Sprint - Nextel 2012 Annual Report Download - page 189

Table of Contents
Exchangeable Notes
— During December 2010, Clearwire Communications completed offerings of $729.2 million 8.25% exchangeable notes due
2040 , which we refer to as the Exchangeable Notes. The Exchangeable Notes provide for bi - annual payments of interest in June and December. The
Exchangeable Notes are subordinated to the 2015 Senior Secured Notes and 2016 Senior Secured Notes and rank equally in right of payment with the
Second
- Priority Secured Notes.
The holders of the Exchangeable Notes have the right to exchange their notes for Class A Common Stock, at any time, prior to the maturity date.
We have the right to settle the exchange by delivering cash or shares of Class A Common Stock, subject to certain conditions. The initial exchange
rate for each note is
141.2429 shares per $1,000 note, equivalent to an initial exchange price of approximately $7.08 per share, subject to adjustments
upon the occurrence of certain corporate events, which we refer to as the Exchangeable Notes Exchange Rate. Upon exchange, we will not make
additional cash payment or provide additional shares for accrued or unpaid interest, make
- whole premium or additional interest.
The holders of the Exchangeable Notes have the right to require us to repurchase all of the notes upon the occurrence of a fundamental change,
including a change of control, event at a price of
100% of the principal amount plus any unpaid accrued interest to the repurchase date. The holders
who elect to exchange the Exchangeable Notes in connection with the occurrence of a fundamental change will be entitled to additional shares that are
specified based on the date on which such event occurs and the price paid per share of Class A Common Stock in the fundamental change, with a
maximum number of shares issuable per note not to exceed
169.4915 shares per $1,000 note. If our stock price is less than $5.90 per share, subject to
certain adjustments, no additional shares shall be added to the exchange rate. In the event the Proposed Merger is consummated, in accordance with
the Merger Agreement the right to exchange each $1,000 note shall be changed to the right to exchange such principal amount of Exchangeable Notes
into cash equal to the product of the $2.97 per share, which we refer to as the Merger Consideration, multiplied by the Exchangeable Notes Exchange
Rate.
The holders of the Exchangeable Notes have the option to require us to repurchase for cash the Exchangeable Notes on December 1, 2017, 2025,
2030 and 2035 at a price equal to 100% of the principal amount of the notes plus any unpaid accrued interest to the repurchase date. On or after
December 1, 2017, we may, at our option, redeem all or part of the Exchangeable Notes at a price equal to
100% of the principal amount of the notes
plus any unpaid accrued interest to the redemption date.
Our payment obligations under the Exchangeable Notes are guaranteed by certain domestic subsidiaries in the same priority as the Second
-
Priority Secured Notes.
Upon issuance of the Exchangeable Notes, we recognized a derivative liability representing the embedded exchange feature with an estimated
fair value of
$231.5 million and an associated debt discount on the Exchangeable Notes. The discount is accreted over the expected life, approximately
7 years, of the Exchangeable Notes using the effective interest rate method. See Note 11, Derivative Instruments, for additional discussion of the
derivative liability.
During the first quarter of 2012, Clearwire and Clearwire Communications entered into securities purchase agreements with certain institutional
investors, which we refer to as the Exchange Transaction, pursuant to which Clearwire issued 38.0 million shares of Class A Common Stock for an
aggregate price of
$83.5 million , which we refer to as the Purchase Price, and Clearwire Communications repurchased $100.0 million in aggregate
principal amount, plus accrued but unpaid interest, of its Exchangeable Notes for a total price equal to the Purchase Price. Due to the significant
discount resulting from the recognition of the exchange options as a separate derivative liability upon the issuance of the Exchange Notes,
extinguishment of the Exchangeable Notes in the Exchange Transaction resulted in a loss of $10.1 million recorded in Other income (expense), net of
the consolidated statements of operations.
At December 31, 2012, we were in compliance with our debt covenants.
Vendor Financing Notes
We have a vendor financing facility, which we refer to as the Vendor Financing Facility, which allows us to obtain financing by entering into
notes, which we refer to as Vendor Financing Notes. The Vendor Financing Notes mature during
2014 and 2015 and the coupon rates are based on 3 -
month LIBOR plus a spread of 5.50% and 7.00% for secured and unsecured notes, respectively.
Capital Lease Obligations
Certain of our network equipment have been acquired under capital lease facilities. At the inception of the capital lease, the lower of either the
present value of the minimum lease payments required by the lease or the fair value of the equipment, is
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