WITH MOTOROLA REDUCE NEXTEL'S OPERATIONAL FLEXIBILITY AND MAY
ADVERSELY AFFECT ITS GROWTH, OR OPERATING RESULTS, WHICH WOULD ADVERSELY
AFFECT THE VALUE OF YOUR INVESTMENT.
Nextel's agreements with Motorola impose limitations and conditions on
Nextel's ability to use other technologies. These terms may operate to delay or
prevent Nextel from employing new or different technologies that perform better
or are available at a lower cost because of the additional economic costs and
other impediments to change arising under the Motorola agreements. For example,
the equipment purchase agreement provides that Nextel must provide Motorola with
notice of its determination that their technology is no longer suited to our
needs at least six months before publicly announcing or entering into a contract
to purchase an alternate technology.
In addition, if Motorola manufactures, or elects to manufacture, the
alternate technology that Nextel elects to deploy, Nextel must give Motorola the
opportunity to supply 50% of its infrastructure requirements for the alternate
technology for three years. Finally, if after a switch to an alternate
technology Nextel does not maintain operational Motorola infrastructure
equipment at the majority of its cell sites that are deployed at the date the
switch to an alternate technology is first publicly announced, Motorola may
require that all financing provided by Motorola to Nextel and its subsidiaries
be repaid.
7. NEXTEL'S INTERESTS MAY CONFLICT WITH THOSE OF MOTOROLA. ANY CONFLICT
COULD ADVERSELY AFFECT NEXTEL'S GROWTH, OPERATING RESULTS OR STRATEGIC
FLEXIBILITY AND THE VALUE OF YOUR INVESTMENT.
Motorola and its affiliates engage in wireless communications businesses,
and may in the future engage in additional businesses, which do or may compete
with some or all of the services Nextel offers through its digital mobile
network. Although Nextel believes that its relationship with Motorola reflects
the realities of purchasing from a competitor, Nextel cannot assure you that the
potential conflict of interest will not adversely affect Nextel in the future.
In addition, Motorola is a significant stockholder of Nextel, which creates
potential conflicts of interest, particularly with regard to significant
transactions.
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8. YOUR INVESTMENT IN NEXTEL, WHICH OPERATES IN A REGULATED INDUSTRY, MAY BE
ADVERSELY AFFECTED BY GOVERNMENTAL REGULATION.
The Federal Communications Commission regulates the licensing, operation,
acquisition and sale of Nextel's specialized mobile radio businesses. Future
changes in regulation or legislation and Congress' and the Federal
Communications Commission's continued allocation of additional commercial mobile
radio services spectrum could impose significant additional costs on Nextel
either in the form of direct out of pocket costs or additional compliance
obligations. These regulations can also have the effect of introducing
additional competitive entrants to the already crowded wireless communications
marketplace.
Government regulations also affect Nextel International, Inc.'s operations.
Additional information regarding government regulation can be found in Nextel's
Annual Report on Form 10-K for the year ended December 31, 1998.
9. NEXTEL PRIMARILY HAS INTANGIBLE ASSETS, WHICH MAY NOT BE ADEQUATE TO
SATISFY ITS OBLIGATIONS IN THE EVENT OF A LIQUIDATION.
If Nextel defaults on debt or if Nextel were liquidated, Nextel cannot
assure you that the value of its assets will be sufficient to satisfy its
obligations. Nextel has a significant amount of intangible assets, such as
licenses granted by the Federal Communications Commission. The value of these
licenses will depend significantly upon the success of Nextel's digital mobile
network business and the growth of the specialized mobile radio and wireless
communications industries in general. Nextel had a net tangible book value
deficit of about $5.3 billion as of March 31, 1999.
10. NEXTEL IS SUSCEPTIBLE TO CONTROL BY SIGNIFICANT STOCKHOLDERS, WHO HAVE
RIGHTS THAT MAY ADVERSELY AFFECT THE MARKET PRICE OF NEXTEL'S STOCK.
Significant blocks of Nextel's outstanding stock are held by Motorola and
entities controlled by Mr. Craig O. McCaw. In addition, an affiliate of Mr.
McCaw may designate at least one fourth of the board of directors of Nextel and
may select, from their representatives on the board of directors, a majority of
the operations committee of Nextel's board of directors, which has significant
authority relating to Nextel's business strategy, budgets, financing
arrangements and in the nomination and oversight of specified executive
officers. As a result, Mr. McCaw may exert significant influence over Nextel's
affairs. Under its agreements with Nextel, Motorola may nominate two directors
to the board of directors of Nextel. In addition, Motorola has agreed to support
the decisions and recommendations of the operations committee and to vote its
shares of common stock accordingly, subject to specified limitations.
If Mr. McCaw and Motorola choose to act together, they could have a
sufficient voting interest in Nextel to, among other things:
- exert effective control over the approval of amendments to Nextel's
certificate of incorporation, mergers, sales of assets or other major
corporate transactions as well as other matters submitted for stockholder
vote;
- defeat a takeover attempt; and
- otherwise control whether particular matters are submitted for a vote of
the stockholders of Nextel.
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Mr. McCaw and his affiliates have and, subject to the terms of applicable
agreements, may have an investment or interest in entities that provide wireless
telecommunications services that could potentially compete with Nextel. Under
the relevant agreements, Mr. McCaw and his controlled affiliates may not, for a
period of time, participate in other two-way terrestrial-based mobile wireless
communications systems in the region that includes any part of North America or
South America unless these opportunities have first been presented to and waived
or rejected by Nextel.
11. NEXTEL'S COMMITMENTS TO ISSUE ADDITIONAL COMMON STOCK MAY ADVERSELY
AFFECT THE MARKET PRICE OF ITS COMMON STOCK OR MAY IMPAIR NEXTEL'S
ABILITY TO RAISE CAPITAL.
Nextel currently has outstanding commitments in various forms, including
warrants, options and convertible securities, to issue a substantial number of
new shares of its common stock. The shares subject to these issuance
commitments, to some degree, will be issued in registered transactions and thus
will be freely tradeable. In many other instances, these shares will be subject
to grants of registration rights that, if and when exercised, would result in
those shares becoming freely tradeable. Nextel has also granted registration
rights with respect to a significant number of its outstanding shares, including
shares of common stock issuable upon conversion of securities issued in some
transactions. The exercise of registration rights by persons holding those
shares would permit those persons to sell those shares without regard to the
limitations of Rule 144 under the Securities Act of 1933. An increase in the
number of shares of Nextel's common stock that will become available for sale in
the public market may adversely affect the market price of the common stock and,
as a result, could impair Nextel's ability to raise additional capital through
the sale of its equity securities.
12. CONCERNS ABOUT HEALTH RISKS RELATING TO THE USE OF PORTABLE HANDSETS MAY
AFFECT NEXTEL'S PROSPECTS AND THE VALUE OF YOUR INVESTMENT.
Portable communications devices have been alleged to pose health risks due
to radio frequency emissions from these devices. Studies performed by wireless
telephone equipment manufacturers have investigated these allegations, and a
major industry trade association and governmental agencies have stated publicly
that the use of these phones poses no undue health risk. The actual or perceived
risk of portable communications devices could adversely affect Nextel through a
reduced subscriber growth rate, a reduction in subscribers, reduced network
usage per subscriber or through reduced financing available to the mobile
communications industry.
13. IF NEXTEL'S OPERATIONS ARE DISRUPTED DUE TO YEAR 2000 READINESS ISSUES,
THERE WOULD BE AN ADVERSE EFFECT ON ITS GROWTH AND OPERATING RESULTS,
AND ON THE VALUE OF YOUR INVESTMENT.
Nextel may be subject to risks associated with Year 2000 readiness,
including those associated with third parties. Nextel has not yet developed
contingency plans for resolving issues that may be identified and for which
remediation is not possible on a timely or cost-effective basis. If any of these
third parties, or Nextel, is unable to resolve material Year 2000 readiness
issues on a timely or cost-effective basis, there would be an adverse effect on
Nextel, and on the value of your investment.
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14. RISKS RELATING TO NEXTEL'S JOINT INVESTMENTS MAY ADVERSELY AFFECT
NEXTEL'S GROWTH AND OPERATING RESULTS AND THE VALUE OF YOUR INVESTMENT.
Nextel recently has entered into a contractual joint venture and may enter
into other joint ventures or similar arrangements in the future. Outside the
United States, several of Nextel's international operations are conducted
through entities having one or more third-party owners, and some of these
entities are not controlled by Nextel. There are risks in participating in
arrangements of these types, including the risk that the other participants may
at any time have economic, business or legal interests or goals that are
inconsistent with those of the joint enterprise or Nextel. There also is the
risk that a participant may be unable to meet its economic or other obligations
to the joint enterprise and that Nextel may be required to fulfill some or all
of those obligations. Nextel also may be or become obligated to acquire all or a
portion of the ownership interest of some or all of the other participants in
these joint enterprises. In addition, to the extent that Nextel participates in
international arrangements of these types, the operations of the relevant entity
will be subject to various additional risks not present in domestic joint
enterprises.
15. RISKS RELATING TO NEXTEL'S FOREIGN OPERATIONS MAY ADVERSELY AFFECT
NEXTEL'S GROWTH AND OPERATING RESULTS AND THE VALUE OF YOUR INVESTMENT.
Nextel owns interests in and operates international wireless companies
through Nextel International. The risks that relate to these foreign operations
include:
- political, economic and social conditions in the foreign countries where
Nextel conducts operations;
- currency risks and exchange controls;
- potential inflation in the applicable foreign economies;
- the impact of import duties on the cost or prices of infrastructure
equipment and subscriber handsets;
- foreign taxation of earnings and payments received by Nextel
International, Inc. from its operating subsidiaries;
- regulatory changes affecting the telecommunications industry and wireless
communications; and
- operations being disrupted due to Year 2000 readiness issues affecting
Nextel International, Inc.
Nextel cannot assure you that the risks associated with its foreign
operations will not adversely affect its or Nextel International, Inc.'s
operating results or prospects, particularly as these operations expand in
scope, scale and significance.
B. RISK FACTORS RELATING TO THE ZERO COUPON CONVERTIBLE PREFERRED STOCK
1. THE ZERO COUPON CONVERTIBLE PREFERRED STOCK IS JUNIOR IN RIGHT OF PAYMENT
TO OTHER OBLIGATIONS OF NEXTEL.
All existing and future liabilities of Nextel and its subsidiaries will be
senior to the zero coupon convertible preferred stock. As of March 31, 1999,
Nextel and its subsidiaries had outstanding indebtedness and other trade
payables and other accrued liabilities of about $9.3 billion. The certificate of
designations relating to the zero coupon convertible preferred
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stock does not limit Nextel's and its subsidiaries' incurrence of additional
debt and other liabilities. With respect to distributions on liquidation,
winding-up and dissolution, the zero coupon convertible preferred stock will
also be junior to some special payments of specified dividend accruals on
Nextel's class A convertible redeemable preferred stock and a $25.0 million cash
payment on Nextel's class B convertible preferred stock. If Nextel undergoes
bankruptcy, liquidation or reorganization, the assets of Nextel will be
available to pay obligations on the zero coupon convertible preferred stock only
after all then outstanding indebtedness and other liabilities and those special
payments of Nextel have been paid in full. There may not be sufficient assets
remaining to pay amounts payable on any or all of the zero coupon convertible
preferred stock then outstanding.
2. NEXTEL MAY BE UNABLE TO REDEEM OR OTHERWISE ACQUIRE FOR CASH THE ZERO
COUPON CONVERTIBLE PREFERRED STOCK, WHICH COULD ADVERSELY AFFECT THE
VALUE OF YOUR INVESTMENT.
The liquidity and price of the zero coupon convertible preferred stock
could be adversely affected if Nextel's ability to acquire any or all of the
zero coupon convertible preferred stock for cash is restricted, prevented or
prohibited for any reason, including by Delaware or other applicable law or by
the terms of any existing or future agreements or instruments relating to debt
of Nextel or any of its subsidiaries. Delaware law may, among other things,
prevent a redemption or other acquisition of the zero coupon convertible
preferred stock by Nextel for cash if it would impair Nextel's capital. Also,
Nextel's ability to pay cash in connection with any redemption or acquisition is
subject to and restricted by applicable fraudulent transfer and fraudulent
conveyance laws.
Additionally, the agreements relating to any existing or future debt of
Nextel or its subsidiaries, particularly in light of Nextel's current and
expected future leverage, could prevent or prohibit Nextel from making an
acquisition of any or all of the zero coupon convertible preferred stock for
cash.
3. NEXTEL'S HIGH LEVEL OF INDEBTEDNESS COULD ADVERSELY AFFECT ITS ABILITY TO
MEET ITS OBLIGATIONS, INCLUDING THE REDEMPTION OR REPURCHASE OF THE ZERO
COUPON CONVERTIBLE PREFERRED STOCK FOR CASH.
Nextel has substantial long term debt and mandatorily redeemable preferred
stock outstanding. Liabilities will increase due to the accretion of the
original issue discount on some of Nextel's public notes as well as the zero
coupon convertible preferred stock. The terms of Nextel's and its subsidiaries
notes, indentures, credit agreements, and preferred stock limit, but do not
prohibit, the incurrence of additional indebtedness by Nextel and/or specified
subsidiaries. Nextel anticipates that it will incur substantial additional
indebtedness in the future. Nextel's high level of indebtedness could limit
Nextel's ability to:
- obtain additional financing for acquisitions, working capital, capital
expenditures or other purposes and
- use operating cash flow for purposes other than debt service,
which would adversely impact our ability to sufficiently fund our operations and
the value of your investment.
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4. IF NEXTEL IS UNABLE TO REFINANCE ITS EXISTING INDEBTEDNESS, THERE WOULD
BE AN ADVERSE EFFECT ON YOUR INVESTMENT.
Nextel currently has substantial debt obligations that will mature before
December 23, 2013, when the zero coupon convertible preferred stock must be
redeemed by Nextel. In addition, Nextel has other preferred stock that is
required to be redeemed before December 23, 2013. Nextel does not expect to
generate sufficient funds from operations to repay all of those obligations as
they are currently scheduled to become due. As a result, it will be necessary to
refinance those obligations at or before their respective maturities or
mandatory redemption dates. Nextel cannot assure holders of zero coupon
convertible preferred stock that it will be able to refinance any of those
obligations. If Nextel is unable to refinance those obligations, it may cause a
default under Nextel's outstanding indebtedness or defaults under some series of
its preferred stock. In these events, Nextel may not be able to meet its
obligations under its debt securities, preferred stock or the zero coupon
convertible preferred stock and the value of its equity securities generally,
including the zero coupon convertible preferred stock and the underlying common
stock, would be adversely affected.
5. THESE MAY BE ADVERSE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO YOU
AS A RESULT OF THE "ZERO COUPON" NATURE OF THE ZERO COUPON CONVERTIBLE
PREFERRED STOCK.
Nextel believes that holders will be deemed, for United States federal
income tax purposes, to receive a series of constructive distributions accruing
on a constant yield basis over the term of the zero coupon convertible preferred
stock, even absent actual cash distributions by Nextel. Those distributions
generally would be taxable to holders as dividend income to the extent of the
current or accumulated earnings and profits of Nextel. At present, Nextel does
not have either current or accumulated earnings and profits and is unlikely to
have earnings and profits in the near future. Thus, until the time when Nextel
has earnings and profits, holders will not be required to report dividend income
in respect of constructive distributions on the zero coupon convertible
preferred stock.
In addition, since Nextel lacks earnings and profits and the zero coupon
convertible preferred stock has deemed dividends, rather than actual
distributions of cash or property, Nextel believes in the case of non-U.S.
holders that it is reasonable to take the position that there is no obligation
to withhold United States tax in respect of the zero coupon convertible
preferred stock until the time when Nextel has earnings and profits.
6. SOME OF THE TERMS OF THE ZERO COUPON CONVERTIBLE PREFERRED STOCK ARE
SUBJECT TO CHANGES ADVERSE TO YOU.
a. THE IMPLIED EFFECTIVE CONVERSION PRICE INCREASES OVER TIME AND MAY BE
GREATER THAN THE MARKET VALUE OF THE NEXTEL COMMON STOCK INTO WHICH
YOUR ZERO COUPON CONVERTIBLE PREFERRED STOCK IS CONVERTIBLE.
The zero coupon convertible preferred stock will not be entitled to
dividends; instead the liquidation preference of the zero coupon convertible
preferred stock will accrete at an annual rate of 9.25%, compounded quarterly
until it is converted, redeemed or otherwise acquired by Nextel. The rate at
which the zero coupon convertible preferred stock is convertible into common
stock will not be adjusted, except as provided in the certificate of
designations. Because the number of shares of common stock issuable upon
conversion of each share of
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zero coupon convertible preferred stock will not be increased even though the
liquidation preference increases over time, the implied effective conversion
price will increase over time, and this increase in the implied effective
conversion price may be greater than any increase in the market value of the
Nextel common shares into which your preferred stock is convertible.
b. NEXTEL MAY BE ABLE TO FORCE THE CONVERSION OF THE ZERO COUPON
CONVERTIBLE PREFERRED STOCK INTO COMMON STOCK IF IT IS HELD BY A PERSON
WHO DOES NOT QUALIFY AS A U.S. HOLDER.
At any time on or after January 1, 2001 or such later date which is 90 days
after Nextel gives notice that it expects to have earnings and profits for
United States federal tax purposes, Nextel may convert the zero coupon
convertible preferred stock into common stock if it is held by or on account of
any holders who do not qualify as U.S. holders. Depending upon the market price
of the common stock at the date of the conversion, the holder may be forced to
convert its zero coupon convertible preferred stock at an implied effective
conversion price in excess of the then current market price of the common stock.
A mandatory conversion would reduce the term of that holder's investment in the
zero coupon convertible preferred stock. All obligations of Nextel for any
amounts due on the zero coupon convertible preferred stock will be satisfied
upon the conversion, redemption or other acquisition by Nextel of the zero
coupon convertible preferred stock for cash and/or common stock, as provided in
the certificate of designations.
7. THERE IS NO PUBLIC MARKET FOR THE ZERO COUPON CONVERTIBLE PREFERRED STOCK
AND IF A MARKET DEVELOPS, TRADING PRICES MAY BE LOWER THAN THE OFFERING
PRICE OR THE LIQUIDATION PREFERENCE.
There is no existing trading market for the zero coupon convertible
preferred stock. If a market were to develop, the zero coupon convertible
preferred stock could trade at prices that may be lower than their offering
price or the liquidation preference, depending upon many factors including the
liquidity of the securities, the market for similar securities, and other
factors, including general economic conditions and the financial condition,
performance of, and prospects for, Nextel. Nextel cannot assure you that an
active trading market for the zero coupon convertible preferred stock will
develop.
8. VOLATILITY IN THE PRICE OF THE ZERO COUPON CONVERTIBLE PREFERRED STOCK
COULD RESULT IN A LOWER TRADING PRICE THAN YOU PAID AND VOLATILITY IN THE
PRICE OF THE COMMON STOCK COULD RESULT IN A LOWER TRADING PRICE THAN YOUR
CONVERSION PRICE.
The market price of the zero coupon convertible preferred stock, and the
common stock issuable with respect to it, may be adversely affected by factors
such as actual or anticipated fluctuations in Nextel's operating results,
acquisition activity, the impact of international markets, changes in financial
estimates by securities analysts, general market conditions and other factors.
Broad market fluctuations may adversely affect the market price of the zero
coupon convertible preferred stock, and the common stock issuable with respect
to it. Nextel cannot assure you that the market price of the zero coupon
convertible preferred stock and the common stock will not decline below the
levels prevailing at the time of this offering.
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C. NEXTEL'S FORWARD LOOKING STATEMENTS ARE SUBJECT TO A VARIETY OF FACTORS
THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM CURRENT BELIEFS.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act
of 1995: A number of the statements made in this prospectus are not historical
or current facts, but deal with potential future circumstances and developments.
Those statements are qualified by the inherent risks and uncertainties
surrounding expectations generally, and also may materially differ from Nextel's
actual future experience involving any one or more of these matters and subject
areas. Nextel has attempted to identify, in context, some of the factors that it
currently believes may cause actual future experience and results to differ from
Nextel's current expectations regarding the relevant matter or subject area. The
operation and results of Nextel's wireless communications business also may be
subject to the effect of other risks and uncertainties in addition to the
relevant qualifying factors identified elsewhere in the foregoing "Risk Factors"
section, including, but not limited to:
- general economic conditions in the geographic areas and occupational
market segments that Nextel is targeting for its digital mobile network
service;
- the availability of adequate quantities of system infrastructure and
subscriber equipment and components to meet Nextel's service deployment
and marketing plans and customer demand;
- the success of efforts to improve and satisfactorily address any issues
relating to Nextel's digital mobile network performance;
- the continued successful performance of the technology being deployed in
Nextel's various market areas;
- the ability to achieve market penetration and average subscriber revenue
levels sufficient to provide financial viability to Nextel's digital
mobile network business;
- Nextel's ability to timely and successfully accomplish required scale-up
of its billing, collection, customer care and similar back-room
operations to keep pace with customer growth, increased system usage
rates and growth in levels of accounts receivables being generated by the
digital mobile network customer base;
- access to sufficient debt or equity capital to meet Nextel's operating
and financing needs;
- the quality and price of similar or comparable wireless communications
services offered or to be offered by Nextel's competitors, including
providers of cellular and personal communication services;
- the ability to successfully develop or obtain from third parties and
implement Year 2000 readiness solutions in systems that are critical to
its business operations;
- future legislation or regulatory actions relating to specialized mobile
radio services, other wireless communications services or
telecommunications generally; and
- other risks and uncertainties described from time to time in Nextel's
reports and, with specific reference to risk factors relating to
international operations in Nextel International, Inc.'s reports, filed
with the Commission, including the Annual Reports on Form 10-K for the
year ended December 31, 1998 and the Quarterly Reports on Form 10-Q for
the quarter ended March 31, 1999, of Nextel and Nextel International,
Inc.
23
<PAGE> 24
III. USE OF PROCEEDS
All sales of the zero coupon convertible preferred stock or the common
stock issuable upon its conversion or issued to some holders of the zero coupon
convertible preferred stock as liquidated damages will be by or for the account
of the selling stockholders listed on page 24 of this prospectus. Nextel will
not receive any cash proceeds from the sales of the zero coupon convertible
preferred stock or the common stock issuable upon conversion of the zero coupon
convertible preferred stock.
IV. SELLING STOCKHOLDERS
All of the shares of zero coupon convertible preferred stock, and any
shares of common stock issued upon its conversion, are being offered by the
selling stockholders listed in the table below. Only those shares of common
stock issued upon conversion of the zero coupon convertible preferred stock or
additional shares of common stock issuable to some holders pursuant to the
applicable registration rights agreement may be offered by the selling
stockholders. Nextel issued the zero coupon convertible preferred stock to the
selling stockholders in a private placement transaction exempt from registration
under the Securities Act of 1933.
No offer or sale under this prospectus may be made by a holder of the
shares unless listed in the table below or until that holder has notified Nextel
and a supplement to this prospectus has been filed or an amendment to the
registration statement has become effective. Nextel will supplement or amend
this prospectus to include additional selling stockholders upon request and upon
provision of all required information to Nextel.
The selling stockholders may offer and sell, from time to time, any or all
of their zero coupon convertible preferred stock or common stock issued with
respect to those shares, either upon their conversion or pursuant to the
applicable registration rights agreement. Because the selling stockholders may
offer all or only some portion of the shares listed in the table, no estimate
can be given as to the amount or percentage of these shares that will be held by
the selling stockholders upon termination of the offering.
The following table lists:
- the name of each selling stockholder;
- the amount of each type of security beneficially owned by that holder
before the offering; and
- the amount of securities being offered for sale by that selling
stockholder.
Nextel obtained the information in the table from the identified selling
stockholder. Unless otherwise disclosed in the footnotes to the table, no
selling stockholder has indicated that it has held any position, office or other
material relationship with Nextel or its affiliates during the past three years.
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
----------------------------- -----------------------------
NUMBER OF NUMBER OF NUMBER OF NUMBER OF
NAME OF SELLING STOCKHOLDER SHARES OWNED SHARES OFFERED SHARES OWNED SHARES OFFERED
- --------------------------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
Bancroft Convertible Fund,
Inc...................... 5,750 5,750 0 0
Bank America Pension
Plan..................... 3,900 3,900 0 0
Bankers Life &
Casualty -- Convertible... 6,500 6,500 0 0
</TABLE>
24
<PAGE> 25
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
----------------------------- -----------------------------
NUMBER OF NUMBER OF NUMBER OF NUMBER OF
NAME OF SELLING STOCKHOLDER SHARES OWNED SHARES OFFERED SHARES OWNED SHARES OFFERED
- --------------------------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
Capital World Growth &
Income Fund, Inc......... 20,000 20,000 0 0
Conseco Health Insurance
Co. -- Convertible....... 4,000 4,000 0 0
Conseco Senior Health
Insurance
Co -- Convertible........ 4,000 4,000 0 0
Conseco Fund
Group -- Convertible Fund 4,000 4,000 0 0
Conseco Annuity Assurance
Company -- Convertible... 4,000 4,000 0 0
Deutsche Bank Securities... 127,000 127,000 0 0
Ellsworth Convertible
Growth and Income Fund,
Inc...................... 5,750 5,750 0 0
General Motors Welfare
Benefit Trust............ 7,800 7,800 0 0
Goldman Sachs and
Company(1)............... 113,738 113,738 0 0
Hamilton Partners
Limited.................. 34,000 34,000 0 0
HBK Cayman L.P............. 7,720 7,720 0 0
HBK Offshore Fund Ltd...... 13,405 13,405 0 0
Highbridge Capital
Corporation.............. 31,700 31,700 0 0
Julius Baer Securities..... 2,376 2,376 0 0
Monumental Life Insurance
Company.................. 18,000 18,000 0 0
Nalco Chemical Company..... 775 775 0 0
Oppenheimer Convertible
Securities Fund.......... 13,400 13,400 0 0
Peoples Benefit Life
Insurance Company........ 16,700 16,700 0 0
Quattro Offshore Fund
Ltd...................... 1,900 1,900 0 0
RAM Capital L.L.C.......... 36,000 36,000 0 0
Ritchie Capital Investments
Ltd...................... 36,000 36,000 0 0
St. Albans Partners Ltd.... 12,800 12,800 0 0
Starvest Combined
Portfolio................ 750 750 0 0
State of Oregon Equity..... 18,925 18,925 0 0
Tribeca Investments
L.L.C.................... 22,500 22,500 0 0
Yield Strategies Fund II,
LP....................... 12,800 12,800 0 0
</TABLE>
- ---------------
(1) Goldman Sachs and Company has provided, and may from time to time provide,
investment banking services to Nextel, including, among other things, acting
as lead and co-manager with respect to offerings of debt and equity
securities, including the private placement of the zero coupon convertible
preferred stock.
On December 23, 1998, Nextel and the initial purchasers of the zero coupon
convertible preferred stock entered into a registration rights agreement. That
agreement requires that
25
<PAGE> 26
Nextel make this prospectus available to the selling stockholders, subject to
the exceptions described below, until the earliest of:
- the expiration of the period referred to in Rule 144(k) of the Securities
Act of 1933 with respect to those shares held by persons that are not
affiliates of Nextel;
- the time when all of the shares have been sold under this prospectus;
- the time when none of the shares remaining outstanding; and
- December 23, 2000.
This time period is referred to as the effectiveness period.
Nextel may require the selling stockholders to suspend the sales of the
shares offered by this prospectus upon the occurrence of any event which makes
any statement in this prospectus or the related registration statement untrue in
any material respect or which requires the changing of statements in these
documents in order to make statements in those documents not misleading. Nextel
is permitted to suspend the use of this prospectus:
- in connection with pending corporate developments, public filings with
the Securities and Exchange Commission and similar events, for a period
not to exceed 30 days in any three-month period or 90 days, whether or
not consecutive, in any twelve-month period; and
- in connection with any corporate acquisition or similar transaction, for
a period not to exceed 60 days in any three-month period or 90 days,
whether or not consecutive in any twelve-month period.
In the event that:
- prior to the end of the effectiveness period, this prospectus is
unavailable for periods in excess of those set forth in the preceding
paragraph;
- Nextel fails to file amendments to the registration statement or
supplements to this prospectus necessary to permit sales of the shares
within five business days of receipt of all required documents from the
prospective selling stockholder, subject to the immediately preceding
bullet point; or
- Nextel fails to cause any required post-effective amendment to the
registration statement to be declared effective within 45 days of its
filing,
each of which events is deemed to be a registration default;
then Nextel will pay the holders of the shares entitled to be sold under this
prospectus from and including the date of the registration default to but
excluding the date on which the registration default is cured liquidated damages
which will accrue:
- in respect of each share of zero coupon convertible preferred stock, at a
rate per annum equal to 0.5% of the liquidation preference of the share
as of the preceding accrual date, as described below; and
- in respect of each share of common stock issued in respect of the zero
coupon convertible preferred stock, at a rate per annum equal to 0.5% of
the liquidation preference of the zero coupon convertible preferred stock
divided by the applicable rate of conversion, as described below.
Persons purchasing shares in this offering will not be entitled to
liquidated damages.
26
<PAGE> 27
V. DESCRIPTION OF ZERO COUPON CONVERTIBLE PREFERRED STOCK
A. GENERAL
The following is a summary of the material terms of the zero coupon
convertible preferred stock offered by this prospectus. The terms of the zero
coupon convertible preferred stock are established in the certificate of
designations relating to the zero coupon convertible preferred stock. This
summary is not intended to be complete; it is subject to, and entirely qualified
by, reference to Nextel's certificate of incorporation, which includes the
certificate of designations containing the definitions of terms used below.
Reference is made to the certificate of designations for the full definitions of
all terms, including capitalized terms used in this prospectus for which no
definition is provided. Copies of the certificate of incorporation and the
certificate of designations are available as described under "XII. Where You Can
Get More Information."
Under the certificate of designations, 800,000 shares of zero coupon
convertible preferred stock, with an initial liquidation preference of $253.675
per share increasing over time to $1,000 per share on December 23, 2013, have
been authorized for issuance. A total of 591,308 shares of zero coupon
convertible preferred stock have been issued and are outstanding, each of which
is fully paid and nonassessable. Holders of the zero coupon convertible
preferred stock have no preemptive rights. See "II.B. Risk Factors -- Risk
Factors Relating to the Zero Coupon Convertible Preferred Stock -- There is No
Public Market for the Zero Coupon Convertible Preferred Stock" and "-- The
Prices of the Common Stock and the Zero Coupon Convertible Preferred Stock Price
May Be Volatile."
The transfer agent for the zero coupon convertible preferred stock is First
Chicago Trust Company of New York, unless Nextel selects another transfer agent.
The transfer agent's offices are located in New York City at 14 Wall Street, New
York, New York 10015.
For a discussion of federal income tax considerations relevant to the zero
coupon convertible preferred stock, see "VIII. United States Federal Tax
Consequences."
B. RANKING
With respect to the payments of any dividends and distributions upon the
liquidation, winding up or dissolution of Nextel, the zero coupon convertible
preferred stock will rank:
1. EQUALLY IN RIGHT OF PAYMENT:
- with Nextel's Class A Convertible Redeemable Preferred Stock, par value
$.01 per share (the "Class A Preferred Stock"), except with respect to
the Special Payments as defined in 2 below; Nextel's Class B Convertible
Preferred Stock, par value $.01 per share (the "Class B Preferred
Stock"), except with respect to the Special Payments; Nextel's Class C
Convertible Redeemable Preferred Stock (the "Class C Preferred Stock");
Nextel's 13% Series D Exchangeable Preferred Stock, mandatorily
redeemable 2009 (the "Series D Preferred Stock"); and Nextel's 11.125%
Series E Exchangeable Preferred Stock, mandatorily redeemable 2010 (the
"Series E Preferred Stock"). The terms of these existing preferred stocks
are more fully described in "VI. Terms of Existing Nextel Preferred
Stock"; and
- with each other class of capital stock or series of preferred stock,
established by Nextel after the issuance of the zero coupon convertible
preferred stock, the terms of which expressly provide that the class or
series will rank equally with the zero coupon
27
<PAGE> 28
convertible preferred stock as to dividend rights and rights on
liquidation, winding-up and dissolution.
Collectively, these securities are referred to as "Parity Securities".
2. JUNIOR IN RIGHT OF PAYMENT:
- with respect to the dividend accruals and payments on the Class A
Preferred Stock and the $25.0 million cash payment on the Class B
Preferred Stock that are described in "VI. Terms of Existing Nextel
Preferred Stock," which are required under the terms of the Class A
Preferred Stock and the Class B Preferred Stock upon specified
occurrences (these payments and dividend rights of the Class A Preferred
Stock and the Class B Preferred Stock, the "Special Payments"); and
- to each class of capital stock or series of preferred stock established
by Nextel after the issuance of the zero coupon convertible preferred
stock, the terms of which expressly provide that the class or series will
rank senior to the zero coupon convertible preferred stock as to dividend
rights and rights on liquidation, winding-up, and dissolution
(collectively, these securities are referred to as "Senior Securities"),
subject to Preferred Stockholder Approval Rights, as defined below.
3. SENIOR TO ALL CLASSES OF COMMON STOCK AND ANY CAPITAL STOCK OF NEXTEL
THAT EXPRESSLY PROVIDES THAT IT WILL BE JUNIOR TO THE ZERO COUPON
CONVERTIBLE PREFERRED STOCK (THE "JUNIOR SECURITIES").
The certificate of designations provides that Nextel may not, without the
consent of the holders of at least a majority of the outstanding shares of zero
coupon convertible preferred stock, authorize, create by way of reclassification
or otherwise, or issue any Senior Securities or any obligation or security
convertible or exchangeable into or evidencing a right to purchase shares of any
class or series of Senior Securities, except that Nextel does not need the
approval of these holders to issue shares of Senior Securities:
- in respect of any dividend or payment obligations that constitute Special
Payments; or
- in exchange for, or the proceeds of which are used to redeem or
repurchase, all shares of zero coupon convertible preferred stock then
outstanding, or less than all shares due to a partial redemption or
repurchase made in accordance with the certificate of designations that
is made available to all holders of the zero coupon convertible preferred
stock on a proportionate basis, or any debt of Nextel.
These approval rights are referred to in this prospectus as "Preferred
Stockholder Approval Rights."
C. DIVIDENDS AND LIQUIDATION PREFERENCE
Holders of shares of zero coupon convertible preferred stock are not
entitled to receive dividends on the zero coupon convertible preferred stock.
Instead, the liquidation preference on the zero coupon convertible preferred
stock will accrete from the issue date of the zero coupon convertible preferred
stock at an annual rate of 9.25%, compounded quarterly on each March 23, June
23, September 23 and December 23. Accordingly, the "Liquidation
28
<PAGE> 29
Preference" for each share of zero coupon convertible preferred stock for any
specified date will be as follows:
1. if the specified date occurs on one of the following dates, each of
which is referred to as an "Accrual Date," the Liquidation Preference
per share will equal the amount next to that date in the table below:
<TABLE>
<CAPTION>
LIQUIDATION
ACCRUAL DATE PREFERENCE
------------ -----------
<S> <C>
March 23, 1999........ $ 259.5412
June 23, 1999......... 265.5431
September 23, 1999.... 271.6838
December 23, 1999..... 277.9665
March 23, 2000........ 284.3945
June 23, 2000......... 290.9711
September 23, 2000.... 297.6998
December 23, 2000..... 304.5841
March 23, 2001........ 311.6276
June 23, 2001......... 318.8340
September 23, 2001.... 326.2070
December 23, 2001..... 333.7506
March 23, 2002........ 341.4686
June 23, 2002......... 349.3650
September 23, 2002.... 357.4441
December 23, 2002..... 365.7100
March 23, 2003........ 374.1670
June 23, 2003......... 382.8196
September 23, 2003.... 391.6723
December 23, 2003..... 400.7298
March 23, 2004........ 409.9966
June 23, 2004......... 419.4778
September 23, 2004.... 429.1782
December 23, 2004..... 439.1030
March 23, 2005........ 449.2572
June 23, 2005......... 459.6463
September 23, 2005.... 470.2756
December 23, 2005..... 481.1508
March 23, 2006........ 492.2774
June 23, 2006......... 503.6613
</TABLE>
<TABLE>
<CAPTION>
LIQUIDATION
ACCRUAL DATE PREFERENCE
------------ -----------
<S> <C>
September 23, 2006.... $ 515.3085
December 23, 2006..... 527.2250
March 23, 2007........ 539.4170
June 23, 2007......... 551.8911
September 23, 2007.... 564.6535
December 23, 2007..... 577.7112
March 23, 2008........ 591.0707
June 23, 2008......... 604.7392
September 23, 2008.... 618.7238
December 23, 2008..... 633.0318
March 23, 2009........ 647.6707
June 23, 2009......... 662.6481
September 23, 2009.... 677.9718
December 23, 2009..... 693.6499
March 23, 2010........ 709.6906
June 23, 2010......... 726.1021
September 23, 2010.... 742.8933
December 23, 2010..... 760.0727
March 23, 2011........ 777.6493
June 23, 2011......... 795.6325
September 23, 2011.... 814.0315
December 23, 2011..... 832.8560
March 23, 2012........ 852.1158
June 23, 2012......... 871.8209
September 23, 2012.... 891.9818
December 23, 2012..... 912.6089
March 23, 2013........ 933.7130
June 23, 2013......... 955.3051
September 23, 2013.... 977.3965
December 23, 2013..... 1,000.0000
</TABLE>
2. if the specified date occurs between two Accrual Dates, then the
Liquidation Preference will equal the sum of:
(a) the Liquidation Preference for the listed Accrual Date immediately
preceding the specified date, and
29
<PAGE> 30
(b) an amount equal to the product of:
- the Liquidation Preference for the immediately following listed
Accrual Date less the Liquidation Preference for the immediately
preceding listed Accrual Date multiplied by
- a fraction, the numerator of which is the number of days from,
but including, the immediately preceding listed Accrual Date to,
but excluding, the specified date, using a 360-day year of twelve
30-day months, and the denominator of which is 90.
The Liquidation Preference on the zero coupon convertible preferred stock
will accrete whether or not Nextel has earnings or profits and whether or not
dividends could be declared on the zero coupon convertible preferred stock. The
certificate of designations provides that Nextel will take all actions required
or permitted under Delaware law to permit the payment of the Liquidation
Preference on the zero coupon convertible preferred stock on December 13, 2013.
See "II.B. Risk Factors -- Risk Factors Relating to Zero Coupon Convertible
Preferred Stock -- Nextel May Be Unable to Redeem or Otherwise Acquire for Cash
the Zero Coupon Convertible Preferred Stock."
Unless the Liquidation Preference of the outstanding zero coupon
convertible preferred stock has increased as provided above and Nextel is not in
default in respect of its obligations described under "-- Mandatory Redemption,"
"-- Change of Control" or "-- Conversion or Tender at the Option of the Holder":
- Nextel may not declare or pay upon, or set apart any sum for the payment
of, any dividends on any Parity Securities or Junior Securities, other
than a dividend payable solely in shares of Junior Securities or options,
warrants or rights to purchase Junior Securities;
- Nextel may not declare or make any distribution upon, or set apart any
sum for the payment of any distribution upon, any Parity Securities or
Junior Securities;
- Neither Nextel nor any of its subsidiaries may purchase, redeem or
otherwise acquire or retire for value any Parity Securities or Junior
Securities excluding an exchange for shares of other Parity Securities or
Junior Securities or a purchase, redemption or other acquisition from the
proceeds of a substantially concurrent sale of Junior Securities, except
under specified circumstances to permit the redemption of Junior
Securities owned by some employees of Nextel or its subsidiaries; and
- Neither Nextel nor any of its subsidiaries may pay into, or set apart or
make available for, a sinking or other like fund any monies for the
purchase, redemption or other acquisition or retirement for value of any
Parity Securities or Junior Securities.
D. VOTING RIGHTS
Holders of zero coupon convertible preferred stock have no voting rights,
except as required by law and as provided in the certificate of designations.
The certificate of designations provides that if Nextel:
- fails to comply with its obligations described under "-- Change of
Control" or "-- Conversion or Tender at the Option of the Holder," or
- defaults in the payment of the Liquidation Preference of any share of
zero coupon convertible preferred stock payable on December 13, 2013
30
<PAGE> 31
(each, a "Voting Rights Triggering Event") then the number of members of
Nextel's board of directors will be immediately and automatically increased by
two and the holders of a majority of the outstanding shares of zero coupon
convertible preferred stock, voting together as a class, will be entitled to
elect two members to the board of directors of Nextel. Voting rights arising as
a result of a Voting Rights Triggering Event will continue until Nextel complies
with its obligations as specified in the bullet points above.
In addition, Nextel may not authorize, create by way of reclassification or
otherwise, or issue any Senior Securities, or any obligation or security
convertible into or evidencing the right to purchase any Senior Securities,
without the affirmative vote or consent of the holders of a majority of the then
outstanding shares of the zero coupon convertible preferred stock, except as
provided above under "-- Ranking".
E. MERGER, CONSOLIDATION AND SALE OF ASSETS
Without the affirmative vote or consent of the holders of a majority of the
issued and outstanding shares of zero coupon convertible preferred stock, Nextel
may not consolidate or merge with or into, or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its assets to any
person unless:
- the resulting entity formed by the consolidation or merger, if other than
Nextel, or to which the sale, assignment, transfer, lease, conveyance or
other disposition will have been made is a corporation organized or
existing under the laws of the United States, any State of the United
States, or the District of Columbia;
- the zero coupon convertible preferred stock will remain unchanged or be
converted into or exchanged for and will become shares of the resulting
entity, having in respect of the resulting entity substantially the same
or more favorable powers, preferences, and relative participating,
optional, or other special rights, and substantially the same or more
favorable qualifications, limitations or restrictions that the zero
coupon convertible preferred stock had immediately prior to the
transaction, provided that:
1. if, in accordance with the certificate of designations, the zero coupon
convertible preferred stock becomes convertible into a different amount
or type of securities, cash or other property, then the change will not
be deemed to be a change in the powers, preferences, and relative
participating, optional or other special rights of the zero coupon
convertible preferred stock, and
2. the fact that the resulting entity has authorized or outstanding any
securities, other than Senior Securities, will not be deemed to be a
change in the powers, preferences, and relative participating, optional
or other special rights of the zero coupon convertible preferred stock;
and
- immediately after giving effect to the transaction, no Voting Rights
Triggering Event will have occurred and be continuing;
provided that the above conditions will not be applicable to a transaction
or event that constitutes a Change of Control as described in "-- Change of
Control".
F. CONVERSION
A holder may convert its zero coupon convertible preferred stock into
Nextel common stock at any time prior to the close of business on December 23,
2013; provided, that if a share of zero coupon convertible preferred stock is
called for redemption, the holder may
31
<PAGE> 32
convert it only until the close of business on the applicable Redemption Date,
as defined in "-- Optional Redemption by Nextel," unless Nextel defaults in the
payment of the redemption price. Zero coupon convertible preferred stock for
which a holder has delivered a notice, as described under "-- Conversion or
Tender at the Option of the Holder," exercising the option of the holder to
require Nextel or, as described in "-- Change of Control", a third party
acquiror, to acquire the holder's zero coupon convertible preferred stock may be
converted only if the notice is withdrawn in accordance with the terms of the
certificate of designations.
The initial conversion rate is 9.7441 shares of common stock per share of
zero coupon convertible preferred stock, subject to adjustment upon the
occurrence of specified events, as described below (the "Conversion Rate"). As
promptly as practicable on or after the Conversion Date, as defined in this
section below, Nextel will issue and deliver to the conversion agent a
certificate or certificates for the number of full shares of common stock
issuable upon conversion, with any fractional shares rounded up to full shares
or, at Nextel's option, paid in cash instead of any fraction of a share, based
on the Sale Price, as defined below in the section "-- Payments in Common
Stock," of the common stock on the Trading Day preceding the conversion date.
"Trading Day" means, in respect of any securities exchange or securities
market, each Monday, Tuesday, Wednesday, Thursday and Friday, other than any day
on which securities are not traded on the applicable securities exchange or in
the applicable securities market.
Nextel's delivery to the holder of the number of shares of common stock
into which the zero coupon convertible preferred stock is convertible, together
with any cash payment instead of fractional shares of common stock, will be
deemed to satisfy Nextel's obligation to pay the Liquidation Preference on the
zero coupon convertible preferred stock to the Conversion Date.
The Conversion Rate will not be adjusted at any time during the term of the
zero coupon convertible preferred stock for the accretion of the Liquidation
Preference. Because the number of shares of common stock issuable upon
conversion of each share of zero coupon convertible preferred stock will not be
increased even though the Liquidation Preference of the zero coupon convertible
preferred stock increases over time, the implied effective conversion price will
increase over time.
To convert zero coupon convertible preferred stock into common stock, a
holder must:
- complete and manually sign the conversion notice on the back of the zero
coupon convertible preferred stock certificate, or complete and manually
sign a facsimile of the notice, and deliver the notice to the conversion
agent;
- surrender the zero coupon convertible preferred stock certificate to the
conversion agent;
- if required, furnish appropriate endorsements and transfer documents; and
- if required, pay all transfer or similar taxes.
According to the certificate of designations, the date on which all of the
previous requirements have been satisfied is the "Conversion Date."
32
<PAGE> 33
The Conversion Rate is subject to adjustment in specified events, including
the following:
- dividends and other distributions payable in common stock on Junior
Securities;
- the issuance to all holders of common stock of specified rights, options
or warrants entitling them to subscribe for or purchase common stock at
less than the then current market price, determined as provided in the
certificate of designations, of common stock as of the record date for
holders entitled to receive the rights, options or warrants;
- subdivisions, combinations and reclassifications of common stock;
- subject to specified exceptions, the issuance of shares of common stock,
or rights, options or warrants entitling the holders to subscribe for or
purchase common stock, for a consideration per share, or an exercise
price per share, that is less than the then current market price of
common stock, determined as of the date of issuance of the shares or
rights, options or warrants as provided in the certificate of
designations;
- distributions to all holders of common stock of evidences of indebtedness
of Nextel, shares of capital stock or other property, including
securities; but excluding those dividends, rights, options, warrants and
distributions referred to in the first two bullet points listed above,
dividends and distributions paid exclusively in cash, and distributions
upon mergers or consolidations to which the second succeeding paragraph
applies;
- distributions consisting exclusively of cash, excluding any cash portion
of distributions referred to in the immediately preceding bullet point or
cash distributed upon a merger or consolidation to which the second
succeeding paragraph applies, the cash distribution of the type referred
to in this clause being referred to as "all-cash distributions," to all
holders of common stock in an aggregate amount that, together with:
1. other all-cash distributions made within the preceding 12 months for
which no adjustment has been made and
2. any cash and the fair market value of other consideration payable in
respect of any tender offer by Nextel or any of its subsidiaries for
common stock, to the extent that the cash and value of any other
consideration included in the payment per share of common stock exceeds
the closing market price per share of common stock on the Trading Day
next succeeding the date of payment (the "Current Market Price"),
concluded within the preceding 12 months for which no adjustment has
been made,
exceeds 10% of Nextel's market capitalization on the record date for the
distribution. Market capitalization is the product of the then current
market price of the common stock and the number of shares of common stock
then outstanding plus the number of shares of common stock issuable upon
conversion of all then outstanding shares of Class A Preferred Stock,
Class B Preferred Stock or Class C Preferred Stock; and
- the successful completion of a tender offer made by Nextel or any of its
subsidiaries for common stock, to the extent that the cash and value of
any other consideration included in the payment per share of common stock
exceeds the Current Market Price at that time, the aggregate amount of
which, together with:
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1. any cash and other consideration in excess of the then Current Market
Price paid in a tender offer by Nextel or any of its subsidiaries for
common stock expiring within the 12 months preceding the expiration of
the tender offer for which no adjustment has been made, and
2. the aggregate amount of any all-cash distributions referred to in the
immediately preceding bullet point above to all holders of common stock
within the 12 months preceding the expiration of the tender offer for
which no adjustments have been made,
exceeds 10% of Nextel's market capitalization on the expiration of the
tender offer.
The Conversion Rate may also be adjusted as described under "-- Change of
Control."
No adjustment in the Conversion Rate will be required unless the adjustment
would require a change of at least 1% in the rate then in effect; provided that
any adjustment that would otherwise be required to be made will be carried
forward and taken into account in any subsequent adjustment. Except as stated
above, the Conversion Rate will not be adjusted for the issuance of common stock
or any securities convertible into or exchangeable for common stock or carrying
the right to purchase any of those securities.
If as a result of either:
- any reclassification of the common stock, or
- a consolidation or merger involving Nextel or a sale or conveyance to
another corporation of the property and assets of Nextel as an entirety
or substantially as an entirety,
holders of common stock will be entitled to receive stock, securities, other
property, or assets, including cash, with respect to or in exchange for the
common stock, then the conversion right with respect to the then outstanding
zero coupon convertible preferred stock will be changed into the right to
convert the zero coupon convertible preferred stock into the kind and amount of
shares of stock, securities, other property or assets, including cash, that they
would have owned or been entitled to receive upon the reclassification,
consolidation, merger, sale, or conveyance had the zero coupon convertible
preferred stock been converted immediately prior to the reclassification,
consolidation, merger, sale, or conveyance at the then effective Conversion Rate
applicable to the zero coupon convertible preferred stock, assuming that the
holder would not have exercised any rights of election as to the stock,
securities, other property or assets, including cash, receivable in connection
with the transaction.
If at any time Nextel makes a distribution of property to its stockholders
that would be taxable to the stockholders as a dividend for United States
federal income tax purposes, such as distributions of evidences of indebtedness
or assets of Nextel, but generally not stock dividends on common stock or rights
to subscribe for common stock, and, under the anti-dilution provisions of the
certificate of designations, the number of shares into which the zero coupon
convertible preferred stock is convertible is increased, the increase may be
deemed for United States federal income tax purposes to be the payment of a
taxable dividend to holders of the zero coupon convertible preferred stock. See
"VIII.A -- United States Federal Tax Consequences -- General".
From time to time, Nextel may, to the extent permitted by law, increase the
Conversion Rate by any amount for any period of at least 20 days if Nextel's
board of directors has
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made a determination, in its sole discretion, that the increase would be in the
best interests of Nextel, which determination will be conclusive. Nextel will
give notice of the increase at least 15 days prior to the increase. Nextel may,
at its option, make these increases in the Conversion Rate, in addition to and
subject to those set forth above, as the board of directors deems advisable to
avoid or diminish any income tax to holders of common stock resulting from any
dividend or distribution of stock, or rights to acquire stock, or from any event
treated as a dividend or distribution for income tax purposes. See "VIII. United
States Federal Tax Consequences".
G. OPTIONAL REDEMPTION BY NEXTEL
Prior to December 23, 2005, the zero coupon convertible preferred stock
will not be redeemable at the option of Nextel. Beginning on December 23, 2005,
Nextel may, subject to the restrictions described below, contractual and other
restrictions with respect to redemption, and the legal availability of funds,
redeem the zero coupon convertible preferred stock (any date on which a
redemption is made being referred to as a "Redemption Date") as a whole at any
time, or from time to time in part, on a proportionate basis. The zero coupon
convertible preferred stock will be redeemed at a redemption price equal to the
Liquidation Preference on the Redemption Date, upon not less than 35 days' nor
more than 60 days' notice of redemption given by mail to holders of zero coupon
convertible preferred stock; provided, that Nextel may condition consummation of
any optional redemption, if it is to be effected by a redemption of the zero
coupon convertible preferred stock for cash, on the occurrence of any event
and/or satisfaction of any condition identified as a condition or prerequisite
in the relevant redemption notice to holders of zero coupon convertible
preferred stock. Nextel may withdraw the notice, and by doing so will terminate
its obligation to effect the optional redemption, by written notice to that
effect given by mail to holders of zero coupon convertible preferred stock at
least 20 days prior to the relevant Redemption Date. If not so withdrawn, the
redemption will no longer be conditional. Nextel may, at its option, instead of
paying the redemption price in cash, pay all or part of the redemption price in
common stock or in a combination of cash and common stock. See "-- Payments in
Common Stock."
On and after any Redemption Date, provided that Nextel has made available
at the office of the transfer agent a sufficient amount of cash or securities to
effect the redemption, the Liquidation Preference will cease to accrete on the
zero coupon convertible preferred stock called for redemption, and the shares
will no longer be deemed to be outstanding. All rights of the holders of those
shares as holders of zero coupon convertible preferred stock will cease except
the right to receive the cash and/or common stock deliverable upon the
redemption, without interest from the Redemption Date.
Nextel's existing financing agreements contain provisions that operate to
limit or prohibit Nextel's ability to redeem the zero coupon convertible
preferred stock. Additionally, provisions in the financing arrangements to which
Nextel and its subsidiaries are parties operate to limit the funds available to
Nextel from its subsidiaries. See "II.B. Risk Factors -- Risk Factors Relating
to the Zero Coupon Convertible Preferred Stock -- Nextel May Be Unable to Redeem
or Otherwise Acquire for Cash the Zero Coupon Convertible Preferred Stock."
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H. MANDATORY CONVERSION
At any time on and after the later of January 1, 2001 and the date 90 days
after Nextel gives notice that it may have earnings and profits for United
States federal income tax purposes (the later of these dates being the "E&P
Notice Date"), if Nextel reasonably believes that zero coupon convertible
preferred stock is held by or on account of a holder who does not qualify as a
U.S. holder, the zero coupon convertible preferred stock will be subject to
mandatory conversion (the "Mandatory Conversion"), at the option of Nextel, upon
written notice to that holder. In addition, if at any time on and after the E&P
Notice Date, upon any:
- optional redemption by Nextel of a holder's zero coupon convertible
preferred stock,
- tender by a holder of any of the holder's zero coupon convertible
preferred stock for acquisition of the shares by Nextel, or
- exercise by a holder of any of its conversion rights,
Nextel reasonably believes that any holder does not qualify as a U.S.
holder, the zero coupon convertible preferred stock held by that holder will be
subject to Mandatory Conversion that will preempt any conversion or tender
rights that any holder would otherwise have in respect of its zero coupon
convertible preferred stock.
Nextel's notice of the Mandatory Conversion will be mailed to the holder's
address as it appears on the books of the transfer agent and will specify the
number of the shares of zero coupon convertible preferred stock subject to the
notice, the certificate numbers of the shares if the shares are held in
certificated form, and the basis for Nextel's belief that the holder does not
qualify as a U.S. holder. The holder's zero coupon convertible preferred stock
will be deemed to have been converted as of the date of the notice of the
Mandatory Conversion unless the holder establishes within 10 days after the date
of the notice by written documentation or other evidence to Nextel's reasonable
satisfaction that it is a U.S. Holder.
Nextel will issue and deliver to the conversion agent a certificate or
certificates for the full number of shares of common stock issuable upon the
Mandatory Conversion, with any fractional shares rounded up to full shares or,
at Nextel's option, paid in cash instead of any fraction of a share, based on
the Sale Price of the common stock on the Trading Day preceding the applicable
notice of Mandatory Conversion. Any Mandatory Conversion will be conducted in
accordance with the procedures described under "-- Conversion." Nextel's
delivery to the holder of the number of shares of common stock into which the
holder's zero coupon convertible preferred stock is convertible, together with
any cash payment instead of any fractional shares of common stock, will be
deemed to satisfy Nextel's obligation to pay the Liquidation Preference on the
zero coupon convertible preferred stock to the applicable Conversion Date.
If the transfer agent holds, in accordance with the terms of the
certificate of designations, common stock sufficient to pay the conversion price
on the date of the notice of Mandatory Conversion with respect to any zero
coupon convertible preferred stock, then, on and after that date, the shares of
zero coupon convertible preferred stock will cease to be outstanding and the
Liquidation Preference will cease to accrete whether or not book-entry transfer
of the zero coupon convertible preferred stock is made or the zero coupon
convertible preferred stock is delivered to the transfer agent. All other rights
of the holder will terminate, other than the right to receive the common stock
upon delivery of the zero
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coupon convertible preferred stock certificate or book-entry transfer of the
zero coupon convertible preferred stock to the transfer agent.
I. MANDATORY REDEMPTION
The zero coupon convertible preferred stock is subject to mandatory
redemption, subject to the legal availability of funds but without regard to any
contractual or other restrictions with respect to redemption, in whole on
December 23, 2013, at a redemption price equal to the Liquidation Preference on
December 23, 2013 of $1,000 per share. Nextel may, at its option, instead of
paying the redemption price in cash, pay all or part of the redemption price in
common stock or in a combination of cash and common stock. See "-- Payments in
Common Stock" and "II.B. -- Risk Factors -- Risk Factors Relating to the Zero
Coupon Convertible Preferred Stock -- Nextel May Be Unable to Redeem or
Otherwise Acquire for Cash the Zero Coupon Convertible Preferred Stock."
J. PAYMENTS IN COMMON STOCK
If Nextel elects to pay all or part of any redemption price or tender price
in common stock, then the number of shares to be delivered in respect of the
portion of the redemption price or tender price to be paid in common stock will
be equal to the portion of the redemption price or tender price divided by the
Market Price, as defined below, of the common stock. However, no fractional
shares of common stock will be delivered upon any acquisition of zero coupon
convertible preferred stock by Nextel through the delivery of common stock in
whole or partial payment of the redemption price or tender price. Instead,
Nextel, at its option, will either round up to full shares or pay cash based on
the Market Price for all fractional shares of common stock. Nextel may elect to
pay the redemption price or tender price in common stock only if the common
stock is listed on a United States national or regional stock exchange or
reported by the Nasdaq National Market.
At least 23 Trading Days prior to any Redemption Date or any Acquisition
Date, as defined in "-- Change of Control" and in "-- Conversion or Tender at
the Option of the Holder", Nextel must give notice to holders of its intention
to pay the redemption price or tender price, or any portion of that price, in
common stock, specifying the percentage of the price to be paid with common
stock.
The "Market Price" means the average of the Sale Prices of the common stock
for the 20 Trading Day period ending on the third Business Day, as defined
below, prior to the applicable Redemption Date or Acquisition Date, as defined,
if the third Business Day prior to the applicable Acquisition Date or Redemption
Date is a Trading Day; or, if it is not a Trading Day, then on the last Trading
Day prior to that third Business Day. The Market Price will be adjusted to take
into account the occurrence during the period commencing on the first of the
Trading Days during the 20 Trading Day period and ending on the Acquisition Date
or Redemption Date of specified events that would result in an adjustment of the
Conversion Rate under the certificate of designations with respect to the common
stock.
A "Business Day" is any day except a Saturday or Sunday or other day on
which commercial banks in the city of New York are required or authorized by law
or other governmental action to be closed.
The "Sale Price" of the common stock on any date means the closing per
share sale price, or if no closing sale price is reported then the average bid
and ask prices, or if more than one in either case then the average of the
average bid and average ask prices, on the
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date as reported in the composite transactions for the principal United States
securities exchange on which the common stock is traded, or if the common stock
is not listed on a United States national or regional stock exchange as reported
by the Nasdaq National Market. Because the Market Price of the common stock is
determined prior to any applicable Acquisition Date or Redemption Date, holders
bear the market risk with respect to the value of the common stock to be
received from the date of determination of the Market Price to an Acquisition
Date or Redemption Date.
Upon determination of the actual number of shares of common stock in
accordance with the above provisions, Nextel will publicly announce this
determination and file a Current Report on Form 8-K with the Securities and
Exchange Commission.
Nextel's right to pay the redemption price or tender price, or a portion of
that price, in common stock is subject to the satisfaction of various
conditions, including:
- the registration of resales of the common stock under the Securities Act
of 1933, if required, assuming the holder is not an affiliate of Nextel;
and
- compliance with any other applicable federal and state securities laws.
If these conditions are not satisfied by the applicable Acquisition Date or
Redemption Date, Nextel will pay the tender price or redemption price on the
Acquisition Date or Redemption Date entirely in cash, except as provided in
" -- Change of Control". See "VIII. United States Federal Tax Consequences."
K. CHANGE OF CONTROL
A "Change of Control" will be deemed to have occurred at any time after the
original issuance of the zero coupon convertible preferred stock if there will
occur:
1. the acquisition by any Person, as defined below, of beneficial
ownership, directly or indirectly, through a purchase, merger or other
acquisition transaction or series of transactions, of shares of capital
stock of Nextel entitling that Person to exercise 50% or more of the
total voting power of all shares of capital stock of Nextel entitled to
vote generally in elections of directors, other than any acquisition by
Nextel, any subsidiary of Nextel, or any employee benefit plan of
Nextel; or
2. any consolidation of Nextel with, or merger of Nextel into, any other
Person, any merger of another Person into Nextel, or any sale or
transfer of all or substantially all of the assets of Nextel to another
Person, other than:
a. any transaction:
- that does not result in any reclassification, conversion,
exchange or cancellation of outstanding shares of common stock,
and
- under which holders of common stock immediately prior to the
transaction have the entitlement to exercise, directly or
indirectly, 50% or more of the total voting power of all shares
of capital stock, or equivalent unit of ownership interest,
entitled to vote generally in the election of directors or other
equivalent governing body of the continuing or surviving Person
immediately after the transaction; and
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b. any merger that is effected solely to change the jurisdiction of
incorporation of Nextel and results in a reclassification, conversion
or exchange of outstanding shares of common stock solely into shares
of common stock;
provided, however, that a Change of Control will not be deemed to have occurred
if either:
- the closing price per share of the common stock for any five Trading Days
within the period of 10 consecutive Trading Days ending immediately after
the later of the Change of Control or the public announcement of the
Change of Control in the case of a Change of Control under clause 1
above, or ending immediately before the Change of Control in the case of
a Change of Control under clause 2 above, will equal or exceed 105% of
the effective conversion price in effect on each of those Trading Days;
the effective conversion price is determined by dividing the Liquidation
Preference on that Trading Day, by the Conversion Rate in effect on that
Trading Day, or
- all of the consideration, excluding cash payments for fractional shares,
in the transaction or transactions constituting the Change of Control
consists of common stock or equivalent securities traded on a national or
regional securities exchange or quoted on the Nasdaq National Market and
as a result of the transaction or transactions the zero coupon
convertible preferred stock becomes convertible solely into common stock
or equivalent securities.
"Beneficial ownership" will be determined in accordance with Rule 13d-3
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934,
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government, governmental agency, political subdivision of any
government or governmental agency, or any other entity.
Within 30 days after the occurrence of a Change of Control, Nextel is
obligated to give to all holders of zero coupon convertible preferred stock
notice, as provided in the certificate of designations, of the occurrence of the
Change of Control and of the special conversion right or the special tender
right arising as a result of the Change of Control, as described below. The
notice of the Change of Control will be sufficiently given to holders if it is
in writing and mailed, first class postage prepaid, to each holder at its
address as it appears on the books of the transfer agent. Nextel must also
deliver a copy of the notice of the Change of Control to the transfer agent.
If:
- a Change of Control occurs before December 23, 2005 or any earlier
refinancing of, or termination of the covenants with respect to, Nextel's
9 3/4% Senior Redeemable Discount Notes Due 2004 or Nextel's 10 1/4%
Senior Redeemable Discount Notes Due 2005 or Nextel's 10 1/8% Senior
Redeemable Discount Notes Due 2004 (collectively, the "Old Senior
Notes"), and
- an offer to acquire all outstanding shares of zero coupon convertible
preferred stock for cash on a date (the "Acquisition Date") that is not
more than 45 days after the date of the Change of Control at a tender
price equal to the Liquidation Preference of the zero coupon convertible
preferred stock on the Acquisition Date is not made or all shares of zero
coupon convertible preferred stock validly tendered and not withdrawn on
the Acquisition Date are not acquired in that offer,
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then Nextel will give to each holder, in the same manner as the notice of the
Change of Control, on or prior to the 45th day indicated above, a notice that
will state that the Conversion Rate of the zero coupon convertible preferred
stock will be adjusted on the date (the "Special Conversion Adjustment Date")
that is 15 Trading Days after the date of the notice of the conversion
adjustment, as follows:
- if, in connection with a transaction described in clause 2 of the
definition of a Change of Control, and after giving effect to any
applicable adjustment to the Conversion Rate as described under
" -- Conversion," the zero coupon convertible preferred stock would be
convertible into cash, the Conversion Rate will be adjusted so that each
share of zero coupon convertible preferred stock then outstanding will be
convertible into the number of shares of common stock as will be equal to
the Liquidation Preference of the zero coupon convertible preferred stock
on the Special Conversion Adjustment Date divided by the amount of cash
that would have been payable per share of common stock in the
transaction, so that each share of zero coupon convertible preferred
stock will be convertible into the amount of cash equal to its
Liquidation Preference on the Special Conversion Adjustment Date;
- if, following the Change of Control, and after giving effect to any
applicable adjustment to the Conversion Rate as described under
" -- Conversion," the zero coupon convertible preferred stock is
convertible into common stock that is traded on a United States national
or regional stock exchange or quoted on the Nasdaq National Market and
either a shelf registration statement with respect to resales of the
common stock is effective and available or the common stock is otherwise
freely tradeable, assuming the holder is not an affiliate of Nextel,
without registration under the Securities Act of 1933, then the
Conversion Rate will be adjusted so that each share of zero coupon
convertible preferred stock then outstanding will be convertible into the
number of shares of common stock as will be equal to the Liquidation
Preference of the zero coupon convertible preferred stock on the Special
Conversion Adjustment Date divided by the Reference Price, as defined
below, of the common stock; or
- if, following the Change of Control, and after giving effect to any
applicable adjustment to the Conversion Rate as described under
" -- Conversion," the zero coupon convertible preferred stock is
convertible into:
1. common stock that is not traded on a United States national or regional
stock exchange or quoted on the Nasdaq National Market or a shelf
registration statement with respect to resales of the common stock is
not effective and available or the common stock is not otherwise freely
tradeable without registration under the Securities Act of 1933, other
than as a result of the holder being an affiliate of Nextel, or
2. property other than cash or common stock,
then the Conversion Rate will be adjusted so that each share of zero
coupon convertible preferred stock then outstanding will be convertible
into the number of shares of common stock as will be equal to the
Liquidation Preference of the zero coupon convertible preferred stock on
the Special Conversion Adjustment Date divided by the Discounted Reference
Price, as defined below, of the common stock.
Notwithstanding the above, the special conversion adjustment will not be
made if it would result in a lower Conversion Rate.
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The "Reference Price" means the average of the Sale Prices of the common
stock for the ten Trading Day period ending on the third Business Day prior to
the applicable Special Conversion Adjustment Date if the third Business Day
prior to the applicable Special Conversion Adjustment Date is a Trading Day, or
if that day is not a Trading Day, then on the last Trading Day prior to that
third Business Day. The Reference Price will be adjusted to take into account
the occurrence during the period of specified events that would result in an
adjustment of the Conversion Rate under the certificate of designations with
respect to the common stock.
The "Discounted Reference Price" means 80% of the average of the Sale
Prices of the common stock for:
- if the zero coupon convertible preferred stock is convertible into common
stock that is traded on a United States national or regional stock
exchange or quoted on the Nasdaq National Market but a shelf registration
statement with respect to resales of the common stock is not effective
and available and the common stock is not otherwise freely tradeable,
assuming the holder is not an affiliate of Nextel, without registration
under the Securities Act of 1933, the ten Trading Day period ending on
the third Business Day prior to the applicable Special Conversion
Adjustment Date if the third Business Day prior to the applicable Special
Conversion Adjustment Date is a Trading Day, or if that day is not a
Trading Day, then on the last Trading Day prior to that third Business
Day, and
- if the zero coupon convertible preferred stock is convertible into common
stock that is not traded on a United States national or regional stock
exchange or quoted on the Nasdaq National Market, the most recent ten
Trading Day period prior to the Special Conversion Adjustment Date for
which Sales Prices are available.
The Discounted Reference Price will be adjusted to take into account the
occurrence during the period of specified events that would result in an
adjustment of the Conversion Rate under the certificate of designations with
respect to the common stock.
To exercise the special conversion rights, a holder must comply with the
provisions described under "-- Conversion" on or before the 30th day after the
Special Conversion Adjustment Date, which is referred to as the "Special
Conversion Expiration Date". If the special conversion rights are not exercised
on or prior to the Special Conversion Expiration Date, the Conversion Rate of
the zero coupon convertible preferred stock remaining outstanding will be
adjusted immediately following the Special Conversion Expiration Date to the
Conversion Rate in effect immediately prior to the Special Conversion Adjustment
Date, giving effect to any adjustment to the Conversion Rate as described under
" -- Conversion" as a result of events occurring after the date of the Change of
Control.
If a Change of Control occurs on or after December 23, 2005 or any earlier
refinancing of, or termination of the covenants with respect to, the Old Senior
Notes, a holder will have the right, at the holder's option, to require Nextel
to acquire any or all of that holder's zero coupon convertible preferred stock,
on the date (the "Acquisition Date") that is 45 days after the date of the
notice of the Change of Control given by Nextel, at a tender price equal to the
Liquidation Preference on the Acquisition Date. Nextel may, at its option,
instead of paying the tender price in cash, pay all or part of the tender price
in common stock or in a combination of cash and common stock. See "-- Payments
in Common Stock."
To exercise the special tender right, a holder must deliver, on or before
the 30th day after the date of Nextel's notice of a Change of Control, a written
notice to the transfer agent
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of the holder's exercise of this right, together with the zero coupon
convertible preferred stock certificates with respect to which the right is
being exercised. Any notice may be withdrawn by the holder by a written notice
of withdrawal delivered to the paying agent prior to the close of business on
the Acquisition Date. The notice of withdrawal will state the number of shares
of zero coupon convertible preferred stock and the certificate numbers of the
zero coupon convertible preferred stock certificates as to which the withdrawal
notice relates and the number of any shares that remain subject to the holder's
notice.
Upon determination of the adjusted Conversion Rate or actual number of
shares of common stock to be paid instead of cash in accordance with the above
provisions, Nextel will publicly announce this determination and file a Current
Report on Form 8-K with the Securities and Exchange Commission.
If the transfer agent holds, in accordance with the terms of the
certificate of designations, money or securities sufficient to pay the tender
price on the Business Day following the Acquisition Date, then, on and after
that date, the shares of zero coupon convertible preferred stock will cease to
be outstanding and the Liquidation Preference on those shares will cease to
accrete whether or not book-entry transfer of the zero coupon convertible
preferred stock is made or the zero coupon convertible preferred stock is
delivered to the transfer agent. All other rights of the holder will terminate,
other than the right to receive the tender price upon delivery of the zero
coupon convertible preferred stock certificate.
Nextel will comply with the provisions of Rule 13e-4 of the Securities and
Exchange Act of 1934 and any other tender offer rules under that act which may
then be applicable in connection with the special tender rights of holders of
the zero coupon convertible preferred stock in the event of a Change of Control.
For a discussion of the tax treatment of a holder receiving cash or common
stock due to its election to tender its zero coupon convertible preferred stock
to Nextel on an Acquisition Date, see "VIII. United States Federal Tax
Consequences."
The special conversion and special tender rights of the holders of zero
coupon convertible preferred stock that arise upon the occurrence of a Change of
Control could discourage a potential acquiror of Nextel.
The term "Change of Control" is limited to specified transactions and may
not include other events that might adversely affect the financial condition of
Nextel, nor would special conversion rights or the requirement that Nextel offer
to acquire the zero coupon convertible preferred stock upon a Change of Control
necessarily afford the holders of zero coupon convertible preferred stock
protection in the event of a highly leveraged transaction, reorganization,
merger or similar transaction involving Nextel.
L. CONVERSION OR TENDER AT THE OPTION OF THE HOLDER
On December 23, 2005 and December 23, 2008, each of which is referred to as
an "Acquisition Date," Nextel will become obligated to acquire, at the option of
the holder, any outstanding shares of zero coupon convertible preferred stock
for which a written notice has been delivered by the holder to the office of the
transfer agent at any time from the opening of business on the date that is 20
Business Days prior to an Acquisition Date until the close of business on that
Acquisition Date and for which the notice has not been withdrawn, subject to
some additional conditions.
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The notice must state the following:
- the certificate numbers of the shares of zero coupon convertible
preferred stock to be delivered for acquisition by Nextel;
- the number of shares of zero coupon convertible preferred stock to be
acquired;
- that the zero coupon convertible preferred stock is to be acquired by
Nextel under the applicable provisions of the certificate of
designations; and
- if Nextel elects to pay all or part of the tender price to be paid as of
the Acquisition Date in common stock, but the tender price is ultimately
to be paid to the holder entirely in cash because any of the conditions
to payment of all or part of the tender price in common stock are not
satisfied by the Acquisition Date, whether the holder elects:
1. to withdraw the notice as to some or all of the zero coupon convertible
preferred stock to which the notice relates, stating the certificate
numbers of the shares of zero coupon convertible preferred stock as to
which the withdrawal will relate, or
2. to receive cash in respect of the entire tender price for all shares of
zero coupon convertible preferred stock subject to the notice.
If the holder fails to indicate in the notice and in any written notice of
withdrawal relating to that notice the holder's choice with respect to the
election described in the last bullet point above, the holder will be deemed to
have elected to receive cash in respect of the entire tender price for all
shares of zero coupon convertible preferred stock subject to the notice in these
circumstances. For a discussion of the tax treatment of a holder receiving cash
or common stock under its election to tender its zero coupon convertible
preferred stock to Nextel on an Acquisition Date, see "VIII. United States
Federal Tax Consequences."
Any notice may be withdrawn by the holder by a written notice of withdrawal
delivered to the paying agent prior to the close of business on the Acquisition
Date. The notice of withdrawal will state the certificate numbers of the shares
of zero coupon convertible preferred stock as to which the withdrawal notice
relates and the number of shares, if any, which remain subject to the notice.
The tender price payable in respect of a share of zero coupon convertible
preferred stock will be equal to the Liquidation Preference on the Acquisition
Date. Nextel may, at its option, instead of paying the tender price in cash, pay
all or part of the tender price in common stock or in a combination of cash and
common stock. See "-- Payments in Common Stock".
Payment of the tender price for zero coupon convertible preferred stock for
which a notice has been delivered by a holder and not withdrawn is conditioned
upon book-entry transfer or delivery of the zero coupon convertible preferred
stock, together with necessary endorsements, to the transfer agent at its office
in the Borough of Manhattan, The City of New York, or any other office of the
paying agent maintained for this purpose, at any time, whether before, on or
after the Acquisition Date, after delivery of the holder's notice. Payment of
the tender price will be made promptly following the later of the Acquisition
Date or the time of book-entry transfer or delivery of the zero coupon
convertible preferred stock. If the transfer agent holds, in accordance with the
terms of the certificate of designations, money or securities sufficient to pay
the tender price of the zero coupon convertible preferred stock on the Business
Day following the Acquisition Date, then, on and after that date, the zero
coupon convertible preferred stock will cease to be outstanding and
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the Liquidation Preference on that zero coupon convertible preferred stock will
cease to accrete whether or not book-entry transfer of the zero coupon
convertible preferred stock is made or the zero coupon convertible preferred
stock is delivered to the transfer agent and all other rights of the holder will
terminate, other than the right to receive the tender price upon delivery of the
zero coupon convertible preferred stock.
Nextel will comply with the provisions of Rule 13e-4 of the Securities
Exchange Act of 1934 and any other tender offer rules under that act which may
then be applicable and will file a Schedule 13E-4 or any other schedule required
in connection with any offer by Nextel to acquire zero coupon convertible
preferred stock at the option of holders under the above-described provisions of
the certificate of designations.
If Nextel becomes obligated to purchase any outstanding shares of zero
coupon convertible preferred stock on an Acquisition Date, Nextel cannot make
assurances that it would have sufficient funds to pay, or if it had sufficient
funds would elect to pay, in cash for all the zero coupon convertible preferred
stock tendered by the holders. In either case, Nextel could be required to issue
shares of common stock to pay the tender price at valuations based on then
prevailing market prices. See "II.B. Risk Factors -- Risk Factors Relating to
the Zero Coupon Convertible Preferred Stock -- Nextel May Be Unable to Redeem or
Otherwise Acquire for Cash the Zero Coupon Convertible Preferred Stock".
M. LIQUIDATION RIGHTS
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of Nextel after payment in full of the Liquidation Preference and
any accrued and unpaid dividends on any Senior Securities, each holder of shares
of zero coupon convertible preferred stock will be entitled, on an equal basis
with the holders of any outstanding Parity Securities, to payment out of the
assets of Nextel available for distribution of an amount equal to the
Liquidation Preference of the zero coupon convertible preferred stock held by
the holder, plus any Liquidated Damages as defined below, to the date fixed for
liquidation, dissolution, or winding up before any distribution is made on any
Junior Securities, including, without limitation, the common stock. After
payment in full of the Liquidation Preference and all Liquidated Damages, if
any, to which holders of zero coupon convertible preferred stock are entitled,
holders of zero coupon convertible preferred stock will not be entitled to any
further participation in any distribution of assets of Nextel. However, neither
the voluntary sale, conveyance, exchange or transfer, for cash, shares of stock,
securities, or other consideration, of all or substantially all of the property
or assets of Nextel, nor the consolidation or merger of Nextel with or into one
or more corporations, will be deemed to be a voluntary or involuntary
liquidation, dissolution, or winding up of Nextel, unless that sale, conveyance,
exchange, transfer, consolidation, or merger will be in connection with a
liquidation, dissolution or winding up of the business of Nextel or reduction or
decrease in capital stock.
The term "Liquidated Damages" refers to accrual of an amount equal to:
- 0.5% of the Liquidation Preference in respect of each share of zero
coupon convertible preferred stock, and
- 0.5% of the Liquidation Preference of the preferred stock divided by the
Conversion Rate for each share of Nextel common stock issued upon
conversion of the zero coupon convertible preferred stock payable to the
holders of the zero coupon convertible preferred stock outstanding at the
date of this prospectus in the event that
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this prospectus does not remain available for resales of any shares held
by those persons for specified times.
Persons who purchase shares offered by this prospectus will not be entitled
to Liquidated Damages.
Although the Liquidation Preference will be substantially in excess of the
par value of the shares of the zero coupon convertible preferred stock, the
certificate of designations will not contain any provision requiring funds to be
set aside to protect the Liquidation Preference of the zero coupon convertible
preferred stock.
N. REPORTS
The certificate of designations provides that, whether or not required by
the rules and regulations of the Securities and Exchange Commission, so long as
any shares of zero coupon convertible preferred stock are outstanding, Nextel
will furnish to holders of those shares:
- all quarterly and annual financial information that would be required to
be contained in a filing with the Securities and Exchange Commission on
Forms 10-Q and 10-K if Nextel were required to file those forms,
including "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and, with respect to the annual information
only, a report by Nextel's certified independent accountants, and
- all current reports that would be required to be filed with the
Securities and Exchange Commission on Form 8-K if Nextel were required to
file those reports.
In the event Nextel has filed any of those reports with the Securities and
Exchange Commission, it will not be obligated to separately furnish those
reports to any holder unless and until the holder requests a copy of the report.
In addition, whether or not required by the rules and regulations of the
Securities and Exchange Commission, Nextel will file a copy of all the above
described information and reports with the Securities and Exchange Commission
for public availability, unless the Securities and Exchange Commission will not
accept these filings, and make this information available to securities analysts
and prospective investors upon request.
O. TRANSFER AND EXCHANGE
A holder may transfer or exchange the zero coupon convertible preferred
stock in accordance with the certificate of designations if the requirements of
the transfer agent for the transfer or exchange are met. Transfers of the zero
coupon convertible preferred stock and common stock are subject to specified
restrictions, including specified restrictions on ownership of the zero coupon
convertible preferred stock by holders who do not qualify as U.S. Holders after
the E&P Notice Date. The transfer agent may require a holder to, among other
things, furnish appropriate endorsements and transfer documents, and Nextel may
require a holder to pay any taxes and fees required by law or permitted by the
certificate of designations.
P. AMENDMENT, SUPPLEMENT AND WAIVER
Nextel may amend the certificate of designations with the consent of the
holders of a majority of the zero coupon convertible preferred stock then
outstanding, including consents obtained in connection with a tender offer or
exchange offer for the zero coupon convertible
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preferred stock, and any past default or failure to comply with any provisions
of the certificate of designations may also be waived with the consent of the
holders. Without the consent of the holders of at least 66 2/3% of the then
outstanding shares of zero coupon convertible preferred stock, an amendment or
waiver may not, with respect to any shares of the zero coupon convertible
preferred stock held by a non-consenting holder:
- alter the voting rights with respect to the zero coupon convertible
preferred stock or reduce the number of shares of the zero coupon
convertible preferred stock whose holders must consent to an amendment,
supplement or waiver;
- reduce the amount of or rate of accretion of the Liquidation Preference
of any share of the zero coupon convertible preferred stock or adversely
alter the provisions with respect to the redemption of the zero coupon
convertible preferred stock;
- waive a default in the payment of any Liquidated Damages on the zero
coupon convertible preferred stock;
- make any change that adversely affects the right to convert the zero
coupon convertible preferred stock or the right to require Nextel to
purchase the zero coupon convertible preferred stock;
- make any share of the zero coupon convertible preferred stock payable in
currency other than United States dollars;
- make any change in the provisions of the certificate of designations
relating to waivers of the rights of holders of the zero coupon
convertible preferred stock to receive the Liquidation Preference or any
Liquidated Damages on the zero coupon convertible preferred stock; or
- make any change in the above amendment and waiver provisions.
Without the consent of any holder of the zero coupon convertible preferred
stock and to the extent permitted by Delaware law, Nextel may, regardless of the
above provisions, amend or supplement the certificate of designations to:
- cure any ambiguity, defect or inconsistency;
- provide for uncertificated shares of the zero coupon convertible
preferred stock in addition to or in place of certificated shares of the
zero coupon convertible preferred stock;
- make any change that would provide any additional rights or benefits to
the holders of the zero coupon convertible preferred stock; or
- make any change that Nextel's board of directors determines, in good
faith, is not materially adverse to holders of the zero coupon
convertible preferred stock.
Q. REISSUANCE
Shares of the zero coupon convertible preferred stock redeemed for or
converted into common stock or otherwise acquired by Nextel will assume the
status of authorized but unissued convertible preferred stock and may be
reissued after Nextel's acquisition in the same manner as the other authorized
but unissued convertible preferred stock, but not as the zero coupon convertible
preferred stock.
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VI. TERMS OF EXISTING NEXTEL PREFERRED STOCK
A. GENERAL
Under the terms of the Securities Purchase Agreement dated as of April 4,
1995, as amended, among Nextel, Digital Radio L.L.C. and Craig O. McCaw (the
"McCaw Securities Purchase Agreement"), Nextel issued to Digital Radio L.L.C.
about 8.2 million shares of Class A Preferred Stock (of which about 7.9 million
were outstanding on March 31, 1999), each with a stated value of $36.75 per
share, which shares are convertible into an equal number of shares of Class C
Preferred Stock (those shares of Class A Preferred Stock and any shares of Class
C Preferred Stock issued upon conversion being convertible into about 23.7
million shares of Common Stock in the aggregate), and 82 shares of Class B
Preferred Stock, convertible into an equal number of shares of common stock. In
addition, Nextel has issued shares of the Series D Preferred Stock and the
Series E Preferred Stock. Some of the significant terms of each class of
preferred stock are summarized below.
B. CLASS A PREFERRED STOCK
The Class A Preferred Stock is the primary mechanism for providing Digital
Radio L.L.C. with the economic benefits and corporate governance rights
contemplated by the McCaw Securities Purchase Agreement. Holders of Class A
Preferred Stock, voting separately as a class, are entitled to elect three
members of the board of directors or, if greater than three, the number of
directors, rounded up to the nearest whole number, equal to 25% of the entire
board of directors (the "Class A Directors"), subject to the termination of
these rights if Digital Radio L.L.C.'s equity interest in Nextel falls below
specified levels. For so long as the operations committee of Nextel's board of
directors is in existence, Digital Radio L.L.C. is entitled to have a majority
of the members of the operations committee represented by Class A Directors or
directors designated by Digital Radio L.L.C. under the terms of the Class B
Preferred Stock or the McCaw Securities Purchase Agreement. With respect to
matters other than the election of directors, shares of Class A Preferred Stock
vote together as a class with shares of common stock and each share of Class A
Preferred Stock is entitled to a number of votes equal to the number of shares
of common stock into which that share is convertible.
The operations committee consists of five members, three of whom are
entitled to be selected from among Digital Radio L.L.C.'s representatives on the
board of directors, as described above. The operations committee has the
authority to formulate key aspects of Nextel's business strategy, including
decisions relating to the technology used by Nextel, subject to existing
equipment purchase agreements; acquisitions; the creation and approval of
operating and capital budgets and marketing and strategic plans; approval of
financing plans; endorsement of nominees to the board of directors; and
nomination and oversight of specified executive officers. The board of
directors, by a majority vote, may override actions taken or proposed by the
operations committee, although doing so would give rise to a $25.0 million
liquidated damages payment to Digital Radio L.L.C.; the commencement of accrual
of a 12% dividend payable on the stated value of all outstanding shares of Class
A Preferred Stock, with an aggregate stated value of about $290.5 million; and
the immediate vesting of the options to purchase 1,000,000 shares granted to an
affiliate of Digital Radio L.L.C.. However, the board of directors, by a defined
super-majority vote, retains the power to override actions taken or proposed by
the operations committee without triggering these consequences. In addition, the
board of directors also may act to terminate the operations committee, although
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this action by the board of directors would, in specified circumstances, result
in the obligation to make the $25.0 million liquidated damages payment, and
result in the commencement of the 12% dividend accrual and the accelerated
vesting of the related options. The McCaw Securities Purchase Agreement, the
certificate of incorporation, and the Nextel by-laws also delineate a number of
circumstances, chiefly involving or resulting from specified events with respect
to Digital Radio L.L.C. or Mr. McCaw, in which the operations committee could be
terminated but the liquidated damages payment, dividend accrual and vesting of
options would not be required. Except for the accrual of the 12% dividend in the
circumstances described above, shares of Class A Preferred Stock are entitled to
dividends only to the extent declared or paid with respect to common stock, in
amounts equal to the amounts that would be received had the Class A Preferred
Stock been converted into common stock. Upon liquidation, dissolution or winding
up of Nextel, the holders of Class A Preferred Stock are entitled to receive a
liquidation preference equal to the stated value of the Class A Preferred Stock
plus any accrued but unpaid dividends.
Each share of Class A Preferred Stock is convertible at the election of the
holder into three shares of common stock, subject to specified adjustments. Upon
the occurrence of specified events, the shares of Class A Preferred Stock are
automatically converted into shares of common stock. In addition, shares of
Class A Preferred Stock are automatically converted into shares of Class C
Preferred Stock on a one-for-one basis upon the occurrence of specified events,
including the reduction of Digital Radio L.L.C.'s ownership interest below
specified levels and foreclosure by a secured party upon shares of Class A
Preferred Stock pledged to that secured party. Shares of Class A Preferred Stock
are also redeemable at Nextel's option upon the occurrence of specified events
constituting a change in control, as defined in the terms of the certificate of
incorporation, at a redemption price equal to the stated value of the Class A
Preferred Stock plus the amount of any accrued or declared but unpaid dividends
on the Class A Preferred Stock.
C. CLASS B PREFERRED STOCK
The purpose of the Class B Preferred Stock is to provide a protection for
Digital Radio L.L.C.'s right to proportionate representation on the board of
directors, to the extent not provided by Digital Radio L.L.C.'s ownership of
Class A Preferred Stock, and to establish a mechanism for the payment of the
$25.0 million liquidated damages payment contemplated by the McCaw Securities
Purchase Agreement in the event that the board of directors takes specified
actions with respect to the operations committee that give rise to this payment.
Shares of Class B Preferred Stock are automatically converted on a one-for-one
basis to shares of common stock if Digital Radio L.L.C.'s equity interest in
Nextel falls below specified levels or if specified transfers of Class B
Preferred Stock occur.
D. CLASS C PREFERRED STOCK
The purpose of the Class C Preferred Stock is to protect the economic
attributes of the Class A Preferred Stock in the event that specified events
resulting in the termination of the corporate governance rights associated with
the Class A Preferred Stock occur. The terms of the Class C Preferred Stock are
substantially the same as the terms of the Class A Preferred Stock except that
holders of Class C Preferred Stock have no special voting rights in the election
of directors, including the appointment of directors to the operations
committee, and are not entitled to the 12% dividend in the circumstances in
which shares of Class A Preferred Stock would be entitled to that dividend.
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E. SERIES D PREFERRED STOCK
The Series D Preferred Stock ranks equally with the Class A Preferred
Stock, the Class B Preferred Stock, the Class C Preferred Stock and the Series E
Preferred Stock in all respects except two. First, the Series D Preferred Stock
is junior with respect to dividend accruals and payments on the Class A
Preferred Stock. Second, the Series D Preferred Stock is junior with respect to
the $25.0 million cash payment on the Class B Preferred Stock. The circumstances
under which these payments must be made are described above and are required to
be made upon specific occurrences. Dividends on the Series D Preferred Stock are
cumulative at 13% per annum and are payable quarterly in cash or, on or before
July 15, 2002, at the sole option of Nextel, in additional shares of Series D
Preferred Stock. The Series D Preferred Stock is mandatorily redeemable on July
15, 2009. It may be redeemed at specified prices in whole or in part at Nextel's
option after December 15, 2005 and, in specified circumstances, after July 15,
2002. The Series D Preferred Stock is also exchangeable, in whole but not in
part, at Nextel's option at any time after December 15, 2005, and sooner in some
circumstances, into exchange debentures.
F. SERIES E PREFERRED STOCK
The Series E Preferred Stock ranks equally with the Class A Preferred
Stock, the Class B Preferred Stock, the Class C Preferred Stock and the Class D
Preferred Stock in all respects except two. First, the Series E Preferred Stock
is junior with respect to dividend accruals and payments on the Class A
Preferred Stock. Second, the Series E Preferred Stock is junior with respect to
the $25.0 million cash payment on the Class B Preferred Stock. The circumstances
under which these payments must be made are described above and are required to
be made upon specific occurrences. Dividends on the Series E Preferred Stock are
cumulative at 11.125% per annum and are payable quarterly in cash or in
additional shares of Series E Preferred Stock on or before February 15, 2003, at
Nextel's sole option. The Series E Preferred Stock is mandatorily redeemable on
February 15, 2010. It may be redeemed at specified prices in whole or in part at
Nextel's option after December 15, 2005 and, in specified circumstances, after
February 15, 2003. The Series E Preferred Stock is also exchangeable, in whole
but not in part, at Nextel's option at any time after December 15, 2005, and
sooner in some circumstances, into exchange debentures.
VII. DILUTION
The following table provides information concerning net tangible book value
and proforma dilution as of March 31, 1999. The net tangible book value deficit
of the common stock as of March 31, 1999 was about $5.3 billion or $16.63 per
share. Net tangible book value deficit per share represents the amount of
Nextel's stockholders' equity, less intangible assets, divided by about
316,121,500 shares of common stock outstanding on March 31, 1999, after giving
effect to the conversion of the outstanding shares of Nextel's non-voting common
stock, the Class A Preferred Stock and the Class B Preferred Stock.
For purposes of the following table, net tangible book value dilution per
share represents the difference between $26.03375, which is the initial
conversion price of the zero coupon convertible preferred stock, and the net
tangible book value deficit per share of common stock as of March 31, 1999.
After giving effect to the conversion of the zero coupon convertible preferred
stock and assuming conversion of all of the zero coupon convertible preferred
stock and taking into account the expenses to Nextel, the net tangible book
value
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deficit per share of Nextel as of March 31, 1999 would have been $15.86. The
following table illustrates this pro forma per share dilution:
<TABLE>
<S> <C> <C>
Initial conversion price of the zero coupon convertible
preferred stock............................................... $ 26.03
Net tangible book value deficit per share before
conversion..................................... $ (16.63)
Increase per share attributable to conversion of
the zero coupon convertible preferred stock.... $ 0.77
--------
Pro forma net tangible book value deficit per share after
conversion of the zero coupon convertible preferred stock... $ (15.86)
--------
Dilution of net tangible book value per share to holders of
the zero coupon convertible preferred stock................. $ 41.89
========
</TABLE>
VIII. UNITED STATES FEDERAL TAX CONSEQUENCES
In the opinion of Jones, Day, Reavis & Pogue, the following are the
material United States federal income tax consequences of the purchase,
ownership and disposition of zero coupon convertible preferred stock. This
discussion is based on the Internal Revenue Code of 1986, as amended to the date
of this prospectus, administrative pronouncements, judicial decisions and
existing and proposed Treasury Regulations. Changes to any of these sources
subsequent to the date hereof may affect the tax consequences described,
possibly with retroactive effect. No ruling has been or will be sought from the
United States Internal Revenue Service with respect to the United States federal
income tax consequences of purchase, ownership or disposition of the zero coupon
convertible preferred stock, and there is no guarantee that the Internal Revenue
Service will agree with the statements contained in this section. This
discussion refers only to zero coupon convertible preferred stock held as a
capital asset within the meaning of Section 1221 of the Internal Revenue Code.
It does not discuss all of the tax consequences that may be relevant to a holder
of the zero coupon convertible preferred stock in light of its particular
circumstances or to holders subject to special rules, such as specified
financial institutions, tax-exempt organizations, insurance companies, dealers
in securities or foreign currencies, persons holding zero coupon convertible
preferred stock as part of a hedging or conversion transaction or as part of a
straddle or holders whose functional currency is not the United States dollar.
Persons considering the purchase of zero coupon convertible preferred stock
should consult their tax advisors with regard to the application of the United
States federal income tax laws to their particular situations, as well as any
tax consequences arising under the laws of any state, local or foreign taxing
jurisdiction.
As used throughout this prospectus, the term U.S. holder means a beneficial
owner of zero coupon convertible preferred stock that is, for United States
federal income tax purposes, any of the following:
- a citizen or individual resident of the United States;
- a corporation, or other entity treated as a corporation, created in or
under the laws of the United States or of any state of the United States;
- an estate the income of which is subject to United States federal income
taxation regardless of its source;
- a trust, if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions of
the trust, including specified trusts in
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existence on August 20, 1996 and treated as United States persons prior
to that date and that timely elected to continue to be treated as United
States persons; or
- a partnership that is created or organized in or under the laws of the
United States or of any state within the United States.
The term non-U.S. holder means any holder that is not a U.S. holder.
A. GENERAL
DEEMED DISTRIBUTIONS OF REDEMPTION PREMIUM
Because the prices at which the zero coupon convertible preferred stock may
be redeemed or acquired by Nextel exceeds the issue price, the first price at
which a substantial amount of the zero coupon convertible preferred stock was
sold to the public for cash, by more than a de minimis amount, the excess of any
redemption or acquisition price over the issue price, the redemption premium,
will be treated by Nextel as a series of constructive distributions of property
with respect to the zero coupon convertible preferred stock. These constructive
distributions of property should be taxable to holders periodically over the
term of the zero coupon convertible preferred stock as dividends to the extent
of Nextel's current and accumulated earnings and profits, as determined under
United States federal income tax principles, under a constant interest rate
method, as described below, at the time of each constructive distribution.
However, Nextel's management believes that Nextel does not have any current or
accumulated earnings and profits and is unlikely to have them in the near
future. Until the time at which Nextel has earnings and profits, holders should
not be required to report any income from their investment in the zero coupon
convertible preferred stock.
The zero coupon convertible preferred stock is subject to:
- mandatory redemption on December 23, 2013;
- optional redemption after December 23, 2005; and
- purchase by Nextel at the option of the holder on December 23, 2005 and
December 23, 2008.
The rules providing for the treatment of any redemption premium on
preferred stock provide that if stock may be redeemed at more than one time, the
redemption premium is to be calculated based on the redemption that is, among
the possible alternatives, most likely to occur. However, because:
- each of the above redemptions is for an amount equal to the Liquidation
Preference of the zero coupon convertible preferred stock, which accretes
on a constant yield to maturity basis; and
- because any redemption premium is required to be accrued by holders on
the same basis, as described below,
the amount of redemption premium accruing to holders in each taxable year
generally should be the same irrespective of when the zero coupon convertible
preferred stock is redeemed.
For federal income tax purposes, the dollar value of the redemption premium
is treated as a series of constructive distributions of property that accrue to
holders under a constant interest rate method similar to that applicable to
original issue discount. Under this method, holders will be treated as receiving
distributions that increase in amount in successive accrual periods. The amount
deemed distributed during the tax year is the sum of the daily portions
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of redemption premium with respect to the zero coupon convertible preferred
stock for each day during the taxable year or portion of the year on which the
holder holds the zero coupon convertible preferred stock. The daily portion is
determined by allocating to each day in any accrual period a pro rata portion of
the distribution allocable to that accrual period. Accrual periods of a holder
may be of any length selected by the holder and may vary in length as long as no
accrual period is longer than one year. The amount allocable to an accrual
period is the product of the zero coupon convertible preferred stock's "adjusted
issue price" at the beginning of the accrual period and the zero coupon
convertible preferred stock's "yield to maturity," as determined under the
Treasury Regulations. The "adjusted issue price" is the issue price of the zero
coupon convertible preferred stock, increased by the amount deemed distributed
in prior accrual periods.
Nextel's management believes that Nextel does not have any current or
accumulated earnings and profits and is unlikely to have current or accumulated
earnings and profits in the near future. The amount of Nextel's earnings and
profits in any given tax year will depend upon the financial performance of
Nextel. However, to the extent that Nextel has current or accumulated earnings
and profits for any taxable year in which a constructive distribution
attributable to redemption premium is deemed made, the amount of the
constructive distribution for that year would, to the extent of the current or
accumulated earnings and profits allocable to the zero coupon convertible
preferred stock, be treated as a dividend to the holder and would be taxable
currently to the holder whether or not the holder received any actual cash
distribution, increasing the holder's adjusted tax basis in its zero coupon
convertible preferred stock by the amount of the distribution treated as a
dividend. To the extent that all or a portion of the amount of a constructive
distribution exceeds Nextel's current or accumulated earnings and profits for a
taxable year allocable to the zero coupon convertible preferred stock, a holder
will not recognize income to the extent of that excess. Rather, the excess would
be treated as a return of capital to the holder to the extent of the holder's
adjusted tax basis in the zero coupon convertible preferred stock. The holder
would:
- reduce its adjusted tax basis in the zero coupon convertible preferred
stock by the amount of the excess, under rules generally applicable to
corporate distributions; and
- increase its adjusted tax basis in the zero coupon convertible preferred
stock by the amount of the excess to reflect the notional receipt of
additional zero coupon convertible preferred stock, under Section 305(c)
of the Internal Revenue Code.
These adjustments should result in no net effect on a holder's adjusted tax
basis in its zero coupon convertible preferred stock.
Nextel's determination of the manner in which the redemption premium on the
zero coupon convertible preferred stock accrues is binding on each holder that
does not explicitly disclose with its federal income tax return that its
determinations with respect to the amount and manner of accrual of the
redemption premium differ from Nextel's determinations.
ADJUSTMENTS TO CONVERSION RATE
Adjustments to the Conversion Rate of the zero coupon convertible preferred
stock may result in a taxable distribution to a holder under Section 305 of the
Internal Revenue Code if the change has the effect of increasing the holder's
proportionate interest in the earnings and profits or assets of Nextel. In
general, anti-dilution adjustments are not treated as resulting in deemed
distributions. However, an adjustment to the Conversion Rate resulting from a
Change of Control, as well as other adjustments considered to compensate for
taxable cash or
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property distributions to other stockholders, could result in a taxable deemed
distribution to holders.
B. U.S. HOLDERS
DIVIDENDS
Constructive distributions treated as dividends, such as those attributable
to earnings and profits properly allocable to the zero coupon convertible
preferred stock, will be taxable to U.S. Holders as ordinary dividend income at
the time these constructive distributions are deemed made.
DIVIDENDS RECEIVED DEDUCTION
Constructive distributions of redemption premium with respect to the zero
coupon convertible preferred stock will not be eligible for the dividends
received deduction unless and until Nextel has current or accumulated earnings
and profits. At that time, subject to specified exceptions and limitations,
corporate U.S. holders may be entitled to a dividends received deduction equal
to 70 percent of the amount of any constructive distribution of redemption
premium on the zero coupon convertible preferred stock that is taxable as a
dividend to holders, that is only to the extent that Nextel has sufficient
current or accumulated earnings and profits. With respect to a constructive
distribution of redemption premium that is treated as a dividend, corporate U.S.
holders may be entitled to claim the dividends received deduction, but this
deduction may be restricted, eliminated or offset by other tax rules that limit
the availability of the dividends received deduction.
The dividends received deduction is reduced for U.S. holders that have
incurred indebtedness that is directly attributable to an investment in the zero
coupon convertible preferred stock, as well as for U.S. holders that fail to
meet specified holding period requirements. Under the holding period
requirements, the U.S. holder must hold the zero coupon convertible preferred
stock for more than 45 days during the 90 day period surrounding the ex-dividend
date; this is the 90 days equal to the 45 days prior to the ex-dividend date and
44 days after the ex-dividend date. For these purposes, the holding period does
not include any period during which the U.S. holder has diminished its risk of
loss, including through holding "an option to sell . . . substantially identical
stock or securities," or "by holding 1 or more positions with respect to
substantially similar or related property." In the absence of authority directly
on point, and while the matter is not free from doubt, the right of U.S. holders
to demand payment by causing Nextel to purchase the zero coupon convertible
preferred stock on December 23, 2005 and December 23, 2008 for its Liquidation
Preference in cash or common stock, which type of payment is at Nextel's option,
should not be considered to be an option or position diminishing a U.S. holder's
risk of loss for purposes of this rule. Accordingly, these rights should not be
considered to make the dividends received deduction unavailable. In the absence
of controlling authority, however, there can be no assurance that the Internal
Revenue Service would not take a contrary position and prevail.
Further, if a dividend distribution either equals or exceeds five percent
of the U.S. holder's adjusted tax basis in the zero coupon convertible preferred
stock, treating all dividends having ex-dividend dates within an 85-day period
as one dividend, or exceeds 20 percent of the U.S. holder's adjusted tax basis
in the zero coupon convertible preferred stock, treating all dividends having
ex-dividend dates within a 365-day period as one
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dividend, then the distribution may constitute an extraordinary dividend that
requires the U.S. holder to reduce its adjusted tax basis in the zero coupon
convertible preferred stock by the amount of the dividend excluded from income
under the dividends received deduction provisions. In the event that Nextel does
not have earnings and profits in earlier years so that a U.S. holder's basis has
not increased significantly, a U.S. holder's annual accrual of redemption
premium may constitute an extraordinary dividend to the holder in later years if
and when Nextel has earnings and profits.
The revenue provisions of the President's fiscal year 2000 budget proposal
contain a proposal that would reduce the dividends received deduction for
holders of stock that have incurred any indebtedness attributable to an
investment in the stock, even if the indebtedness is only indirectly
attributable to the investment. Further, this fiscal year 2000 budget proposal
suggests that the dividends received deduction be eliminated with respect to
dividends paid on certain "nonqualified preferred stock" (preferred stock that
may be or must be redeemed by the issuer). It is not known at this time whether
the revenue provisions of this fiscal year 2000 budget proposal will be enacted.
U.S. holders are strongly encouraged to consult their own tax advisors
concerning the effect of the above-described proposals, if the proposals become
law, on their particular tax positions.
SALE OR OTHER DISPOSITION OF THE ZERO COUPON CONVERTIBLE PREFERRED STOCK
Except as described below, a U.S. holder generally will recognize capital
gain or loss on the sale or other disposition of zero coupon convertible
preferred stock in an amount equal to the difference between the amount realized
and the holder's adjusted tax basis in the zero coupon convertible preferred
stock. The U.S. holder's adjusted tax basis in zero coupon convertible preferred
stock will be the cost of the stock, increased by any amounts of redemption
premium constructively distributed and treated as a dividend while the holder
held the zero coupon convertible preferred stock. The capital gain or loss will
be long-term capital gain or loss if the U.S. holder held the zero coupon
convertible preferred stock for more than one year at the time of disposition.
Long-term capital gains recognized by noncorporate taxpayers are subject to tax
at a maximum rate of 20 percent. The deductibility of capital losses is subject
to limitations.
REDEMPTION OF ZERO COUPON CONVERTIBLE PREFERRED STOCK
A redemption or other purchase by Nextel of the zero coupon convertible
preferred stock for cash will be treated, depending on the facts and
circumstances of each U.S. holder, as a distribution on the zero coupon
convertible preferred stock, or a taxable exchange of the zero coupon
convertible preferred stock. A transaction of this type will be treated as a
taxable exchange of the zero coupon convertible preferred stock if it results in
either a complete termination of the U.S. holder's interest in Nextel or a
"meaningful reduction," as determined under Section 302 of the Internal Revenue
Code, of the U.S. holder's interest in Nextel. In determining whether a complete
termination or meaningful reduction has occurred, the U.S. holder is deemed to
own stock of Nextel that is owned by specified related persons or that is the
subject of an option of the U.S. Holder or of a related person.
If the redemption or other purchase does not result in a complete
termination or meaningful reduction of the U.S. holder's interest in Nextel, it
will be treated as a distribution on stock to a U.S. holder. The amount of the
distribution will be the amount of the cash received by the U.S. holder. This
distribution will be treated first as a dividend, to the extent of Nextel's
current or accumulated earnings and profits, then, as a return of capital,
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to the extent of the basis in the holder's remaining stock of Nextel, and
thereafter, as capital gain.
To the extent that a redemption or other purchase is treated as an exchange
of zero coupon convertible preferred stock, the U.S. holder will be treated in
the same manner as if the U.S. holder had sold its zero coupon convertible
preferred stock. See the above discussion in "-- Sale or Other Disposition of
the Zero Coupon Convertible Preferred Stock."
Upon redemption or other purchase by Nextel in exchange for common stock, a
U.S. holder's exchange of zero coupon convertible preferred stock for common
stock should be treated as occurring as a result of a recapitalization of
Nextel. In this case, the U.S. holder should not recognize gain or loss at the
time of the redemption. A U.S. holder's initial basis in the common stock
received should equal the U.S. holder's basis in the zero coupon convertible
preferred stock surrendered in exchange for the common stock, and the U.S.
holder's holding period in the common stock received should include the U.S.
holder's holding period in the exchanged zero coupon convertible preferred
stock.
CONVERSION OF ZERO COUPON CONVERTIBLE PREFERRED STOCK INTO COMMON STOCK
The conversion by a U.S. holder of its zero coupon convertible preferred
stock into common stock should not give rise to the recognition of income, gain
or loss at the time of the conversion, assuming that no cash is received at that
time. Cash received instead of fractional shares of common stock will be treated
as if the U.S. holder received the fractional share and exchanged it for cash;
the excess, if any, of the cash received over the U.S. holder's adjusted tax
basis attributable to the fractional share should be treated as capital gain.
The U.S. holder will take an adjusted tax basis in the common stock equal to its
adjusted tax basis in the zero coupon convertible preferred stock at the time of
conversion. The U.S. holder's adjusted tax basis in the zero coupon convertible
preferred stock would include any accruals of redemption premium taken into
account by the holder, notwithstanding that the holder did not actually receive
any redemption premium and forfeited its rights to any redemption premium by
virtue of the conversion. Upon subsequent sale by the U.S. holder of the common
stock received upon conversion, any excess of the adjusted tax basis of the
common stock over the amount realized should be treated as a capital loss.
C. PERSONS WHO DO NOT QUALIFY AS U.S. HOLDERS
DEEMED DISTRIBUTIONS OF REDEMPTION PREMIUM
In general, non-U.S. holders would be subject to United States income
taxation on dividends, including constructive dividends, paid or deemed paid by
Nextel on the zero coupon convertible preferred stock. With respect to non-U.S.
holders that are not engaged in a United States trade or business, dividends,
including constructive dividends, paid or deemed paid by Nextel to those holders
would be subject to United States tax at a 30 percent rate, unless reduced by an
applicable income tax treaty. This United States tax liability may be collected
by withholding or, if not so collected, through the filing of a United States
tax return and payment of United States tax by a non-U.S. holder. However,
Nextel currently expects that those holders will not hold the zero coupon
convertible preferred stock for any taxable year of Nextel with respect to which
Nextel has current or accumulated earnings and profits. See also "V.H.
Description of Zero Coupon Convertible Preferred Stock -- Mandatory Conversion,"
above. Therefore, it is not anticipated that non-U.S. holders would
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be liable for United States tax in respect of constructive distributions on the
zero coupon convertible preferred stock.
At present, Nextel does not have either current or accumulated earnings and
profits as determined for United States tax purposes, and Nextel currently
believes it is unlikely to have earnings and profits until after December 31,
2000. Moreover, since Nextel lacks earnings and profits and the zero coupon
convertible preferred stock has deemed dividends, rather than actual
distributions of cash or property, Nextel believes that it is reasonable to take
the position that there is no obligation to withhold United States tax in
respect of the zero coupon convertible preferred stock until that time. If a
withholding agent collects United States tax from sales proceeds or otherwise on
account of non-U.S. holder in respect of the zero coupon convertible preferred
stock for a taxable year when Nextel has no earnings and profits, the holder may
claim a refund of the excess withholding tax by filing a United States tax
return. Nextel will upon request provide the information reasonably necessary to
support the claim.
Nextel's tax status as concerns current or accumulated earnings and profits
or other matters that could have United States tax implications for non-U.S.
holders may vary significantly based on developments or transactions affecting
or involving Nextel, its assets and its liabilities. Other than specific
periodic notice obligations, Nextel has no obligation to any non-U.S. holder to
refrain from engaging in transactions or relationships that could have adverse
United States tax implications for non-U.S. holders, or to avoid generating
earnings and profits for United States tax purposes prior to January 1, 2001 or
any other date.
SALE, REDEMPTION OR OTHER DISPOSITION OF THE ZERO COUPON CONVERTIBLE PREFERRED
STOCK
Except as provided below, a non-U.S. holder generally will not be subject
to United States federal income tax with respect to gain realized on the sale or
other disposition of the zero coupon convertible preferred stock, unless:
- the gain is effectively connected with a United States trade or business;
- the non-U.S. holder is an individual who is present in the United States
for 183 or more days during the taxable year of the disposition and
specified other requirements are met; or
- the gain is attributable to accrued dividends constructively distributed
on the zero coupon convertible preferred stock while owned by the
non-U.S. holder if not previously subject to withholding of United States
tax.
If proceeds from the disposition of the zero coupon convertible preferred
stock are effectively connected with a United States trade or business of the
non-U.S. holder, or that holder is otherwise subject to United States federal
income taxation on a net income basis, the holder generally will be subject to
the rules described above under "U.S. Holders -- Sale or Other Disposition of
the Zero Coupon Convertible Preferred Stock," subject to any modification
provided under an applicable income tax treaty. The non-U.S. holder may also be
subject to the United States branch profits tax if the holder is a corporation.
To the extent that a redemption or other purchase by Nextel for cash is treated
as a sale or exchange of zero coupon convertible preferred stock by a non-U.S.
holder rather than as a distribution on stock, according to the rules stated
above under "U.S. Holders -- Redemption of Zero Coupon Convertible Preferred
Stock," the non-U.S. holder will be treated in the same manner as if that holder
had sold its zero coupon convertible preferred stock. To the extent that a
redemption or other purchase by Nextel is treated as a distribution on stock,
the
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amount of cash received by non-U.S. holder should be treated first as a dividend
to the extent of any earnings and profits of Nextel, then, as a return of
capital to the extent of the basis in the non-U.S. holder's remaining stock of
Nextel, and thereafter, as capital gain.
Upon redemption or other purchase by Nextel in exchange for common stock,
including a Mandatory Conversion, a non-U.S. holder's exchange of zero coupon
convertible preferred stock for common stock should be treated as occurring due
to a recapitalization of Nextel. In this case, a non-U.S. holder should not
recognize gain or loss at the time of the redemption or other purchase, except
that gain should be recognized to the extent of cash received by that holder
instead of fractional shares in the manner described in "-- U.S. Holders --
Conversion of Zero Coupon Convertible Preferred Stock into Common Stock" above.
A non-U.S. holder's initial basis in the common stock received should equal that
holder's basis in the zero coupon convertible preferred stock surrendered in
exchange for the common stock, increased by any gain recognized at the time of
the redemption or other purchase, and the non-U.S. holder's holding period in
the common stock received should include the non-U.S. holder's holding period in
the zero coupon convertible preferred stock surrendered.
If, contrary to Nextel's expectations, Nextel determines that it has
earnings and profits allocable to the zero coupon convertible preferred stock
during a taxable year of Nextel in which a non-U.S. holder held the zero coupon
convertible preferred stock, Nextel or a withholding agent may withhold from the
proceeds of a redemption by Nextel for cash or common stock in order to satisfy
any resulting withholding tax liability.
D. INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to specified
payments of dividends and principal on, and to the proceeds of sales or
redemptions of, zero coupon convertible preferred stock made to U.S. holders
other than specified exempt recipients, such as corporations. A 31 percent
backup withholding tax will apply to these payments if the U.S. holder fails to
provide a taxpayer identification number or certification of exempt status, or
otherwise fails to comply with Treasury Regulations on reporting. Backup
withholding is not an additional tax, and amounts withheld as backup withholding
will be allowed as a refund or a credit against the U.S. holder's United States
federal income tax liability, assuming that the required information is
furnished to the Internal Revenue Service by the U.S. holder.
Backup withholding generally will not apply to payments made to a non-U.S.
holder of zero coupon convertible preferred stock that provides the appropriate
certification of foreign status. Payments by a United States office of a broker
of the proceeds of a disposition of the zero coupon convertible preferred stock
generally will not be subject to backup withholding if the non-U.S. holder
certifies that it does not qualify as a U.S. holder under penalties of perjury
or otherwise establishes an exemption. Information reporting requirements, but
not backup withholding, will also apply to a payment of the proceeds of the
disposition of the zero coupon convertible preferred stock by or through a
foreign office of a United States broker or a foreign broker that is a related
person, unless the non-U.S. holder certifies to the broker under penalties of
perjury as to its name, address and status as a foreign person or the holder
otherwise establishes an exemption.
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IX. PLAN OF DISTRIBUTION
The securities being offered by this prospectus may be sold from time to
time to purchasers directly by the selling stockholders listed in the table set
forth in "IV. Selling Stockholders" or alternatively, through underwriters,
broker-dealers or agents. These shares may be sold by the selling stockholders
in one or more transactions at fixed prices, at prevailing market prices at the
time of sale, at varying prices determined at the time of sale or at negotiated
prices. These sales may be effected in transactions, which may involve crosses
or block transactions:
- on any national securities exchange or quotation service on which these
shares may be listed or quoted at the time of sale;
- in the over-the-counter market;
- in transactions otherwise than on an exchange or over-the-counter market;
and
- through the writing of options.
In connection with sales of these shares, the selling stockholders may
enter into hedging transactions with broker-dealers, who may in turn engage in
short sales of the securities in the course of hedging the positions they
assume. The selling stockholders may also sell the securities short and deliver
them to close out the short positions, or loan or pledge the securities to
broker-dealers that in turn may sell them.
The selling stockholders and any of their brokers, dealers or agents who
participate in the distribution of the securities may be deemed to be
"underwriters", and any profits on the sale of the securities by them and any
discounts, commissions, or concessions received by any brokers, dealers or
agents might be deemed to be underwriting discounts and commissions under the
Securities Act of 1933.
To the best knowledge of Nextel, there are currently no plans, arrangements
or understandings between any selling stockholders and any broker, dealer, agent
or underwriter regarding the sale of the securities by the selling stockholders.
At any time a particular offer of the securities is made, a revised
prospectus or supplement, if required, will be distributed which will set forth
the aggregate amount and type of securities being offered and the terms of the
offering, including the name or names of any underwriters, dealers or agents,
any discounts, commissions and other items constituting compensation from the
seller stockholders and any discounts, commissions or concessions allowed or
reallowed or paid to dealers. Any supplement and, if necessary, a post-effective
amendment to the registration statement of which this prospectus is a part, will
be filed with the Securities and Exchange Commission to reflect the disclosure
of additional information with respect to the distribution of the securities. In
addition, the securities covered by this prospectus may be sold in private
transactions or under Rule 144 rather than under this prospectus.
Nextel has agreed to indemnify the selling stockholders against specified
liabilities under the Securities Act of 1933 and to pay substantially all of the
expenses incidental to the registration, offering and sale of the securities to
the public other than commissions, fees and discounts of underwriters, brokers,
dealers and agents.
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X. LEGAL MATTERS
Jones, Day, Reavis & Pogue, Atlanta, Georgia, will pass upon the validity
of the securities offered by this prospectus.
XI. EXPERTS
The consolidated financial statements and related financial statement
schedules of Nextel that are incorporated into this prospectus by reference from
Nextel's Annual Report on Form 10-K for the year ended December 31, 1998 have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, which is incorporated herein by reference, and have been so incorporated
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
XII. WHERE YOU CAN GET MORE INFORMATION
A. AVAILABLE INFORMATION
Nextel files reports, proxy statements and other information with the
Securities and Exchange Commission. You may read and copy this information at
the public reference facilities maintained by the Commission at:
- The Commission's Public Reference Room 1024, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549; and
- The Commission's regional offices at:
- World Trade Center, 13th Floor, New York, New York 10048, and
- Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661.
You may obtain information on the operation of the public reference room by
calling the Commission at 1-800-SEC-0330. Nextel's filings are also available on
the Commission's Web site on the Internet at http://www.sec.gov.
Nextel filed a registration statement with the Commission under the
Securities Act of 1933 to register the zero coupon convertible preferred stock
and underlying common stock that is offered under this prospectus. As allowed by
the Commission's rules, this prospectus does not contain all of the information
you can find in the registration statement and its exhibits. If Nextel filed any
relevant contract, agreement or other document as an exhibit to the registration
statement, you should read the exhibit for a more complete understanding of the
document or matter involved.
B. INCORPORATION OF DOCUMENTS BY REFERENCE
The Commission allows Nextel to "incorporate by reference" information into
this prospectus. This means that Nextel can disclose information to you by
referring you to another document filed by Nextel with the Commission. Nextel
will make those documents available to you without charge upon your oral or
written request. Requests for those documents should be directed to Nextel
Communications, Inc., 2001 Edmund Halley Drive, Reston, Virginia 20191,
Attention: Investor Relations, telephone: (703) 433-4000.
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This prospectus incorporates by reference the following documents:
- Annual Report on Form 10-K for the year ended December 31, 1998, filed
with the Securities and Exchange Commission on March 30, 1999;
- Current Reports on Form 8-K:
- dated and filed with the Commission on February 24, 1999;
- dated and filed with the Commission on April 1, 1999;
- dated May 12, 1999 and filed with the Commission on May 13, 1999;
- dated and filed with the Commission on June 15, 1999;
- dated and filed with the Commission on June 23, 1999; and
- dated and filed with the Commission on August 12, 1999;
- Quarterly Report on Form 10-Q for the quarter ended March 31, 1999, dated
and filed with the Commission on May 17, 1999;
- Proxy Statement, dated as of April 7, 1999, filed with the Commission in
definitive form on April 8, 1999, with respect to the information
required by Items 401 (management), 402 (executive compensation), 403
(securities ownership) and 404 (certain relationships and related
transactions) of Regulation S-K promulgated under the Securities Act of
1933 and the Securities and Exchange Act of 1934; and
- The description of the common stock contained in the Registration
Statement on Form 8-A dated January 16, 1992 including the information
incorporated by reference into that registration statement from the
Registration Statement on Form S-1, as amended, dated as of January 27,
1992.
Nextel is also incorporating by reference additional documents it may file
according to Sections 13(a), 13(c), 14 or 15(d) of the Securities and Exchange
Act of 1934 after the date of this prospectus and before the termination of the
offering. This additional information is a part of this prospectus from the date
of filing of any documents.
Any statements made in this prospectus or in a document incorporated or
deemed to be incorporated by reference in this prospectus shall be deemed to be
modified or superseded for purposes of this prospectus to the extent that a
statement contained in this prospectus or in any other subsequently filed
document which is also incorporated or deemed to be incorporated by reference in
this prospectus modifies or supersedes that statement. Any statement modified or
superseded in this manner will not be deemed, except as modified or superseded,
to constitute a part of this prospectus.
The information relating to Nextel contained in this prospectus should be
read together with the information in the documents incorporated by reference.
In addition, some of the information, including financial information, contained
in this prospectus or incorporated in this prospectus by reference should be
read in conjunction with documents filed with the Commission by Nextel
International, Inc.
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