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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
COMMISSION FILE NOS. 333-04603 AND 333-04603-01
NEXTLINK COMMUNICATIONS, INC.
A WASHINGTON CORPORATION I.R.S. EMPLOYER NO. 91-1738221
NEXTLINK CAPITAL, INC.
A WASHINGTON CORPORATION I.R.S. EMPLOYER NO. 91-1716062
155 108TH AVENUE, N.E., 8TH FLOOR, BELLEVUE, WASHINGTON 98004
TELEPHONE NUMBER (425) 519-8900
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
CLASS A COMMON STOCK, PAR VALUE $0.0227
Indicate by check mark whether the Issuers (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Registration S-B is not contained herein, and will not be contained, to
the best of Registrants' knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
The Issuers' revenues for its most recent fiscal year were $57,579,000.
The aggregate market value of the Class A and Class B Common Stock held by
non-affiliates of the Issuers, based upon the closing sale price of the Common
Stock on March 6, 1998 as reported on the NASDAQ National Market System, was
approximately $706,098,643. Shares of Class A and Class B Common Stock held by
each executive officer and director and by each person who owns 5% or more of
the outstanding Class A and Class B Common Stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.
As of March 6, 1998, the number of outstanding shares of NEXTLINK
Communications, Inc.'s Class A Common Stock was 19,249,940 and Class B Common
Stock was 34,247,644. NEXTLINK Capital, Inc. had outstanding 1,000 shares of
Common Stock, par value $0.01 per share.
NEXTLINK Capital, Inc. ("NEXTLINK Capital" and together with the Company,
the "Issuers") meets the conditions set forth in General Instruction G(1)(a) and
(b) of Form 10-KSB and is therefore filing this form with the reduced disclosure
format.
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TABLE OF CONTENTS
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ITEM PAGE
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PART I
1. Description of Business..................................... 1
2. Description of Properties................................... 21
3. Legal Proceedings........................................... 21
4. Submission of Matters to a Vote of Security Holders......... 21
PART II
5. Market for Registrants' Common Stock and Related Stockholder
Matters..................................................... 21
6. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 22
7. Financial Statements and Supplementary Data................. 34
8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 34
PART III
9. Directors and Executive Officers of the Company............. 35
10. Executive Compensation...................................... 40
11. Security Ownership of Certain Beneficial Owners and
Management.................................................. 40
12. Certain Relationships and Related Transactions.............. 40
13. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 41
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NEXTLINK COMMUNICATIONS, INC.
NEXTLINK CAPITAL, INC.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Capitalized terms used herein which are not otherwise defined have the
respective meanings ascribed to them in the Glossary, beginning on page 19.
OVERVIEW
NEXTLINK Communications, Inc. ("NEXTLINK" or the "Company") was founded in
1994 by Craig O. McCaw, its largest and controlling shareholder, to provide
local facilities-based telecommunications services to its targeted customer base
of small and medium-sized businesses. In July 1996, NEXTLINK became one of the
first competitive local exchange carriers ("CLECs") in the United States to
provide facilities-based switched local services under the Telecommunications
Act of 1996 (the "Telecom Act"), which opened the entire local exchange market
to competition. In each of the markets it serves, NEXTLINK seeks to become a
principal competitor to the incumbent local exchange carrier ("ILEC") for its
targeted customers by providing an integrated package of high quality local,
long distance and enhanced telecommunications services at competitive prices. In
October 1997, the Company completed an initial public offering of shares of its
Class A Common Stock.
The market potential for competitive telecommunications services is large
and growing. Industry sources estimate that in 1996 the total revenues from
local and long distance telecommunications services were approximately $183
billion, of which approximately $101 billion were derived from local exchange
services and approximately $82 billion from long distance services. Based upon
FCC information, aggregate revenues for local and long distance services grew at
a compounded annual rate of approximately 5.5% between 1991 and 1996. The
Telecom Act, the FCC's issuance of rules for competition and pro-competitive
policies developed by state regulatory commissions, has created opportunities
for new entrants, including the Company, to capture a portion of the ILEC's
dominant, and historically monopoly controlled, market share of local services.
The development of switched local services competition, however, is in its early
stages, and the Company believes that CLECs currently serve fewer than 5% of the
total business lines in the United States.
The Company's targeted customer base within the national telecommunications
market is small to medium-sized businesses, generally those businesses with
fewer than 50 access lines. Based on consultants' reports, the Company estimates
that as of year end 1996, there were approximately 170 million access lines
nationwide, including approximately 55 million business lines.
The Company develops and operates high capacity, fiber optic networks with
broad market coverage in a growing number of markets across the United States.
In its switched local service markets, the Company offers its customers a
bundled package of local and long distance services and also offers dedicated
transmission and competitive access services to long distance carriers and end
users. In addition, NEXTLINK offers several non-network-based enhanced
communications services to customers nationwide, including a variety of
interactive voice response ("IVR") products.
The Company currently operates 16 facilities-based networks providing
switched local and long distance services in 26 markets in eight states. The
Company anticipates developing additional new markets during 1998 which,
together with its existing markets, are expected to have a total of
approximately 15 million addressable business lines by the end of 1998. The
Company's goal is to add or expand markets to increase its addressable business
lines for markets in service or under development to approximately 21 million by
the end of 1999.
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The Company's goal of targeting 15 million addressable business lines by
year end 1998 represents a 36% increase over the Company's previous objective.
The Company has increased its line targets based principally on three factors:
initial success in establishing networks and launching services in major
metropolitan markets in Los Angeles, Chicago and Philadelphia; the Company's
significant growth in the sale and installation of access lines throughout all
markets; and the Company's review of several potential target markets, which
underlined the significant market opportunities available to NEXTLINK in those
markets.
NEXTLINK is pursuing its targeted customer base in markets of all sizes. In
larger markets, the Company has operational networks in Los Angeles, Chicago and
Philadelphia, and networks under development in New York City, the San Francisco
Bay Area and Atlanta. The Company also has operational networks in medium-sized
markets such as Las Vegas and Nashville as well as smaller markets that have
been clustered in Orange County, California and central Pennsylvania. The
Company will enter large markets on a stand-alone basis where it is economically
attractive to do so and where competitive and other market factors warrant such
entry. The Company also considers pursuing smaller markets where it can extend
or cluster an existing network with relatively little incremental capital. The
Company anticipates that the addressable business lines in the larger markets
that it is currently operating and developing will represent the majority of the
Company's addressable business lines by year end 1998 and 1999.
NEXTLINK has experienced significant growth in its customer base.
NEXTLINK's customer access lines in service have increased from 8,511 access
lines at December 31, 1996 to 50,131 access lines at December 31, 1997. This
growth is attributable to both new network launches as well as significant
increases in growth rates in those markets where the Company launched service in
1996. For markets launched in 1996, the Company has increased its access lines
in service by 248%, from 8,511 to 29,591 at December 31, 1996 and 1997,
respectively, representing 51% of the Company's overall increase in access lines
in service over the respective periods. The Company has also improved the
quarterly rate of access line installations from 1,604 in the fourth quarter of
1996 to 19,187 in the fourth quarter of 1997. Approximately 32% of the increase
in total quarterly installations was driven by an increase in quarterly
installations in those markets launched in 1996, where installations increased
from 1,604 in the fourth quarter 1996 to 7,293 in the fourth quarter of 1997.
NEXTLINK believes that a critical factor in the successful implementation
of its strategy is the quality of its management team and their extensive
experience in the telecommunications industry. The Company has built a
management team that it believes is well suited to challenge the dominance of
the ILECs in the local exchange market. Craig O. McCaw, the Company's founder
and largest and controlling shareholder, Steven W. Hooper, the Company's
Chairman of the Board, Wayne M. Perry, the Company's Vice Chairman and Chief
Executive Officer, James F. Voelker, the Company's President, and George M.
Tronsrue III, the Company's Chief Operating Officer, each has 15 or more years
of experience in leading companies in competitive segments of the
telecommunications industry. In addition, the presidents of the Company's
operating subsidiaries and the Company's senior officers have an average of 14
years of experience in the telecommunications industry. Mr. Hooper and Mr. Perry
were members of the senior management team at McCaw Cellular Communications,
Inc. ("McCaw Cellular") during the years in which it became the nation's largest
cellular telephone company. Following McCaw Cellular's sale to AT&T Corp. in
1994, Messrs. Perry and Hooper were Vice Chairman and Chief Executive Officer,
respectively, of AT&T Wireless Services, Inc.
MARKET OPPORTUNITY
Prior to 1984, AT&T Corp. ("AT&T") dominated both the local exchange and
long distance marketplace by owning the operating entities that provided both
local exchange and long distance services to most of the U.S. population. While
long distance competition began to emerge in the late 1970s, the critical event
triggering the growth of long distance competition was the breakup of AT&T and
the separation of its local and long distance businesses as mandated by the
Modified Final Judgment relating to the breakup of AT&T (the "MFJ"). To foster
competition in the long distance market, the MFJ prohibited AT&T's divested
local exchange businesses, the Regional Bell Operating Companies ("RBOCs"), from
acting as a single source provider of telecommunications services.
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The Company believes that a similarly critical event occurred in 1996 with
the passage of the Telecom Act. In most locations throughout the United States,
the ILEC has operated with a virtual monopoly over the provision of most local
exchange services. However, just as competition slowly emerged in the long
distance business prior to the MFJ, competitive opportunities also have slowly
emerged over the last 10 years at the local level.
Industry sources estimate that in 1996 the total revenues from local and
long distance telecommunications services were approximately $183 billion, of
which approximately $101 billion were derived from local exchange services and
approximately $82 billion from interLATA long distance services. Based upon FCC
information, aggregate revenues for local and long distance services grew at a
compounded annual rate of approximately 5.5% between 1991 and 1996. Although the
MFJ relating to the breakup of AT&T established the preconditions for
competition in the market for long distance services in 1984, the market for
local exchange services has been, until recently, virtually closed to
competition and has largely been dominated by regulated monopolies. Efforts to
open the local exchange market began in the late 1980s on a state-by-state basis
when competitive access providers ("CAPs") began offering dedicated private line
transmission and special access services. These types of services together
currently account for approximately 12% of the total local exchange revenues.
CAPs were restricted, often by state laws, from providing the other, more
frequently used services such as basic and switched services, which today
account for approximately 88% of local exchange revenues.
The Telecom Act and the FCC's issuance of rules for competition,
particularly those requiring the interconnection of all networks and the
interchange of traffic among the ILECs and the CLECs, as well as pro-competitive
policies already developed by state regulatory commissions, have caused
fundamental changes in the structure of the local exchange markets. Although a
recent decision by the United States Court of Appeals for the Eighth Circuit
substantially limits the FCC's jurisdiction and expands the state regulators'
jurisdiction to set and enforce rules governing the development of local
competition, most states have already begun to establish rules for local
competition that are consistent with the FCC rules overturned by the Eighth
Circuit. See "-- Regulatory Overview."
These developments create opportunities for new entrants offering local
exchange services to capture a portion of the ILEC's dominant, and historically
monopoly controlled, market share of local services. The development of switched
local services competition, however, is in its early stages and the Company
believes that CLECs currently serve fewer than 5% of the total business lines in
the United States.
NEXTLINK believes that the provisions of the Telecom Act requiring the
ILECs to cooperate on a technical level with competitors are as significant as
the Telecom Act's provisions eliminating state laws barring competitors from
entering the local exchange services market. Under the Telecom Act, the FCC and
state regulators are required to ensure that ILECs implement:
- Interconnection -- provides competitors the right to connect to the
ILECs' networks at any technically feasible point and to obtain access
to its rights-of-way;
- Unbundling of the Local Network -- allows competitors to purchase and
utilize components of the ILECs' network selectively;
- Reciprocal Compensation -- establishes the framework for pricing between
the CLEC and the ILEC for use of each other's networks; and
- Number Portability -- allows ILEC customers to retain their current
telephone numbers when they switch to a CLEC.
In addition, the Telecom Act provides that ILECs that are subsidiaries of
RBOCs cannot combine in-region, long distance services across local access and
transport areas ("LATAs") with the local services they offer until they have
demonstrated that they have complied with certain regulatory requirements
relating to local competition. See "-- Regulatory Overview." One federal
district court has ruled that the Telecom Act's restrictions on RBOC long
distance entry are unconstitutional. This decision has been stayed pending
appeal. See " -- Federal legislation." The Company believes it will have an
opportunity to gain market share in
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certain markets by combining local and long distance services in a single
offering to its customers before that market's ILEC, if it is a subsidiary of a
RBOC, is permitted to do so.
BUSINESS STRATEGY
The Company has built an end user-focused, locally oriented organization
dedicated to providing switched local and long distance telephone service at
competitive prices to small and medium-sized businesses. The key components of
the Company's strategy to become a leading provider of competitive
telecommunications services and to maximize penetration of its targeted customer
base are:
Provide Integrated Telecommunications Services to Small and
Medium-Sized Businesses. The Company primarily focuses its sales efforts
for switched local and long distance services on small and medium-sized
businesses and professional groups, those businesses having fewer than 50
business lines. The Company's market research indicates that these
customers prefer a single source for all of their telecommunications
requirements, including products, billing, installation, maintenance and
customer service. The Company has chosen to focus on this segment based on
its expectations that higher gross margins will generally be available on
services provided to these customers as compared with larger business, and
that ILECs may be less likely to apply significant resources towards
retaining these customers. The Company expects to attract and retain these
customers through a direct sales effort by offering: (i) bundled local and
long distance services, as well as the Company's enhance communications
services; (ii) up to a 10% to 15% discount to comparable pricing by the
ILEC as well as promotional discounts, depending on the individual market;
and (iii) responsive customer service and account management provided on a
local level.
Foster Decentralized Local Management and Control. The Company
believes that its success is enhanced by building locally based management
teams that are responsible for the Company's success in each of their
operational markets. The Company has recruited experienced entrepreneurs
and industry executives as presidents of each of the Company's operating
subsidiaries, many of whom have previously built and led their own start-up
telecommunications businesses. The local presidents and their teams are
charged with achieving growth objectives in their respective markets and
have decision making authority in key operating areas, including customer
care, network growth and building connectivity, and managing the
relationship and provisioning efforts with the ILEC. The Company has
established an incentive based compensation policy for these management
teams that is based upon the achievement of targeted growth and operational
objectives. The Company believes that this local management focus will
provide a critical competitive edge in customer acquisition and retention
in each market.
Further Develop Effective Direct Sales and Customer Care
Organizations. NEXTLINK is building a highly motivated and experienced
direct sales force and customer care organization that is designed to
establish a direct and personal relationship with its customers. The
Company has expanded its sales force from 98 salespeople at year end 1996
to 223 salespeople at December 31, 1997. The Company expects to further
increase its sales force to approximately 350 salespeople by year end 1998.
Salespeople are given incentives through a commission structure that
targets 40% of a salesperson's compensation to be based on performance. To
ensure customer satisfaction, each customer will have a single point of
contact for customer care who is responsible for solving problems and
responding to customer inquiries. The Company has expanded its customer
care organization from 36 customer care employees at year end 1996 to 162
customer care employees at December 31, 1997. The Company expects to
further increase its customer care organization to approximately 275
customer care employees by year end 1998.
Continuously Improve Provisioning Processes to Accelerate Revenue
Growth. The Company believes that a significant ongoing challenge for CLECs
will be to continuously improve provisioning systems, which include the
complex process of transitioning ILEC customers to the Company's network.
Accordingly, the Company will continue to identify and focus, as a key
competitive strategy, on implementing best provisioning practices in each
of its markets that will provide for rapid and seamless transitions of
customers from the ILEC to the Company. To support the provisioning of its
services, the Company has begun the long-term development and
implementation of a comprehensive information
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technology platform geared toward delivering information and automated
ordering and provisioning capability directly to the end user as well as to
the Company's internal staff. The Company believes that these practices and
its comprehensive information technology platform, as developed, will
provide the Company with a long-term competitive advantage and allow it to
more rapidly implement switched local services in its markets and to
shorten the time between the receipt of a customer order and the generation
of revenues. The Company's improving capacity to provision access lines to
its networks is reflected in the number of access lines installed per
business day. For those markets in which the Company has offered switched
local services since 1996, the rate increased from 44 installations per
business day in the first quarter of 1997 to 309 per business day in the
fourth quarter of 1997.
Develop High Capacity Fiber Optic Networks with Broad Market
Coverage. NEXTLINK designs its networks with a long-term view focusing on
three key elements. First, the Company designs and builds its networks to
provide extensive coverage of those areas where the density of business
lines is highest and to enable the Company to provide direct connections to
a high percentage of nearby commercial buildings and ILEC central offices
situated near the network. Over time, this broad coverage is expected to
result in a higher proportion of traffic that is both originated and
terminated on the Company's networks, which should provide higher long-term
operating margins. In addition, the Company is participating in the FCC's
Local Multipoint Distribution Service ("LMDS") auction which, depending on
the bidding and deployment costs, may offer an economically efficient means
to supplement the Company's fiber network build-out in some localities.
Furthermore, a wireless local loop alternative may create competitive
pressure on high unbundled loop costs in certain areas. Second, the Company
constructs high capacity networks that utilize large fiber bundles capable
of carrying high volumes of voice, data, video and Internet traffic as well
as other high bandwidth services. This strategy should reduce potential
"overbuild" costs and provide added network capacity as the Company adds
high bandwidth services in the future. In Atlanta, Chicago, New York and
Newark, New Jersey, the Company will utilize leased dark fiber and fiber
capacity to launch facilities-based services and begin building a customer
base in advance of completing construction of its own fiber optic network
in these markets. Third, the Company employs a uniform technology platform
based on Nortel DMS 500 switches, associated distribution technology and
other common transmission technologies enabling the Company to (i) deploy
features and functions quickly in all of its networks, (ii) expand
switching capacity in a cost effective manner and (iii) lower maintenance
costs through reduced training and spare parts requirements. The Company
currently has 12 operational Nortel DMS 500 switches, including one
installed switch at the Company's testing and network operations control
center ("NEXTLAB"). For economic or strategic reasons, the Company may in
the future elect to utilize other switch vendors and may also acquire and
utilize non-Nortel switches in connection with acquisitions of other
companies. The Company plans to install three additional Nortel DMS 500
switches by June 1998. The Company also utilizes unbundled loops from the
ILEC to connect the Company's switch and network to end user buildings and
is evaluating other alternatives for building connectivity, including
wireless connections, for the "last mile" of transport.
Continue Market Expansion. The Company's goal is to add markets and
market clusters to increase its addressable business lines to approximately
15 million by the end of 1998 and 21 million by the end of 1999. The
Company anticipates continued expansion into new geographic areas,
including additional large markets, as opportunities arise either through
building new networks, acquiring existing networks or other
telecommunications companies, or acquiring or leasing dark fiber and fiber
capacity. NEXTLINK also believes that its strategy of operating its
networks in clusters (i) offers substantial advantages including economies
of scale in management, marketing, sales and network operations, (ii)
enables the Company to capture a greater percentage of regional traffic and
to develop regional pricing plans, because the Company believes that a
significant level of traffic terminates within 300 miles of its origination
and (iii) provides opportunities in smaller markets that are too small to
develop on a stand-alone basis.
Offer Enhanced Communications Services. NEXTLINK offers customers
value-added services such as the Company's IVR products that are not
dependent on the Company's local facilities. The Company offers its
enhanced communications services in all of its markets, as well as in areas
of planned
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network expansion. The Company believes these services increase its
visibility in attracting local exchange customers when it operates networks
in these markets.
THE COMPANY'S TELECOMMUNICATIONS SERVICES
LOCAL AND LONG DISTANCE SERVICES
The Company commenced the offering of switched local and long distance
services in seven markets on July 4, 1996, and in 18 additional markets in 1997.
In February 1998, the Company launched switched local and long distance services
in Chicago, Illinois and expects to commence the offering of switched local and
long distance services in additional markets, including the south San Francisco
Bay Area, New York City, Atlanta and Newark (NJ) areas, during the remainder of
1998. The Company focuses its product offering on basic telecommunications
services, which it believes are the core of local exchange services. Pricing,
which is determined and implemented by the Company's operating subsidiary in
each local market, has been generally 10% to 15% lower than the pricing for
comparable local services from the ILEC and the Company also makes promotional
offering prices available from time to time. The Company's current product
offering includes:
- Standard dial tone, including touch tone dialing, 911, and operator
assisted calling;
- Multi-trunk services, including direct inward dialing (DID) and direct
outward dialing (DOD);
- Long distance service, including 1+, 800/888 and operator services;
- Voice messaging with personalized greetings, send, transfer, reply and
remote retrieval capabilities; and
- Directory listings and assistance.
Currently, the Company offers CAP services in 26 markets, focusing on long
distance carriers and the private line needs of high volume customers. In
addition, data services that are currently offered by the Company include
Ethernet, TOKEN rings, and Fiber Distributed Data Interface (FDDI).
The Company's CAP services, which are used as both primary and back-up
circuits, fall into three principal categories: (1) special access circuits that
connect end users to long distance carriers, (2) special access circuits that
connect long distance carriers' facilities to one another and (3) private line
circuits that connect several facilities owned by the same end user.
ENHANCED COMMUNICATIONS SERVICES
NEXTLINK's IVR platform allows a consumer to dial into a computer-based
system using a toll-free number and a touch tone phone and, by following a
customized menu, to access a variety of information and to leave,
simultaneously, a profile of the caller behind for use by either NEXTLINK or its
clients. Currently, NEXTLINK provides four types of IVR services:
- LeaveWord -- prompts the consumer to leave messages of any length or
complexity, ranging from catalog requests and contest entries to
specific product questions and surveys;
- Dealer Locator -- helps a consumer to locate the nearest dealer of the
client's products by instantly identifying the consumer's area and
responding with the names, addresses and phone numbers of the client's
locations within any desired mileage radius;
- Automated Order Entry -- allows consumers to purchase products using the
interactive phone service 24-hours a day, with real-time order and
credit card confirmation as well as arranging for delivery of the new
item to the consumer's desired address; and
- Interactive Call Center -- provides the consumer with a menu of
selections that include Dealer Locator, Automated Order Entry and other
functions, including receiving a catalog, registering the warranty of a
product, contest entry and an option for callers to be forwarded to a
live operator.
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The Company anticipates that it will continue to explore other enhanced
communications services opportunities and may acquire, invest in or establish
marketing relationships with additional service providers in the future that
support its overall business and marketing strategies.
SALES AND CUSTOMER CARE
OVERVIEW
The Company utilizes a two-pronged sales strategy in each of its markets,
one directed to the sale of local and long distance services and the other to
enhanced communications services. The primary sales efforts in the Company's
markets are for switched local and long distance services focusing on small and
medium-sized businesses and professional groups with fewer than 50 business
lines. The Company's market research indicates that these customers prefer a
single source for all of their telecommunications requirements, including
products, billing, installation, maintenance and customer service. The Company
utilizes a direct sales effort offering combined local and long distance
services with prices that are generally at a 10% to 15% discount from the ILEC.
Providing a combination of local and long distance services provides the
Company's customers a level of convenience that has been generally unavailable
since the break-up of AT&T. The Company is also marketing its enhanced
communications services through a separate direct sales force in each market,
which is expected to increase the number of customers for all of NEXTLINK's
telecommunications services in that market at a faster rate. In addition, the
Company is continuing its sales efforts for traditional CAP services to long
distance carriers and large commercial users.
SALES FORCE
The Company is building a highly motivated and experienced direct sales
force and customer care organization that is designed to establish a direct and
personal relationship with its customers. The Company seeks to recruit
salespeople with strong sales backgrounds, including salespeople from long
distance companies, telecommunications equipment manufacturers, network systems
integrators and the ILECs. The Company has expanded its sales force from 98
salespeople at year end 1996 to 223 salespeople at December 31, 1997. The
Company expects to further increase its sales force to approximately 350
salespeople by year end 1998. Salespeople are given incentives through a
commission structure that targets 40% of a salesperson's compensation to be
based on performance. With respect to traditional CAP services, the Company
currently utilizes a national sales force to establish and expand long distance
company access service sales. Sales efforts for long distance carriers are
centralized in order to provide a single point of contact for these customers.
The Company anticipates that its enhanced communications service offerings
will continue to be sold across the country by its existing national sales force
for these services. The Company has also augmented these efforts with a
separate, targeted, locally based sales force in each of its markets. The
Company believes that this approach to each market will provide revenues that
are incremental to its local exchange operations.
CUSTOMER CARE
The Company is augmenting its direct sales approach with superior customer
care and support through locally based customer care representatives. The
Company is structuring its customer care organization in such a manner that each
customer will have a single point of contact for customer care who is
responsible for solving problems and responding to customer inquiries. The
Company has expanded its customer care organization from 36 customer care
employees at year end 1996 to 162 customer care employees at December 31, 1997.
The Company seeks to provide a customer care group that has the ability and
resources to respond to and resolve customer problems as they arise. The Company
believes that customer care representatives will be the most effective if they
are based in the community in which the Company is offering services, which
placement will allow, among other things, the opportunity for the
representatives to visit the customer's location.
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NETWORK DEVELOPMENT
GENERAL
In developing its networks, the Company has generally executed a strategy
of (i) acquiring fully or partially constructed fiber optic networks and (ii)
designing and constructing high capacity fiber optic networks with broad
coverage. The Company has recently entered into leased dark fiber and fiber
capacity arrangements which allow the Company, by installing one or more
switches and related electronics, to enter a market prior to completing
construction of a fiber optic network. The Company regularly evaluates markets
as locations for expansion of the Company's current networks and the development
of additional networks. The decision to build, acquire or utilize capacity of an
existing network is not based on any single factor, but on a combination of a
number of factors including:
- demographic, economic, telecommunications demand and business line
characteristics of the market and the surrounding markets;
- level of capital expenditures relative to the number of business lines;
- availability of rights-of-way;
- actual and potential competitors; and
- potential for the Company to cluster additional networks in the region.
If a particular market targeted for development is deemed to present an
attractive market opportunity, the Company determines whether acquisition
opportunities are available. In some cases a large network can be acquired, and
in other cases a small existing network can serve as a starting point for market
entry. If the Company decides to build a new network, or substantially expand a
small acquired system, the Company designs a proposed new or expanded network
that can connect a large number of businesses, long distance carriers points of
presence and the ILEC's principal central offices in the area to be served,
utilizing existing rights-of-way and/or rights-of-way that the Company will
develop. Concurrently, the Company's market development personnel visit the
location of the proposed network to begin discussions with city officials,
providers of rights-of-way, potential end users and long distance companies.
Based on the data developed during these preliminary studies and visits,
the Company develops detailed financial estimates of the costs of constructing a
network, including the cost of fiber optic cable, transmission and other
electronic equipment, as well as costs related to switching, engineering,
building entrance requirements and right-of-way acquisitions. If the financial
estimates are satisfactory to the Company, the Company's market development
personnel prepare a detailed business and financial plan for the proposed
network, including competitive, regulatory and right-of-way analyses. Based upon
its review of these analyses, the Company determines whether to proceed. The
Company anticipates continuing the expansion of its networks into new markets
utilizing the market development analysis described above. The Company will seek
to continue to expand its operations in states where it has established one or
more networks, by continuing to construct or acquire networks in adjacent areas
to leverage its existing networks, switches and telecommunications equipment,
thereby establishing a cost effective and operationally efficient cluster of
networks in various geographic regions.
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<PAGE> 11
THE COMPANY'S NETWORKS
The following table provides information on the markets in which the
Company has launched switched local and long distance services.
<TABLE>
<CAPTION>
LAUNCH DATE FOR
STATE MARKET SWITCHED LOCAL SERVICES
- --------------------- --------------------- ----------------------------------
<S> <C> <C> <C>
Tennessee............ Memphis July 1996
Nashville July 1996
Pennsylvania......... Allentown July 1996
Harrisburg July 1996
Lancaster July 1996
Reading July 1996
Philadelphia July 1997
Scranton/Wilkes Barre December 1997
Washington........... Spokane July 1996
Utah................. Salt Lake City January 1997
Orem/Provo September 1997
Nevada............... Las Vegas April 1997
Ohio................. Cleveland April 1997
Columbus April 1997
California........... Anaheim July 1997
Costa Mesa July 1997
Fullerton July 1997
Garden Grove July 1997
Huntington Beach July 1997
Inglewood July 1997
Irvine July 1997
Long Beach July 1997
Los Angeles July 1997
Orange July 1997
Santa Ana July 1997
Illinois............. Chicago February 1998
</TABLE>
NETWORK ARCHITECTURE
DESIGN
The Company builds or acquires its own fiber optic networks because it
believes that facilities-based full service telecommunications companies whose
networks are directly connected to their customers will have the ability to
respond more quickly to customer needs for capacity and services. Moreover, the
Company believes that facilities-based carriers develop a more knowledgeable,
cooperative relationship with their customers, improving their ability to
provide new services and other telecommunications solutions, which should result
in higher long-term operating margins.
The Company believes that the future telecommunications market will be an
interconnected network of networks. The Company believes that calls will flow
between local networks, with customers selecting their service provider based on
high quality and differentiated products, responsive customer service and price.
In some circumstances, depending in part upon regulatory conditions, the Company
will utilize its own network for one portion of a call and resell the services
of another carrier for the remaining portion of a call. In other instances, both
the origination and termination of calls will take place on the Company's
networks. The Company's networks are designed to maximize connectivity directly
with significant numbers of business end users, and to easily interconnect and
provide a least-cost routing flow of traffic between the Company's network and
other networks in the marketplace.
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<PAGE> 12
In general, the Company seeks to build wide, expansive networks, rather
than a simple core ring in a downtown metropolitan area. The Company believes
that this type of broad coverage of the markets in which it operates will result
in the following advantages:
- an increased number of buildings that can be directly connected to the
Company's network, which should maximize the number of businesses to
which the Company can offer its services;
- a higher volume of telecommunications traffic both originating and
terminating on the Company's network, which should result in improved
operating margins;
- the ability to leverage its investment in high capacity switching
equipment and electronics; and
- the opportunity for the Company's network to provide backhaul carriage
for other telecommunications service providers such as long distance and
wireless carriers.
The Company seeks to further utilize this network design to increase the
number of buildings and customers directly connected to its networks. The
Company believes that as compared to the extensive use of unbundled loops and
pursuing a pure resale business strategy, having a direct connection to its
customers will provide the Company with the highest long-term operating margins,
allow the Company to provide greater feature and quality control as well as
offer customer service that is both prompt and effective, because the network to
be serviced is controlled by the Company and not another service provider.
The Company seeks to build high capacity networks using a backbone density
ranging between 72 and 240 strands. A single pair of glass fibers on the
Company's networks can currently transmit 32,256 simultaneous voice
conversations, whereas a typical pair of copper wires can currently carry a
maximum of 24 digitized simultaneous voice conversations. The Company believes
that installing high count fiber strands will allow the Company to offer a
higher volume of voice and broadband services without incurring significant
additional construction costs.
CONSTRUCTION
The construction period of a new network varies depending upon the scope of
the activities, such as the number of backbone route miles to be installed,
whether the construction is underground or aerial, whether the conduit is in
place or requires construction, the initial number of buildings targeted for
connection to the network backbone and the general configuration for its
deployment. After installing the network backbone, the Company evaluates
extensions to additional buildings and expansions to other areas of a market,
based on detailed assessments of market potential.
The Company's network backbones are installed in conduits that are either
owned by the Company or leased from third parties. The Company leases conduit or
pole space from entities such as utilities, railroads, long distance carriers,
state highway authorities, local governments and transit authorities. These
arrangements are generally for multi-year terms with renewal options, and are
nonexclusive. The availability of these arrangements is an important part of the
Company's evaluation of a market. Cancellation of any of the Company's material
right-of-way agreements could have an adverse effect on the Company's business
in that area and could have a material adverse effect on the Company.
Office buildings are connected primarily by network backbone extensions to
one of a number of physical rings of fiber optic cable, which originate and
terminate at the Company's central node. Alternatively, the Company may access
an end user's location through interconnection with the ILEC's central office.
The Company is also evaluating other alternatives for building connectivity,
including wireless connections, for the "last mile" of transport. Signals are
generally sent through a network backbone to the central node simultaneously on
both primary and alternate protection paths. Most buildings served have a
discrete Company presence (referred to as a "remote hub") located in the
building. Within each building, Company-owned internal wiring connects the
remote hub to the customer premise. Customer equipment is connected to
Company-provided electronic equipment generally located in the remote hub, where
customer transmissions are digitized, combined and converted to an optical
signal. The traffic is then transmitted through the network backbone to the
Company's central node where originating traffic is reconfigured for routing to
its ultimate
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<PAGE> 13
destination. After completion of network construction, the Company employs
maintenance and line crews that are responsible for responding to outages and
routine maintenance of the network.
In January 1998, the Company and Nextel Communications, Inc. ("Nextel")
formed NEXTBAND Communications, L.L.C. ("NEXTBAND"), a joint venture which is
owned 50% by the Company and 50% by Nextel. On January 20, 1998, NEXTBAND filed
an application with the FCC for which it paid a $50.0 million refundable deposit
to participate in the LMDS auction which began on February 18, 1998. Of the
deposit amount, $25.0 million was contributed by the Company. LMDS is a fixed
broadband point-to-multipoint service which the FCC and industry analysts
anticipate will be used for the deployment of wireless local loop, high-speed
data transfer and video broadcasting services. Two licenses will be offered in
each of 493 BTAs when the auction commences. Although the number of licenses
that may be awarded to NEXTBAND is limited by the amount of the deposit,
NEXTBAND has applied for and is eligible to bid on any of the markets being
auctioned for the block A license (1,150 MHz of spectrum) and the block B
license (150 MHz of spectrum).
The Company is exploring LMDS for two reasons. Depending upon the bidding
and deployment costs, LMDS may offer an economically efficient means to
supplement the Company's fiber network build-out in some localities. In
addition, a wireless local loop alternative may create competitive pressure on
high unbundled loop costs in certain areas. There can be no assurance that
NEXTBAND's participation in the auction will result in the purchase of any LMDS
licenses or that LMDS spectrum for wireless connectivity will provide a
cost-effective and efficiently engineered means to connect to end user
locations.
In June 1997, the Company entered into an eight year exclusive agreement,
which contains a five year renewal option, with a company that has excess fiber
capacity in each of Atlanta, Chicago, New York and Newark (NJ). In addition to
this capacity arrangement, the Company also entered into a 20-year lease of
capacity over an existing 47-mile fiber network which extends from the Wall
Street area north to midtown Manhattan. In February 1998, the Company entered
into an agreement for exclusive rights to multiple fibers and innerducts for 20
years, with two 10 year renewals. The route covered by the agreement extends
over 650 route miles from Manhattan to White Plains (NY), to Stamford (CT), to
Newark (NJ) and south from Manhattan through Philadelphia, Wilmington (DE),
Baltimore, and to Washington (DC). The route will offer frequent splice points
within metropolitan areas and splice points at least every 10,000 feet on routes
between metropolitan areas, as well as provide access to ILEC central and tandem
switching offices.
UNIFORM TECHNOLOGY PLATFORM
The Company is implementing a consistent technology platform based on the
Nortel DMS 500 switch throughout its networks. Unlike a traditional long
distance or local switch, the Nortel DMS 500 switch will enable the Company to
provide local and long distance services from a single platform. The Company
believes that having a standardized switch platform will enable it to (i) deploy
features and functions quickly in all of its networks, (ii) expand switch
capacity in a cost effective manner and (iii) lower maintenance costs through
reduced training and spare parts requirements. In addition, the scalability and
capacity of these switches will allow the Company to switch calls from more than
one market, which enhances the Company's ability to use a clustered approach to
the building of its networks. For economic or strategic reasons, the Company may
in the future elect to utilize other switch vendors and may also acquire and
utilize non-Nortel switches in connection with acquisitions of other companies.
The Company also is establishing a uniform transmission technology
utilizing SONET design and standardized digital access and cross connect systems
("DACCS") and other ancillary transmission equipment. DACCS provide the ability
to aggregate and disaggregate capacity along the fiber optic network. Using
DACCS, the capacity of 24 DS-0s can be aggregated to form a DS-1 and, again
through the DACCS, 28 DS-1s can be aggregated to form a DS-3.
The Company's NEXTLAB facility contains a fully functional Nortel DMS 500
switch in a configuration that simulates the working environment of the
Company's operational switches as well as distribution and ancillary equipment.
Located in Plano, Texas, NEXTLAB operates separate and apart from the Company's
operational switches as a testing facility and will serve as the Company's
network operations control center
11
<PAGE> 14
(NOCC). NEXTLAB provides the Company with a means to test switch software and
service configurations prior to their release on the Company's networks. The
Company believes that this process should: (i) minimize network outages, (ii)
save network operating and training costs and (iii) improve levels of customer
service.
IMPLEMENTATION OF LOCAL TELECOMMUNICATIONS
A company preparing to offer local exchange services not only requires an
installed switch, but also must have numerous network and routing arrangements
in place. NEXTLINK has established all of these arrangements for Pennsylvania,
Tennessee, Washington, Utah, Ohio, Nevada, California and Illinois. These key
elements include:
Interconnection. The Company has executed interconnection agreements for
all of its current operating networks: in Nashville and Memphis, Tennessee, with
BellSouth Telecommunications, Inc.; in Harrisburg, Reading, Lancaster and
Allentown, Pennsylvania, with Bell Atlantic-Pennsylvania, Inc.; in New York, New
York with Bell Atlantic-New York, Inc.; in Chicago, Illinois, and in Cleveland
and Columbus, Ohio, with a division of Ameritech; in Spokane, Washington, and
Salt Lake City and Provo/Orem, Utah with U S WEST Communications, Inc.; in Los
Angeles, California and the surrounding markets, with Pacific Bell and GTE
Corporation; and in Las Vegas, Nevada, with a division of Sprint. The Company is
currently negotiating with BellSouth for an interconnection agreement to cover
Atlanta by the end of the third quarter of 1998. In addition, the Company
believes that interconnection arrangements between the ILECs and other CLECs or
the Company will be in place in other markets that the Company may enter. The
Company likely will initially "piggy-back" on these other arrangements while
pursuing more favorable long-term arrangements.
The Company's approach to interconnection has been a two-step process. To
accelerate its launch of switched local services, the Company has entered into
initial interconnection arrangements that allow for the immediate exchange of
local traffic with the ILEC. These arrangements allow the Company to commence
service immediately and then work to optimize its arrangements with the ILEC.
The Company's ILEC agreements are now being re-negotiated under Sections 251 and
252 of the Telecom Act. The actual operating experience gained through the
Company's initial interconnection agreements gives the Company critical
knowledge for negotiating longer term arrangements. In some cases, where
agreement on a long-term arrangement cannot be reached, the Company may pursue
binding arbitration before the state utility commissions as provided under the
Telecom Act. The Company currently has arbitration proceedings pending in
Pennsylvania and Tennessee with Bell Atlantic and BellSouth, respectively.
Negotiations are continuing with both parties during the pendency of the
arbitration proceedings. There can be no assurance, however, that the Company
will be able to negotiate longer term relationships on terms and conditions
satisfactory to the Company.
Telephone Numbers. The Company has been offered interim number portability
arrangements by the ILEC in each of its markets, and the Company also is engaged
in industry negotiations to establish permanent number portability. Number
portability arrangements will allow ILEC customers to retain their telephone
numbers when changing local exchange service carriers. In addition, the Company
has been allocated multiple blocks of 10,000 telephone numbers for each of its
Tennessee, Washington, Pennsylvania, Ohio, Utah, Nevada, California and Illinois
networks, and has applied for such numbers in New York, for use in assigning new
numbers to its customers. These numbers, known as NXX numbers, are the first
three digits of a customer's seven digit local phone number. In each of these
cases, the NXX is fully loaded into the Local Exchange Routing Guide or LERG,
which instructs ILECs and other carriers to send a call using a NEXTLINK NXX to
the appropriate NEXTLINK switch, for delivery to the NEXTLINK customer.
SS7 Point Codes. For each of the Company's switches, the Company has been
assigned Point Codes for use with the advanced signaling system known as SS7
which is a separate or "out of band" communications channel used between
telecommunications carriers to set up and control traffic on and between
networks. The Company has designed its network to fully utilize SS7 signaling,
which improves call processing times and frees capacity for voice, data, and
video transmissions. The Company has entered into an agreement with a
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<PAGE> 15
national SS7 service provider that will allow the Company to utilize SS7
signaling in its current and new markets nationwide.
REGULATORY OVERVIEW
OVERVIEW
The Company's services are subject to varying degrees of federal, state and
local regulation. The FCC generally exercises jurisdiction over the facilities
of, and services offered by, telecommunications common carriers that provide
interstate or international communications. The state regulatory commissions
retain jurisdiction over the same facilities and services to the extent they are
used to provide intrastate communications. Local governments sometimes impose
franchise or licensing requirements on local exchange and other carriers and
regulate street opening and construction activities.
The Telecom Act imposes on ILECs certain interconnection obligations that,
taken together, grant competitive entrants such as the Company what is commonly
referred to as "co-carrier status." In addition, the Telecom Act generally
preempts state or local legal requirements that prohibit or have the effect of
prohibiting any entity from providing telecommunications services. The Telecom
Act allows state regulatory authorities to continue to impose competitively
neutral requirements designed to promote universal service, protect public
safety and welfare, maintain quality of service and safeguard the rights of
consumers. The Telecom Act also preserves the ability of state and local
authorities to manage and require compensation for the use of public
rights-of-way by telecommunications providers including competitors of the ILECs
in the local market.
It is anticipated that co-carrier status and the preemption of state and
local prohibitions on entry could permit the Company to become a full service
provider of switched telecommunications services anywhere in the United States.
The following table summarizes the interconnection rights granted by the Telecom
Act that are most important to the achievement of this goal and the Company's
belief as to the anticipated effect of the new requirements, if properly
implemented.
<TABLE>
<CAPTION>
ISSUE DEFINITION ANTICIPATED EFFECT
- ------------------------------ ------------------------------ ------------------------------
<S> <C> <C>
Interconnection Efficient network Allows a CLEC to service and
interconnection to transfer terminate calls to and from
calls back and forth between customers connected to other
ILECs and competitive networks networks
(including 911, 0+, directory
assistance, etc.)
Local Loop Unbundling Allows competitors to Reduces the capital costs of a
selectively gain access to CLEC to serve customers not
ILEC wires which connect ILEC directly connected to its
central offices with customer networks
premises
Reciprocal Compensation Mandates reciprocal Improves the CLEC's margins
compensation for local traffic for local service
exchange between ILECs and
competitors
Number Portability Allows customers to change Allows customers to switch to
local carriers without a CLEC's local service without
changing numbers; true changing phone numbers
portability allows incoming
calls to be routed directly to
a competitor. Interim
portability allows incoming
calls to be routed through the
ILEC to a competitor at the
economic equivalent of true
portability
Access to Phone Numbers Mandates assignment of new Allows CLECs to provide
telephone numbers to telephone numbers to new
competitive telecommunications customers on the same basis as
provider's customers the ILEC
</TABLE>
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<PAGE> 16
While the interconnection rights established in the Telecom Act are a
necessary prerequisite to the introduction of full local competition, they must
be properly implemented to be effective. Significant implementation issues
remain to be resolved, including modifications to, and expansions of, the ILEC
network interface facilities, before the barriers to entry into the local
telephone business are sufficiently lowered to permit widespread competitive
entry. See "Federal Legislation" below for a more complete explanation of the
potential effect of the Telecom Act on the Company's business.
FEDERAL LEGISLATION
The Telecom Act, enacted on February 8, 1996, substantially revised the
Communications Act of 1934. The Telecom Act establishes a regulatory framework
for the introduction of local competition throughout the United States. Among
other things, the Telecom Act preempts any state or local government from
prohibiting any entity from providing telecommunications service. This provision
eliminated prohibitions on entry found in almost half of the states in the
country at the time the Telecom Act was passed. In addition, the Telecom Act now
requires that ILECs provide CLECs with physical collocation on rates, terms and
conditions that are just and reasonable, unless the ILEC can demonstrate to
state regulators that physical collocation is not practical. The Company
believes that either physical or virtual collocation of its facilities in a
timely fashion for appropriate rates and terms will accommodate its purposes.
The Telecom Act also establishes a dual federal-state regulatory scheme for
eliminating other barriers to competition faced by competitors to the ILECs and
other new entrants into the local telephone market. Specifically, the Telecom
Act imposes on ILECs certain interconnection obligations, some of which are to
be implemented by FCC regulations. The Telecom Act contemplates that states will
apply the federal regulations and oversee the implementation of all of the
aspects of interconnection not subject to FCC jurisdiction as they oversee
interconnection negotiations between ILECs and their new competitors.
In addition, the Telecom Act provides that ILECs that are subsidiaries of
RBOCs cannot combine in-region, long distance services across LATAs with the
local services they offer until they have demonstrated that (i) they have
entered into an approved interconnection agreement with a facilities-based CLEC
or that no such CLEC has requested interconnection as of a statutorily
determined deadline, (ii) they have satisfied a 14-element checklist designed to
ensure that the ILEC is offering access and interconnection to all local
exchange carriers on competitive terms and (iii) the FCC has determined that
in-region, interLATA approval is consistent with the public interest,
convenience and necessity.
On July 2, 1997, SBC and its local exchange carrier subsidiaries filed a
lawsuit in the United States District Court for the Northern District of Texas
challenging on Constitutional grounds the Telecom Act restrictions applicable to
the RBOCs only. On December 31, 1997, the District Court ruled in favor of SBC
and held that Sections 271 through 275 of the Telecom Act, including the long
distance entry provisions, are unconstitutional. On February 11, 1998, however,
the District Court issued a stay of its December 31, 1997 decision pending
appeal to the United States Circuit Court of Appeals for the Fifth Circuit. The
appeal is currently pending.
FEDERAL REGULATION
The FCC has significant responsibility in the manner in which the Telecom
Act will be implemented especially in the areas of universal service, access
charges, numbering, number portability and price caps. The details of the rules
adopted by the FCC will have a significant effect in determining the extent to
which barriers to competition in local services are removed, as well as the time
frame within which such barriers are eliminated. The FCC may also grant ILECs
increased pricing flexibility to enable them to respond to competition for
special access and private line services. To the extent such pricing flexibility
is granted, the Company's ability to compete for certain services may be
adversely affected.
On August 8, 1996, the FCC issued an order containing rules providing
guidance to the ILECs, CLECs, long distance companies and state PUCs regarding
several provisions of the Telecom Act. The rules include, among other things,
FCC guidance on (i) discounts for end-to-end resale of ILEC local exchange
services (which the FCC has suggested should be in the range of 17%-25%), (ii)
availability of unbundled local loops
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<PAGE> 17
and other unbundled ILEC network elements, (iii) the use of Total Element Long
Run Incremental Costs ("TELRIC") in the pricing of these unbundled network
elements, (iv) average default proxy prices for unbundled local loops in each
state, (v) mutual compensation proxy rates for termination of ILEC/CLEC local
calls and (vi) the ability of CLECs and other interconnectors to opt into
portions of interconnection agreements negotiated by the ILECs with other
parties on a most favored nation (or a "pick and choose") basis. See below for a
discussion of the Eighth Circuit Court of Appeals decision invalidating certain
aspects of this order.
On May 8, 1997, the FCC released an order establishing a significantly
expanded federal telecommu-nications subsidy regime. For example, the FCC
established new subsidies for services provided to qualifying schools and
libraries with an annual cap of $2.25 billion and for services provided to rural
health care providers with an annual cap of $400 million. The FCC also expanded
the federal subsidies to low income consumers. Providers of interstate
telecommunications services, such as the Company, as well as certain other
entities, must pay for these programs. The Company's share of the schools,
libraries and rural health care funds will be based on its share of the total
industry telecommunications service and certain defined telecommunications end
user revenues. The Company's share of all other federal subsidy funds will be
based on its share of the total interstate telecommunications service and
certain defined telecommunications end user revenues. The Company intends to
make all subsidy payments required by law. In the May 8 order, the FCC also
announced that it will soon revise its rules for subsidizing service provided to
consumers in high cost areas. Several parties have appealed the May 8 order.
Such appeals have been consolidated and transferred to the United States Court
of Appeals for the Fifth Circuit where they are currently pending. In addition,
on July 3, 1997, several ILECs filed a petition for stay of the May 8 order with
the FCC. That petition is also pending.
In a combined Report and Order and Notice of Proposed Rulemaking released
on December 24, 1996, the FCC made changes and proposed further changes in the
interstate access charge structure. In the Report and Order, the FCC removed
restrictions on ILECs' ability to lower access prices and relaxed the regulation
of new switched access services in those markets where there are other providers
of access services. If this increased pricing flexibility is not effectively
monitored by federal regulators, it could have a material adverse effect on the
Company's ability to compete in providing interstate access services. On May 16,
1997, the FCC released an order revising its access charge rate structure. The
new rules substantially increase the costs that ILECs subject to the FCC's price
cap rules ("price cap LECs") recover through monthly, no-traffic sensitive
access charges and substantially decrease the costs that price cap LECs recover
through traffic sensitive access charges. In the May 16 order, the FCC also
announced its plan to bring interstate access rate levels more in line with
cost. The plan will include rules to be established sometime this year that
grant price cap LECs increased pricing flexibility upon demonstrations of
increased competition (or potential competition) in relevant markets. The manner
in which the FCC implements this approach to lowering access charge levels will
have a material effect on the Company's ability to compete in providing
interstate access services. Several parties have appealed the May 16 order.
Those appeals have been consolidated and transferred to the United States Court
of Appeals for the Eighth Circuit where they are currently pending.
As part of its overall plan to lower interstate access rates, the FCC also
released an order on May 21, 1997, in which the FCC revised its price cap rules.
In the order, the FCC increased the so-called X-Factor (the percentage by which
price cap LECs must lower their interstate access charges every year, net of
inflation and exogenous cost increases) and made it uniform for all price cap
LECs. The results of these rule changes will be both a one-time overall
reduction in price cap ILEC interstate access charges and an increase in the
rate at which those charges will be reduced in the future. Several parties have
appealed the May 21 order. Those appeals were consolidated and transferred to
the United States Court of Appeals for the Tenth Circuit. They have been
subsequently transferred to the United States Court of Appeals for the District
of Columbia where they are currently pending.
On January 2, 1997, Ameritech of Michigan became the first RBOC to apply
for authority to provide in-region interLATA service pursuant to Section 271 of
the Telecom Act. The application was withdrawn and refiled on May 21, 1997. That
application was denied on August 19, 1997. In denying the application, the FCC
established specific and substantial criteria that must be met before future
Section 271 applications will be granted.
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<PAGE> 18
On April 11, 1997, SBC Communications, Inc. ("SBC") applied to the FCC for
authority to provide in-region interLATA service in the state of Oklahoma. On
June 26, 1997, the FCC released an order rejecting SBC's application on the
grounds that SBC had not demonstrated either that SBC had entered into an
approved interconnection agreement with a facilities-based CLEC or that no CLEC
had requested interconnection as of the statutory deadline. On July 3, 1997, SBC
filed an appeal of the June 26 order with the United States Court of Appeals for
the District of Columbia. On March 20, 1998, the Court of Appeals upheld the
FCC's order.
In September and November 1997, BellSouth Corporation ("BellSouth") filed
applications for authorization to provide in-region interLATA service in the
states of South Carolina and Louisiana. On December 24, 1997 and February 4,
1998, respectively, the FCC released orders rejecting BellSouth's applications
which conclude that BellSouth had not yet demonstrated that it generally offered
each of the items of the competitive checklist set forth in the Telecom Act. On
January 13, 1998, BellSouth filed an appeal for the December 24, 1997 ruling
with the United States District Court of Appeals for the District of Columbia.
That appeal is currently pending.
The Company anticipates that RBOCs will continue to apply for authority to
provide in-region interLATA services in markets where the Company operates or
plans to operate. The Company also expects that the FCC will initiate a number
of additional proceedings, on its own initiative and as a result of requests
from CLECs and others, as a result of the Telecom Act. While the Eighth
Circuit's recent decision in the appeal of the August 8, 1996 order limits the
FCC's jurisdiction over the local competition provisions of the Telecom Act,
such proceedings may nonetheless further define and construe the Telecom Act's
terms.
COURT OF APPEALS DECISION
Various parties, including ILECs and state PUCs, filed appeals of the FCC's
August 8, 1996 order in various U. S. Courts of Appeal, and several parties
petitioned the FCC and the courts to stay the effectiveness of the FCC's rules
included in the FCC's order, pending a ruling on the appeals. Many of the
appeals were consolidated and transferred to the United States Court of Appeals
for the Eighth Circuit. On July 18, 1997, the Eighth Circuit overturned the
pricing rules established in the August 8, 1996 order, except those applicable
to commercial mobile radio service providers. The Eighth Circuit held that, in
general, the FCC does not have jurisdiction over prices for interconnection,
resale, leased unbundled network elements and traffic termination. The Eighth
Circuit also overturned the FCC's "pick and choose" rules as well as certain
other FCC rules implementing the Telecom Act's local competition provisions. In
addition, the Eighth Circuit decision substantially limits the FCC's authority
to enforce the local competition provisions of the Telecom Act.
On October 14, 1997, the Eighth Circuit vacated the FCC's rule prohibiting
ILECs from separating unbundled network elements that are already combined,
except at the request of CLECs. In addition, under the decision, ILECs are not
required to recombine unbundled network elements, but must make such elements
available for CLECs to recombine on their own.
On January 22, 1998, the Eighth Circuit issued a writ of mandamus ordering
the FCC to follow the court's July 1997 decision in addressing certain pricing
issues in the context of RBOC Section 271 in-region interLATA entry
applications.
On January 26, 1998, the United States Supreme Court agreed to hear
challenges to the Eighth Circuit's July 18, 1997 and October 14, 1997 decisions.
The Court has agreed to review all issues raised by the government, the RBOCs,
and competitors. These include whether the FCC has authority (i) to set prices
that ILECs charge CLECs for access to local networks, (ii) to require ILECs to
allow CLECs to use provisions of existing interconnection agreements in their
own agreements and (iii) to force ILECs to offer existing combinations of
unbundled network elements needed to provide local service. Because the Court
will hear the consolidated cases in its next term which begins in October, a
decision is not expected until next year.
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<PAGE> 19
In the short term the Company believes that the Eighth Circuit decisions
will not have a material adverse effect on it, because the Company already has
interconnection agreements in place, or expects to have such agreements in
place, under the provisions of the FCC's order and the Telecom Act which were
not invalidated by the Court. The decision does not delay the implementation of
the Telecom Act by the parties and by the state PUCs, but rather eliminates the
guidance on pricing and most favored nation procedures as well as other issues
that the FCC sought to provide to parties and the state PUCs.
In the long term, the Eighth Circuit's decisions make it more likely that
the rules governing local competition will vary from state to state. Most states
have already begun to establish rules for local competition that are consistent
with the FCC rules overturned by the Eighth Circuit. If a patchwork of state
regulations were to develop, it could increase the Company's costs of regulatory
compliance and could make competitive entry in some markets more difficult and
expensive than in others.
STATE REGULATION
The Company expects that as it offers local exchange and other intrastate
services in an increasing number of states, it will be subject to direct state
public utility commission ("PUC") regulation in most, if not all, such states.
In states where the Company desires to offier its services, the Company may be
required to obtain authorization from the appropriate state commission,
including certification as a CLEC. In all states where the Company is
operational and certification as a CLEC is currently required, the Company's
operating subsidiaries are certificated. In those markets where the Company
anticipates launching services in 1998, it has received or applied for such
certification.
In most states, the Company is required to file tariffs or price lists
setting forth the terms, conditions and prices for services which are classified
as intrastate. In some states, the Company's tariff can list a range of prices
for particular services, and in others, such prices can be set on an individual
customer basis. The Company is not subject to price cap or to rate of return
regulation in any state in which it currently provides services.
As noted above, as a result of the July 18, 1997 Eighth Circuit decision,
PUCs have an even more significant responsibility in implementing the Telecom
Act. Specifically, the states have authority to establish interconnection
pricing, including unbundled loop charges, reciprocal compensation and wholesale
pricing. The states are also charged under the Telecom Act with overseeing the
arbitration process for resolving interconnection negotiation disputes between
CLECs and the ILECs. The Telecom Act allows state regulatory authorities to
continue to impose competitively neutral requirements designed to promote
universal service, protect public safety and welfare, maintain quality of
service and safeguard the rights of consumers.
LOCAL GOVERNMENT AUTHORIZATION
In certain locations, the Company is required to obtain local franchises,
licenses or other operating rights and street opening and construction permits
to install, expand and operate its fiber-optic networks. In some of the areas
where the Company provides network services, the Company's subsidiaries pay
license or franchise fees based on a percentage of gross revenues or on a per
linear foot basis. There is no assurance that certain cities that do not
currently impose fees will not seek to impose such fees in the future, nor is
there any assurance that, following the expiration of existing franchises, fees
will remain at their current levels. Under the Telecom Act, state and local
governments retain the right to manage the public rights-of-way and to require
fair and reasonable compensation from telecommunications providers, on a
competitively neutral and nondiscriminatory basis, for use of public
rights-of-way.
If any of the Company's existing franchise or license agreements were
terminated prior to its expiration date and the Company were forced to remove
its fiber from the streets or abandon its network in place, such termination
would have a material adverse effect on the Company's subsidiary in that area
and could have a material adverse effect on the Company. The Company believes
that the provisions of the Telecom Act barring state and local requirements that
prohibit or have the effect of prohibiting any entity from providing
telecommunications service should be construed to limit any such action.
However, there can be no assurance
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that one or more local authorities will not attempt to take such action. Nor is
it clear that the Company would prevail in any judicial or regulatory proceeding
to resolve such a dispute.
COMPETITION
As noted above, the regulatory environment in which the Company operates is
changing rapidly. The passage of the Telecom Act combined with other actions by
the FCC and state regulatory authorities continues to promote competition in the
provision of telecommunications services.
ILECS
In each market served by its networks, the Company faces, and expects to
continue to face, significant competition from the ILECs, which currently
dominate their local telecommunications markets.
The Company competes with the ILECs in its markets for local exchange
services on the basis of product offerings, reliability, state-of-the-art
technology, price, route diversity, ease of ordering and customer service.
However, the ILECs have long-standing relationships with their customers and
provide those customers with various transmission and switching services that
the Company, in many cases, does not currently offer. The Company has sought,
and will continue to seek, to achieve parity with the ILECs in order to become
able to provide a full range of local telecommunications services. See
"Regulatory Overview" for additional information concerning the regulatory
environment in which the Company operates. Existing competition for private line
and special access services is based primarily on quality, capacity and
reliability of network facilities, customer service, response to customer needs,
service features and price, and is not based on any proprietary technology. As a
result of the comparatively recent installation of the Company's fiber optic
networks, its dual path architectures and the state-of-the-art technology used
in its networks, the Company may have cost and service quality advantages over
some currently available ILEC networks.
OTHER COMPETITORS
The Company also faces, and expects to continue to face, competition from
other potential competitors in certain of the markets in which the Company
offers its services. In addition to the ILECs and CAPs, potential competitors
capable of offering switched local and long distance services include long
distance carriers such as AT&T, MCI Communications Corporation ("MCI"), Sprint
Corporation ("Sprint") and WorldCom, Inc. ("WorldCom"), cable television
companies such as TeleCommunications, Inc. and Time Warner, Inc., electric
utilities, microwave carriers, wireless telephone system operators and private
networks built by large end users.
The Company believes that the Telecom Act, as well as a recent series of
completed and proposed transactions between ILECs and long distance companies
and cable companies, increases the likelihood that barriers to local exchange
competition will be removed. The Telecom Act states that entry barriers must be
lowered in the areas served by ILECs that are subsidiaries of RBOCs before such
ILECs are permitted to provide in-region, interLATA services. When ILECs that
are RBOC subsidiaries are permitted to provide such services, they will be in a
position to offer single source service. ILECs that are not RBOC subsidiaries
may offer single source service presently.
In some cases, cable television companies are upgrading their networks with
fiber optics and installing facilities to provide fully interactive transmission
of broadband voice, video and data communications. In addition, under the
Telecom Act, electric utilities may install fiber optic telecommunications cable
and may facilitate provision of telecommunications services by electric
utilities over those networks if granted regulatory authority to do so. Cellular
and PCS providers may also be a source of competitive local telephone service.
The Company also competes with equipment vendors and installers, and
telecommunications management companies, with respect to certain portions of its
business.
A continuing trend towards business combinations and alliances in the
telecommunications industry may create significant new competitors to the
Company. In addition, many of the Company's existing and potential
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competitors have financial, personnel and other resources, including name
recognition, significantly greater than those of the Company.
The Company also competes with long distance carriers in the provision of
long distance services. Although the long distance market is dominated by four
major competitors, AT&T, MCI, Sprint and WorldCom, hundreds of other companies
also compete in the long distance marketplace.
With respect to the Company's enhanced communications service offerings,
each is subject to competition. For example, there are several competitors that
offer IVR services, such as Call Interactive, which the Company believes focuses
its sales efforts on large volume IVR service users. Another competitor,
Telemedia, which is owned by Sprint, also offers significant call volume
capacity. With respect to Magic Number, the Company's virtual communications
center, there are numerous competitors with product offerings that include some
or all of the services offered by Magic Number.
PURCHASING AND DISTRIBUTION
With respect to the Company's fiber optic networks, which constitute the
Company's most significant capital investments, the Company has entered into
general purchase agreements with key equipment suppliers for fiber and fiber
optic transmission equipment, with Nortel for telecommunications switches, and
with other suppliers for various other components of each system. These
agreements provide the basic framework under which purchase orders for these
system components will be made. The specific purchases made for each network
depend upon the configuration and other factors related to the network, such as
the prospective customer base and location and the services to be offered over
the network. Once these decisions are made, purchase orders for the appropriate
fiber and selected equipment types are placed under the general purchase
agreements. In connection with the Company's provision of long distance
services, it purchases capacity at wholesale rates from long distance carriers.
EMPLOYEES
As of December 31, 1997, the Company employed 1,327 people, including
full-time and part-time employees. The Company considers its employee relations
to be good. None of the employees of the Company is covered by a collective
bargaining agreement.
TRADEMARKS AND TRADE NAMES
The Company uses the name "NEXTLINK" as its primary business name. In July
1995, the Company filed for federal trademark protection of this name and
received its notice of allowance from the U.S. Patent and Trademark Office (the
"PTO") on July 1, 1997. In addition, the Company has received a notice of
allowance from the PTO of its distinctive floating "X" and related marks as
protected trademarks under federal law. The Company from time to time receives
requests to consider licensing certain patents held by third parties that may
have bearing on its IVR and virtual communications center services. The Company
considers such requests on their merits, but has not to date entered into any
such license agreements.
GLOSSARY
Addressable business lines -- In accordance with industry practice, the
Company includes in its calculation of actual and targeted addressable business
lines all business lines currently in active use through any service provider in
each market area in which the Company has or plans to build a network.
CAP (competitive access provider) -- A company that provides its customers
with an alternative to the ILEC for local private line and special access
telecommunications services.
Central offices -- The switching centers or central switching facilities of
the LECs.
CLEC (competitive local exchange carrier) -- A company providing local
telephone services in competi-tion with the ILEC.
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Co-carrier status -- A regulatory scheme under which the ILEC is required
to integrate new, competing providers of local exchange service, such as the
Company, into the systems of traffic exchange, inter-carrier compensation, and
other inter-carrier relationships that already exist among ILECs in most
jurisdictions.
Collocation -- The ability of a CLEC such as the Company to connect its
network to the ILECs' central offices. Physical collocation occurs when a CLEC
places its network connection equipment inside the ILEC's central offices.
Virtual collocation is an alternative to physical collocation pursuant to which
the ILEC permits a CLEC to connect its network to the ILEC's central offices on
comparable terms, even though the CLEC's network connection equipment is not
physically located inside the central offices.
Dark fiber -- Unused fiber through which no light is transmitted. Dark
fiber is provided with the customer expected to supply the required electronics
and signals.
Dedicated -- Telecommunications lines dedicated or reserved for use by
particular customers and charged on a flat, usually monthly, basis.
DS-0, DS-1, DS-3 -- The standard circuit capacity classifications. Each of
these transmission services can be provided using the same type of fiber optic
cable, but offer different bandwidth (that is, capacity), depending upon the
individual needs of the end user. A DS-0 is a dedicated circuit that is
considered to meet the requirements of usual business communications, with
transmission capacity of up to 64 kilobits of bandwidth per second (that is, a
voice grade equivalent circuit). This service offers a basic low capacity
dedicated digital line for connecting telephones, fax machines, personal
computers and other telecommunications equipment. A DS-1 is a high speed digital
circuit typically linking high volume customer locations to long distance
carriers or other customer locations. Typically utilized for voice transmissions
as well as the interconnection of LANs, DS-1 service accommodates transmission
speeds of up to 1.544 megabits per second, which is the equivalent of 24 voice
grade equivalent circuits. DS-3 service provides a very high capacity digital
circuit with transmission capacity of 45 megabits per second, which is
equivalent to 28 DS-1 circuits or 672 voice grade equivalent circuits. This is a
digital service used by long distance carriers for central office connections
and by some large commercial users to link multiple sites.
FCC -- The United States Federal Communications Commission.
FDDI (fiber distributed data interface) -- Based on fiber optics, FDDI is a
100 megabit per second local area network technology used to connect computers,
printers, and workstations at very high speeds. FDDI is also used as backbone
technology to interconnect other LANs.
Fiber mile -- The number of route miles installed (excluding pending
installations) along a telecommunications path multiplied by the number of
fibers along that path. See the definition of "route mile" below.
ILEC (incumbent local exchange carrier) -- A company that was providing
local exchange service prior to the entry of the CLECs.
Local Exchange -- A geographic area determined by the appropriate state
regulatory authority in which calls generally are transmitted without toll
charges to the calling or called party.
Line -- An electrical path between an ILEC central office and a subscriber.
Long distance carriers (interexchange carriers) -- Long distance carriers
provide services between local exchanges on an interstate or intrastate basis. A
long distance carrier may offer services over its own or another carrier's
facilities.
Number Portability -- The ability of an end user to change local exchange
carriers while retaining the same telephone number.
POPs (points of presence) -- Locations where a long distance carrier has
installed transmission equipment in a service area that serves as, or relays
calls to, a network switching center of that long distance carrier.
PUC (public utility commission) -- A state regulatory body, established in
most states, which regulates utilities, including telephone companies, providing
intrastate services.
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Private line -- A dedicated telecommunications connection between end user
locations.
Reciprocal compensation -- The compensation paid to and from a new
competitive local exchange carrier and the ILEC for termination of a local call
on each other's networks.
Route mile -- The number of miles of the telecommunications path in which
the Company-owned or leased fiber optic cables are installed.
Special access services -- The lease of private, dedicated
telecommunications lines or "circuits" along the network of an ILEC or a CAP,
which lines or circuits run to or from the long distance carrier POPs. Examples
of special access services are telecommunications lines running between POPs of
a single long distance carrier, from one long distance carrier POP to the POP of
another long distance carrier or from an end user to a long distance carrier
POP.
Switch -- A device that opens or closes circuits or selects the paths or
circuits to be used for transmission of information. Switching is a process of
interconnecting circuits to form a transmission path between users.
Switched services -- Transmission of switched calls through the local
switched network.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company owns or leases, in its operating territories, telephone
property which includes: fiber optic backbone and distribution network
facilities; point-to-point distribution capacity; central office switching
equipment; connecting lines between customers' premises and the central offices;
and customer premise equipment.
The fiber optic backbone and distribution network and connecting lines
include aerial and underground cable, conduit, and poles and wires. These
facilities are located on public streets and highways or on privately owned
land. The Company has permission to use these lands pursuant to consent or
lease, permit, easement, or other agreements. The central office switching
equipment includes electronic switches and peripheral equipment.
The Company and its subsidiaries lease facilities for their administrative
and sales offices, network nodes and warehouse space. The various leases expire
in years ranging from 1998 to 2028. Most have renewal options. Additional office
space and equipment rooms will be leased as the Company's operations and
networks are expanded and as new networks are constructed.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently a party to any legal proceedings, other than
regulatory and other proceedings that are in the normal course of its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter
ended December 31, 1997.
PART II
ITEM 5. MARKET FOR REGISTRANTS' COMMON STOCK AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's Class A Common Stock began trading on the Nasdaq National
Market on September 26, 1997, under the symbol "NXLK". Prior to that date, the
Company's Class A Common Stock was not publicly traded. The following table
shows, for the periods indicated, the high and low bid prices for the
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Company's Class A Common Stock as reported by the Nasdaq National Market tier of
The Nasdaq Stock Market.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1997:
Third Quarter (since September 26, 1997)................. $25.50 $23.13
Fourth Quarter........................................... $27.75 $19.50
</TABLE>
There is no public trading market for the Company's Class B Common Stock or
NEXTLINK Capital's common equity.
As of March 6, 1998, the approximate number of shareholders of record of
the Company's Class A and Class B Common Stock was 218 and 15, respectively. The
Company is the sole holder of record of NEXTLINK Capital's Common Stock.
USE OF PROCEEDS
The Company filed a registration statement on Form S-1 (File No. 333-32001)
which became effective on September 26, 1997, whereby 15,200,000 shares of Class
A Common Stock , $0.02 par value per share, were sold in an initial public
offering at a price of $17 per share. Of the 15,200,000 shares of Class A Common
Stock sold, 12,000,000 shares were sold by the Company and 3,200,000 shares were
sold by a selling shareholder. The Company did not receive any of the proceeds
from the sale of shares by the selling shareholder. In addition, the
underwriters of the IPO, led by Salomon Smith Barney, exercised an option to
purchase 2,280,000 additional shares of Class A Common Stock at the same price
per share. Net proceeds to the Company from the IPO totaled approximately $226.8
million, after deducting underwriting discounts, advisory fees and expenses
aggregating approximately $16.0 million. The Company intends to use
substantially all of the net proceeds from the IPO for expenditures relating to
the expansion of existing networks and services, the development and acquisition
of new networks and services and the funding of operating losses and working
capital. None of the net proceeds from the IPO had been used by the Company as
of December 31, 1997.
The Company filed a registration statement on Form S-1 (File No. 333-32003)
which became effective on September 26, 1997, whereby the Company sold $400
million aggregate principal amount of 9 5/8% Senior Notes due 2007 ("9 5/8%
Senior Notes"). The offering was led by Salomon Smith Barney. Net proceeds from
the sale of the 9 5/8% Senior Notes totaled approximately $388.5 million, after
deducting issuance costs aggregating approximately $11.5 million, relating to
underwriting discounts, advisory fees and expenses. The use of proceeds from the
debt offering are substantially the same as the Company's IPO. None of the net
proceeds from the sale of 9 5/8% Senior Notes had been used by the Company as of
December 31, 1997.
DIVIDENDS
Neither the Company nor NEXTLINK Capital have declared a cash dividend on
any of their respective equity securities. Covenants in the indentures pursuant
to which the Company's and NEXTLINK Capital's Senior Notes have been issued
restrict the ability of the Company to pay cash dividends on its capital stock.
SALES OF UNREGISTERED SECURITIES
None.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Since its inception in 1994, the Company has executed a strategy of
developing fiber optic networks and acquiring related telecommunications
businesses. Over this period, the Company has pursued this strategy by
constructing, acquiring, leasing fibers or capacity on, and entering into
agreements to acquire telecommunications networks.
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The Company's primary focus is providing switched local and long distance
and enhanced communications services to small and medium-sized commercial end
user customers. The Company plans to acquire, build or develop networks in new
areas, expand its current networks, and also explore the acquisition or
licensing of additional enhanced communications services and other
telecommunications service providers. These efforts should allow the Company to
increase its presence in the marketplace, and facilitate providing a single
source solution for the telecommunications needs of its customers.
The table provides selected key operational data:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
1997 1996
-------- -------
<S> <C> <C>
OPERATING DATA (1):
Route miles(2)............................................ 1,897 1,080
Fiber miles(3)............................................ 133,224 66,046
On-net buildings connected(4)............................. 513 403
Off-net buildings connected(5)............................ 3,504 --
Switches installed........................................ 13 9
Access lines in service(6)................................ 50,131 8,511
Employees................................................. 1,327 568
</TABLE>
- ---------------
(1) The operating data include the statistics of the Las Vegas network, which
the Company manages and in which the Company has a 40% membership interest.
(2) Route miles refers to the number of miles of the telecommunications path in
which the Company-owned or leased fiber optic cables are installed.
(3) Fiber miles refers to the number of route miles installed along a
telecommunications path, multiplied by the Company's estimate of the number
of fibers along that path.
(4) Represents buildings physically connected to the Company's networks,
excluding those connected by unbundled incumbent local exchange (ILEC)
facilities.
(5) Represents buildings connected to the Company's networks through leased or
unbundled ILEC facilities.
(6) Represents the number of access lines in service, including those lines
which are provided through resale of Centrex services, for which the Company
is billing services.
The Company builds its networks to encompass the significant business
concentrations in each area it serves, focusing on direct connections to end
user locations and ILEC central offices. The Company employs a uniform
technology platform for each of its local exchange networks that is based on the
Nortel DMS 500 digital local and long distance combination switching platform
and associated distribution technology. As of January 31, 1998, the Company had
12 operational Nortel DMS 500 switches, including one switch in its NEXTLAB
facility, and currently plans to install three additional switches by the end of
the second quarter of 1998. NEXTLAB is a fully functional model of one of the
Company's networks, which serves as a testing facility for switch software and
the Company's products and services and will serve as the Company's network
operations control center.
The Company also provides enhanced communications services including
interactive voice response ("IVR") services, which provide an interface between
the Company's clients and their customers for a variety of applications.
Historically, the Company has derived a substantial proportion of its revenues
from these IVR services. As local and long distance revenues are expected to
grow more rapidly than revenues for the Company's enhanced communications
services, the Company anticipates that, over the next five years, local and long
distance revenues will account for a significantly higher percentage of total
revenues.
The development of the Company's businesses and the construction,
acquisition and expansion of its networks require significant expenditures, a
substantial portion of which are incurred before the realization of revenues.
These expenditures, together with the associated early operating expenses,
result in negative cash flow until an adequate customer base is established.
However, as the customer base grows, the Company
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expects that incremental revenues can be generated with decreasing incremental
operating expenses, which may provide positive contributions to cash flow. The
Company has made the strategic decision to build high capacity networks with
broad market coverage, which initially increases its level of capital
expenditures and operating losses. The Company believes that over the long term
this will enhance the Company's financial performance by increasing the traffic
flow over the Company's networks. The Company has recently entered into leased
dark fiber and fiber capacity arrangements, which allow the Company, by
installing one or more switches and related electronics, to enter a market prior
to completing construction of its own fiber optic network.
Prior to January 31, 1997, the Company was a limited liability company that
was classified and taxed as a partnership for federal and state income tax
purposes. As of January 31, 1997, the Company was subject to federal and state
income tax.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
Revenue increased 124% to $57.6 million in 1997 from $25.7 million in the
same period in 1996. The increase was primarily due to 45% growth in the
Company's local and long distance services (both switched and resale), dedicated
services and enhanced communications services, as well as due to recording a
full year's revenue from ITC, a switch-based long distance reseller acquired in
December 1996. To a lesser extent, the acquisitions of Start Technologies
Corporation ("Start") and Chadwick Telecommunications Corporation ("Chadwick")
in the fourth quarter of 1997 also contributed to the increase in revenue.
Revenues reported in 1997 included $38.9 million derived from local and long
distance, competitive access, dedicated line services and shared tenant services
and $18.7 million derived from enhanced communications services, primarily IVR.
The Company's IVR subsidiary contributed 27% and 52% of the Company's revenues
during 1997 and 1996, respectively. The revenues generated by this subsidiary
have tended to fluctuate on a quarter to quarter basis as the revenues are
generally event driven and seasonal in nature.
The Company began offering switched local and long distance services in
seven of its markets in July 1996, and in 18 additional markets during 1997. In
addition, the Company has offered dedicated line services since January 1995 and
has resold Centrex access lines since April 1995. The Company increased its
quarterly customer access line installation rate from 1,604 in the fourth
quarter of 1996 to 19,187 during the fourth quarter of 1997. As of December 31,
1997, the Company had 50,131 access lines in service, compared to 8,511 as of
December 31, 1996. Revenues from the provision of such services are expected to
continue to increase as a component of total revenues over future periods.
Access lines in service includes those lines which are provided through resale
of Centrex services, the number of which is decreasing over time as the Company
converts those customers to its own network.
Operating expenses consist of costs directly related to providing
facilities-based network and enhanced communications services and also include
salaries and benefits and related costs of operations and engineering personnel.
Operating expenses increased 115% in 1997 to $54.0 million, an increase of $28.9
million over the same period in 1996. These increases were attributed to factors
that include an increase in network costs related to the provision of increased
volumes of local, long distance and enhanced communications services and the
Company's increase in employees as well as other related costs primarily to
expand the Company's switched local and long distance service businesses in its
existing and planned markets. Additionally, the effects of the ITC acquisition
in December 1996 and the two acquisitions in the fourth quarter of 1997 further
resulted in an increase in 1997 operating expenses over those of the prior year.
Selling, general and administrative expenses ("SG&A") include salaries and
related personnel costs, facilities expenses, sales and marketing, consulting
and legal fees and equity in loss of affiliates. SG&A increased 142% for the
year ended December 31, 1997 as compared to the corresponding period in 1996.
The increase was primarily due to the Company's increase in employees and other
costs associated with the expansion of the Company's switched local and long
distance service businesses in its existing and planned markets, as well as the
ITC acquisition.
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Deferred compensation expense was recorded in connection with the Company's
Equity Option Plan until April 1997, and in connection with the Company's Stock
Option Plan (the "Plan"), which replaced the Equity Option Plan, subsequent to
April 1997. The stock options granted under the Equity Option Plan were
considered compensatory and were accounted for on a basis similar to that for
stock appreciation rights. All options outstanding under the Equity Option Plan
were regranted under the new Plan with terms and conditions substantially the
same as under the Equity Option Plan. As such, the Company continues to record
deferred compensation expense for those compensatory stock options issued, as
well as for compensatory stock options issued subsequent to the Plan conversion
date. Compensation expense is recognized over the vesting periods based on the
excess of the fair value of the stock options at the date of grant over the
exercise price.
Depreciation expense increased primarily due to placement in service of
additional telecommunications network assets, including switches, fiber optic
cable, network electronics and related equipment. Amortization of intangible
assets increased primarily as a result of the ITC acquisition in December 1996,
as well as the acquisitions of Linkatel, Start and Chadwick in 1997.
Interest expense increased 76% in 1997 over the prior year due to an
increase in the Company's average outstanding indebtedness over the respective
periods, primarily relating to the 12 1/2% and 9 5/8% Senior Notes issued in
April 1996 and October 1997, respectively. See "-- Liquidity and Capital
Resources." Pursuant to Statement of Financial Accounting Standards No. 34, the
Company capitalizes a portion of its interest costs as part of the construction
cost of its communications networks. Capitalized interest during 1997 totaled
$1.8 million. Interest income results from investment of excess cash and certain
securities that have been pledged as collateral for interest payments on the
12 1/2% Senior Notes. The increase in interest income in 1997 over 1996
corresponded to the increase in the Company's average outstanding cash balances.
LIQUIDITY AND CAPITAL RESOURCES
The competitive local telecommunications service business is a capital
intensive business. The Company's existing operations have required and will
continue to require substantial capital investment for the acquisition and
installation of fiber, electronics and related equipment in order to provide
switched services in the Company's networks and the funding of operating losses
during the start-up phase of each market. In addition, the Company's strategic
plan calls for expansion into additional market areas. Such expansion will
require significant additional capital for: potential acquisitions of businesses
or assets; design, development and construction of new networks; and the funding
of operating losses during the start-up phase of each market. During 1997, the
Company used $94.5 million in cash for operating activities, compared to $40.6
million in 1996. The increase was primarily due to a substantial increase in the
Company's activities associated with the development and initiation of switched
local and long distance services. In addition, during 1997, the Company invested
an additional $210.5 million in cash in property and equipment, acquisitions of
telecommunications businesses and equity investments in telecommunications
businesses. During 1996, the Company invested $78.0 million in cash in property
and equipment, acquisitions of telecommunications assets and businesses and
equity investments in telecommunications businesses.
In February 1998, the Company signed a definitive agreement with Metromedia
Fiber Network for exclusive rights to multiple fibers and innerducts for 20
years, with two 10 year renewals. The route covered by the agreement extends
over 650 route miles from Manhattan to White Plains (NY), to Stamford (CT), to
Newark (NJ) and south from Manhattan through Philadelphia, Wilmington (DE),
Baltimore, and to Washington (DC). The route will offer frequent splice points
within metropolitan areas and splice points at least every 10,000 feet on routes
between metropolitan areas, as well as provide access to ILEC central and tandem
switching offices. The Company will pay $92.0 million in cash for the
transaction, of which $80.3 million will be placed into escrow, to be released
as segments of the route are constructed and delivered to the Company.
In January 1998, the Company and Nextel formed NEXTBAND, a joint venture
which is owned 50% by the Company and 50% by Nextel. On January 20, 1998,
NEXTBAND filed an application with the FCC for which it paid a $50.0 million
refundable deposit to participate in the FCC's LMDS auction which began on
February 18, 1998. Of the deposit amount, $25.0 million was contributed by the
Company. LMDS is a fixed
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broadband point-to-multipoint service which the FCC and industry analysts
anticipate will be used for the deployment of wireless local loop, high-speed
data transfer and video broadcasting services. Two licenses will be awarded in
each of 493 BTAs when the auction is concluded. Although the number of licenses
that may be awarded to NEXTBAND is limited by the amount of the deposit,
NEXTBAND has applied for and is eligible to bid on any of the markets being
auctioned for the block A license (1,150 MHz of spectrum) and the block B
license (150 MHz of spectrum).
The Company is exploring LMDS for two reasons. Depending upon the bidding
and deployment costs, LMDS may offer an economically efficient means to
supplement the Company's fiber network build-out in some localities. In
addition, a wireless local loop alternative may create competitive pressure on
high unbundled loop costs in certain areas. There can be no assurance that
NEXTBAND's participation in the auction will result in the purchase of any LMDS
licenses or that LMDS spectrum for wireless connectivity will provide a
cost-effective and efficiently engineered means to connect to end user
locations. If NEXTLINK's bids are successful, the purchase price of the licenses
and the costs of building out any such wireless systems could be substantial.
In November 1997, the Company acquired all outstanding shares of Start, a
shared tenant services provider serving commercial buildings in Dallas, Austin
and Corpus Christi, Texas and Phoenix, Arizona. Services offered by Start
include local and long distance services, Internet access and customer premise
equipment management. Start currently provides services under long term
contracts to 600 corporate customers, or approximately 13,000 end users. The
Company paid consideration for the transaction consisting of $20.0 million in
cash, 441,336 shares of Class A common stock and the assumption of approximately
$5.3 million of liabilities, the majority of which were repaid.
In October 1997, the Company acquired all of the outstanding shares of
Chadwick, a switch-based long distance reseller in central Pennsylvania, through
a merger transaction between Chadwick and a wholly owned subsidiary of NEXTLINK.
Chadwick serves approximately 11,500 customers throughout the central and
eastern Pennsylvania regions. The Company issued consideration for the
transaction consisting of a promissory note payable in the aggregate principal
amount of $5.0 million (which was repaid in full in January 1998), 257,151
shares of Class A Common Stock and the repayment of long term debt and other
liabilities totaling $6.6 million. The merger agreement also provides for
additional payments of up to a maximum of 192,863 shares of Class A Common Stock
over a two year period, with these payments being contingent upon the acquired
operation achieving specified performance goals.
In September 1997, the Company entered into a definitive agreement to
acquire certain telecommunications assets of Unicom Thermal Technologies, Inc.
("UTT"), including two existing route miles of network plus 13 miles of conduit
in downtown Chicago. The Company also has the right to participate in the
ongoing expansion of UTT's network in Chicago. The existing network currently
provides connectivity to 28 buildings. The Company agreed to pay $2.5 million in
cash, plus up to an additional $560,000 for the acquisition of certain
additional telecommunications facilities. The Company will also be required to
pay certain additional consideration to UTT for a portion of the network
expansion costs, up to $3.4 million in cash plus the issuance of up to 60,022
shares of Class A Common Stock.
In June 1997, the Company entered into an eight year exclusive agreement,
with an option to renew for five additional years, with a company that has
excess fiber capacity in each of Atlanta, Chicago, New York City, Newark (NJ)
and Philadelphia which it agreed to make available to the Company in each of
those markets at a substantial discount to the wholesale rates charged by other
vendors of capacity. In addition to the capacity arrangement described above,
the Company also has entered into a 20-year lease of capacity over an existing
47-mile fiber network in New York City, which extends from the Wall Street area
north to midtown Manhattan. In June 1997, the Company paid $11 million in full
satisfaction of its obligations under this lease, $6 million of which was placed
in escrow pending completion of certain building connections by the lessor. As
of December 31, 1997, $4.1 million remained in escrow. These arrangements will
allow the Company to accelerate its entry into each of these markets by enabling
the Company to avoid a significant portion of the infrastructure development and
construction time that would otherwise be required to launch switched local and
long distance services in these markets. Although these agreements have reduced
the initial
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capital expenditures necessary to enter these markets, the Company has not, as a
result, reduced its overall planned capital expenditures through 1999.
In June 1997, the Company also executed a definitive agreement to acquire
an existing fiber optic network in downtown Philadelphia in order to extend its
existing network in Pennsylvania. The acquisition is subject to regulatory and
other consents and is anticipated to be consummated by the end of the second
quarter in 1998. During the interim period prior to closing, the Company is
operating under a 36 fiber capacity agreement with the seller.
On February 4, 1997, the Company completed the acquisition of substantially
all of the assets of Linkatel, a Los Angeles-based competitive access
telecommunications provider. At the time of acquisition, Linkatel operated an 80
mile fiber optic telecommunications network covering several markets in the
Orange and Los Angeles county areas. The total purchase price of $42.5 million
consisted of a cash payment of $36.1 million (including the release of $6.0
million which was deposited into escrow during 1996) plus the repayment of debt
of $5.6 million and the assumption of net liabilities totaling $0.8 million.
In January 1997, the Company obtained rights-of-way to expand its existing
Salt Lake City network into Provo and Orem, Utah. The Company has completed the
expansion of this network to Provo and Orem and began providing switched local
and long distance services in Provo and Orem in September 1997.
Prior to April 1996, the Company funded its expenditures with approximately
$55.0 million of cash equity investments from two entities that are controlled
by Craig O. McCaw. On April 25, 1996, the Company raised gross proceeds of
$350.0 million through the issuance of 12 1/2% Senior Notes due April 15, 2006
("12 1/2% Senior Notes"). The Company used $117.7 million of the gross proceeds
to purchase and hold in escrow U.S. government securities, representing funds
sufficient to provide for payment in full of interest on the 12 1/2% Senior
Notes through April 15, 1999, and used an additional $32.2 million to repay
certain advances and accrued interest from Eagle River, a company majority-owned
and controlled by Mr. McCaw. In addition, the Company incurred costs of $9.8
million in connection with the financing. Interest payments on the 12 1/2%
Senior Notes are due semi-annually.
On January 31, 1997, the Company completed the sale of $285 million
aggregate liquidation preference of 14% senior exchangeable redeemable preferred
shares ("Preferred Shares") which, after deducting issuance costs, resulted in
net proceeds to the Company of approximately $274 million. The Preferred Shares
accrue dividends at the rate of 14% per annum. On or before February 1, 2002,
dividends may, at the option of the Company, be paid in cash or by issuing
additional Preferred Shares with an aggregate liquidation preference equal to
the amount of such dividends. After February 1, 2002, dividends must be paid in
cash. As of December 31, 1997, the Company had issued an additional 622,031
shares of Preferred Shares in satisfaction of the first three quarterly
dividends.
Since inception and through December 1996, the Company has also issued
Class A Units valued at $15.5 million primarily for the acquisition of certain
telecommunications assets and businesses, which Units were converted to shares
of Class B Common Stock of the Company on January 31, 1997.
On October 1, 1997, the Company completed an initial public offering
("IPO") of 12,000,000 shares of Class A Common Stock at a price of $17 per
share. In addition, the underwriters of the IPO exercised an option to purchase
2,280,000 additional shares of Class A Common Stock at the same price per share.
Gross proceeds from the IPO totaled $242.8 million, and proceeds net of
underwriting discounts, advisory fees and estimated expenses aggregated
approximately $226.8 million. Concurrently with the IPO, the Company sold $400
million in aggregate principal amount of 9 5/8% Senior Notes due 2007, which,
after deducting estimated issue costs, resulted in net proceeds to the Company
of approximately $388.5 million. Interest payments on the 9 5/8% Senior Notes
are due semi-annually.
On March 3, 1998, the Company completed the sale of $335 million in
aggregate principal amount of 9% Senior Notes due 2008 ("9% Senior Notes").
Proceeds from the sale, net of discounts, underwriting commissions, advisory
fees and expenses, totaled approximately $326.5 million. Interest payments on
the 9% Senior Notes are due semi-annually, beginning September 1998.
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The Company will use the remaining proceeds from the sale of Class A Common
Stock, 9 5/8% Senior Notes and 9% Senior Notes and existing unrestricted cash
balances for expenditures relating to the construction, acquisition and
operation of telecommunications networks and service providers and the offering
of telecommunications services in those areas where the Company currently
operates or intends to operate. Expenditures for the construction and operation
of networks include (i) the purchase and installation of switches and related
electronics in existing networks and in networks to be constructed or acquired
in new or adjacent markets; (ii) the purchase and installation of fiber optic
cable and electronics to expand existing networks and develop new networks,
including the connection of new buildings; (iii) spectrum that may be purchased
during the LMDS auction that is currently ongoing; (iv) the development of its
comprehensive information technology platform and (v) the funding of operating
losses and working capital. The Company may also acquire or invest in businesses
that consist of existing networks or companies engaged in businesses similar to
those engaged in by the Company and its subsidiaries or other complementary
businesses.
As of December 31, 1997, the Company had unrestricted cash and investments
of $742.4 million and $1,068.9 million on a pro forma basis after giving effect
to the sale of the 9% Senior Notes. The Company's current plan contemplates an
aggressive expansion into a number of new markets throughout the United States.
The Company may pursue various alternatives for achieving its growth strategy,
including: additional network construction; additional leases of network
capacity from third party providers; acquisitions of existing networks; and
spectrum that may be purchased during the LMDS auction that is currently ongoing
and associated facilities construction and deployment if any spectrum is
purchased. The Company also anticipates that a substantial amount of additional
capital expenditures will be made in 1999 and beyond. The funding of these
capital expenditures is expected to be provided by existing cash balances,
future vendor and/or credit facilities, future public or private sales of debt
securities, future sales of public or private capital stock and joint ventures.
There can be no assurance, however, that the Company will be successful in
raising sufficient additional capital on terms that it will consider acceptable
or that the Company's operations will produce positive consolidated cash flow in
sufficient amounts to meet its interest and dividend obligations on outstanding
securities. Failure to raise and generate sufficient funds may require the
Company to delay or abandon some of its planned future expansion or
expenditures, which could have a material adverse effect on the Company's growth
and its ability to compete in the telecommunications services industry.
In addition, the Company's operating flexibility with respect to certain
business matters is, and will continue to be, limited by covenants associated
with the 12 1/2% Senior Notes, the 9 5/8% Senior Notes and the 9% Senior Notes.
Among other things, these covenants limit the ability of the Company and its
subsidiaries to incur additional indebtedness, create liens upon assets, apply
the proceeds from the disposal of assets, make dividend payments and other
distributions on capital stock and redeem capital stock. In addition, the terms
of the Preferred Shares contain certain covenants that may limit the Company's
operating flexibility with respect to the incurrence of indebtedness and
issuance of additional preferred shares. There can be no assurance that such
covenants will not adversely affect the Company's ability to finance its future
operations or capital needs or to engage in other business activities that may
be in the interest of the Company. The Company was in compliance with all
covenants associated with the 12 1/2% Senior Notes, the 9 5/8% Senior Notes and
the Preferred Shares as of December 31, 1997.
IMPACT OF YEAR 2000
Certain of the Company's older computer systems and applications were
written to define a given year with abbreviated dates using the last two digits
in a year rather than the entire four digits. As a result, those systems and
applications have time-sensitive software that recognize an abbreviated year
"00" as the year 1900 rather than the year 2000. This could cause a system
failure or miscalculations resulting in disruptions of operations including,
among other things, a temporary inability to process transactions, send invoices
or engage in other normal business activities.
The Company has received positive confirmation from its vendor that the
Company's Nortel DMS 500 switches and related telecommunications equipment are
Year 2000 compliant. The Company is currently assessing the extent of
replacements or modifications necessary to certain of its older computer systems
and applications so that such systems and applications will properly utilize
dates beyond December 31, 1999. The
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Company believes that the impact of upgrading or modifying existing software and
converting to new software (the "Year 2000 Project") will not be material to the
Company operations or financial position. Costs incurred in connection with the
Year 2000 project will be expensed as incurred unless new software is purchased,
in which case such costs will be capitalized. The Company has not incurred
significant Year 2000 project costs to date. The Company plans to complete the
Year 2000 project no later than December 31, 1998.
OUTLOOK: ISSUES AND UNCERTAINTIES
The Company does not provide forecasts of future financial performance.
This Report, however, does contain statements that are not historical facts and
are forward-looking. Actual events or results may differ materially from events
or results indicated, whether expressed or implied. Although the Company's
management is optimistic about the Company's long-term prospects, the following
issues and uncertainties, among others, should be considered in evaluating its
outlook.
NEGATIVE CASH FLOW AND OPERATING LOSSES; LIMITED HISTORY OF OPERATIONS
The development of the Company's businesses and the installation and
expansion of its networks require significant expenditures, a substantial
portion of which must be made before any revenues may be realized. Certain of
the expenditures are expensed as incurred, while certain other expenditures are
capitalized. These expenditures, together with the associated early operating
expenses, result in negative cash flow and operating losses until an adequate
revenue base is established. There can be no assurance that an adequate revenue
base will be established for any of the Company's networks. The Company's
operations have resulted in net losses of $12.7 million, $71.1 million and
$129.0 million for the years ended December 31, 1995, 1996 and 1997,
respectively. The Company will continue to incur significant expenditures in the
future in connection with the acquisition, development and expansion of its
networks, services and customer base. There can be no assurance that the Company
will achieve or sustain profitability or generate positive cash flow in the
future.
The Company was formed in September 1994. A significant, but declining,
portion of the Company's revenue for the years ended December 31, 1995, 1996 and
1997, was derived from the operations of the Company's IVR enhanced service
offering, which operations were acquired by the Company in September 1995.
Prospective investors, therefore, have limited historical financial information
upon which to base an evaluation of the Company's performance in the business
which will be its principal focus in the future. The Company has only recently
commenced operations as a single source service provider of telecommunications
services. Given the Company's limited operating history, there can be no
assurance that it will be able to complete successfully in the
telecommunications business and to generate positive cash flow in the future.
SIGNIFICANT FUTURE CAPITAL REQUIREMENTS; SUBSTANTIAL INDEBTEDNESS
Expansion of the Company's existing networks and services and the
development and acquisition of new networks and services will require
significant capital expenditures. The Company will also continue to evaluate
additional revenue opportunities in each of its markets and, as and when
attractive additional opportunities develop, the Company plans to make capital
investments in its networks that might be required to pursue such opportunities.
The Company expects to meet its additional capital needs with the proceeds from
credit facilities and other borrowings, the proceeds from public or private
sales of debt securities, the sale or issuance of equity securities and through
joint ventures. There can be no assurance, however, that the Company will be
successful in raising sufficient additional capital on terms that it will
consider acceptable or that the Company's operations will produce positive cash
flow in sufficient amounts to service its debt and to pay cash dividends on the
14% Preferred Shares. Failure to raise and generate sufficient funds may require
the Company to delay or abandon some of its planned future expansion or
expenditures, which could have a material adverse effect on the Company's growth
and its ability to compete in the telecommunications services industry. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
The Company expects to incur substantial additional indebtedness (including
secured indebtedness) during the next few years to finance the acquisition,
construction and expansion of networks, the potential
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acquisition of telecommunications companies, the possible acquisition of LMDS
spectrum and the construction and deployment of associated facilities, if such
spectrum is purchased, the purchase of additional switches, the offering of
switched local and long distance services, the introduction of other new service
offerings and the development and implementation of a comprehensive information
technology platform. The Indenture does not limit the amount the Company may
invest in Restricted Subsidiaries or certain joint ventures engaged in one or
more Telecommunications Businesses (including the joint venture through which
the Company is participating in the LMDS auction) or the amount of Debt the
Company may incur to fund investments in Restricted Subsidiaries or such joint
ventures. As of December 31, 1997, after giving pro forma effect to the
Offering, the amount of total consolidated liabilities of the Company would have
been approximately $1,164.7 million.
The future funding requirements discussed above are based on the Company's
current estimates. There can be no assurance that actual expenditures and
funding requirements will not be significantly higher or lower.
RISK ASSOCIATED WITH IMPLEMENTATION OF GROWTH STRATEGY
The expansion and development of the Company's operations (including the
construction and acquisition of additional networks) will depend on, among other
things, the Company's ability to assess markets, identify, finance and complete
suitable acquisitions, design fiber optic network backbone routes, install fiber
optic cable and facilities, including switches, and obtain rights-of-way,
building access rights and any required government authorizations, franchises
and permits, all in a timely manner, at reasonable costs and on satisfactory
terms and conditions. In addition, the Company has experienced rapid growth
since its inception, and the Company believes that sustained growth places a
strain on operational, human and financial resources. In order to manage its
growth, NEXTLINK must continue to improve its operating and administrative
systems including the continued development of effective systems relating to
ordering, provisioning and billing for telecommunications services. NEXTLINK
must also continue to attract and retain qualified managerial, professional and
technical personnel. As a result, there can be no assurance that the Company
will be able to implement and manage successfully its growth strategy. The
Company's growth strategy also involves the following risks:
Qualified Personnel. NEXTLINK believes that a critical component for its
success will be the attraction and retention of qualified managerial,
professional and technical personnel. During 1997 the Company has experienced
significant competition in the attraction and retention of personnel that
possess the skill sets that the Company is seeking. Although the Company has
been successful in attracting and retaining qualified personnel, there can be no
assurance that NEXTLINK will not experience a shortage of qualified personnel in
the future.
Switch and Equipment Installation. An essential element of the Company's
current strategy is the provision of switched local service. There can be no
assurance that the installation of the required switches, fiber optic cable and
associated electronics necessary to implement the Company's business plan will
continue to be completed on time or that, during the testing of these switches
and related equipment, the Company will not experience technological problems
that cannot be resolved. The failure of the Company to install and operate
successfully additional switches and other network equipment could have a
material adverse effect upon the Company's ability to enter additional markets
as a single source provider of telecommunications services.
Interconnection Agreements. The Company has agreements or is currently
negotiating agreements for the interconnection of its networks with the networks
of the ILEC covering each market in which NEXTLINK either has or is constructing
a network. NEXTLINK may be required to negotiate new, or renegotiate existing
interconnection agreements as it enters new markets in the future. There can be
no assurance that the Company will successfully negotiate such other agreements
for interconnection with the ILEC or renewals of existing interconnection
agreements. The failure to negotiate required interconnection agreements could
have a material adverse effect upon the Company's ability to enter rapidly the
telecommunications market as a single source provider of telecommunications
services.
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Ordering, Provisioning and Billing. The Company has developed processes and
procedures and is working with external vendors, including the ILECs, in the
implementation of customer orders for services, the provisioning, installation
and delivery of such services and monthly billing for those services. In
connection with its development of a comprehensive information technology
platform, the Company is developing and implementing automated internal systems
for processing customer orders and provisioning. Billing is provided by
unaffiliated third-party vendors. The failure to develop effective internal
processes and systems for these service elements or the failure of the Company's
current vendors or the ILECs to deliver effectively ordering, provisioning
(including establishing sufficient capacity and facilities on the ILEC's
networks to service the Company) and billing services could have a material
adverse effect upon the Company's ability to achieve its growth strategy.
Products and Services. The Company expects to continue to enhance its
systems in order to offer its customers switched local services and other
enhanced products and services in all of its networks as quickly as practicable
and as permitted by applicable regulations. The Company believes its ability to
offer, market and sell these additional products and services will be important
to the Company's ability to meet its long-term strategic growth objectives, but
is dependent on the Company's ability to obtain the needed capital, additional
favorable regulatory developments and the acceptance of such products and
services by the Company's customers. No assurance can be given that the Company
will be able to obtain such capital or that such developments or acceptance will
occur.
Acquisitions. The Company intends to use the net proceeds of the Offering
to expand its networks and service offerings through internal developments and
acquisitions, which could be material. Such acquisitions, if made, could divert
the resources and management time of the Company and would require integration
with the Company's existing networks and services. There can be no assurance
that any such acquisitions will occur or that any such acquisitions, if made,
would be on terms favorable to the Company or would be successfully integrated
into the Company's operations.
NEED TO OBTAIN AND MAINTAIN FRANCHISES, PERMITS AND RIGHTS-OF-WAY
In order to acquire and develop its networks the Company must obtain local
franchises and other permits, as well as rights to utilize underground conduit
and aerial pole space and other rights-of-way and fiber capacity from entities
such as ILECs and other utilities, railroads, long distance companies, state
highway authorities, local governments and transit authorities. There can be no
assurance that the Company will be able to maintain its existing franchises,
permits and rights or to obtain and maintain the other franchises, permits and
rights needed to implement its business plan on acceptable terms. Although the
Company does not believe that any of the existing arrangements will be canceled
or will not be renewed as needed in the near future, cancellation or non-renewal
of certain of such arrangements could materially adversely affect the Company's
business in the affected metropolitan area. In addition, the failure to enter
into and maintain any such required arrangements for a particular network,
including a network which is already under development, may affect the Company's
ability to acquire or develop that network. See "Business -- Company Network
Architecture."
COMPETITION
In each of the markets served by the Company's networks, the Company
competes principally with the ILEC serving that area. ILECs are established
providers of local telephone services to all or virtually all telephone
subscribers within their respective service areas. ILECs also have long-standing
relationships with regulatory authorities at the federal and state levels. While
recent FCC administrative decisions and initiatives provide increased business
opportunities to telecommunications providers such as the Company, they also
provide the ILECs with increased pricing flexibility for their private line and
special access and switched access services. In addition, with respect to
competitive access services (as opposed to switched local exchange services),
the FCC recently proposed a rule that would provide for increased ILEC pricing
flexibility and deregulation for such access services either automatically or
after certain competitive levels are reached. If the ILECs are allowed by
regulators to offer discounts to large customers through contract tariffs,
engage in aggressive volume and term discount pricing practices for their
customers, and/or seek to charge competitors excessive fees for interconnection
to their networks, the income of competitors to the ILECs, including the
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Company, could be materially adversely affected. If future regulatory decisions
afford the ILECs increased access services, pricing flexibility or other
regulatory relief, such decisions could also have a material adverse effect on
competitors to the ILEC, including the Company.
The Company also faces, and expects to continue to face, competition from
other current and potential market entrants, including long distance carriers
seeking to enter, reenter or expand entry into the local exchange market place
such as AT&T Corp. ("AT&T"), MCI Communications Corporation ("MCI"), Sprint
Corporation ("Sprint") and WorldCom, Inc. ("WorldCom"), and from other CLECs,
competitive access providers ("CAPs"), cable television companies, electric
utilities, microwave carriers, wireless telephone system operators and private
networks built by large end-users. In addition, a continuing trend toward
combinations and strategic alliances in the telecommunications industry could
give rise to significant new competitors. The Telecom Act includes provisions
which impose certain regulatory requirements on all local exchange carriers,
including competitors such as the Company, while granting the FCC expanded
authority to reduce the level of regulation applicable to any or all
telecommunications carriers, including ILECs. The manner in which these
provisions of the Telecom Act are implemented and enforced could have a material
adverse effect on the Company's ability to successfully compete against ILECs
and other telecommunications service providers. The Company also competes with
equipment vendors and installers, and telecommunications management companies
with respect to certain portions of its business. Many of the Company's current
and potential competitors have financial, personnel and other resources,
including brand name recognition, substantially greater than those of the
Company, as well as other competitive advantages over the Company.
The Company also competes with long distance carriers in the provision of
long distance services. Although the long distance market is dominated by four
major competitors, AT&T, MCI, Sprint and WorldCom, hundreds of other companies
also compete in the long distance marketplace.
REGULATION
The Company is subject to varying degrees of federal, state and local
regulation. In each state in which the Company desires to offer its services,
the Company is required to obtain authorization from the appropriate state
commission. Although the Company has received such authorization for each of its
operational markets, there can be no assurance that the Company will receive
such authorization for markets to be launched in the future. The Company is not
currently subject to price cap or rate of return regulation, nor is it currently
required to obtain FCC authorization for the installation, acquisition or
operation of its network facilities. Further, the FCC has determined that
non-dominant carriers, such as the Company and its subsidiaries, are not
required to file interstate tariffs for interstate access and domestic long
distance service on an ongoing basis. On February 13, 1997, the United States
Court of Appeals for the District of Columbia granted motions for a stay on the
FCC detariffing order pending judicial review of that order. The result of this
stay is that carriers must continue to file tariffs for interstate long distance
services. The FCC requires the Company and its subsidiaries to file interstate
tariffs on an ongoing basis for interstate and international inter-exchange
traffic. The Company's subsidiaries that provide or will provide intrastate
services are also generally subject to certification and tariff or price list
filing requirements by state regulators. Although passage of the Telecom Act
should result in increased opportunities for companies that are competing with
the ILECs, no assurance can be given that changes in current or future
regulations adopted by the FCC or state regulators or other legislative or
judicial initiatives relating to the telecommunications industry would not have
a material adverse effect on the Company. In addition, although the Telecom Act
provides incentives to the ILECs that are subsidiaries of Regional Bell
Operating Companies ("RBOCs") to enter the long distance service market, there
can be no assurance that these ILECs will negotiate quickly with competitors
such as the Company for the required interconnection of the competitor's
networks with those of the ILEC. On July 2, 1997, SBC Communications Inc.
("SBC") and its local exchange carrier subsidiaries filed a lawsuit in the
United States District Court for the Northern District of Texas challenging on
Constitutional grounds the Telecom Act restrictions applicable to the RBOCs
only. The plaintiffs in the case seek both a declaratory judgment and an
injunction against the enforcement of the challenged provisions. See
"Business -- Regulatory Overview."
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On December 31, 1997, the United States District Court for the Northern
District of Texas issued a decision holding that Sections 271 through 275,
including the long distance entry provisions, of the Telecom Act are
unconstitutional because they violate the separation of powers principles and
bill of attainder provision of the U.S. Constitution. On February 11, 1998, the
United States District Court for the Northern District of Texas granted the
CLECs' request for a stay of the December 31, 1997 decision pending appeal to
the United States Court of Appeals for the Fifth Circuit. That appeal is
currently pending. If the stay is lifted, or if the Fifth Circuit upholds the
district court's ruling, then the RBOCs would be free to enter the long distance
market, providing additional competition to the Company's bundled service
offering. In addition, the district court's ruling would eliminate the long
distance entry incentives under the Telecom Act that were designed to promote
interconnection between the ILEC and new competitors. The district court's
decision has been appealed by the U.S. government and a number of other
intervenors.
On May 8, 1997, the FCC released an order establishing a significantly
expanded federal telecommunications subsidy regime which both increase the size
of existing subsidies and created new subsidy funds. In the May 8 order, the FCC
also announced that it will soon revise its rules for subsidizing service
provided to consumers in high cost areas. The Company intends to make all
subsidy payments required by law. See "Business -- Regulatory Overview."
On July 18, 1997, the United States Court of Appeals for the Eighth Circuit
overturned many of the rules the FCC had established pursuant to the Telecom Act
governing the terms under which CLECs may, among other things, interconnect with
ILECs, resell ILEC services, lease unbundled ILEC network elements and terminate
traffic on ILEC networks. On October 14, 1997, the United States Court of
Appeals for the Eighth Circuit vacated the FCC's rule prohibiting ILECs from
separating unbundled network elements that are already combined, except at the
request of the CLECs. These eighth Circuit decisions substantially limit the
FCC's jurisdiction and expands the state regulators' jurisdiction to set and
enforce rules governing the development of local competition. As a result, it is
more likely that the rules governing local competition will vary substantially
from state to state. Most states, however, have already begun to establish rules
for local competition that are consistent with the FCC rules overturned by the
Eighth Circuit. If a patchwork of state regulations were to develop, it could
increase the Company's costs of regulatory compliance and could make competitive
entry in some markets more difficult and expensive than in others. See
"Business -- Regulatory Overview."
DEPENDENCE ON LARGE CUSTOMERS
To date the Company has derived a substantial proportion of its revenues
from certain large customers of its competitive access services and its IVR
enhanced communication service offerings, the loss of one or more of which could
have a material adverse effect on the Company's operating results. The Company's
10 largest customers accounted for approximately 25%, 51% and 66% of the
Company's revenues in 1997, 1996 and 1995, respectively. The Company does not
have long-term service contracts with most of these customers. The Company will
continue to be dependent upon a small number of customers for a substantial
portion of its revenues until such time, if at all, as the Company generates
substantial revenues from the provision of switched local and long distance
communications services.
RAPID TECHNOLOGICAL CHANGES; LICENSES
The telecommunications industry is subject to rapid and significant changes
in technology. The effect on the Company of technological changes, including
changes relating to emerging wireline and wireless transmission and switching
technologies, cannot be predicted. In addition, the Company from time to time
receives requests to consider licensing certain patents held by third parties
that may have bearing on its IVR and virtual communications center services. The
Company considers such requests on their merits, but has not to date entered
into any such license agreements. Should the Company be required to pay license
fees in the future, such payments, if substantial, could have a material adverse
effect on the Company's results of operations.
33
<PAGE> 36
DEPENDENCE ON KEY PERSONNEL
The Company's businesses are managed by a small number of key executive
officers, the loss of certain of whom could have a material adverse effect on
the Company. The Company believes that its future success will depend in large
part on its ability to develop a large and sophisticated sales force and its
ability to attract and retain highly skilled and qualified personnel. Most of
the executive officers of the Company, including the presidents of its operating
subsidiaries, do not have employment agreements. Although the Company has been
successful in attracting and retaining qualified personnel, there can be no
assurance that NEXTLINK will not experience a shortage of qualified personnel in
the future.
VARIABILITY OF QUARTERLY OPERATING RESULTS
As a result of the significant expenses associated with the expansion and
development of its networks and services and the variability of the level of
revenues generated through sales of NEXTLINK's IVR enhanced communications
services, the Company anticipates that its operating results could vary
significantly from period to period.
CONTROL BY MR. CRAIG O. MCCAW; POTENTIAL CONFLICTS OF INTERESTS
Craig O. McCaw, primarily through his majority ownership and control of
Eagle River Investments, L.L.C., a Washington limited liability company ("Eagle
River"), controls approximately 52% of the Company's total voting power. As a
result, Mr. McCaw has the ability to control the direction and future operations
of the Company. Mr. McCaw is not an executive officer of the Company and, in
addition to his investment in the Company through Eagle River, Mr. McCaw has
significant investments in other communications companies, including Nextel
Communications, Inc., Teledesic Corporation and Cable Plus Inc., some of which
could compete with the Company as a single source provider of telecommunications
services or act as a supplier to the Company of certain telecommunications
services. The Company does not have a noncompetition agreement with either Mr.
McCaw or Eagle River. Mr. McCaw is not bound by any contractual restrictions
against sales of the Company's common stock.
POTENTIAL VOLATILITY OF STOCK PRICE
The market price of the Company's common stock has been, and is likely to
continue to be, volatile. The market price of the common stock could be subject
to significant fluctuations in response to a number of factors, such as actual
or anticipated variations in the Company's quarterly operating results, the
introduction of new products by the Company or its competitors, changes in other
conditions or trends in the Company's industry, changes in governmental
regulations, changes in securities analysts' estimates of the Company's, or its
competitors' or industry's, future performance or general market conditions. In
addition, stock markets have experienced extreme price and volume volatility in
recent years, which has had a substantial effect on the market prices of
securities of many smaller public companies for reasons frequently unrelated to
the operating performance of such companies.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company are filed under this
Item, beginning on page 44 of this Report, and of NEXTLINK Capital are filed
under this Item, beginning on Page 61 of this Report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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<PAGE> 37
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
MANAGEMENT
The following table sets forth the names, ages and positions of the
executive officers and members of the Company's board of directors. Their
respective backgrounds are described following the table.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Steven W. Hooper(3)...... 45 Chairman of the Board of Directors
Wayne M. Perry(1)........ 48 Vice Chairman and Chief Executive Officer
James F. Voelker(1)...... 47 President and Director
George M. Tronsrue III... 41 Chief Operating Officer
Jan Loichle.............. 50 Vice President, Chief of Local Exchange
Operations
Kathleen H. Iskra........ 41 Vice President, Chief Financial Officer
and Treasurer
R. Bruce Easter, Jr...... 40 Vice President, General Counsel and
Secretary
Charles P. Daniels....... 41 Vice President, Chief Technology Officer
Michael J. McHale, Jr.... 41 Vice President, Chief Marketing Officer
R. Gerard Salemme........ 44 Vice President, External Affairs and
Industry Relations
Craig O. McCaw........... 48 Director
Dennis 46 Director
Weibling(1)(2)(3)......
Scot Jarvis(2)........... 37 Director
William A. 44 Director
Hoglund(1)(2)..........
Sharon L. Nelson(3)...... 51 Director
Jeffrey S. Raikes........ 39 Director
</TABLE>
- ---------------
(1) Member of the Executive Committee
(2) Member of the Compensation Committee
(3) Member of the Audit Committee
The following persons are the presidents of the Company's operating
subsidiaries:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Hugh C. Cathey........... 47 President of NEXTLINK Ohio, L.L.C.
Don Hillenmeyer.......... 52 President of NEXTLINK Tennessee, L.L.C.
Jeff C. Stone............ 40 President of NEXTLINK Interactive, L.L.C.
Dwayne Nielson........... 43 President of NEXTLINK Utah, L.L.C.
Gary Rawding............. 46 President of NEXTLINK Pennsylvania, L.P.
Donald W. Sessamen....... 64 President of NEXTLINK California, L.L.C.
Richard Kingston......... 38 President of NEXTLINK Illinois, Inc.
</TABLE>
Directors of the Company are elected annually at the annual meeting of
shareholders. The next annual meeting of shareholders is scheduled for May 1998.
All of the officers identified above serve at the discretion of the Board of
Directors of the Company. There are no family relationships between any person
identified above.
The Audit Committee is responsible for reviewing the services provided by
the Company's independent auditors, consulting with the independent auditors on
audits and proposed audits of the Company and reviewing the need for internal
auditing procedures and the adequacy of internal controls. The Compensation
35
<PAGE> 38
Committee determines executive compensation and stock option awards. The
Executive Committee exercises, to the maximum extent permitted by law, all
powers of the Board of Directors between board meetings, except those functions
assigned to specific committees. The Board of Directors may establish additional
committees from time to time.
The following are brief biographies of persons identified above.
Steven W. Hooper. Mr. Hooper has been Chairman of the Board since July 21,
1997. Prior to that, Mr. Hooper was Vice Chairman of the Company since June 16,
1997. Mr. Hooper was formerly President and Chief Executive Officer of AT&T
Wireless Services, Inc., following the merger with McCaw Cellular. Prior to
being appointed President and Chief Executive Officer, he served as Chief
Financial Officer for two years. This was preceded by five years as Regional
President for Cellular One's Pacific Northwest/Rocky Mountain region, where his
responsibilities included managing the cellular operations in six western states
and Alaska. Mr. Hooper is a member of the Audit Committee of the Board of
Directors.
Wayne M. Perry. Mr. Perry has been Chief Executive Officer of the Company
since July 21, 1997 and Vice Chairman of the Company since June 16, 1997. Mr.
Perry was formerly Vice Chairman of AT&T Wireless Services, Inc. since September
1994, following the merger with McCaw Cellular. Prior to the merger, he served
as Vice Chairman of the Board of McCaw Cellular since June 1989, and before that
served as President since December 1985. Prior to becoming President of McCaw
Cellular, Mr. Perry served as Executive Vice President and General Counsel and
was primary legal officer from 1976 to 1985. Mr. Perry was appointed Vice
Chairman of the Board of LIN Broadcasting Corporation on March 5, 1990. He also
served as Chairman of the Board of Directors of the Cellular Telecommunications
Industry Association, the nationwide wireless industry association, for the
1993/94 term. Mr. Perry is a member of the Executive Committee of the Board of
Directors.
James F. Voelker. Mr. Voelker has been the President of NEXTLINK since
April 1995 and is responsible for developing the company vision and guiding
overall operations. He is recognized as one of the early entrepreneurs in the
business of building and delivering competitive local exchange service. Mr.
Voelker's career in telecommunications spans almost two decades and includes
experience in very different segments of the industry in a variety of executive
positions. From 1981 to 1984 he served as Vice President of Sales, Marketing and
Customer Service for Lexitel Corporation, the forerunner of Allnet
Communications. Mr. Voelker co-founded Digital Signal Inc. and served as Chief
Operating Officer and Chief Executive Officer from 1985 through the company's
sale to SP Telecom in 1990. Digital Signal operated a nationwide fiber optic
network supplying capacity, engineering, provisioning and operational support to
over one hundred interexchange carriers. In the CAP arena, Mr. Voelker became
Vice Chairman of City Signal Inc. in 1992, which constructed and operated
networks in six markets. Subsequently, he served as its Chief Executive Officer
after the company merged with its sister company Teledial America to form U.S.
Signal. Based in Grand Rapids, Michigan, U.S. Signal was one of the first fully
certified CLECs in the country. Mr. Voelker has served as Vice Chairman of ALTS,
the industry Association of Local Telephone Service providers and as a director
of Phoenix Network Inc., a publicly held long distance company. Mr. Voelker is
also a member of the Executive Committee of the Board of Directors.
George M. Tronsrue III. Mr. Tronsrue has been Chief Operating Officer of
NEXTLINK since October 1997. Prior to that, Mr. Tronsrue was part of the initial
management team of ACSI from February 1994 to September 1997, and was
responsible for planning and overseeing the operations of ACSI for its first
three years serving as Chief Operating Officer, President, Strategy and
Technology Development Division and Executive Vice President, Planning and
Development. Prior to that, Mr. Tronsrue served as the Regional Vice President
of the Central Region of Teleport Communications Group ("TCG"), and as Vice
President, Emerging Markets overseeing the start-up of TCG's initial eight cable
television partnerships. Before TCG, Mr. Tronsrue was at MFS Communications from
its inception in 1987 until 1992. At MFS, Mr. Tronsrue served as Vice President,
Corporate Planning and Information Management; Vice President, Field Sales; Vice
President and General Manager for MFS New York during its first year of
operations and Executive Vice President, MFS Internet. Prior to MFS, Mr.
Tronsrue served at MCI from 1983 to 1986 in a variety of engineering and
operations roles, culminating as Director of Operations, Michigan and Ohio.
36
<PAGE> 39
Jan Loichle. Ms. Loichle has been Vice President, Chief of Local Exchange
Operations of NEXTLINK since October 1996. Prior to that, Ms. Loichle was the
President of NEXTLINK Solutions (the virtual communications center) from July
1995. Prior to joining NEXTLINK, Ms. Loichle was Executive Vice President at
U.S. Signal in Detroit and Grand Rapids, Michigan from April 1993 to July 1995.
At U.S. Signal Ms. Loichle led the development of an enhanced service platform
(Magic Number) from concept through production system and implementation. From
1990 to 1993, Ms. Loichle was Assistant Vice President of Finance for SP Telecom
in San Francisco. Prior to that, Ms. Loichle was Vice President of Financial
Operations for Lexitel/Allnet/ALC in Birmingham, Michigan from December 1980 to
October 1989.
Kathleen H. Iskra. Ms. Iskra has been Vice President, Chief Financial
Officer and Treasurer of NEXTLINK since January 1996. Prior to that, she was
President and Chief Executive Officer of Horizon Air, a wholly owned subsidiary
of Alaska Air Group. Prior to her appointment at Horizon Air, Ms. Iskra served
as staff Vice President of Finance and Controller of Alaska Airlines and Alaska
Air Group. Ms. Iskra's service with Alaska began in 1987, when she was appointed
Controller. Prior to joining Alaska, she was an audit manager with Arthur
Andersen.
R. Bruce Easter, Jr. Mr. Easter has been Vice President, General Counsel
and Secretary of NEXTLINK since January 1995. From 1986 to December 1994, Mr.
Easter was an associate and then partner in the law firm of Davis Wright
Tremaine in Seattle, Washington, where he focused on communications law and
media matters.
Charles P. Daniels. Mr. Daniels has been Vice President, Chief Technology
Officer since July 1997. Prior to that, Mr. Daniels was Vice President, Chief
Marketing Officer of NEXTLINK from November 1995. From 1992 to 1995, Mr. Daniels
worked for MCI where he was the founder and Program Manager of the network MCI
Developers Lab. Mr. Daniels was also a founding member of MCI's Advanced
Technology Group. Prior to joining MCI, Mr. Daniels worked for Manufacturers
Hanover Trust from 1989 to 1992 as Vice President/Strategic Technology and
Research, where he was responsible for evaluating and implementing new
technologies that either reduced costs or generated new revenue.
Michael J. McHale, Jr. Mr. McHale has been Vice President, Chief Marketing
Officer since November 1997. Prior to joining NEXTLINK, Mr. McHale served as
Vice President and General Manager of the Phoenix market and Regional Vice
President at Teleport Communications Group, Inc. from 1993, developing the
Phoenix market from its inception. Prior to that, from 1991 to 1993, he was Vice
President, Product Marketing and Development at MFS Intelenet, Inc. and was
responsible for planning and implementing MFS's initial introduction of switched
services in New York City.
R. Gerard Salemme. Mr. Salemme has been Vice President, External Affairs
and Industry Relations since July 1997. Prior to joining NEXTLINK, Mr. Salemme
was Vice President, Government Affairs at AT&T Corp. from December 1994. Prior
to joining AT&T Corp., Mr. Salemme was Senior Vice President, External Affairs
at McCaw Cellular from 1991 to December 1994.
Craig O. McCaw. Mr. McCaw has been a director of the Company since
September 1994 and was Chief Executive Officer of NEXTLINK from September 1994
to July 21, 1997. Mr. McCaw is also Chairman and Chief Executive Officer of
Eagle River, a company formed and owned by Mr. McCaw to make strategic
investments in telecommunications ventures. Mr. McCaw was the founder, Chairman
and Chief Executive Officer of McCaw Cellular, the nation's leading provider of
wireless communications services, until the company was sold to AT&T in August
1994. Prior to entering the cellular telephone business in 1983, Mr. McCaw was
requested by his family to assume responsibility for the daily operations of a
small cable television operation in Centralia, Washington, that he and his three
brothers owned. The one-system operation serving 4,000 subscribers eventually
grew to be the nation's 20th largest cable operator serving 450,000 subscribers.
In 1974, the cable company's services expanded by entering the paging and
conventional mobile telephone industries. The company eventually became the
fifth largest paging operator in the country, serving approximately 320,000
subscribers in 13 states. In 1981, the company began to develop broad-based
cellular telephone services. Later, McCaw Cellular became the nation's largest
cellular telephone operator, with cellular system positions in more than 100
U.S. cities, representing more than 100 million potential customers. The company
also had interests in wireless data transmissions, personal communications
services, air-to-
37
<PAGE> 40
ground phone systems and satellite communications at the time of its sale to
AT&T. Mr. McCaw is one of the two principal owners of Teledesic Corporation,
which in March 1994 announced plans for a worldwide satellite-based
telecommunications system. Mr. McCaw is indirectly a significant stockholder, a
director and Chairman of the Operating Committee of Nextel Communications, Inc.,
a provider of wireless telecommunications services. Mr. McCaw is also a director
of Cable Plus, Inc.
Dennis Weibling. Mr. Weibling has been a director of the Company since
January 1997 and had been Executive Vice President of NEXTLINK since September
1994. Mr. Weibling is also President of Eagle River, Inc., since October 1993.
Mr. Weibling is a director and member of Nextel Communications, Inc.'s Board of
Directors and operations, audit and compensation committees. Nextel is a leading
provider of integrated wireless communications services for teams of mobile
workers. Mr. Weibling serves on the board and executive committee of Teledesic
Corporation, a satellite telecommunications company backed by Mr. McCaw and
Microsoft founder Mr. William Gates. Mr. Weibling is a director of Cable Plus,
one of the leading providers of private cable television and telephony service
to residential apartment complexes. A licensed certified public accountant in
Washington, Mr. Weibling is a member of the American Society of Certified Public
Accountants and the Washington Society of Certified Public Accountants. In
addition, Mr. Weibling is a licensed attorney in Ohio and a member of the
American Bar Association and Ohio State Bar Association. Mr. Weibling is also a
member of the Executive, Compensation and Audit Committees of the Board of
Directors.
Scot Jarvis. Mr. Jarvis has been a director of the Company since January
1997 and, prior to that, had been Executive Vice President of NEXTLINK since
September 1994, and was a Vice President of Eagle River, Inc. from October 1994
through April 1996. Mr. Jarvis is the co-founder and since March 1997 has been a
member of Cedar Grove Partners, L.L.C. Prior to that, Mr. Jarvis was the acting
President of the Company from September 1994 to April 1995. Prior to joining
Eagle River, Inc., Mr. Jarvis served as Vice President of McCaw Development
Corporation from 1993 to 1994 and of McCaw Cellular from 1985 through 1994.
During his tenure at McCaw Cellular, Mr. Jarvis served in the positions of
General Manager from 1990 to 1993, Vice President of Acquisitions and
Development from 1988 to 1990 and Assistant Vice President from 1985 to 1988.
Mr. Jarvis also recently served on the Board of Directors or executive
committees of: NEXTEL Communications, Inc., PriCellular Corporation, Horizon
Cellular Group, Los Angeles Cellular Telephone Company, Cellular 2000
Partnership, Cybertel Cellular Telephone Company (St. Louis), Northwest Cellular
Partnership, and Movitel del Noroeste (Mexico Region). Mr. Jarvis has also
served as the President of the Iberia Cellular Telephone Company from 1991 to
1994. Mr. Jarvis is also a member of the Compensation Committee of the Board of
Directors.
William A. Hoglund. Mr. Hoglund has been a director of the Company since
January 1997 and, prior to that, had been Executive Vice President of NEXTLINK
since February 1996. Mr. Hoglund is also Vice President and Chief Financial
Officer of Eagle River, Inc. since January 1996. Prior to joining Eagle River,
Inc., Mr. Hoglund was Managing Director of J.P. Morgan & Co. in its investment
banking group. Mr. Hoglund was employed by J.P. Morgan & Co. from 1977 through
1995, focusing for the past nine years on clients in the telecommunications,
cable and media industries. Mr. Hoglund is also a member of the Executive and
Compensation Committees of the Board of Directors.
Sharon L. Nelson. Ms. Nelson has been director of the Company since
September 1997 and, prior to that, was Chairman of the Washington Utilities and
Transportation Commission ("WUTC") from February 11, 1985 until her resignation
on August 15, 1997. Prior to serving on the WUTC, Ms. Nelson served as staff
coordinator for the Washington State Legislature's Joint Select Committee on
Telecommunications (1983 to 1985), an attorney in private practice (1982 to
1983), legislative counsel to the Consumers Union of the United States (1978 to
1981), staff counsel to the Commerce Committee of the U.S. Senate (1976 to 1978)
and secondary school teacher of history and anthropology (1969 to 1973). Ms.
Nelson is also the past president of the National Association of Regulatory
Utility Commissioners. Ms. Nelson also served on the Federal-State Joint Board
on Universal Service created under the Telecom Act and as one of the 20-member
negotiating team appointed by the Governors of Washington, Idaho, Oregon and
Montana to review the Northwest electric power system. Ms. Nelson is also a
member of the Audit Committee of the Board of Directors.
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<PAGE> 41
Jeffrey S. Raikes. Mr. Raikes has been a director of the Company since
September 1997. He is also a member of the Executive Committee and the Group
Vice President, Sales and Marketing of Microsoft Corporation. As Group Vice
President, Mr. Raikes has responsibility for Microsoft's worldwide customer
units as well as sales, marketing, support and service in the United States and
Canada. Prior to joining the Executive Committee in July 1996, Mr. Raikes was
Senior Vice President of Microsoft North America since 1993. Prior to serving as
Senior Vice President of Microsoft North America, from 1990, Mr. Raikes was Vice
President of Office Systems, where he was responsible for the development and
marketing of word processing, workgroup applications and pen computing. From
1984 to 1990, Mr. Raikes was the Director of Applications Marketing, where he
was the chief strategist behind Microsoft's graphical applications for the Apple
Macintosh and Microsoft Windows as well as leading the product strategy and
design of Microsoft Office. Mr. Raikes is also a member of the University of
Nebraska Foundation and a Trustee of the Washington State University Foundation
The following individuals are the senior management of the Company's
subsidiaries.
Hugh C. Cathey. Mr. Cathey has been the President of NEXTLINK Ohio since
August 1996. Prior to joining NEXTLINK, Mr. Cathey had nearly 20 years of
experience in the telecommunications industry. Mr. Cathey was President and
Chief Executive Officer of Digital Network, Inc., a publicly traded, facilities-
based long distance company based in Dallas, Texas. From 1989 to 1993, Mr.
Cathey served as President and Chief Executive Officer of United Telemanagement,
Inc. Prior to that, Mr. Cathey held sales and product management positions of
increasing responsibility with AT&T, culminating as the senior executive of a
business unit of AT&T with annual revenues of approximately $100 million. During
Mr. Cathey's tenure at United Telemanagement, Inc., that company filed a
petition under the Federal bankruptcy laws.
Don Hillenmeyer. Mr. Hillenmeyer has been the President of NEXTLINK
Tennessee since March 1995. Prior to joining NEXTLINK in March of 1995, Mr.
Hillenmeyer was president of MCMG, Inc., a Nashville-based wireless
communications management consulting and operations firm specializing in running
Rural Service Areas for independent cellular telephone owners. Before founding
MCMG, Inc., Mr. Hillenmeyer held various senior management positions at McCaw
Cellular and was responsible for 13 southern states from August 1986 to February
1990.
Jeff C. Stone. Mr. Stone has been the President of NEXTLINK Interactive
(the IVR subsidiary) since August 1, 1997. Prior to joining the Company, Mr.
Stone was Vice President and General Manager for the Western Region of WorldCom,
Inc. (previously MFS Telecom, Inc.) from 1994 to July 1997. Prior to that, from
1989 to 1994, Mr. Stone was the Director of Sales and Marketing of Associated
Communications of Los Angeles.
Dwayne Nielson. Mr. Nielson has been President of NEXTLINK Utah since
February 1996. Prior to joining NEXTLINK, Mr. Nielson was Assistant Vice
President, Consumer and Small Business Market, at Sprint Corporation from
October 1994 to February 1996. Prior to that, from August 1985 through October
1994, Mr. Nielson held a variety of sales and marketing positions at Sprint and
United Telephone.
Gary Rawding. Mr. Rawding has been President of NEXTLINK Pennsylvania since
September 1994. Prior to founding Penns Light Communications, Inc., certain
assets of which were acquired by the Company in September 1994, he served as
Vice President of Sales and Marketing at Eastern TeleLogic Corporation from 1989
until 1993. Prior to joining Eastern TeleLogic, Mr. Rawding held various
positions with Bell Atlantic Corporation.
Donald W. Sessamen. Mr. Sessamen has been President of NEXTLINK California
since November 1996. Prior to that, Mr. Sessamen acted as a consultant to
NEXTLINK. Prior to acting as a consultant to the Company, Mr. Sessamen joined
Brooks Fiber California in 1994 as President, after the company acquired Phoenix
Fiberlink. At Brooks Fiber California, Mr. Sessamen completed the installation
of the San Jose system and managed the entry into switched services in the
Sacramento market. From 1991 to 1994, Mr. Sessamen was Executive Vice President
of Operations, Engineering and MIS at SP Telecom, a fiber optic systems
construction and wholesale transmission company using Southern Pacific Railroad
rights-of-way east
39
<PAGE> 42
of the Mississippi River. At SP Telecom, Mr. Sessamen led SP Telecom's entry
into switch-based products utilizing the Northern Telecom DMS 250 Super Node,
introducing innovative switch-based products.
Richard Kingston. Mr. Kingston has been the President of NEXTLINK Illinois
since July 1997. Prior to joining NEXTLINK, Mr. Kingston was the Western
Regional Vice President/General Manager of American Communications Services,
Inc. from April 1994 to July 1997. Prior to that, Mr. Kingston operated his own
telecommunications company, King Communications, Inc. from January 1992 to
January 1994. From December 1990 to January 1992, Mr. Kingston was West Region
Agent Manager for Telesphere Communications, Inc. and from 1988 to December
1990, Mr. Kingston was Director of Carrier Sales at MFS Communications Company,
Inc.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Information regarding compliance with Section 16(a) of the Securities
Exchange Act of 1934 is set forth under the caption "Section 16(a) Beneficial
Ownership Reporting Compliance" in the Company's Proxy Statement relating to the
Company's annual meeting of shareholders to be held on May 20, 1998, and is
incorporated herein by reference. Such Proxy Statement will be filed within 120
days of the Company's year end.
ITEM 10. EXECUTIVE COMPENSATION
Information called for by Part III, Item 10, is included in the Company's
Proxy Statement relating to the Company's annual meeting of shareholders to be
held on May 20, 1998, and is incorporated herein by reference. The information
appears in the Proxy Statement under the caption "Compensation of Executive
Officers." Such Proxy Statement will be filed within 120 days of the Company's
year end.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information called for by Part III, Item 11, is included in the Company's
Proxy Statement relating to the Company's annual meeting of shareholders to be
held on May 20, 1998, and is incorporated herein by reference. The information
appears in the Proxy Statement under the caption "Ownership of Certain
Beneficial Owners." Such Proxy Statement will be filed within 120 days of the
Company's year end.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information called for by Part III, Item 12, is included in the Company's
Proxy Statement relating to the Company's annual meeting of shareholders to be
held on May 20, 1998, and is incorporated herein by reference. The information
appears in the Proxy Statement under the caption "Certain Relationships and
Related Transactions." Such Proxy Statement will be filed within 120 days of the
Company's year end.
40
<PAGE> 43
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS
<TABLE>
<S> <C>
NEXTLINK Communications, Inc.
Report of Independent Public Accountants.................... 43
Consolidated Balance Sheets as of December 31, 1997 and
1996...................................................... 44
Consolidated Statements of Operations for the Years Ended
December 31, 1997
and 1996.................................................. 45
Consolidate Statements of Changes in Shareholders' Equity
(Deficit) for the Years Ended December 31, 1997 and
1996...................................................... 46
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997 and 1996................................ 47
Notes to Consolidated Financial Statements.................. 48
NEXTLINK Capital, Inc.
Report of Independent Public Accountants.................... 60
Balance Sheets as of December 31, 1997 and 1996............. 61
Note to Balance Sheets...................................... 62
</TABLE>
(b) LIST OF EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
3.1 Articles of Incorporation of NEXTLINK Communications Inc.(2)
3.2 By-laws of NEXTLINK Communications, Inc.(2)
3.3 Articles of Incorporation of NEXTLINK Capital, Inc.(1)
3.4 By-laws of NEXTLINK Capital, Inc.(1)
4.1 Form of Exchange Note Indenture, by and among NEXTLINK
Communications, Inc. and United States Trust Company of New
York, as trustee, relating to the Exchange Notes, including
form of Exchange Notes.(2)
4.2 Certificate of Designations of the Powers, Preferences and
Relative, Participating, Optional and Other Special Rights
of 14% Senior Exchangeable Redeemable Preferred Shares and
Qualifications, Limitations and Restrictions Thereof.(2)
4.3 Form of stock certificate of 14% Senior Exchangeable
Redeemable Preferred Shares.(2)
4.4 Indenture, dated as of April 25, 1996, by and among NEXTLINK
Communications, Inc., NEXTLINK Capital, Inc. and United
States Trust Company of New York, as Trustee, relating to
12 1/2% Senior Notes due April 15, 2006, including form of
global note.(1)
4.5 First Supplemental Indenture, dated as of January 31, 1997,
by and among the Company, NEXTLINK Communications, L.L.C.,
NEXTLINK Capital and United States Trust Company of New
York, as Trustee.(2)
4.6 Form of Indenture between United States Trust Company, as
Trustee and NEXTLINK Communications, Inc., relating to the
9 5/8% Senior Notes due 2007.(3)
4.7 Form of Indenture between United States Trust Company, as
Trustee and NEXTLINK Communications, Inc., relating to the
9% Senior Notes Due 2008.
10.1 Stock Option Plan of the Company.(2)
10.2 First Amendment to Stock Option Plan of the Company.
10.3 Registration Rights Agreement dated as of January 15, 1997,
between the Company and the signatories listed therein.(2)
</TABLE>
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<PAGE> 44
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.4 Preferred Exchange and Registration Rights Agreement, dated
as of January 31, 1997, by and among the Company and the
Initial Purchasers.(2)
10.5 Fiber Lease and Innerduct Use Agreement, dated as of
February 23, 1998, by and between NEXTLINK Communications,
Inc. and Metromedia Fiber Network, Inc.(4)
10.6 Amendment No. 1 to Fiber Lease and Innerduct Use Agreement,
dated as of March 4, 1998, by and between NEXTLINK
Communications, Inc. and Metromedia Fiber Network, Inc.(4)
21 Subsidiaries of the Registrants.
27.1 Financial Data Schedule for the year ended December 31,
1997.
27.2 Financial Data Schedule, restated for the periods ended
December 31, 1996, June 30, 1997 and September 30, 1997.
</TABLE>
- ---------------
(1) Incorporated herein by reference to the exhibit filed with the Registration
Statement on Form S-4 of NEXTLINK Communications, L.L.C. (the predecessor of
NEXTLINK Communications, Inc.) and NEXTLINK Capital, Inc. (Commission File
No. 333-4603).
(2) Incorporated herein by reference to the exhibit filed with the Annual Report
on Form 10-KSB for the year ended December 31, 1996 of NEXTLINK
Communications, Inc. and NEXTLINK Capital, Inc. (Commission File Nos.
333-04603 and 333-04603-01).
(3) Incorporated herein by reference to the exhibit filed with the Registration
Statement on Form S-1 of NEXTLINK Communications, Inc. (Commission File No.
333-32003).
(4) Portions of this exhibit were omitted and filed separately with the
Secretary of the Commission pursuant to the Issuer's Application Requesting
Confidential Treatment under Rule 24(b)-2 of the Securities Exchange Act of
1934.
(c) REPORTS ON FORM 8-K
None.
42
<PAGE> 45
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of NEXTLINK Communications, Inc.:
We have audited the accompanying consolidated balance sheets of NEXTLINK
Communications, Inc. (a Washington Corporation) and subsidiaries as of December
31, 1997 and 1996, and the related consolidated statements of operations,
changes in shareholders' equity (deficit) and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of NEXTLINK Communications,
Inc. and subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Seattle, Washington,
March 12, 1998
43
<PAGE> 46
NEXTLINK COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
---------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 389,074 $ 76,807
Marketable securities..................................... 353,283 47,713
Accounts receivable, net.................................. 22,955 7,008
Other..................................................... 4,530 607
Pledged securities........................................ 41,425 39,770
---------- --------
Total current assets.............................. 811,267 171,905
Pledged securities.......................................... 21,185 61,668
Property and equipment, net................................. 253,653 97,784
Goodwill, net............................................... 52,278 24,110
Other assets, net........................................... 78,770 35,216
---------- --------
Total assets...................................... $1,217,153 $390,683
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 26,776 $ 18,622
Accrued expenses.......................................... 13,082 4,112
Notes payable............................................. 8,234 --
Accrued interest payable.................................. 18,880 9,250
Current portion of capital lease obligations.............. 2,610 1,194
Payable to affiliate...................................... -- 1,500
---------- --------
Total current liabilities......................... 69,582 34,678
Long-term debt.............................................. 750,000 350,000
Capital lease obligations................................... 7,640 6,262
Deferred compensation....................................... -- 10,289
Other long-term liabilities................................. 3,179 2,850
---------- --------
Total liabilities................................. 830,401 404,079
Commitments and contingencies
Minority interests.......................................... 23 308
Redeemable preferred stock (par value $0.01 per share,
aggregate liquidation preference $323,478; 6,322,031 and 0
shares issued and outstanding in 1997 and 1996,
respectively)............................................. 313,319 --
Class B common stock, subject to redemption (par value $0.02
per share, 519,950 and 0 shares issued and outstanding in
1997 and 1996, respectively).............................. 4,950 --
Equity units subject to redemption (0 and 397,202 units
outstanding in 1997 and 1996, respectively)............... -- 4,950
Shareholders' equity (deficit):
Common stock, par value $0.02 per share, stated at amounts
paid in; Class A, 110,334,000 shares authorized,
19,167,899 and 0 shares issued and outstanding in 1997
and 1996, respectively; Class B, 44,133,600 shares
authorized, 33,746,573 and 0 shares issued and
outstanding in 1997 and 1996, respectively............. 330,561 --
Deferred compensation..................................... (9,596) --
Accumulated deficit....................................... (252,505) (84,181)
Members' capital (28,154,509 units, all of which are
outstanding in 1996)................................... -- 65,527
---------- --------
Total shareholders' equity (deficit).............. 68,460 (18,654)
---------- --------
Total liabilities and shareholders' equity
(deficit)....................................... $1,217,153 $390,683
========== ========
</TABLE>
See accompanying notes to consolidated financial statements.
44
<PAGE> 47
NEXTLINK COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Revenue..................................................... $ 57,579 $ 25,686
Costs and expenses:
Operating.............................................. 54,031 25,094
Selling, general and administrative.................... 75,732 31,353
Deferred compensation.................................. 3,247 9,914
Depreciation........................................... 18,851 6,640
Amortization........................................... 8,339 3,700
----------- -----------
Total costs and expenses.......................... 160,200 76,701
----------- -----------
Loss from operations........................................ (102,621) (51,015)
Interest income............................................. 27,827 10,446
Interest expense............................................ (54,495) (30,876)
----------- -----------
Loss before minority interests.............................. (129,289) (71,445)
Minority interests in loss of consolidated subsidiaries..... 285 344
----------- -----------
Net loss.................................................... $ (129,004) $ (71,101)
=========== ===========
Preferred stock dividends and accretion of preferred stock
redemption obligation, including issue costs.............. (39,320) --
----------- -----------
Net loss applicable to common shares........................ $ (168,324) $ (71,101)
=========== ===========
Pro forma:
Net loss per share..................................... $ (3.91) $ (1.81)
=========== ===========
Shares used in computation of pro forma net loss per
share (1996 amounts have been adjusted for conversion
of membership units into shares of the Company's Class
A and Class B common stock upon incorporation; see
Note 9)............................................... 43,055,885 39,312,482
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
45
<PAGE> 48
NEXTLINK COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
------------------------------------
SHARES
------------------------- DEFERRED ACCUMULATED MEMBERS'
CLASS A CLASS B AMOUNT COMPENSATION DEFICIT CAPITAL TOTAL
----------- ----------- -------- ------------ ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995........... -- -- $ -- $ -- $ (13,080) $49,799 $ 36,719
Contributed capital.................. -- -- -- -- -- 9,502 9,502
Issuance of units for NEXTLINK Ohio
acquisition........................ -- -- -- -- -- 652 652
Impact of recapitalization and merger
of affiliates...................... -- -- -- -- -- 5,574 5,574
Net loss............................. -- -- -- -- (71,101) -- (71,101)
----------- ----------- -------- ------- --------- ------- ---------
Balance at December 31, 1996........... -- -- -- -- (84,181) 65,527 (18,654)
Merger of NEXTLINK Communications,
L.L.C with and into NEXTLINK
Communications, Inc................ -- 36,165,259 65,527 -- -- (65,527) --
Conversion of Equity Option Plan into
Employee Stock Option Plan......... -- -- 15,363 (4,234) -- -- 11,129
Issuance of compensatory stock
options............................ -- -- 4,872 (4,872) -- -- --
Compensation attributable to stock
options vesting.................... -- -- -- 2,335 -- -- 2,335
Issuance of common stock under
leasing arrangement................ 176,534 -- 1,400 -- -- -- 1,400
Issuance of common stock upon
exercise of stock options.......... 672,878 921,314 115 -- -- -- 115
Issuance of common stock in initial
public offering.................... 14,280,000 -- 226,760 -- -- -- 226,760
Sale of common stock by selling
shareholder in initial public
offering........................... 3,200,000 (3,200,000) -- -- -- -- --
Issuance of common stock in
acquisitions....................... 698,487 -- 16,524 -- -- -- 16,524
Conversion of Class B common stock
into Class A common stock.......... 140,000 (140,000) -- -- -- -- --
Loans to officers for income taxes
paid upon exercise of stock
options............................ -- -- -- (2,825) -- -- (2,825)
Cumulative redeemable preferred stock
dividends and accretion of
preferred stock redemption
obligation, including issue
costs.............................. -- -- -- -- (39,320) -- (39,320)
Net loss............................. -- -- -- -- (129,004) -- (129,004)
----------- ----------- -------- ------- --------- ------- ---------
Balance at December 31, 1997........... 19,167,899 33,746,573 $330,561 $(9,596) $(252,505) $ -- $ 68,460
=========== =========== ======== ======= ========= ======= =========
</TABLE>
See accompanying notes to consolidated financial statements.
46
<PAGE> 49
NEXTLINK COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss.................................................... $(129,004) $ (71,101)
Adjustments to reconcile net loss to net cash used in
operating activities:
Deferred compensation expense.......................... 3,247 9,914
Equity in loss of affiliates........................... 2,544 1,100
Depreciation and amortization.......................... 27,190 10,340
Minority interests in loss of consolidated
subsidiaries.......................................... (285) (344)
Changes in assets and liabilities, net of effects from
acquisitions:
Accounts receivable.................................... (11,206) (1,659)
Other current assets................................... (1,953) (42)
Other long-term assets................................. (1,208) (1,430)
Accounts payable....................................... 4,116 993
Accrued expenses and other liabilities................. 2,434 2,416
Accrued interest payable............................... 9,630 9,250
--------- ---------
Net cash used in operating activities....................... (94,495) (40,563)
INVESTING ACTIVITIES:
Purchase of property and equipment.......................... (142,170) (51,920)
Investment in assets of acquired businesses (net of cash
acquired)................................................. (61,609) (15,169)
Cash withdrawn from (placed into) escrow to be used in
business acquisition...................................... 6,000 (6,000)
Investments in unconsolidated affiliates.................... (6,766) (4,953)
Purchase of pledged securities.............................. -- (117,688)
Maturity of pledged securities.............................. 39,920 16,431
Purchase of marketable securities, net...................... (305,570) (47,713)
--------- ---------
Net cash used in investing activities....................... (470,195) (227,012)
FINANCING ACTIVITIES:
Net proceeds from issuance of redeemable preferred stock.... 274,000 --
Capital contributions....................................... -- 9,935
Proceeds from payable to affiliates......................... -- 28,766
Repayment of payable to affiliates.......................... (1,500) (33,703)
Repayment of capital lease obligations...................... (1,939) (771)
Repayment of notes payable.................................. (5,926) --
Bank overdraft.............................................. -- (1,373)
Net proceeds from sale of common stock...................... 226,760 --
Proceeds from sale of senior notes.......................... 400,000 350,000
Proceeds from issuance of common stock upon exercise of
stock options............................................. 115 --
Costs incurred in connection with financing................. (11,728) (9,822)
Loans to officers for income taxes paid upon exercise of
stock options............................................. (2,825) --
--------- ---------
Net cash provided by financing activities................... 876,957 343,032
--------- ---------
Net increase in cash and cash equivalents................... 312,267 75,457
Cash and cash equivalents, beginning of year................ 76,807 1,350
--------- ---------
Cash and cash equivalents, end of year...................... $ 389,074 $ 76,807
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
47
<PAGE> 50
NEXTLINK COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
The consolidated financial statements include the accounts of NEXTLINK
Communications, Inc., a Washington corporation, and its majority-owned
subsidiaries (collectively referred to as the Company). The Company, through
predecessor entities, was formed on September 16, 1994 and, through its
subsidiaries, provides competitive local, long distance and enhanced
telecommunications services in selected markets in the United States. The
Company is a majority-owned subsidiary of Eagle River Investments, L.L.C. (Eagle
River).
The competitive local telecommunications service business is a capital
intensive business. The development of the Company's businesses and the
installation and expansion of its networks require significant expenditures, a
substantial portion of which must be made before any revenues may be realized.
These expenditures, together with the associated early operating expenses, have
resulted in negative cash flow and operating losses, which have been
substantially financed with the proceeds from public sales of debt and equity
securities.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The Company's financial statements include 100% of the assets, liabilities
and results of operations of subsidiaries in which the Company has a controlling
interest of greater than 50%. The ownership interests of the other members or
partners in such subsidiaries are reflected as minority interests. The Company's
investment in Telecommunications of Nevada, L.L.C., (Nevada L.L.C.) a limited
liability company in which the Company has a 40% interest and which operates a
network that is managed by the Company in Las Vegas, Nevada, is accounted for on
the equity method. Investments in entities in which the Company has voting
interests of not more than 20% are accounted for on the cost method. All
significant intercompany accounts and transactions have been eliminated.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of
three months or less at the time of purchase to be cash equivalents.
Marketable Securities
Marketable securities consist of U.S. government and other securities with
original maturities beyond three months. Marketable securities are stated at
cost, adjusted for discount accretion and premium amortization. The securities
in the Company's portfolio are classified as "held to maturity," as management
has the intent and ability to hold those securities to maturity. The fair value
of the Company's marketable securities approximates the carrying value.
Pledged Securities
In connection with the sale of 12 1/2% Senior Notes (see Note 6), a portion
of the net proceeds was utilized to purchase a portfolio consisting of U.S.
government securities, which mature at dates sufficient to provide for payment
in full of interest on the 12 1/2% Senior Notes through April 15, 1999. The
pledged securities are stated at cost, adjusted for premium amortization and
accrued interest. The fair value of the pledged securities approximates the
carrying value.
48
<PAGE> 51
NEXTLINK COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
Property and Equipment
Property and equipment are stated at cost. Direct costs of construction are
capitalized, including $1,793,000 and $853,000 of interest costs related to
construction during 1997 and 1996, respectively. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets.
Estimated useful lives of property and equipment are as follows:
<TABLE>
<S> <C>
Telecommunications networks..................... 5-20 years
Office equipment, furniture and other........... 3-5 years
Leasehold improvements.......................... the lesser of the
estimated useful lives
or the terms of the
leases
</TABLE>
Intangible Assets
Intangible assets primarily represent costs allocated in acquisitions to
customer bases and contracts, software and related intellectual property and
goodwill. Intangible assets are amortized using the straight-line method over
the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Customer contracts.............................. term of the contracts
Customer bases.................................. 5 years
Software and related intellectual property...... 5 years
Goodwill........................................ 15-20 years
</TABLE>
Costs incurred in connection with securing the Company's debt facilities,
including underwriting and advisory fees and other such costs, are deferred and
amortized over the term of the financing using the straight-line method.
Income Taxes
Prior to January 31, 1997, the Company was organized and operated as a
limited liability company that was classified and taxed as a partnership for
federal and state income tax purposes. Effective February 1, 1997, the Company
became subject to federal and state income taxes directly as a C corporation.
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS 109), which requires that deferred income taxes be determined based
on the estimated future tax effects of differences between the financial
statement and tax bases of assets and liabilities given the provisions of the
enacted tax laws.
Revenue Recognition
The Company recognizes revenue on telecommunications and enhanced
communications services in the period that services are provided.
Pro Forma Net Loss Per Share
Pro forma net loss per share has been computed using the number of shares
of common stock and common stock equivalents outstanding. Pursuant to Securities
and Exchange Commission Staff Accounting Bulletin No. 98 (SAB 98), issued in
February 1998, nominal issuances of shares during the twelve-month period
preceding the date of the initial filing of the Registration Statement have been
included in the calculation of common stock equivalent shares as if such shares
and options were outstanding for all periods
49
<PAGE> 52
NEXTLINK COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
presented. The provisions of SAB 98 require retroactive application; as such,
pro forma net loss per share amounts and shares used in computation of pro forma
net loss per share for all prior periods have been restated.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share" (SFAS 128), which revises the calculation and
presentation provisions of Accounting Principles Board (APB) Opinion No. 15 and
related interpretations. SFAS 128 is effective for the Company's fiscal year
ending December 31, 1997, and retroactive application is required.
Implementation of SFAS 128 did not have a material effect on the Company's
earnings per share amounts reported prior to that date.
Stock-Based Compensation
As allowed by Statement No. 123, "Accounting for Stock-Based Compensation"
(SFAS 123), the Company has chosen to account for compensation cost associated
with its stock option plans in accordance with APB Opinion No. 25.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of trade receivables. The
Company's trade receivables are geographically dispersed and include customers
in many different industries. Management believes that any risk of loss is
significantly reduced due to the diversity of its customers and geographic sales
areas. The Company continually evaluates the creditworthiness of its customers;
however, it generally does not require collateral. The Company's allowance for
doubtful accounts is based on historical trends, current market conditions and
other relevant factors.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to prior period amounts in order
to conform to the current year presentation.
3. ACQUISITIONS
On November 1, 1997, the Company acquired all of the outstanding shares of
Start Technologies Corporation (Start), a shared tenant services provider
offering local and long distance services, Internet access and customer premise
equipment management in Texas and Arizona. The Company paid consideration for
the transaction consisting of $20.0 million in cash, 441,336 shares of Class A
common stock, and the assumption of approximately $5.3 million of liabilities,
the majority of which were repaid.
On October 1, 1997, the Company acquired all of the outstanding shares of
Chadwick Telecommunications Corporation (Chadwick), a switch-based long distance
reseller in central Pennsylvania, through a merger transaction between Chadwick
and a wholly owned subsidiary of the Company. The purchase price of the
transaction consisted of a $5.0 million promissory note payable, due January 1,
1998, issuance of 257,151 shares of Class A common stock, and the repayment of
long-term debt and other liabilities totaling $6.6 million. The merger agreement
also provides for additional payments of up to a maximum of 192,863 shares of
Class A common stock over a two-year period, with these payments being
contingent upon the acquired operation achieving specified performance goals.
50
<PAGE> 53
NEXTLINK COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
On February 4, 1997, the Company acquired substantially all of the assets
of Linkatel Pacific, L.P. (Linkatel), a Los Angeles-based competitive access
telecommunications provider. At the time of the acquisition, Linkatel operated
an 80 mile fiber optic telecommunications network covering several markets from
the downtown Los Angeles area to the city of Irvine in Orange County. As part of
the assets acquired, the Company obtained access to approximately 250 route
miles of right-of-way, of which 183 miles have been completed, creating one
network in Los Angeles and one network in the Orange County area. The Company
has been providing competitive access services over these networks since the
acquisition date and launched switched local and long distance services in July
1997. The total purchase price of $42.5 million consisted of a cash payment of
$36.1 million, the repayment of debt of $5.6 million and the assumption of net
liabilities of $0.8 million.
In December 1996, the Company acquired ITC, a switched-based long distance
reseller based in Salt Lake City, Utah. Consideration for the acquisition of ITC
consisted of a cash payment of $4.0 million, of which $2.6 million was placed
into escrow to be paid during 1998, plus the issuance of 397,202 Class A Units
of the Company valued at approximately $5.0 million, which were subsequently
converted into 519,950 shares of the Company's Class B common stock. The Company
has granted the seller an option requiring the Company to repurchase such shares
at $19.92 per share beginning in the fourth quarter of 1999. This repurchase
obligation will terminate if during the three-year period commencing March 25,
1998, the average daily closing price of the Class A common stock during any
consecutive 60 trading day period is greater than $19.92.
In January 1996, the Company acquired certain assets of FoneNet, Inc. and
U.S. Network, Inc. through NEXTLINK Ohio, L.L.C. Consideration for the purchase
consisted of a cash payment of $9.6 million, the issuance of 287,721 Class A
Units of the Company, valued at $651,933, plus the assumption of capital lease
obligations of $6.1 million.
The above acquisitions were accounted for using the purchase method of
accounting and, accordingly, the results of operations of the acquired companies
have been included in the Company's consolidated financial statements since the
effective dates of acquisition. The aggregate purchase price for the
acquisitions occurring in 1997 and 1996 were allocated based on fair values as
follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Fair value of tangible assets acquired and
liabilities assumed............................ $12,525 $12,579
Fair value of intangible assets acquired......... 70,705 16,425
------- -------
$83,230 $29,004
======= =======
Purchase price................................... $83,230 $29,004
======= =======
</TABLE>
The following unaudited condensed pro forma information presents the
results of operations of the Company for the years ended December 31, 1997 and
1996 as if the above transactions had occurred on January 1, 1996 (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Revenue....................................... $ 79,070 $ 58,050
Net loss...................................... $(134,404) $(74,423)
Net loss per share............................ $ (3.12) $ (1.89)
</TABLE>
The unaudited pro forma information is provided for informational purposes
only and is not necessarily indicative of the results of operations that would
have occurred had the purchases been made on January 1, 1996, or of the future
anticipated results of operations of the combined companies.
51
<PAGE> 54
NEXTLINK COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following components (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
-------- -------
<S> <C> <C>
Telecommunications networks..................... $189,629 $66,762
Office equipment, leasehold improvements,
furniture and other........................... 38,979 18,097
-------- -------
228,608 84,859
Less accumulated depreciation................... 36,417 8,369
-------- -------
192,191 76,490
Network construction in progress................ 61,462 21,294
-------- -------
$253,653 $97,784
======== =======
</TABLE>
In June 1997, the Company entered into an eight-year operating lease
agreement, with an option to renew for five additional years, with a company
that has excess fiber capacity in Atlanta, Chicago, New York City, Newark, New
Jersey, and Philadelphia which it agreed to make available to the Company in
each of those markets. Payment in exchange for use of the leased network will be
based on monthly charges for actual services provided. In connection with this
lease agreement, the Company also issued to the lessor 176,534 shares of Class A
common stock in June 1997 for certain exclusivity rights to the excess capacity.
In addition to the capacity arrangement described above, in June 1997, the
Company entered into a 20-year capital lease over an existing 47-mile fiber
network in New York City. In connection with this arrangement, the Company paid
$11 million in full satisfaction of its obligation under the lease, $6 million
of which was placed in escrow pending completion of certain building connections
by the lessor. As of December 31, 1997, $4.1 million remained in escrow.
5. OTHER ASSETS
Other assets consisted of the following components (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
------- -------
<S> <C> <C>
Customer bases................................... $53,033 $12,003
Equity investments............................... 8,021 3,853
Financing costs.................................. 21,552 9,822
Cash held in escrow for acquisitions............. -- 8,682
Advances to business to be acquired.............. -- 1,490
Other noncurrent assets.......................... 8,415 4,627
------- -------
91,021 40,477
Less accumulated amortization.................... 12,251 5,261
------- -------
$78,770 $35,216
======= =======
</TABLE>
The Company's equity investments include (i) a 40% investment in Nevada
L.L.C., which operates a fiber optic telecommunications network serving the Las
Vegas market and (ii) a $3.7 million investment in convertible preferred stock
of Intermind Corporation (Intermind). Intermind has developed and patented an
interactive communications tool for the World Wide Web and intranet
applications.
52
<PAGE> 55
NEXTLINK COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
6. LONG-TERM DEBT
On October 1, 1997, the Company sold $400 million in aggregate principal
amount of 9 5/8% Senior Notes due October 1, 2007, which, after deducting issue
costs, resulted in net proceeds to the Company of $388.5 million. Interest
payments on the 9 5/8% Senior Notes are due semi-annually. The 9 5/8% Senior
Notes are redeemable at the option of the Company, in whole or in part, at any
time on or after October 1, 2002 at established redemption prices which decline
to 100% of the stated principal amount thereof by October 1, 2005.
On April 25, 1996, the Company completed the sale and issuance of $350
million in principal amount of 12 1/2% Senior Notes due April 15, 2006. The
Company used $117.7 million of the gross proceeds to purchase U.S. government
securities, representing funds sufficient to provide for payment in full of
interest on the 12 1/2% Senior Notes through April 15, 1999 and used an
additional $32.2 million to repay advances and accrued interest from Eagle
River. In addition, the Company incurred costs of $9.8 million in connection
with the financing (including underwriter discounts and commissions). Interest
payments on the 12 1/2% Senior Notes are due semi-annually. The 12 1/2% Senior
Notes are redeemable at the option of the Company, in whole or in part, at any
time on or after April 15, 2001 at established redemption prices which decline
to 100% of the stated principal amount thereof by April 15, 2004. As of December
31, 1997, the approximate fair value of the 12 1/2% Senior Notes was $402.5
million, based on quoted market prices.
The indentures pursuant to which the 9 5/8% and 12 1/2% Senior Notes (the
Notes) are issued contain certain covenants that, among other things, limit the
ability of the Company and its subsidiaries to incur additional indebtedness,
issue stock in subsidiaries, pay dividends or make other distributions,
repurchase equity interests or subordinated indebtedness, engage in sale and
leaseback transactions, create certain liens, enter into certain transactions
with affiliates, sell assets of the Company and its subsidiaries, and enter into
certain mergers and consolidations.
In the event of a change in control of the Company as defined in the
indentures, holders of the Notes will have the right to require the Company to
purchase their Notes, in whole or in part, at a price equal to 101% of the
stated principal amount thereof, plus accrued and unpaid interest, if any,
thereon to the date of purchase. The Notes are senior unsecured obligations of
the Company, and are subordinated to all current and future indebtedness of the
Company's subsidiaries, including trade payables.
7. REDEEMABLE PREFERRED STOCK
On January 31, 1997, the Company completed the sale of 5.7 million units
consisting of (i) 14% senior exchangeable redeemable preferred shares (Preferred
Shares), liquidation preference $50 per share, and (ii) contingent warrants to
acquire in the aggregate 5% of each class of outstanding junior shares (as
defined) of the Company on a fully diluted basis as of February 1, 1998, which
resulted in gross proceeds to the Company of $285 million, and proceeds net of
underwriting discounts, advisory fees and expenses of $274 million. The
contingent warrants expired unused on October 31, 1997 (30 days after the
Company's initial public offering of its Class A common stock). Dividends on the
Preferred Shares accrue from January 31, 1997 and are payable quarterly,
commencing on May 1, 1997, at an annual rate of 14% of the liquidation
preference thereof. Dividends may be paid, at the Company's option, on any
dividend payment date occurring on or prior to February 1, 2002, either in cash
or by issuing additional Preferred Shares with an aggregate liquidation
preference equal to the amount of such dividends. The Company is required to
redeem all of the Preferred Shares outstanding on February 1, 2009 at a
redemption price equal to 100% of the liquidation preference thereof, plus
accumulated and unpaid dividends to the date of redemption. As of December 31,
1997, the approximate fair value of the Preferred Shares was $345.1 million,
based on quoted market prices.
53
<PAGE> 56
NEXTLINK COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
Subject to certain conditions and the modifications of covenants, the
Preferred Shares are exchangeable in whole, but not in part, at the option of
the Company, on any dividend payment date, for 14% senior subordinated notes
(Senior Subordinated Notes) due February 1, 2009 of the Company. All terms and
conditions (other than interest, ranking and maturity) of the Senior
Subordinated Notes would be substantially the same as those of the Company's
outstanding 12 1/2% Senior Notes due April 15, 2006.
8. INCOME TAXES
Prior to January 31, 1997, the Company was organized and operated as a
limited liability company that was classified and taxed as a partnership for
federal and state income tax purposes. Effective February 1, 1997, the Company
became subject to federal and state income taxes directly as a C corporation,
which resulted in the Company recording a deferred tax liability and deferred
tax provision at that time.
Components of deferred tax assets and liabilities as of February 1, 1997
(date of conversion to a C corporation) and December 31, 1997 are as follows (in
thousands):
<TABLE>
<CAPTION>
FEBRUARY 1, DECEMBER 31,
1997 1997
----------- ------------
<S> <C> <C>
Deferred tax assets:
Amortization............................... $ 994 $ 1,116
Capitalized costs.......................... 4,076 6,508
Provisions not currently deductible........ 252 1,191
Net operating loss carryforwards........... -- 47,734
------- --------
Total deferred tax assets.................... 5,322 56,549
Valuation allowance.......................... -- (34,064)
------- --------
5,322 22,485
Deferred tax liabilities:
Depreciation............................... (705) (1,499)
Purchase acquisitions...................... (6,458) (20,374)
Other...................................... (686) (612)
------- --------
Total deferred tax liabilities............... (7,849) (22,485)
------- --------
Net deferred taxes........................... $(2,527) $ --
======= ========
</TABLE>
During 1997, the valuation allowance increased $34.1 million, thereby fully
reserving the Company's net deferred tax assets as of December 31, 1997.
As of December 31, 1997, the Company had net operating loss carryforwards
of approximately $119.3 million, which are available to offset future federal
and state taxable income, if any, through 2012.
A reconciliation of the Company's effective income tax rate and the U.S.
federal tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-----------------
<S> <C>
Statutory rate....................................... 34.0%
State income taxes, net of federal benefit........... 6.0%
Conversion to C corporation.......................... (1.9%)
Valuation allowance for deferred tax assets.......... (26.1%)
Purchase acquisitions................................ (12.0%)
-----
--%
=====
</TABLE>
54
<PAGE> 57
NEXTLINK COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
9. SHAREHOLDERS' EQUITY (DEFICIT)
On October 1, 1997, the Company completed an initial public offering (IPO)
of 12,000,000 shares of Class A common stock at a price of $17 per share. In
addition, the underwriters of the IPO exercised an option to purchase 2,280,000
additional shares of Class A common stock at the same price per share. Gross
proceeds from the IPO totaled approximately $242.8 million, and proceeds net of
underwriting discounts, advisory fees and expenses aggregated approximately
$226.8 million.
On August 27, 1997, the Company effected a 0.441336-for-1 reverse stock
split of the issued and outstanding shares of Class A and Class B common stock.
All common stock, membership units, and per share amounts in the consolidated
financial statements have been adjusted retroactively to give effect to the
reverse stock split.
From January 31, 1997, the Company had two classes of common stock
outstanding, Class A common stock and Class B common stock. The Company's Class
A common stock and Class B common stock are identical in dividend and
liquidation rights, and vote together as a single class on all matters, except
as otherwise required by applicable law, with the Class A shareholders entitled
to cast one vote per share, and the Class B shareholders entitled to cast 10
votes per share.
On January 31, 1997, NEXTLINK Communications, L.L.C. was merged with and
into the Company in a tax-free transaction. In that merger, the Class A
membership interests of NEXTLINK Communications, L.L.C. were converted into
Class B common stock, options to acquire Class A membership interests were
converted into options to purchase Class B common stock, and options to purchase
Class B membership interests were converted into options to purchase Class A
common stock. In calculating the number of shares of the Company's Class B
common stock that each of the Class A members received in the merger, the
Company applied a formula that reflected each member's revalued capital account
balance as of January 31, 1997. Options to purchase Class B membership interests
were converted into the right to receive options to purchase shares of Class A
common stock on a one to one basis.
Prior to January 31, 1997, the Company's limited liability company
agreement provided for both Class A and Class B membership interests in the
Company. Class A Unit holders were entitled to a preferred return on their
investment in the Company plus a return of their capital upon the dissolution of
the Company. Class B Units were granted in connection with the Company's Amended
and Restated Equity Option Plan (EOP). Although Class B Units, when exercised,
constituted an ownership interest in the Company, the interest was limited to
the appreciation in the value of the Company, or the distributable profits
interest, if any, of the Company. The valuation of the membership units was
determined by the EOP Administrative Committee. As of December 31, 1996, the
value of the Class A Units was determined to be approximately $9.88, and the
appreciation interest per unit for Class B Units was approximately $7.93.
Effective January 1, 1996, the Company merged four of its five operating
subsidiaries with newly formed entities owned by the Company. As a result of
these mergers, the entities and individuals holding minority interests in the
subsidiaries exchanged these interests for 1,695,263 Class A Units of the
Company (representing an approximate 5.9% ownership interest in the Company)
which were valued at approximately $5.6 million. NEXTLINK Washington, L.L.C. did
not participate in the merger. The transaction was accounted for as a purchase
of minority interests. Accordingly, the $2.9 million excess of the purchase
price over the book value of the interests acquired was recorded as goodwill.
In addition to the exchange of equity interests, the Company exchanged
options to acquire equity interests in the subsidiaries for options to acquire
Class B Units in the Company. In connection with this transaction, the Company
issued 862,219 options with exercise prices of $0.02 and four-year vesting
schedules. These options had substantially the same economic values and vesting
schedules as the subsidiary options which were exchanged.
55
<PAGE> 58
NEXTLINK COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
10. PRO FORMA NET LOSS PER SHARE
Shares used in the computation of net loss per share amounts were
calculated as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Weighted average common shares outstanding.................. 41,144,275 36,208,588
Nominal issuances during the 12 month period prior to the
Company's filing of its IPO, treated as if outstanding for
all periods presented..................................... 1,911,610 3,103,894
---------- ----------
Shares used in computation of pro forma net loss per
share..................................................... 43,055,885 39,312,482
========== ==========
</TABLE>
Subsequent to the Company's IPO and through December 31, 1997, options to
purchase 307,164 shares of common stock were issued but were not included in the
computation of net loss per share, as these options did not fall under the
provisions of SAB 98 and inclusion of such options would have been antidilutive.
11. STOCK OPTIONS
Prior to February 1997, the Company maintained an Equity Option Plan which
provided for the granting of equity option interests in the Company. These
option grants were considered compensatory and were accounted for similarly to
stock appreciation rights. The Company recognized compensation expense over the
vesting periods based on the excess of the fair value of the equity option
interests, as determined by the Administrative Committee, over the exercise
price of the option interests. Such expense was periodically adjusted for
changes in the fair value of the equity interest units. These option interests
vested ratably over a four-year period, although some retained vesting schedules
of previous option plans which, in most cases, vested 20% at employment and 20%
at the end of each subsequent year.
In connection with the incorporation of the Company (see Note 9), the
Company established the NEXTLINK Communications, Inc. Stock Option Plan (the
Plan) to replace the Equity Option Plan and to provide a performance incentive
for certain officers, employees and individuals or companies who provide
services to the Company. The Plan provides for the granting of qualified and
non-qualified stock options. All options outstanding under the Equity Option
Plan were regranted under the new Plan with terms and conditions substantially
the same as under the Equity Option Plan, except that option holders will no
longer have the option to require the Company to repurchase units for cash upon
exercise of such units, nor will the Company have the option to repurchase
exercised units for cash. The Company has reserved 4,413,360 shares of Class A
common stock for issuance under the Plan. The options generally vest ratably
over four years and expire no later than 10 years after the date of grant, with
the exception of options originally granted under the Equity Option Plan, which
expire 15 years after the date of grant.
The exercise price of qualified stock options granted under the Plan may
not be less than the fair market value of the common shares on the date of
grant. The exercise price of non-qualified stock options granted under the Plan
may be greater or less than the fair market value of the common stock on the
date of grant, as determined at the discretion of the Board of Directors. Stock
options granted at prices below fair market value at the date of grant are
considered compensatory, and compensation expense is deferred and recognized
ratably over the option vesting period based on the excess of the fair market
value of the stock at the date of grant over the exercise price of the option.
In connection with the regranting of options under the new Plan, the Company
reclassified the deferred compensation liability relating to compensatory
options issued under the Equity Option Plan to common stock, stated at amounts
paid in. The remaining, unrecognized compensation expense attributable to these
compensatory options was also recorded as deferred compensation, a contra-equity
balance, and will be recognized over the remaining vesting periods of the
options.
56
<PAGE> 59
NEXTLINK COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
During 1997, the Company recorded approximately $2,355,000 and $892,000 of
deferred compensation expense related to the Stock Option Plan and Equity Option
Plan, respectively. For the year ended December 31, 1996, the Company recorded
approximately $9,914,000 of deferred compensation expense related to the Equity
Option Plan.
The Company has adopted the disclosure-only provisions of SFAS 123. Had
compensation costs been recognized based on the fair value at the date of grant
for options awarded under the Plans, the pro forma amounts of the Company's net
loss and net loss per share for the years ended December 31, 1997 and 1996 would
have been as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Net loss applicable to common shares -- as reported... $(168,324) $(71,101)
Net loss applicable to common shares -- pro forma..... $(182,571) $(64,512)
Net loss per share -- as reported..................... $ (3.91) $ (1.81)
Net loss per share -- pro forma....................... $ (4.24) $ (1.64)
</TABLE>
The fair value of each option grant was estimated using the Black-Scholes
option-pricing model with the following weighted average assumptions: risk-free
interest rates of 5.31% to 7.05%; expected option lives of 3 to 5 years;
expected volatility of 45%; and no expected dividends. The weighted average fair
value of options granted during 1997 and 1996 was $5.94 and $6.87, respectively.
Information with respect to the Equity Option Plan and Stock Option Plan is
as follows:
<TABLE>
<CAPTION>
SHARES WEIGHTED
SUBJECT OPTION PRICE AVERAGE
TO OPTION RANGE EXERCISE PRICE
---------- -------------- --------------
<S> <C> <C> <C>
Options outstanding at December 31, 1995.... 1,594,471 $0.02 $0.02
Granted................................... 455,018 $0.02 - 7.93 $1.93
Canceled.................................. (44,843) $0.02 $0.02
---------
Options outstanding at December 31, 1996.... 2,004,646 $0.02 - 7.93 $0.45
Granted................................... 2,569,156 $7.93 - 26.50 $9.24
Canceled.................................. (205,398) $0.02 - 21.31 $1.19
Exercised................................. (672,878) $0.02 - 7.93 $0.18
---------
Options outstanding at December 31, 1997.... 3,695,526 $0.02 - 26.50 $6.45
=========
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ----------------------------
AVERAGE WEIGHTED WEIGHTED
RANGE OF OPTIONS REMAINING AVERAGE OPTIONS AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 0.02 - $ 1.00 1,146,886 12.54 $ 0.23 411,470 $ 0.10
$ 1.01 - $14.00 2,289,755 10.82 $ 7.95 103,256 $ 7.93
$14.01 - $26.50 258,885 9.92 $20.53 110,308 $21.94
</TABLE>
At December 31, 1997, 44,956 shares of Class A common stock were available
for future grants. The Board of Directors has authorized an increase of
5,441,336 in the number of shares that may be issued pursuant to options under
the Plan, subject to shareholder approval. The Company has received an
irrevocable proxy from its majority shareholder approving the increase.
57
<PAGE> 60
NEXTLINK COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
12. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Supplemental disclosure of the Company's cash flow information is as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1996
--------- ---------
<S> <C> <C>
Noncash financing and investing activities were as
follows:
Class A common stock issued under lease
arrangement....................................... $ 1,400 $ --
======= =======
Redeemable preferred stock dividends, paid in
redeemable preferred shares....................... $31,102 $ --
======= =======
Accrued redeemable preferred stock dividends, payable
in redeemable preferred shares, and accretion of
preferred stock redemption obligation............. $ 8,218 $ --
======= =======
Issuance of notes payable and assumption of
liabilities in acquisitions....................... $21,280 $ 8,228
======= =======
Issuance of Class A common stock in acquisitions..... $16,524 $ --
======= =======
Capital lease obligations assumed.................... $ 4,725 $ 1,377
======= =======
Members' equity recorded in Recapitalization......... $ -- $ 5,574
======= =======
Goodwill recorded in Recapitalization................ $ -- $ 2,907
======= =======
Exchange of minority interests for Class A units..... $ -- $ 2,667
======= =======
Cash paid for interest................................. $44,865 $20,912
======= =======
</TABLE>
13. COMMITMENTS AND CONTINGENCIES
Capitalized leases consist of leases of telecommunications equipment and
fiber optic networks. The Company is also leasing premises under various
operating leases which, in addition to rental payments, require payments for
insurance, maintenance, property taxes and other executory costs related to the
leases. The lease agreements have various expiration dates and renewal options
through 2028.
Future minimum payments required under capital and operating leases that
have an initial or remaining noncancelable lease term in excess of one year at
December 31, 1997 were as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
Year ending December 31,
1998............................................ $ 3,285 $ 7,005
1999............................................ 3,199 7,269
2000............................................ 2,825 6,950
2001............................................ 1,209 6,461
2002............................................ 1,205 6,305
Thereafter...................................... 5,174 22,695
-------
Total minimum lease payments.................... 16,897
Less amounts representing interest.............. 6,647
-------
Present value of future minimum lease
payments...................................... 10,250
Less amounts due in one year.................... 2,610
-------
$ 7,640
=======
</TABLE>
Rent expense totaled approximately $6,376,000 and $2,248,000 in 1997 and
1996, respectively.
58
<PAGE> 61
NEXTLINK COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
14. SUBSEQUENT EVENTS
Joint Venture
In January 1998, the Company and Nextel Communications, Inc. (Nextel)
formed a joint venture called NEXTBAND Communications, L.L.C. (NEXTBAND), which
is owned 50% each by the Company and Nextel. On January 28, 1998, NEXTBAND filed
an application with the FCC for which it paid a $50 million refundable deposit
to participate in the FCC's Local Multipoint Distribution Service (LMDS) auction
which began on February 18, 1998. Of the deposit amount, $25 million was
deposited by the Company. LMDS is a fixed broadband point-to-multipoint service
which the FCC and industry analysts anticipate will be used for the deployment
of wireless local loop, high-speed data transfer and video broadcasting service.
NEXTBAND has applied for and is eligible to bid on any of the markets being
auctioned for the licenses, which could result in additional funds being
contributed by the Company to NEXTBAND.
Network Lease
In February 1998, the Company entered into a 20-year capital lease for
exclusive rights to multiple fibers and innerducts extending over 650 route
miles throughout New York, New Jersey, Connecticut, Pennsylvania, Delaware,
Maryland and Washington, D.C. The Company paid $92.0 million for the
transaction, of which $80.3 million was placed into escrow pending completion
and delivery of segments of the network route to the Company. The Company has
the option to renew the lease for two additional 10-year terms.
Financing
On March 3, 1998, the Company completed the sale of $335 million in
aggregate principal amount of 9% Senior Notes due March 15, 2008. Proceeds from
the sale net of discounts, underwriting commissions, advisory fees and expenses,
totaled approximately $326.5 million. The 9% Senior Notes are redeemable at the
option of the Company, in whole or in part, beginning March 15, 2003 at
established redemption prices which decline to 100% of the stated principal
amount thereof by March 15, 2006.
The indenture pursuant to which the 9% Senior Notes are issued contains
certain covenants that, among other things, limits the ability of the Company
and its subsidiaries to incur additional indebtedness, issue stock in
subsidiaries, pay dividends or make other distributions, repurchase equity
interests or subordinated indebtedness, engage in sale and leaseback
transactions, create certain liens, enter into certain transactions with
affiliates, sell assets of the Company and its subsidiaries, and enter into
certain mergers and consolidations.
In the event of a change in control of the Company as defined in the
indenture, holders of the 9% Senior Notes will have the right to require the
Company to purchase their 9% Senior Notes, in whole or in part, at a price equal
to 101% of the stated principal amount thereof, plus accrued and unpaid
interest, if any, thereon to the date of purchase. The 9% Senior Notes are
senior unsecured obligations of the Company, and are subordinated to all current
and future indebtedness of the Company's subsidiaries, including trade payables.
59
<PAGE> 62
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To NEXTLINK Capital, Inc.:
We have audited the accompanying balance sheets of NEXTLINK Capital, Inc.
(a Washington corporation) as of December 31, 1997 and 1996. These balance
sheets are the responsibility of the Company's management. Our responsibility is
to express an opinion on these balance sheets based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheets are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheets. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the balance sheets referred to above present fairly, in all
material respects, the financial position of NEXTLINK Capital, Inc. as of
December 31, 1997 and 1996 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Seattle, Washington,
March 12, 1998
60
<PAGE> 63
NEXTLINK CAPITAL, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1997 1996
---- ----
<S> <C> <C>
Cash in bank................................................ $100 $100
==== ====
SHAREHOLDER'S EQUITY
Common stock, no par value,
1,000 shares authorized, issued and outstanding........... $100 $100
==== ====
</TABLE>
See accompanying note to balance sheets.
61
<PAGE> 64
NEXTLINK CAPITAL, INC.
NOTE TO BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
1. DESCRIPTION
NEXTLINK Capital, Inc. (NEXTLINK Capital) is a Washington corporation and a
wholly owned subsidiary of NEXTLINK Communications, Inc. (NEXTLINK). NEXTLINK
Capital was formed for the sole purpose of obtaining financing from external
sources and is a joint obligor on the 12 1/2% Senior Notes due April 15, 2006 of
NEXTLINK. NEXTLINK Capital was initially funded with a $100 contribution from
NEXTLINK and has had no operations to date. NEXTLINK Capital's sole source and
repayment for the 12 1/2% Senior Notes will be from the operations of NEXTLINK.
Therefore, these balance sheets should be read in conjunction with the
consolidated financial statements of NEXTLINK.
62
<PAGE> 65
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrants have duly caused this report to be signed
on their behalf by the undersigned thereunto duly authorized.
NEXTLINK Communications, Inc.
Date: March 25, 1998 By: /s/ WAYNE M. PERRY
------------------------------------
Wayne M. Perry
Chief Executive Officer, Director
NEXTLINK Capital, Inc.
Date: March 25, 1998 By: /s/ WAYNE M. PERRY
------------------------------------
Wayne M. Perry
Chief Executive Officer, Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on March 25, 1998 by the following persons on
behalf of the Registrants and in the capacities indicated:
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<C> <S>
/s/ WAYNE M. PERRY Chief Executive Officer, Director
- --------------------------------------------------------
Wayne M. Perry
/s/ KATHLEEN H. ISKRA Vice President, Chief Financial Officer
- -------------------------------------------------------- (Principal Financial Officer and Principal
Kathleen H. Iskra Accounting Officer)
/s/ JAMES F. VOELKER President, Director
- -------------------------------------------------------- (Principal Executive Officer)
James F. Voelker
/s/ STEVEN W. HOOPER Director
- --------------------------------------------------------
Steven W. Hooper
/s/ CRAIG O. MCCAW Director
- --------------------------------------------------------
Craig O. McCaw
/s/ DENNIS WEIBLING Director
- --------------------------------------------------------
Dennis Weibling
/s/ SCOT JARVIS Director
- --------------------------------------------------------
Scot Jarvis
/s/ WILLIAM A. HOGLUND Director
- --------------------------------------------------------
William A. Hoglund
/s/ SHARON L. NELSON Director
- --------------------------------------------------------
Sharon L. Nelson
/s/ JEFFREY S. RAIKES Director
- --------------------------------------------------------
Jeffrey S. Raikes
</TABLE>
63
<PAGE> 66
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
3.1 Articles of Incorporation of NEXTLINK Communications Inc.(2)
3.2 By-laws of NEXTLINK Communications, Inc.(2)
3.3 Articles of Incorporation of NEXTLINK Capital, Inc.(1)
3.4 By-laws of NEXTLINK Capital, Inc.(1)
4.1 Form of Exchange Note Indenture, by and among NEXTLINK
Communications, Inc. and United States Trust Company of New
York, as trustee, relating to the Exchange Notes, including
form of Exchange Notes.(2)
4.2 Certificate of Designations of the Powers, Preferences and
Relative, Participating, Optional and Other Special Rights
of 14% Senior Exchangeable Redeemable Preferred Shares and
Qualifications, Limitations and Restrictions Thereof.(2)
4.3 Form of stock certificate of 14% Senior Exchangeable
Redeemable Preferred Shares.(2)
4.4 Indenture, dated as of April 25, 1996, by and among NEXTLINK
Communications, Inc., NEXTLINK Capital, Inc. and United
States Trust Company of New York, as Trustee, relating to
12 1/2% Senior Notes due April 15, 2006, including form of
global note.(1)
4.5 First Supplemental Indenture, dated as of January 31, 1997,
by and among the Company, NEXTLINK Communications, L.L.C.,
NEXTLINK Capital and United States Trust Company of New
York, as Trustee.(2)
4.6 Form of Indenture between United States Trust Company, as
Trustee and NEXTLINK Communications, Inc., relating to the
9 5/8% Senior Notes due 2007.(3)
4.7 Form of Indenture between United States Trust Company, as
Trustee and NEXTLINK Communications, Inc., relating to the
9% Senior Notes Due 2008.
10.1 Stock Option Plan of the Company.(2)
10.2 First Amendment to Stock Option Plan of the Company.
10.3 Registration Rights Agreement dated as of January 15, 1997,
between the Company and the signatories listed therein.(2)
10.4 Preferred Exchange and Registration Rights Agreement, dated
as of January 31, 1997, by and among the Company and the
Initial Purchasers.(2)
10.5 Fiber Lease and Innerduct Use Agreement, dated as of
February 23, 1998, by and between NEXTLINK Communications,
Inc. and Metromedia Fiber Network, Inc.(4)
10.6 Amendment No. 1 to Fiber Lease and Innerduct Use Agreement,
dated as of March 4, 1998, by and between NEXTLINK
Communications, Inc. and Metromedia Fiber Network, Inc.(4)
21 Subsidiaries of the Registrants.
27.1 Financial Data Schedule for the year ended December 31,
1997.
27.2 Financial Data Schedule, restated for the periods ended
December 31, 1996, June 30, 1997 and September 30, 1997.
</TABLE>
- ---------------
(1) Incorporated herein by reference to the exhibit filed with the Registration
Statement on Form S-4 of NEXTLINK Communications, L.L.C. (the predecessor of
NEXTLINK Communications, Inc.) and NEXTLINK Capital, Inc. (Commission File
No. 333-4603).
(2) Incorporated herein by reference to the exhibit filed with the Annual Report
on Form 10-KSB for the year ended December 31, 1996 of NEXTLINK
Communications, Inc. and NEXTLINK Capital, Inc. (Commission File Nos.
333-04603 and 333-04603-01).
(3) Incorporated herein by reference to the exhibit filed with the Registration
Statement on Form S-1 of NEXTLINK Communications, Inc. (Commission File No.
333-32003).
(4) Portions of this exhibit were omitted and filed separately with the
Secretary of the Commission pursuant to the Issuer's Application Requesting
Confidential Treatment under Rule 24(b)-2 of the Securities Exchange Act of
1934.
(c) REPORTS ON FORM 8-K
None.
<PAGE> 1
EXECUTION COPY
EXHIBIT 4.7
NEXTLINK COMMUNICATIONS, INC.
TO
UNITED STATES TRUST COMPANY OF NEW YORK
Trustee
Indenture
Dated as of March 3, 1998
$335,000,000
9% SENIOR NOTES
DUE 2008
<PAGE> 2
NEXTLINK COMMUNICATIONS, INC.
Certain Sections of this Indenture relating to
Sections 310 through 318 of the
Trust Indenture Act of 1939:
<TABLE>
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Trust Indenture Indenture
Act Section Section
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Section 310(a)(1) ........................................... 609
(a)(2) ........................................... 609
(a)(3) ........................................... Not Applicable
(a)(4) ........................................... Not Applicable
(b) ........................................... 608
................................... ....... 610
Section 311(a) ........................................... 613
(b) ........................................... 613
Section 312(a) ........................................... 701
(b) ........................................... 702
(c) ........................................... 702
Section 313(a) ........................................... 703
(b) ........................................... 703
(c) ........................................... 703
(d) ........................................... 703
Section 314(a) ........................................... 704
........................................... 1018
(b) ........................................... Not Applicable
(c)(1) ........................................... 102
(c)(2) ........................................... 102
(c)(3) ........................................... Not Applicable
(d) ........................................... Not Applicable
(e) ........................................... 102
Section 315(a) ........................................... 601
(b) ........................................... 602
(c) ........................................... 601
(d) ........................................... 601
(e) ........................................... 514
Section 316(a)(1)(A) ........................................... 502
........................................... 512
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<TABLE>
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Trust Indenture Indenture
Act Section Section
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(a)(1)(B) ........................................... 513
(a)(2) ........................................... Not Applicable
(b) ........................................... 508
(c) ........................................... 104
Section 317(a)(1) ...... .................................... 503
(a)(2) ........................................... 504
(b) ........................................... 1003
Section 318(a) ........................................... 107
</TABLE>
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Note: This reconciliation and tie shall not, for any purpose, be
deemed to be a part of the Indenture.
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<PAGE> 4
TABLE OF CONTENTS
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RECITALS OF THE COMPANY......................................................... 1
ARTICLE ONEDefinitions and Other Provisionsof General Application
SECTION 101. Definitions...................................................... 1
Act ............................................................. 2
Acquired Debt.................................................... 2
Additional Interest.............................................. 2
Affiliate........................................................ 2
Agent Member..................................................... 3
Applicable Procedures............................................ 3
Asset Disposition................................................ 3
Attributable Value............................................... 3
Bank Credit Agreement............................................ 4
Board of Directors............................................... 4
Board Resolution................................................. 4
Business Day..................................................... 4
Capital Lease Obligation......................................... 4
Capital Stock.................................................... 5
Cedel ........................................................ 5
Change of Control................................................ 5
Commission....................................................... 5
Common Equity.................................................... 5
Company ......................................................... 5
Company Request.................................................. 5
Company Order.................................................... 5
Consolidated Capital Ratio....................................... 5
Consolidated Cash Flow Available forFixed Charges................ 6
Consolidated Income Tax Expense.................................. 6
Consolidated Interest Expense.................................... 6
Consolidated Net Income.......................................... 7
Consolidated Net Worth........................................... 7
Consolidated Tangible Assets..................................... 8
Corporate Trust Office........................................... 8
corporation...................................................... 8
Debt ............................................................ 8
Default ......................................................... 9
Defaulted Interest............................................... 9
Depositary....................................................... 9
Disqualified Stock............................................... 9
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DTC ............................................................. 10
Eagle River...................................................... 10
Eligible Institution............................................. 10
Event of Default................................................. 10
Exchange Act..................................................... 10
Expiration Date.................................................. 11
Global Security.................................................. 11
Government Securities............................................ 11
Guarantee........................................................ 11
Holder .......................................................... 12
Incur ........................................................... 12
Indenture........................................................ 12
Interest Payment Date............................................ 12
Interest Rate or Currency Protection Agreement................... 12
Investment....................................................... 13
Issue Date....................................................... 13
Joint Venture.................................................... 13
Lien ............................................................ 13
Marketable Securities............................................ 13
Maturity......................................................... 14
Net Available Proceeds........................................... 14
Offer to Purchase................................................ 15
Officers' Certificate............................................ 18
Opinion of Counsel............................................... 18
Outstanding...................................................... 18
Paying Agent..................................................... 19
Permitted Interest Rate or Currency Protection Agreement ........ 19
Permitted Investment............................................. 19
Permitted Liens.................................................. 20
Person .......................................................... 21
Predecessor Security............................................. 21
Preferred Dividends.............................................. 21
Preferred Stock.................................................. 21
Purchase Agreement............................................... 21
Purchase Date.................................................... 21
Purchase Money Debt.............................................. 21
readily marketable cash equivalents.............................. 22
</TABLE>
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part of the Indenture.
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Receivables...................................................... 22
Receivables Sale................................................. 22
Redemption Date.................................................. 22
Redemption Price................................................. 23
Regular Record Date.............................................. 23
Regulation S..................................................... 23
Regulation S Certificate......................................... 23
Regulation S Global Security..................................... 23
Regulation S Legend.............................................. 23
Regulation S Securities.......................................... 23
Related Person................................................... 23
Resale Registration Statement.................................... 23
Responsible Officer.............................................. 23
Restricted Global Security....................................... 24
Restricted Period................................................ 24
Restricted Securities............................................ 24
Restricted Securities Certificate................................ 24
Restricted Securities Legend..................................... 24
Restricted Subsidiary............................................ 24
Rule 144A........................................................ 24
Rule 144A Securities............................................. 24
Sale and Leaseback Transaction................................... 24
SEC Reports...................................................... 25
Securities....................................................... 25
Securities Act................................................... 25
Securities Act Legend............................................ 25
Security Register................................................ 25
Security Registrar............................................... 25
Significant Subsidiary........................................... 25
Special Record Date.............................................. 25
Stated Maturity.................................................. 25
Step-Down Date................................................... 25
Step-Up ......................................................... 25
Subordinated Debt................................................ 25
Subsidiary....................................................... 27
Successor Security............................................... 27
Telecommunications Assets........................................ 27
Telecommunications Business...................................... 27
Trustee ......................................................... 27
Trust Indenture Act.............................................. 28
Unrestricted Securities Certificate.............................. 28
Unrestricted Subsidiary.......................................... 28
Vendor Financing Facility........................................ 29
Vice President................................................... 29
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Voting Stock..................................................... 29
Wholly-Owned Restricted Subsidiary............................... 29
SECTION 102. Compliance Certificates and Opinions............................. 29
SECTION 103. Form of Documents Delivered to Trustee........................... 30
SECTION 104. Acts of Holders; Record Dates.................................... 31
SECTION 105. Notices, Etc., to Trustee and Company............................ 34
SECTION 106. Notice to Holders; Waiver........................................ 34
SECTION 107. Application of Trust Indenture Act............................... 35
SECTION 108. Effect of Headings and Table of Contents......................... 35
SECTION 109. Successors and Assigns........................................... 35
SECTION 110. Separability Clause.............................................. 35
SECTION 111. Benefits of Indenture............................................ 35
SECTION 112. Governing Law.................................................... 36
SECTION 113. Legal Holidays................................................... 36
ARTICLE TWO Security Forms
SECTION 201. Forms Generally.................................................. 36
SECTION 202. Form of Face of Security......................................... 37
SECTION 203. Form of Reverse of Security...................................... 42
SECTION 204. Additional Provisions Required inGlobal Security ................ 47
SECTION 205. Form of Trustee's Certificate ofAuthentication .................. 47
ARTICLE THREE The Securities
SECTION 301. Title and Terms.................................................. 48
SECTION 302. Denominations.................................................... 49
SECTION 303. Execution, Authentication, Deliveryand Dating ................... 50
SECTION 304. Temporary Securities............................ ................ 51
SECTION 305. Registration, Registration of Transferand Exchange .............. 51
SECTION 306. Mutilated, Destroyed, Lost andStolen Securities ................. 57
SECTION 307. Payment of Interest; Interest Rights Preserved................... 58
</TABLE>
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part of the Indenture.
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Preserved ....................................................... 58
SECTION 308. Persons Deemed Owners............................................ 59
SECTION 309. Cancellation..................................................... 60
SECTION 310. Computation of Interest.......................................... 60
SECTION 311. CUSIP and ISIN Numbers........................................... 60
ARTICLE FOUR Satisfaction and Discharge
SECTION 401. Satisfaction and Discharge of Indenture.......................... 61
SECTION 402. Application of Trust Money....................................... 62
ARTICLE FIVE Remedies
SECTION 501. Events of Default............................... ................ 62
SECTION 502. Acceleration of Maturity; Rescission and Annulment ............... 65
SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee .. 66
SECTION 504. Trustee May File Proofs of Claim................................. 67
SECTION 505. Trustee May Enforce Claims Without Possession of Securities ...... 68
SECTION 506. Application of Money Collected................................... 68
SECTION 507. Limitation on Suits.............................................. 69
SECTION 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest ............................................ 69
SECTION 509. Restoration of Rights and Remedies............................... 70
SECTION 510. Rights and Remedies Cumulative................................... 70
SECTION 511. Delay or Omission Not Waiver..................................... 70
SECTION 512. Control by Holders............................................... 71
SECTION 513. Waiver of Past Defaults.......................................... 71
SECTION 514. Undertaking for Costs............................................ 72
SECTION 515. Waiver of Stay or Extension Laws................................. 72
ARTICLE SIX The Trustee
SECTION 601. Certain Duties and Responsibilities.............................. 72
SECTION 602. Notice of Defaults............................................... 73
SECTION 603. Certain Rights of Trustee........................................ 73
SECTION 604. Not Responsible for Recitals or Issuance of Securities .......... 74
SECTION 605. May Hold Securities.............................................. 75
SECTION 606. Money Held in Trust.............................................. 75
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SECTION 607. Compensation and Reimbursement................................... 75
SECTION 608. Disqualification; Conflicting Interests.......................... 76
SECTION 609. Corporate Trustee Required; Eligibility.......................... 76
SECTION 610. Resignation and Removal; Appointment of Successor ................ 77
SECTION 611. Acceptance of Appointment by Successor........................... 78
SECTION 612. Merger, Conversion, Consolidationor Succession to Business ....... 79
SECTION 613. Preferential Collection of Claims Against the Company ............ 79
SECTION 614. Appointment of Authenticating Agent.............................. 79
ARTICLE SEVEN Holders' Lists and Reports by Trustee and the Company
SECTION 701. Company to Furnish Trustee Names and Addresses of Holders ....... 81
SECTION 702. Preservation of Information; Communications to Holders .......... 82
SECTION 703. Reports by Trustee............................................... 82
SECTION 704. Reports by Company............................................... 82
SECTION 705. Officers' Certificate with Respect to Change in Interest Rates .. 83
ARTICLE EIGHT Merger, Consolidation, Etc.
SECTION 801. Mergers, Consolidations and Certain Sales of Assets ............. 83
SECTION 802. Successor Substituted............................................ 85
ARTICLE NINE Supplemental Indentures
SECTION 901. Supplemental Indentures Without Consent of Holders .............. 85
SECTION 902. Supplemental Indentures with Consent of Holders ................. 86
</TABLE>
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part of the Indenture.
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SECTION 903. Execution of Supplemental Indentures............................. 87
SECTION 904. Effect of Supplemental Indentures................................ 87
SECTION 905. Conformity with Trust Indenture Act.............................. 88
SECTION 906. Reference in Securities to Supplemental Indentures .............. 88
ARTICLE TEN Covenants
SECTION 1001. .Payment of Principal, Premium and Interest ...................... 88
SECTION 1002. Maintenance of Office or Agency.................................. 88
SECTION 1003. Money for Security Payments to be Held in Trust ................. 89
SECTION 1004. Existence........................................................ 91
SECTION 1005. Maintenance of Properties and Insurance.......................... 91
SECTION 1006. Payment of Taxes and Other Claims................................ 92
SECTION 1007. Limitation on Consolidated Debt.................................. 92
SECTION 1008. Limitation on Debt and Preferred Stock of Restricted Subsidiaries 96
SECTION 1009. Limitation on Restricted Payments................................ 98
SECTION 1010. Limitation on Dividend and Other PaymentRestrictions
Affecting Restricted Subsidiaries ............................... 101
SECTION 1011. Limitation on Liens.............................................. 102
SECTION 1012. Limitation on Sale and Leaseback Transactions .................... 103
SECTION 1013. Limitation on Asset Dispositions................................. 104
SECTION 1014. Limitation on Issuances and Sales of Capital Stock of
RestrictedSubsidiaries .......................................... 106
SECTION 1015. Transactions with Affiliatesand Related Persons .................. 107
SECTION 1016. Change of Control................................................ 107
SECTION 1017. Provision of Financial Information............................... 109
SECTION 1018. Statement by Officers as to Default.............................. 109
SECTION 1019. Waiver of Certain Covenants...................................... 109
ARTICLE ELEVEN Redemption of Securities
SECTION 1101. Right of Redemption.............................................. 110
SECTION 1102. Applicability of Article......................................... 111
SECTION 1103. Election to Redeem; Notice to Trustee............................ 111
SECTION 1104. Securities to Be Redeemed Pro Rata............................... 111
</TABLE>
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part of the Indenture.
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SECTION 1105. Notice of Redemption............................................. 112
SECTION 1106. Deposit of Redemption Price...................................... 113
SECTION 1107. Securities Payable on Redemption Date............................ 113
SECTION 1108. Securities Redeemed in Part...................................... 113
ARTICLE TWELVE Defeasance and Covenant Defeasance
SECTION 1201. Company's Option to Effect Defeasance or Covenant Defeasance ..... 114
SECTION 1202. Defeasance and Discharge....................... ................. 114
SECTION 1203. Covenant Defeasance............................ ................. 115
SECTION 1204. Conditions to Defeasance or Covenant Defeasance .................. 115
SECTION 1205. Deposited Money and U.S. Government Obligations to Be Held in
Trust; Other Miscellaneous Provisions ............................ 118
SECTION 1206. Reinstatement.................................................... 118
SECTION 1207. Repayment to Company............................................. 119
ANNEX A -- Form of Regulation S Certificate
ANNEX B -- Form of Restricted Securities Certificate
ANNEX C -- Form of Unrestricted Securities Certificate
</TABLE>
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Note: This table of contents shall not, for any purpose, be deemed to be a
part of the Indenture.
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<PAGE> 12
INDENTURE, dated as of March 3, 1998, between NEXTLINK
Communications, Inc., a corporation organized under the laws of the State of
Washington (the "Company"), having its principal office at 155 108th Avenue
N.E., 8th Floor, Bellevue, Washington 98004, and United States Trust Company of
New York, duly organized and existing under the laws of the State of New York,
as Trustee (herein called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of
$335,000,000 aggregate principal amount of its 9% Senior Notes Due 2008 (the
"Securities") of substantially the tenor and amount hereinafter set forth, and
to provide therefor the Company has duly authorized the execution and delivery
of this Indenture. The Securities may consist of Original Securities and/or
Exchange Securities, each as defined herein. The Original Securities and the
Exchange Securities shall rank pari passu in right of payment with all existing
and future senior obligations of the Company.
All things necessary to make the Securities, when executed by the
Company and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company, and to make this Indenture a
valid agreement of the Company, in accordance with their and its terms, have
been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Securities, as follows:
ARTICLE ONE
Definitions and Other Provisions
of General Application
SECTION 101. Definitions.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned
to them in this Article and include the plural as well as the singular;
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<PAGE> 13
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the
meanings assigned to them therein;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted
accounting principles (whether or not such is indicated herein) and,
except as otherwise herein expressly provided, the term "generally
accepted accounting principles" with respect to any computation required
or permitted hereunder shall mean such accounting principles as are
generally accepted as consistently applied by the Company at the date of
such computation; and
(4) the words "herein", "hereof" and "hereunder" and other words
of similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision.
Certain terms, used principally in Article Six, are defined in
that Article.
"Act", when used with respect to any Holder, has the meaning
specified in Section 104.
"Acquired Debt" means, with respect to any specified Person, (i)
Debt of any other Person existing at the time such Person merges with or into or
consolidates with or becomes a Restricted Subsidiary of such specified Person
and (ii) Debt secured by a Lien encumbering any asset acquired by such specified
Person, which Debt was not Incurred in anticipation of, and was outstanding
prior to, such merger, consolidation or acquisition.
"Additional Interest" has the meaning set forth in the form of
Security contained in Section 202. Unless the context otherwise requires,
references herein to "interest" on the Securities shall include Additional
Interest.
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Agent Member" means any member of, or participant in, the
Depository.
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<PAGE> 14
"Applicable Procedures" means, with respect to any transfer or
transaction involving a Global Security or beneficial interest therein, the
rules and procedures of the Depositary for such Security, Euroclear and Cedel,
in each case to the extent applicable to such transaction and as in effect from
time to time.
"Asset Disposition" by the Company or any Restricted Subsidiary
means any transfer, conveyance, sale, lease or other disposition (other than a
creation of a Lien) by such Person, (including a consolidation or merger or
other sale of any such Restricted Subsidiary with, into or to another Person in
a transaction in which such Restricted Subsidiary ceases to be a Restricted
Subsidiary of the Company, but excluding a disposition by a Restricted
Subsidiary of the Company to the Company or a Restricted Subsidiary of the
Company or by the Company to a Restricted Subsidiary of the Company) of (i)
shares of Capital Stock or other ownership interests of a Restricted Subsidiary
of the Company, other than as permitted by the provisions of Section 1008 or
pursuant to a transaction in compliance with Section 801, (ii) substantially all
of the assets of the Company or any of its Restricted Subsidiaries representing
a division or line of business (other than as part of a Permitted Investment) or
(iii) other assets or rights of the Company or any of its Restricted
Subsidiaries other than (A) in the ordinary course of business or (B) that
constitutes a Restricted Payment which is permitted by the provisions of Section
1009; provided that a transaction described in clauses (i), (ii) and (iii) shall
constitute an Asset Disposition only if the aggregate consideration for such
transfer, conveyance, sale, lease or other disposition is equal to $5 million or
more in any 12-month period.
"Attributable Value" means, as to any particular lease under
which any Person is at the time liable other than a Capital Lease Obligation,
and at any date as of which the amount thereof is to be determined, the total
net amount of rent required to be paid by such Person under such lease during
the initial term thereof as determined in accordance with generally accepted
accounting principles, discounted from the last date of such initial term to the
date of determination at a rate per annum equal to the discount rate which would
be applicable to a Capital Lease Obligation with like term in accordance with
generally accepted accounting principles. The net amount of rent required to be
paid under any such lease for any such period shall be the aggregate amount of
rent payable by the lessee with respect to such period after excluding amounts
required to be paid on account of insurance, taxes, assessments, utility,
operating and labor costs and similar charges. In the case of any lease which is
terminable by the lessee upon the payment of penalty, such net amount shall also
include the lesser of the amount of such penalty (in which case no rent shall be
considered as required to be paid under such lease subsequent to the first date
upon which it may be so terminated) or the rent which would otherwise be
required to be paid if such lease is not so terminated. "Attributable Value"
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<PAGE> 15
means, as to a Capital Lease Obligation, the principal amount thereof.
"Bank Credit Agreement" means any one or more credit agreements
(which may include or consist of revolving credits) between the Company or any
Restricted Subsidiary of the Company and one or more banks or other financial
institutions providing financing for the business of the Company and its
Restricted Subsidiaries.
"Board of Directors" means either the board of directors of the
Company or any duly authorized committee of that Board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which banking institutions in The Borough of
Manhattan, The City of New York, New York are authorized or obligated by law or
executive order to close.
"Capital Lease Obligation" of any Person means the obligation to
pay rent or other payment amounts under a lease of (or other Debt arrangements
conveying the right to use) real or personal property of such Person which is
required to be classified and accounted for as a capital lease or a liability on
the face of a balance sheet of such Person in accordance with generally accepted
accounting principles (a "Capital Lease"). The stated maturity of such
obligation shall be the date of the last payment of rent or any other amount due
under such lease prior to the first date upon which such lease may be terminated
by the lessee without payment of a penalty. The principal amount of such
obligation shall be the capitalized amount thereof that would appear on the face
of a balance sheet of such Person in accordance with generally accepted
accounting principles.
"Capital Stock" of any Person means any and all shares,
interests, participations or other equivalents (however designated) of corporate
stock or other equity participations, including partnership interests, whether
general or limited, of such Person.
"Cedel" means Cedel Bank, S.A. (or any successor securities
clearing agency).
"Change of Control" has the meaning specified in Section 1016.
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<PAGE> 16
"Commission" means the Securities and Exchange Commission, as
from time to time constituted, created under the Exchange Act, or, if at any
time after the execution of this instrument such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then the
body performing such duties at such time.
"Common Equity" of any Person means Capital Stock of such Person
that is not Disqualified Stock, and a "sale of Common Equity" includes any sale
of Common Equity effected by private sale or public offering.
"Company" means the Person named as the "Company" in the first
paragraph of this instrument until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture and thereafter "Company"
shall mean such successor Person.
"Company Request" or "Company Order" means a written request or
order signed in the name of the Company by (i) the Chief Executive Officer, the
President, an Executive Vice President or a Vice President of the Company, and
(ii) the Treasurer, Assistant Treasurer or Secretary of the Company, and
delivered to the Trustee.
"Consolidated Capital Ratio" of any Person as of any date means
the ratio of (i) the aggregate consolidated principal amount of Debt (or in the
case of Debt issued at a discount the accreted amount thereof) of such Person
then outstanding (which amount of Debt shall be reduced by any amount of cash or
cash equivalent collateral securing on a perfected basis and dedicated for
disbursement exclusively to the payment of principal of and interest on such
Debt) to (ii) the aggregate consolidated Capital Stock (other than Disqualified
Stock) and paid in capital (other than in respect of Disqualified Stock) of such
Person as of such date.
"Consolidated Cash Flow Available for Fixed Charges" for any
period means the Consolidated Net Income of the Company and its Restricted
Subsidiaries for such period increased by the sum of (i) Consolidated Interest
Expense of the Company and its Restricted Subsidiaries for such period, plus
(ii) Consolidated Income Tax Expense of the Company and its Restricted
Subsidiaries for such period, plus (iii) the consolidated depreciation and
amortization expense included in the income statement of the Company and its
Restricted Subsidiaries for such period, plus (iv) any noncash expense for such
period (excluding any noncash charge to the extent that it requires an accrual
of or a reserve for cash disbursements in any future period), plus (v) any
charge related to any premium or penalty paid in connection with redeeming or
retiring any Debt prior to its stated maturity; provided, however, that there
shall be excluded therefrom the Consolidated Cash Flow Available for Fixed
Charges (if positive) of any Restricted Subsidiary of the Company (calculated
separately for
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<PAGE> 17
such Restricted Subsidiary in the same manner as provided above for the Company)
that is subject to a restriction which prevents the payment of dividends or the
making of distributions to the Company or another Restricted Subsidiary of the
Company to the extent of such restriction.
"Consolidated Income Tax Expense" for any period means the
consolidated provision for income taxes of the Company and its Restricted
Subsidiaries for such period calculated on a consolidated basis in accordance
with generally accepted accounting principles.
"Consolidated Interest Expense" means for any period the
consolidated interest expense included in a consolidated income statement
(excluding interest income) of the Company and its Restricted Subsidiaries for
such period calculated on a consolidated basis in accordance with generally
accepted accounting principles, including without limitation or duplication (or,
to the extent not so included, with the addition of), (i) the amortization of
Debt discounts; (ii) any payments or fees with respect to letters of credit,
bankers' acceptances or similar facilities; (iii) fees with respect to interest
rate swap or similar agreements or foreign currency hedge, exchange or similar
agreements; (iv) Preferred Dividends of the Company and its Restricted
Subsidiaries (other than dividends paid in shares of Preferred Stock that is not
Disqualified Stock) declared and paid or payable; (v) accrued Disqualified Stock
dividends of the Company and its Restricted Subsidiaries, whether or not
declared or paid; (vi) interest on Debt guaranteed by the Company and its
Restricted Subsidiaries; and (vii) the portion of any Capital Lease Obligation
paid or accrued during such period that is allocable to interest expense.
"Consolidated Net Income" for any period means the consolidated
net income (or loss) of the Company and its Restricted Subsidiaries for such
period determined on a consolidated basis in accordance with generally accepted
accounting principles; provided that there shall be excluded therefrom (a) the
net income (or loss) of any Person acquired by the Company or a Restricted
Subsidiary of the Company in a pooling-of-interests transaction for any period
prior to the date of such transaction, (b) the net income (or loss) of any
Person that is not a Restricted Subsidiary of the Company except to the extent
of the amount of dividends or other distributions actually paid to the Company
or a Restricted Subsidiary of the Company by such Person during such period, (c)
gains or losses on Asset Dispositions by the Company or its Restricted
Subsidiaries, (d) all extraordinary gains and extraordinary losses, (e) the
cumulative effect of changes in accounting principles, (f) non-cash gains or
losses resulting from fluctuations in currency exchange rates, (g) any non-cash
gain or loss realized on the termination of any employee pension benefit plan
and (h) the tax effect of any of the items described in clauses (a) through (g)
above; provided, further, that for purposes of any determination pursuant to the
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<PAGE> 18
provisions of Section 1009 there shall further be excluded therefrom the net
income (but not net loss) of any Restricted Subsidiary of the Company that is
subject to a restriction which prevents the payment of dividends or the making
of distributions to the Company or another Restricted Subsidiary of the Company
to the extent of such restriction.
"Consolidated Net Worth" of any Person means the consolidated
stockholders' equity of such Person, determined on a consolidated basis in
accordance with generally accepted accounting principles, less amounts
attributable to Disqualified Stock of such Person; provided that, with respect
to the Company, adjustments following the date of this Indenture to the
accounting books and records of the Company in accordance with Accounting
Principles Board Opinions Nos. 16 and 17 (or successor opinions thereto) or
otherwise resulting from the acquisition of control of the Company by another
Person shall not be given effect to.
"Consolidated Tangible Assets" of any Person means the total
amount of assets (less applicable reserves and other properly deductible items)
which under generally accepted accounting principles would be included on a
consolidated balance sheet of such Person and its Restricted Subsidiaries after
deducting therefrom all goodwill, trade names, trademarks, patents, unamortized
debt discount and expense and other like intangibles, which in each case under
generally accepted accounting principles would be included on such consolidated
balance sheet; provided that, with respect to the Company, adjustments following
the date of this Indenture to the accounting books and records of the Company in
accordance with Accounting Principles Board Opinions Nos. 16 and 17 (or
successor opinions thereto) or otherwise resulting from the acquisition of
control of the Company by another Person shall not be given effect to.
"Corporate Trust Office" means the principal office of the
Trustee in the Borough of Manhattan, The City of New York, New York, at which at
any particular time its corporate trust business shall be administered, which at
the date hereof is located at 114 West 47th Street, New York, New York 10036.
"corporation" means a corporation, association, company, limited
liability company, joint-stock company or business trust.
"Debt" means (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person and whether
or not contingent, (i) every obligation of such Person for money borrowed, (ii)
every obligation of such Person evidenced by bonds, debentures, notes or other
similar instruments, including any such obligations Incurred in connection with
the acquisition of property, assets or businesses, (iii) every reimbursement
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<PAGE> 19
obligation of such Person with respect to letters of credit, bankers'
acceptances or similar facilities issued for the account of such Person, (iv)
every obligation of such Person issued or assumed as the deferred purchase price
of property or services (including securities repurchase agreements but
excluding trade accounts payable or accrued liabilities arising in the ordinary
course of business which are not overdue or which are being contested in good
faith), (v) every Capital Lease Obligation of such Person, (vi) all Receivables
Sales of such Person, together with any obligation of such Person to pay any
discount, interest, fees, indemnities, penalties, recourse, expenses or other
amounts in connection therewith, (vii) all obligations to redeem Disqualified
Stock issued by such Person, (viii) every obligation under Interest Rate or
Currency Protection Agreements of such Person and (ix) every obligation of the
type referred to in clauses (i) through (viii) of another Person and all
dividends of another Person the payment of which, in either case, such Person
has Guaranteed. The "amount" or "principal amount" of Debt at any time of
determination as used herein represented by (a) any Debt issued at a price that
is less than the principal amount at maturity thereof, shall be the amount of
the liability in respect thereof determined in accordance with generally
accepted accounting principles, (b) any Receivables Sale, shall be the amount of
the unrecovered capital or principal investment of the purchaser (other than the
Company or a Wholly-Owned Restricted Subsidiary of the Company) thereof,
excluding amounts representative of yield or interest earned on such investment,
(c) any Disqualified Stock, shall be the maximum fixed redemption or repurchase
price in respect thereof, (d) any Capital Lease Obligation, shall be determined
in accordance with the definition thereof, or (e) any Permitted Interest Rate or
Currency Protection Agreement, shall be zero. In no event shall Debt include any
liability for taxes.
"Default" means an event that with the passing of time or the
giving of notice or both shall constitute an Event of Default.
"Defaulted Interest" has the meaning specified in Section 307.
"Depositary" means, with respect to the Securities issuable or
issued in whole or in part in the form of one or more Global Securities, DTC for
so long as it shall be a clearing agency registered under the Exchange Act, or
such successor (which shall be a clearing agency registered under the Exchange
Act) as the Company shall designate from time to time in an Officers'
Certificate delivered to the Trustee.
"Disqualified Stock" of any Person means any Capital Stock of
such Person (other than Capital Stock outstanding on the Issue Date) which, by
its terms (or by the terms of any security into which it is convertible or for
which it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable
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<PAGE> 20
at the option of the holder thereof, in whole or in part, on or prior to the
final Stated Maturity of the Securities; provided, however, that any Preferred
Stock which would not constitute Disqualified Stock but for provisions thereof
giving holders thereof the right to require the Company to repurchase or redeem
such Preferred Stock upon the occurrence of an asset sale or a Change of Control
occurring prior to the final Stated Maturity of the Securities shall not
constitute Disqualified Stock if the asset sale or change of control provisions
applicable to such Preferred Stock are no more favorable to the holders of such
Preferred Stock than the provisions applicable to the Securities contained in
Section 1013 or Section 1016 and such Preferred Stock specifically provides that
the Company will not repurchase or redeem any such stock pursuant to such
provisions prior to the Company's repurchase of such Securities as are required
to be repurchased pursuant to Section 1013 or Section 1016.
"DTC" means The Depository Trust Company.
"Eagle River" means Eagle River Investments, L.L.C., a limited
liability company formed under the laws of the State of Washington.
"Eligible Institution" means a commercial banking institution
that has combined capital and surplus of not less than $500 million or its
equivalent in foreign currency, whose debt is rated "A-3" or higher, "A" or
higher or "A" or higher according to Moody's Investors Service, Inc., Standard &
Poor's Ratings Group or Duff & Phelps Credit Rating Co. (or such similar
equivalent rating by at least one "nationally recognized statistical rating
organization" (as defined in Rule 436 under the Securities Act)) respectively,
at the time as of which any investment or rollover therein is made.
"Eligible Receivables" means, at any time, Receivables of the
Company and its Restricted Subsidiaries, as evidenced on the most recent
quarterly consolidated balance sheet of the Company as at a date at least 45
days prior to such time arising in the ordinary course of business of the
Company or any Restricted Subsidiary of the Company.
"Euroclear" means the Euroclear Clearance System (or any
successor securities clearing agency).
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended (or any successor act) and the rules and regulations thereunder.
"Exchange Offer" has the meaning set forth in the form of the
Securities contained in Section 202.
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<PAGE> 21
"Exchange Registration Statement" has the meaning set forth in
the form of the Securities contained in Section 202.
"Exchange Security" means any Security issued in exchange for an
Original Security or Original Securities pursuant to the Exchange Offer or
otherwise registered under the Securities Act and any Security with respect to
which the next preceding Predecessor Security of such Security was an Exchange
Security.
"Expiration Date" has the meaning set forth in the definition of
"Offer to Purchase" in this Section 101.
"Global Security" means a Security in the form prescribed in
Section 204 evidencing all or part of the Securities, issued to the Depositary
or its nominee, and registered in the name of such Depositary or its nominee.
"Government Securities" means direct obligations of, or
obligations guaranteed by, the United States of America for the payment of which
obligations or guarantee the full faith and credit of the United States is
pledged and which have a remaining weighted average life to maturity of not more
than 18 months from the date of Investment therein.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person guaranteeing, or having the economic effect of
guaranteeing, any Debt of any other Person (the "primary obligor") in any
manner, whether directly or indirectly, and including, without limitation, any
obligation of such Person, (i) to purchase or pay (or advance or supply funds
for the purchase or payment of) such Debt or to purchase (or to advance or
supply funds for the purchase of) any security for the payment of such Debt,
(ii) to purchase property, securities or services for the purpose of assuring
the holder of such Debt of the payment of such Debt, or (iii) to maintain
working capital, equity capital or other financial statement condition or
liquidity of the primary obligor so as to enable the primary obligor to pay such
Debt (and "Guaranteed", "Guaranteeing" and "Guarantor" shall have meanings
correlative to the foregoing); provided, however, that the Guarantee by any
Person shall not include endorsements by such Person for collection or deposit,
in either case, in the ordinary course of business; and provided, further, that
the incurrence by a Restricted Subsidiary of the Company of a lien permitted
under clause (iv) of the second paragraph of Section 1011 shall not be deemed to
constitute a Guarantee by such Restricted Subsidiary of any Purchase Money Debt
of the Company secured thereby.
"Holder" means a Person in whose name a Security is registered in
the Security Register.
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<PAGE> 22
"Incur" means, with respect to any Debt or other obligation of
any Person, to create, issue, incur (by conversion, exchange or otherwise),
assume, Guarantee or otherwise become liable in respect of such Debt or other
obligation including by acquisition of Subsidiaries or the recording, as
required pursuant to generally accepted accounting principles or otherwise, of
any such Debt or other obligation on the balance sheet of such Person (and
"Incurrence", "Incurred", "Incurrable" and "Incurring" shall have meanings
correlative to the foregoing); provided, however, that a change in generally
accepted accounting principles that results in an obligation of such Person that
exists at such time becoming Debt shall not be deemed an Incurrence of such Debt
and that neither the accrual of interest nor the accretion of original issue
discount shall be deemed an Incurrence of Debt; provided, further, however, that
the Company may elect to treat all or any portion of revolving credit debt of
the Company or a Subsidiary as being incurred from and after any date beginning
the date the revolving credit commitment is extended to the Company or a
Subsidiary, by furnishing notice thereof to the Trustee, and any borrowings or
reborrowings by the Company or a Subsidiary under such commitment up to the
amount of such commitment designated by the Company as Incurred shall not be
deemed to be new Incurrences of Debt by the Company or such Subsidiary.
"Indenture" means this instrument as originally executed or as it
may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Interest Payment Date" means the Stated Maturity of an
installment of interest on the Securities.
"Interest Rate or Currency Protection Agreement" of any Person
means any forward contract, futures contract, swap, option or other financial
agreement or arrangement (including, without limitation, caps, floors, collars
and similar agreements) relating to, or the value of which is dependent upon,
interest rates or currency exchange rates or indices.
"Investment" by any Person means any direct or indirect loan,
advance or other extension of credit or capital contribution (by means of
transfers of cash or other property to others or payments for property or
services for the account or use of others, or otherwise) to, or purchase or
acquisition of Capital Stock, bonds, notes, debentures or other securities or
evidence of Debt issued by, any other Person, including any payment on a
Guarantee of any obligation of such other Person, but excluding any loan,
advance or extension of credit to an employee of the Company or any of its
Restricted Subsidiaries in the ordinary course of business, accounts receivable
and other commercially reasonable extensions of trade credit.
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<PAGE> 23
"Issue Date" means the date on which the Securities are first
authenticated and delivered under this Indenture.
"Joint Venture" means a corporation, partnership or other entity
engaged in one or more Telecommunications Businesses as to which the Company
(directly or through one or more Restricted Subsidiaries) exercises managerial
control and in which the Company owns (i) a 50% or greater interest, or (ii) a
30% or greater interest, together with options or other contractual rights,
exercisable not more than seven years after the Company's initial Investment in
such Joint Venture, to increase its interest to not less than 50%.
"Lien" means, with respect to any property or assets, any
mortgage or deed of trust, pledge, hypothecation, assignment, Receivables Sale,
deposit arrangement, security interest, lien, charge, easement (other than any
easement not materially impairing usefulness or marketability), encumbrance,
preference, priority or other security agreement or preferential arrangement of
any kind or nature whatsoever on or with respect to such property or assets
(including, without limitation, any conditional sale or other title retention
agreement having substantially the same economic effect as any of the
foregoing).
"Marketable Securities" means: (i) Government Securities; (ii)
any time deposit account, money market deposit and certificate of deposit
maturing not more than 365 days after the date of acquisition issued by, or time
deposit of, an Eligible Institution; (iii) commercial paper maturing not more
than 365 days after the date of acquisition issued by a corporation (other than
an Affiliate of the Company) with a rating, at the time as of which any
investment therein is made, of "P-1" or higher according to Moody's Investors
Service, Inc., "A-1" or higher according to Standard & Poor's Ratings Group or
"A-1" or higher according to Duff & Phelps Credit Rating Co. (or such similar
equivalent rating by at least one "nationally recognized statistical rating
organization" (as defined in Rule 436 under the Securities Act)); (iv) any
banker's acceptances or money market deposit accounts issued or offered by an
Eligible Institution; (v) repurchase obligations with a term of not more than 7
days for Government Securities entered into with an Eligible Institution; (vi)
auction-rate preferred stocks of any corporation maturing within 90 days after
the date of acquisition by the Company thereof, having a rating of at least AA
by Standard & Poor's; and (vii) any fund investing exclusively in investments of
the types described in clauses (i) through (vi) above.
"Maturity", when used with respect to any Security, means the
date on which the principal of such Security becomes due and payable as therein
or herein provided, whether at the Stated Maturity or by declaration of
acceleration, call for redemption or otherwise.
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<PAGE> 24
"Net Available Proceeds" from any Asset Disposition by any Person
means cash or readily marketable cash equivalents received (including by way of
sale or discounting of a note, installment receivable or other receivable, but
excluding any other consideration received in the form of assumption by the
acquiror of Debt or other obligations relating to such properties or assets)
therefrom by such Person, net of (i) all legal, title and recording tax
expenses, commissions and other fees and expenses Incurred and all federal,
state, provincial, foreign and local taxes (including taxes payable upon payment
or other distribution of funds from a foreign subsidiary to the Company or
another subsidiary of the Company) required to be accrued as a liability as a
consequence of such Asset Disposition, (ii) all payments made by such Person or
its Restricted Subsidiaries on any Debt which is secured by such assets in
accordance with the terms of any Lien upon or with respect to such assets or
which must by the terms of such Lien, or in order to obtain a necessary consent
to such Asset Disposition or by applicable law, be repaid out of the proceeds
from such Asset Disposition, (iii) all distributions and other payments made to
minority interest holders in Restricted Subsidiaries of such Person or joint
ventures as a result of such Asset Disposition, (iv) appropriate amounts to be
provided by such Person or any Restricted Subsidiary thereof, as the case may
be, as a reserve in accordance with generally accepted accounting principles
against any liabilities associated with such assets and retained by such Person
or any Restricted Subsidiary thereof, as the case may be, after such Asset
Disposition, including, without limitation, liabilities under any
indemnification obligations and severance and other employee termination costs
associated with such Asset Disposition, in each case as determined by the Board
of Directors, in its reasonable good faith judgment evidenced by a Board
Resolution filed with the Trustee; provided, however, that any reduction in such
reserve within twelve months following the consummation of such Asset
Disposition will be treated for all purposes of this Indenture and the
Securities as a new Asset Disposition at the time of such reduction with Net
Available Proceeds equal to the amount of such reduction, and (v) any
consideration for an Asset Disposition (which would otherwise constitute Net
Available Proceeds) that is required to be held in escrow pending determination
of whether a purchase price adjustment will be made, but amounts under this
clause (v) shall become Net Available Proceeds at such time and to the extent
such amounts are released to such Person.
"Offer to Purchase" means a written offer (the "Offer") sent by
the Company by first class mail, postage prepaid, to each Holder at his address
appearing in the Security Register on the date of the Offer offering to purchase
up to the principal amount of Securities specified in such Offer at the purchase
price specified in such Offer (as determined pursuant to this Indenture). Unless
otherwise required by applicable law, the Offer shall specify an expiration date
(the "Expiration Date") of the Offer to Purchase which shall be, subject to any
contrary requirements of applicable law, not less than 30 days or more than 60
days after the date of such Offer and a settlement date (the "Purchase Date")
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<PAGE> 25
for purchase of Securities within five Business Days after the Expiration Date.
The Company shall notify the Trustee at least 15 Business Days (or such shorter
period as is acceptable to the Trustee) prior to the mailing of the Offer of the
Company's obligation to make an Offer to Purchase, and the Offer shall be mailed
by the Company or, at the Company's request, by the Trustee in the name and at
the expense of the Company. The Offer shall contain information concerning the
business of the Company and its Subsidiaries which the Company in good faith
believes will enable such Holders to make an informed decision with respect to
the Offer to Purchase (which at a minimum will include (i) the most recent
annual and quarterly financial statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained in the
documents required to be filed with the Trustee pursuant to this Indenture
(which requirements may be satisfied by delivery of such documents together with
the Offer), (ii) a description of material developments in the Company's
business subsequent to the date of the latest of such financial statements
referred to in clause (i) (including a description of the events requiring the
Company to make the Offer to Purchase), (iii) if applicable, appropriate pro
forma financial information concerning the Offer to Purchase and the events
requiring the Company to make the Offer to Purchase and (iv) any other
information required by applicable law to be included therein). The Offer shall
contain all instructions and materials necessary to enable such Holders to
tender Securities pursuant to the Offer to Purchase. The Offer shall also state:
(a) the Section of this Indenture pursuant to which the Offer to
Purchase is being made;
(b) the Expiration Date and the Purchase Date;
(c) the aggregate principal amount of the Outstanding Securities
offered to be purchased by the Company pursuant to the Offer to Purchase
(including, if less than 100%, the manner by which such has been
determined pursuant to Section 1013 or 1016) (the "Purchase Amount");
(d) the purchase price to be paid by the Company for each $1,000
aggregate principal amount of Securities accepted for payment (as
specified pursuant to this Indenture) (the "Purchase Price");
(e) that the Holder may tender all or any portion of the
Securities registered in the name of such Holder and that any portion of
a Security tendered must be tendered in an integral multiple of $1,000
principal amount;
(f) the place or places where Securities are to be surrendered
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<PAGE> 26
for tender pursuant to the Offer to Purchase;
(g) that interest on any Security not tendered or tendered but
not purchased by the Company pursuant to the Offer to Purchase will
continue to accrue;
(h) that on the Purchase Date the Purchase Price will become due
and payable upon each Security being accepted for payment pursuant to
the Offer to Purchase and that interest thereon shall cease to accrue on
and after the Purchase Date;
(i) that each Holder electing to tender a Security pursuant to
the Offer to Purchase will be required to surrender such Security at the
place or places specified in the Offer prior to the close of business on
the Expiration Date (such Security being, if the Company or the Trustee
so requires, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Company and the Trustee duly
executed by, the Holder thereof or his attorney duly authorized in
writing);
(j) that Holders will be entitled to withdraw all or any portion
of Securities tendered if the Company (or its Paying Agent) receives,
not later than the close of business on the Expiration Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of the Security the Holder tendered, the
certificate number of the Security the Holder tendered and a statement
that such Holder is withdrawing all or a portion of his tender;
(k) that (a) if Securities in an aggregate principal amount less
than or equal to the Purchase Amount are duly tendered and not withdrawn
pursuant to the Offer to Purchase, the Company shall purchase all such
Securities and (b) if Securities in an aggregate principal amount in
excess of the Purchase Amount are tendered and not withdrawn pursuant to
the Offer to Purchase, the Company shall purchase Securities having an
aggregate principal amount equal to the Purchase Amount on a pro rata
basis (with such adjustments as may be deemed appropriate so that only
Securities in denominations of $1,000 or integral multiples thereof
shall be purchased);
(l) that in the case of any Holder whose Security is purchased
only in part, the Company shall execute, and the Trustee shall
authenticate and deliver to the Holder of such Security without service
charge, a new Security or Securities, of any authorized denomination as
requested by such Holder, in an aggregate principal amount equal to and
in exchange for the unpurchased portion of the Security so tendered; and
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<PAGE> 27
(m) the CUSIP number or numbers of the Securities offered to be
purchased by the Company pursuant to the Offer to Purchase.
Any Offer to Purchase shall be governed by and effected in accordance with the
Offer for such Offer to Purchase.
"Officers' Certificate" means a certificate signed by (i) the
Chief Executive Officer, President, an Executive Vice President or a Vice
President, and (ii) the Treasurer, Assistant Treasurer, Secretary or an
Assistant Secretary, of the Company, and delivered to the Trustee and containing
the statements provided for in Section 102. One of the officers signing an
Officers' Certificate given pursuant to Section 1018 shall be the principal
executive, financial or accounting officer of the Company.
"Opinion of Counsel" means a written opinion of legal counsel,
who may be counsel for the Company, and who shall be acceptable to the Trustee,
and containing the statements provided for in Section 102.
"Original Securities" means all Securities other than Exchange
Securities.
"Outstanding", when used with respect to Securities, means, as of
the date of determination, all Securities theretofore authenticated and
delivered under this Indenture, except:
(i) Securities theretofore cancelled by the Trustee or
delivered to the Trustee for cancellation;
(ii) Securities for whose payment or redemption money in the
necessary amount has been theretofore deposited with the Trustee or any
Paying Agent (other than the Company) in trust or set aside and
segregated in trust by the Company (if the Company shall act as its own
Paying Agent) for the Holders of such Securities; provided that, if such
Securities are to be redeemed, notice of such redemption has been duly
given pursuant to this Indenture; and
(iii) Securities which have been paid pursuant to Section 306 or
in exchange for or in lieu of which other Securities have been
authenticated and delivered pursuant to this Indenture, other than any
such Securities in respect of which there shall have been presented to
the Trustee proof satisfactory to it that such Securities are held by a
bona fide purchaser in whose hands such Securities are valid obligations
of the Company;
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<PAGE> 28
provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities owned
by the Company or any other obligor upon the Securities or any Affiliate of the
Company or of such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Securities which the Trustee knows to be so owned shall
be so disregarded. Securities so owned which have been pledged in good faith may
be regarded as Outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Securities and that
the pledgee is not the Company or any other obligor upon the Securities or any
Affiliate of the Company or of such other obligor.
"Paying Agent" means any Person authorized by the Company to pay
the principal of (and premium, if any) or interest on any Securities on behalf
of the Company. The Trustee is hereby authorized by the Company to act as a
"Paying Agent" for the purposes of this Indenture, until such time as the
Company notifies the Trustee in writing that such authorization is revoked.
"Permitted Interest Rate or Currency Protection Agreement" of any
Person means any Interest Rate or Currency Protection Agreement entered into
with one or more financial institutions in the ordinary course of business that
is designed to protect such Person against fluctuations in interest rates or
currency exchange rates with respect to Debt Incurred and which shall have a
notional amount no greater than the payments due with respect to the Debt being
hedged thereby and not for purposes of speculation.
"Permitted Investment" means (i) any Investment in a Joint
Venture (including the purchase or acquisition of any Capital Stock of a Joint
Venture), provided the aggregate amount of all outstanding Investments pursuant
to this clause (i) in Joint Ventures in which the Company owns, directly or
indirectly, a less than 50% interest shall not exceed $25 million, (ii) any
Investment in any Person as a result of which such Person becomes a Restricted
Subsidiary, or, subject to the proviso to clause (i) of this definition, becomes
a Joint Venture of the Company, (iii) any Investment in Marketable Securities,
(iv) Investments in Permitted Interest Rate or Currency Protection Agreements,
(v) Investments made as a result of the receipt of noncash consideration from an
Asset Disposition that was made pursuant to and in compliance with Section 1013
of this Indenture and (vi) other Investments in an aggregate amount not to
exceed the aggregate net proceeds received by the Company or any Restricted
Subsidiary after the date of this Indenture from the sale or liquidation of any
Unrestricted Subsidiary or any interest therein (except to the extent that any
such amount is included in the calculation of Consolidated Net Income).
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<PAGE> 29
"Permitted Liens" means (a) Liens for taxes, assessments,
governmental charges or claims which are not yet delinquent or which are being
contested in good faith by appropriate proceedings, if a reserve or other
appropriate provision, if any, as shall be required in conformity with generally
accepted accounting principles shall have been made therefor; (b) other Liens
incidental to the conduct of the Company's and its Restricted Subsidiaries'
business or the ownership of its property and assets not securing any Debt, and
which do not in the aggregate materially detract from the value of the Company's
and its Restricted Subsidiaries' property or assets when taken as a whole, or
materially impair the use thereof in the operation of its business; (c) Liens
with respect to assets of a Restricted Subsidiary granted by such Restricted
Subsidiary to the Company to secure Debt owing to the Company; (d) pledges and
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of statutory obligations
(including to secure government contracts); (e) deposits made to secure the
performance of tenders, bids, leases, and other obligations of like nature
incurred in the ordinary course of business (exclusive of obligations for the
payment of borrowed money); (f) zoning restrictions, servitudes, easements,
rights-of-way, restrictions and other similar charges or encumbrances incurred
in the ordinary course of business which, in the aggregate, do not materially
detract from the value of the property subject thereto or interfere with the
ordinary conduct of the business of the Company or its Restricted Subsidiaries;
(g) Liens arising out of judgments or awards against the Company or any
Restricted Subsidiary with respect to which the Company or such Restricted
Subsidiary is prosecuting an appeal or proceeding for review and the Company or
such Restricted Subsidiary is maintaining adequate reserves in accordance with
generally accepted accounting principles; (h) any interest or title of a lessor
in the property subject to any lease other than a Capital Lease; and (i) any
statutory warehousemen's, materialmen's or other similar Liens for sums not then
due and payable (or which, if due and payable, are being contested in good faith
and with respect to which adequate reserves are being maintained to the extent
required by generally accepted accounting principles).
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint stock company, trust,
unincorporated organization, government or agency or political subdivision
thereof or any other entity.
"Predecessor Security" of any particular Security means every
previous Security issued before, and evidencing all or a portion of the same
debt as that evidenced by, such particular Security; and, for the purposes of
this definition, any Security authenticated and delivered under Section 306 in
exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall
be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen
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<PAGE> 30
Security.
"Preferred Dividends" for any Person means for any period the
quotient determined by dividing the amount of dividends and distributions paid
or accrued (whether or not declared) on Preferred Stock of such Person during
such period calculated in accordance with generally accepted accounting
principles, by 1 minus the maximum statutory income tax rate then applicable to
the Company (expressed as a decimal).
"Preferred Stock" of any Person means Capital Stock of such
Person of any class or classes (however designated) that ranks prior, as to the
payment of dividends or as to the distribution of assets upon any voluntary or
involuntary liquidation, dissolution or winding up of such Person, to shares of
Capital Stock of any other class of such Person.
"Purchase Agreement" means the Purchase Agreement, dated as of
February 26, 1998, between the Company and the Purchasers, as such agreement may
be amended from time to time.
"Purchase Date" has the meaning set forth in the definition of
"Offer to Purchase" in this Section 101.
"Purchase Money Debt" means (i) Acquired Debt Incurred in
connection with the acquisition of Telecommunications Assets and (ii) Debt of
the Company or of any Restricted Subsidiary of the Company (including, without
limitation, Debt represented by Bank Credit Agreements, Capital Lease
Obligations, Vendor Financing Facilities, mortgage financings and purchase money
obligations) Incurred for the purpose of financing all or any part of the cost
of construction, acquisition or improvement by the Company or any Restricted
Subsidiary of the Company or any Joint Venture of any Telecommunications Assets
of the Company, any Restricted Subsidiary of the Company or any Joint Venture,
and including any related notes, Guarantees, collateral documents, instruments
and agreements executed in connection therewith, as the same may be amended,
supplemented, modified or restated from time to time.
"Purchasers" means Salomon Brothers Inc and TD Securities (USA)
Inc.
"readily marketable cash equivalents" means (i) marketable
securities issued or directly and unconditionally guaranteed by the United
States Government or issued by any agency thereof and backed by the full faith
and credit of the United States; (ii) marketable direct obligations issued by
any state of the United States of America or any political subdivision of any
such state or any public instrumentality thereof and, at the time of
acquisition, having the
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highest rating obtainable from either Standard & Poor's Rating Group or Moody's
Investors Service, Inc.; (iii) commercial paper maturing no more than 180 days
from the date of acquisition thereof and, at the time of acquisition, having a
rating of P-1 according to Moody's Investors Service, Inc., "A-1" or higher
according to Standard & Poor's Ratings Group or "A-1" or higher according to
Duff & Phelps Credit Rating Co. (or such similar equivalent rating by at least
one "nationally recognized statistical rating organization" (as defined in Rule
436 under the Securities Act)); and (iv) certificates of deposit or bankers'
acceptance maturing within one year from the date of acquisition thereof issued
by any commercial bank organized under the laws of the United States of America
or any state thereof or the District of Columbia having unimpaired capital and
surplus of not less than $100,000,000.
"Receivables" means receivables, chattel paper, instruments,
documents or intangibles evidencing or relating to the right to payment of money
in respect of the sale of goods or services.
"Receivables Sale" of any Person means any sale of Receivables of
such Person (pursuant to a purchase facility or otherwise), other than in
connection with a disposition of the business operations of such Person relating
thereto or a disposition of defaulted Receivables for purpose of collection and
not as a financing arrangement.
"Redemption Date", when used with respect to any Security to be
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.
"Redemption Price", when used with respect to any Security to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Registered Securities" means the Exchange Securities and all
other Securities sold or otherwise disposed of pursuant to an effective
registration statement under the Securities Act, together with their respective
Successor Securities.
"Regular Record Date" for the interest payable on any Interest
Payment Date means the March 1 or September 1 (whether or not a Business Day),
as the case may be, next preceding such Interest Payment Date.
"Regulation S" means Regulation S under the Securities Act (or
any successor provision), as it may be amended from time to time.
"Regulation S Certificate" means a certificate substantially in
the
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form set forth in Annex A.
"Regulation S Global Security" has the meaning specified in
Section 201.
"Regulation S Legend" means a legend substantially in the form of
the legend required in the form of Security set forth in Section 202 to be
placed upon each Regulation S Security.
"Regulation S Securities" means all Securities required pursuant
to Section 305(c) to bear a Regulation S Legend. Such term includes the
Regulation S Global Security.
"Related Person" of any Person means any other Person directly or
indirectly owning (a) 10% or more of the Outstanding Common Equity of such
Person (or, in the case of a Person that is not a corporation, 10% or more of
the equity interest in such Person) or (b) 10% or more of the combined voting
power of the Voting Stock of such Person.
"Resale Registration Statement" has the meaning set forth in the
Form of the Securities contained in Section 202.
"Responsible Officer", when used with respect to the Trustee,
means the chairman or any vice-chairman of the board of directors, the chairman
or any vice-chairman of the executive committee of the board of directors, the
chairman of the trust committee, the president, any vice president, the
secretary, any assistant secretary, the treasurer, any assistant treasurer, the
cashier, any assistant cashier, any trust officer or assistant trust officer,
the controller or any assistant controller or any other officer of the Trustee
customarily performing functions similar to those performed by any of the above
designated officers and also means, with respect to a particular corporate trust
matter, any other officer to whom such matter is referred because of his
knowledge of and familiarity with the particular subject.
"Restricted Global Security" has the meaning specified in Section
201.
"Restricted Period" means the period of 41 consecutive days
beginning on and including the later of (i) the day on which Securities are
first offered to persons other than distributors (as defined in Regulation S) in
reliance on Regulation S and (ii) the original issuance date of the Securities.
"Restricted Securities" means all Securities required pursuant to
Section 305(c) to bear any Restricted Securities Legend. Such term includes the
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Restricted Global Security.
"Restricted Securities Certificate" means a certificate
substantially in the form set forth in Annex B.
"Restricted Securities Legend" means, collectively, the legends
substantially in the forms of the legends required in the form of Security set
forth in Section 202 to be placed upon each Restricted Security.
"Restricted Subsidiary" of the Company means any Subsidiary,
whether existing on or after the date of this Indenture, unless such Subsidiary
is an Unrestricted Subsidiary.
"Rule 144A" means Rule 144A under the Securities Act (or any
successor provision), as it may be amended from time to time.
"Rule 144A Securities" means the Securities purchased by the
Purchasers from the Company pursuant to the Purchase Agreement, other than the
Regulation S Securities.
"Sale and Leaseback Transaction" of any Person means an
arrangement with any lender or investor or to which such lender or investor is a
party providing for the leasing by such Person of any property or asset of such
Person which has been or is being sold or transferred by such Person more than
365 days after the acquisition thereof or the completion of construction or
commencement of operation thereof to such lender or investor or to any person to
whom funds have been or are to be advanced by such lender or investor on the
security of such property or asset. The stated maturity of such arrangement
shall be the date of the last payment of rent or any other amount due under such
arrangement prior to the first date on which such arrangement may be terminated
by the lessee without payment of a penalty.
"SEC Reports" has the meaning specified in Section 704.
"Securities" means the Exchange Securities and the Original
Securities.
"Securities Act" means the Securities Act of 1933 and any statute
successor thereto, in each case as amended from time to time.
"Securities Act Legend" means a Restricted Securities Legend or a
Regulation S Legend.
"Security Register" and "Security Registrar" have the respective
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meanings specified in Section 305(b).
"Significant Subsidiary" means a Restricted Subsidiary that is a
"significant subsidiary" as defined in Rule 1-02(w) of Regulation S-X under the
Securities Act and the Exchange Act.
"Special Record Date" for the payment of any Defaulted Interest
means a date fixed by the Trustee pursuant to Section 307.
"Stated Maturity", when used with respect to any Security or any
installment of interest thereon, means the date specified in such Security as
the fixed date on which the principal of such Security or such installment of
interest, as the case may be, is due and payable.
"Step-Down Date" has the meaning set forth in the form of the
Security contained in Section 202.
"Step-Up" has the meaning set forth in the form of the Security
contained in Section 202.
"Subordinated Debt" means Debt of the Company as to which the
payment of principal of (and premium, if any) and interest and other payment
obligations in respect of such Debt shall be subordinate to the prior payment in
full of the Securities to at least the following extent: (i) no payments of
principal of (or premium, if any) or interest on or otherwise due in respect of
such Debt may be permitted for so long as any default in the payment of
principal (or premium, if any) or interest on the Securities exists; (ii) in the
event that any other default that with the passing of time or the giving of
notice, or both, would constitute an Event of Default exists with respect to the
Securities, upon notice by 25% or more in principal amount of the Securities to
the Trustee, the Trustee shall have the right to give notice to the Company and
the holders of such Debt (or trustees or agents therefor) of a payment blockage,
and thereafter no payments of principal of (or premium, if any) or interest on
or otherwise due in respect of such Debt may be made for a period of 179 days
from the date of such notice or for the period until such default has been cured
or waived or ceased to exist and any acceleration of the Securities has been
rescinded or annulled, whichever period is shorter (which Debt may provide that
(A) no new period of payment blockage may be commenced by a payment blockage
notice unless and until 360 days have elapsed since the effectiveness of the
immediately prior notice, (B) no nonpayment default that existed or was
continuing on the date of delivery of any payment blockage notice to such
holders (or such agents or trustees) shall be, or be made, the basis for a
subsequent payment blockage notice and (C) failure of the Company to make
payment on such Debt when due or within any applicable grace period, whether or
not on account of such payment blockage provisions, shall constitute an event
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of default thereunder); and (iii) such Debt may not (x) provide for payments of
principal of such Debt at the stated maturity thereof or by way of a sinking
fund applicable thereto or by way of any mandatory redemption, defeasance,
retirement or repurchase thereof by the Company (including any redemption,
retirement or repurchase which is contingent upon events or circumstances, but
excluding any retirement required by virtue of acceleration of such Debt upon an
event of default thereunder), in each case prior to the final Stated Maturity of
the Securities or (y) permit redemption or other retirement (including pursuant
to an offer to purchase made by the Company) of such other Debt at the option of
the holder thereof prior to the final Stated Maturity of the Securities, other
than a redemption or other retirement at the option of the holder of such Debt
(including pursuant to an offer to purchase made by the Company) which is
conditioned upon a change of control of the Company pursuant to provisions
substantially similar to those of Section 1016 (and which shall provide that
such Debt will not be repurchased pursuant to such provisions prior to the
Company's repurchase of the Securities required to be repurchased by the Company
pursuant to the provisions of Section 1016.
"Subsidiary" of any Person means (i) a corporation more than 50%
of the combined voting power of the outstanding Voting Stock of which is owned,
directly or indirectly, by such Person or by one or more other Subsidiaries of
such Person or by such Person and one or more Subsidiaries thereof or (ii) any
other Person (other than a corporation) in which such Person, or one or more
other Subsidiaries of such Person or such Person and one or more other
Subsidiaries thereof, directly or indirectly, has at least a majority ownership
and power to direct the policies, management and affairs thereof.
"Successor Security" of any particular Security means every
Security issued after, and evidencing all or a portion of the same debt as that
evidenced by, such particular Security; and, for the purposes of this
definition, any Security authenticated and delivered under Section 306 in
exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall
be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen
Security.
"Telecommunications Assets" means all assets, rights (contractual
or otherwise) and properties, whether tangible or intangible, used or intended
for use in connection with a Telecommunications Business.
"Telecommunications Business" means the business of (i)
transmitting, or providing services relating to the transmission of, voice,
video or data through owned or leased transmission facilities, (ii) creating,
developing or marketing communications related network equipment, software and
other devices for use in a Telecommunication Business or (iii) evaluating,
participating or pursuing any other activity or opportunity that is primarily
related to those
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identified in (i) or (ii) above and shall, in any event, include all businesses
in which the Company or any of its Subsidiaries are engaged on the Issue Date;
provided that the determination of what constitutes a Telecommunications
Business shall be made in good faith by the Board of Directors, which
determination shall be conclusive.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in
force at the date as of which this instrument was executed; provided, however,
that in the event the Trust Indenture Act of 1939 is amended after such date,
"Trust Indenture Act" means, to the extent required by any such amendment, the
Trust Indenture Act of 1939 as so amended.
"Unrestricted Securities Certificate" means a certificate
substantially in the form set forth in Annex C.
"Unrestricted Subsidiary" means (1) any Subsidiary of the Company
designated as such by the Board of Directors as set forth below where (a)
neither the Company nor any of its other Subsidiaries (other than another
Unrestricted Subsidiary) (i) provides credit support for, or Guarantee of, any
Debt of such Subsidiary or any Subsidiary of such Subsidiary (including any
undertaking, agreement or instrument evidencing such Debt) or (ii) is directly
or indirectly liable for any Debt of such Subsidiary or any Subsidiary of such
Subsidiary, and (b) no default with respect to any Debt of such Subsidiary or
any Subsidiary of such Subsidiary (including any right which the holders thereof
may have to take enforcement action against such Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Debt of the Company and
its Restricted Subsidiaries to declare a default on such other Debt or cause the
payment thereof to be accelerated or payable prior to its final scheduled
maturity and (2) any Subsidiary of an Unrestricted Subsidiary. The Board of
Directors may designate any Subsidiary to be an Unrestricted Subsidiary unless
such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any
property of, any other Subsidiary of the Company which is not a Subsidiary of
the Subsidiary to be so designated or otherwise an Unrestricted Subsidiary,
provided that either (x) the Subsidiary to be so designated has total assets of
$1,000 or less or (y) immediately after giving effect to such designation, the
Company could Incur at least $1.00 of additional Debt pursuant to the first
paragraph of Section 1007 and provided, further, that the Company could make a
Restricted Payment in an amount equal to the greater of the fair market value
and the book value of such Subsidiary pursuant to Section 1009 and such amount
is thereafter treated as a Restricted Payment for the purpose of calculating the
aggregate
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amount available for Restricted Payments thereunder. The Board of Directors may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary, provided
that if such Unrestricted Subsidiary has Debt outstanding at such time, either
(a) immediately after giving effect to such designation, the Company could Incur
at least $1.00 of additional Debt pursuant to the first paragraph of Section
1007 or (b) the Company or such Restricted Subsidiary could Incur such Debt
hereunder (other than as Acquired Debt).
"Vendor Financing Facility" means any agreements between the
Company or a Restricted Subsidiary of the Company and one or more vendors or
lessors of equipment to the Company or any of its Restricted Subsidiaries (or
any affiliate of any such vendor or lessor) providing financing for the
acquisition by the Company or any such Restricted Subsidiary of equipment from
any such vendor or lessor.
"Vice President", when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president".
"Voting Stock" of any Person means Capital Stock of such Person
which ordinarily has voting power for the election of directors (or persons
performing similar functions) of such Person, whether at all times or only so
long as no senior class of securities has such voting power by reason of any
contingency.
"Wholly-Owned Restricted Subsidiary" of any Person means a
Restricted Subsidiary of such Person 99% or more of the outstanding Capital
Stock or other ownership interests of which (other than directors' qualifying
shares) shall at the time be owned by such Person or by one or more Wholly-Owned
Restricted Subsidiaries of such Person or by such Person and one or more
Wholly-Owned Restricted Subsidiaries of such Person.
SECTION 102. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee to
take any action under any provision of this Indenture, the Company shall furnish
to the Trustee such certificates and opinions as may be required under the Trust
Indenture Act and under this Indenture. Each such certificate or opinion shall
be given in the form of an Officers' Certificate, if to be given by an officer
of the Company, or an Opinion of Counsel, if to be given by counsel, and shall
comply with the requirements of the Trust Indenture Act and any other
requirement set forth in this Indenture.
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Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he
has made such examination or investigation as is necessary to enable him
to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified
by, or covered by an opinion of, any specified Person, it is not necessary that
all such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate of an officer of the Company may be based,
insofar as it relates to legal matters, upon an opinion of counsel submitted
therewith, unless such officer knows, or in the exercise of reasonable care
should know, that the opinion with respect to the matters upon which his
certificate is based is erroneous. Any opinion of counsel may be based, insofar
as it relates to factual matters, upon a certificate of an officer or officers
of the Company submitted therewith stating the information on which counsel is
relying, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate with respect to such matters is erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
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SECTION 104. Acts of Holders; Record Dates.
Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to Section 601) conclusive in favor of the Trustee and
the Company, if made in the manner provided in this Section.
The fact and date of the execution by any Person of any such
instrument or writing pursuant to this Section 104 may be proved by the
affidavit of a witness of such execution or by a certificate of a notary public
or other officer authorized by law to take acknowledgments of deeds, certifying
that the individual signing such instrument or writing acknowledged to him the
execution thereof. Where such execution is by a signer acting in a capacity
other than his individual capacity, such certificate or affidavit shall also
constitute sufficient proof of his authority. The fact and date of the execution
of any such instrument or writing, or the authority of the Person executing the
same, may also be proved in any other manner which the Trustee deems sufficient.
The ownership of Securities shall be proved by the Security
Register.
Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Security shall bind every future Holder
of the same Security and the Holder of every Security issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Trustee or the
Company in reliance thereon, whether or not notation of such action is made upon
such Security.
The Company may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities entitled to give, make or take
any request, demand, authorization, direction, notice, consent, waiver or other
action provided or permitted by this Indenture to be given, made or taken by
Holders of Securities, provided that the Company may not set a record date for,
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and the provisions of this paragraph shall not apply with respect to, the giving
or making of any notice, declaration, request or direction referred to in the
next paragraph. If not set by the Company prior to the first solicitation of a
Holder made by any Person in respect of any such matter referred to in the
foregoing sentence, the record date for any such matter shall be the 30th day
(or, if later, the date of the most recent list of Holders required to be
provided pursuant to Section 701) prior to such first solicitation. If any
record date is set pursuant to this paragraph, the Holders of Outstanding
Securities on such record date, and no other Holders, shall be entitled to take
the relevant action, whether or not such Holders remain Holders after such
record date; provided that no such action shall be effective hereunder unless
taken on or prior to the applicable Expiration Date by Holders of the requisite
principal amount of Outstanding Securities on such record date. Nothing in this
paragraph shall be construed to prevent the Company from setting a new record
date for any action for which a record date has previously been set pursuant to
this paragraph (whereupon the record date previously set shall automatically and
with no action by any Person be cancelled and of no effect), and nothing in this
paragraph shall be construed to render ineffective any action taken by Holders
of the requisite principal amount of Outstanding Securities on the date such
action is taken. Promptly after any record date is set pursuant to this
paragraph, the Company, at its own expense, shall cause notice of such record
date, the proposed action by Holders and the applicable Expiration Date to be
given to the Trustee in writing and to each Holder of Securities in the manner
set forth in Section 106.
The Trustee may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities entitled to join in the giving
or making of (i) any Notice of Default, (ii) any declaration of acceleration
referred to in Section 502, (iii) any request to institute proceedings referred
to in Section 507(2) or (iv) any direction referred to in Section 512. If any
record date is set pursuant to this paragraph, the Holders of Outstanding
Securities on such record date, and no other Holders, shall be entitled to join
in such notice, declaration, request or direction, whether or not such Holders
remain Holders after such record date; provided that no such action shall be
effective hereunder unless taken on or prior to the applicable Expiration Date
by Holders of the requisite principal amount of Outstanding Securities on such
record date. Nothing in this paragraph shall be construed to prevent the Trustee
from setting a new record date for any action for which a record date has
previously been set pursuant to this paragraph (whereupon the record date
previously set shall automatically and with no action by any Person be cancelled
and of no effect), and nothing in this paragraph shall be construed to render
ineffective any action taken by Holders of the requisite principal amount of
Outstanding Securities on the date such action is taken. Promptly after any
record date is set pursuant to this paragraph, the Trustee, at the Company's
expense, shall cause notice of such record date, the proposed action by Holders
and the applicable Expiration Date to be given to the Company in writing and to
each Holder of Securities in the manner set forth in
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Section 106.
With respect to any record date set pursuant to this Section, the
party hereto which sets such record dates may designate any day as the
"Expiration Date" and from time to time may change the Expiration Date to any
earlier or later day; provided that no such change shall be effective unless
notice of the proposed new Expiration Date is given to the other party hereto in
writing, and to each Holder of Securities in the manner set forth in Section
106, on or prior to the existing Expiration Date. If an Expiration Date is not
designated with respect to any record date set pursuant to this Section, the
party hereto which set such record date shall be deemed to have initially
designated the 180th day after such record date as the Expiration Date with
respect thereto, subject to its right to change the Expiration Date as provided
in this paragraph. Notwithstanding the foregoing, no Expiration Date shall be
later than the 180th day after the applicable record date.
Without limiting the foregoing, a Holder entitled hereunder to
take any action hereunder with regard to any particular Security may do so with
regard to all or any part of the principal amount of such Security or by one or
more duly appointed agents each of which may do so pursuant to such appointment
with regard to all or any part of such principal amount.
SECTION 105. Notices, Etc., to Trustee and Company.
Any request, demand, authorization, direction, notice, consent,
waiver or Act of Holders or other document provided or permitted by this
Indenture to be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be
sufficient for every purpose hereunder if delivered in writing to the
Trustee at its Corporate Trust Office, Attention: Corporate Trust
Administration, or
(2) the Company by the Trustee or by any Holder shall be
sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage
prepaid, to the Company addressed to the Company at the address of its
principal office specified in the first paragraph of this instrument or
at any other address previously furnished in writing to the Trustee by
the Company.
SECTION 106. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any event,
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such notice shall be sufficiently given (unless otherwise herein expressly
provided) if (i) in the case of a Global Security, in writing by facsimile
and/or by overnight mail to the Depositary, and (ii) in the case of securities
other than Global Securities, in writing and mailed, first-class postage
prepaid, to each Holder affected by such event, at his address as it appears in
the Security Register, not later than the latest date (if any), and not earlier
than the earliest date (if any), prescribed for the giving of such notice. In
any case where notice to Holders is given by mail, neither the failure to mail
such notice, nor any defect in any notice so mailed, to any particular Holder
shall affect the sufficiency of such notice with respect to other Holders. Where
this Indenture provides for notice in any manner, such notice may be waived in
writing by the Person entitled to receive such notice, either before or after
the event, and such waiver shall be the equivalent of such notice. Waivers of
notice by Holders shall be filed with the Trustee, but such filing shall not be
a condition precedent to the validity of any action taken in reliance upon such
waiver.
In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice by mail,
then such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.
SECTION 107. Application of Trust Indenture Act.
The Trust Indenture Act shall apply as a matter of contract to
this Indenture for purposes of interpretation, construction and defining the
rights and obligations hereunder. If any provision hereof limits, qualifies or
conflicts with a provision of the Trust Indenture Act that is required under
such Act to be a part of and govern this Indenture, the latter provision shall
control. If any provision of this Indenture modifies or excludes any provision
of the Trust Indenture Act that may be so modified or excluded, the latter
provision shall be deemed to apply to this Indenture as so modified or to be
excluded, as the case may be.
SECTION 108. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents
are for convenience only and shall not affect the construction hereof.
SECTION 109. Successors and Assigns.
All covenants and agreements in this Indenture by the Company
shall bind its successors and assigns, whether so expressed or not.
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SECTION 110. Separability Clause.
In case any provision in this Indenture or in the Securities
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
SECTION 111. Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or
implied, shall give to any Person, other than the parties hereto and their
successors hereunder and the Holders of Securities, any benefit or any legal or
equitable right, remedy or claim under this Indenture.
SECTION 112. Governing Law.
This Indenture and the Securities shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 113. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date,
Purchase Date or Stated Maturity of any Security shall not be a Business Day,
then (notwithstanding any other provision of this Indenture or of the
Securities) payment of interest or principal (and premium, if any) need not be
made on such date, but may be made on the next succeeding Business Day with the
same force and effect as if made on the Interest Payment Date, Redemption Date,
Purchase Date or at the Stated Maturity, provided that no interest shall accrue
for the period from and after such Interest Payment Date, Redemption Date,
Purchase Date or Stated Maturity, as the case may be.
ARTICLE TWO
Security Forms
SECTION 201. Forms Generally.
The Securities and the Trustee's certificates of authentication
thereof shall be in substantially the forms set forth in this Article, with such
appropriate legends, insertions, omissions, substitutions and other variations
as are required or permitted by this Indenture, and may have such letters,
numbers
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<PAGE> 44
or other marks of identification and such legends or endorsements placed thereon
as may be required to comply with the rules of any securities exchange or as
may, consistently herewith, be determined by the officers executing such
Securities, as evidenced by their execution of the Securities.
Upon their original issuance, Rule 144A Securities shall be
issued in the form of one or more Global Securities registered in the name of
the Depositary or its nominee and deposited with the Trustee, as custodian for
the Depositary, for credit by the Depositary to the respective accounts of
beneficial owners of the Securities represented thereby (or such other accounts
as they may direct). Such Global Securities, together with their Successor
Securities which are Global Securities other than the Regulation S Global
Security, are collectively herein called the "Restricted Global Security". Upon
their original issuance, Regulation S Securities shall be issued in the form of
one or more Global Securities registered in the name of the Depositary, or its
nominee and deposited with the Trustee, as custodian for the Depositary, for
credit to the respective accounts of the beneficial owners of the Securities
represented thereby (or such other accounts as they may direct), provided that
upon such deposit all such Securities shall be credited to or through accounts
maintained at the Depositary by or on behalf of Euroclear or Cedel. Such Global
Securities, together with their Successor Securities which are Global Securities
other than the Restricted Global Security, are collectively herein called the
"Regulation S Global Security".
The definitive Securities shall be printed, lithographed or
engraved or produced by any combination of these methods on steel engraved
borders or may be produced in any other manner, all as determined by the
officers executing such Securities, as evidenced by their execution of such
Securities.
In certain cases described elsewhere herein, the legends set
forth in Section 202 may be omitted from Securities issued hereunder.
SECTION 202. Form of Face of Security.
[If Restricted Securities, then insert -- THIS NOTE HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT").
THE HOLDER HEREOF, BY PURCHASING THIS NOTE, AGREES FOR THE BENEFIT OF THE
COMPANY THAT THIS NOTE MAY NOT BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED (X)
PRIOR TO THE SECOND ANNIVERSARY OF THE ISSUANCE HEREOF (OR ANY PREDECESSOR
SECURITY HERETO) OR (Y) BY ANY HOLDER THAT WAS AN AFFILIATE OF THE COMPANY AT
ANY TIME DURING THE THREE MONTHS PRECEDING THE DATE OF SUCH TRANSFER, IN EITHER
CASE,
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<PAGE> 45
OTHER THAN (1) TO THE COMPANY, (2) SO LONG AS THIS NOTE IS ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A") TO A PERSON WHOM
THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE
MEANING OF RULE 144A, PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT RESALE, PLEDGE OR
OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A (3) IN AN OFFSHORE
TRANSACTION IN ACCORDANCE WITH REGULATIONS UNDER THE SECURITIES ACT, (4)
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY
RULE 144 (IF APPLICABLE) UNDER THE SECURITIES ACT, OR (5) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES. THE HOLDER HEREOF, BY PURCHASING THIS NOTE REPRESENTS AND AGREES FOR THE
BENEFIT OF THE COMPANY THAT IT IS (1) A QUALIFIED INSTITUTIONAL BUYER WITHIN THE
MEANING OF RULE 144A OR (2) A NON-U.S. PERSON OUTSIDE THE UNITED STATES WITHIN
THE MEANING OF (OR AN ACCOUNT SATISFYING THE REQUIREMENTS OF PARAGRAPH (O)(2) OF
RULE 902 UNDER) REGULATIONS UNDER THE SECURITIES ACT.]
[If a Regulation S Security, then insert -- THIS SECURITY HAS NOT
BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND
MAY NOT BE OFFERED, SOLD OR DELIVERED IN THE UNITED STATES OR TO, OR FOR THE
ACCOUNT OR BENEFIT OF, ANY U.S. PERSON, UNLESS THIS SECURITY IS REGISTERED UNDER
THE SECURITIES ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREOF IS
AVAILABLE.]
NEXTLINK Communications, Inc.
9% SENIOR NOTES DUE 2008
[IF RESTRICTED GLOBAL SECURITY - CUSIP NO. ________]
[IF ANY REGULATION S SECURITY - CUSIP NO. ________]
[IF REGULATION S GLOBAL SECURITY - ISIN NO. - __________]
No. ______ $_______________
NEXTLINK Communications, Inc., a corporation organized under the
laws of the State of Washington (herein called the "Company", which term
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<PAGE> 46
includes any successor Person under the Indenture hereinafter referred to), for
value received, hereby promises to pay to Cede & Co., or registered assigns, the
principal sum of _____________ Dollars [if this Security is a Global Security,
then insert: (which principal amount may from time to time be increased or
decreased to such other principal amounts (which, taken together with the
principal amounts of all other Outstanding Securities, shall not exceed
$335,000,000 in the aggregate at any time) by adjustments made on the records of
the Trustee hereinafter referred to in accordance with the Indenture)] on March
15, 2008, and to pay interest thereon from March 3, 1998 or from the most recent
Interest Payment Date to which interest has been paid or duly provided for,
semi-annually on March 15 and September 15 in each year, commencing September
15, 1998 at the rate of 9% per annum, until the principal hereof is paid or made
available for payment. [If Original Securities, then insert: provided, however,
that if (i) the Company has not filed a registration statement (the "Exchange
Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), registering a security substantially identical to this
Security (except that such Security will not contain terms with respect to the
Additional Interest payments described below or transfer restrictions) pursuant
to an exchange offer (the "Exchange Offer") (or, in lieu thereof, a registration
statement registering this Security for resale (a "Resale Registration
Statement")) by June 1, 1998, or (ii) the Exchange Registration Statement
relating to the Exchange Offer or, if applicable, the Resale Registration
Statement has not become or been declared effective by July 1, 1998, or (iii)
the Exchange Offer has not been completed within 45 days after the date on which
the Exchange Registration Statement has become or been declared effective
initially (if the Exchange Offer is then required to be made pursuant to the
Exchange and Registration Rights Agreement (the "Exchange and Registration
Rights Agreement"), dated as of February 26, 1998, by and between the Company,
the Purchasers (as defined therein) and the Holders from time to time of the
Securities) or (iv) either the Exchange Registration Statement or, if
applicable, the Resale Registration Statement is filed and declared effective
(except as specifically permitted therein) but shall thereafter cease to be
effective without being succeeded promptly by an additional registration
statement filed and declared effective, in each case (i) through (iv) upon the
terms and conditions set forth in the Exchange and Registration Rights Agreement
(each such event referred to in clauses (i) through (iv), a "Registration
Default"), then interest will accrue (in addition to any stated interest on the
Securities) (the "Step-Up") at a rate of 0.5% per annum, determined daily, on
the outstanding principal amount of the Securities, from the period from the
occurrence of the Registration Default until such time (the "Step-Down Date") as
no Registration Default is in effect and, provided, further, that if either the
Exchange Offer has not been consummated or, if applicable, the Resale
Registration Statement has not become or been declared effective, in each case
by August 15, 1998, then the per annum rate of such Additional Interest shall
increase (the "Subsequent Step-Up") by an additional 0.25% per
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<PAGE> 47
annum for each subsequent 90-day period (provided that the Step-Up and all
Subsequent Step-Up interest rates shall not exceed 1.0% per annum in the
aggregate) and Additional Interest will be payable at such increased rate until
such time (the "Subsequent Step Down Date") as the Company consummates the
Exchange Offer or, if applicable, the Resale Registration Statement becomes or
has been declared effective (after which such interest rate will be restored to
its initial rate). Interest accruing as a result of the Step-Up or the
Subsequent Step-Up is referred to herein as "Additional Interest." Accrued
Additional Interest, if any, shall be paid semi-annually on March 15 and
September 15 in each year; and the amount of accrued Additional Interest shall
be determined on the basis of the number of days actually elapsed. Any accrued
and unpaid interest (including Additional Interest) on this Security upon the
issuance of an Exchange Security (as defined in the Indenture) in exchange for
this Security shall cease to be payable to the Holder hereof but such accrued
and unpaid interest (including Additional Interest) shall be payable on the next
Interest Payment Date for such Exchange Security to the Holder thereof on the
related Regular Record Date.] The interest so payable, and punctually paid or
duly provided for, on any Interest Payment Date will, as provided in such
Indenture, be paid to the Person in whose name this Security (or one or more
Predecessor Securities) is registered at the close of business on the Regular
Record Date for such interest, which shall be March 1 or September 1 (whether or
not a Business Day), as the case may be, next preceding such Interest Payment
Date. Any such interest not so punctually paid or duly provided for will
forthwith cease to be payable to the Holder on such Regular Record Date and may
either be paid to the Person in whose name this Security (or one or more
Predecessor Securities) is registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to Holders of Securities not less than 10
days prior to such Special Record Date, or be paid at any time in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which the Securities may be listed, and upon such notice as may be required
by such exchange, all as more fully provided in said Indenture.
In the case of a default in payment of principal and premium, if
any, upon acceleration or redemption, interest shall be payable pursuant to the
preceding paragraph on such overdue principal (and premium, if any), such
interest shall be payable on demand and, if not so paid on demand, such interest
shall itself bear interest at the rate of 1% per annum (to the extent that the
payment of such interest shall be legally enforceable), and shall accrue from
the date of such demand for payment to the date payment of such interest has
been made or duly provided for, and such interest on unpaid interest shall also
be payable on demand.
If this Security is issued in the form of a Global Security,
payments
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of the principal of (and premium, if any) and interest on this Security shall be
made in immediately available funds to the Depositary. If this Security is
issued in certificated form, payment of the principal of (and premium, if any)
and interest on this Security will be made at the corporate trust office of the
Trustee and at the office or agency of the Company maintained for that purpose
in the Borough of Manhattan, The City of New York, New York, and at any other
office or agency maintained by the Company for such purpose, in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts; provided, however, that at the
option of the Company payment of interest may be made by check mailed to the
address of the Person entitled thereto as such address shall appear in the
Security Register.
Reference is hereby made to the further provisions of this
Security set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed
by the Trustee referred to on the reverse hereof by manual signature, this
Security shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed.
Dated:
NEXTLINK Communications, Inc.
By______________________________
Name:
Title:
Attest:
- ------------------------------
Name:
Title:
SECTION 203. Form of Reverse of Security.
This Security is one of a duly authorized issue of Securities of
the Company designated as its 9% Senior Notes Due 2008 (the "Securities") issued
under an Indenture, dated as of March 3, 1998 (herein called the "Indenture"),
between the Company and United States Trust Company of New York, as trustee
(herein called the "Trustee", which term includes any successor trustee
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under the Indenture). The Securities are limited in aggregate principal amount
to $335,000,000. Reference is hereby made to the Indenture and all indentures
supplemental thereto for a statement of the respective rights, limitations of
rights, duties and immunities thereunder of the Company, the Trustee and the
Holders of the Securities and of the terms upon which the Securities are, and
are to be, authenticated and delivered.
The Securities are subject to redemption upon not less than 30
nor more than 60 days' notice by mail to each Holder of Securities to be
redeemed at such Holder's address appearing in the Security Register, in amounts
of $1,000 or an integral multiple of $1,000, at any time on or after March 15,
2003 and prior to maturity, as a whole or in part, at the election of the
Company, at the following Redemption Prices (expressed as percentages of the
principal amount) plus accrued and unpaid interest to but excluding the
Redemption Date (subject to the right of Holders of record on the relevant
Regular Record Date to receive interest due on an Interest Payment that is on or
prior to the Redemption Date), if redeemed during the 12-month period beginning
March 15, of each of the years indicated below:
<TABLE>
<CAPTION>
Year Redemption
Price
<S> <C>
2003 104.500
2004 103.000
2005 101.500
</TABLE>
and thereafter at a Redemption Price equal to 100.000% of the principal amount,
together in the case of any such redemption with accrued interest to the
Redemption Date, but interest installments whose Stated Maturity is on or prior
to such Redemption Date will be payable to the Holders of such Securities, or
one or more Predecessor Securities, of record at the close of business on the
relevant Record Dates referred to on the face hereof, all as provided in the
Indenture.
The Securities are further subject to redemption prior to March
15, 2003 only in the event that on or before March 15, 2001 the Company receives
net proceeds from a sale of its Common Equity, in which case the Company may, at
its option, use all or a portion of any such net proceeds to redeem Securities
in a principal amount of up to an aggregate amount equal to 33 % of the original
principal amount of the Securities, provided, however, that Securities in an
amount equal to at least 66 % of the original aggregate principal amount of the
Securities remain Outstanding after such redemption. Such redemption must occur
on a Redemption Date within 90 days of any such sale and upon not less than 30
nor more than 60 days' notice by mail to each Holder of Securities to be
redeemed at such Holder's address appearing in the Security Register, in
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<PAGE> 50
amounts of $1,000 or an integral multiple of $1,000 at a Redemption Price of
109% of their principal amount plus accrued and unpaid interest, if any, to but
excluding the Redemption Date (subject to the right of Holders of record on the
relevant Regular Record Date to receive interest due on an Interest Payment Date
that is on or prior to the Redemption Date).
In the event of redemption of this Security in part only, a new
Security or Securities for the unredeemed portion hereof will be issued in the
name of the Holder hereof upon the cancellation hereof.
The Securities do not have the benefit of any sinking fund
obligations.
The Indenture provides that, subject to certain conditions, if
(i) a Change of Control occurs or (ii) certain Net Available Proceeds are
available to the Company as a result of any Asset Disposition, the Company shall
be required to make an Offer to Purchase for all or a specified portion of the
Securities.
[If not a Global Security -- In the event of redemption or
purchase pursuant to an Offer to Purchase of this Security in part only, a new
Security or Securities of like tenor for the unredeemed or unpurchased portion
hereof will be issued in the name of the Holder hereof upon the cancellation
hereof.]
[If a Global Security insert -- In the event of a deposit or
withdrawal of an interest in this Security (including upon an exchange,
transfer, redemption or repurchase of this Security in part only) effected in
accordance with the Applicable Procedures, the Security Registrar, upon receipt
of notice of such event from the Depositary's custodian for this Security, shall
make an adjustment on its records to reflect an increase or decrease of the
Outstanding principal amount of this Security resulting from such deposit or
withdrawal, as the case may be.]
If an Event of Default shall occur and be continuing, the
principal of all the Securities may be declared due and payable in the manner
and with the effect provided in the Indenture.
The Indenture contains provisions for defeasance at any time of
(i) the entire indebtedness of this Security, or (ii) certain restrictive
covenants and Events of Default with respect to this Security, in each case upon
compliance with certain conditions set forth therein.
Unless the context otherwise requires, the Original Securities
(as defined in the
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Indenture) and the Exchange Securities (as defined in the Indenture) shall
constitute one series for all purposes under the Indenture, including without
limitation, amendments, waivers, redemptions and Offers to Purchase.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Company and the rights of the Holders of the Securities under
the Indenture at any time by the Company and the Trustee with the consent of the
Holders of a majority in aggregate principal amount of the Securities at the
time Outstanding. The Indenture also contains provisions permitting the Holders
of specified percentages in aggregate principal amount of the Securities at the
time Outstanding, on behalf of the Holders of all the Securities, to waive
compliance by the Company with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any such consent or
waiver by the Holder of this Security shall be conclusive and binding upon such
Holder and upon all future Holders of this Security and of any Security issued
upon the registration of transfer hereof or in exchange herefor or in lieu
hereof, whether or not notation of such consent or waiver is made upon this
Security.
As provided in and subject to the provisions of the Indenture,
the Holder of this Security shall not have the right to institute any proceeding
with respect to the Indenture or for the appointment of a receiver or trustee or
for any other remedy thereunder, unless such Holder shall have previously given
the Trustee written notice of a continuing Event of Default, the Holders of not
less than 25% in principal amount of the Outstanding Securities shall have made
written request to the Trustee to institute proceedings in respect of such Event
of Default as Trustee and offered the Trustee reasonable indemnity, and the
Trustee shall not have received from the Holders of a majority in principal
amount of Outstanding Securities a direction inconsistent with such request, and
shall have failed to institute any such proceeding, for 60 days after receipt of
such notice, request and offer of indemnity. The foregoing shall not apply to
any suit instituted by the Holder of this Security for the enforcement of any
payment of principal hereof or any premium or interest hereon on or after the
respective due dates expressed herein.
No reference herein to the Indenture and no provision of this
Security or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of (and
premium, if any) and interest on this Security at the times, place and rate, and
in the coin or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Security is registrable in the Security
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Company in the Borough of Manhattan, The City of New
York,
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<PAGE> 52
New York, duly endorsed by, or accompanied by a written instrument of transfer
in form satisfactory to the Company and the Security Registrar duly executed by,
the Holder hereof or his attorney duly authorized in writing, and thereupon one
or more new Securities, of authorized denominations and like tenor and for the
same aggregate principal amount, will be issued to the designated transferee or
transferees.
The Securities are issuable only in registered form without
coupons in denominations of $1,000 and any integral multiple thereof. As
provided in the Indenture and subject to certain limitations therein set forth,
Securities are exchangeable for a like tenor and aggregate principal amount of
Securities of a different authorized denomination, as requested by the Holder
surrendering the same.
No service charge shall be made for any such registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Security is registered as the owner
hereof for all purposes, whether or not this Security be overdue, and none of
the Company, the Trustee or any such agent shall be affected by notice to the
contrary.
Interest on this Security shall be computed on the basis of a
360-day year of twelve 30-day months.
All terms used in this Security which are defined in the
Indenture shall have the meanings assigned to them in the Indenture.
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased in its
entirety by the Company pursuant to Section 1013 or 1016 of the Indenture, check
the box:
If you want to elect to have only a part of this Security
purchased by the Company pursuant to Section 1013 or 1016 of the Indenture,
state the amount: $___________
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<PAGE> 53
Dated:________________ Your Signature ________________________________
(Sign exactly as name appears on the other side
of this Security)
Signature Guarantee:__________________________________________________________
Notice: Signature(s) must be guaranteed by an
"eligible guarantor institution" meeting the
requirements of the Trustee, which requirements
will include membership or participation in STAMP
or such other "signature guarantee program" as may
be determined by the Trustee in addition to, or in
substitution for STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.
SECTION 204. Additional Provisions Required in Global Security.
Any Global Security issued hereunder shall, in addition to the
provisions contained in Sections 202 and 203, bear a legend in substantially the
following form:
[If a Global Security, insert -- THIS SECURITY IS A GLOBAL
SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS
REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY MAY
NOT BE EXCHANGED IN WHOLE OR IN PART FOR A SECURITY REGISTERED, AND NO TRANSFER
OF THIS SECURITY IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY
PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE INDENTURE.]
[If a Global Security to be held by the Depository Trust Company,
insert -- UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO ISSUER OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY SECURITY
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
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<PAGE> 54
OTHERWISE BY A PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE
& CO., HAS AN INTEREST HEREIN.]
SECTION 205. Form of Trustee's Certificate of
Authentication.
This is one of the Securities referred to in the within-mentioned
Indenture.
United States Trust Company of New York,
as Trustee
By ____________________
Authorized Signatory
ARTICLE THREE
The Securities
SECTION 301. Title and Terms.
The aggregate principal amount of Securities which may be
authenticated and delivered under this Indenture is limited to $335,000,000,
except for Securities authenticated and delivered upon registration of transfer
of, or in exchange for, or in lieu of, other Securities pursuant to Section 304,
305, 306, 906 or 1108 or in connection with an Offer to Purchase pursuant to
Section 1013 or 1016.
The Company may issue Exchange Securities from time to time
pursuant to an Exchange Offer or otherwise, in each case pursuant to a Board
Resolution, subject to Section 303, included in an Officers' Certificate
delivered to the Trustee, in authorized denominations in exchange for a like
principal amount of Original Securities. Upon any such exchange the Original
Securities shall be canceled in accordance with Section 309 and shall no longer
be deemed Outstanding for any purpose. In no event shall the aggregate principal
amount of Original Securities and Exchange Securities Outstanding exceed
$335,000,000.
The Securities shall be known and designated as the "9% Senior
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<PAGE> 55
Notes Due 2008" of the Company. The Stated Maturity of the Securities shall be
March 15, 2008. The Securities shall bear interest at the rate of 9% per annum,
from March 3, 1998 or from the most recent Interest Payment Date thereafter to
which interest has been paid or duly provided for, as the case may be, payable
semi-annually on March 15 and September 15, commencing September 15, 1998, until
the principal thereof is paid or made available for payment; provided, however,
with respect to Original Securities, if there has been a Registration Default, a
Step-Up will occur and the Original Securities will from then bear Additional
Interest until the Step-Down Date and, if either the Exchange Offer has not been
consummated or, if applicable, the Resale Registration Statement has not become
or been declared effective, in each case, by August 15, 1998, a Subsequent
Step-Up will occur and the Original Securities will from then bear Additional
Interest until the Subsequent Step-Down Date. Accrued Additional Interest, if
any, shall be paid in cash in arrears semi-annually on March 15 and September 15
in each year, and the amount of accrued Additional Interest shall be determined
on the basis of the number of days actually elapsed.
In the case of a default in payment of principal and premium, if
any, upon acceleration or redemption, interest shall be payable pursuant to the
preceding paragraph on such overdue principal (and premium, if any), such
interest shall be payable on demand and, if not so paid on demand, such interest
shall itself bear interest at the rate of 1% per annum (to the extent that the
payment of such interest shall be legally enforceable), and shall accrue from
the date of such demand for payment to the date payment of such interest has
been made or duly provided for, and such interest on unpaid interest shall also
be payable on demand.
The principal of and premium, if any, and interest on the
Securities shall be payable at the corporate trust office of the Trustee in the
Borough of Manhattan, The City of New York, New York, maintained for such
purpose and at any other office or agency maintained by the Company for such
purpose; provided, however, that at the option of the Company payment of
interest may be made by check mailed to the address of the Person entitled
thereto as such address shall appear in the Security Register.
The Securities shall be subject to repurchase by the Company
pursuant to an Offer to Purchase as provided in Sections 1013 and 1016.
The Securities shall be redeemable as provided in Article Eleven.
The Securities shall not have the benefit of any sinking fund
obligations.
The Securities shall be subject to defeasance at the option of
the
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<PAGE> 56
Company as provided in Article Twelve.
Unless the context otherwise requires, the Original Securities
and the Exchange Securities shall constitute one series for all purposes under
the Indenture, including without limitation, amendments, waivers, redemptions
and Offers to Purchase.
SECTION 302. Denominations.
The Securities shall be issuable only in registered form without
coupons and only in denominations of $1,000 and any integral multiple thereof.
SECTION 303. Execution, Authentication, Delivery
and Dating.
The Securities shall be executed on behalf of the Company by its
Chief Executive Officer, its President, its Executive Vice President or one of
its Vice Presidents and attested by its Secretary. The signature of any of these
officers on the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Securities or
did not hold such offices at the date of such Securities.
At any time and from time to time after the execution and
delivery of this Indenture, the Company may deliver Securities executed by the
Company to the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities; and the Trustee in accordance
with such Company Order shall authenticate and deliver such Securities as in
this Indenture provided and not otherwise.
At any time and from time to time after the execution and
delivery of this Indenture and after the effectiveness of a Registration
Statement under the Securities Act with respect thereto, the Company may deliver
Exchange Securities executed by the Company to the Trustee for authentication,
together with a Company Order for the authentication and delivery of such
Exchange Securities and a like principal amount of Original Securities for
cancellation in accordance with Section 309 of this Indenture, and the Trustee
in accordance with the Company Order shall authenticate and deliver such
Securities. In authenticating such Exchange Securities, and accepting the
additional responsibilities under this Indenture in relation to such Securities,
the Trustee shall be entitled to receive, and (subject to Section 601) shall be
fully protected in relying upon, an Opinion of Counsel stating,
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(a) that such Exchange Securities have been duly and validly
issued in accordance with the terms of the Indenture, and are entitled
to all the rights and benefits set forth herein; and
(b) that the issuance of the Exchange Securities in exchange for
the Original Securities has been effected in compliance with the
Securities Act of 1933, as amended.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture
or be valid or obligatory for any purpose unless there appears on such Security
a certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any
Security shall be conclusive evidence, and the only evidence, that such Security
has been duly authenticated and delivered hereunder.
SECTION 304. Temporary Securities.
Pending the preparation of definitive Securities, the Company may
execute, and upon a Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any authorized denomination, substantially of the
tenor of the definitive Securities in lieu of which they are issued and with
such appropriate insertions, omissions, substitutions and other variations as
the officers executing such Securities may determine, as evidenced by their
execution of such Securities.
If temporary Securities are issued, the Company will cause
definitive Securities to be prepared without unreasonable delay. After the
preparation of definitive Securities, the temporary Securities shall be
exchangeable for definitive Securities upon surrender of the temporary
Securities at any office or agency of the Company designated pursuant to Section
1002, without charge to the Holder. Upon surrender for cancellation of any one
or more temporary Securities, the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor a like tenor and principal amount
of definitive Securities of authorized denominations. Until so exchanged, the
temporary Securities shall in all respects be entitled to the same benefits
under this Indenture as definitive Securities.
SECTION 305. Registration, Registration of
Transfer and Exchange.
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(a) The Company shall cause to be kept at the Corporate Trust
Office of the Trustee a register (the register maintained in such office and in
any other office or agency designated pursuant to Section 1002 being herein
sometimes collectively referred to as the "Security Register") in which, subject
to such reasonable regulations as they may prescribe, the Company shall provide
for the registration of Securities and of transfers and exchanges of Securities.
The Trustee is hereby appointed "Security Registrar" for the purpose of
registering Securities and transfers and exchanges of Securities as herein
provided. Such Security Register shall distinguish between Original Securities
and Exchange Securities.
Subject to the other provisions of this Indenture regarding
restrictions on transfer, upon surrender for registration of transfer of any
Security at an office or agency of the Company designated pursuant to Section
1002 for such purpose in accordance with the terms hereof, the Company shall
execute, and the Trustee shall authenticate and deliver, in the name of the
designated transferee or transferees, one or more new Securities of any
authorized denominations and of a like tenor and aggregate principal amount and
bearing such restrictive legends as may be required by this Indenture.
At the option of the Holder and subject to the other provisions
of this Section 305, Securities may be exchanged for other Securities of any
authorized denominations and of a like tenor and aggregate principal amount,
upon surrender of the Securities to be exchanged at such office or agency.
Whenever any Securities are so surrendered for exchange, the Company shall
execute, and the Trustee shall authenticate and deliver, the Securities which
the Holder making the exchange is entitled to receive.
All Securities issued upon any registration of transfer or
exchange of Securities shall be the valid obligations of the Company, evidencing
the same debt, and (subject to the provisions in the Original Securities
regarding the payment of Additional Interest) entitled to the same benefits
under this Indenture, as the Securities surrendered upon such registration of
transfer or exchange.
Every Security presented or surrendered for registration of
transfer or for exchange shall (if so required by the Company or the Trustee) be
duly endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed, by the
Holder thereof or his attorney duly authorized in writing.
No service charge shall be made to the Holder for any
registration of transfer or exchange of Securities, but the Company may require
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in connection with any registration of transfer or exchange of
Securities,
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other than exchanges pursuant to Section 304, 305, 906 or 1108 or in accordance
with any Offer to Purchase pursuant to Section 1013 or 1016 not involving any
transfer.
The Company shall not be required (i) to issue, register the
transfer of or exchange any Security during a period beginning at the opening of
business 15 days before the day of the mailing of a notice of redemption of
Securities selected for redemption under Section 1104 and ending at the close of
business on the day of such mailing, or (ii) to register the transfer of or
exchange any Security so selected for redemption in whole or in part, except the
unredeemed portion of any Security being redeemed in part.
(b) Certain Transfers and Exchanges. Notwithstanding any other
provision of this Indenture or the Securities, transfers and exchanges of
Securities and beneficial interests in a Global Security of the kinds specified
in this Section 305(b) shall be made only in accordance with this Section
305(b).
(i) Restricted Global Security to Regulation S Global
Security. If the owner of a beneficial interest in the Restricted Global
Security wishes at any time to transfer such interest to a Person who
wishes to acquire the same in the form of a beneficial interest in the
Regulation S Global Security, such transfer may be effected only in
accordance with the provisions of this Clause (b)(i) and Clause (b)(iv)
below and subject to the Applicable Procedures. Upon receipt by the
Trustee, as Security Registrar, of (A) an order given by the Depositary
or its authorized representative directing that a beneficial interest in
the Regulation S Global Security in a specified principal amount be
credited to a specified Agent Member's account and that a beneficial
interest in the Restricted Global Security in an equal principal amount
be debited from another specified Agent Member's account and (B) a
Regulation S Certificate, satisfactory to the Trustee and duly executed
by the owner of such beneficial interest in the Restricted Global
Security or his attorney duly authorized in writing, then the Trustee,
as Security Registrar but subject to Clause (b)(vii) below, shall reduce
the principal amount of the Restricted Global Security and increase the
principal amount of the Regulation S Global Security by such specified
principal amount.
(ii) Regulation S Global Security to Restricted Global
Security. If the owner of a beneficial interest in the Regulation S
Global Security wishes at any time to transfer such interest to a Person
who wishes to acquire the same in the form of a beneficial interest in
the Restricted Global Security, such transfer may be effected only in
accordance with this Clause (b)(ii) and subject to the Applicable
Procedures. Upon receipt by the Trustee, as Security Registrar, of (A)
an order given by the Depositary or its authorized representative
directing
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that a beneficial interest in the Restricted Global Security in a
specified principal amount be credited to a specified Agent Member's
account and that a beneficial interest in the Regulation S Global
Security in an equal principal amount be debited from another specified
Agent Member's account and (B) if such transfer is to occur during the
Restricted Period, a Restricted Securities Certificate, satisfactory to
the Trustee and duly executed by the owner of such beneficial interest
in the Regulation S Global Security or his attorney duly authorized in
writing, then the Trustee, as Security Registrar, shall reduce the
principal amount of the Regulation S Global Security and increase the
principal amount of the Restricted Global Security by such specified
principal amount.
(iii) Non-Global Security to Non-Global Security. A
Security that is not a Global Security may be transferred, in whole or
in part, to a Person who takes delivery in the form of another Security
that is not a Global Security as provided in Section 305(a), provided
that, if the Security to be transferred in whole or in part is a
Restricted Security, or is a Regulation S Security and the transfer is
to occur during the Restricted Period, then the Trustee shall have
received (A) a Restricted Securities Certificate, satisfactory to the
Trustee and duly executed by the transferor Holder or his attorney duly
authorized in writing, in which case the transferee Holder shall take
delivery in the form of a Restricted Security, or (B) a Regulation S
Certificate, satisfactory to the Trustee and duly executed by the
transferor Holder or his attorney duly authorized in writing, in which
case the transferee Holder shall take delivery in the form of a
Regulation S Security (subject in every case to Section 305(c)).
(iv) Regulation S Global Security to be Held Through
Euroclear or Cedel during Restricted Period. The Company shall use its
best efforts to cause the Depositary to ensure that, until the
expiration of the Restricted Period, beneficial interests in the
Regulation S Global Security may be held only in or through accounts
maintained at the Depositary by Euroclear or Cedel (or by Agent Members
acting for the account thereof), and no person shall be entitled to
effect any transfer or exchange that would result in any such interest
being held otherwise than in or through such an account; provided that
this Clause (b)(iv) shall not prohibit any transfer or exchange of such
an interest in accordance with Clause (b)(ii) above.
(v) Exchanges of Book-Entry Securities for Certificated
Securities. A beneficial interest in a Global Security may not be
exchanged for a Security in certificated form unless (i) DTC (x)
notifies the Company that it is unwilling or unable to continue as
Depositary for the Global Security or (y) has ceased to be a clearing
agency registered
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under the Exchange Act and in either case the Company thereupon fails to
appoint a successor Depositary, (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of
the Securities in certificated form or (iii) there shall have occurred
and be continuing an Event of Default or any event which after notice or
lapse of time or both would be an Event of Default with respect to the
Securities. In all cases, certificated Securities delivered in exchange
for any Global Security or beneficial interests therein will be
registered in the names, and issued in any approved denominations,
requested by or on behalf of the Depositary (in accordance with its
customary procedures). Any certificated Security issued in exchange for
an interest in a Global Security will bear the legend restricting
transfers that is borne by such Global Security. Any such exchange will
be effected through the DWAC System and an appropriate adjustment will
be made in the records of the Security Registrar to reflect a decrease
in the principal amount of the relevant Global Security.
(c) Securities Act Legends. Rule 144A Securities and their
Successor Securities shall bear a Restricted Securities Legend, and the
Regulation S Securities and their Successor Securities shall bear a Regulation S
Legend, subject to the following:
(i) subject to the following Clauses of this Section
305(c), a Security or any portion thereof which is exchanged, upon
transfer or otherwise, for a Global Security or any portion thereof
shall bear the Securities Act Legend borne by such Global Security while
represented thereby;
(ii) subject to the following Clauses of this Section
305(c), a new Security which is not a Global Security and is issued in
exchange for another Security (including a Global Security) or any
portion thereof, upon transfer or otherwise, shall bear the Securities
Act Legend borne by such other Security, provided that, if such new
Security is required pursuant to Section 305(b)(v) or (vi) to be issued
in the form of a Restricted Security, it shall bear a Restricted
Securities Legend and, if such new Security is so required to be issued
in the form of a Regulation S Security, it shall bear a Regulation S
Legend;
(iii) Registered Securities shall not bear a Securities
Act Legend;
(iv) at any time after the Securities may be freely
transferred without registration under the Securities Act or without
being subject to transfer restrictions pursuant to the Securities Act, a
new Security which does not bear a Securities Act Legend may be issued
in exchange for or
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in lieu of a Security (other than a Global Security) or any portion
thereof which bears such a legend if the Trustee has received an
Unrestricted Securities Certificate, satisfactory to the Trustee and
duly executed by the Holder of such legended Security or his attorney
duly authorized in writing, and after such date and receipt of such
certificate, the Trustee shall authenticate and deliver such a new
Security in exchange for or in lieu of such other Security as provided
in this Article Three;
(v) a new Security which does not bear a Securities Act
Legend may be issued in exchange for or in lieu of a Security (other
than a Global Security) or any portion thereof which bears such a legend
if, in the Company's judgment, placing such a legend upon such new
Security is not necessary to ensure compliance with the registration
requirements of the Securities Act, and the Trustee, at the direction of
the Company, shall authenticate and deliver such a new Security as
provided in this Article Three; and
(vi) notwithstanding the foregoing provisions of this
Section 305(c), a Successor Security of a Security that does not bear a
particular form of Securities Act Legend shall not bear such form of
legend unless the Company has reasonable cause to believe that such
Successor Security is a "restricted security" within the meaning of Rule
144, in which case the Trustee, at the direction of the Company, shall
authenticate and deliver a new Security bearing a Restricted Securities
Legend in exchange for such Successor Security as provided in this
Article Three.
SECTION 306. Mutilated, Destroyed, Lost and
Stolen Securities.
If any mutilated Security is surrendered to the Trustee, the
Company shall execute and the Trustee shall authenticate and deliver in exchange
therefor a new Security of like tenor and principal amount and bearing a number
not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i)
evidence to their satisfaction of the destruction, loss or theft of any Security
and (ii) such security or indemnity as may be required by them to save each of
them and any agent of either of them harmless, then, in the absence of notice to
the Company or the Trustee that such Security has been acquired by a bona fide
purchaser, the Company shall execute and the Trustee shall authenticate and
deliver, in lieu of any such destroyed, lost or stolen Security, a new Security
of like tenor and principal amount and bearing a number not contemporaneously
outstanding.
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In case any such mutilated, destroyed, lost or stolen Security
has become or is about to become due and payable, the Company in the discretion
of the Company may, instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 307. Payment of Interest; Interest
Rights Preserved.
Interest on any Security which is payable, and is punctually paid
or duly provided for, on any Interest Payment Date shall be paid to the Person
in whose name that Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest.
Any interest (including Additional Interest) on any Security
which is payable, but is not punctually paid or duly provided for, on any
Interest Payment Date (herein called "Defaulted Interest") shall (a) bear
interest at the rate per annum stated in the form of Security included herein
(to the extent that the payment of such interest shall be legally enforceable),
and (b) forthwith cease to be payable to the Holder on the relevant Regular
Record Date by virtue of having been such Holder, and such Defaulted Interest
may be paid by the Company, at its election in each case, as provided in Clause
(1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest to
the Persons in whose names the Securities (or their respective Predecessor
Securities) are registered at the close of business on a Special Record Date for
the payment of such Defaulted Interest, which shall be fixed in the following
manner. The Company shall notify the Trustee in writing of the amount of
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Defaulted Interest proposed to be paid on each Security and the date of
the proposed payment, and at the same time the Company shall deposit
with the Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior to the
date of the proposed payment, such money when deposited to be held in
trust for the benefit of the Persons entitled to such Defaulted Interest
as in this Clause provided. Thereupon the Trustee shall fix a Special
Record Date for the payment of such Defaulted Interest which shall be
not more than 15 days and not less than 10 days prior to the date of the
proposed payment and not less than 10 days after the receipt by the
Trustee of the notice of the proposed payment. The Trustee shall
promptly notify the Company of such Special Record Date and, in the name
and at the expense of the Company, shall cause notice of the proposed
payment of such Defaulted Interest and the Special Record Date therefor
to be mailed, first-class postage prepaid, to each Holder at his address
as it appears in the Security Register, not less than 10 days prior to
such Special Record Date. Notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor having been so
mailed, such Defaulted Interest shall be paid to the Persons in whose
names the Securities (or their respective Predecessor Securities) are
registered at the close of business on such Special Record Date and
shall no longer be payable pursuant to the following Clause (2).
(2) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon such
notice as may be required by such exchange, if, after notice given by
the Company to the Trustee of the proposed payment pursuant to this
Clause, such manner of payment shall be deemed practicable by the
Trustee.
Subject to the foregoing provisions of this Section, each
Security delivered under this Indenture upon registration of transfer of
or in exchange for or in lieu of any other Security shall carry the
rights to interest accrued and unpaid, and to accrue, which were carried
by such other Security.
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SECTION 308. Persons Deemed Owners.
Prior to due presentment of a Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name such Security is registered as the owner of
such Security for the purpose of receiving payment of principal of and premium,
if any, and (subject to Section 307) interest on such Security and for all other
purposes whatsoever, whether or not such Security be overdue, and none of the
Company, the Trustee or any agent of the Company or the Trustee shall be
affected by notice to the contrary.
SECTION 309. Cancellation.
All Securities surrendered for payment, redemption, registration
of transfer, exchange or pursuant to any Offer to Purchase pursuant to Section
1013 or 1016 shall, if surrendered to any Person other than the Trustee, be
delivered to the Trustee and shall be promptly cancelled by it. The Company may
at any time deliver to the Trustee for cancellation any Securities previously
authenticated and delivered hereunder which the Company may have acquired in any
manner whatsoever, and all Securities so delivered shall be promptly cancelled
by the Trustee. No Securities shall be authenticated in lieu of or in exchange
for any Securities cancelled as provided in this Section, except as expressly
permitted by this Indenture. All cancelled Securities held by the Trustee shall
be disposed of in accordance with its standard procedures or as directed by a
Company Order; provided, however, that the Trustee shall not be required to
destroy such Securities.
SECTION 310. Computation of Interest.
Interest on the Securities shall be computed on the basis of a
360-day year of twelve 30-day months.
SECTION 311. CUSIP and ISIN Numbers.
The Company in issuing Securities may use "CUSIP" and "ISIN"
numbers (if then generally in use) in addition to serial numbers; if so, the
Trustee shall use such "CUSIP" and "ISIN" numbers in addition to serial numbers
in notices of redemption and repurchase as a convenience to Holders; provided
that any such notice may state that no representation is made as to the
correctness of such CUSIP and ISIN numbers either as printed on the Securities
or as contained in any notice of a redemption or repurchase and that reliance
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may be placed only on the serial or other identification numbers printed on the
Securities, and any such redemption or repurchase shall not be affected by any
defect in or omission of such CUSIP and ISIN numbers.
ARTICLE FOUR
Satisfaction and Discharge
SECTION 401. Satisfaction and Discharge of Indenture.
This Indenture shall cease to be of further effect as to all
outstanding Securities (except as to (i) rights of registration of transfer and
exchange and the Company's right of optional redemption, (ii) substitution of
apparently mutilated, defaced, destroyed, lost or stolen Securities, (iii)
rights of holders of Securities to receive payment of principal of and premium,
if any, and interest on the Securities, (iv) rights, obligations and immunities
of the Trustee under the Indenture and (v) rights of the holders of the
Securities as beneficiaries of the Indenture with respect to any property
deposited with the Trustee payable to all or any of them), and the Trustee, on
demand of and at the expense of the Company, shall execute proper instruments
acknowledging satisfaction and discharge of this Indenture, when
(1) either
(A) the Company will have paid or caused to be paid the
principal of and premium, if any, and interest on the Securities
as and when the same will have become due and payable; or
(B) all outstanding Securities (except lost, stolen or
destroyed Securities which have been replaced or paid) have been
delivered to the Trustee for cancellation;
and the Company, in the case of (A) above, has deposited or
caused to be deposited with the Trustee as trust funds in trust
for the purpose an amount sufficient to pay and discharge the
entire indebtedness on such Securities not theretofore delivered
to the Trustee for cancellation, for principal of and premium, if
any, and interest to the date of such deposit (in the case of
Securities which have become due and payable) or to the Stated
Maturity or Redemption Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums
payable hereunder by the Company;
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(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and discharge
of this Indenture have been complied with; and
(4) the Trustee shall have received such other documents and
assurances as the Trustee shall have reasonably requested.
Notwithstanding the satisfaction and discharge of this Indenture, (i) the
obligations of the Company to the Trustee under Section 607, (ii) substitution
of apparently mutilated, defaced, destroyed, lost or stolen Securities, (iii)
rights of holders of Securities to receive payment of principal of and premium,
if any, and interest on the Securities, (iv) rights, obligations and immunities
of the Trustee under this Indenture (including, if money shall have been
deposited with the Trustee pursuant to subclause (B) of Clause (1) of this
Section, the obligations of the Trustee under Section 402 and the last paragraph
of Section 1003), and (v) rights of holders of the Securities as beneficiaries
of this Indenture with respect to any property deposited with the Trustee
payable to all or any of them, shall survive.
SECTION 402. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 1003,
all money deposited with the Trustee pursuant to Section 401 shall be held in
trust and applied by it, in accordance with the provisions of the Securities and
this Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee.
ARTICLE FIVE
Remedies
SECTION 501. Events of Default.
"Event of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
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(1) default in the payment of any interest upon any Security when
it becomes due and payable, and continuance of such default for a period
of 30 days; or
(2) default in the payment of the principal of (or premium, if
any, on) any Security when due; or
(3) default in the payment of principal and interest upon any
Security required to be purchased pursuant to an Offer to Purchase
pursuant to Sections 1013 or 1016 when due and payable; or
(4) default in the performance, or breach, of Section 801; or
(5) default in the performance, or breach, of any covenant or
warranty of the Company in this Indenture or in any Security (other than
a covenant or warranty a default in whose performance or whose breach is
elsewhere in this Section specifically dealt with), and continuance of
such default or breach for a period of 60 days after there has been
given, by registered or certified mail, to the Company by the Trustee or
to the Company and the Trustee by the Holders of at least 25% in
aggregate principal amount of the Outstanding Securities a written
notice specifying such default or breach and requiring it to be remedied
and stating that such notice is a "Notice of Default" hereunder; or
(6) a default or defaults under any bond(s), debenture(s),
note(s) or other evidence(s) of Debt by the Company or any Significant
Subsidiary of the Company or under any mortgage(s), indenture(s) or
instrument(s) under which there may be issued or by which there may be
secured or evidenced any Debt of such type by the Company or any such
Significant Subsidiary with a principal amount then outstanding,
individually or in the aggregate, in excess of $10 million, whether such
Debt now exists or shall hereafter be created, which default or defaults
shall constitute a failure to pay such Debt when due at the final
maturity thereof, or shall have resulted in such Debt becoming or being
declared due and payable prior to the date on which it would otherwise
have become due and payable; or
(7) a final judgment or final judgments (not subject to appeal)
for the payment of money are entered against the Company or any
Significant Subsidiary in an aggregate amount in excess of $10 million
by a court or courts of competent jurisdiction, which judgments remain
undischarged or unstayed for a period (during which execution shall not
be effectively stayed) of 45 days after the right to appeal all such
judgments has expired; or
(8) the entry by a court having jurisdiction in the premises of
(A) a
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decree or order for relief in respect of the Company or any Significant
Subsidiary in an involuntary case or proceeding under any applicable
Federal or State bankruptcy, insolvency, reorganization or other similar
law or (B) a decree or order adjudging the Company or any Significant
Subsidiary a bankrupt or insolvent, or approving as properly filed a
petition seeking reorganization, arrangement, adjustment or composition
of or in respect of the Company or any Significant Subsidiary under any
applicable Federal or State law, or appointing a custodian, receiver,
liquidator, assignee, trustee, sequestrator or other similar official of
the Company or any Significant Subsidiary or of any substantial part of
its property, or ordering the winding up or liquidation of its affairs,
and the continuance of any such decree or order for relief or any such
other decree or order unstayed and in effect for a period of 60
consecutive days; or
(9) the commencement by the Company or any Significant Subsidiary
of a voluntary case or proceeding under any applicable Federal or State
bankruptcy, insolvency, reorganization or other similar law or of any
other case or proceeding to be adjudicated a bankrupt or insolvent, or
the consent by it to the entry of a decree or order for relief in
respect of the Company or any Significant Subsidiary in an involuntary
case or proceeding under any applicable Federal or State bankruptcy,
insolvency, reorganization or other similar law or to the commencement
of any bankruptcy or insolvency case or proceeding against it, or the
filing by it of a petition or answer or consent seeking reorganization
or relief under any applicable Federal or State law, or the consent by
it to the filing of such petition or to the appointment of or taking
possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or any Significant
Subsidiary or of any substantial part of its property, or the making by
it of an assignment for the benefit of creditors, or the admission by it
in writing of its inability to pay its debts generally as they become
due, or the taking of corporate action by the Company or any Significant
Subsidiary in furtherance of any such action.
SECTION 502. Acceleration of Maturity; Rescission
and Annulment.
If an Event of Default (other than an Event of Default specified
in Section 501(8) or (9) with respect to the Company) occurs and is continuing,
then and in every such case the Trustee or the Holders of not less than 25% in
aggregate principal amount of the Outstanding Securities may declare the Default
Amount of all the Securities to be due and payable immediately, by a notice in
writing to the Company (and to the Trustee if given by Holders), and
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upon any such declaration such Default Amount and any accrued interest, together
with all other amounts due under this Indenture, shall become immediately due
and payable. If an Event of Default specified in Section 501(8) or (9) with
respect to the Company occurs, the Default Amount of and any accrued interest on
the Securities then Outstanding, together with all other amounts due under this
Indenture, shall ipso facto become immediately due and payable without any
declaration or other Act on the part of the Trustee or any Holder.
The "Default Amount" in respect of any particular Security as of
any particular date of acceleration shall equal the principal amount of the
Security plus accrued and unpaid interest to such date.
At any time after such a declaration of acceleration has been
made and before a judgment or decree for payment of the money due based on
acceleration has been obtained by the Trustee as hereinafter in this Article
provided, the Holders of a majority in aggregate principal amount of the
Outstanding Securities, by written notice to the Company and the Trustee, may
rescind and annul such declaration and its consequences if:
(1) the Company has paid or deposited with the
Trustee a sum sufficient to pay
(A) all overdue interest on all Securities,
(B) the principal of (and premium, if any, on) any
Securities which have become due otherwise than by such
declaration of acceleration (including any Securities required to
have been purchased on the Purchase Date pursuant to an Offer to
Purchase made by the Company) and interest thereon at the rate
borne by the Securities,
(C) to the extent that payment of such interest is lawful,
interest upon overdue interest at the applicable rate borne by
the Securities, and
(D) all sums paid or advanced by the Trustee hereunder and
the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel;
and
(2) all Events of Default, other than the non-payment of the
principal of Securities which have become due solely by such declaration
of acceleration, have been cured or waived as provided in Section 513.
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No such rescission shall affect any subsequent default or impair any right
consequent thereon.
SECTION 503. Collection of Indebtedness and Suits
for Enforcement by Trustee.
The Company covenants that if
(1) default is made in the payment of any interest on any
Security when such interest becomes due and payable and such default
continues for a period of 30 days, or
(2) default is made in the payment of the principal of (or
premium, if any, on) any Security at the Maturity thereof or, with
respect to any Security required to have been purchased pursuant to an
Offer to Purchase made by the Company, at the Purchase Date thereof,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities, the whole amount then due and payable on such
Securities for principal (and premium, if any) and interest, and, to the extent
that payment of such interest shall be legally enforceable, interest on any
overdue principal (and premium, if any) and on any overdue interest, at the rate
provided by the Securities, and, in addition thereto, such further amount as
shall be sufficient to cover the costs and expenses incurred by the Trustee
under this Indenture, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such
demand, the Trustee, in its own name and as trustee of an express trust, may
institute a judicial proceeding for the collection of the sums so due and
unpaid, may prosecute such proceeding to judgment or final decree, and may
enforce the same against the Company or any other obligor upon the Securities
and collect the moneys adjudged or decreed to be payable in the manner provided
by law out of the property of the Company or any other obligor upon the
Securities, wherever situated.
If an Event of Default occurs and is continuing, the Trustee may
in its discretion proceed to protect and enforce its rights and the rights of
the Holders by such appropriate judicial proceedings as the Trustee shall deem
most effective to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
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SECTION 504. Trustee May File Proofs of Claim.
In case of any judicial proceeding relative to the Company (or
any other obligor upon the Securities), its property or its creditors, the
Trustee shall be entitled and empowered, by intervention in such proceeding or
otherwise, to take any and all actions authorized under the Trust Indenture Act
in order to have claims of the Holders and the Trustee allowed in any such
proceeding. In particular, the Trustee shall be authorized to collect and
receive any moneys, securities or other property payable or deliverable upon the
exchange of the Securities or upon any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 607.
No provision of this Indenture shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding; provided,
however, that the Trustee may, on behalf of the Holders, vote for the election
of a trustee in bankruptcy or similar official and be a member of a creditors or
other similar committee.
SECTION 505. Trustee May Enforce Claims Without
Possession of Securities.
All rights of action and claims under this Indenture or the
Securities may be prosecuted and enforced by the Trustee without the possession
of any of the Securities or the production thereof in any proceeding relating
thereto, and any such proceeding instituted by the Trustee shall be brought in
its own name as trustee of an express trust, and any recovery of judgment shall,
after provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.
SECTION 506. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article shall
be
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applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal (or premium,
if any) or interest, upon presentation of the Securities and the notation
thereon of the payment if only partially paid and upon surrender thereof if
fully paid:
FIRST: To the payment of all amounts due the
Trustee under Section 607; and
SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium, if any) and interest on the Securities in
respect of which or for the benefit of which such money has been
collected, ratably, without preference or priority of any kind,
according to the amounts due and payable on such Securities for
principal (and premium, if any) and interest, respectively.
The Trustee, upon prior written notice to the Company, may fix a record date and
payment date for any payment to the Holders pursuant to this Section 506.
SECTION 507. Limitation on Suits.
No Holder of any Security shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(2) the Holders of at least 25% in aggregate principal amount of
the Outstanding Securities shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default in
its own name as Trustee hereunder;
(3) such Holder or Holders have offered and, if requested,
provided to the Trustee reasonable indemnity against the costs, expenses
and liabilities to be incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer and, if requested, provision of indemnity has failed
to institute any such proceeding; and
(5) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a
majority in principal amount of the Outstanding Securities;
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it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 508. Unconditional Right of Holders
to Receive Principal, Premium
and Interest.
Notwithstanding any other provision in this Indenture, the Holder
of any Security shall have the right, which is absolute and unconditional, to
receive payment of the principal of (and premium, if any) and (subject to
Section 307) interest on such Security on the respective Stated Maturities
expressed in such Security (or, in the case of redemption, on the Redemption
Date or, in the case of an Offer to Purchase made by the Company and required to
be accepted as to such Security, on the Purchase Date) and to institute suit for
the enforcement of any such payment, and such rights shall not be impaired
without the consent of such Holder.
SECTION 509. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities in the last paragraph
of Section 306, no right or remedy herein conferred upon or reserved to the
Trustee or to the Holders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any
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right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any
Security to exercise any right or remedy accruing upon any Event of Default
shall impair any such right or remedy or constitute a waiver of any such Event
of Default or an acquiescence therein. Every right and remedy given by this
Article or by law to the Trustee or to the Holders may be exercised from time to
time, and as often as may be deemed expedient, by the Trustee or by the Holders,
as the case may be.
SECTION 512. Control by Holders.
The Holders of a majority in aggregate principal amount of the
Outstanding Securities shall have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee, provided that
(1) such direction shall not be in conflict with any rule of law
or with this Indenture or expose the Trustee to personal liability (as
determined in the sole discretion of the Trustee), and
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
The Trustee may refuse, however, to follow any direction that the Trustee, in
its sole discretion, determines may be unduly prejudicial to the rights of
another Holder or that may subject the Trustee to any liability or expense if
the Trustee determines, in its sole discretion, that it lacks indemnification
against such loss or expense.
SECTION 513. Waiver of Past Defaults.
The Holders of not less than a majority in aggregate principal
amount of the Outstanding Securities may on behalf of the Holders of all the
Securities by written notice to the Trustee waive any past default hereunder and
its consequences, except a default
(1) in the payment of the principal of (or premium, if any) or
interest on any Security (including any Security which is required to
have been
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purchased pursuant to an Offer to Purchase which has been made by the
Company), or
(2) in respect of a covenant or provision hereof which under
Article Nine cannot be modified or amended without the consent of the
Holder of each Outstanding Security affected or
(3) arising from failure to purchase any Security tendered
pursuant to Sections 1013 and 1016.
Upon any such waiver, such default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
SECTION 514. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture, or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court may require any party litigant in such suit to file an
undertaking to pay the costs of such suit, and may assess costs against any such
party litigant, in the manner and to the extent provided in the Trust Indenture
Act; provided that neither this Section nor the Trust Indenture Act shall be
deemed to authorize any court to require such an undertaking or to make such an
assessment in any suit instituted by the Company.
SECTION 515. Waiver of Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do so)
that it will not at any time insist upon, or plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay or extension law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE SIX
The Trustee
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SECTION 601. Certain Duties and Responsibilities.
The duties and responsibilities of the Trustee shall be as
provided by the Trust Indenture Act. Notwithstanding the foregoing, no provision
of this Indenture shall require the Trustee to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers, if it shall have
reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
Whether or not therein expressly so provided, every provision of this Indenture
relating to the conduct or affecting the liability of or affording protection to
the Trustee shall be subject to the provisions of this Section.
SECTION 602. Notice of Defaults.
The Trustee shall give the Holders notice of any Default
hereunder as and to the extent provided by the Trust Indenture Act, unless such
Default has been cured or waived; provided, however, that in the case of any
Default of the character specified in Section 501(5), no such notice to Holders
shall be given until at least 30 days after the occurrence thereof.
SECTION 603. Certain Rights of Trustee.
Subject to the provisions of Section 601:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or a Company Order
and any resolution of the Board of Directors may be sufficiently
evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless
other evidence be herein specifically prescribed) may, in the absence of
bad faith on its part, rely upon an Officers' Certificate or an Opinion
of
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Counsel;
(d) the Trustee may consult with counsel and the written advice
of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request or
direction of any of the Holders pursuant to this Indenture, unless such
Holders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction reasonably
satisfactory to the Trustee;
(f) the Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit,
and, if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and
premises of the Company, personally or by agent or attorney;
(g) the Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or through agents
or attorneys and the Trustee shall not be responsible for any misconduct
or negligence on the part of any agent or attorney appointed with due
care by it hereunder; and
(h) the Trustee shall not be liable for any action taken,
suffered or omitted by it in good faith which the Trustee reasonably
believed to have been authorized or within its rights or powers.
SECTION 604. Not Responsible for Recitals
or Issuance of Securities.
The recitals contained herein and in the Securities, except the
Trustee's certificates of authentication, shall be taken as the statements of
the Company, and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representations as to the validity or sufficiency of this
Indenture or the Securities. The Trustee shall not be accountable for the use or
application by the Company of Securities or the proceeds thereof.
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SECTION 605. May Hold Securities.
The Trustee, any Paying Agent, any Security Registrar (if other
than the Trustee) or any other agent of the Company, in its individual or any
other capacity, may become the owner or pledgee of Securities and, subject to
Sections 608 and 613, may otherwise deal with the Company with the same rights
it would have if it were not Trustee, Paying Agent, Security Registrar or such
other agent.
SECTION 606. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be
segregated from other funds except to the extent required by law. The Trustee
shall be under no liability for interest on any money received by it hereunder
except as otherwise agreed with the Company.
SECTION 607. Compensation and Reimbursement.
The Company agrees
(1) to pay to the Trustee from time to time reasonable
compensation for all services rendered by it hereunder (which
compensation shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to reimburse
the Trustee upon its request for all reasonable expenses, disbursements
and advances incurred or made by the Trustee in accordance with any
provision of this Indenture (including the reasonable compensation and
the expenses and disbursements of its agents and counsel), except any
such expense, disbursement or advance as may be attributable to its
negligence or bad faith; and
(3) to indemnify the Trustee for, and to hold it harmless
against, any loss, liability or expense (including the reasonable
compensation, expenses and disbursements of its agents, accountants,
experts and counsel) incurred without negligence or bad faith on its
part, arising out of or in connection with the acceptance or
administration of this trust, including the costs and expenses of
enforcing this Indenture against the Company (including, without
limitation, this Section 607) and of defending itself against any claim
(whether asserted by any Holder or the Company) or liability in
connection with the exercise or performance of any of its
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powers or duties hereunder. The provisions of this Section 607 shall
survive any termination of this Indenture and the resignation or removal
of the Trustee.
As security for the performance of the obligations of the Company
under this Section 607, the Trustee shall have a lien prior to the Securities
upon all property and funds held or collected by the Trustee, except funds held
in trust for the payment of principal of (and premium, if any) or interest on
particular Securities. The Trustee's right to receive payment of any amounts due
under this Section 607 shall not be subordinate to any other liability or
indebtedness of the Company (even though the Securities may be so subordinated).
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 501(8) or (9) occurs, the expenses and the
compensation for such services are intended to constitute expenses of
administration under Title 11, U.S. Code, or any similar Federal state or
foreign law for the relief of debtors.
SECTION 608. Disqualification; Conflicting Interests.
If the Trustee has or shall acquire a conflicting interest within
the meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to
the provisions of, the Trust Indenture Act and this Indenture.
SECTION 609. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be a
Person that is eligible pursuant to the Trust Indenture Act to act as such and
has a combined capital and surplus of at least $50,000,000 and its Corporate
Trust Office in the Borough of Manhattan, The City of New York, New York. If
such Person publishes reports of condition at least annually, pursuant to law or
to the requirements of a Federal, State, Territorial or District of Columbia
supervising or examining authority, then for the purposes of this Section, the
combined capital and surplus of such Person shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published. If at any time the Trustee shall cease to be eligible in accordance
with the provisions of this Section, it shall resign immediately in the manner
and with the effect hereinafter specified in this Article.
SECTION 610. Resignation and Removal; Appointment
of Successor.
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(a) No resignation or removal of the Trustee and no appointment
of a successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 611, at which
time the retiring Trustee shall be fully discharged from its obligations
hereunder.
(b) The Trustee may resign at any time by giving written notice
thereof to the Company. If an instrument of acceptance by a successor Trustee
shall not have been delivered to the Trustee within 30 days after the giving of
such notice of resignation, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders
of a majority in principal amount of the Outstanding Securities, delivered to
the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 608 after
written request therefor by the Company or by any Holder who has been a
bona fide Holder of a Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section 609 and
shall fail to resign after written request therefor by the Company or by
any such Holder, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company, by Board Resolution, may remove the
Trustee, or (ii) subject to Section 514, any Holder who has been a bona fide
Holder of a Security for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable
of acting, or if a vacancy shall occur in the office of Trustee for any cause,
the Company, by Board Resolution, shall promptly appoint a successor Trustee.
If, within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of the
Holders of a majority in principal amount of the Outstanding Securities
delivered to the
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Company and the retiring Trustee, the successor Trustee so appointed shall,
forthwith upon its acceptance of such appointment, become the successor Trustee
and supersede the successor Trustee appointed by the Company. If no successor
Trustee shall have been so appointed by the Company or the Holders and accepted
appointment in the manner hereinafter provided, any Holder who has been a bona
fide Holder of a Security for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee to all
Holders in the manner provided in Section 106. Each notice shall include the
name of the successor Trustee and the address of its Corporate Trust Office.
SECTION 611. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor Trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee; but, on request of the
Company or the successor Trustee under Section 607, execute and deliver an
instrument transferring to such successor Trustee all the rights, powers and
trusts of the retiring Trustee and shall duly assign, transfer and deliver to
such successor Trustee all property and money held by such retiring Trustee
hereunder. Upon request of any such successor Trustee, the Company shall execute
any and all instruments for more fully and certainly vesting in and confirming
to such successor Trustee all such rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the
time of such acceptance such successor Trustee shall be qualified and eligible
under this Article.
SECTION 612. Merger, Conversion, Consolidation
or Succession to Business.
Any corporation into which the Trustee may be merged or converted
or with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the Trustee shall be a party, or
any corporation succeeding to all or substantially all the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided that such corporation shall be otherwise qualified and eligible under
this Article,
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without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been authenticated,
but not delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt such
authentication and deliver the Securities so authenticated with the same effect
as if such successor Trustee had itself authenticated such Securities.
SECTION 613. Preferential Collection
of Claims Against the Company.
If and when the Trustee shall be or become a creditor of the
Company (or any other obligor upon the Securities), the Trustee shall be subject
to the provisions of the Trust Indenture Act regarding the collection of claims
against the Company (or any such other obligor).
SECTION 614. Appointment of Authenticating Agent.
The Trustee may appoint an Authenticating Agent or Agents with
respect to the Securities which shall be authorized to act on behalf of the
Trustee to authenticate Securities issued upon original issue and upon exchange,
registration of transfer or partial redemption thereof or pursuant to Section
306, and Securities so authenticated shall be entitled to the benefits of this
Indenture and shall be valid and obligatory for all purposes as if authenticated
by the Trustee hereunder. Wherever reference is made in this Indenture to the
authentication and delivery of Securities by the Trustee or the Trustee's
certificate of authentication, such reference shall be deemed to include
authentication and delivery on behalf of the Trustee by an Authenticating Agent
and a certificate of authentication executed on behalf of the Trustee by an
Authenticating Agent. Each Authenticating Agent shall be acceptable to the
Company and shall at all times be a corporation organized and doing business
under the laws of the United States of America, any State thereof or the
District of Columbia, authorized under such laws to act as Authenticating Agent,
having a combined capital and surplus of not less than $50,000,000 and subject
to supervision or examination by Federal or State authority. If such
Authenticating Agent publishes reports of condition at least annually, pursuant
to law or to the requirements of said supervising or examining authority, then
for the purposes of this Section, the combined capital and surplus of such
Authenticating Agent shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time an
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, such Authenticating Agent shall resign immediately
in the manner and with the effect specified in this Section.
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Any corporation into which an Authenticating Agent may be merged
or converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section, without the execution or filing of any paper or any further
act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written
notice thereof to the Trustee and to the Company. The Trustee may at any time
terminate the agency of an Authenticating Agent by giving written notice thereof
to such Authenticating Agent and to the Company. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall give notice of such
appointment in the manner provided in Section 106 to all Holders of Securities.
Any successor Authenticating Agent upon acceptance of its appointment hereunder
shall become vested with all the rights, powers and duties of its predecessor
hereunder, with like effect as if originally named as an Authenticating Agent.
No successor Authenticating Agent shall be appointed unless eligible under the
provisions of this Section.
The Trustee agrees to pay to each Authenticating Agent from time
to time reasonable compensation for its services under this Section, and the
Trustee shall be entitled to be reimbursed for such payments, subject to the
provisions of Section 607.
If an appointment is made pursuant to this Section, the
Securities may have endorsed thereon, in lieu of the Trustee's certificate of
authentication, an alternative certificate of authentication in the following
form:
This is one of the Securities referred to in the within-mentioned
Indenture.
United States Trust Company of New York,
As Trustee
By ,
--------------------------------
As Authenticating Agent
By
---------------------------------
Authorized Signatory
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ARTICLE SEVEN
Holders' Lists and Reports by Trustee and the Company
SECTION 701. Company to Furnish Trustee
Names and Addresses of Holders.
The Company will furnish or cause to be furnished to the Trustee
(a) semi-annually, not more than 15 days after each Regular
Record Date, a list, in such form as the Trustee may reasonably require,
of the names and addresses of the Holders as of such Regular Record
Date, and
(b) at such other times as the Trustee may request in writing,
within 30 days after the receipt by the Company of any such request, a
list of similar form and content as of a date not more than 15 days
prior to the time such list is furnished;
excluding from any such list names and addresses received by the Trustee in its
capacity as Security Registrar.
SECTION 702. Preservation of Information;
Communications to Holders.
(a) The Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of Holders contained in the most
recent list furnished to the Trustee as provided in Section 701 and the names
and addresses of Holders received by the Trustee in its capacity as Security
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 701 upon receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders with
respect to their rights under this Indenture or under the Securities, and the
corresponding rights and duties of the Trustee, shall be as provided by the
Trust Indenture Act.
(c) Every Holder of Securities, by receiving and holding the
same, agrees with the Company and the Trustee that none of the Company, the
Trustee or any agent of any of them shall be held accountable by reason of any
disclosure of information as to names and addresses of Holders made pursuant to
the Trust Indenture Act.
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SECTION 703. Reports by Trustee.
(a) The Trustee shall transmit to Holders such reports concerning
the Trustee and its actions under this Indenture as may be required pursuant to
the Trust Indenture Act at the times and in the manner provided pursuant
thereto.
(b) A copy of each such report shall, at the time of such
transmission to Holders, be filed by the Trustee with each stock exchange upon
which the Securities are listed, with the Commission and with the Company. The
Company will notify the Trustee when the Securities are listed on any stock
exchange.
SECTION 704. Reports by Company.
The Company shall file with the Trustee and the Commission, and
transmit to Holders, such information, documents and other reports, and such
summaries thereof, as may be required pursuant to the Trust Indenture Act at the
times and in the manner provided pursuant to such Act and in the manner set
forth in Section 1017; provided that any such information, documents or reports
required to be filed with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act ("SEC Reports") shall be filed with the Trustee within 15 days
after the same is so required to be filed with the Commission. In the event the
Company shall cease to be required to file SEC Reports pursuant to the Exchange
Act, the Company will nonetheless continue to file such reports with the
Commission (unless the Commission will not accept such a filing) and the Trustee
and to furnish copies of such SEC Reports to the Holders of Securities at the
time the Company is required to file such reports with the Trustee and will make
such information available to investors who request it in writing.
SECTION 705. Officers' Certificate with Respect
to Change in Interest Rates.
Within five days after any Step-Up, Subsequent Step-Up, Step-Down
Date or Subsequent Step-Down Date, the Company shall deliver an Officers'
Certificate to the Trustee stating the new interest rate and the date on which
it became effective.
ARTICLE EIGHT
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Merger, Consolidation, Etc.
SECTION 801. Mergers, Consolidations and Certain
Sales of Assets.
(a) The Company may not, in a single transaction or a series of
related transactions, (i) consolidate with or merge into any other Person or
permit any other Person to consolidate with or merge into the Company (other
than a consolidation or merger of a Wholly-Owned Restricted Subsidiary organized
under the laws of a State of the United States into the Company), or (ii)
directly or indirectly, transfer, sell, lease or otherwise dispose of all or
substantially all of its assets (determined on a consolidated basis for the
Company and its Restricted Subsidiaries taken as a whole and provided that the
creation of a Lien on or in any of its assets shall not in and of itself
constitute the transfer, sale, lease or disposition of the assets subject to the
Lien), unless: (1) in a transaction in which the Company does not survive or in
which the Company sells, leases or otherwise disposes of all or substantially
all of its assets to any other Person, the successor entity to the Company shall
be a corporation organized under the laws of the United States of America or any
State thereof or the District of Columbia and shall expressly assume, by a
supplemental indenture executed and delivered to the Trustee in form
satisfactory to the Trustee, all of the Company's obligations under this
Indenture; (2) immediately after giving pro forma effect to such transaction as
if such transaction had occurred at the beginning of the last full fiscal
quarter immediately prior to the consummation of such transaction with the
appropriate adjustments with respect to the transaction being included in such
pro forma calculation and treating any Debt which becomes an obligation of the
Company or a Subsidiary as a result of such transaction as having been Incurred
by the Company or such Subsidiary at the time of the transaction, no Default or
Event of Default shall have occurred and be continuing; (3) immediately after
giving effect to such transaction, the Consolidated Net Worth of the Company (or
other successor entity to the Company) is equal to or greater than that of the
Company immediately prior to the transaction; (4) if, as a result of any such
transaction, property or assets of the Company would become subject to a Lien
prohibited by the provisions of Section 1011, the Company or the successor
entity to the Company shall have secured the Securities as required by Section
1011; (5) the Company has delivered to the Trustee an Officer's Certificate and
an Opinion of Counsel, each in form and substance satisfactory to the Trustee
stating that such consolidation, merger, conveyance, transfer, lease or
acquisition and, if a supplemental indenture is required in connection with such
transaction, such supplemental indenture, complies with this Article and that
all conditions precedent herein provided for relating to such transaction have
been complied with, and, with respect to such Officer's Certificate, setting
forth the manner of determination of the Consolidated Net Worth in accordance
with Clause (3) of Section 801, of the Company or, if applicable, of the
Successor Company as required pursuant to the foregoing.
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(b) In the event of any transaction (other than a lease)
described in and complying with the immediately preceding paragraph in which the
Company is not the surviving Person and the surviving Person assumes all the
obligations of the Company under the Securities and this Indenture pursuant to a
supplemental indenture, such surviving Person shall succeed to, and be
substituted for, and may exercise every right and power of, the Company, and the
Company will be discharged from its obligations under this Indenture and the
Securities; provided that solely for the purpose of calculating amounts under
Section 1009(3), any such surviving Person shall only be deemed to have
succeeded to and be substituted for the Company with respect to the period
subsequent to the effective time of such transaction, and the Company (before
giving effect to such transaction) shall be deemed to be the "Company" for such
purposes for all prior periods.
SECTION 802. Successor Substituted.
Upon any consolidation of the Company with, or merger of the
Company with or into, any other Person or any conveyance, transfer or lease of
the properties and assets of the Company substantially as an entirety in
accordance with Section 801, the successor Person formed by such consolidation
or into which the Company is merged or to which such conveyance, transfer or
lease is made shall succeed to, and be substituted for, and may exercise every
right and power of, the Company under this Indenture with the same effect as if
such successor Person had been named as the Company herein, and thereafter,
except in the case of a lease, the predecessor Person shall be relieved of all
obligations and covenants under this Indenture and the Securities.
ARTICLE NINE
Supplemental Indentures
SECTION 901. Supplemental Indentures
Without Consent of Holders.
Without the consent of any Holders, the Company, when authorized
by Board Resolution, and the Trustee, at any time and from time to time, may
enter into one or more indentures supplemental hereto, in form satisfactory to
the Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the Company
and the assumption by any such successor of the covenants of the
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Company herein and in the Securities; or
(2) to add to the covenants of the Company for the benefit of the
Holders, or to surrender any right or power herein conferred upon the
Company; or
(3) to secure the Securities pursuant to the requirements of
Section 1011 or otherwise; or
(4) to modify, eliminate or add to the provisions of this
Indenture to such extent as shall be necessary to comply with any
requirement of the Commission in order to effect qualification of this
Indenture under the Trust Indenture Act in connection with the issuance
of Exchange Securities or thereafter to maintain the qualification of
this Indenture under the Trust Indenture Act;
(5) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision herein, or to
make any other provisions with respect to matters or questions arising
under this Indenture which shall not be inconsistent with the provisions
of this Indenture, provided that such action pursuant to this Clause (5)
shall not adversely affect the legal rights of the Holders; or
(6) to provide for uncertificated Securities in addition to or in
place of certificated Securities.
SECTION 902. Supplemental Indentures
with Consent of Holders.
With the consent of the Holders of not less than a majority in
aggregate principal amount of the Outstanding Securities, by Act of said Holders
delivered to the Company and the Trustee, and consistent with Section 513, the
Company, when authorized by Board Resolution, and the Trustee may enter into an
indenture or indentures supplemental hereto for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Indenture or of modifying in any manner the rights of the Holders under
this Indenture; provided, however, that no such supplemental indenture shall,
without the consent of the Holder of each Outstanding Security affected thereby,
(1) change the Stated Maturity of the principal of, or any
installment of interest on, any Security, or reduce the principal amount
thereof or the rate of interest thereon or any premium payable thereon,
or change the place of payment where, or the coin or currency in which,
any
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Security or any premium or interest thereon is payable, or impair the
right to institute suit for the enforcement of any such payment on or
after the Stated Maturity thereof (or, in the case of redemption, on or
after the Redemption Date) or, in the case of an Offer to Purchase which
has been made, on or after the applicable Purchase Date, or
(2) reduce the percentage in principal amount of the Outstanding
Securities, the consent of whose Holders is required for any such
supplemental indenture, or the consent of whose Holders is required for
any waiver (of compliance with certain provisions of this Indenture or
certain defaults hereunder and their consequences) provided for in this
Indenture, or
(3) modify any of the provisions of this Section, Section 513 or
Section 1019, except to increase any such percentage or to provide that
certain other provisions of this Indenture cannot be modified or waived
without the consent of the Holder of each Outstanding Security affected
thereby, or
(4) following the mailing of an Offer with respect to an Offer to
Purchase pursuant to Section 1013 or 1016 and until the Expiration Date
of such Offer to Purchase, modify the provisions of this Indenture with
respect to such Offer to Purchase in a manner materially adverse to such
Holder.
It shall not be necessary for any Act of Holders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 601) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
SECTION 904. Effect of Supplemental Indentures.
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Upon the execution of any supplemental indenture under this
Article, this Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for all purposes; and
every Holder of Securities theretofore or thereafter authenticated and delivered
hereunder shall be bound thereby.
SECTION 905. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article
shall conform to the requirements of the Trust Indenture Act.
SECTION 906. Reference in Securities
to Supplemental Indentures.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Securities.
ARTICLE TEN
Covenants
SECTION 1001. Payment of Principal, Premium and
Interest.
The Company will duly and punctually pay the principal of and
premium, if any, and interest on the Securities in accordance with the terms of
the Securities and this Indenture.
SECTION 1002. Maintenance of Office or Agency.
The Company will maintain in the Borough of Manhattan, The City
of New York, New York, an office or agency where Securities may be presented or
surrendered for payment, where Securities may be surrendered for registration of
transfer or exchange and where notices and demands to or upon the Company in
respect of the Securities and this Indenture may be served. The Company will
give prompt written notice to the Trustee of the location, and any
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change in the location, of such office or agency. If at any time the Company
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office of the
Trustee, and the Company hereby appoints the Trustee as its agent to receive all
such presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more
other offices or agencies (in or outside the Borough of Manhattan, The City of
New York, New York) where the Securities may be presented or surrendered for any
or all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in the
Borough of Manhattan, The City of New York, New York for such purposes. The
Company will give prompt written notice to the Trustee of any such designation
or rescission and of any change in the location of any such other office or
agency.
SECTION 1003. Money for Security
Payments to be Held in Trust.
If the Company shall at any time act as its own Paying Agent, it
will, on or before each due date of the principal of (and premium, if any) or
interest on any of the Securities, segregate and hold in trust for the benefit
of the Persons entitled thereto a sum sufficient to pay the principal (and
premium, if any) or interest so becoming due until such sums shall be paid to
such Persons or otherwise disposed of as herein provided and will promptly
notify the Trustee in writing of its action or failure so to act. As provided in
Section 504, upon any bankruptcy or reorganization proceeding relative to the
Company, the Trustee shall serve as the Paying Agent for the Securities.
Whenever the Company shall have one or more Paying Agents, it
will, prior to each due date of the principal of (and premium, if any) or
interest on any Securities, deposit with a Paying Agent a sum sufficient to pay
the principal (and premium, if any) or interest so becoming due, such sum to be
held in trust for the benefit of the Persons entitled to such principal, premium
or interest, and (unless such Paying Agent is the Trustee) the Company will
promptly notify the Trustee in writing of its action or failure so to act. As
provided in Section 504, upon any bankruptcy or reorganization proceeding
relative to the Company the Trustee shall serve as the Paying Agent for the
Securities.
The Company will cause each Paying Agent other than the Trustee
to execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such
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Paying Agent will:
(1) hold all sums held by it for the payment of the principal of
(and premium, if any) or interest on Securities in trust for the benefit
of the Persons entitled thereto until such sums shall be paid to such
Persons or otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any
other obligor upon the Securities) in the making of any payment of
principal (and premium, if any) or interest;
(3) at any time during the continuance of any such default, upon
the written request of the Trustee, forthwith pay to the Trustee all
sums so held in trust by such Paying Agent; and
(4) acknowledge, accept and agree to comply in all respects with
the provisions of this Indenture relating to the duties, rights and
obligations of such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.
Any money deposited with the Trustee or any Paying Agent, or then
held by the Company, in trust for the payment of the principal of (and premium,
if any) or interest on any Security and remaining unclaimed for two years after
such principal (and premium, if any) or interest has become due and payable
shall be paid to the Company on the Company Request, or (if then held by the
Company) shall be discharged from such trust; and the Holder of such Security
shall thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in a newspaper published in
the English language, customarily published on each Business Day and of general
circulation in the Borough of Manhattan, The City of New York, New York, notice
that such money remains unclaimed and that, after a date
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specified therein, which shall not be less than 30 days from the date of such
publication, any unclaimed balance of such money then remaining will be repaid
to the Company.
SECTION 1004. Existence.
Subject to Article Eight, the Company will do or cause to be done
all things necessary to preserve and keep in full force and effect its
existence, rights (charter and statutory) and franchises; provided, however,
that the Company shall not be required to preserve any such right or franchise
if the Board of Directors shall determine that the preservation thereof is no
longer desirable in the conduct of the business of the Company and that the loss
thereof is not disadvantageous in any material respect to the Holders.
SECTION 1005. Maintenance of Properties and Insurance.
The Company will cause all properties used or useful in the
conduct of its business or the business of any Subsidiary, to be maintained and
kept in good condition, repair and working order and supplied with all necessary
equipment and will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided,
however, that nothing in this Section shall prevent the Company from
discontinuing the operation or maintenance of any of such properties if such
discontinuance is, as determined in the good faith judgment of the Board of
Directors evidenced by a Board Resolution, desirable in the conduct of its
business or, in the case of the Company, the business of any Subsidiary, and not
disadvantageous in any material respect to the Holders.
The Company shall, and shall cause the Subsidiaries of the
Company to, keep at all times all of their properties which are of an insurable
nature insured against loss or damage with insurers believed by the Company to
be responsible to the extent that property of similar character is usually so
insured by corporations similarly situated and owning like properties in
accordance with good business practice.
SECTION 1006. Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (1) all taxes, assessments
and governmental charges levied or imposed upon the Company or any Subsidiaries
of the Company or upon the income, profits or property of the
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Company or any Subsidiaries, and (2) all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a lien upon the property of the
Company or any Subsidiaries of the Company; provided, however, that the Company
shall not be required to pay or discharge or cause to be paid or discharged any
such tax, assessment, charge or claim whose amount, applicability or validity is
being contested in good faith by appropriate proceedings.
SECTION 1007. Limitation on Consolidated Debt.
The Company may not, and may not permit any Restricted Subsidiary
of the Company to, Incur any Debt unless either (a) the ratio of (i) the
aggregate consolidated principal amount of Debt of the Company outstanding as of
the most recent available quarterly or annual balance sheet, after giving pro
forma effect to the Incurrence of such Debt and any other Debt Incurred since
such balance sheet date and the receipt and application of the proceeds thereof
to (ii) Consolidated Cash Flow Available for Fixed Charges for the four full
fiscal quarters next preceding the Incurrence of such Debt for which
consolidated financial statements are available, determined on a pro forma basis
as if (x) any such Debt had been Incurred and the proceeds thereof had been
applied at the beginning of such four fiscal quarters, (y) the net income (or
loss) for such period of any Person or related to any assets disposed of by the
Company or a Restricted Subsidiary of the Company prior to the end of such
period had been excluded from Consolidated Net Income and (z) the net income (or
loss) for such period of any Person or related to any assets acquired by the
Company or any Restricted Subsidiary prior to the end of such period had been
included in Consolidated Net Income, would be less than 5.5 to 1 for such
four-quarter periods ending on or prior to December 31, 1999 and 5.0 to 1 for
such periods ending thereafter, or (b) the Company's Consolidated Capital Ratio
as of the most recent available quarterly or annual balance sheet, after giving
pro forma effect to the Incurrence of such Debt, any issuance of Capital Stock
(other than Disqualified Stock) since such balance sheet date, any increase in
paid in-capital (other than in respect of Disqualified Stock) since such balance
sheet date and the Incurrence of any other Debt since such balance sheet date
and the receipt and application of the proceeds thereof, is less than 2.0 to 1.
Notwithstanding the foregoing limitation, the Company and any
Restricted Subsidiary may Incur the following:
(i) Debt under any one or more Bank Credit Agreements or Vendor
Financing Facilities in an aggregate principal amount at any one time
not to exceed the greater of (x) $175 million and (y) 85% of the
Eligible Receivables, and any renewal, extension, refinancing or
refunding thereof in an amount which, together with any principal amount
remaining
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outstanding or available under all Bank Credit Agreements and Vendor
Financing Facilities of the Company and its Restricted Subsidiaries,
plus the amount of any premium required to be paid in connection with
such refinancing pursuant to the terms of any Bank Credit Agreement so
refinanced plus the amount of expenses incurred in connection with such
refinancing, does not exceed the aggregate principal amount outstanding
or available under all such Bank Credit Agreements and Vendor Financing
Facilities of the Company and its Restricted Subsidiaries immediately
prior to such renewal, extension, refinancing or refunding;
(ii) Purchase Money Debt Incurred to finance the construction,
acquisition or improvement of Telecommunications Assets, provided that
the net proceeds of such Purchase Money Debt do not exceed 100% of the
cost of construction, acquisition or improvement price of the applicable
Telecommunications Assets;
(iii) Debt owed by the Company to any Restricted Subsidiary of
the Company or Debt owed by a Restricted Subsidiary of the Company to
the Company or a Restricted Subsidiary of the Company; provided,
however, that upon either (x) the transfer or other disposition by such
Restricted Subsidiary or the Company of any Debt so permitted to a
Person other than the Company or another Restricted Subsidiary of the
Company or (y) the issuance (other than directors' qualifying shares),
sale, lease, transfer or other disposition of shares of Capital Stock
(including by consolidation or merger) of such Restricted Subsidiary as
a result of which the obligor of such Debt ceases to be a Restricted
Subsidiary, the provisions of this clause (iii) shall no longer be
applicable to such Debt and such Debt shall be deemed to have been
Incurred at the time of such transfer or other disposition;
(iv) Debt Incurred to renew, extend, refinance or refund (each, a
"refinancing") Debt outstanding at the date of this Indenture or
Incurred pursuant to the preceding paragraph or clause (ii) of this
paragraph or the Securities in an aggregate principal amount not to
exceed the aggregate principal amount of and accrued interest on the
Debt so refinanced plus the amount of any premium required to be paid in
connection with such refinancing pursuant to the terms of the Debt so
refinanced or the amount of any premium reasonably determined by the
Company as necessary to accomplish such refinancing by means of a tender
offer or privately negotiated repurchase, plus the amount of expenses of
the Company incurred in connection with such refinancing; provided,
however, that Debt the proceeds of which are used to refinance the
Securities or Debt which is pari passu to the Securities or debt which
is subordinate in right of payment to the Securities shall only be
permitted if (A) in the case of any refinancing of the Securities or
Debt which is pari passu to the Securities,
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the refinancing Debt is made pari passu to the Securities or
subordinated to the Securities, and, in the case of any refinancing of
Debt which is subordinated to the Securities, the refinancing Debt
constitutes Subordinated Debt and (B) in either case, the refinancing
Debt by its terms, or by the terms of any agreement or instrument
pursuant to which such Debt is issued, (x) does not provide for payments
of principal of such Debt at the stated maturity thereof or by way of a
sinking fund applicable thereto or by way of any mandatory redemption,
defeasance, retirement or repurchase thereof by the Company (including
any redemption, retirement or repurchase which is contingent upon events
or circumstances, but excluding any retirement required by virtue of
acceleration of such Debt upon any event of default thereunder), in each
case prior to the time the same are required by the terms of the Debt
being refinanced and (y) does not permit redemption or other retirement
(including pursuant to an offer to purchase made by the Company) of such
Debt at the option of the holder thereof prior to the final stated
maturity of the Debt being refinanced, other than a redemption or other
retirement at the option of the holder of such Debt (including pursuant
to an offer to purchase made by the Company) which is conditioned upon a
change substantially similar to the provisions of Section 1016 or which
is pursuant to provisions substantially similar to the provisions of
Section 1013;
(v) Debt consisting of Permitted Interest Rate
and Currency Protection Agreements;
(vi) Debt outstanding under the Securities;
(vii) Subordinated Debt invested by (a) a group of employees of
the Company, which includes the Chief Executive Officer of the Company,
who own, directly or indirectly, through an employee stock ownership
plan or arrangement, shares of the Company's Capital Stock or (b) any
other Person that controls the Company (i) on the Issue Date or (ii)
after a Change of Control, provided that the Company is not in default
with respect to its obligations under Section 1016;
(viii) Debt consisting of performance and other similar bonds and
reimbursement obligations Incurred in the ordinary course of business
securing the performance of contractual, franchise or license
obligations of the Company or a Restricted Subsidiary, or in respect of
a letter of credit obtained to secure such performance; and
(ix) Debt not otherwise permitted to be Incurred pursuant to
clauses (i) through (viii) above, which, together with any other
outstanding
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Debt Incurred pursuant to this clause (ix), has an aggregate principal
amount (or, in the case of Debt issued at a discount, an accreted amount
(determined in accordance with generally accepted accounting principles)
at the time of Incurrence) not in excess of $10 million at any time
outstanding.
For purposes of determining compliance with this Section 1007, in
the event that an item of Debt meets the criteria of more than one of the types
of Debt the Company is permitted to incur pursuant to the foregoing clauses (i)
through (ix) or the first paragraph of this Section 1007, the Company shall have
the right, in its sole discretion, to classify such item of Debt and shall only
be required to include the amount and type of such Debt under the clause or
paragraph permitting the Debt as so classified. For purposes of determining any
particular amount of Debt under such covenant, Guarantees or Liens with respect
to letters of credit supporting Debt otherwise included in the determination of
a particular amount shall not be included.
SECTION 1008. Limitation on Debt and Preferred Stock
of Restricted Subsidiaries.
The Company may not permit any Restricted Subsidiary of the
Company (other than a Restricted Subsidiary that has fully and unconditionally
Guaranteed the Securities on an unsubordinated basis) to Incur or suffer to
exist any Debt or issue any Preferred Stock except:
(i) Debt or Preferred Stock outstanding on the date of this
Indenture after giving effect to the application of the proceeds of the
Securities;
(ii) Debt Incurred or Preferred Stock issued to and held by the
Company or a Restricted Subsidiary of the Company (provided that such
Debt or Preferred Stock is at all times held by the Company or a
Restricted Subsidiary of the Company);
(iii) Debt Incurred or Preferred Stock issued by a Person prior
to the time (A) such Person became a Restricted Subsidiary of the
Company, (B) such Person merges into or consolidates with a Restricted
Subsidiary of the Company or (C) another Restricted Subsidiary of the
Company merges into or consolidates with such Person (in a transaction
in which such Person becomes a Restricted Subsidiary of the Company),
which Debt or Preferred Stock was not Incurred or issued in anticipation
of such transaction and was outstanding prior to such transaction;
(iv) Debt consisting of Permitted Interest Rate
and Currency
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Protection Agreements;
(v) Debt or Preferred Stock of a Joint Venture;
(vi) Debt under any one or more Bank Credit Agreements or Vendor
Financing Facilities (and renewals, extensions, refinancings or
refundings thereof) which is permitted to be outstanding under clause
(i) of Section 1007;
(vii) Debt consisting of Guarantees of the
Securities;
(viii) Debt or Preferred Stock which is exchanged for, or the
proceeds of which are used to refinance, refund or redeem, any Debt or
Preferred Stock permitted to be outstanding pursuant to clauses (i),
(iii) and (ix) hereof (or any extension or renewal thereof) (for
purposes hereof, a "refinancing"), in an aggregate principal amount, in
the case of Debt, or with an aggregate liquidation preference, in the
case of Preferred Stock, not to exceed the aggregate principal amount of
the Debt so refinanced or the aggregate liquidation preference of the
Preferred Stock so refinanced, plus the amount of any premium required
to be paid in connection with such refinancing pursuant to the terms of
the Debt or Preferred Stock so refinanced or the amount of any premium
reasonably determined by the Company as necessary to accomplish such
refinancing by means of a tender offer or privately negotiated
repurchase, plus the amount of expenses of the Company and the
Restricted Subsidiary incurred in connection therewith and provided the
Debt or Preferred Stock incurred or issued upon such refinancing by its
terms, or by the terms of any agreement or instrument pursuant to which
such Debt or Preferred Stock is Incurred or issued, (x) does not provide
for payments of principal or liquidation value at the stated maturity of
such Debt or Preferred Stock or by way of a sinking fund applicable to
such Debt or Preferred Stock or by way of any mandatory redemption,
defeasance, retirement or repurchase of such Debt or Preferred Stock by
the Company or any Restricted Subsidiary of the Company (including any
redemption, retirement or repurchase which is contingent upon events or
circumstances, but excluding any retirement required by virtue of
acceleration of such Debt upon an event of default thereunder), in each
case prior to the time the same are required by the terms of the Debt or
Preferred Stock being refinanced and (y) does not permit redemption or
other retirement (including pursuant to an offer to purchase made by the
Company or a Restricted Subsidiary of the Company) of such Debt or
Preferred Stock at the option of the holder thereof prior to the stated
maturity of the Debt or Preferred Stock being refinanced, other than a
redemption or other retirement at the option of the holder of such Debt
or Preferred Stock
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(including pursuant to an offer to purchase made by the Company or a
Restricted Subsidiary of the Company) which is conditioned upon the
change of control of the Company pursuant to provisions substantially
similar to the provisions of Section 1016 or which is pursuant to
provisions substantially similar to the provisions of Section 1013, and
provided, further, that in the case of any exchange or redemption of
Preferred Stock of a Restricted Subsidiary of the Company, such
Preferred Stock may only be exchanged for or redeemed with Preferred
Stock of such Restricted Subsidiary;
(ix) Purchase Money Debt Incurred to finance the construction,
acquisition or improvement of Telecommunications Assets, provided that
the net proceeds of such Purchase Money Debt do not exceed 100% of the
cost of construction, acquisition or improvement price of the applicable
Telecommunications Assets; and
(x) Debt consisting of performance and other similar bonds and
reimbursement obligations Incurred in the ordinary course of business
securing the performance of contractual, franchise or license
obligations of the Company or a Restricted Subsidiary, or in respect of
a letter of credit obtained to secure such performance; and
(xi) Debt not otherwise permitted to be incurred pursuant to
clauses (i) through (x) above, which, together with any other
outstanding Debt incurred pursuant to this clause (xi), has an aggregate
principal amount (or, in the case of Debt issued at a discount, an
accreted amount (determined in accordance with generally accepted
accounting principles) at the time of Incurrence) not in excess of $10
million at any time outstanding.
For purposes of determining compliance with this Section 1008, in the
event that an item of Debt meets the criteria of more than one of the types of
Debt a Restricted Subsidiary of the Company is permitted to incur pursuant to
the foregoing clauses (i) through (xi), the Company shall have the right, in its
sole discretion, to classify such item of Debt and shall be only required to
include the amount and type of such Debt under the clause permitting the Debt as
so classified. For purposes of determining any particular amount of Debt under
such covenant, Guarantees or Liens with respect to letters of credit supporting
Debt or otherwise included in the determination of a particular amount shall not
be included.
SECTION 1009. Limitation on Restricted Payments.
The Company (i) may not, directly or indirectly, declare or pay
any
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dividend, or make any distribution, in respect of its Capital Stock or to the
holders thereof (in their capacity as such), excluding any dividends or
distributions payable solely in shares of its Capital Stock (other than
Disqualified Stock) or in options, warrants or other rights to acquire its
Capital Stock (other than Disqualified Stock); (ii) may not, and may not permit
any Restricted Subsidiary to, purchase, redeem, or otherwise retire or acquire
for value (a) any Capital Stock of the Company or any Related Person of the
Company; or (b) any options, warrants or rights to purchase or acquire shares of
Capital Stock of the Company or any Related Person of the Company or any
securities convertible or exchangeable into shares of Capital Stock of the
Company or any Related Person of the Company; (iii) may not make, or permit any
Restricted Subsidiary to make, any Investment in, or payment on a Guarantee of
any obligation of, any Person, other than the Company or a Restricted Subsidiary
of the Company, except for Permitted Investments; and (iv) may not, and may not
permit any Restricted Subsidiary to, redeem, defease, repurchase, retire or
otherwise acquire or retire for value, prior to any scheduled maturity,
repayment or sinking fund payment, Debt of the Company which is subordinate in
right of payment to the Securities (each of clauses (i) through (iv) being a
"Restricted Payment") if: (1) a Default or an Event of Default shall have
occurred and is continuing; or (2) upon giving effect to such Restricted
Payment, the Company could not Incur at least $1.00 of additional Debt pursuant
to the provisions of the first paragraph of Section 1007; or (3) upon giving
effect to such Restricted Payment, the aggregate of all Restricted Payments from
April 25, 1996 exceeds the sum of: (a) 50% of cumulative Consolidated Net Income
(or, in the case Consolidated Net Income shall be negative, less 100% of such
deficit) since the end of the last full fiscal quarter prior to April 25, 1996
through the last day of the last full fiscal quarter ending immediately
preceding the date of such Restricted Payment; plus (b) $5 million; plus (c)
100% of the net reduction in Investments in any Unrestricted Subsidiary
resulting from payments of interest on Debt, dividends, repayments of loans or
advances, or other transfers of assets, in each case to the Company or any
Restricted Subsidiary of the Company from such Unrestricted Subsidiary (except
to the extent that any such payment is included in the calculation of
Consolidated Net Income) or from redesignations of Unrestricted Subsidiaries as
Restricted Subsidiaries; provided that the amount included in this clause (c)
shall not exceed the amount of Investments previously made by the Company and
its Restricted Subsidiaries in such Unrestricted Subsidiary; provided, further,
that the Company or a Restricted Subsidiary of the Company may make any
Restricted Payment with the aggregate net proceeds received after April 25,
1996, including the fair value of property other than cash (determined in good
faith by the Board of Directors, as conclusively evidenced by a Board Resolution
filed with the Trustee), as capital contributions to the Company or from the
issuance (other than to a Restricted Subsidiary) of Capital Stock (other than
Disqualified Stock) of the Company and warrants, rights or options on Capital
Stock (other than Disqualified Stock) of the Company and the
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principal amount of Debt of the Company that has been converted into Capital
Stock (other than Disqualified Stock and other than by a Restricted Subsidiary)
of the Company after April 25, 1996.
Notwithstanding the foregoing, the Company may (i) pay any
dividend on Capital Stock of any class within 60 days after the declaration
thereof if, on the date when the dividend was declared, the Company could have
paid such dividend in accordance with the foregoing provisions; (ii) repurchase
any shares of its Common Equity or options to acquire its Common Equity from
Persons who were formerly officers or employees of the Company, provided that
the aggregate amount of all such repurchases made pursuant to this clause (ii)
shall not exceed $2 million, plus the aggregate cash proceeds received by the
Company since April 25, 1996 from issuances of its Common Equity or options to
acquire its Common Equity to members, officers, managers, directors and
employees of the Company or any of its Subsidiaries; (iii) the Company and its
Restricted Subsidiaries may refinance any Debt otherwise permitted by clause
(iv) of the second paragraph of Section 1007; and (iv) the Company and its
Restricted Subsidiaries may retire or repurchase any Capital Stock or
Subordinated Debt of the Company in exchange for, or out of the proceeds of the
substantially concurrent sale (other than to a Restricted Subsidiary of the
Company) of, Capital Stock (other than Disqualified Stock) of the Company. If
the Company makes a Restricted Payment which, at the time of the making of such
Restricted Payment, would in the good faith determination of the Company be
permitted under this Indenture, such Restricted Payment shall be deemed to have
been made in compliance with this Indenture notwithstanding any subsequent
adjustments made in good faith to the Company financial statements affecting
Consolidated Net Income for any period.
In determining the aggregate amount expended or available for Restricted
Payments in accordance with clause (3) of the first paragraph above, (1) no
amounts expended under clauses (iii) or (iv) of the immediately preceding
paragraph shall be included, (2) 100% of the amounts expended under clauses (i)
and (ii) of the immediately preceding paragraph shall be included, and (3) no
amount shall be credited in respect of issuances of Capital Stock in
transactions under clause (iv) of the immediately preceding paragraph.
SECTION 1010. Limitation on Dividend and Other
Payment Restrictions Affecting
Restricted Subsidiaries.
The Company may not, and may not permit any Restricted Subsidiary
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any consensual encumbrance or restriction on the ability of any
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Restricted Subsidiary of the Company (i) to pay dividends (in cash or otherwise)
or make any other distributions in respect of its Capital Stock owned by the
Company or any other Restricted Subsidiary of the Company or pay any Debt or
other obligation owed to the Company or any other Restricted Subsidiary; (ii) to
make loans or advances to the Company or any other Restricted Subsidiary; or
(iii) to transfer any of its property or assets to the Company or any other
Restricted Subsidiary. Notwithstanding the foregoing, the Company may, and may
permit any Restricted Subsidiary to, suffer to exist any such encumbrance or
restriction (a) pursuant to any agreement in effect on the Issue Date; (b)
pursuant to an agreement relating to any Acquired Debt, which encumbrance or
restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person so acquired and its Subsidiaries; (c) pursuant to
any one or more Bank Credit Agreements or Vendor Financing Facilities (and
renewals, extensions, refinancings or refundings thereof) which is permitted to
be outstanding under clause (i) of Section 1007, provided that such restriction
is consistent with, and not materially more restrictive (as conclusively
determined in good faith by the Chief Financial Officer of the Company), taken
as a whole, than, comparable provisions included in similar agreements or
facilities extended to comparable credits engaged in the Telecommunications
Business; (d) pursuant to an agreement effecting a renewal, refunding or
extension of Debt Incurred pursuant to an agreement referred to in clause (a) or
(b) above or (e) below, provided, however, that the provisions contained in such
renewal, refunding or extension agreement relating to such encumbrance or
restriction are not materially more restrictive (as conclusively determined in
good faith by the Chief Financial Officer of the Company), taken as a whole,
than the provisions contained in the agreement the subject thereof; (e) in the
case of clause (iii) above, restrictions contained in any security agreement
(including a Capital Lease Obligation) securing Debt of the Company or a
Restricted Subsidiary otherwise permitted under this Indenture, but only to the
extent such restrictions restrict the transfer of the property subject to such
security agreement; (f) in the case of clause (iii) above, customary
nonassignment provisions entered into in the ordinary course of business in
leases and other agreements; (g) any restriction with respect to a Restricted
Subsidiary of the Company imposed pursuant to an agreement which has been
entered into for the sale or disposition of all or substantially all of the
Capital Stock or assets of such Restricted Subsidiary, provided that
consummation of such transaction would not result in a Default or an Event of
Default, that such restriction terminates if such transaction is not consummated
and that such consummation or abandonment of such transaction occurs within one
year of the date such agreement was entered into; (h) pursuant to applicable law
or regulations; (i) pursuant to this Indenture and the Securities; or (j) any
restriction on the sale or other disposition of assets or property securing Debt
as a result of a Permitted Lien on such assets or property.
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SECTION 1011. Limitation on Liens.
The Company may not, and may not permit any Restricted Subsidiary
of the Company to, Incur or suffer to exist any Lien on or with respect to any
property or assets now owned or hereafter acquired to secure any Debt without
making, or causing such Restricted Subsidiary to make, effective provision for
securing the Securities (x) equally and ratably with (or prior to) such Debt as
to such property for so long as such Debt will be so secured or (y) in the event
such Debt is Debt of the Company which is subordinate in right of payment to the
Securities, prior to such Debt as to such property for so long as such Debt will
be so secured.
The foregoing restrictions shall not apply to: (i) Liens existing
on the Issue Date and securing Debt outstanding on the Issue Date or securing
the Securities or Liens securing Debt Incurred pursuant to any Bank Credit
Agreement or Vendor Financing Facility (whether or not such Bank Credit
Agreement or Vendor Financing Facility was outstanding on the Issue Date); (ii)
Liens securing Debt in an amount which, together with the aggregate amount of
Debt then outstanding or available under the Bank Credit Agreement and Vendor
Financing Facility (or under refinancings or amendments of such agreements),
does not exceed 1.5 times the Company's Consolidated Cash Flow Available for
Fixed Charges for the four full fiscal quarters preceding the Incurrence of such
Lien for which consolidated financial statements are available, determined on a
pro forma basis as if such Debt had been Incurred and the proceeds thereof had
been applied at the beginning of such four fiscal quarters; (iii) Liens in favor
of the Company or any Wholly-Owned Restricted Subsidiary of the Company; (iv)
Liens on real or personal property of the Company or a Restricted Subsidiary of
the Company acquired, constructed or constituting improvements made after the
Issue Date to secure Purchase Money Debt which is Incurred for the construction,
acquisition and improvement of Telecommunications Assets and is otherwise
permitted under this Indenture, provided, however, that (a) the net proceeds of
any Debt secured by such a Lien does not exceed 100% of such purchase price or
cost of construction or improvement of the property subject to such Lien, (b)
such Lien attaches to such property prior to, at the time of or within 180 days
after the acquisition, completion of construction or commencement of operation
of such property and (c) such Lien does not extend to or cover any property
other than the property (or identifiable portions thereof) acquired, constructed
or constituting the improvements made with the proceeds of such Purchase Money
Debt (it being understood and agreed that all Debt owed to any single lender or
group of lenders or outstanding under any single credit facility shall be
considered a single Purchase Money Debt, whether drawn at one time or from time
to time); (v) Liens to secure Acquired Debt, provided, however, that (a) such
Lien attaches to the acquired asset prior to the time of the acquisition of such
asset
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and (b) such Lien does not extend to or cover any other asset; (vi) Liens to
secure Debt Incurred to extend, renew, refinance or refund (or successive
extensions, renewals, refinancings or refundings), in whole or in part, Debt
secured by any Lien referred to in the foregoing clauses (i), (ii), (iv) and (v)
so long as such Lien does not extend to any other property and the principal
amount of Debt so secured is not increased except as otherwise permitted under
clause (iv) of Section 1007; (vii) Liens securing Debt not otherwise permitted
by the foregoing clauses (i) through (vi) in an amount not to exceed 5% of the
Company's Consolidated Tangible Assets determined as of the most recent
available quarterly or annual balance sheet; and (viii) Permitted Liens.
SECTION 1012. Limitation on Sale and Leaseback
Transactions.
The Company may not, and may not permit any Restricted Subsidiary
to, enter into any Sale and Leaseback Transaction unless (i) the Company or such
Restricted Subsidiary would be entitled to Incur a Lien to secure Debt by reason
of the provisions of Section 1011, equal in amount to the Attributable Value of
the Sale and Leaseback Transaction without equally and ratably securing the
Securities; or (ii) the Sale and Leaseback Transaction is treated as an Asset
Disposition and all of the conditions of Section 1013 (including the provisions
concerning the application of Net Available Proceeds) are satisfied with respect
to such Sale and Leaseback Transaction, treating all of the consideration
received in such Sale and Leaseback Transaction in the same manner as
consideration in respect of an Asset Disposition for purposes of such covenant.
SECTION 1013. Limitation on Asset Dispositions.
(a) The Company may not, and may not permit any Restricted
Subsidiary to, make any Asset Disposition in one or more related transactions
occurring within any 12-month period unless: (i) the Company or the Restricted
Subsidiary, as the case may be, receives consideration for such disposition at
least equal to the fair market value for the assets sold or disposed of as
determined by the Board of Directors in good faith and evidenced by a Board
Resolution filed with the Trustee, which determination shall be conclusive; (ii)
at least 75% of the consideration for such disposition consists of (1) cash or
readily marketable cash equivalents or the assumption of Debt of the Company
(other than Debt that is subordinated to the Securities) or of the Restricted
Subsidiary and release from all liability on the Debt assumed; (2)
Telecommunications Assets; or (3) shares of publicly-traded Voting Stock of any
Person engaged in the Telecommunications Business in the United States; and
(iii) all Net Available
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Proceeds, less any amounts invested in Telecommunications Assets (within 180
days prior to and 360 days following such disposition), are applied within 360
days of such disposition (1) first, to the permanent repayment or reduction of
Debt then outstanding under any Bank Credit Agreement or Vendor Financing
Facility, to the extent such agreements would require such application or
prohibit payments pursuant to clause (2) following, (2) second, to the extent of
remaining Net Available Proceeds, to make an Offer to Purchase outstanding
Securities at 100% of their principal amount plus accrued interest to the date
of purchase (or 100% of the accreted value thereof, in the case of Debt issued
at an original issue discount) and, to the extent required by the terms thereof,
any other Debt of the Company that is pari passu with the Securities at a price
no greater than 100% of the principal amount thereof plus accrued interest to
the date of purchase and (3) third, to the extent of any remaining Net Available
Proceeds following the completion of the Offer to Purchase, to the repayment of
other Debt of the Company or Debt of a Restricted Subsidiary of the Company, to
the extent permitted under the terms thereof. To the extent any Net Available
Proceeds remain after such uses, the Company and its Restricted Subsidiaries may
use such amounts for any purposes not prohibited by this Indenture.
(b) The Company will mail the Offer for an Offer to Purchase
required pursuant to Section 1013(a) not more than 360 days after consummation
of the disposition referred to in Section 1013(a). The aggregate principal
amount of the Securities to be offered to be purchased pursuant to the Offer to
Purchase shall equal the Net Available Proceeds available therefor pursuant to
Clause (iii)(2) of Section 1013(a) (rounded down to the next lowest integral
multiple of $1,000). Each Holder shall be entitled to tender all or any portion
of the Securities owned by such Holder pursuant to the Offer to Purchase,
subject to the requirement that any portion of a Security tendered must be
tendered in an integral multiple of $1,000 principal amount.
The Company shall not be entitled to any credit against its
obligations under this Section 1013 for the principal amount of any Securities
acquired or redeemed by the Company otherwise than pursuant to the Offer to
Purchase pursuant to this Section 1013.
(c) Not later than the date of the Offer with respect to an Offer
to Purchase pursuant to this Section 1013, the Company shall deliver to the
Trustee an Officers' Certificate as to (i) the Purchase Amount, (ii) the
allocation of the Net Available Proceeds from the Asset Disposition pursuant to
which such Offer is being made, including, if amounts are invested in
Telecommunication Assets, the amount of the assets acquired and (iii) the
compliance of such allocation with the provisions of Section 1013(a).
The Company and the Trustee shall perform their respective
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obligations specified in the Offer for the Offer to Purchase. On or prior to the
Purchase Date, the Company shall (i) accept for payment (on a pro rata basis, if
necessary) Securities or portions thereof tendered pursuant to the Offer, (ii)
deposit with the Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 1003) money sufficient
to pay the purchase price of all Securities or portions thereof so accepted and
(iii) deliver or cause to be delivered to the Trustee all Securities so accepted
together with an Officers' Certificate stating the Securities or portions
thereof accepted for payment by the Company. The Paying Agent (or the Company,
if so acting) shall promptly mail or deliver to Holders of Securities so
accepted payment in an amount equal to the purchase price, and the Trustee shall
promptly authenticate and mail or deliver to such Holders a new Security of like
tenor equal in principal amount to any unpurchased portion of the Security
surrendered. Any Security not accepted for payment shall be promptly mailed or
delivered by the Company to the Holder thereof.
(d) Notwithstanding the foregoing, this Section 1013 shall not
apply to any Asset Disposition which constitutes a transfer, conveyance, sale,
lease or other disposition of all or substantially all of the Company's
properties or assets within the meaning of Section 801 hereof.
SECTION 1014. Limitation on Issuances and Sales of
Capital Stock of Restricted Subsidiaries.
The Company may not, and may not permit any Restricted Subsidiary
of the Company to, issue, transfer, convey, sell or otherwise dispose of any
shares of Capital Stock of a Restricted Subsidiary of the Company or securities
convertible or exchangeable into, or options, warrants, rights or any other
interest with respect to, Capital Stock of a Restricted Subsidiary of the
Company to any person other than the Company or a Wholly-Owned Restricted
Subsidiary of the Company except (i) in a transaction consisting of a sale of
Capital Stock of such Restricted Subsidiary owned by the Company or any
Restricted Subsidiary of the Company and that complies with the provisions of
Section 1013 to the extent such provisions apply; (ii) if required, the
issuance, transfer, conveyance, sale or other disposition of directors'
qualifying shares; (iii) in a transaction in which, or in connection with which,
the Company or a Restricted Subsidiary acquires at the same time sufficient
Capital Stock of such Restricted Subsidiary to at least maintain the same
percentage ownership interest it had prior to such transaction; (iv)
constituting the issuance of Preferred Stock permitted by the provisions of
Section 1008; and (v) Disqualified Stock issued in exchange for, or upon
conversion of, or the proceeds of the issuance of which are used to redeem,
refinance, replace or refund shares of Disqualified Stock of such Restricted
Subsidiary, provided that the amounts of the
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redemption obligations of such Disqualified Stock shall not exceed the amounts
of the redemption obligations of, and such Disqualified Stock shall have
redemption obligations no earlier than those required by, the Disqualified Stock
being exchanged, converted, redeemed, refinanced, replaced or refunded.
SECTION 1015. Transactions with Affiliates
and Related Persons.
The Company may not, and may not permit any Restricted Subsidiary
of the Company to, enter into any transaction (or series of related
transactions) with an Affiliate or Related Person of the Company (other than the
Company or a Wholly-Owned Restricted Subsidiary of the Company), including any
Investment, but excluding transactions pursuant to employee compensation
arrangements approved by the Board of Directors, either directly or indirectly,
unless such transaction is on terms no less favorable to the Company or such
Restricted Subsidiary than those that could reasonably be obtained in a
comparable arm's-length transaction with an entity that is not an Affiliate or
Related Person and is in the best interests of such Company or such Restricted
Subsidiary. For any transaction that involves in excess of $1 million but less
than or equal to $15 million, the Chief Executive Officer of the Company shall
determine that the transaction satisfies the above criteria and shall evidence
such a determination by an Officer's Certificate filed with the Trustee. For any
transaction that involves in excess of $15 million, the Company shall also
obtain an opinion from a nationally recognized expert with experience in
appraising the terms and conditions, taken as a whole, of the type of
transaction (or series of related transactions) for which the opinion is
required stating that such transaction (or series of related transactions) is on
terms and conditions, taken as a whole, no less favorable to the Company or such
Restricted Subsidiary than those that could be obtained in a comparable
arm's-length transaction with an entity that is not an Affiliate or Related
Person of the Company, which opinion shall be filed with the Trustee. This
covenant shall not apply to Investments by an Affiliate or a Related Person of
the Company in the Capital Stock (other than Disqualified Stock) of the Company
or any Restricted Subsidiary of the Company.
SECTION 1016. Change of Control.
(a) Within 30 days of the occurrence of a Change of Control, the
Company will be required to make an Offer to Purchase all Outstanding Securities
at a purchase price equal to 101% of their principal amount plus accrued and
unpaid interest to the date of purchase.
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(b) The Company and Trustee shall perform their respective
obligations specified in the Offer for the Offer to Purchase. On or prior to the
Purchase Date, the Company shall (i) accept for payment Securities or portions
thereof tendered pursuant to the Offer, (ii) deposit with the Paying Agent (or,
if the Company is acting as its own Paying Agent, segregate and hold in trust as
provided in Section 1003) money sufficient to pay the purchase price of all
Securities or portions thereof so accepted and (iii) deliver or cause to be
delivered to the Trustee all Securities so accepted together with an Officers'
Certificate stating the Securities or portions thereof accepted for payment by
the Company. The Paying Agent shall promptly mail or deliver to Holders of
Securities so accepted payment in an amount equal to the purchase price, and the
Trustee shall promptly authenticate and mail or deliver to such Holders a new
Security or Securities equal in principal amount to any unpurchased portion of
the Security surrendered as requested by the Holder. Any Security not accepted
for payment shall be promptly mailed or delivered by the Company to the Holder
thereof.
(c) A "Change of Control" will be deemed to have occurred at such
time as either (a) any Person or any Persons acting together that would
constitute a "group" (a "Group") for purposes of Section 13(d) of the Exchange
Act, or any successor provision thereto (other than Eagle River, Mr. Craig O.
McCaw and their respective Affiliates or an underwriter engaged in a firm
commitment underwriting on behalf of the Company), shall beneficially own
(within the meaning of Rule 13d-3 under the Exchange Act, or any successor
provision thereto) more than 50% of the aggregate voting power of all classes of
Voting Stock of the Company; or (b) neither Mr. Craig O. McCaw nor any person
designated by him to the Company as acting on his behalf shall be a director of
the Company; or (c) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board of Directors (together
with any new directors whose election by the Board of Directors or whose
nomination for election by the shareholders of the Company was proposed by a
vote of a majority of the directors of the Company then still in office who were
either directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors then in office.
(d) In the event that the Company makes an Offer to Purchase the
Securities, the Company intends to comply with any applicable securities laws
and regulations, including any applicable requirements of Section 14(e) of, and
Rule 14e-1 under, the Exchange Act.
(e) Unless the Company defaults in the payment of the Purchase
Price, any Security accepted for payment pursuant to an Offer to Purchase shall
cease to accrue interest after the Purchase Date.
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SECTION 1017. Provision of Financial Information.
The Company has agreed to file with the Trustee, within 15 days
after it files them with the Commission, copies of the SEC Reports. In the event
the Company shall cease to be required to file SEC Reports pursuant to the
Exchange Act, the Company will nevertheless continue to file such reports with
the Commission (unless the Commission will not accept such a filing) and the
Trustee. The Company will furnish copies of the SEC Reports to the Holders of
Securities at the time the Company is required to file the same with the Trustee
and will make such information available to investors who request it in writing.
SECTION 1018. Statement by Officers as to Default.
(a) The Company will deliver to the Trustee, within 90 days after
the end of each quarter of each fiscal year of the Company ending after the date
hereof, an Officers' Certificate, stating whether or not to the best knowledge
of the signers thereof the Company is in default in the performance and
observance of any of the terms, provisions and conditions of this Indenture and
if the Company shall be in default, specifying all such defaults and the nature
and status thereof of which they may have knowledge.
(b) The Company shall deliver to the Trustee, as soon as possible
and in any event within 10 days after the Company becomes aware of the
occurrence of a Default or an Event of Default, an Officers' Certificate setting
forth the details of such Default or Event of Default and the action which the
Company proposes to take with respect thereto.
SECTION 1019. Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with
any covenant or condition set forth in Sections 1004 to 1017, inclusive, if
before or after the time for such compliance the Holders of at least a majority
in aggregate principal amount of the Outstanding Securities shall, by Act of
such Holders, either waive such compliance in such instance or generally waive
compliance with such covenant or condition, but no such waiver shall extend to
or affect such covenant or condition except to the extent so expressly waived,
and, until such waiver shall become effective, the obligations of the Company
and the duties of the Trustee in respect of any such covenant or condition shall
remain in full force and effect.
ARTICLE ELEVEN
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Redemption of Securities
SECTION 1101. Right of Redemption.
(a) The Securities may be redeemed prior to March 15, 2003 only
in the event that on or before March 15, 2001 the Company receives net proceeds
from a sale of its Common Equity, in which case the Company may, at its option,
use all or a portion of any such net proceeds to redeem Securities in a
principal amount of up to an aggregate amount equal to 33 % of the original
principal amount of the Securities provided, however, that Securities in an
amount equal to at least 66 % of the original aggregate principal amount of the
Notes remain outstanding after such redemption. Such redemption must occur on a
Redemption Date within 90 days of any such sale and upon not less than 30 nor
more than 60 days' notice by mail to each Holder of Securities to be redeemed at
such Holder's address appearing in the Security Register, in amounts of $1,000
or an integral multiple of $1,000 at a Redemption Price of 109% of their
principal amount plus accrued and unpaid interest, if any, to but excluding the
Redemption Date (subject to the right of Holders of record on the relevant
Regular Record Date to receive interest due on an Interest Payment Date that is
on or prior to the Redemption Date).
(b) The Securities further may be redeemed, as a whole or in
part, at the election of the Company, at any time on or after March 15, 2003 and
prior to maturity, upon not less than 30 nor more than 60 days' notice by mail
to each Holder of Securities to be redeemed at such Holder's address appearing
in the Security Register, in amounts of $1,000 or an integral multiple of
$1,000, at the Redemption Prices specified in the form of Security hereinbefore
set forth, together with accrued and unpaid interest to, but excluding, the
Redemption Date (subject to the right of Holders of record on the relevant
Regular Record Date to receive interest due on an Interest Payment Date that is
on or prior to the Redemption Date).
SECTION 1102. Applicability of Article.
Redemption of Securities at the election of the Company, as
permitted or required by any provision of this Indenture, shall be made in
accordance with such provision and this Article.
SECTION 1103. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities pursuant to
Section 1101 shall be evidenced by Board Resolution. In case of any
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redemption at the election of the Company of less than all the Securities, the
Company shall, at least 60 days prior to the Redemption Date fixed by the
Company (unless a shorter notice shall be satisfactory to the Trustee), notify
the Trustee in writing of such Redemption Date and of the principal amount of
Securities to be redeemed. In the case of any redemption of Securities prior to
the expiration of any restriction on such redemption provided in the terms of
such Securities or elsewhere in this Indenture, the Company shall furnish the
Trustee with an Officers' Certificate evidencing compliance with such
restriction.
SECTION 1104. Securities to Be Redeemed Pro Rata.
If less than all the Securities are to be redeemed in any
redemption, the Securities to be redeemed shall be selected by the Trustee by
prorating, as nearly as may be practicable, the principal amount of Securities
to be redeemed. In any proration pursuant to this Section, the Trustee shall
make such adjustments, reallocations and eliminations as it shall deem proper
(and in compliance with the requirements of the principal national securities
exchange, if any, on which the Securities are listed) to the end that the
principal amount of Securities so prorated shall be $1,000 or a multiple
thereof, by increasing or decreasing or eliminating the amount which would be
allocable to any Holder on the basis of exact proportion by an amount not
exceeding $1,000. The Trustee in its discretion may determine the particular
Securities (if there are more than one) registered in the name of any Holder
which are to be redeemed, in whole or in part.
The Trustee shall promptly notify the Company and each Security
Registrar (other than the Trustee) in writing of the Securities selected for
redemption and, in the case of any Securities selected for partial redemption,
the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Securities shall relate,
in the case of any Securities redeemed or to be redeemed only in part, to the
portion of the principal amount of such Securities which has been or is to be
redeemed.
SECTION 1105. Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption
Date, to each Holder of Securities to be redeemed, at such Holder's address
appearing in the Security Register.
All notices of redemption shall state:
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(1) the Redemption Date,
(2) the Redemption Price,
(3) whether the redemption is being made pursuant to Section
1101(a) or (b) and, if being made pursuant to Section 1101(a), a brief
statement setting forth the Company's right to effect such redemption
and the Company's basis therefor,
(4) if less than all the Outstanding Securities are to be
redeemed, the identification (and, in the case of partial redemption of
any Securities, the principal amounts) of the particular Securities to
be redeemed,
(5) that on the Redemption Date the Redemption Price will become
due and payable upon each such Security to be redeemed and that interest
thereon will cease to accrue on and after said date,
(6) the place or places where such Securities are to be
surrendered for payment of the Redemption Price,
(7) that in the case that a Security is only redeemed in part,
the Company shall execute and the Trustee shall authenticate and deliver
to the Holder of such Security without service charge, a new Security or
Securities in an aggregate amount equal to the unredeemed portion of the
Security,
(8) the aggregate principal amount of Securities being redeemed,
and
(9) the CUSIP number or numbers of the Securities being redeemed.
Notice of redemption of Securities to be redeemed at the election
of the Company shall be given by the Company or, if request is made to the
Trustee no less than 35 days prior to the Redemption Date, by the Trustee in the
name and at the expense of the Company.
SECTION 1106. Deposit of Redemption Price.
Prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 1003) an amount of
money sufficient to pay the Redemption Price of, and (except if the Redemption
Date shall be an Interest Payment Date) accrued and unpaid interest on, all the
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Securities which are to be redeemed on that date.
SECTION 1107. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the
Securities so to be redeemed shall, on the Redemption Date, become due and
payable at the Redemption Price therein specified, and from and after such date
(unless the Company shall default in the payment of the Redemption Price and
accrued and unpaid interest) such Securities shall cease to bear interest. Upon
surrender of any such Security for redemption in accordance with said notice,
such Security shall be paid by the Company at the Redemption Price, together
with accrued and unpaid interest to the Redemption Date; provided, however, that
installments of interest whose Stated Maturity is on or prior to the Redemption
Date shall be payable to the Holders of such Securities, or one or more
Predecessor Securities, registered as such at the close of business on the
relevant Record Dates according to their terms and the provisions of Section
307.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal (and premium, if any) shall,
until paid, bear interest from the Redemption Date at the rate provided by the
Security.
SECTION 1108. Securities Redeemed in Part.
Any Security which is to be redeemed only in part shall be
surrendered at an office or agency of the Company designated for that purpose
pursuant to Section 1002 (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or his attorney
duly authorized in writing), and the Company shall execute, and the Trustee
shall authenticate and deliver to the Holder of such Security without service
charge, a new Security or Securities of like tenor, of any authorized
denomination as requested by such Holder, in aggregate principal amount equal to
and in exchange for the unredeemed portion of the principal of the Security so
surrendered. If a Global Security is so surrendered, such new Security shall
also be a Global Security.
ARTICLE TWELVE
Defeasance and Covenant Defeasance
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SECTION 1201. Company's Option to Effect Defeasance or
Covenant Defeasance.
The Company may, at its option by Board Resolution at any time
(subject to 10-day prior written notification to the Trustee), elect to have
either Section 1202 or Section 1203 applied to the Outstanding Securities upon
compliance with the conditions set forth below in this Article Twelve.
SECTION 1202. Defeasance and Discharge.
Upon the Company's exercise of the option provided in Section
1201 applicable to this Section, the Company shall be deemed to have been
discharged from its obligations with respect to the Outstanding Securities on
the date the conditions set forth below are satisfied (hereinafter,
"defeasance"). For this purpose, such defeasance means that the Company shall be
deemed to have paid and discharged the entire indebtedness represented by the
Outstanding Securities and to have satisfied all its other obligations under
such Securities and this Indenture insofar as such Securities are concerned (and
the Trustee, at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following which shall survive until
otherwise terminated or discharged hereunder: (A) the rights of Holders of
Outstanding Securities to receive, solely from the trust fund described in
Section 1204 and as more fully set forth in such Section, payments in respect of
the principal of (and premium, if any) and interest on such Securities when such
payments are due, (B) the Company's obligations with respect to such Securities
under Sections 304, 305, 306, 1002 and 1003, (C) the rights, powers, trusts,
duties and immunities of the Trustee hereunder and (D) this Article Twelve.
Subject to compliance with this Article Twelve, the Company may exercise its
option under this Section 1202 notwithstanding the prior exercise of its option
under Section 1203.
SECTION 1203. Covenant Defeasance.
Upon the Company's exercise of the option provided in Section
1201 applicable to this Section (i) the Company shall be released from its
obligations under Sections 1005 through 1017, inclusive, and Clauses (3) and (4)
of Section 801, (ii) the occurrence of an event specified in Sections 501(3),
501(4) (with respect to Clauses (3) and (4) of Section 801), and 501 (5) (with
respect to Sections 1005 through 1017, inclusive) shall not be deemed to be an
Event of Default, on and after the date the conditions set forth below are
satisfied (hereinafter, "covenant defeasance"). For this purpose, such covenant
defeasance means that the Company may omit to comply with and shall have no
liability in respect of any term, condition or limitation set forth in any such
Section
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or Article, whether directly or indirectly by reason of any reference elsewhere
herein to any such Section or Article or by reason of any reference in any such
Section or Article to any other provision herein or in any other document, but
the remainder of this Indenture and such Securities shall be unaffected thereby.
SECTION 1204. Conditions to Defeasance or
Covenant Defeasance.
The following shall be the conditions to application of either
Section 1202 or Section 1203 to the Outstanding Securities:
(1) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee as trust funds in trust for the purpose of
making the following payments, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of such Securities, (A)
money in an amount, or (B) U.S. Government Obligations which through the
scheduled payment of principal and interest in respect thereof in
accordance with their terms will provide, not later than one day before
the due date of any payment, money in an amount, or (C) a combination
thereof, sufficient, in the opinion of a nationally recognized firm of
independent certified public accountants expressed in a written
certification thereof delivered to the Trustee, to pay and discharge,
and which shall be applied by the Trustee to pay and discharge, the
principal of, premium, if any, and each installment of interest on the
Securities on the Stated Maturity of such principal or installment of
interest on the day on which such payments are due and payable in
accordance with the terms of this Indenture and of such Securities. For
this purpose, "U.S. Government Obligations" means securities that are
(x) direct obligations of the United States of America for the payment
of which its full faith and credit is pledged or (y) obligations of a
Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America the payment of which is
unconditionally guaranteed as a full faith and credit obligation by the
United States of America, which, in either case, are not callable or
redeemable at the option of the issuer thereof, and shall also include a
depositary receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act) as custodian with respect to any such U.S.
Government Obligation or a specific payment of principal of or interest
on any such U.S. Government Obligation held by such custodian for the
account of the holder of such depositary receipt, provided that (except
as required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such depositary
receipt from any amount received by the custodian in respect of the U.S.
Government Obligation or the specific payment of principal of or
interest on the U.S. Government Obligation evidenced by such depositary
receipt.
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(2) No Default or Event of Default shall have occurred and be
continuing on the date of such deposit or, insofar as subsections 501(8)
and (9) are concerned, at any time during the period ending on the 91st
day after the date of such deposit (it being understood that this
condition shall not be deemed satisfied until the expiration of such
period).
(3) Such defeasance or covenant defeasance shall not cause the
Trustee to have a conflicting interest as defined in Section 608 and for
purposes of the Trust Indenture Act with respect to any securities of
the Company.
(4) Such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, this Indenture or
any other agreement or instrument to which the Company is a party or by
which it is bound.
(5) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to either the defeasance under Section
1202 or the covenant defeasance under Section 1203 (as the case may be)
have been complied with.
(6) In the case of an election under Section 1202, the Company
shall have delivered to the Trustee an Opinion of Counsel stating that
(x) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling, or (y) since the date of this
Indenture there has been a change in the applicable Federal income tax
law, in either case to the effect that, and based thereon such opinion
shall confirm that, the Holders of the Outstanding Securities will not
recognize income, gain or loss for Federal income tax purposes as a
result of such deposit, defeasance and discharge and will be subject to
Federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such deposit, defeasance and
discharge had not occurred.
(7) In the case of an election under Section 1203, the Company
shall have delivered to the Trustee an Opinion of Counsel to the effect
that the Holders of the Outstanding Securities will not recognize
income, gain or loss for Federal income tax purposes as a result of such
deposit and covenant defeasance and will be subject to Federal income
tax on the same amounts, in the same manner and at the same times as
would have been the case if such covenant defeasance had not occurred.
(8) The Company shall have delivered to the Trustee an Opinion of
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Counsel to the effect that such deposit and defeasance or covenant
defeasance shall not result in the trust arising from such deposit
constituting an investment company as defined in the Investment Company
Act of 1940, as amended, or such trust shall be qualified under such act
or exempt from regulation thereunder.
SECTION 1205. Deposited Money and U.S. Government
Obligations to Be Held in Trust;
Other Miscellaneous Provisions.
Subject to the provisions of the last paragraph of Section 1003,
all money and U.S. Government Obligations (including the proceeds thereof)
deposited with the Trustee (or other qualifying trustee--collectively, for
purposes of this Section 1205, the "Trustee") pursuant to Section 1204 in
respect of the Securities shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Securities and this Indenture, to the
payment, either directly or through any Paying Agent (including the Company
acting as its own Paying Agent) as the Trustee may determine, to the Holders of
such Securities, of all sums due and to become due thereon in respect of
principal (and premium, if any) and interest, but such money need not be
segregated from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax,
fee or other charge imposed on or assessed against the U.S. Government
Obligations deposited pursuant to Section 1204 or the principal and interest
received in respect thereof other than any such tax, fee or other charge which
by law is for the account of the Holders of the Outstanding Securities.
Anything in this Article Twelve to the contrary notwithstanding,
the Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations held by it as provided in
Section 1204 which, in the opinion of a nationally recognized accounting firm
expressed in a written certification thereof delivered to the Trustee, are in
excess of the amount thereof which would then be required to be deposited to
effect an equivalent defeasance or covenant defeasance.
SECTION 1206. Reinstatement.
If the Trustee or the Paying Agent is unable to apply any money
in accordance with Section 1202 or 1203 by reason of any order or judgment of
any court or governmental authority enjoining, restraining or otherwise
prohibiting such application, then the Company's obligations under this
Indenture and the
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Securities shall be revived and reinstated as though no deposit had occurred
pursuant to this Article Twelve until such time as the Trustee or Paying Agent
is permitted to apply all such money in accordance with Section 1202 and 1203;
provided, however, that if the Company makes any payment of principal of (and
premium, if any) any Security following the reinstatement of its obligations,
the Company shall be subrogated to the rights of the Holders of such Securities
to receive such payment from the money held by the Trustee or the Paying Agent.
SECTION 1207. Repayment to Company.
Any money deposited with the Trustee or any Paying Agent, or then
held by the Company, in trust for the payment of the principal of, premium, if
any, or interest on any Security and remaining unclaimed for two years after
such principal, and premium, if any, or interest has become due and payable
shall be paid to the Company on its written request or (if then held by the
Company) shall be discharged from such trust; and the Holder of such security
shall thereafter, as a creditor, look only to the Company for payment thereof,
and all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease; provided, however, that the Trustee or such Paying Agent, before being
required to make any such repayment, may at the expense of the Company cause to
be published once, in the New York Times and The Wall Street Journal (national
edition), notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
notification or publication, any unclaimed balance of such money then remaining
will be repaid to the Company.
This instrument may be executed in any number of counterparts,
each of which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture
to be duly executed and attested, and the Trustee has caused its seal to be
hereunto affixed and attested, all as of the day and year first above written.
NEXTLINK Communications, Inc.
By /s/ R. Bruce Easter, Jr.
---------------------------------
Name: R. Bruce Easter, Jr.
Title: Vice President, General
Counsel and Secretary
Attest:
/s/ Kathleen H. Iskra
- -------------------------------
Name: Kathleen H. Iskra
Title: Vice President
UNITED STATES TRUST COMPANY
OF NEW YORK
By /s/ Patricia Stermer
---------------------------------
Name: Patricia Stermer
Title: Assistant Vice President
[SEAL]
Attest:
/s/ Robert F. Lee
- --------------------------------
Name: Robert F. Lee
Title: Assistant Secretary
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STATE OF WASHINGTON ) ss.:
COUNTY OF KING )
On this 3rd day of March, 1998, before me personally appeared R.
Bruce Easter, Jr., to me known, who, being duly sworn, did depose and say that
he is the Vice President of NEXTLINK Communications, Inc., one of the
corporations described in and which executed the foregoing instrument, and duly
acknowledged to me that he executed the same by authority of the Board of
Directors of said corporation.
/s/ Julia A. Aviles
------------------------------
Notary Public
STATE OF NEW YORK ) ss.:
COUNTY OF NEW YORK )
On this 3rd day of March, 1998, before me personally appeared
Patricia Stermer, to me known, who, being duly sworn, did depose and say that
she is the Vice President of United States Trust Company of New York, one of the
corporations described in and which executed the foregoing instrument, and duly
acknowledged to me that she executed the same by authority of the Board of
Directors of said corporation.
/s/ Christine C. Collins
------------------------------
Notary Public
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ANNEX A -- Form of
Regulation S Certificate
REGULATION S CERTIFICATE
(For transfers pursuant to Section 305(b)(i), (iii) and (v)
of the Indenture)
United States Trust Company of New York,
as Trustee
114 West 47th Street, 25th Floor
New York, New York 10036
Attention: Corporate Trust Trustee Administration
Re: 9% Senior Notes due March 15, 2008
of NEXTLINK Communications, Inc.
(the "Securities")
Reference is made to the Indenture, dated as of March 3, 1998
(the "Indenture"), between NEXTLINK Communications, Inc. (the "Company") and
United States Trust Company of New York, as Trustee. Terms used herein and
defined in the Indenture or in Regulation S or Rule 144 under the U.S.
Securities Act of 1933, as amended (the "Securities Act") are used herein as so
defined.
This certificate relates to U.S. $____________ principal amount
of Securities, which are evidenced by the following certificate(s) (the
"Specified Securities"):
CUSIP No(s). ___________________________
CERTIFICATE No(s). _____________________
The person in whose name this certificate is executed below (the "Undersigned")
hereby certifies that either (i) it is the sole beneficial owner of the
Specified Securities or (ii) it is acting on behalf of all the beneficial owners
of the Specified Securities and is duly authorized by them to do so. Such
beneficial owner or owners are referred to herein collectively as the "Owner".
If the Specified Securities are represented by a Global Security, they are held
through the Depositary or an Agent Member in the name of the Undersigned, as or
on behalf of the Owner. If the Specified Securities are not represented by a
Global Security, they are registered in the name of the Undersigned, as or on
behalf of the Owner.
The Owner has requested that the Specified Securities be
transferred to a person (the "Transferee") who will take delivery in the form of
a Regulation S Security. In connection with such transfer, the Owner hereby
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certifies that, unless such transfer is being effected pursuant to an
effective registration statement under the Securities Act, it is being effected
in accordance with Rule 904 or Rule 144 under the Securities Act and with all
applicable securities laws of the states of the United States and other
jurisdictions. Accordingly, the Owner hereby further certifies as follows:
(1) Rule 904 Transfers. If the transfer is being effected in
accordance with Rule 904:
(A) the Owner is not a distributor of the Securities, an
affiliate of the Company or any such distributor or a person
acting on behalf of any of the foregoing;
(B) the offer of the Specified Securities was not made to
a person in the United States;
(C) either:
(i) at the time the buy order was originated, the
Transferee was outside the United States or the Owner and
any person acting on its behalf reasonably believed that
the Transferee was outside the United States, or
(ii) the transaction is being executed in, on or
through the facilities of the Eurobond market, as
regulated by the Association of International Bond
Dealers, or another designated offshore securities market
and neither the Owner nor any person acting on its behalf
knows that the transaction has been prearranged with a
buyer in the United States;
(D) no directed selling efforts have been made in the
United States by or on behalf of the Owner or any affiliate
thereof;
(E) if the Owner is a dealer in securities or has received
a selling concession, fee or other remuneration in respect of the
Specified Securities, and the transfer is to occur during the
Restricted Period, then the requirements of Rule 904(c)(1) have
been satisfied; and
(F) the transaction is not part of a plan or scheme to
evade the registration requirements of the Securities Act. (2)
Rule 144 Transfers. If the transfer is
being effected pursuant to Rule 144:
(A) the transfer is occurring after a holding period of at
least one year (computed in accordance with paragraph (d) of Rule
144) has elapsed since the Specified Securities were last
acquired
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<PAGE> 124
from the Company or from an affiliate of the Company, whichever
is later, and is being effected in accordance with the
applicable amount, manner of sale and notice requirements of
Rule 144; or
(B) the transfer is occurring after a holding period of at
least two years has elapsed since the Specified Securities were
last acquired from the Company or from an affiliate of the
Company, whichever is later, and the Owner is not, and during the
preceding three months has not been, an affiliate of the Company.
This certificate and the statements contained herein are made for
your benefit and the benefit of the Company and the Purchasers.
Dated:
(Print the name of the Undersigned,
as such term is defined in the
second paragraph of this certificate.)
By:
-----------------------------------
Name:
Title:
(If the Undersigned is a corporation, partnership or
fiduciary, the title of the person signing on behalf of
the Undersigned must be stated.)
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<PAGE> 125
ANNEX B -- Form of Restricted
Securities Certificate
RESTRICTED SECURITIES CERTIFICATE
(For transfers pursuant to Section 305(b)(ii), (iii), (iv) and (v)
of the Indenture)
United States Trust Company of New York,
as Trustee
114 West 47th Street, 25th Floor
New York, New York 10036
Attention: Corporate Trust Trustee Administration
Re: 9% Senior Notes due March 15, 2008
of NEXTLINK Communications, Inc.
(the "Securities")
Reference is made to the Indenture, dated as of March 3, 1998
(the "Indenture"), between NEXTLINK Communications Inc. (the "Company") and
United States Trust Company of New York, as Trustee. Terms used herein and
defined in the Indenture or in Regulation S or Rule 144 under the U.S.
Securities Act of 1933, as amended (the "Securities Act") are used herein as so
defined.
This certificate relates to U.S. $_____________ principal amount
of Securities, which are evidenced by the following certificate(s) (the
"Specified Securities"):
CUSIP No(s). ___________________________
CERTIFICATE No(s). _____________________
The person in whose name this certificate is executed below (the "Undersigned")
hereby certifies that either (i) it is the sole beneficial owner of the
Specified Securities or (ii) it is acting on behalf of all the beneficial owners
of the Specified Securities and is duly authorized by them to do so. Such
beneficial owner or owners are referred to herein collectively as the "Owner".
If the Specified Securities are represented by a Global Security, they are held
through the Depositary or an Agent Member in the name of the Undersigned, as or
on behalf of the Owner. If the Specified Securities are not represented by a
Global Security, they are registered in the name of the Undersigned, as or on
behalf of the Owner.
The Owner has requested that the Specified Securities be
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<PAGE> 126
transferred to a person (the "Transferee") who will take delivery in the form of
a Restricted Security. In connection with such transfer, the Owner hereby
certifies that, unless such transfer is being effected pursuant to an effective
registration statement under the Securities Act, it is being effected in
accordance with Rule 144A or Rule 144 under the Securities Act and all
applicable securities laws of the states of the United States and other
jurisdictions. Accordingly, the Owner hereby further certifies as follows:
(1) Rule 144A Transfers. If the transfer is being effected in
accordance with Rule 144A:
(A) the Specified Securities are being transferred to a
person that the Owner and any person acting on its behalf
reasonably believe is a "qualified institutional buyer" within
the meaning of Rule 144A, acquiring for its own account or for
the account of a qualified institutional buyer; and
(B) the Owner and any person acting on its behalf have
taken reasonable steps to ensure that the Transferee is aware
that the Owner may be relying on Rule 144A in connection with the
transfer; and
(2) Rule 144 Transfers. If the transfer is being effected
pursuant to Rule 144:
(A) the transfer is occurring after a holding period of at
least one year (computed in accordance with paragraph (d) of Rule
144) has elapsed since the Specified Securities were last
acquired from the Company or from an affiliate of the Company,
whichever is later, and is being effected in accordance with the
applicable amount, manner of sale and notice requirements of Rule
144; or
(B) the transfer is occurring after a holding period of at
least two years has elapsed since the Specified Securities were
last acquired from the Company or from an affiliate of the
Company, whichever is later, and the Owner is not, and during the
preceding three months has not been, an affiliate of the Company.
This certificate and the statements contained herein are made for
your benefit and the benefit of the Company and the Purchasers.
Dated:
(Print the name of the Undersigned,
as such term is defined in the
second paragraph of this certificate.)
B-126
<PAGE> 127
By:
---------------------------------
Name:
Title:
(If the Undersigned is a corporation, partnership or
fiduciary, the title of the person signing on behalf of
the Undersigned must be stated.)
B-127
<PAGE> 128
ANNEX C -- Form of Unrestricted
Securities Certificate
UNRESTRICTED SECURITIES CERTIFICATE
(For removal of Securities Act Legends pursuant to Section 305(c))
United States Trust Company of New York,
as Trustee
114 West 47th Street, 25th Floor
New York, New York 10036
Attention: Corporate Trust Trustee Administration
Re: 9% Senior Discount Notes due March 15, 2008
of NEXTLINK Communication, Inc.
(the "Securities")
Reference is made to the Indenture, dated as of March 3, 1998
(the "Indenture"), between NEXTLINK Communication, Inc. (the "Company") and
United States Trust Company of New York, as Trustee. Terms used herein and
defined in the Indenture or in Regulation S or Rule 144 under the U.S.
Securities Act of 1933, as amended (the "Securities Act") are used herein as so
defined.
This certificate relates to U.S. $_____________ principal amount
of Securities, which are evidenced by the following certificate(s) (the
"Specified Securities"):
CUSIP No(s). ___________________________
CERTIFICATE No(s). _____________________
The person in whose name this certificate is executed below (the "Undersigned")
hereby certifies that either (i) it is the sole beneficial owner of the
Specified Securities or (ii) it is acting on behalf of all the beneficial owners
of the Specified Securities and is duly authorized by them to do so. Such
beneficial owner or owners are referred to herein collectively as the "Owner".
If the Specified Securities are represented by a Global Security, they are held
through the Depositary or an Agent Member in the name of the Undersigned, as or
on behalf of the Owner. If the Specified Securities are not represented by a
Global Security, they are registered in the name of the Undersigned, as or on
behalf of the Owner.
The Owner has requested that the Specified Securities be
exchanged for Securities bearing no Securities Act Legend pursuant to Section
305(c) of the Indenture. In connection with such exchange, the Owner hereby
certifies
C-128
<PAGE> 129
that the exchange is occurring after a holding period of at least two years
(computed in accordance with paragraph (d) of Rule 144) has elapsed since the
Specified Securities were last acquired from the Company or from an affiliate of
the Company, whichever is later, and the Owner is not, and during the preceding
three months has not been, an affiliate of the Company. The Owner also
acknowledges that any future transfers of the Specified Securities must comply
with all applicable securities laws of the states of the United States and other
jurisdictions.
This certificate and the statements contained herein are made for
your benefit and the benefit of the Company and the Purchasers.
Dated:
(Print the name of the Undersigned,
as such term is defined in the
second paragraph of this certificate.)
By:
------------------------------------
Name:
Title:
(If the Undersigned is a corporation, partnership or
fiduciary, the title of the person signing on behalf of
the Undersigned must be stated.)
C-129
<PAGE> 1
EXHIBIT 10.2
FIRST AMENDMENT TO THE NEXTLINK COMMUNICATIONS, INC.
STOCK OPTION PLAN
The NEXTLINK COMMUNICATIONS, INC. Stock Option Plan is hereby amended,
effective September 1, 1997, to revise the last sentence of Subsection 5.2.1. to
read in its entirety as follows:
"With respect to nonqualified stock options, the exercise
price shall be the amount set by the Plan Administrator."
In all other respects, the NEXTLINK COMMUNICATIONS, INC. Stock Option
Plan shall remain the same.
NEXTLINK COMMUNICATIONS, INC.
By: /s/ R. BRUCE EASTER, JR.
--------------------------------------
Name: R. Bruce Easter, Jr.
Title: Vice President and Secretary
<PAGE> 1
EXHIBIT 10.5
CONFIDENTIAL TREATMENT(1)
FIBER LEASE AND INNERDUCT USE AGREEMENT
This AGREEMENT ("Agreement") is made and entered into as of the 23rd day
of February, 1998, by and between Metromedia Fiber Network, Inc., a Delaware
corporation ("MFN") and NEXTLINK Communications, Inc. ("NEXTLINK"), a Washington
corporation (either MFN or NEXTLINK being referred to in this Agreement as a
"Party," and collectively as the "Parties").
WHEREAS MFN constructs and maintains a fiber optic cable network and
desires to provide NEXTLINK with long term exclusive use of a portion of this
network subject to the terms and conditions of this Agreement;
WHEREAS NEXTLINK desires to acquire certain long term rights to use
portions of the MFN System as described herein, subject to the terms and
conditions of this Agreement; and
WHEREAS NEXTLINK and MFN are increasing the fiber count in NEXTLINK's
network under the New York Fiber Agreement (as defined below);
NOW, THEREFORE, in consideration of the mutual agreements contained in
this Agreement, the Parties agree as follows.
ARTICLE I DEFINITIONS
For purposes of this Agreement, words spelled with initial capital
letters (other than proper names, section headings, and the beginnings of
sentences) shall have the defined meanings set forth in the applicable
provisions of this Agreement or in this Article I.
"MFN System" shall mean the fiber optic network controlled and operated by MFN
as described in Exhibit A.
"New York Fiber Agreement" means the Fiber Optic Use Agreement between MFN and
NEXTLINK New York, L.L.C., dated June 3, 1997.
"NEXTLINK Fibers" shall mean the fibers leased by NEXTLINK from MFN pursuant to
this Agreement, as described in Exhibit A hereto and more fully defined in
Sections 2.1 and 2.2 herein.
"Pro Rata" shall mean the percentage of the total count of optical fiber strands
and other cables within conduit under the control of MFN that is represented by
the NEXTLINK Fibers.
- --------
(1) Redacted portions have been marked with asterisks (***). The redacted
portions are subject to a request for confidential treatment that has been filed
separately with the Securities and Exchange Commission.
Page 1 - FIBER LEASE AND INNERDUCT USE AGREEMENT
<PAGE> 2
ARTICLE II TERM AND LEASE
2.1 Lease of Fibers. MFN hereby grants to NEXTLINK a lease of the
exclusive use of *** fiber-miles of optical fiber, configured as described in
Exhibit A to this Agreement as of the date of this Agreement and as Exhibit A
may be amended after the date of this Agreement with the agreement of the
Parties and pursuant to Section 2.2, for a Term commencing on the Acceptance
Date for the first segment of NEXTLINK Fibers accepted by NEXTLINK in accordance
with the Acceptance Testing procedures set forth in Section 2.7 ("Acceptance")
and terminating twenty years after the Acceptance Date for the last segment of
NEXTLINK Fibers (the "Term"). MFN shall deliver the NEXTLINK Fibers to NEXTLINK
in logical segments as set forth on Exhibit A. This lease shall provide NEXTLINK
with quiet enjoyment of the NEXTLINK Fibers for the Term. If MFN, in its sole
discretion, extends or renews any underlying right-of-way relating to the
NEXTLINK Fibers beyond the Term, NEXTLINK shall have the right to extend the
Term of the fiber lease for a term corresponding to such extension or renewal
(up to two additional ten-year periods), upon notice to MFN not less than 180
days prior to the expiration of the then-current term. The consideration payable
for any extensions of the Term shall be as stated in Section 3.1. MFN shall
promptly notify NEXTLINK of the expiration dates for rights-of-way relevant to
this Agreement. In the event that NEXTLINK desires to extend the fiber lease, it
shall give notice to MFN no sooner than two years, and no later than one year,
prior to the expiration of the Term (the "Extension Notice"). Within 60 days
after the date of the Extension Notice MFN shall give notice to NEXTLINK
advising NEXTLINK whether or not it intends to renew any relevant rights-of-way.
If MFN does not intend to extend or renew such right-of-way, NEXTLINK shall have
the right to negotiate directly with the holder of any right-of-way for a new
right-of-way. If MFN elects not to renew or extend a right-of-way and intends to
abandon the use of the NEXTLINK Fibers in such right-of-way, MFN shall, upon
NEXTLINK's request, convey title to such NEXTLINK Fibers to NEXTLINK in exchange
for a payment of $100.00 by NEXTLINK.
2.2 Description of NEXTLINK Fibers. Exhibit A in the form
attached to this Agreement on the date of this Agreement identifies the type of
fiber and configuration for fiber miles to be leased by NEXTLINK. Exhibit A also
states MFN's anticipated construction schedule for the NEXTLINK Fibers. For a
period of 90 days after the date of this Agreement, NEXTLINK shall have the
right (with the consent of MFN, which shall not be unreasonably withheld or
delayed by MFN) to change the fiber count for particular segments as designated
on Exhibit A as long as the total fiber miles to be changed does not exceed 25%
of the total fiber miles to be leased pursuant to Section 2.1. MFN shall use
commercially reasonable efforts to deliver the NEXTLINK Fibers to NEXTLINK on
the schedule set forth in Exhibit A. NEXTLINK acknowledges, however, that MFN
does not guarantee delivery of the NEXTLINK Fibers to NEXTLINK on the dates set
forth on such schedule.
2.3 Long-Haul Innerduct. MFN hereby grants to NEXTLINK an
exclusive, indefeasible right of use ("IRU"), for a single, one and one-quarter
inch (1-1/4") vacant innerduct (the "Long-Haul Innerduct") throughout the entire
route described on Exhibit B-4 (the "Long-Haul Route") for a term ending (with
respect to any particular segment) with the expiration of the underlying
right-of-way for that segment (or, in the case of right-of-way held by
Consolidated
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<PAGE> 3
Rail Corporation, a term ending with the expiration of the first ten-year
"Extension Term" under MFN's agreement with Consolidated Rail Corporation). This
IRU shall commence upon NEXTLINK's Acceptance of the Long-Haul Innerduct. This
IRU shall provide NEXTLINK with quiet enjoyment of the Long-Haul Innerduct for
the term ending as stated above in Section 2.3. NEXTLINK shall have the right to
extend the term for this IRU for a term ending with the expiration of the
underlying right-of-way for any particular segment, if renewed or extended by
MFN in its discretion from time to time, at no additional consideration other
than for maintenance charges and MFN's incremental share of right-of-way fees as
stated in Section 3.2. The Long-Haul Innerduct shall meet the specifications
stated on Exhibit B and shall include fiber-drop or splice points at locations
shown on Exhibit B or otherwise agreed upon by the Parties. MFN shall deliver to
NEXTLINK such evidence of the grant of the IRU for the Long-Haul Innerduct (on
the terms stated in this Agreement) as NEXTLINK may reasonably request upon
Acceptance of the Long-Haul Innerduct by NEXTLINK. The Long-Haul Innerduct shall
be completed and made available for delivery to NEXTLINK in the logical
sequences shown on Exhibit B, no later than the dates set forth on Exhibit C.
MFN shall grant this IRU for segments of the Long-Haul Innerduct as such
segments are completed rather than waiting for completion of the entire
Long-Haul Innerduct. NEXTLINK shall, not later than the next business day after
NEXTLINK's Acceptance of any segment of the Long-Haul Innerduct, instruct the
Escrow Agent (as defined below) to release funds from escrow calculated at the
rate of $*** per mile of Long-Haul Innerduct. Together with the IRU for the
Long-Haul Innerduct, MFN shall use commercially reasonable efforts to grant
NEXTLINK either a lease or IRU for innerduct from MFN's Jersey City, New Jersey
point of presence to MFN's New York, New York point of presence at 60 Hudson
Street, as further described on Exhibit B for the term of the IRU set forth in
this paragraph. If MFN is unable to grant such lease or IRU, MFN shall grant
NEXTLINK a lease of fibers from Jersey City, New Jersey to New York, New York.
The lease of fibers in this segment from Jersey City to New York shall include
the same number of fiber strands that are installed for NEXTLINK's use in the
adjoining portions of the Long-Haul Innerduct. NEXTLINK shall directly pay for
the fibers to be installed in the Jersey City to New York segment, or reimburse
MFN for MFN's cost to purchase the fibers, and NEXTLINK shall also pay directly,
or reimburse MFN for, MFN's cost to install the fibers. These fiber miles do not
reduce the fiber miles to be leased by NEXTLINK under Section 2.1.
The grant of the IRU described in this Section 2.3 is subject to
(i) MFN's receipt of any necessary consents of holders of underlying
rights-of-way required for such IRU , (ii) NEXTLINK entering into such agreement
as the holder of the underlying right-of-way may reasonably request, and (iii)
to NEXTLINK's approval of the amount of right-of-way fees or other fees to be
incurred by NEXTLINK with respect to the Long-Haul Innerduct and of the terms of
all rights-of-way applicable to the Long-Haul Innerduct. The Parties shall
cooperate in good faith, using their respective commercially reasonable efforts,
to obtain the necessary consents or agreements from holders of underlying
rights-of-way. If such consents have not been obtained within one year after the
date of this Agreement, or if NEXTLINK has not approved the amount of the
right-of-way fees or other fees to be incurred by NEXTLINK and the terms of all
rights of way applicable to the Long-Haul Innerduct within one year after the
date of this Agreement, then either Party may, by written notice to the other
Party, terminate the Parties' Agreement for the IRU under this Section 2.3. Upon
such termination, NEXTLINK shall have
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<PAGE> 4
the right to select one of the following options, which shall be determined by
NEXTLINK as soon as practical after such termination: (a) NEXTLINK may elect to
terminate the portion of this Agreement relating to the grant of the IRU
pursuant to this Section 2.3 and pay MFN an additional $4,000,000 in
consideration of the fiber lease described in Section 2.1, by deposit into
escrow under the Escrow Agreement (as defined below), which $4,000,000 shall be
disbursed over time upon Acceptance of segments of the NEXTLINK Fibers, in
proportion to the number of fiber miles in such segment compared with the
then-remaining number of fiber miles of NEXTLINK Fibers yet to be delivered; or
(b) if MFN is permitted to pull additional fiber in the Long-Haul Route,
NEXTLINK may (to the extent MFN is permitted to do so under applicable
right-of-way agreements) require MFN to grant NEXTLINK a lease or IRU for the
number of strands requested by NEXTLINK, up to a maximum of 432 strands of fiber
throughout the Long-Haul Route for a one-time payment of $*** per fiber mile
that is subject to such lease or IRU (less all amounts released to MFN from
escrow, and the down payment made by NEXTLINK, with respect to the Long-Haul
Innerduct), or (c) if MFN is not permitted to pull additional fiber in the
Long-Haul Route, NEXTLINK may require MFN to lease to NEXTLINK up to 96 strands
of fiber for a one-time lease payment of $*** per fiber mile (less all amounts
released to MFN from escrow, and the down payment made by NEXTLINK, with respect
to the Long-Haul Innerduct). The lease or IRU granted under clause (b) and the
lease granted under clause (c) shall expire on expiration of the IRU for the
Long-Haul Innerduct.
2.4 Additional Innerduct. In the event MFN owns innerduct or the
equivalent in any portion of the route of the NEXTLINK Fibers, and MFN elects to
offer such innerduct or equivalent to NEXTLINK, such election to be in MFN's
sole discretion, and if NEXTLINK elects to accept such offer, such election to
be in NEXTLINK's sole discretion, MFN shall grant NEXTLINK a 20-year IRU for an
additional single, one and one-quarter inch (1-1/4") vacant innerduct (the
"Additional Innerduct"), or equivalent raceway space, in the route agreed to in
writing by the Parties. MFN shall deliver to NEXTLINK such evidence of the grant
of the IRU for the Additional Innerduct (on the terms stated in this Agreement)
as NEXTLINK may reasonably request upon Acceptance of the Additional Innerduct
by NEXTLINK. The Additional Innerduct shall meet the specifications stated in
Exhibit B with respect to the type, quality and other specifications. NEXTLINK
shall have the right to extend the Term for this IRU for a term ending with the
expiration of the underlying right-of-way for any particular segment, as renewed
or extended by MFN from time to time, at no additional consideration other than
for maintenance charges and incremental share of right-of-way fees as stated in
Section 3.3.
2.5 Installation of Fiber in Long-Haul Innerduct. NEXTLINK shall
give MFN not less than ninety days written notice prior to the date NEXTLINK
desires to have installation of fiber in the Long-Haul Innerduct commence.
NEXTLINK shall select a contractor from a list of contractors approved by MFN to
install such fiber. At NEXTLINK's option, NEXTLINK may require such contractors
to participate in a competitive-bid process prior to selection of the
contractor. NEXTLINK shall pay the cost charged by such contractor for the
installation. MFN shall have the right to manage and supervise the installation.
NEXTLINK shall reimburse MFN for MFN's reasonable costs for time spent in such
management and supervision, as set forth in invoice from MFN to NEXTLINK showing
in reasonable detail the time spent by MFN personnel. NEXTLINK's notice
regarding the installation shall designate the number of strands
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<PAGE> 5
that NEXTLINK intends to have installed in such Long-Haul Innerduct. By written
notice to NEXTLINK within thirty days after such notice from NEXTLINK, MFN may
exercise its option to require NEXTLINK to lease to MFN fiber in one or more
segments of the Long-Haul Innerduct as stated in this Section 2.5. If MFN fails
to provide such notice to NEXTLINK, MFN shall have no right to require NEXTLINK
to lease to MFN fibers in any innerduct. NEXTLINK shall, at MFN's request,
include in the single bundle of fibers installed in such innerduct a minimum of
96 additional strands of fiber. Subject to the foregoing, if NEXTLINK has fewer
336 fibers installed in such Long-Haul Innerduct, MFN shall have the right to
increase the number of strands to be installed for MFN by NEXTLINK above 96 such
that a total of up to 432 strands will be installed in the Long-Haul Innerduct.
NEXTLINK shall lease such fibers to MFN for a period equal to the remaining term
on NEXTLINK's IRU for the Long-Haul Innerduct (as extended or renewed) with no
lease payment due from MFN to NEXTLINK. The lease shall commence on delivery of
the fiber strands to MFN.
2.6 Collocation. The Parties shall consult and negotiate with
each other with respect to collocation space, regeneration sites and the like,
including possible swaps of collocation space and regeneration sites. Any
agreement between the Parties with respect thereto shall be in writing and shall
state the pricing terms.
2.7 Splicing; Acceptance Testing. MFN shall, at NEXTLINK's
request, provide such services as shall be necessary to connect the NEXTLINK
Fibers, Long-Haul Innerduct and Additional Innerduct and spurs, laterals,
subrings and other network assets (including regeneration equipment) on and
after the Acceptance Date at splice points and other appropriate points
identified on Exhibits A and B, and also as requested by NEXTLINK at other
technically feasible locations, with the consent of MFN, which consent shall not
be unreasonably withheld or delayed by MFN. NEXTLINK shall have the right to
supervise such work, at NEXTLINK's expense. NEXTLINK shall reimburse MFN for
MFN's reasonable costs in performing such services.
(a) MFN shall test all NEXTLINK Fibers, Long-Haul
Innerduct and Additional Innerduct in accordance with the specifications stated
in the Exhibits to this Agreement ("Acceptance Testing") to verify that such the
NEXTLINK Fibers, Long-Haul Innerduct and Additional Innerduct are installed in
compliance with the specifications described in the applicable Exhibits.
Acceptance Testing shall progress span by span along each segment as cable
splicing or other installation progresses, so that test results may be reviewed
in a timely manner. Where practical, MFN shall provide NEXTLINK at least ten
(10) business days advance notice, but in any case at least five (5) business
days advance notice, of the date and time of each Acceptance Testing (each of
which shall take place during normal business hours where practical) such that
NEXTLINK shall have the right, but not the obligation, to have a person or
persons present to observe MFN's Acceptance Testing. When MFN has determined
that the results of the Acceptance Testing with respect to a particular span
show that the NEXTLINK Fibers, Long-Haul Innerduct or Additional Innerduct so
tested are installed and in compliance with the applicable specifications set
forth in the Exhibits to this Agreement, MFN shall promptly provide NEXTLINK
with a copy of such test results.
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(b) When MFN reasonably determines the NEXTLINK Fibers,
Long-Haul Innerduct or Additional Innerduct with respect to an entire segment
are installed substantially in conformity with the applicable specifications set
forth in the Exhibits to this Agreement, MFN shall promptly provide written
notice of completion to NEXTLINK (a "Completion Notice"). NEXTLINK shall, within
fourteen (14) days of receipt of the Completion Notice, either reject the
Completion Notice specifying the defect or failure in such Acceptance Testing or
give MFN written notice of acceptance of such Acceptance Testing (the period
from the date of NEXTLINK's receipt of the Completion Notice to the date of
MFN's receipt of NEXTLINK's notice of rejection or Acceptance being referred to
herein as the "Review Period"). In the event NEXTLINK rejects the Completion
Notice, MFN shall promptly, and not later than fourteen (14) days after receipt
of NEXTLINK's notice of rejection, and at no cost to NEXTLINK, commence to
remedy the defect or failure. Thereafter, upon completion of the remediation of
the defect or failure, MFN shall again give NEXTLINK a Completion Notice. The
foregoing procedure shall apply again and successively thereafter for a total of
two attempts to remedy the defect or failure. If MFN fails to adequately remedy
or cure the defect or failure after two attempts, NEXTLINK shall have the right
to proceed promptly and in an economically efficient manner for a period of up
to thirty days to cure such defects or failures at MFN's cost and expense, which
shall be paid by MFN to NEXTLINK upon demand, or at the election of NEXTLINK
offset from any payment by NEXTLINK to MFN under this Agreement. No acceptance
of, or failure by NEXTLINK to reject, the Completion Notice shall be deemed to
be a waiver of any rights or remedies of NEXTLINK under this Agreement; provided
that NEXTLINK's use of the fiber or Innerduct in question (other than in
connection with testing) and any failure by NEXTLINK to timely reject as set
forth above shall be deemed Acceptance for purposes of this Agreement. The date
when NEXTLINK accepts or is deemed to have accepted a Completion Notice or cures
such defects at MFN'S cost and expense as provided above with respect to any
portion of the NEXTLINK Fibers is herein defined as the "Acceptance Date." Not
later than the business day following the Acceptance Date, NEXTLINK shall cause
the Escrow Agent to release from escrow a portion of the funds held by the
Escrow Agent under the Escrow Agreement, in the amount designated by the Parties
in the applicable Exhibits corresponding to the segment being accepted by
NEXTLINK.
2.8 Removal on Termination. Upon the expiration of the fiber
lease and IRUs provided to NEXTLINK in this Agreement, or any earlier
termination of this Agreement, NEXTLINK shall exercise commercially reasonable
efforts to remove all NEXTLINK property from the MFN System and reroute
NEXTLINK's traffic within sixty (60) days from such expiration or termination
and shall complete such removal in a manner that does not interfere with or
damage the MFN System. In the event that NEXTLINK fails to remove its property
within such period, MFN may remove and store the NEXTLINK property at NEXTLINK's
expense.
2.9 Construction Standards. All construction required for
performance by MFN of its obligations under this Agreement shall be performed in
accordance with the terms stated in any Exhibit to this Agreement and in
accordance with industry standards.
2.10 Cooperation in Planning. The Parties shall cooperate in good
faith in
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<PAGE> 7
planning the design and construction of the NEXTLINK Fibers, the Long-Haul
Innerduct and the Additional Innerduct. Not less frequently than once every six
months, NEXTLINK and MFN shall meet to evaluate MFN's construction plans and
network design and to consider NEXTLINK's comments and requests for
modifications. Except as may be requested to comply with the applicable
specifications stated in this Agreement or an Exhibit to this Agreement, MFN
shall not have any obligation to make modifications requested by NEXTLINK. MFN
shall promptly notify NEXTLINK of any material deviation from the route design
previously proposed by MFN for any particular segments and NEXTLINK shall have
the right to withdraw from participation in the affected portion of the route
and the right to designate (in a commercially reasonable manner) replacement
fibers in technically feasible locations. To the extent technically feasible and
commercially reasonable, however, MFN shall add additional splice points and
make other changes requested by NEXTLINK (at NEXTLINK's expense), provided that
NEXTLINK responds with such requests within the time periods reasonably
determined from time to time by MFN (and given to NEXTLINK in writing) based on
MFN's construction schedule.
2.11 Increase in New York Fibers. As part of the consideration
NEXTLINK is receiving under this Agreement, MFN shall increase the fiber count
for the "Leased Fibers" as defined in the New York Fiber Agreement by the number
of fiber miles equivalent to the number of fiber miles required to increase the
fiber count for such "Leased Fibers" to *** fibers in all segments of such
"Leased Fibers." The specific fiber counts by segment shall be as stated by
NEXTLINK in a written request to MFN within 90 days after the date of this
Agreement, with the consent of MFN (which shall not be unreasonably withheld or
delayed by MFN). This Section 2.11 shall not obligate MFN to install these
additional strands of fiber in any particular location unless MFN is obligated
to lease to NEXTLINK fiber at that location under the New York Fiber Agreement.
No additional payment shall be due from NEXTLINK under this Agreement or the New
York Fiber Agreement as a result of such increase in the fiber count for such
Leased Fibers. Such increase in fiber count shall not reduce the fiber-miles
NEXTLINK is entitled to lease under Section 2.1 of this Agreement.
2.12 NEXTLINK and MFN agree that the lease to MFN contemplated
under Section 2.5 and the provision of additional fiber to NEXTLINK contemplated
under Section 2.11 are of equivalent value and are valued at Four Million Four
Hundred Thousand Dollars ($4,400,000).
ARTICLE III TERMS OF PAYMENT
3.1 Fiber Lease Payment. In consideration of the lease of fibers
set forth in Section 2.1, NEXTLINK shall pay MFN a one-time lease payment of
$***. This lease payment shall be paid as follows: on the third business day
following the execution of this Agreement by both parties, NEXTLINK shall pay
the sum of $*** by wire transfer directly to MFN. Within five days after the
execution by the Parties and the Escrow Agent (as defined in Section 3.4) of the
Escrow Agreement (as defined in Section 3.4) NEXTLINK shall pay the balance of
$*** by wire transfer to the Escrow Agent identified in Section 3.4 below. The
funds in escrow shall be released from escrow as segments of the NEXTLINK Fibers
are accepted by NEXTLINK. If
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<PAGE> 8
the Term is extended as provided in Section 2.1, the lease payment for such
extended term shall be determined at a rate equal to 35% of the fair market
value of the fiber lease at the commencement of each extension, plus payment of
MFN's maintenance charges at market rates and increases in right-of-way fees. No
monthly charges or other recurring charges shall be due from NEXTLINK in
connection with the lease or maintenance of the NEXTLINK Fibers (except for
maintenance required (i) at NEXTLINK's request, but not required for compliance
with the specifications stated in this Exhibits to this Agreement, or (ii) as a
result of NEXTLINK's acts or omissions.
3.2 Long-Haul Innerduct Payment. In consideration of the grant of
the IRU for the Long-Haul Innerduct set forth in Section 2.3, NEXTLINK shall pay
MFN a one-time payment of $***. This payment shall be made as follows: on the
third business day following the execution of this Agreement by both parties,
NEXTLINK shall pay the sum $*** by wire transfer directly to MFN. Within five
days after the execution of the Escrow Agreement by the Parties and the Escrow
Agent, NEXTLINK shall pay the balance of $*** by wire transfer to the Escrow
Agent identified in Section 3.4 below. NEXTLINK shall instruct the Escrow Agent
to release $*** (in increments of $*** with respect to the CSX right-of-way and
$*** with respect to the Conrail right-of-way) to MFN promptly after MFN obtains
any necessary consents of holders of rights-of-way under Section 2.3, and
NEXTLINK has approved the amount of right-of-way fees or other fees to be
incurred by NEXTLINK with respect to the Long-Haul Innerduct and NEXTLINK has
approved the terms of all right-of-way agreements NEXTLINK is required to enter
into with respect to the Long-Haul Innerduct and the terms of any consent given
by any holder of such right-of-way. The balance of the funds in escrow shall be
released from escrow as segments of the Long-Haul Innerduct are accepted by
NEXTLINK. No monthly charges or other recurring charges shall be due from
NEXTLINK in connection with the IRU for the Long-Haul Innerduct. NEXTLINK shall
be responsible for payment of maintenance costs with respect to such Long-Haul
Innerduct, by hiring MFN to maintain such Long-Haul Innerduct and paying MFN's
reasonable charges for such maintenance. For a period of two years after
NEXTLINK's Acceptance of the Long-Haul Innerduct, such maintenance charges shall
be calculated at a rate of $*** per year per route mile. Such maintenance
charges shall increase or decrease thereafter based on MFN's actual maintenance
costs, as may be agreed by the Parties at the time or, failing such agreement of
the Parties, pursuant to the dispute resolution process set forth in this
Agreement. NEXTLINK shall pay MFN for Emergency Unscheduled Maintenance on a
time and materials basis. If any additional right-of-way fees or other fees are
imposed on MFN by the holder of the underlying right-of-way or other third party
as a result of the installation or use by NEXTLINK of the Long-Haul Innerduct,
NEXTLINK shall pay such additional fees either directly or on a pass-through
basis to MFN. For any pass-through payment, NEXTLINK shall have the right to
receive evidence reasonably satisfactory to NEXTLINK that such additional fees
were actually paid by MFN, or are payable by MFN, with respect to the
installation (or use by NEXTLINK) of the Long-Haul Innerduct. If MFN exercises
its right under Section 2.5 to include fiber in the Long-Haul Innerduct,
NEXTLINK's share of expenses for maintenance and right-of-way fees under this
Section 3.2 shall be reduced Pro Rata. No additional payment shall be required
from NEXTLINK for any renewal or extension of the IRU for the Long-Haul
Innerduct, but NEXTLINK shall continue to pay for maintenance as required and
other fees under this Section 3.2 and shall pay its pro rata share of any
increase right-of-way or other fees
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incurred by MFN as a result of such renewal or extension of the right-of-way.
3.3 Additional Innerduct Payment. In consideration of the grant
of any IRU for the Additional Innerduct set forth in Section 2.4, NEXTLINK shall
pay MFN a one-time fee equal to $*** per mile, rounded up or down to the nearest
mile based on the total number of miles of Additional Innerduct granted to
NEXTLINK. This payment shall be paid directly to MFN at the time NEXTLINK
accepts delivery of the Additional Innerduct. No monthly charges or other
recurring charges shall be due from NEXTLINK in connection with the grant of the
IRU with respect to the Additional Innerduct. NEXTLINK shall be responsible for
payment of maintenance costs with respect to such Additional Innerduct, by
hiring MFN to maintain such Additional Innerduct and paying MFN's reasonable
charges for such maintenance. Such maintenance charges shall be calculated at
the rate per year per route mile applicable under Section 3.2 at the time.
NEXTLINK shall pay MFN for Emergency Unscheduled Maintenance on a time and
materials basis. If any additional right-of-way fees or other fees are imposed
on MFN by the holder of the underlying right-of-way as a result of the
installation (or use by NEXTLINK) of the Additional Innerduct, NEXTLINK shall
pay such additional fees either directly or on a pass-through basis to MFN. For
any pass-through payment, NEXTLINK shall have the right to receive evidence
reasonably satisfactory to NEXTLINK that such additional fees were actually paid
by MFN, or are payable by MFN, with respect to the installation of the
Additional Innerduct. No additional payment shall be required from NEXTLINK for
any renewal or extension of the IRU for the Additional Innerduct, but NEXTLINK
shall continue to pay for maintenance as required in this Section 3.3 and shall
pay its pro rata share of any increase right-of-way or other fees incurred by
MFN as a result of such renewal or extension of the right-of-way.
3.4 Escrow. Promptly after the execution of this Agreement, the
Parties shall enter an Escrow Agreement substantially in the form attached as
Exhibit G hereto (the "Escrow Agreement"), with such changes as may be
reasonably requested by the Escrow Agent. Pursuant to the Escrow Agreement,
NEXTLINK shall make deposits as set forth in this Article III to an escrow
account established with First Trust National Association or other escrow agent
satisfactory to both Parties (the "Escrow Agent"). The Escrow Agreement shall
authorize the Escrow Agent to remit the Escrow Deposit (as defined in the Escrow
Agreement), when the conditions precedent to such payments, as provided herein,
are satisfied.
3.5 Payment by MFN. MFN shall pay NEXTLINK for MFN's pro rata
share of the additional costs for materials and right-of-way fees and similar
fees (other than labor) that NEXTLINK incurs as a result of MFN's exercise of
its rights under Section 2.5.
ARTICLE IV MAINTENANCE AND REPAIR OF THE NEXTLINK FIBERS
4.1 Routine Maintenance. Routine maintenance and repair of the
NEXTLINK Fibers described in Section 2.1 ("Scheduled Maintenance") shall be
performed at MFN's expense by or under the direction of MFN. Scheduled
Maintenance shall commence with respect to each segment upon the Acceptance Date
for such segment. All scheduled maintenance shall be performed in accordance
with industry standards and in compliance with MFN's standard
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<PAGE> 10
maintenance procedures.
4.2 Unscheduled Maintenance. Non-routine maintenance and repair
of the NEXTLINK Fibers which is not included as Scheduled Maintenance
("Unscheduled Maintenance"), shall be performed at MFN's expense (except to the
extent caused by the acts or omissions of NEXTLINK) by or under the direction of
MFN. Unscheduled Maintenance shall commence with respect to each segment upon
the Acceptance Date for such segment. Unscheduled Maintenance shall consist of:
(a) "Emergency Unscheduled Maintenance" in response to
an alarm identification by MFN's Operations Center, notification by NEXTLINK or
notification by any third party of any failure, interruption or impairment in
the operation of the NEXTLINK Fibers, or any event imminently likely to cause
the failure, interruption or impairment in the operation of the NEXTLINK Fibers.
(b) "Non-Emergency Unscheduled Maintenance" in response
to any potential service-affecting situation to prevent any failure,
interruption or impairment in the operation of the NEXTLINK Fibers.
NEXTLINK shall promptly report the need for Unscheduled
Maintenance to MFN in accordance with procedures promulgated by MFN from time to
time. MFN will log the time of NEXTLINK's report, verify the problem and will
dispatch personnel promptly (and as provided in Section 4.3) to take corrective
action. If NEXTLINK has caused the problem giving rise to the Unscheduled
Maintenance, NEXTLINK shall reimburse MFN for MFN's reasonable costs (on a time
and materials basis) with respect to such problem.
4.3 Operations Centers. MFN shall operate and maintain one or
more Operations Centers ("OCs") staffed twenty-four hours a day, seven (7) days
a week by trained and qualified personnel beginning with the earliest Acceptance
Date under this Agreement. Qualified maintenance personnel shall be available
for dispatch twenty-four (24) hours a day, seven (7) days week. MFN shall use
its best efforts to have its first maintenance representative at the site
requiring Emergency Unscheduled Maintenance activity within two (2) hours after
the time MFN becomes aware of an event requiring Emergency Unscheduled
Maintenance. MFN shall maintain a telephone number through which NEXTLINK may
contact personnel at an OC without toll from the New York metropolitan area.
MFN's OC personnel shall dispatch maintenance and repair personnel along the
system to handle and repair problems detected in the NEXTLINK Fibers, (i)
through NEXTLINK's remote surveillance equipment and upon notification by
NEXTLINK to MFN, or (ii) upon notification by a third party.
4.4 Cooperation and Coordination. NEXTLINK shall utilize an
Operations Escalation List, as updated from time to time, to report and seek
immediate initial redress of exceptions noted in the performance of MFN in
meeting maintenance service objectives. NEXTLINK will, as necessary, arrange for
escorted access for MFN to all sites of the NEXTLINK Fibers, subject to
applicable contractual underlying real property and other third-party
limitations and restrictions. In performing its services hereunder, MFN shall
take workmanlike care to prevent impairment to the signal continuity and
performance of the
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NEXTLINK Fibers. The precautions to be taken by MFN shall include notification
to NEXTLINK. In addition, MFN shall reasonably cooperate with NEXTLINK in
sharing information and analyzing the disturbances regarding the cable and/or
fibers. In the event that any Scheduled or Unscheduled Maintenance hereunder
requires a traffic roll or reconfiguration involving cable, fiber, electronic
equipment, or regeneration or other facilities of NEXTLINK, then NEXTLINK shall,
at MFN's reasonable request, make such personnel of NEXTLINK available as may be
necessary in order to accomplish such maintenance, which personnel shall
coordinate and cooperate with MFN in performing such maintenance as required of
MFN hereunder. MFN shall use its best efforts to notify NEXTLINK at least five
business days prior to the date of any Scheduled Maintenance on any NEXTLINK
Fibers and as soon as possible after becoming aware of the need for Unscheduled
Maintenance. NEXTLINK shall have the right to be present during the performance
of any Scheduled Maintenance on any NEXTLINK Fibers or Unscheduled Maintenance
so long as this requirement does not interfere with MFN's ability to perform its
obligations under this Agreement. In the event that Scheduled Maintenance is
canceled or delayed for whatever reason as previously notified, MFN shall notify
NEXTLINK at MFN's earliest opportunity, and will comply with the provisions of
the previous sentence to reschedule any delayed activity.
4.5 Facilities. MFN shall maintain the NEXTLINK Fibers in a
manner that will permit NEXTLINK's use, in accordance with the terms and
conditions of this Agreement, of the NEXTLINK Fibers and associated facilities
required to be provided under the terms of this Agreement. Except to the extent
otherwise expressly provided in this Agreement, NEXTLINK will be solely
responsible for providing and paying for any and all maintenance of all
electronic, optronic and other equipment, materials and facilities used by
NEXTLINK in connection with the operation of the NEXTLINK Fibers, none of which
is included in the maintenance services to be provided hereunder.
4.6 Fibers. MFN shall perform appropriate Scheduled Maintenance
on the cable containing the NEXTLINK Fibers in accordance with MFN's then
current preventative maintenance procedures as agreed to by NEXTLINK, which
shall not substantially deviate from standard industry practice. MFN shall
maintain sufficient capability to teleconference with NEXTLINK during an
Emergency Unscheduled Maintenance in order to provide regular communication
during the repair process. When correcting or repairing cable discontinuity or
damage, including but not limited to in the event of Emergency Unscheduled
Maintenance, MFN shall use reasonable efforts to repair traffic-affecting
discontinuity within four (4) hours after the MFN maintenance employee's arrival
at the problem site. In order to accomplish such objective, it is acknowledged
that the repairs so effected may be temporary in nature. In such event, within
twenty-four (24) hours after completion of any such Emergency Unscheduled
Maintenance, MFN shall commence its planning for permanent repair, and
thereafter promptly shall notify NEXTLINK of such plans, and shall implement
such permanent repair within an appropriate time thereafter. Restoration of open
fibers on fiber strands not immediately required for service shall be completed
on a mutually agreed-upon schedule. If the fiber is required for immediate
service, the repair shall be scheduled for the next available Planned Service
Work Period ("PSWP"). In performing repairs, MFN shall comply with the splicing
specifications as set forth in Exhibit E. MFN shall provide to NEXTLINK any
modifications to these specifications as
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<PAGE> 12
may be necessary or appropriate in any particular instance for NEXTLINK's
approval, which approval shall not be unreasonably withheld. MFN's
representatives that are responsible for initial restoration of a cut cable
shall carry on their vehicles the typically appropriate equipment that would
enable a temporary splice, with the objective of restoring operating capability
in as little time as possible. MFN shall maintain and supply an inventory of
spare cable in storage facilities supplied and maintained by MFN at strategic
locations to facilitate timely restoration.
4.7 Planned Service Work Period ("PSWP"). Scheduled Maintenance
that is reasonably expected to produce any signal discontinuity must be
coordinated between the parties. Generally, this work should be scheduled after
midnight and before 6:00 a.m. local time. Major system work such as fiber rolls
and hot cuts will be scheduled for PSWP weekends. A calendar showing approved
PSWP will be agreed upon in the last quarter of every year for the year to come.
The intent is to avoid jeopardy work on the first and last weekends of the month
and high-traffic holidays.
4.8 Restoration. MFN shall use its best efforts to respond to any
interruption of service or a failure of the NEXTLINK Fibers to operate in
accordance with the specifications set forth in the applicable Exhibits to this
Agreement (in any event, an "Outage") as quickly as possible in accordance with
the procedures set forth herein. When restoring a cut cable in the NEXTLINK
Fibers, the parties agree to work together to restore all traffic as quickly as
possible. MFN, promptly upon arriving on the site of the cut, shall determine
the course of action to be taken to restore the cable and shall begin
restoration efforts. MFN shall splice fibers tube by tube or ribbon by ribbon,
rotating between tubes or ribbons operated by any fiber lessees or holders of
IRUs (collectively, "Interest Holders"), including NEXTLINK, in accordance with
the following described priority and rotation mechanics; provided that, lit
fibers in all buffer tubes or ribbons shall have priority over any dark fibers
in order to allow transmission systems to come back on line; and provided
further that MFN will continue such restoration efforts until all lit fibers in
all buffer tubes or ribbons are spliced and all traffic restored. In general,
priority among Interest Holders affected by a cut shall be determined on a
rotating restoration-by-restoration and segment-by-segment basis, to provide
fair restoration to all Interest Holders. However, MFN shall establish a
Priority Customer Grouping ("PCG") which will receive, whenever possible,
priority in the restoration of tubes or ribbons that affect their use of MFN
facilities. NEXTLINK shall be a member of the PCG. The goal of emergency
restoration splicing shall be to restore service as quickly as possible. This
requires the use of some type of mechanical splice, such as the "3M Fiber Lock"
to complete the temporary restoration. Permanent restorations will take place as
soon as possible after the temporary splice is complete.
4.9 Standards; Subcontracting. All Scheduled Maintenance shall be
performed in accordance with industry standards and in compliance with the
Standards observed by MFN in its maintenance on any other similar MFN assets.
MFN may subcontract any of the maintenance services hereunder; provided that MFN
shall require the subcontractor(s) to perform in accordance with the requirement
and procedures set forth herein and all applicable industry standards. The use
of any such subcontractor shall not relieve MFN of any of its obligations
hereunder.
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4.10 Fiber Replacement. In the event all or any part of the
NEXTLINK Fibers shall require replacement during the term of this Agreement,
such replacement shall be made as soon as reasonably practical, at MFN's sole
cost and expense; except, however, if the replacement of the NEXTLINK Fibers is
required as a result of the acts or omissions of NEXTLINK, MFN shall make such
replacement at NEXTLINK's cost and expense on a time and materials basis.
4.11 Outages. During the Term of this Agreement, MFN shall refund
to NEXTLINK, the amounts set forth in Exhibit H hereto, as compensation for
"Outages." Payment of such amounts shall be NEXTLINK's sole remedy for such
Outages. For the purposes of this Agreement, an Outage is the complete
interruption of service over any fiber circuit in the NEXTLINK Fibers, whether
or not due to the physical damage or severance of such fiber circuit; except
that no interruption of service caused in whole or in part by the negligent act
or omission or willful misconduct of NEXTLINK shall constitute an Outage.
4.12 Replacement Maintenance. For any isolated incident wherein
MFN has failed to cure an Outage within the time frames stated in this Agreement
or on an Exhibit to this Agreement, or has failed to otherwise perform its
maintenance obligations as required under this Agreement, NEXTLINK may (after
notice to MFN, which may be oral if the circumstances so require) secure the
services of the contractor selected in advance by MFN for the purposes of
repairing and maintaining the NEXTLINK Fibers, the Long-Haul Innerduct or the
Additional Innerduct (as the case may be) at such location at MFN's expense.
ARTICLE V PERMITS, ACCESS, AND REQUIRED RIGHTS-OF-WAY
5.1 MFN represents and warrants that it has obtained or will
obtain all regulatory approvals, franchises, permits, orders, consents, and
rights-of-way, either by contract or through a franchise, and all other rights
necessary to be obtained by MFN to enable its provision of the NEXTLINK Fibers
and the grant of the IRU for the Long-Haul Innerduct and the Additional
Innerduct (all of which are herein collectively referred to as the
"Rights-of-Way"). If any provision in the Right-of-Way would in the reasonable
judgment of MFN, have an adverse impact on NEXTLINK, MFN shall, on or before the
Acceptance Date for each segment of NEXTLINK Fibers, Long-Haul Innerduct or
Additional Innerduct, provide NEXTLINK with a copy or, in MFN's discretion, a
reasonably-detailed summary of all Rights-of-Way applicable to such segment of
the MFN System accepted. MFN shall exercise reasonable efforts to obtain any
necessary consent of any third party to the disclosure of such Rights-of-Way.
MFN shall use commercially reasonable efforts to cause such Rights-of-Way to
remain effective through the Term and any extensions (or to replace such
Right-of-Way with suitable replacement Right-of-Way). MFN shall in no event be
required to extend any Right-of-Way other than the first ten-year renewal option
pursuant to MFN's agreement with Conrail dated February 24, 1997, as amended. In
the event that any Rights-of-Way are discontinued and not replaced and the loss
of such Rights-of-Way adversely affects the use of the NEXTLINK Fibers, the
Long-Haul Innerduct, or the Additional Innerduct, MFN shall issue a rebate to
NEXTLINK. The amount of the rebate shall be the pro rata portion of the payment
allocable to the remainder of the term, in proportion to the number of fiber
miles (or route miles in the case of Long-Haul Innerduct or
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Additional Innerduct).
ARTICLE VI RELOCATION OF THE MFN SYSTEM AND THE NEXTLINK FIBERS
6.1 If MFN receives notice of any request, intent, or plan by any
third party, including, but not limited to, a governmental entity, to relocate
any segment of MFN's fiber network used in the provision of the NEXTLINK Fibers,
the Long-Haul Innerduct or the Additional Innerduct, MFN shall notify NEXTLINK
of such request, intent, or plan and shall consult with NEXTLINK regarding
proceedings and negotiations involving such proposed relocation and communicate
with NEXTLINK regarding the status of such proceedings and negotiations. If MFN
is required by any such third party to relocate any segment of MFN's fiber
network used in providing the NEXTLINK Fibers, the Long-Haul Innerduct or the
Additional Innerduct, MFN shall give NEXTLINK at least sixty (60) days' (or such
lesser period of notice that MFN may have received) prior written notice of any
such relocation ("Relocation Notice"). Along with the Relocation Notice, MFN
shall provide an estimate of the cost of such relocation. MFN shall relocate the
NEXTLINK Fibers, the Long-Haul Innerduct or the Additional Innerduct (as the
case may be), and, to the extent MFN is not reimbursed for the cost of such
relocation by a third party, governmental entity or otherwise, NEXTLINK shall
pay its Pro Rata share of the costs associated with the relocation of the
NEXTLINK Fibers, the Long-Haul Innerduct or the Additional Innerduct (as the
case may be); except, however, to the extent that the factors causing such
relocation are under MFN's control. MFN shall use its reasonable best efforts to
secure an agreement for reimbursement from any third party, governmental entity
or otherwise, requiring any relocation of the MFN System and the NEXTLINK
Fibers, the Long-Haul Innerduct or the Additional Innerduct.
ARTICLE VII CONDEMNATION
7.1 Participation in Proceedings. In the event any portion of the
MFN System, the NEXTLINK Fibers, the Long-Haul Innerduct, the Additional
Innerduct, and/or the Rights-of-Way in or upon which they shall have been
installed, become the subject of a condemnation proceeding which is not
dismissed within one hundred eighty (180) days of the date of filing of such
proceeding and which could reasonably be expected to result in a taking by any
governmental agency or other party cloaked with the power of eminent domain for
public purpose or use, both parties shall be entitled, to the extent permitted
under applicable law, to participate in any condemnation proceedings to seek to
obtain compensation by either joint or separate awards for the economic value of
their respective interests in the portion of the MFN System subject to such
condemnation.
7.2 Notice. Upon its receipt of a formal notice of condemnation
or taking, MFN shall notify NEXTLINK immediately of any condemnation proceeding
filed against the MFN System, including the NEXTLINK Fibers, the Long-Haul
Innerduct, the Additional Innerduct, and/or the Rights-of-Way in or upon which
the NEXTLINK Fibers, Long-Haul Innerduct and/or Additional Innerduct shall have
been installed. MFN shall also notify NEXTLINK of any similar threatened
condemnation proceeding and agrees not to sell the NEXTLINK Fibers, the
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Long-Haul Innerduct, the Additional Innerduct, and/or Rights-of-Way to such
acquiring agency, authority or other party in lieu of condemnation without prior
written notice of ten (10) business days to NEXTLINK.
ARTICLE VIII USE OF THE NEXTLINK FIBERS
8.1 Repair by MFN. NEXTLINK shall not, by itself or by or through
any agent or contractor, make any repair or replacement of the NEXTLINK Fibers
or any other equipment owned by MFN except as provided in Section 4.12 herein.
8.2 Compliance with Law. NEXTLINK shall not use the NEXTLINK
Fibers, the Long-Haul Innerduct or the Additional Innerduct in any way that
fails to comply with any applicable federal, state or local code, ordinance,
law, rule, regulation or restriction or any policy of insurance.
8.3 Use. For a period of seven years after MFN's receipt of
payment of all amounts due under Sections 3.1 and 3.2 of this Agreement, (a)
NEXTLINK shall not, directly or indirectly, sublease, condo, sublicense or
wholesale the NEXTLINK Fibers, the Long-Haul Innerduct, the Additional
Innerduct, or any fibers deployed in such innerduct, to any third party that is
not directly or indirectly majority-owned, controlled or operated under a
management agreement by NEXTLINK or by Craig O. McCaw (a "Permitted Assignee")
unless the traffic on such NEXTLINK Fibers or carried on fibers in such
Long-Haul Innerduct or Additional Innerduct is distributed through the
transmission and switching equipment of NEXTLINK or a Permitted Assignee; (b)
NEXTLINK shall ensure that the NEXTLINK Fibers, Long-Haul Innerduct and
Additional Innerduct shall be utilized solely for its business purposes and the
business purposes of any Permitted Assignee; and (c) NEXTLINK shall not, in any
event, sublease, condo, sublicense or wholesale to any third party other than a
Permitted Assignee any dark fiber-optic capacity or any lit fiber-optic capacity
on any fibers contained in the Long-Haul Innerduct or the Additional Innerduct
unless such lit fiber optic capacity is distributed through the transmission and
switching equipment of NEXTLINK or a Permitted Assignee. NEXTLINK shall not
(even after the expiration of the seven-year period stated above) sublease,
condo, sublicense or wholesale to any third party other than a Permitted
Assignee any dark or lit fiber-optic capacity on the NEXTLINK Fibers, unless
such lit fiber optic capacity is distributed through the transmission and
switching equipment of NEXTLINK or a Permitted Assignee. For purposes of this
Agreement, a "management agreement" means an agreement under which the manager
has management control over the business operations of the entity in question,
whether by virtue of a management agreement, management provisions in a limited
liability company agreement or partnership agreement, or by other agreement. In
the event of a sale of an entity that was directly or indirectly majority-owned,
controlled or operated under a management agreement by Craig O. McCaw, with the
result that such ownership, control and management conditions are no longer met,
such entity shall have the right, without any payment to MFN, to transfer the
NEXTLINK Fibers, Long-Haul Innerduct and/or Additional Innerduct at issue back
to NEXTLINK or a Permitted Assignee. As an alternative to such transfer,
NEXTLINK or the purchasing entity shall pay to MFN a fee calculated as follows:
for a sale of the entity during the first five years after the commencement of
the Term, a fee equal to $*** per fiber mile; for a sale
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of the entity during the next five years, a fee equal to $*** per fiber mile;
for a sale of the entity during the next five years, a fee equal to $*** per
fiber mile; and for a sale of the entity thereafter, no fee. The purchasing
entity shall nonetheless continue to be bound by the provisions of this Section
8.3.
ARTICLE IX OWNERSHIP OF THE NEXTLINK FIBERS
9.1 NEXTLINK shall have an undivided exclusive leasehold interest
in the NEXTLINK Fibers. NEXTLINK shall have undivided, absolute legal title to
ownership in the fibers installed in the Long-Haul Innerduct and the Additional
Innerduct. MFN shall have an undivided exclusive leasehold interest in any
fibers installed for MFN in the Long-Haul Innerduct pursuant to Section 2.5. MFN
shall have undivided, absolute legal title to ownership in the MFN System,
including the NEXTLINK Fibers, the Long-Haul Innerduct and the Additional
Innerduct. The Parties shall not make any representation to any third party that
is contrary to the terms of this Section 9.1.
ARTICLE X REPRESENTATIONS, WARRANTIES AND COVENANTS
10.1 Compliance with Specifications. MFN represents and warrants
that the NEXTLINK Fibers, Long-Haul Innerduct and Additional Innerduct have been
or will be constructed substantially as represented in the applicable Exhibit to
this Agreement, and warrants that for the Term of this Agreement, the NEXTLINK
Fibers, Long-Haul Innerduct and Additional Innerduct shall comply with the
parameters of the specifications set forth in the Exhibits hereto; provided,
however, that such warranties shall in no way be deemed to be a limitation on or
in derogation of MFN's obligations under Article IV herein. MFN represents and
warrants that the Long-Haul Innerduct and the Additional Innerduct will be of a
size sufficient to contain 432 strands of ribbon fiber and that the NEXTLINK
Fibers, the Long-Haul Innerduct and the Additional Innerduct will conform in all
material respects to the as-builts delivered by MFN under this Agreement from
time to time.
10.2 Limitations. EXCEPT AS EXPRESSLY PROVIDED IN THE FOREGOING
SECTION 10.1, MFN MAKES NO WARRANTY, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE MFN
SYSTEM, NEXTLINK FIBERS, LONG-HAUL INNERDUCT AND ADDITIONAL INNERDUCT, DEMAND
MAINTENANCE, AND SCHEDULED MAINTENANCE THEREON. IN NO EVENT SHALL EITHER PARTY
HERETO BE LIABLE TO THE OTHER PARTY OR TO ANY THIRD PARTY FOR ANY INDIRECT,
SPECIAL, CONSEQUENTIAL, OR PUNITIVE DAMAGES, INCLUDING THOSE BASED ON LOSS OF
REVENUES, PROFITS, OR BUSINESS OPPORTUNITIES, WHETHER OR NOT SUCH PARTY HAD OR
SHOULD HAVE HAD ANY KNOWLEDGE, ACTUAL OR CONSTRUCTIVE, THAT SUCH DAMAGES MIGHT
BE INCURRED.
10.3 Authority of MFN. MFN represents and warrants to NEXTLINK
that it has full corporate power and authority to execute and deliver this
Agreement and to consummate the
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transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby by MFN have been
duly and validly authorized by all necessary corporate action on the part of
MFN.
10.4 Authority of NEXTLINK. NEXTLINK represents and warrants to
MFN that it has full corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby by NEXTLINK have been duly and validly authorized by all
necessary corporate action on the part of NEXTLINK.
10.5 MFN Compliance. MFN represents and warrants to NEXTLINK that
MFN is in compliance in all material respects with all laws, regulations and
agreements (including franchises and right-of-way agreements) applicable to its
construction and operation of the MFN System. MFN shall perform all of its
obligations under all right-of-way agreements applicable to the MFN System and
shall promptly notify NEXTLINK of any default, or the assertion by a third party
of the existence of any default, under any franchise, right-of-way agreement or
other agreement material to the MFN System or the operation of the NEXTLINK
Fibers. MFN has obtained and holds (or will, subject to the second paragraph of
Section 2.3 and Section 5.1, obtain and hold) all permits, licenses,
right-of-way agreements and approvals necessary to perform its obligations under
this Agreement and to operate the MFN System as presently conducted and as
contemplated by this Agreement in accordance with applicable law. Except as
provided in Section 2.3 with respect to the consent of underlying right-of-way
holders, neither the execution nor performance of this Agreement nor the
delivery of the NEXTLINK Fibers, Long-Haul Innerduct and Additional Innerduct
contemplated hereby conflict with or result in a breach or violation of any
provision of MFN's franchise or applicable law. There is no action, suit,
investigation, claim, arbitration, or litigation pending, or to MFN's knowledge,
threatened against, affecting, or involving MFN or the operation of the NEXTLINK
Fibers, the Long-Haul Innerduct, or the Additional Innerduct at law or in equity
or before any court, arbitrator, or governmental authority that is reasonably
likely to result in a material adverse effect on MFN's performance of its
obligations under this Agreement or the operation of the NEXTLINK Fibers, the
Long-Haul Innerduct, or the Additional Innerduct. MFN is not in default in any
material respect of any contract with a third party that is reasonably likely to
result in a material adverse effect on MFN's performance of is obligations under
this Agreement or on the operation by NEXTLINK of the NEXTLINK Fibers, the
Long-Haul Innerduct, and the Additional Innerduct.
10.6 NEXTLINK Compliance. NEXTLINK represents and warrants to MFN
that NEXTLINK is in compliance in all material respects with all laws and
regulations applicable to the operation of the business it intends to pursue
through the use of the NEXTLINK Fibers, the Long-Haul Innerduct and the
Additional Innerduct. NEXTLINK has obtained or will obtain all permits,
licenses, and approvals necessary to perform its obligations under this
Agreement and to conduct its business as contemplated by this Agreement, in
accordance with applicable law. Neither the execution nor performance of this
Agreement nor the Acceptance of the NEXTLINK Fibers, Long-Haul Innerduct or
Additional Innerduct contemplated hereby conflict with or result in a breach or
violation of any provision of applicable law. There is no action, suit,
investigation, claim, arbitration, or litigation pending, or to NEXTLINK's
knowledge, threatened against,
Page 17 - FIBER LEASE AND INNERDUCT USE AGREEMENT
<PAGE> 18
affecting, or involving NEXTLINK at law or in equity or before any court,
arbitrator, or governmental authority that is reasonably likely to result in a
material adverse effect on NEXTLINK's performance of its obligations under this
Agreement. NEXTLINK is not in default in any material respect of any contract
with a third party that is reasonably likely to result in a material adverse
effect upon NEXTLINK's performance of its obligations under this Agreement.
10.7 No Broker. NEXTLINK and MFN each represent and warrant to
the other that it has not retained any broker, finder, investment banker or
other similar person or entity who is entitled to any brokerage fee, finder's
fee or other similar fee or commission in connection with the transactions
described in this Agreement.
ARTICLE XI TAXES
11.1 For purposes of this Agreement, "Taxes" shall include
license, permit or franchise fees and sales and use taxes imposed by any
governmental entity. NEXTLINK shall be responsible for, and shall timely pay,
any and all Taxes imposed with respect to this Agreement upon NEXTLINK. MFN
shall be responsible for, and shall timely pay, any and all Taxes imposed with
respect to this Agreement upon MFN. Notwithstanding the foregoing, all sales and
use taxes assessed on transactions contemplated by this Agreement shall be borne
by the grantee of any IRU or lessee of any lease.
11.2 If at any time any Tax is imposed on, assessed against or
borne by either NEXTLINK or MFN with respect to this Agreement, NEXTLINK or MFN,
as the case may be, shall have the right to protest, by appropriate proceedings,
the imposition or assessment of any such Tax. In such event, NEXTLINK or MFN, as
the case may be, shall be responsible for such payments and shall indemnify and
hold the other Party harmless from and against any liability, expense, legal
action or cost, including reasonable attorneys' fees, resulting from the
exercise of its rights under this Section 11.2. In the event of any refund,
rebate, reduction or abatement of any such Tax, the Party who was responsible
for paying such Tax shall be entitled to receive the entire benefit of such
refund, rebate, reduction or abatement.
ARTICLE XII LIABILITY
12.1 Limitations. Neither NEXTLINK nor MFN shall be liable to the
other for any indirect, special, punitive, or consequential damages (including,
but not limited to, any claim from any customer for loss of services) arising
under this Agreement or from any breach or partial breach of the provisions of
this Agreement or arising out of any act or omission of either Party hereto, its
employees, servants, contractors and/or agents. Both MFN and NEXTLINK shall use
their reasonable best efforts to include in any agreement with any third party
relating to the use of the MFN System or the NEXTLINK Fibers a waiver by such
third party of any claim for indirect, special, punitive, or consequential
damages (including, but not limited to, any claim from any client or customer
for loss of services) arising out of or as a result of any act or omission by
either Party hereto, its employees, servants, contractors and/or agents. Nothing
in this paragraph shall limit NEXTLINK's right to receive liquidated damages on
the terms stated
Page 18 - FIBER LEASE AND INNERDUCT USE AGREEMENT
<PAGE> 19
on the Exhibits to this Agreement.
12.2 Indemnity. Each Party agrees to indemnify, defend, protect
and save the other harmless from and against any claim, damage, loss, liability,
cost, and expense (including reasonable attorney's fees) in connection with any
personal injury or other tortious act, including death, loss, or damage to any
property or facilities of any party (including MFN, NEXTLINK, or any other party
operating or using any part of the MFN System or the NEXTLINK Fibers, Long-Haul
Innerduct or Additional Innerduct) arising out of or resulting in any way from
the acts or omissions to act, negligent or otherwise, of such party, its
employees, servants, contractors, and/or agents in connection with the exercise
of its rights and obligations under the terms of this Agreement or any breach by
such party of any obligation contained herein.
12.3 Third Parties. Nothing contained herein shall operate as a
limitation on the right of either Party hereto to bring an action for damages,
including consequential damages, against any third party based on any acts or
omissions of such third party as such acts or omissions may affect the
construction, operation, or use of the MFN System or the NEXTLINK Fibers;
provided, however, that each Party hereto shall assign such rights or claims,
execute such documents, and do whatever else may be reasonably necessary to
enable the injured Party to pursue any such action against such third party.
ARTICLE XIII INSURANCE
13.1 Each Party shall, at its own expense, secure and maintain in
force, throughout the Term, general liability insurance, with competent and
qualified issuing insurance companies, such that the total available limits to
all insureds will not be less than three million dollars ($3,000,000.00) in
respect of injuries to or death of any one person and not less than five million
dollars ($5,000,000.00) in respect of injuries to or death of any number of
persons aggregated for any one occurrence and not less than three million
dollars ($3,000,000.00) in respect of damage to or loss of use of property in
any one occurrence, and worker's compensation and employer's liability insurance
as required by the laws all applicable government entities. Such insurance may
be provided in policy or policies, primary and excess, including the so-called
umbrella or catastrophe forms. The undertaking with respect to insurance shall
not relieve either Party of its obligation in Article XII. In addition, each
Party shall comply with the insurance requirements in any underlying
right-of-way agreements (provided that such Party has knowledge of such
requirements).
ARTICLE XIV FORCE MAJEURE
14.1 The obligations of the Parties hereto are subject to force
majeure and neither Party shall be in default under this Agreement if any
failure or delay in performance is caused by any factor beyond such Party's
reasonable control, including but not limited to such as strike or other labor
problems; accidents; acts of God; fire; flood; adverse weather conditions;
material or facility shortages or unavailability not resulting from such Party's
failure to timely place orders therefor; lack of transportation; the imposition
of any governmental codes, ordinances, laws, rules, regulations or restrictions;
condemnation or the exercise of rights of eminent domain; war
Page 19 - FIBER LEASE AND INNERDUCT USE AGREEMENT
<PAGE> 20
or civil disorder.
ARTICLE XV DEFAULT
15.1 Defaults. Neither Party shall be in default under this
Agreement, or in breach of any provision hereof unless and until the other Party
shall have given it written notice of such breach and it shall have failed to
cure the same within thirty (30) days after receipt of such notice; provided,
however, that where such breach cannot reasonably be cured within such thirty
(30) day period, if the defaulting Party shall proceed promptly to cure the same
and prosecute such curing with due diligence, the time for curing such breach
shall be extended for such period of time as may be necessary to complete such
curing up to a maximum cure period of 180 days. Upon the failure by the
defaulting Party to timely cure any such breach after notice thereof from the
other Party, the non-defaulting Party shall have the right, in its sole
discretion, to take such action as it may determine to be necessary to cure the
breach, to terminate this Agreement with respect to the segment or segments of
the NEXTLINK Fibers, Long-Haul Innerduct or Additional Innerduct adversely
affected by such default, and to recover damages subject to the limitations
stated in this Agreement. If this Agreement is terminated by NEXTLINK pursuant
to this Section, in addition to other remedies, NEXTLINK may cease payment of
any charges that would thereafter become payable under this Agreement with
respect to the segment or segments as to which this Agreement is terminated.
15.2 Remedies Not Exclusive. Subject to Section 12.1 and except
as provided in Section 4.11 with respect to Outages and except with respect to
liquidated damages payments made by MFN under this Agreement (which shall, in
each case, be NEXTLINK's exclusive remedy), no remedy provided for herein is
intended to be exclusive, but each remedy shall be cumulative and in addition to
and may be exercised concurrently with any other remedy available to MFN or
NEXTLINK at law or in equity.
ARTICLE XVI CONFIDENTIALITY
16.1 Confidentiality. The Parties acknowledge and agree that the
information each Party has provided or will provide in connection with this
Agreement, including, without limitation, the terms and conditions of this
Agreement, are and shall be confidential and proprietary to the Party providing
such information (the "Providing Party"). The Party in receipt of confidential
information (the "Receiving Party") agrees not to use or disclose to any third
party the confidential information of the Providing Party except as required for
performance of its obligations under this Agreement. Each Party shall restrict
dissemination of confidential information to only those persons in its
respective organization who must have access to such confidential information in
order to perform its obligations under this Agreement. Neither Party shall be
required to hold confidential any information which becomes publicly available
other than through the Receiving Party; which is independently developed by the
Receiving Party; which becomes available to the Receiving Party without
restriction from a third party; with respect to which the Providing Party
consents to the disclosure by the Receiving Party; or with respect to which a
court, administrative agency, or other governmental body with jurisdiction over
the Receiving Party orders the disclosure, provided that in such circumstances
the Receiving
Page 20 - FIBER LEASE AND INNERDUCT USE AGREEMENT
<PAGE> 21
Party first provides the Providing Party with notice of such required disclosure
and takes reasonable steps to allow the Providing Party to seek a protective
order with respect to the confidential information. The Receiving Party will
cooperate and assist the Providing Party in connection with such protective
order at the Providing Party's request.
16.2 Existing Agreement. The provisions of this Article XVI shall
be subject to and superseded by any separate confidentiality agreement between
the Parties, whether now existing or later entered into.
16.3 Permitted Disclosures. Notwithstanding the other provisions
of this Article XVI and without waiver of any obligations hereunder, MFN may
disclose the identity of NEXTLINK as a customer of MFN and NEXTLINK may disclose
the identity of MFN as a supplier of NEXTLINK, and each Party may disclose the
length of the Term of this Agreement, the number of route miles provided
pursuant to this Agreement, the route of the NEXTLINK Fibers, Long-Haul
Innerduct and Additional Innerduct, and the total consideration payable by
NEXTLINK under this Agreement. Except when an immediate disclosure is required
by law, the Parties shall confer about any proposed disclosure in advance of the
disclosure.
ARTICLE XVII NOTICES
17.1 Notices. Unless otherwise provided herein, all notices and
communications concerning this Agreement shall be in writing and addressed as
follows:
If to MFN:
Metromedia Fiber Network, Inc.
c/o Metromedia Fiber Network Services, Inc.
Suite 1502
110 East 42nd Street
New York, New York 10018
Fax: (212) 687-9188
Attention: Chief Executive Officer and Vice President
Legal Affairs
With a copy to:
Rubin Baum Levin Constant & Friedman
30 Rockefeller Plaza
29th Floor
New York, New York 10112
Fax: (212) 698-7825
Attention: Barry A. Adelman, Esq.
If to NEXTLINK:
NEXTLINK Communications, Inc.
155 108th Avenue, N.E.
Page 21 - FIBER LEASE AND INNERDUCT USE AGREEMENT
<PAGE> 22
Bellevue, Washington
Fax: (425) 519-8910
Attention: General Counsel
With a copy to:
Davis Wright Tremaine
1300 S.W. Fifth Avenue, Suite 2300
Portland, OR 97201
Fax: (503) 778-5299
Attention: Jay D. Hull
or at such other address as may be designated in writing to the other Party.
17.2 Date of Delivery. Unless otherwise provided herein, notices
shall be sent by certified U.S. Mail, return receipt requested, or by commercial
overnight delivery service, or by facsimile, and shall be deemed delivered: if
sent by U.S. Mail, five (5) days after deposit; if sent by facsimile, upon
verification of receipt; or, if sent by commercial overnight delivery service,
one (1) business day after deposit.
ARTICLE XVIII ASSIGNMENT; SUCCESSION
18.1 Assignment by NEXTLINK. NEXTLINK shall not assign or
otherwise transfer this Agreement, in whole or in part, to any other party
without the prior written consent of MFN. NEXTLINK shall remain secondarily
liable for all payments and other performance due under this Agreement after
assignment. Without such consent, NEXTLINK shall have the right to assign,
sublet, or otherwise transfer this Agreement, in whole or in part, to any
parent, subsidiary or affiliate of NEXTLINK which shall control, be under the
control of, or be under common control with NEXTLINK, any entity that purchases
all or substantially all of the assets of NEXTLINK, or any entity formed by the
merger of NEXTLINK and another entity. Any such assignee shall be subject to the
terms of this Agreement, including Section 8.3.
18.2 Assignment by MFN. MFN shall not assign or otherwise
transfer this Agreement, in whole or in part, to any other party without to the
prior written consent of NEXTLINK. MFN shall remain secondarily liable for all
payments and other performance due under this Agreement after assignment.
Without such consent, MFN shall have the right to assign or otherwise transfer
this Agreement to any parent, subsidiary or affiliate of MFN which shall
control, be under the control of, or be under common control with MFN, any
entity which purchases all or substantially all of the assets of MFN, or any
entity formed by the merger of MFN and another entity. Any such assignee shall
be subject to the terms of this Agreement.
18.3 Assignment for Security Purposes. Except to the extent such
assignment is prohibited by any right-of-way agreement relevant to this
Agreement, the Parties shall also have the right to assign this Agreement and
their respective rights under this Agreement as collateral for indebtedness
incurred by such Party in favor of a bank or other institutional creditor, if
such
Page 22 - FIBER LEASE AND INNERDUCT USE AGREEMENT
<PAGE> 23
assignment is part of a grant of a security interest in additional assets of
such Party. The creditor shall be required to agree, as of the grant of such
assignment for security purposes, that such assignment is subject to the terms
applicable rights-of-way and to the terms of this Agreement, which shall be
binding on the creditor and on any entity acquiring an interest in this
Agreement as a result of the foreclosure of such assignment for security
purposes.
18.3 Binding Agreement. Subject to the provisions of this Article
XVIII, this Agreement, and each of the Parties' respective rights and
obligations hereunder, shall be binding upon and shall inure to the benefit of
the Parties hereto and each of their respective permitted successors and
assigns.
ARTICLE XIX GOVERNING LAW
19.1 This Agreement shall be interpreted and construed in
accordance with the internal laws of the State of New York without giving effect
to its principles of conflicts of laws.
ARTICLE XX DISPUTE RESOLUTION
20.1 Dispute Resolution. Any claims or disputes arising under the
terms and provisions of this Agreement, or any claims or disputes which the
Parties are unable to resolve to their mutual satisfaction within thirty (30)
calendar days (or such longer period as may be mutually agreed upon) from the
date that either Party notifies the other in writing that such claim or dispute
exists, shall be settled in New York, New York, in accordance with the
Commercial Arbitration Rules of the American Arbitration Association in effect
at the time of the dispute. The written notice shall contain a concise statement
of the claim or issue in dispute, together with relevant facts and data to
support the claim. The arbitrator(s) shall be bound by the limits on damages set
forth in this Agreement. The decision of the arbitrator(s) shall be final and
binding upon the Parties if based upon written findings of law and fact. The
arbitrator(s) shall be empowered to order injunctive relief and either Party may
obtain judgment on the decision of the arbitrator(s) in a court of competent
jurisdiction. Each Party shall bear the cost of preparing and presenting its own
case. The cost of the arbitration, including the fees and expenses of the
arbitrator(s), will be shared equally by the parties hereto unless the award
otherwise provides.
20.2 Continuing Performance. During arbitration proceedings under
this Article, MFN shall continue to provide the NEXTLINK Fibers, the Long-Haul
Innerduct and the Additional Innerduct pursuant to this Agreement and NEXTLINK
shall continue to make payments in accordance with this Agreement.
ARTICLE XXI ENTIRE AGREEMENT
21.1 This Agreement, and any Exhibits attached hereto or to be
attached hereto, constitute the entire agreement between the parties hereto with
respect to the subject matter hereof and supersede any and all prior
negotiations, understandings, and agreements with respect hereto, whether oral
or written.
Page 23 - FIBER LEASE AND INNERDUCT USE AGREEMENT
<PAGE> 24
ARTICLE XXII MISCELLANEOUS
22.1 Headings. The headings of the Articles in this Agreement are
strictly for convenience and shall not in any way be construed as amplifying or
limiting any of the terms, provisions, or conditions of this Agreement.
22.2 Severability. In the event any term of this Agreement shall
be held invalid, illegal, or unenforceable in whole or in part, neither the
validity of the remaining part of such term nor the validity of the remaining
terms of this Agreement shall in any way be affected thereby.
22.3 Amendments. This Agreement may be amended only by a written
instrument executed by the Parties.
22.4 Waiver. No failure to exercise and no delay in exercising,
on the part of either party hereto, any right, power, or privilege hereunder
shall operate as a waiver hereof, except as expressly provided herein.
22.5 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. This Agreement is the
joint work product of both parties and, in the event of ambiguity no presumption
shall be imposed against any party by reason of document preparation.
Page 24 - FIBER LEASE AND INNERDUCT USE AGREEMENT
<PAGE> 25
IN WITNESS WHEREOF the Parties hereto have executed this Agreement as of
the day and year first above written.
METROMEDIA FIBER NETWORK, INC. NEXTLINK Communications, Inc.
/s/ Howard M. Finkelstein /s/ James F. Voelker
- ------------------------------------- ----------------------------------
By: Howard M. Finkelstein, President By: James F. Voelker, President
Page 25 - FIBER LEASE AND INNERDUCT USE AGREEMENT
<PAGE> 1
EXHIBIT 10.6
CONFIDENTIAL TREATMENT(1)
-------------------------
Amendment No. 1
to
Fiber Lease and Innerduct Use Agreement
by and between
Metromedia Fiber Network, Inc.
and
NEXTLINK Communications, Inc.
March 4, 1998
- ------------------
(1) Redacted portions have been marked with asterisks(***). The redacted
portions are subject to a request for confidential treatment and has been
filed separately with the Securities and Exchange Commission.
<PAGE> 2
AMENDMENT NO. 1
FIBER LEASE AND INNERDUCT USE AGREEMENT
This Amendment No. 1 is made and entered into as of the 4th day of March,
1998, by and between Metromedia Fiber Network, Inc., a Delaware corporation
("MFN"), and NEXTLINK Communications, Inc. ("NEXTLINK"), a Washington
corporation (either MFN or NEXTLINK being referred to in this Agreement as a
"Party", and collectively as the "Parties").
WHEREAS, the Parties entered into a Fiber Lease and Innerduct Use
Agreement dated as of February 23, 1998 (the "Agreement"); and
WHEREAS, the Parties desire to amend certain provisions thereof.
NOW THEREFORE, in consideration of the mutual agreements contained herein,
the Parties agree as follows:
1. All terms used herein and not otherwise defined shall have the
meanings ascribed to them in the Agreement.
2. The ninth sentence of Section 2.3 of the Agreement is hereby deleted
in its entirety and the following is substituted in lieu thereof:
"NEXTLINK shall, not later than the next business day after NEXTLINK's
Acceptance of the final segment of the Long-Haul Innerduct (as such segments
are set forth in Exhibit C), instruct the Escrow Agent (as defined below) to
release funds from escrow calculated at the rate of $64,150.94 per mile of
Long-Haul Innerduct (a total of $***)."
3. The last sentence of Section 2.7 of the Agreement is hereby deleted
in its entirety and the following is substituted in lieu thereof:
<PAGE> 3
"With respect to the NEXTLINK Fibers, not later than the business day
following the Acceptance Date for each segment of NEXTLINK Fibers, NEXTLINK
shall cause the Escrow Agent to release from escrow a portion of the funds held
by the Escrow Agent under the Escrow Agreement, in the amount designated by the
Parties (as such amounts are set forth in the applicable Exhibit) corresponding
to the segment being accepted by NEXTLINK. With respect to the Long-Haul
Innerduct, not later than the business day following the Acceptance Date for the
final segment of the Long-Haul Innerduct, NEXTLINK shall cause the Escrow Agent
to release from escrow $***"
4. The fifth sentence of Section 3.1 of the Agreement is hereby
deleted in its entirety and the following is substituted in lieu thereof:
"If the Term is extended as provided in Section 2.1, the lease payment
for such extended term shall be 15% of the fiber lease payments set forth in
the Agreement, plus payment of MFN's maintenance charges at market rates and
increases in right-of-way fees."
5. The fourth sentence of Section 3.2 of the Agreement is hereby
deleted in its entirety.
6. The fifth sentence of Section 3.2 of the Agreement is hereby
deleted in its entirety and the following is substituted in lieu thereof:
"The balance of the funds in escrow shall be released from escrow upon
Acceptance by NEXTLINK of the final segment of the Long-Haul Innerduct (as such
segment is set forth on Exhibit C)."
7. Except as set forth in this Amendment No. 1, the Agreement shall
continue in full force and effect in accordance with its terms.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
day and year first above written.
METROMEDIA FIBER NETWORK, INC. NEXTLINK COMMUNICATIONS, INC.
By: /s/ Howard M. Finkelstein By: /s/ James F. Voelker
________________________________ ___________________________
Howard M. Finkelstein, President James F. Voelker, President
<PAGE> 1
EXHIBIT 21
NEXTLINK COMMUNICATIONS, INC.
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
NEXTLINK Communications, Inc. Jurisdiction of Organization
- ----------------------------- ----------------------------
<S> <C>
ITC, Inc. Utah
d/b/a NEXTLINK Affinity
NEXTLINK California, L.L.C. Washington
NEXTLINK Capital, Inc. Washington
NEXTLINK Georgia, Inc. Washington
NEXTLINK Illinois, Inc. Washington
NEXTLINK Interactive, L.L.C. Washington
NEXTLINK Kansas, L.L.C. Washington
NEXTLINK Leasing of Utah, L.L.C. Washington
NEXTLINK Management Services, L.L.C. Washington
NEXTLINK Mindshare, L.L.C. Washington
NEXTLINK New Jersey, L.L.C. Washington
NEXTLINK New York, L.L.C. Washington
NEXTLINK Ohio, L.L.C. Washington
NEXTLINK Pennsylvania, L.P. Washington
NEXTLINK Pennsylvania Merger Company II Washington
NEXTLINK Solutions, L.L.C. Washington
NEXTLINK Tennessee, L.L.C. Washington
NEXTLINK Utah, L.L.C. Washington
NEXTLINK Washington, L.L.C. Washington
Telecommunications of Nevada, L.L.C. (40% interest) Delaware
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DEC-31-1997 AND THE RELATED STATEMENTS OF
INCOME AND CASH FLOWS FOR THE 12-MONTH PERIOD THEN ENDED AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001015126
<NAME> NEXTLINK COMMUNICATIONS INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 389,074
<SECURITIES> 353,283
<RECEIVABLES> 22,955
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 811,267
<PP&E> 290,070
<DEPRECIATION> 36,417
<TOTAL-ASSETS> 1,217,153
<CURRENT-LIABILITIES> 69,582
<BONDS> 750,000
313,319
0
<COMMON> 330,561
<OTHER-SE> (262,101)
<TOTAL-LIABILITY-AND-EQUITY> 1,217,153
<SALES> 0
<TOTAL-REVENUES> 57,579
<CGS> 0
<TOTAL-COSTS> 160,200
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 54,495
<INCOME-PRETAX> (129,004)
<INCOME-TAX> 0
<INCOME-CONTINUING> (129,004)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (129,004)
<EPS-PRIMARY> (3.91)
<EPS-DILUTED> (3.91)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
RESPECTIVE CONSOLIDATED BALANCE SHEETS AS OF SEP-30-1997 JUN-30-1997 AND
DEC-31-1996 AND THE RELATED STATEMENTS OF INCOME AND CASH FLOWS FOR THE
RESPECTIVE PERIODS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001015126
<NAME> NEXTLINK COMMUNICATIONS INC.
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1996
<PERIOD-END> SEP-30-1997 JUN-30-1997 DEC-31-1996
<CASH> 144,088 198,763 76,807
<SECURITIES> 76,525 76,525 47,713
<RECEIVABLES> 10,088 9,790 7,008
<ALLOWANCES> 0 0 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 273,432 327,175 171,905
<PP&E> 214,320 175,630 106,153
<DEPRECIATION> 18,279 14,380 8,369
<TOTAL-ASSETS> 596,240 614,210 390,683
<CURRENT-LIABILITIES> 45,857 33,333 34,678
<BONDS> 350,000 350,000 350,000
302,151 291,353 0
0 0 0
<COMMON> 83,953 82,290 0
<OTHER-SE> (203,568) (156,316) (18,654)
<TOTAL-LIABILITY-AND-EQUITY> 596,240 614,210 390,683
<SALES> 0 0 0
<TOTAL-REVENUES> 13,390 11,601 25,686
<CGS> 0 0 0
<TOTAL-COSTS> 39,097 32,614 76,701
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 10,746 10,902 30,876
<INCOME-PRETAX> (31,585) (26,348) (71,101)
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> (31,585) (26,348) (71,101)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (31,585) (26,348) (71,101)
<EPS-PRIMARY> (1.05)<F1> (0.94)<F1> (1.81)<F1>
<EPS-DILUTED> (1.05)<F1> (0.94)<F1> (1.81)<F1>
<FN>
<F1>REFLECTS THE ADOPTION OF FAS 128, A NEW STANDARD OF COMPUTING AND PRESENTING
BOTH BASIC AND DILUTED NET INCOME PER SHARE, AND SAB 98 IN THE FOURTH QUARTER
1997.
</FN>
</TABLE>
