<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 23, 1997
REGISTRATION NO. 333-32003
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
NEXTLINK COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
WASHINGTON 4813 91-1738221
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation) Classification Code Number) Identification No.)
</TABLE>
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155 108TH AVENUE N.E., 8TH FLOOR, BELLEVUE, WASHINGTON 98004, (425) 519-8900
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------------
R. BRUCE EASTER, JR., ESQ.
155 108TH AVENUE N.E., 8TH FLOOR
BELLEVUE, WASHINGTON 98004
(425) 519-8900
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------
WITH COPIES TO:
<TABLE>
<S> <C>
BRUCE R. KRAUS, ESQ. ROBERT E. BUCKHOLZ, JR., ESQ.
WILLKIE FARR & GALLAGHER SULLIVAN & CROMWELL
ONE CITICORP CENTER 125 BROAD STREET
153 EAST 53RD STREET NEW YORK, NEW YORK 10004
NEW YORK, NEW YORK 10022 (212) 558-4000
(212) 821-8000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER NOTE(1) OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
% Senior Notes due 2007........................ $400,000,000 100% $400,000,000 $121,212(2)
</TABLE>
(1) Estimated solely for purposes of determining the Registration Fee pursuant
to Rule 457(a) under the Securities Act of 1933, as amended.
(2) Of such amount, $60,606 was previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
<PAGE>
SUBJECT TO COMPLETION
SEPTEMBER 23, 1997
PROSPECTUS
[LOGO]
$400,000,000
NEXTLINK COMMUNICATIONS, INC.
% SENIOR NOTES DUE 2007
The % Senior Notes Due 2007 (the "Notes") of NEXTLINK Communications, Inc.
(the "Company" or "NEXTLINK") are being offered (the "Debt Offering") by the
Company. The Notes will mature on , 2007. Interest on the Notes will
be payable semiannually on and of each year, beginning
on , 1998. The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or after , 2002, at the
redemption prices set forth herein plus accrued and unpaid interest, if any, to
the date of redemption. In the event that, on or before , 2000, the
Company receives net proceeds from a sale of its Common Equity (as defined), up
to a maximum of 33 1/3% of the aggregate principal amount of the Notes
originally issued will, at the option of the Company, be redeemable from the net
cash proceeds of such sale at a redemption price equal to % of the stated
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of redemption, PROVIDED, HOWEVER, that Notes in an aggregate principal amount
equal to at least $266.7 million remain outstanding after such redemption. See
"Description of Notes--Optional Redemption." Upon a Change of Control (as
defined), holders of the Notes may require the Company to repurchase all or a
portion of the Notes at a purchase price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of repurchase.
See "Description of Notes-- Covenants--Change of Control."
Concurrently with the Debt Offering, the Company and a selling shareholder are
offering 12,000,000 and 3,200,000 shares, respectively, (17,480,000 shares if
the underwriters' over-allotment option is exercised in full) of Class A Common
Stock of the Company (the "Class A Common Stock") to the public (the "Stock
Offering" and, together with the Debt Offering, the "Offerings"). See "Use of
Proceeds." Consummation of the Debt Offering is contingent upon consummation of
the Stock Offering.
The Notes will be senior obligations of the Company, will rank PARI PASSU in
right of payment with all existing and future senior obligations of the Company,
including, without limitation, the Company's 12 1/2% Senior Notes due April 15,
2006 (the "12 1/2% Notes"), and will rank senior in right of payment to all
future subordinated obligations of the Company. Holders of secured obligations
of the Company, however, will have claims that are prior to the claims of the
holders of the Notes with respect to the assets securing such other obligations.
The Notes will be effectively subordinated to all existing and future
indebtedness of the Company's subsidiaries. As of June 30, 1997, on a pro forma
basis after giving effect to the Offerings, (i) the total amount of outstanding
consolidated liabilities of the Company and its Subsidiaries (as defined
herein), including trade payables, would have been approximately $791.8 million,
$6.7 million of which would have been secured obligations (excluding the 12 1/2%
Notes, which are secured by a pledge of $82.3 million of U.S. Treasury
securities as of June 30, 1997) and (ii) the total amount of outstanding
liabilities of the Company's Subsidiaries, including trade payables, would have
been $23.9 million, of which $6.7 million represented secured obligations.
The Notes will be represented by one or more fully registered Global Securities
registered in the name of the nominee of The Depository Trust Company, which
will act as the depositary (the "Depositary"). Beneficial interests in the
Global Securities will be shown on, and transfers thereof will be effected only
through, records maintained by the Depositary and its participants. Except as
described herein, Notes in definitive form will not be issued. See "Description
of Notes--Book-Entry System."
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH SHOULD BE CONSIDERED BY POTENTIAL INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC (1) DISCOUNT COMPANY (2)
Per Note.............................. % % %
Total................................. $ $ $
</TABLE>
(1) Plus accrued interest, if any, from , 1997.
(2) Before deducting offering expenses payable by the Company, estimated to be
$500,000.
The Notes are offered subject to receipt and acceptance by the Underwriters, to
prior sale and to the Underwriters' right to reject any order in whole or in
part and to withdraw, cancel or modify the offer without notice. It is expected
that delivery of the Notes offered hereby will be made through the facilities of
The Depository Trust Company, on or about , 1997.
SALOMON BROTHERS INC
MERRILL LYNCH & CO.
<PAGE>
BEAR, STEARNS & CO. INC.
TD SECURITIES
The date of this Prospectus is , 1997.
<PAGE>
[MAP OF THE UNITED STATES DEPICTING THE LOCATIONS OF THE COMPANY'S NETWORKS AND
MARKETS SERVED]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE NOTES, INCLUDING
OVERALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH SECURITIES,
AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE OFFERING. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS PROSPECTUS. REFERENCE IS MADE TO, AND THIS PROSPECTUS SUMMARY IS QUALIFIED
IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION, INCLUDING THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO, CONTAINED HEREIN. UNLESS
THE CONTEXT OTHERWISE REQUIRES, THE TERMS "NEXTLINK" AND THE "COMPANY" REFER TO
NEXTLINK COMMUNICATIONS, INC., A WASHINGTON CORPORATION, ITS CONSOLIDATED
SUBSIDIARIES AND 40% MEMBERSHIP INTEREST IN TELECOMMUNICATIONS OF NEVADA, LLC,
WHICH OPERATES A NETWORK THAT IS MANAGED BY THE COMPANY. ALL OPERATIONAL
STATISTICS OF THE COMPANY INCLUDED IN THIS PROSPECTUS INCLUDE 100% OF THE
OPERATIONAL STATISTICS OF TELECOMMUNICATIONS OF NEVADA, LLC. THE COMPANY IS THE
SUCCESSOR TO NEXTLINK COMMUNICATIONS, L.L.C., A WASHINGTON LIMITED LIABILITY
COMPANY THAT MERGED WITH AND INTO THE COMPANY EFFECTIVE JANUARY 31, 1997. ALL
FINANCIAL AND OPERATIONAL DATA PRESENTED FOR PERIODS PRIOR TO JANUARY 31, 1997
RELATE TO NEXTLINK COMMUNICATIONS, L.L.C. CAPITALIZED TERMS USED IN THIS
PROSPECTUS, WHICH ARE NOT OTHERWISE DEFINED HEREIN, HAVE THE RESPECTIVE MEANINGS
ASCRIBED TO THEM IN THE GLOSSARY INCLUDED AS ANNEX A HERETO. INFORMATION IN THIS
PROSPECTUS, UNLESS OTHERWISE INDICATED, (I) GIVES EFFECT TO THE 0.441336-FOR-1
REVERSE STOCK SPLIT OF BOTH THE CLASS A COMMON STOCK AND THE CLASS B COMMON
STOCK EFFECTED IN CONNECTION WITH THE STOCK OFFERING, (II) ASSUMES THAT THE
SELLING SHAREHOLDER IN THE STOCK OFFERING WILL CONVERT 3,200,000 SHARES OF CLASS
B COMMON STOCK INTO 3,200,000 SHARES OF CLASS A COMMON STOCK AT THE CLOSING OF
THE STOCK OFFERING, WHICH SHARES ARE BEING OFFERED AS PART OF THE STOCK OFFERING
AND (III) ASSUMES THAT THE OVER-ALLOTMENT OPTION THAT HAS BEEN GRANTED TO THE
UNDERWRITERS IN THE STOCK OFFERING WILL NOT BE EXERCISED.
THE COMPANY
NEXTLINK was founded in 1994 by Craig O. McCaw, its principal equity owner,
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.
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 have 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 1% 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
1
<PAGE>
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 and a virtual
communications center for mobile professionals and workgroups.
The Company currently operates 14 facilities-based networks providing
switched local and long distance services in 23 markets in seven states. The
Company anticipates that an additional three markets will be served by three
additional networks by December 1997. These 26 markets, in addition to four
other markets currently under development, have a total of approximately 8.0
million addressable business lines. The Company's goal is to add or expand
markets and market clusters to increase its addressable business lines to
approximately 11 million by the end of 1998.
NEXTLINK is pursuing its targeted customer base in markets of all sizes. In
larger markets, the Company has operational networks in Los Angeles and
Philadelphia, and networks under development in Chicago and New York City. 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 larger
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.
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 17,409 access lines at June 30, 1997. In those markets
where the Company has offered switched local services for at least 12 months,
the Company has increased its access lines in service from 8,511 at December 31,
1996 to 15,450 at June 30, 1997. The Company has also achieved significant
growth in the rate of quarterly installations of new customer access lines, from
a total of 1,604 in the fourth quarter of 1996 to 6,153 in the second quarter of
1997. At the end of August 1997, the Company had a total of 26,921 installed
access lines. For those markets in which the Company has offered switched local
services for at least 12 months, the rate increased from 1,604 installations in
the fourth quarter of 1996 to 4,310 in the second 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 principal equity owner, Steven W. Hooper, the Company's Chairman of the
Board, Wayne M. Perry, the Company's Vice Chairman and Chief Executive Officer,
and James F. Voelker, the Company's President, 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
are the most recent additions to the NEXTLINK executive management team, both of
whom 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.
2
<PAGE>
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 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 businesses, 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 enhanced communications services; (ii) up to a 10% to 15% discount
to comparable pricing by the ILEC, depending on the individual market; and
(iii) responsive customer service and support provided on a local level.
FOSTER DECENTRALIZED LOCAL MANAGEMENT AND CONTROL. The Company believes
that its success will be enhanced by building locally based management teams
that are responsible for the success of each of its 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 150
salespeople at June 30, 1997. The Company expects to further increase its
sales force to approximately 200 salespeople by year end 1997. 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 81 customer care employees at
June 30, 1997.
CONTINUOUSLY IMPROVE PROVISIONING PROCESSES TO ACCELERATE REVENUE
GROWTH. The Company believes that the immediate challenge for CLECs will be
developing effective provisioning systems, which include the complex process
of transitioning ILEC customers to the Company's network. Accordingly, the
Company has begun to identify and will 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 of a comprehensive information
3
<PAGE>
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
implement more rapidly switched local services in its markets and to shorten
the time between the receipt of a customer order and the generation of
revenues.
DEVELOP HIGH CAPACITY FIBER OPTIC NETWORKS WITH BROAD MARKET
COVERAGE. NEXTLINK has and intends to continue to approach network design
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 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. 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 (ten of which are currently installed, including one
switch that has been installed at the Company's testing and network
operations control center, and an additional four of which are currently
planned to be installed by the end of the first quarter of 1998), 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 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 or expand
markets and market clusters to increase its addressable business lines to
approximately 11 million by the end of 1998. The Company anticipates
continuing to expand into new geographic areas, including additional large
markets, as opportunities arise either through building new networks,
acquiring existing networks 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 that are not dependent on the Company's local
facilities. The Company believes that with these services it can establish a
customer base in a market in advance of constructing network facilities as
well as offer additional services in markets where the Company has
constructed facilities. The Company plans to market its enhanced
communications service offerings in all of its markets, as well as in areas
of planned network expansion. This should increase the Company's visibility,
develop customer relationships and assist the Company in attracting local
exchange customers when it operates networks in these markets.
4
<PAGE>
THE DEBT OFFERING
<TABLE>
<S> <C>
Gross Proceeds............... $400,000,000
Securities Offered........... $400,000,000 principal amount of % Senior Notes due 2007
(the "Notes").
Issuer....................... NEXTLINK Communications, Inc.
Issue Price.................. %
Maturity..................... , 2007
Interest..................... The Notes will accrue interest at the rate of % per annum
from , 1997, payable semi-annually in arrears on
and , commencing , 1998.
Ranking...................... The Notes will be senior obligations of the Company, will
rank PARI PASSU in right of payment with all existing and
future senior obligations of the Company and will rank
senior in right of payment to any future subordinated
obligations of the Company. Holders of secured obligations
of the Company will, however, have claims that are prior to
the claims of the holders of the Notes with respect to the
assets securing such obligations. The Notes will be
effectively subordinated to all indebtedness and other
liabilities and commitments (including trade payables) of
the Company's subsidiaries. As of June 30, 1997, on a pro
forma basis (giving effect to the Debt Offering and the
application of the net proceeds thereof), (i) the total
amount of outstanding consolidated liabilities of the
Company, including trade payables, would have been
approximately $791.8 million, $6.7 million of which would
have been secured obligations (excluding the 12 1/2% Notes,
which are secured by a pledge of $82.3 million of U.S.
Treasury securities as of June 30, 1997) and (ii) the total
amount of outstanding liabilities of the Company's
subsidiaries, including trade payables, would have been
$23.9 million, $6.7 million of which would have been secured
obligations. See "Covenants" below.
Optional Redemption.......... The Notes will be redeemable at the option of the Company,
in whole or in part, at any time on or after ,
2002 at the redemption prices set forth herein plus accrued
and unpaid interest, if any, to the date of redemption. In
the event that, on or before , 2000, the Company
receives net proceeds from a sale of its Common Equity (as
defined in the Indenture), up to a maximum of 33 1/3% of the
aggregate principal amount of the Notes originally issued
will, at the option of the Company, be redeemable from the
net cash proceeds of such sale at a redemption price equal
to % of the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of redemption,
PROVIDED, HOWEVER, that Notes in an aggregate principal
amount equal to at least $266.7 million remain outstanding
after such redemption.
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
Change of Control............ In the event of a Change of Control (as defined), 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 principal amount thereof, plus accrued and
unpaid interest, if any, thereon to the date of purchase.
Covenants.................... The indenture pursuant to which the Notes will be issued
(the "Indenture") will contain certain covenants that, among
other things, will 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. The Indenture contains
provisions that allow for the modification and amendment of
the covenants contained in the Indenture by a vote of
holders owning a majority of the Outstanding Notes (as
defined in the Indenture), including the covenant relating
to a Change of Control, except during the pendency of an
Offer to Purchase (as defined). In addition, the holders of
a majority in aggregate principal amount of the Outstanding
Notes, on behalf of all holders of Notes, may waive
compliance by the Company with certain restrictive
provisions of the Indenture. See "Description of the
Notes--Modification and Waiver".
Use of Proceeds.............. The Company intends to use substantially all of the net
proceeds from the Debt Offering 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. See
"Use of Proceeds."
Concurrent Stock Offering.... Concurrently with the Debt Offering, NEXTLINK and a selling
shareholder are offering 12,000,000 and 3,200,000 shares,
respectively, of Class A Common Stock (17,480,000 shares if
the underwriters' over-allotment option is exercised in
full). The Debt Offering is conditioned upon the
consummation of the Stock Offering. See "Use of Proceeds."
</TABLE>
For additional information regarding the Notes, see "Description of the
Notes" and "Certain United States Federal Income Tax Consequences."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors which should be
considered by potential investors.
6
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS)
The summary historical consolidated financial data presented below as of
December 31, 1995 and 1996, for the period from inception (September 16, 1994)
to December 31, 1994 and for the years ended December 31, 1995 and 1996 are
derived from and qualified by reference to the audited Consolidated Financial
Statements of the Company contained elsewhere in this Prospectus. The Company's
Consolidated Financial Statements as of December 31, 1995 and 1996, for the
period from inception (September 16, 1994) to December 31, 1994 and for the
years ended December 31, 1995 and 1996, have been audited by Arthur Andersen
LLP, independent public accountants. The summary historical consolidated
financial data presented below as of June 30, 1997 and for the three and six
month periods ended June 30, 1996 and 1997, have been derived from the unaudited
Interim Consolidated Financial Statements of the Company. In the opinion of
management, the unaudited financial statements have been prepared on the same
basis as the audited financial statements and include all adjustments, which
consist only of normal recurring adjustments, necessary for a fair presentation
of the financial position and the results of operations for these periods.
Operating results for the three and six month periods ended June 30, 1997 are
not necessarily indicative of the results that may be expected for the full year
ended December 31, 1997. The operating data presented below are derived from the
Company's records. All of the data should be read in conjunction with and are
qualified by reference to "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and the Consolidated Financial Statements
of the Company and notes thereto contained elsewhere in this Prospectus. The
Company's financial results for the year ended December 31, 1996 and the three
and six month periods ended June 30, 1997 include the results of ITC, which was
acquired in December 1996, and Linkatel Pacific, L.P. ("Linkatel"), which was
acquired in February 1997, from their respective dates of acquisition.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION THREE MONTHS ENDED
(SEPTEMBER 16, YEAR ENDED SIX MONTHS ENDED
1994) TO DECEMBER 31, JUNE 30, JUNE 30,
DECEMBER 31, -------------------- -------------------- --------------------
1994 1995 1996 1996 1997 1996 1997
----------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue..................... $ -- $ 7,552 $ 25,686 $ 12,041 $ 21,668 $ 6,671 $ 11,601
Costs and expenses:
Operating................. 106 6,618 25,094 10,813 21,941 6,117 12,037
Selling, general and
administrative.......... 232 9,563 31,353 12,491 29,103 6,975 15,829
Deferred compensation..... -- 375 9,914 -- 1,115 -- 223
Depreciation and
amortization............ 14 3,458 10,340 4,152 8,931 2,323 4,525
------- --------- --------- --------- --------- --------- ---------
Loss from operations........ (352) (12,462) (51,015) (15,415) (39,422) (8,744) (21,013)
Interest income............. -- -- 10,446 3,099 10,521 2,857 5,492
Interest expense............ -- (499) (30,876) (8,638) (22,041) (7,902) (10,902)
------- --------- --------- --------- --------- --------- ---------
Loss before minority
interests................. (352) (12,961) (71,445) (20,954) (50,942) (13,789) (26,423)
Minority interests.......... 3 230 344 121 171 72 75
------- --------- --------- --------- --------- --------- ---------
Net loss.................... $ (349) $ (12,731) $ (71,101) $ (20,833) $ (50,771) $ (13,717) $ (26,348)
------- --------- --------- --------- --------- --------- ---------
------- --------- --------- --------- --------- --------- ---------
OTHER DATA:
Ratio of earnings to fixed
charges(1)................ -- -- -- -- -- -- --
EBITDA(2)................... $ (338) $ (8,629) $ (30,761) $ (11,263) $ (29,376) $ (6,421) $ (16,265)
Summary Cash Flow
Information:
Net cash used in operating
activities.............. (396) (9,180) (40,563) (6,218) (45,797) (477) (31,674)
Net cash provided by (used
in) investing
activities.............. (600) (35,417) (227,012) (162,186) (105,458) (144,797) 8,864
Net cash provided by (used
in) financing
activities.............. 1,021 45,922 343,032 345,411 273,211 308,381 (361)
Capital expenditures,
including acquisitions of
businesses (net of cash
acquired) and investments
in affiliates (3)......... 600 49,230 85,872 51,253 100,695 27,109 40,008
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
-----------------------
AS OF DECEMBER 31, AS ADJUSTED
-------------------- FOR THE
1995 1996 ACTUAL OFFERINGS(4)
--------- --------- --------- ------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities............... $ 1,350 $ 124,520 $ 275,288 $ 848,788
Pledged securities(5).......................................... -- 101,438 82,277 82,277
Working capital................................................ (6,232) 137,227 293,842 867,342
Property and equipment, net.................................... 29,664 97,784 161,250 161,250
Total assets................................................... 53,461 390,683 614,210 1,199,210
Long-term debt and capital lease obligations, less current
portion...................................................... 1,590 356,262 355,357 755,357
14% Preferred Shares, net of issuance costs.................... -- -- 291,353 291,353
Equity units subject to redemption............................. -- 4,950 -- --
Class B common stock subject to redemption..................... -- -- 4,950 4,950
Total shareholders' equity (deficit)........................... 36,719 (18,654) (74,026) 110,974
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF AS OF AS OF AS OF AS OF
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1996 1996 1996 1996 1997 1997
----------- ----------- --------------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA(6):
Route miles(7)............................. 496 801 900 1,080 1,355 1,595
Fiber miles(8)............................. 39,681 42,217 55,701 66,046 90,378 117,464
On-net buildings connected(9).............. 206 277 299 403 449 459
Switches installed(10)..................... 6 6 6 9 10 12
Access lines in service (11)............... 3,960 5,079 6,907 8,511 11,256 17,409
Employees.................................. 255 387 456 568 679 845
</TABLE>
- ------------------------
(1) For the period from inception (September 16, 1994) to December 31, 1994, for
the years ended December 31, 1995 and 1996, for the six months ended June
30, 1996 and 1997 and for the three months ended June 30, 1996 and 1997,
earnings were insufficient to cover fixed charges during the periods
presented by the amount of loss before minority interests of $352, $12,961,
$71,445, $20,954, $50,942, $13,789 and $26,423, respectively.
(2) EBITDA consists of net loss before net interest expense, minority interests,
depreciation, amortization and deferred compensation expense. EBITDA is
commonly used to analyze companies on the basis of operating performance,
leverage and liquidity. While EBITDA should not be construed as a substitute
for operating income or a better measure of liquidity than cash flow from
operating activities, which are determined in accordance with generally
accepted accounting principles, it is included herein to provide additional
information with respect to the ability of the Company to meet future debt
service, capital expenditures and working capital requirements. See
"Consolidated Statements of Cash Flows."
(3) Total capital expenditures, acquisitions, and investments in affiliates were
funded as follows:
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(SEPTEMBER 16, YEAR ENDED SIX MONTHS ENDED THREE MONTHS ENDED
1994) TO DECEMBER 31, JUNE 30, JUNE 30,
DECEMBER 31, -------------------- -------------------- --------------------
1994 1995 1996 1996 1997 1996 1997
------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash expended............ $ 600 $ 35,417 $ 72,042 $ 44,498 $ 100,695 $ 27,109 $ 40,008
Debt issued and assumed.. -- 6,554 8,228 6,103 -- -- --
Equity issued............ -- 7,259 5,602 652 -- -- --
----- --------- --------- --------- --------- --------- ---------
Total.................... $ 600 $ 49,230 $ 85,872 $ 51,253 $ 100,695 $ 27,109 $ 40,008
----- --------- --------- --------- --------- --------- ---------
----- --------- --------- --------- --------- --------- ---------
</TABLE>
(4) As adjusted to give effect to the net proceeds to the Company of the
Offerings.
(5) Pledged U.S. Treasury securities, which represent funds sufficient to
provide for payment in full of interest through April 15, 1999 on the
Company's 12 1/2% Senior Notes due April 15, 2006.
(6) The operating data for all periods subsequent to March 1996 include the
statistics of the Las Vegas network, which the Company manages and in which
the Company has a 40% membership interest.
(7) Route miles refers to the number of miles of the telecommunications path in
which the Company-owned or leased fiber optic cables are installed.
8
<PAGE>
(8) 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.
(9) Represents buildings physically connected to the Company's networks,
excluding those connected by unbundled ILEC facilities. As of June 30, 1997,
the Company had 1,284 buildings physically connected to its networks,
including those buildings connected through unbundled ILEC facilities.
(10) Switches installed include as of December 31, 1996 and subsequent dates,
two long distance switches acquired in the ITC acquisition and as of June
30, 1997, the switch installed in NEXTLAB, the Company's testing facility.
(11) 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.
9
<PAGE>
RISK FACTORS
Prospective investors should consider carefully, together with the other
information contained in this Prospectus, the following factors:
LEVERAGE
As of June 30, 1997, the Company's outstanding consolidated liabilities
(including current portion) were $391.8 million and, as adjusted for the
issuance of the Notes, the Company's outstanding consolidated liabilities
(including current portion) would have been $791.8 million. Of the amount
outstanding, (i) $350 million was outstanding under the 12 1/2% Notes, which
will rank PARI PASSU with the Notes and (ii) approximately $23.9 million was
outstanding pursuant to miscellaneous obligations of the Company's subsidiaries.
The Indenture limits, but does not prohibit, the incurrence of additional
indebtedness by the Company and its subsidiaries, and the Company may incur
substantial additional indebtedness during the next few years. Additional
indebtedness of the Company may rank PARI PASSU with the Notes in certain
circumstances, while additional indebtedness of the subsidiaries effectively
will rank senior to the Notes. See "Description of the Notes." The Company's
ability to satisfy its obligations will be dependent upon its future
performance, which is subject to prevailing economic conditions and financial,
business, regulatory and other factors, including factors beyond the Company's
control. There can be no assurance that the Company's operating cash flow will
be sufficient to meet its debt service requirements or to repay the Notes or
other indebtedness at maturity or that the Company will be able to refinance the
Notes or other indebtedness at maturity. See "Capitalization" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
In addition, the Company's operating flexibility with respect to certain
business matters is, and will continue to be, limited by covenants contained in
the Indenture and the indenture relating to the 12 1/2% 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. 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. In addition, the terms of the Company's 14%
Senior Exchangeable Redeemable Preferred Shares, par value $.01 per share (the
"14% Preferred Shares") restrict the Company's ability to incur additional
indebtedness. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
HOLDING COMPANY STRUCTURE; UNSECURED OBLIGATIONS; EFFECTIVE SUBORDINATION OF THE
NOTES
The Company is a holding company which derives substantially all of its
revenues from its subsidiaries. The Company intends to lend or contribute
substantially all of the net proceeds from the sale of the Notes to certain of
its subsidiaries.
The Notes are not secured by any of the assets of the Company. The Indenture
will permit certain indebtedness of the Company to be secured, including, among
other things, purchase money indebtedness, which the Indenture will permit the
Company to incur in unlimited amounts, and indebtedness up to $125 million under
secured credit facilities. Holders of any secured indebtedness of the Company
will have claims that are prior to the claims of the holders of the Notes with
respect to the assets securing such other indebtedness. In addition, the Notes
will be effectively subordinated to indebtedness and other liabilities and
commitments (including trade payables) of the Company's subsidiaries. See
"Description of the Notes--Covenants--Limitation on Consolidated Debt" and
"--Limitation on Debt and Preferred Stock of Subsidiaries." As of June 30, 1997,
$82.3 million of U.S. Treasury securities has been pledged to secure the
Company's obligations under the 12 1/2% Notes.
The Company will be dependent upon payments from its subsidiaries to
generate the funds necessary to meet its obligations, including the payment of
principal of and interest on the Notes. The ability of the Company's
subsidiaries to make such payments will be subject to, among other things, the
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<PAGE>
availability of sufficient cash and may be subject to restrictive covenants in
future debt agreements. The Company's subsidiaries are party to certain capital
lease obligations and the Company may borrow funds at the subsidiary level in
the future.
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. Since inception, the
Company's operations have resulted in net losses of $0.3 million for the period
from September 16, 1994 through December 31, 1994, $12.7 million for the year
ended December 31, 1995, $71.1 million for the year ended December 31, 1996 and
$50.8 million for the six months ended June 30, 1997. 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 portion of the
Company's revenue for the years ended December 31, 1995 and 1996 and for the six
months ended June 30, 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 very 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 compete 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 estimates that the cash required
to fund its anticipated capital expenditures and operating losses (excluding
acquisitions and interest to be funded by pledged securities) for the second
half of 1997 and for 1998 will approximate $370 million. The Company's
anticipated growth subsequent to 1998 will require substantial additional
capital. 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 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
11
<PAGE>
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. As of June 30, 1997, after giving pro forma effect to the Debt
Offering, the amount of total consolidated liabilities of the Company would have
been approximately $791.8 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.
RISKS 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 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, with the
exception of those markets in Illinois, New York, Georgia and New Jersey.
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.
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
12
<PAGE>
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
automated internal systems for processing customer orders, provisioning and
billing. 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 ILECs' 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 Offerings
to expand its networks and service offerings through internal development and
acquisitions. 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 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
13
<PAGE>
their networks, the income of competitors to the ILECs, including the 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") and Sprint
Corporation ("Sprint"), 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, Inc., 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. 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 of 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 interexchange 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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<PAGE>
On May 8, 1997, the FCC released an order establishing a significantly
expanded federal telecommunications subsidy regime which both increased the size
of existing subsidies and created new subsidy funds. Although the FCC order
describes a method for determining the amount the Company must contribute to
support these subsidies, the Company is currently unable to quantify the amount
of these payments that it will be required to make, or the effect that these
required payments will have on its financial condition. 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. 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. The Eighth Circuit decision substantially limits 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 66%, 51% and 28% of the
Company's revenues in 1995 and 1996 and for the six months ended June 30, 1997,
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 the majority of its revenues until such time, if any, 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. 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.
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
15
<PAGE>
IVR enhanced communications services, the Company anticipates that its operating
results could vary significantly from period to period.
CONTROL BY CRAIG O. MCCAW; POTENTIAL CONFLICTS OF INTEREST
Craig O. McCaw, primarily through his majority ownership and control of
Eagle River Investments, L.L.C., a Washington limited liability company ("Eagle
River"), will control approximately 80% of the Company's total voting power
after giving effect to the Stock Offering. It is anticipated that Eagle River
will transfer its interest in the Company to OneComm, L.L.C., an entity that is
also controlled by Mr. McCaw. As a result, Mr. McCaw will continue to have the
ability to control the direction and future operations of the Company. 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, Cable Plus Inc. and AT&T, 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.
ABSENCE OF PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF NOTE PRICE
Immediately prior to the Debt Offering, there was no public market for the
Notes, and there can be no assurance that an active trading market for the Notes
will develop or be sustained. If such a market were to develop, the Notes could
trade at prices that may be higher or lower than their initial offering price
depending upon many factors, including prevailing interest rates, the Company's
operating results and the markets for similar securities. The Underwriters have
advised the Company that they currently intend to make a market in the Notes;
however, they are not obligated to do so and any market making may be
discontinued at any time without notice. Historically, the market for
non-investment grade debt has been subject to disruptions that have caused
substantial volatility in the prices of securities similar to the Notes. There
can be no assurance that the market for the Notes will not be subject to similar
disruptions.
RISKS REGARDING FORWARD LOOKING STATEMENTS
The statements contained in this Prospectus and in associated prior filings
by the Company with the Securities and Exchange Commission which are not
historical facts are "forward-looking statements" (as such term is defined in
the Private Securities Litigation Reform Act of 1995), which can be identified
by the use of forward-looking terminology such as "believes", "expects", "may",
"will", "should", or "anticipates" or the negative thereof or other variations
thereon or comparable terminology, or by discussions of strategy that involve
risks and uncertainties. Management wishes to caution the reader that these
forward-looking statements, such as the Company's plans to build and acquire
networks in new areas, its anticipation of revenues from designated markets, and
statements regarding the development of the Company's businesses, the markets
for the Company's services and products, the Company's anticipated capital
expenditures, regulatory reform and other statements contained herein regarding
matters that are not historical facts, are only predictions. No assurance can be
given that the future results will be achieved; actual events or results may
differ materially as a result of risks facing the Company. Such risks include,
but are not limited to, the Company's ability to successfully market its
services to current and new customers, access markets, identify, finance and
complete suitable acquisitions, design and construct fiber optic networks,
install cable and facilities, including switching electronics, and obtain
rights-of-way, building access rights and any required governmental
authorizations, franchises and permits, all in a timely manner, at reasonable
costs and on satisfactory terms and conditions, as well as regulatory,
legislative and judicial developments that could cause actual results to differ
materially from the future results indicated; expressed or implied, in such
forward-looking statements.
16
<PAGE>
THE COMPANY
NEXTLINK Communications, L.L.C., the predecessor to the Company, was
organized on September 16, 1994, to provide local facilities-based
telecommunications services with a focus on delivering switched services to
commercial customers. On January 31, 1997, NEXTLINK Communications, L.L.C. was
merged with and into the Company, a Washington corporation. The principal
executive offices of the Company are located at 155 108th Avenue N.E., 8th
Floor, Bellevue, Washington 98004. The telephone number is (425) 519-8900.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Notes in the Debt
Offering are estimated to be approximately $388.5 million after deduction of
Underwriters' discounts and estimated expenses payable by the Company. The
Company intends to use substantially all of the net proceeds from the Debt
Offering 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. The Company has agreements or
agreements in principle to effect three acquisition transactions for aggregate
consideration of $22.5 million in cash, a promissory note payable in the
aggregate principal amount of $5.0 million, 698,487 shares of Class A Common
Stock and the assumption of $8.5 million in debt. See "Management's Decision and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Business--The Company's Telecommunications Services."
Pending such uses, the net proceeds to the Company will be invested in
short-term, investment grade securities.
Concurrently with the Debt Offering, the Company is offering 12,000,000
shares of Class A Common Stock for net proceeds of approximately $185.0 million
($220.3 million if the underwriters' over-allotment option is exercised in full)
pursuant to the Stock Offering. The consummation of the Debt Offering is
contingent upon the consummation of the Stock Offering. The uses of proceeds to
the Company from the Stock Offering are substantially the same as the Debt
Offering. See "Management's Decision and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
17
<PAGE>
CAPITALIZATION
(DOLLARS IN THOUSANDS)
The following table sets forth as of June 30, 1997, the actual
capitalization of the Company and the capitalization of the Company as adjusted
to reflect the Offerings. This table should be read in conjunction with the
Selected Consolidated Financial and Operating Data and the Consolidated
Financial Statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
--------------------------
<S> <C> <C>
AS ADJUSTED
FOR THE
ACTUAL OFFERINGS
----------- -------------
Cash, cash equivalents and marketable securities...................................... $ 275,288 $ 848,788
----------- -------------
Pledged securities(1)................................................................. 82,277 82,277
----------- -------------
Total........................................................................... $ 357,565 $ 931,065
----------- -------------
----------- -------------
Current portion of long-term obligations and payable to affiliate..................... $ 2,810 $ 2,810
Capital lease obligations, less current portion....................................... 5,357 5,357
12 1/2% Senior Notes due April 15, 2006............................................... 350,000 350,000
% Senior Notes due 2007............................................................ -- 400,000
----------- -------------
Total debt.......................................................................... 358,167 758,167
----------- -------------
Minority interests(2)................................................................. 137 137
14% Preferred Shares, par value $.01 per share, 25,000,000 shares authorized and
5,901,706 shares issued and outstanding, net of issuance costs(3)................... 291,353 291,353
Class B Common Stock, par value $.02 per share, 519,950 shares issued and outstanding
subject to redemption by the Company(4)............................................. 4,950 4,950
Shareholders' equity (deficit):
Common Stock, par value $.02 per share, stated at amounts paid in; Class A,
110,334,000 shares authorized, 176,534 issued and outstanding (15,376,534 shares
issued and outstanding, as adjusted); Class B, 44,133,600 shares authorized,
36,165,259 shares issued and outstanding (32,965,259 shares issued and
outstanding, as adjusted)(5)...................................................... 82,290 267,290
Deferred compensation............................................................... (4,011) (4,011)
Accumulated deficit................................................................. (152,305) (152,305)
----------- -------------
Total shareholders' equity (deficit).............................................. (74,026) 110,974
----------- -------------
Total capitalization.............................................................. $ 580,581 $ 1,165,581
----------- -------------
----------- -------------
</TABLE>
- ------------------------
(1) Pledged U.S. Treasury securities, which represent funds sufficient to
provide for payment in full of interest through April 15, 1999 on the
Company's 12 1/2% Senior Notes Due April 15, 2006.
(2) Minority interests primarily represent a nominal equity investment in
substantially all of the Company's subsidiaries from a company that is
wholly owned by Craig O. McCaw.
(3) The Company has not ascribed any value to the Contingent Warrants to
purchase an aggregate of 5% of each class of Junior Shares (as defined) of
the Company on a fully diluted basis as of February 1, 1998 (the "Contingent
Warrants"). The Contingent Warrants become exercisable on February 1, 1998,
but will expire upon the consummation of the Stock Offering. Underwriting
discounts and issuance costs in the offering of the 14% Preferred Shares
were approximately $11 million.
(4) The Company has provided to the holders of these shares an option to require
the Company to repurchase such shares at $19.92 per share beginning in the
fourth quarter of 1999. Such repurchase obligation shall terminate if during
the three year period commencing upon the 180th day after the date of this
Prospectus, the average daily closing price of the Class A Common Stock
during any consecutive 60 trading day period is greater than $19.92.
(5) Issued and outstanding does not include 3,392,734 and 1,576,172 shares of
Class A Common Stock and Class B Common Stock, respectively, issuable upon
exercise of outstanding options.
18
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS)
The selected historical consolidated financial data presented below as of
December 31, 1995 and 1996, for the period from inception (September 16, 1994)
to December 31, 1994 and for the years ended December 31, 1995 and 1996 are
derived from and qualified by reference to the audited Consolidated Financial
Statements of the Company contained elsewhere in this Prospectus. The Company's
Consolidated Financial Statements as of December 31, 1995 and 1996, for the
period from inception (September 16, 1994) to December 31, 1994 and for the
years ended December 31, 1995 and 1996, have been audited by Arthur Andersen
LLP, independent public accountants. The summary historical consolidated
financial data presented below as of June 30, 1997 and for the three and six
month periods ended June 30, 1996 and 1997, have been derived from the unaudited
Interim Consolidated Financial Statements of the Company. In the opinion of
management, the unaudited financial statements have been prepared on the same
basis as the audited financial statements and include all adjustments, which
consist only of normal recurring adjustments, necessary for a fair presentation
of the financial position and the results of operations for these periods.
Operating results for the three and six month periods ended June 30, 1997 are
not necessarily indicative of the results that may be expected for the full year
ended December 31, 1997. The operating data presented below are derived from the
Company's records. All of the data should be read in conjunction with and are
qualified by reference to "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and the Consolidated Financial Statements
of the Company and notes thereto contained elsewhere in this Prospectus. The
Company's financial results for the year ended December 31, 1996 and the three
and six month periods ended June 30, 1997 include the results of ITC, which was
acquired in December 1996, and Linkatel Pacific, L.P. ("Linkatel"), which was
acquired in February 1997, from their respective dates of acquisition.
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS THREE MONTHS ENDED
INCEPTION YEAR ENDED ENDED
(SEPTEMBER 16, DECEMBER 31, JUNE 30 JUNE 30,
1994) TO -------------------- -------------------- --------------------
DECEMBER 31, 1994 1995 1996 1996 1997 1996 1997
----------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue................................. $ -- $ 7,552 $ 25,686 $ 12,041 $ 21,668 $ 6,671 $ 11,601
Costs and expenses:
Operating............................. 106 6,618 25,094 10,813 21,941 6,117 12,037
Selling, general and administrative... 232 9,563 31,353 12,491 29,103 6,975 15,829
Deferred compensation................. -- 375 9,914 -- 1,115 -- 223
Depreciation and amortization......... 14 3,458 10,340 4,152 8,931 2,323 4,525
------- --------- --------- --------- --------- --------- ---------
Loss from operations.................... (352) (12,462) (51,015) (15,415) (39,422) (8,744) (21,013)
Interest income......................... -- -- 10,446 3,099 10,521 2,857 5,492
Interest expense........................ -- (499) (30,876) (8,638) (22,041) (7,902) (10,902)
------- --------- --------- --------- --------- --------- ---------
Loss before minority interests.......... (352) (12,961) (71,445) (20,954) (50,942) (13,789) (26,423)
Minority interests...................... 3 230 344 121 171 72 75
------- --------- --------- --------- --------- --------- ---------
Net loss................................ $ (349) $ (12,731) $ (71,101) $ (20,833) $ (50,771) $ (13,717) $ (26,348)
------- --------- --------- --------- --------- --------- ---------
------- --------- --------- --------- --------- --------- ---------
OTHER DATA:
Ratio of earnings to fixed charges(1)... -- -- -- -- -- -- --
EBITDA(2)............................... $ (338) $ (8,629) $ (30,761) $ (11,263) $ (29,376) $ (6,421) $ (16,265)
Summary Cash Flow Information:
Net cash used in operating
activities.......................... (396) (9,180) (40,563) (6,218) (45,797) (477) (31,674)
Net cash provided by (used in)
investing activities................ (600) (35,417) (227,012) (162,186) (105,458) (144,797) 8,864
Net cash provided by (used in)
financing activities................ 1,021 45,922 343,032 345,411 273,211 308,381 (361)
Capital expenditures, including
acquisitions of businesses (net of
cash acquired) and investments in
affiliates (3)........................ 600 49,230 85,872 51,253 100,695 27,109 40,008
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
-----------------------
AS OF DECEMBER 31, AS ADJUSTED
-------------------- FOR THE
1995 1996 ACTUAL OFFERINGS(4)
--------- --------- --------- ------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities............... $ 1,350 $ 124,520 $ 275,288 $ 848,788
Pledged securitites(5)......................................... -- 101,438 82,277 82,277
Working capital................................................ (6,232) 137,227 293,842 867,342
Property and equipment, net.................................... 29,664 97,784 161,250 161,250
Total assets................................................... 53,461 390,683 614,210 1,199,210
Long-term debt and capital lease obligations, less current
portion...................................................... 1,590 356,262 355,357 755,357
14% Preferred Shares, net of issuance costs.................... -- -- 291,353 291,353
Equity units subject to redemption............................. -- 4,950 -- --
Class B common stock subject to redemption..................... -- -- 4,950 4,950
Total shareholders' equity (deficit)........................... 36,719 (18,654) (74,026) 110,974
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF AS OF AS OF AS OF AS OF
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1996 1996 1996 1996 1997 1997
----------- ----------- --------------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA(6):
Route miles(7)............................. 496 801 900 1,080 1,355 1,595
Fiber miles(8)............................. 39,681 42,217 55,701 66,046 90,378 117,464
On-net buildings connected(9).............. 206 277 299 403 449 459
Switches installed(10)..................... 6 6 6 9 10 12
Access lines in service (11)............... 3,960 5,079 6,907 8,511 11,256 17,409
Employees.................................. 255 387 456 568 679 845
</TABLE>
- ------------------------
(1) For the period from inception (September 16, 1994) to December 31, 1994, for
the years ended December 31, 1995 and 1996, for the six months ended June
30, 1996 and 1997 and for the three months ended June 30, 1996 and 1997,
earnings were insufficient to cover fixed charges during the periods
presented by the amount of loss before minority interests of $352, $12,961,
$71,445, $20,954, $50,942, $13,789 and $26,423, respectively.
(2) EBITDA consists of net loss before net interest expense, minority interests,
depreciation, amortization and deferred compensation expense. EBITDA is
commonly used to analyze companies on the basis of operating performance,
leverage and liquidity. While EBITDA should not be construed as a substitute
for operating income or a better measure of liquidity than cash flow from
operating activities, which are determined in accordance with generally
accepted accounting principles, it is included herein to provide additional
information with respect to the ability of the Company to meet future debt
service, capital expenditures and working capital requirements. See
"Consolidated Statements of Cash Flows."
(3) Total capital expenditures, acquisitions, and investments in affiliates were
funded as follows:
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION THREE MONTHS ENDED
(SEPTEMBER 16, YEAR ENDED SIX MONTHS ENDED
1994) TO DECEMBER 31, JUNE 30, JUNE 30,
DECEMBER 31, -------------------- -------------------- --------------------
1994 1995 1996 1996 1997 1996 1997
------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash expended.......... $ 600 $ 35,417 $ 72,042 $ 44,498 $ 100,695 $ 27,109 $ 40,008
Debt issued and
assumed.............. -- 6,554 8,228 6,103 -- -- --
Equity issued.......... -- 7,259 5,602 652 -- -- --
----- --------- --------- --------- --------- --------- ---------
Total.................. $ 600 $ 49,230 $ 85,872 $ 51,253 $ 100,695 $ 27,109 $ 40,008
----- --------- --------- --------- --------- --------- ---------
----- --------- --------- --------- --------- --------- ---------
</TABLE>
(4) As adjusted to give effect to the net proceeds to the Company of the
Offerings.
(5) Pledged U.S. Treasury securities, which represent funds sufficient to
provide for payment in full of interest through April 15, 1999 on the
Company's 12 1/2% Senior Notes due April 15, 2006.
(6) The operating data for all periods subsequent to March 1996 include the
statistics of the Las Vegas network, which the Company manages and in which
the Company has a 40% membership interest.
20
<PAGE>
(7) Route miles refers to the number of miles of the telecommunications path in
which the Company-owned or leased fiber optic cables are installed.
(8) 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.
(9) Represents buildings physically connected to the Company's networks,
excluding those connected by unbundled ILEC facilities. As of June 30, 1997,
the Company had 1,284 buildings physically connected to its networks,
including those buildings connected through unbundled ILEC facilities.
(10) Switches installed include as of December 31, 1996 and subsequent dates,
two long distance switches acquired in the ITC acquisition and as of June
30, 1997, the switch installed in NEXTLAB, the Company's testing facility.
(11) 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.
21
<PAGE>
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
constructing and acquiring fiber optic networks and acquiring related
telecommunications businesses. Over this period, the Company has begun
development or construction of, acquired, leased fibers or capacity on, or
entered into agreements to acquire local telecommunications networks in 30
markets in 11 states.
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. As of July 31, 1997, the Company offered such services in 23
of its 30 markets. The Company expects to commence the offering of switched
local and long distance services in an additional three markets by December 1997
and four additional markets in 1998. In addition, 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 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 July 31, 1997, the Company had
nine operational Nortel DMS 500 switches and currently plans to install four
additional switches by the end of the first quarter of 1998. The Company also
has installed a Nortel DMS 500 switch in its NEXTLAB facility, 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: (i)
interactive voice response services, which provide an interface between the
Company's clients and their customers for a variety of applications; and (ii)
Magic Number, the Company's virtual communications center that allows mobile
professionals and workgroups to access a suite of commonly used communications
services from any telephone in the public switched telephone network.
Historically, the Company has derived a substantial proportion of its revenues
from these 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 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.
22
<PAGE>
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
THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1997 COMPARED WITH THREE AND SIX
MONTH PERIODS ENDED JUNE 30, 1996
Revenue increased 74% to $11.6 million during the second quarter of 1997,
from $6.7 million in the same period in 1996. Year to date revenue of $21.7
million represented an 80% increase from the $12.0 million reported for the
comparable period in 1996. The increase was, in part, due to the acquisition of
ITC, a switch-based long distance reseller, in December 1996, as well as 27%
year to date growth in local and long distance services (both switched and
resale) and enhanced communications services. The second quarter 1997 revenues
included $5.4 million derived from local and long distance services (both
switched and resale), $4.4 million derived from enhanced communications services
and $1.8 million from competitive access and dedicated line services. This
compares to $1.0 million derived from local and long distance services (both
switched and resale), $4.3 million from enhanced communications services and
$1.4 million from competitive access and dedicated line services during the
second quarter of 1996. The Company's interactive voice response subsidiary
contributed 30% and 58% of the Company's revenues during the second quarters of
1997 and 1996, respectively. The revenues generated by this subsidiary, while
generally increasing over time, 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, an eighth market in January 1997, three
additional markets including Cleveland and Columbus, Ohio, as well as Las Vegas,
in April 1997 and in 12 additional markets including Philadelphia, Los Angeles,
and cluster markets in Orange County, California, in July 1997. In addition, the
Company has resold Centrex access lines since April 1995. The Company increased
its quarterly customer access line installation rate from 2,745 in the first
quarter of 1997 to 6,153 during the second quarter of 1997. As of June 30, 1997,
the Company had 17,409 access lines in service compared to 8,511 as of December
31, 1996, and 5,079 as of June 30, 1996. Revenues from the provision of such
services are expected to continue to increase as a component of total revenues
over future periods.
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 97% in the second quarter of 1997 to $12.0 million,
up $5.9 million over the second quarter of 1996. For the six months ended June
30, 1997, operating expenses rose $11.1 million, or 103%, over the same period
in 1996. These increases were attributed to factors including the effect of the
ITC acquisition, 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 costs primarily related
to expanding the Company's switched local and long distance service businesses
in its existing and planned markets.
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 127% and 133%,
respectively, in the three and six month periods ended June 30, 1997, as
compared to the corresponding periods in 1996. The increase was due to the ITC
acquisition and the Company's increase in employees, as well as other costs
associated with the expansion of the Company's switched local and long distance
service businesses in its existing and planned markets.
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, which replaced the
23
<PAGE>
Equity Option Plan, subsequent to April 1997. The 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 compensatory stock
options issued under the Equity Option Plan. 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 acquisition of Linkatel in February 1997.
Interest expense increased 38% in the second quarter of 1997 over the
comparable period in the prior year due to an increase in the Company's average
outstanding indebtedness over the respective quarters. 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 the first half of 1997 totaled $0.4 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% Notes.
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995
Revenue increased 240% to $25.7 million for 1996, compared to $7.6 million
in 1995. The increase was due to recording a full year of revenue during 1996
for acquisitions completed during 1995 as well as growth in dedicated and
enhanced communications services revenues. The 1996 revenues included $15.3
million derived from enhanced communications services, $6.4 million from
competitive access and dedicated line services and $4.0 million from local and
long distance services (both switched and resale). This compares to $3.4 million
derived from enhanced communications services, $3.2 million from competitive
access and dedicated line services and $1.0 million from local exchange resale
services during 1995. The Company's interactive voice response subsidiary, which
was acquired in September 1995, provided 52% of the Company's revenues during
1996, including one customer who accounted for 23% of the Company's total
revenues. The revenues generated by this subsidiary, while generally increasing
over time, have tended to fluctuate on a quarter to quarter basis as a
substantial portion of the revenues are derived from a small number of customers
and the revenues are generally event driven and seasonal in nature.
The Company began offering switched local services in seven of its markets
in July 1996. Revenues from the provision of local services, while not material
during 1996, are expected to represent an increasing component of total revenues
in future periods.
Operating expenses increased 279% due to the effect of acquisitions and the
Company's continued addition of employees as well as other related costs in
order to expand the Company's switched local service businesses in its existing
and planned markets. In addition, the Company experienced increased network
costs related to the provision of local and long distance services.
SG&A increased 228% due to acquisitions completed during 1995, the Company's
continued addition of employees as well as other related costs in order to
expand the Company's switched local service businesses in its existing and
planned markets and to a lesser degree due to activities associated with the
marketing of the Company's enhanced communications service offerings.
Deferred compensation expenses are recorded in connection with the Company's
Equity Option Plan. The option grants under this plan are considered
compensatory and are accounted for similar to stock appreciation rights. The
Company recorded noncash charges of $9.9 million and $0.4 million
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during 1996 and 1995, respectively, resulting from an increase in value of the
underlying securities as well as the grant of additional options. See Note 10 to
the Consolidated Financial Statements.
Depreciation expense increased during 1996 primarily due to placement in
service of additional telecommunications network assets, including switches,
fiber optic cable, network electronics and related equipment as well as due to
acquisitions completed during 1995 and early 1996. Amortization of intangible
assets increased as a result of acquisitions completed during 1995 and 1996.
Interest expense during 1996 (net of $0.9 million capitalized) primarily
reflects the interest expense associated with the 12 1/2% Notes. 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. Interest
income results from certain securities that have been pledged as collateral for
interest payments on the 12 1/2% Notes and investment of excess cash.
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH PERIOD FROM INCEPTION (SEPTEMBER
16, 1994) TO DECEMBER 31, 1994
From inception through December 31, 1995, the Company acquired certain
operating assets and one company. These acquisitions have been accounted for
utilizing the purchase method of accounting, and accordingly, the Company's
Consolidated Financial Statements include the results of operations of these
acquisitions from the dates of acquisition. The acquired assets and liabilities
were recorded at their estimated fair value on the acquisition dates, and
appropriate amounts were allocated to intangible assets, including goodwill.
The Company generated its first revenues, a total of $7.6 million, in 1995.
Of these revenues, $3.2 million were derived from competitive access and
dedicated line services, $1.0 million from local exchange resale services and
$3.4 million from interactive voice response services.
Operating expenses increased from $106,000 in 1994 to $6.6 million in 1995.
This increase is due to the acquisitions described above and expansion of the
business.
SG&A increased from $232,000 in 1994 to $9.6 million in 1995. SG&A increased
substantially as a result of acquisitions and the development of the Company's
systems and structure to support the anticipated growth of its business.
Depreciation increased from $6,500 in 1994 to $1.1 million in 1995 due to
the added property, plant and equipment as a result of the acquisitions and
expansion of the networks completed in 1995. Amortization of intangible assets
increased from $7,000 in 1994 to $2.3 million in 1995 due to the acquisitions
and the resulting increase in intangible assets.
Interest expense was $499,000 in 1995 and related primarily to a note to
Eagle River that was subsequently converted to contributed capital on December
1, 1995.
Minority interest in net losses increased from $3,000 in 1994 to $230,000 in
1995, due to increases in losses and the addition of minority members' interest
in certain of the Company's acquired subsidiaries. The net loss before minority
interest was $13.0 million and the net loss was $12.7 million in 1995 compared
to $352,000 and $349,000, respectively for 1994.
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
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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 the first six months of
1997, the Company used $45.8 million in cash for operating activities, compared
to $6.2 million for the same period 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 and, to a lesser
degree, due to the activities associated with the Company's enhanced
communications services operations. During the first six months of 1997, the
Company invested an additional $100.7 million in cash in property and equipment,
acquisitions of telecommunications businesses and equity investments in
telecommunications businesses. During the same period in 1996, the Company
invested $44.5 million in cash in property and equipment and acquisitions of
telecommunications assets and businesses.
In August 1997, the Company entered into a non-binding letter of intent to
acquire all outstanding shares of Start Technologies Corporation ("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. If a
definitive agreement is executed, the Company is expected to pay consideration
for the transaction consisting of $20.0 million in cash, 441,336 shares of Class
A Common Stock and the assumption of approximately $3.6 million of liabilities.
In July 1997, the Company executed a definitive agreement to acquire 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 NEXTLINK. Chadwick
serves approximately 11,500 customers throughout the central and eastern
Pennsylvania regions. The merger is anticipated to close in the third quarter of
1997. Upon closing, the Company will issue consideration for the transaction
consisting of a promissory note payable in the aggregate principal amount of
$5.0 million, 257,151 shares of Class A Common Stock and the assumption of long
term debt totaling $4.9 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 July 1997, the Company entered into a non-binding letter of intent 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. If a definitive agreement is executed,
the Company is anticipated 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 issue 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, New
Jersey, and Philadelphia which it agreed to make available to the Company in
each of those markets at a substantial discount. 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 has been placed in escrow pending completion of
certain building connections by the lessor. These arrangements will allow the
Company to accelerate its entry into each of these markets by
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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 capital expenditures necessary to enter
these markets, the Company has not as a result reduced its overall planned
capital expenditures through 1998.
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 1997. 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 is in the process
of completing the expansion of this network to Provo and Orem and expects to
begin 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
approximately $350 million through the issuance of 12 1/2% 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% Notes through April 15, 1999, and used an
additional $32.2 million to repay certain advances and accrued interest from
Eagle River, a company formed and owned 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% Notes are due semi-annually. On January 31, 1997, the
Company completed the sale of $285 million aggregate liquidation preference of
14% Preferred Shares which, after deducting issuance costs, resulted in net
proceeds to the Company of approximately $274 million. The 14% Preferred Shares
will 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. The Company has issued an additional 201,706 shares of 14% Preferred
Shares in satisfaction of the first quarterly dividend. Since inception, the
Company also has 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.
The Company will use the net proceeds from the Offerings 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. Should the Debt Offering not be
consummated, the Company intends to seek additional capital. 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) the development of its comprehensive information technology
platform and (iv) the funding of operating losses and working capital. The
Company may
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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 June 30, 1997, the Company had unrestricted cash and investments of
$275.3 million and $848.8 million on a pro forma basis after giving effect to
the Offerings. The Company estimates that the cash required to fund its
anticipated capital expenditures and operating losses (excluding acquisitions
and interest to be funded by pledged securities) for the second half of 1997 and
for 1998 will approximate $370 million.
The Company's planned growth subsequent to 1998 will require substantial
additional capital to fund capital expenditures, acquisition opportunities,
working capital and any future operating losses. The Company will continue to
evaluate additional revenue opportunities in each of its markets and, as
attractive opportunities develop, the Company plans to make additional capital
investments in its networks to pursue such opportunities. The Company expects to
meet its additional capital needs with the proceeds from sales or issuance of
equity securities, credit facilities and other borrowings, sales of additional
debt 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 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% Notes and the New 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 14% 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%
Notes and 14% Preferred Shares as of June 30, 1997.
NEW ACCOUNTING STANDARD
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 Opinion 15 and related
interpretations. SFAS 128 is effective for the Company's fiscal year ending
December 31, 1997, and retroactive application is required. The Company does not
expect the implementation of SFAS 128 to have a material effect on earnings per
share amounts reported prior to that date.
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BUSINESS
OVERVIEW
NEXTLINK was founded in 1994 by Craig O. McCaw, its principal equity owner,
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.
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 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. The Telecom Act, the FCC's issuance of rules for competition and
pro-competitive policies developed by state regulatory commissions have 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
1% 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 and a virtual communications center
for mobile professionals and workgroups.
The Company currently operates 14 facilities-based networks providing
switched local and long distance services in 23 markets in seven states. The
Company anticipates that an additional three markets will be served by three
additional networks by December 1997. These 26 markets, in addition to four
other markets currently under development, have a total of approximately 8.0
million addressable business lines. The Company's goal is to add or expand
markets and market clusters to increase its addressable business lines to
approximately 11 million by the end of 1998.
NEXTLINK is pursuing its targeted customer base in markets of all sizes. In
larger markets, the Company has operational networks in Los Angeles and
Philadelphia, and networks under development in Chicago and New York City. 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 larger
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.
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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 17,409 access lines at June 30, 1997. In those markets
where the Company has offered switched local services for at least 12 months,
the Company has increased its access lines in service from 8,511 at December 31,
1996 to 15,450 at June 30, 1997. The Company has also achieved significant
growth in the rate of quarterly installations of new customer access lines, from
a total of 1,604 in the fourth quarter of 1996 to 6,153 in the second quarter of
1997. At the end of August 1997, the Company had a total of 26,921 installed
access lines. For those markets in which the Company has offered switched local
services for at least 12 months, the rate increased from 1,604 installations in
the fourth quarter of 1996 to 4,310 in the second 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 principal equity owner, Steven W. Hooper, the Company's Chairman of the
Board, Wayne M. Perry, the Company's Vice Chairman and Chief Executive Officer,
and James F. Voelker, the Company's President, 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
are the most recent additions to the NEXTLINK executive management team, both of
whom 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 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 RBOCs, from acting as a single source provider of
telecommunications services.
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 until recently been 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
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
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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 the
Eighth Circuit decision 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 1% 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." The Company believes
it will have an opportunity to gain market share in 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 businesses, and that ILECs may be less likely to
apply significant resources towards retaining these customers. The Company
expects to attract and retain these
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customers through a direct sales effort by offering: (i) bundled local and
long distance services, as well as the Company's enhanced communications
services; (ii) up to a 10% to 15% discount to comparable pricing by the
ILEC, depending on the individual market; and (iii) responsive customer
service and support provided on a local level.
FOSTER DECENTRALIZED LOCAL MANAGEMENT AND CONTROL.The Company believes
that its success will be enhanced by building locally based management teams
that are responsible for the success of each of its 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 150
salespeople at June 30, 1997. The Company expects to further increase its
sales force to approximately 200 salespeople by year end 1997. 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 81 customer care employees at
June 30, 1997.
CONTINUOUSLY IMPROVE PROVISIONING PROCESSES TO ACCELERATE REVENUE
GROWTH.The Company believes that the immediate challenge for CLECs will be
developing effective provisioning systems, which include the complex process
of transitioning ILEC customers to the Company's network. Accordingly, the
Company has begun to identify and will 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 of a comprehensive information 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 implement more rapidly
switched local services in its markets and to shorten the time between the
receipt of a customer order and the generation of revenues.
DEVELOP HIGH CAPACITY FIBER OPTIC NETWORKS WITH BROAD MARKET
COVERAGE.NEXTLINK has and intends to continue to approach network design
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. 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
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"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 (ten of which are currently installed,
including one switch that has been installed at the Company's testing and
network operations control center, and an additional four of which are
currently planned to be installed by the end of the first quarter of 1998),
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 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 or expand markets
and market clusters to increase its addressable business lines to
approximately 11 million by the end of 1998. The Company anticipates
continuing to expand into new geographic areas, including additional large
markets, as opportunities arise either through building new networks,
acquiring existing networks 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 that are not dependent on the Company's local
facilities. The Company believes that with these services it can establish a
customer base in a market in advance of constructing network facilities as
well as offer additional services in markets where the Company has
constructed facilities. The Company plans to market its enhanced
communications service offerings in all of its markets, as well as in areas
of planned network expansion. This should increase the Company's visibility,
develop customer relationships and assist the Company 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, in an eighth market on January 1,
1997, in three markets on April 30, 1997 and in 12 additional markets in July
1997. The Company expects to commence the offering of switched local and long
distance services in three additional markets by the end of 1997 and in four
additional markets in 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. 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
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- Directory listings and assistance.
Currently, the Company offers CAP services in 23 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: (i) special access circuits that
connect end-users to long distance carriers; (ii) special access circuits that
connect long distance carriers' facilities to one another; and (iii) 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.
NEXTLINK also provides a virtual communications center for mobile
professionals and workgroups through its Magic Number service, which offers a
suite of personal communications services. These services are made available
through a specialized personal telephone number. The key services provided by
this center are the following:
- Follow-Me--instructs the communications center to forward any calls made
to a Magic Number to a particular wireline or wireless telephone number;
- Voice Messaging--allows subscribers to receive, send, keep, transfer,
instantly reply to or request future delivery for voice messages;
- Call-out--enables subscribers to make calls from the communications center
without hanging up between calls or dialing another PIN number;
- Paging--notifies subscribers via pager of new and urgent messages;
- Caller ID--provides the ability to capture the telephone number of anyone
who calls the subscriber, which is also displayed on the subscriber's
pager;
- Fax Messaging--stores an incoming fax and delivers it to the nearest fax
machine designated by the subscriber when the subscriber calls in to
retrieve it; and
- Teleconferencing--handles all teleconferencing needs through a
teleconferencing operator.
The Company has developed its enhanced communications service offerings
through acquisitions, marketing agreements and equity investment. In June 1995,
the Company acquired certain enhanced communications services assets from City
Signal, Inc. These assets are used by the Company to offer its Magic Number
service. In September 1995, the Company acquired a fully operational interactive
voice response business through which the Company offers its IVR services. The
Company anticipates that it will continue to explore other enhanced
communications services opportunities and may acquire, invest
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<PAGE>
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 150 salespeople at June 30, 1997. The Company
expects to further increase its salesforce to approximately 200 salespeople by
year-end 1997. 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 81 customer care employees at June 30, 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.
35
<PAGE>
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 acquisition. 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>
THE COMPANY'S NETWORKS
The following table provides certain information on the Company's networks
that will have launched switched local and long distance services by December
1997.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
---------------------------------------
<S> <C> <C> <C> <C>
ON-NET
SWITCHED LOCAL SERVICES ROUTE FIBER BUILDINGS
STATE/MARKET LAUNCH DATE(1) MILES(2) MILES(3) CONNECTED(4)
- ------------------------------------------------- ------------------------ ----------- --------- ---------------
TENNESSEE........................................ 395 34,256 244
Memphis........................................ July 1996
Nashville...................................... July 1996
PENNSYLVANIA..................................... 457 22,085 37
Allentown...................................... July 1996
Harrisburg..................................... July 1996
Lancaster...................................... July 1996
Reading........................................ July 1996
Scranton/Wilkes Barre.......................... October 1997
Philadelphia................................... July 1997
WASHINGTON....................................... 2 230 21
Spokane........................................ July 1996
OHIO............................................. 65 12,826 11
Cleveland...................................... April 1997
Columbus....................................... April 1997
Akron.......................................... December 1997
UTAH............................................. 93 12,998 49
Salt Lake City................................. January 1997
Provo/Orem..................................... September 1997
NEVADA........................................... 400 10,500 91
Las Vegas...................................... April 1997
CALIFORNIA....................................... 183 24,569 6
Los Angeles.................................... July 1997
Anaheim........................................ July 1997
Costa Mesa..................................... July 1997
Garden Grove................................... July 1997
Irvine......................................... July 1997
Orange......................................... July 1997
Santa Ana...................................... July 1997
Long Beach..................................... July 1997
Inglewood...................................... July 1997
Huntington Beach............................... July 1997
Fullerton...................................... July 1997
----- --------- -----
Total.................................... 1,595 117,464 459
----- --------- -----
----- --------- -----
</TABLE>
- ------------------------
(1) Actual/Anticipated launch date of switched local services.
(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 facilities. As of June 30, 1997, the
Company had 1,284 buildings physically connected to its networks, including
those buildings connected through unbundled facilities.
The following table sets forth the location of the markets in which the
Company currently plans to launch switched local and long distance services
during 1998.
<TABLE>
<CAPTION>
LOCAL SWITCHED
STATE MARKET SERVICES LAUNCH DATE
- ------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
Illinois............................ Chicago First Quarter 1998
New York............................ New York City Second Quarter 1998
New Jersey.......................... Newark Third Quarter 1998
Georgia............................. Atlanta Fourth Quarter 1998
</TABLE>
37
<PAGE>
TENNESSEE. In January 1995, the Company acquired from City Signal, Inc. an
extensive, fully operational network in Memphis, Tennessee and another network
then under development in Nashville, Tennessee. Since the date of acquisition,
the Memphis network has provided dedicated private line services, long distance
carrier access services, high speed data transmission, and video conferencing
and, beginning in July 1996, switched local and long distance services. In
Nashville, the initial backbone network was completed in December 1995, and the
Company also began providing local and long distance services to customers in
this area in July 1996. The Company has continued to expand the networks in
Nashville and Memphis over the past year.
PENNSYLVANIA. In April 1995, the Company began construction of an extensive
regional fiber optic network connecting Harrisburg, Reading, Lancaster, and
Allentown, Pennsylvania. The backbone network connecting these four areas and
covering 21 counties was completed in the first quarter of 1996. The Company
believes that this network provides it with the foundation for significant
regional service offerings. The Company commenced offering switched local
services to customers utilizing its Pennsylvania networks in July 1996. The
Company recently completed extensions of the network to the Scranton/Wilkes
Barre market and downtown Philadelphia. In June 1997, the Company 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 1997. During the interim period prior to closing, the
Company is operating under a 36 fiber capacity agreement with the seller. In
June 1997, the Company also entered into an eight year exclusive agreement with
a company which has excess fiber capacity in Philadelphia, which it agreed to
make available to the Company at a substantial discount. This additional
capacity will allow the Company to expand its operations in Philadelphia by
utilizing the excess capacity to reach customers throughout Philadelphia. The
Company launched the offering of switched local and long distance services to
its customers in downtown Philadelphia in July 1997 and anticipates launching
the offering of these services in Scranton/Wilkes Barre in October 1997.
WASHINGTON. In April 1995, the Company acquired a local exchange service
reseller located in Spokane, Washington. The Company installed a switch in early
1996 and began providing switched local services in July 1996. Since that time,
the Company has constructed a fiber optic ring in the downtown area and is
continuing new construction there. The Company currently serves approximately
9,200 business lines, including those lines which are provided through resale of
Centrex services. The Company is in the process of migrating its current resale
customers to the fiber optic network as portions of that network are completed.
OHIO. In January 1996, the Company acquired existing fiber optic networks
and switching facilities in the downtown business centers of Cleveland, Columbus
and Akron, Ohio. The Company has expanded the networks in Cleveland and Columbus
and replaced the switches that were acquired in these markets with two Nortel
DMS 500 switches, the Company's standard switching platform. The Company began
offering switched local and long distance services in Cleveland and Columbus in
April 1997 and anticipates that it will begin offering these services in Akron
during the fourth quarter of 1997.
UTAH. In March 1996, the Company admitted a 10% member to the subsidiary
conducting the Company's operations in Utah, which member provided access to its
rights-of-way, franchises, and other valuable services in order for the Company
to commence the construction of a fiber optic network in Salt Lake City and the
Wasatch Valley, which the Company believes is among the fastest growing areas in
the United States. Construction of the downtown fiber optic ring began in the
second quarter of 1996. The switching facilities were installed during the
fourth quarter of 1996 with switched local and long distance service starting
January 1, 1997. The Company is in the process of completing the expansion of
this network to Provo and Orem and expects to begin providing switched local and
long distance services in the Provo and Orem areas by September 1997.
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<PAGE>
NEVADA. In April 1996, the Company became a 40% member in, and manager of,
a joint venture that provides local telecommunications services in Las Vegas,
which the Company believes is one of the fastest growing areas in the United
States. The Company has provided a license to the joint venture to operate under
the name NEXTLINK Nevada. The joint venture began providing switched local and
long distance services in April 1997 in addition to the competitive access
services that were previously provided over a fiber optic network covering
approximately 400 route miles throughout Las Vegas. The Company will provide
strategic planning and management of the business for a ten year period through
one of its subsidiaries.
CALIFORNIA. On February 4, 1997, the Company acquired substantially all the
assets of 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. The Los Angeles/Orange
County area represents one of the largest telecommunications markets in the
United States, with over 2 million addressable business lines. The Company
assumed management of this operation in November 1996. 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.
ILLINOIS, NEW YORK, NEW JERSEY AND GEORGIA. 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, New Jersey, which it agreed to make
available to the Company in each of those markets at a substantial discount.
This capacity 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.
CHICAGO. The Company anticipates launching switched local and long distance
services in Chicago in the first quarter of 1998. In addition to
establishing the capacity arrangement for Chicago described above, the
Company has located and anticipates commencing installation of its first
switch for Chicago in the third quarter of 1997. The Company also has
received its CLEC certification from the Illinois Corporation Commission, is
in negotiations with Ameritech Illinois for interconnection of services and
is negotiating with the City of Chicago for a franchise.
NEW YORK. The Company anticipates launching switched local and long
distance services in Manhattan in the second quarter of 1998. The Company
has received its CLEC authority from the New York State Public Service
Commission, is in negotiations with NYNEX Corporation for interconnection,
and is engaged in negotiations with New York City for a franchise. 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, which extends from the Wall Street area north to midtown Manhattan.
NEWARK, NEW JERSEY AND ATLANTA. The Company is in the process of commencing
its development activities in Newark, New Jersey, and Atlanta and
anticipates completing the necessary regulatory applications and beginning
interconnection and franchise negotiations in the third quarter of 1997,
with an anticipated launch of services in Newark in the third quarter of
1998 and Atlanta in the fourth quarter of 1998.
39
<PAGE>
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.
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.
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<PAGE>
The following diagram illustrates NEXTLINK's network design.
[Diagram depicting Company's Network]
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 premises. 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 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.
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<PAGE>
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.
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 the
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 (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 and California. 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 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 interconnection agreements with NYNEX Corporation for New
York and Ameritech for Chicago, and plans to begin negotiations with BellSouth
for an interconnection agreement to cover Atlanta by the end of the third
quarter of 1997. 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
42
<PAGE>
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. 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 and California networks
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 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 service. 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.
43
<PAGE>
<TABLE>
<CAPTION>
ISSUE DEFINITION ANTICIPATED EFFECT
- ------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
Interconnection Efficient network interconnection to Allows a CLEC to service and
transfer calls back and forth terminate calls to and from
between ILECs and competitive customers connected to other
networks (including 911, 0+, networks
directory assistance, etc.)
Local Loop Unbundling Allows competitors to selectively Reduces the capital and operating
gain access to ILEC wires which costs of a CLEC to serve customers
connect ILEC central offices with not directly connected to its
customer premises networks
Reciprocal Compensation Mandates reciprocal compensation for Improves the CLEC's margins for
local traffic exchanges between local service
ILECs and competitors
Number Portability Allows customers to change local Allows customers to switch to a
carriers without changing numbers; CLEC's local service without
true portability allows incoming changing phone numbers
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 telephone Allows CLECs to provide telephone
numbers to competitive numbers to new customers on the same
telecommunications provider's basis as the ILEC
customers
</TABLE>
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.
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
44
<PAGE>
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.
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 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.
The state 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.
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 (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.
FEDERAL REGULATION
The FCC was granted authority to eliminate tariff and reporting requirements
for non-dominant carriers such as the Company. Acting under that authority, the
FCC has eliminated tariff filing requirements for such carriers providing
interstate access and domestic interstate long distance services. On February
13, 1997, the United States Court of Appeals for the District of Columbia
granted motions for stay of the FCC order detariffing domestic interstate long
distance service pending judicial review of that order. The result of this stay
is that carriers must continue to file tariffs for interstate long distance
services. Regulatory compliance measures remain in place for international
traffic. 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 FCC has taken several actions related to the assignment of telephone
numbers, first in July 1995 mandating that over the course of the next year
responsibility for administering and assigning local telephone numbers be
transferred from the RBOCs and a few other ILECs to a neutral entity, and second
in July 1996 adopting a regulatory structure under which a wide range of number
portability issues would be resolved. In March 1997, the FCC affirmed its number
portability rules, but it extended slightly certain deadlines for the
implementation of true number portability. The FCC plans to establish cost
recovery rules for true number portability.
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
45
<PAGE>
exchange services (which the FCC has suggested should be in the range of
17%-25%); (ii) availability of unbundled local loops 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 telecommunications 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 service, 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. Although the FCC order
describes a method for determining the amount the Company must contribute to
support these subsidies, the Company is currently unable to quantify the amount
of these payments that it will be required to make, and the effect that these
required payments will have on its financial condition. 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, non-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
46
<PAGE>
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. Ameritech withdrew its
application on February 11, 1997, after the FCC struck from the record the
interconnection agreement between Ameritech and AT&T which formed the basis for
the application. On May 21, 1997, Ameritech refiled its application for
in-region interLATA authority in Michigan. 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.
On April 11, 1997, 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. That appeal is currently pending.
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. The plaintiffs in the case seek both a declaratory judgment and
an injunction against the enforcement of the challenged provisions.
The Company anticipates that the FCC will initiate a number of additional
proceedings, of its own volition 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 U.S. Court of Appeals for the
Eighth Circuit. On October 15, 1996, the Eighth Circuit issued a partial stay of
the FCC's rules until the full appeal on the FCC's rules could be heard. The
stay was limited to two areas of the FCC's rules: (1) the pricing rules other
than those dealing with commercial mobile radio service providers; and (2) the
CLECs' ability to utilize a most favored nation procedure to select favorable
provisions from other interconnectors' agreements.
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. The FCC has indicated that it
will seek Supreme Court review of the decision.
In the short term the Company believes that the Eighth Circuit decision 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
47
<PAGE>
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 the parties and the state
PUCs.
In the long term, the Eighth Circuit's decision makes 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
PUC regulation in most if not all such states. In all states where the Company
is operational and certification as a CLEC is currently required, the Company's
operating subsidiaries are certificated.
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,
the states have the primary regulatory role under the Telecom Act. 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. State PUCs will implement and enforce most of the Telecom Act's local
competition provisions, including those governing the specific charges for local
network interconnection. In some states, those charges are being determined by
generic cost proceedings and in other states they are being established through
arbitration proceedings.
LOCAL GOVERNMENT AUTHORIZATIONS
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 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.
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<PAGE>
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, Sprint and WorldCom, Inc., cable television
companies such as Tele-Communications, 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 increase 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 toward business combinations and alliances in the
telecommunications industry may create significant new competitors to the
Company. In addition, many of the Company's existing
49
<PAGE>
and potential 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, Inc., 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.
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 1997 to 2016. 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.
EMPLOYEES
As of July 31, 1997, the Company employed 885 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.
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<PAGE>
Patent and Trademark Office on July 1, 1997. In addition, filings have been made
to register the distinctive floating X and related marks as protected trademarks
under federal law. These filings all are pending. The Company has no assurance
that they will be granted. 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.
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.
51
<PAGE>
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).................................. 44 Chairman of the Board
Wayne M. Perry(1).................................... 47 Vice Chairman and Chief Executive Officer
James F. Voelker(1).................................. 46 President and Director
Jan Loichle.......................................... 49 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
R. Gerard Salemme.................................... 43 Vice President, External Affairs and Industry
Relations
Bruce Allenbaugh..................................... 41 Vice President, Marketing Services
Craig O. McCaw....................................... 47 Director
Dennis Weibling(1)(2)(3)............................. 46 Director
Scot Jarvis(2)....................................... 36 Director
William A. Hoglund(1)(2)............................. 43 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.
Greg Green........................................... 34 President of NEXTLINK Washington, L.L.C.
Don Hillenmeyer...................................... 51 President of NEXTLINK Tennessee, L.L.C.
Jeff C. Stone........................................ 40 President of NEXTLINK Interactive, L.L.C.
Dwayne Nielson....................................... 42 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..................................... 37 President of NEXTLINK Illinois, Inc.
</TABLE>
Directors of the Company are elected annually at the annual meeting of
stockholders. The next annual meeting of stockholders 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
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.
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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 nation wide 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.
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.
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<PAGE>
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 &
Research, where he was responsible for evaluating and implementing new
technologies that either reduced costs or generated new revenue.
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.
BRUCE ALLENBAUGH. Mr. Allenbaugh has been Vice President, Marketing
Services since July 1997. Prior to that, Mr. Allenbaugh was Director of
Marketing for the Company from December 1994. Prior to joining NEXTLINK, Mr.
Allenbaugh was Director of Market Development with the Pepsi-Cola Company from
August 1993 to December 1994, Director of New Products from April 1991 to August
1993 and Director of Advertising from September 1990 to April 1991.
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 Communications, Inc. ("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. This
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-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.
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,
operations, audit and compensation committees. Nextel is a leading provider of
integrated
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<PAGE>
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 Committee, Compensation Committee and Audit Committee 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, 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, LLC. 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 a 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.
The following individuals have agreed to become members of the Board of
Directors of the Company immediately after the closing of the Stock Offering.
Set forth below is a brief biography of each of these individuals.
SHARON L. NELSON, 50, 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 a 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 a 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.
JEFFREY S. RAIKES, 39, is a member of the Executive Committee and the Group
Vice President, Sales & 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
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<PAGE>
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. From 1993 to 1996, 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.
GREG GREEN. Mr. Green has been the President of NEXTLINK Washington since
March 1995. Prior to that, from 1985 through March 1995, Mr. Green was the
founder and former President of Tel-West Communications, Inc. ("Tel-West") until
the Company's acquisition of certain assets of that company. At Tel-West, Mr.
Green provided overall management of business development, sales and customer
service. Mr. Green successfully negotiated with the Washington State Utilities
and Transportation Commission to become the second competitive local exchange
carrier in Washington State's history and the first in the city of Spokane.
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 & 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
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<PAGE>
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 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,
Inc. 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.
57
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth, for the fiscal year ended December 31, 1996,
individual compensation information for the Chief Executive Officer of the
Company and each of the four other most highly compensated executive officers of
the Company who were serving as executive officers at December 31, 1996 (the
"Named Executive Officers").
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION --------------
---------------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL FISCAL BONUS COMPENSATION OPTIONS COMPENSATION
POSITION YEAR SALARY ($) ($)(1) ($) (#)(2) ($)(3)
- ------------------------------------ ----------- ----------- --------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
McCaw, Craig O...................... 1995 -0- -0- -0- -0- -0-
CEO(4) 1996 -0- -0- -0- -0- -0-
Voelker, James F.................... 1995 89,405 87,000 11,542(5) 441,336 -0-
President 1996 160,609 200,000 -0- 6,620 6,523
Kingery, Robert..................... 1995 65,589 88,082 -0- 43,404(7) -0-
President of 1996 225,000 30,000 -0- 2,207 5,625
NEXTLINK Interactive(6)
Iskra, Kathleen H................... 1995 -0- -0- -0- -0- -0-
Vice President, Chief 1996 121,233 65,250 -0- 67,745 1,575
Financial Officer and
Treasurer
Daniels, Charles P.................. 1995 14,423 25,000 -0- 44,134 -0-
Vice President, Chief 1996 100,000 84,750 -0- 3,310 2,512
Technology Officer
</TABLE>
- ------------------------
(1) Represents bonuses that were paid subsequent to the stated calendar year
end.
(2) Represents options to acquire Class B membership units, which were
subsequently converted into options to acquire shares of Class A Common
Stock, granted in connection with the Company's equity option plan during
1995 and 1996, respectively.
(3) Represents contributions made by the Company on behalf of the executive
officer under the Company's 401(k) Plan.
(4) Mr. McCaw resigned as the Company's Chief Executive Officer effective July
21, 1997.
(5) Of this amount, $11,238 was allocated to temporary housing expenses.
(6) Mr. Kingery resigned his position with the Company effective July 31, 1997.
(7) This represents the number of options to acquire Class B units, which were
subsequently converted into options to acquire shares of Class A Common
Stock, granted as a replacement for this executive's options to acquire
membership interests in NEXTLINK Interactive.
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<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
---------------------------------------------------------------------- ANNUAL RATES OF
NUMBER OF SHARE PRICE
SECURITIES % OF TOTAL APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OR OPTION TERM(2)
NAME AND OPTIONS TO EMPLOYEES IN BASE PRICE --------------------
PRINCIPAL POSITION GRANTED(#) FISCAL YEAR(%) ($/SH) EXPIRATION DATE(3) 5% ($) 10% ($)
- ------------------------------ ----------- ------------------- --------------- ------------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
McCaw, Craig O................ -0- -0- -0- N/A
Voelker, James F.............. 6,620 1.45 1.00 August 19, 2011 7,079 20,846
Kingery, Robert............... 2,207 0.48 1.00 August 19, 2011 2,360 6,949
Iskra, Kathleen H............. 33,100 7.27 .02(4) January 2, 2011 67,449 136,285
33,100 7.27 1.00 January 2, 2011 35,394 104,230
1,545 0.34 1.00 August 19, 2011 1,652 4,864
Daniels, Charles P............ 3,310 0.73 1.00 August 19, 2011 3,539 10,423
</TABLE>
- ------------------------
(1) Effective on January 31, 1997, NEXTLINK Communications, L.L.C. was merged
with and into NEXTLINK Communications, Inc. The information presented in
this table reflects the grant of options for the purchase of Class A Common
Stock under the Company's Stock Option Plan in substitution for options
granted previously pursuant to the Amended and Restated Equity Option Plan
of NEXTLINK Communications, L.L.C. (the "EOP"). See Note 12 to the
Consolidated Financial Statements.
(2) The dollar amounts under the 5% and 10% columns are the result of
calculations required by the rules of the Securities and Exchange Commission
("SEC") and, therefore, are not intended to forecast possible future
appreciation, if any, of the Class A Common Stock. The amounts shown reflect
the difference between the appreciation and the exercise price at the
assumed annual rates of appreciation through the fifteenth anniversary of
the dates of grant.
(3) Options granted during 1996 vest either 20% at employment and 20% at the end
of each subsequent year or 25% at the end of each of the next four years
after grant.
(4) Market value on the date of grant was $1.00 per security or $33,100 in the
aggregate.
AGGREGATED FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY
FISCAL YEAR END OPTIONS AT FISCAL YEAR END(1)
---------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------- ------------ -------------- ------------- --------------
<S> <C> <C> <C> <C>
McCaw, Craig O................. -0- -0- -0- -0-
Voelker, James F............... 176,534 271,422 $ 1,400,000 $ 2,152,500
Kingery, Robert................ 17,362 28,249 137,687 224,028
Iskra, Kathleen H.............. 26,480 41,265 210,000 327,250
Daniels, Charles P............. 17,653 29,790 140,000 236,250
</TABLE>
- ------------------------
(1) Reflects the difference between the exercise price and a valuation of $7.93
per unit. Because there is no public market for the Company's membership
units, pursuant to the Equity Option Plan, the Plan's Administrative
Committee determines the value of the Class B options at least as often as
the end of each fiscal year. The valuation set forth above reflects the
Administrative Committee's determination of per unit valuation at December
31, 1996, as adjusted for the 0.441336-for-1 reverse stock split effected in
connection with the Stock Offering.
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<PAGE>
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with James F. Voelker,
its President, for a term expiring on July 31, 1999, subject to earlier
termination. The agreement provides for a base salary of $187,500 for the period
from April 1, 1997 to December 31, 1997 and $275,000 for the period from January
1, 1998 to December 31, 1998, and for the period from January 1, 1999 through
July 31, 1999, $275,000 per year pro rated for such portion of the year with a
total annual bonus of $150,000 based upon the performance of Mr. Voelker and the
Company in light of the business plans and budgets of the Company as recommended
by Mr. Voelker and approved by the Board. In addition, in connection with the
execution of this employment agreement, effective April 10, 1997, the Company
granted Mr. Voelker options to purchase 110,334 shares of Class A Common Stock,
which options vest in equal installments on each of the first four anniversaries
of grant and have an exercise price of $7.93 per share. The agreement also
contains confidentiality provisions.
NEXTLINK Pennsylvania, L.P., an operating subsidiary of the Company, has
entered into an employment agreement with Gary A. Rawding, its President, for a
term expiring on September 15, 1997, subject to automatic month-to-month
extensions unless either party gives 30 days notice not to renew. The agreement
provides for a base salary of $110,000, with a total bonus of $50,000 for the
five-quarter period ended December 31, 1995 based on the attainment of goals and
milestones outlined in the agreement and $10,000 per quarter thereafter. If
NEXTLINK Pennsylvania, L.P. fails to renew the agreement or if employment is
terminated due to the cessation of its business, NEXTLINK Pennsylvania, L.P.
must pay Mr. Rawding his then-current monthly salary until one year after
termination. The agreement also contains non-compete, non-solicitation and
confidentiality provisions.
NEXTLINK Washington, L.L.C. ("NEXTLINK Washington"), an operating subsidiary
of the Company, has entered into an employment agreement with Gregory Green as
its President for a term expiring on March 28, 1998, subject to earlier
termination. The agreement provides for a base salary of $100,000 with a bonus
of $30,000 during the first year, $35,000 during the second year and $40,000
during the third year, in each case upon the achievement of objectives. The
agreement also contains non-compete, non-solicitation and confidentiality
provisions.
NEXTLINK COMMUNICATIONS, INC. STOCK OPTION PLAN
The Company established the NEXTLINK Communications, Inc. Stock Option Plan
(the "Plan") to replace the EOP and to provide a performance incentive for
certain officers, employees, and individuals who provide services to the
Company, and to enable these individuals to acquire or increase proprietary
interest in the success of the Company.
Pursuant to the terms of the Plan, the Company's Board of Directors (the
"Board") has reserved the right to terminate, modify, or amend the Plan subject
to the following restriction: The Board must obtain shareholder approval for any
amendment that (1) increases the number of shares of Class A Common Stock
available under the Plan, (2) changes the Plan's eligibility provisions, or (3)
requires shareholder approval under applicable law.
The Plan Administrator may modify or amend outstanding options granted under
the Plan, provided modification or amendment of an outstanding option shall not,
without the consent of the optionee, impair or diminish any of the optionee's
rights or any of the obligations of the Company. Except as otherwise provided in
the Plan, no outstanding option shall be terminated without the consent of the
optionee. Unless the optionee agrees otherwise, any change or adjustment to an
outstanding incentive stock option shall be made so as not to constitute a
"modification," as defined in Section 424(h) of the Internal Revenue Code of
1986, as amended (the "Code"), and so as not to cause the option to cease
qualifying as an incentive stock option, as defined in Code Section 422(b).
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<PAGE>
The "Plan Administrator" is the Compensation Committee of the Board, and its
members are Messrs. Weibling, Jarvis and Hoglund. The Board may from time to
time remove members from, or add members to, the Compensation Committee.
Vacancies on the committee, however caused, may be filled by the Board.
The Plan Administrator acts as the manager of the Plan, possessing
discretionary authority to determine all matters relating to the options to be
granted. The Plan Administrator has the sole authority to interpret the
provisions of the Plan, any option issued under the Plan, and any rule or
regulation applicable to the Plan. The Plan Administrator's interpretation is
conclusive and binding on all interested parties, so long as the interpretation
and construction with respect to incentive stock options corresponds to the
requirements of Code Section 422, the regulations thereunder, and any amendments
thereto.
The stock available under the stock options granted under the Plan are
shares of the Company's authorized but unissued Class A Common Stock. The total
number of shares that may be issued pursuant to options under the Plan,
including both incentive and non-statutory options, shall not exceed an
aggregate of 4,413,360 shares.
Incentive stock options may be granted only to officers and other employees
of the Company (or a parent or subsidiary corporation of the Company), including
Board members who are also employees of the Company (or employees of a parent or
subsidiary corporation of the Company). Non-statutory options may be granted to
both employees and non-employees of the Company (or a corporate or non-corporate
parent or subsidiary), including non-employee Board members. Certain limitations
apply to 10% shareholders.
Within the parameters established by the Plan, the Plan Administrator has
the sole discretion to determine the options to be granted under the Plan,
including selection of the individuals receiving option grants, the number of
shares available under each option, the exercise price, and all other terms and
conditions of the options. Separate option grants under the Plan need not be
identical in any respect, even when made simultaneously. The Plan Administrator
shall issue each optionee an individual "option agreement," which describes the
relevant terms of the option.
The purchase price per share of Class A Common Stock under each incentive
stock option shall be not less than the fair market value of the Class A Common
Stock on the date the option is granted, except where the option is a
substituted or assumed option from another plan, and the exercise price relates
to the original exercise price, in accordance with applicable provisions of the
Code. Certain additional limitations apply to 10% shareholders. The purchase
price per share of Class A Common Stock under each non-statutory stock option
shall be not less than 85% of the fair market value of the Class A Common Stock
on the date the option is granted, except where the option is a substituted or
assumed option from another plan, and the exercise price relates to the option's
original exercise price.
The aggregate shares of Class A Common Stock available to an optionee
through incentive stock options, which are exercisable for the first time during
a calendar year, shall not exceed $100,000 in value. For purposes of this limit,
the Class A Common Stock shall be valued at its fair market value as of the
option grant date. To the extent an incentive stock option exceeds this
limitation, it shall be considered a non-statutory stock option.
An optionee must exercise his or her option, if at all, before it expires.
Each option shall expire on the date specified in the individual option
agreement, which date shall not be later than the tenth anniversary of the date
on which the option was granted with respect to incentive stock options, the
15th anniversary with respect to non-statutory options and the fifth anniversary
in the case of a 10% stockholder.
Options granted under the Plan and the rights and privileges conferred
thereby may not be transferred, assigned, pledged, or hypothecated in any manner
(whether by operation of law or otherwise), other than by will or applicable
laws of descent and distribution; provided that non-statutory stock
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<PAGE>
options may be transferred to a revocable trust established by the optionee for
his or her descendants, to an immediate family member, or to a partnership in
which only immediate family members or such estate-planning trusts are partners.
Options shall not be subject to execution, attachment, or similar process. Upon
any attempt to transfer, assign, pledge, hypothecate, or otherwise dispose of
any option under the Plan, or any rights or privilege conferred by the Plan,
contrary to the provisions of the Plan, or upon the sale or levy or any
attachment or similar process upon the rights and privileges conferred by the
Plan, such option shall thereupon terminate and become void. No person may
create a lien on any funds, securities, or other property held under the Plan.
Options granted under the Plan shall generally expire on the earlier of the
following two events: (i) the date of expiration expressed in the individual
option agreement, or (ii) three months after termination of employment (unless
the termination is for cause, in which case the option shall immediately
expire). Special rules apply in the event of an optionee's death or disability.
In addition, options shall terminate if the shareholders of the Company receive
cash, stock, or other property in exchange for or in connection with their
shares of Class A Common Stock as a result of a merger, consolidation,
acquisition of property or stock, separation, reorganization, or liquidation of
the Company (other than a mere reincorporation, creation of a holding company,
or merger in which the Company's shareholders receive a corresponding number of
shares of Class A Common Stock in the survivor corporation). Prior to such an
event, the optionee shall have the right to exercise his or her option, in whole
or in part, to the extent vested.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
From the inception of NEXTLINK through the end of 1995, NEXTLINK's capital
and operational funding was provided on an as needed basis, primarily by Eagle
River. During this period, under NEXTLINK's limited liability company agreement,
one equity unit was issued for each dollar in cash or assets contributed to
NEXTLINK. The equity ownership units issued from time to time during the course
of this period thus reflect this one dollar to one equity unit equivalency. As
of June 30, 1997, Eagle River had contributed approximately $53.9 million to
NEXTLINK and had received approximately 23.8 million Class A Units in NEXTLINK
Communications, L.L.C., which were converted to approximately 31.9 million
shares of the Company's Class B Common Stock on January 31, 1997, including
certain issuances described below.
On September 15, 1994, NEXTLINK lent $100,000 to Gary A. Rawding, President
of NEXTLINK Pennsylvania, L.P. This loan is unsecured and is due September 15,
2004, or upon the sale of more than one-half of his interest in NEXTLINK
Pennsylvania, L.P. This loan bears interest at the prime rate and requires
annual interest payments on September 15.
On August 18, 1995, NEXTLINK lent $93,141 to James F. Voelker, NEXTLINK's
President, in connection with his relocation to Washington. This loan bears
interest at the prime rate and principal and interest are due on the earlier of
December 31, 1998 or the sale of Mr. Voelker's former residence. In April 1997,
$25,000 in principal amount of this loan was forgiven as part of the payment of
Mr. Voelker's 1996 bonus.
On September 1, 1995, NEXTLINK agreed to pay $3.0 million to BWP, Inc. in
connection with the acquisition of certain assets of Sound Response Corporation.
A payment of $1.5 million was made on September 1, 1996 and an additional
payment of $1.5 million is due September 1, 1997. In addition, NEXTLINK issued
approximately 1.9 million Class A Units in NEXTLINK Communications, L.L.C.,
which were converted to approximately 2.6 million shares of the Company's Class
B Common Stock on January 31, 1997 to BWP, Inc. in connection with this asset
acquisition.
On January 31, 1995, Eagle River lent NEXTLINK $3.3 million in connection
with the acquisition of certain assets from City Signal, Inc. The note was
unsecured and bore interest at the prime rate plus 2%. The note plus accrued
interest was repaid with a portion of the net proceeds of NEXTLINK's offering of
12 1/2% Notes. NEXTLINK's principal equity owner, Mr. Craig O. McCaw, through
Eagle River made advances to NEXTLINK primarily to fund NEXTLINK's capital
expenditures (excluding acquisitions) and operating losses between January 1996
and April 1996. These advances of approximately $32.2 million, including accrued
interest, were repaid using a portion of the net proceeds of the offering of the
12 1/2% Notes.
During 1995, Eagle River lent NEXTLINK $7.3 million in connection with asset
acquisitions and operating expenses. The note bore interest at the prime rate
plus 2% and, on December 1, 1995, was converted to equity and approximately 3.2
million Class A Units in NEXTLINK Communications, L.L.C., which, along with the
other Units owned by Eagle River, were converted to shares of Class B Common
Stock of the Company on January 31, 1997.
During 1995, NEXTLINK incurred expenses for administrative services provided
by U.S. Signal, a minority shareholder of NEXTLINK, pursuant to temporary
agreements related to the acquisitions of certain assets from City Signal, Inc.
NEXTLINK recorded expenses in connection with fees to U.S. Signal of $1.5
million in 1995.
Each share of the Company's Class B Common Stock is convertible at the
option of the holder thereof, at any time, into one share of Class A Common
Stock. The Company and the current holders of the Company's Class B Common Stock
and the holders of options to purchase Class B Common Stock have entered into a
Registration Rights Agreement (the "Company Registration Rights Agreement"),
which, among other things, will provide that at any time after a Qualifying IPO
(as defined) and upon the request of holders of at least 4% of the outstanding
Class B Common Stock that is subject to the
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<PAGE>
Company Registration Rights Agreement, the Company will register under the
Securities Act any of the shares of Class A Common Stock currently held by, or
to be acquired in the future by, such holders, for sale in accordance with such
holders' intended method of disposition thereof (a "Demand Registration"). The
holders of the Class B Common Stock will have the right to request two Demand
Registrations. The holders of the Class B Common Stock also will have the right,
at any time after the Qualifying IPO, to include the shares of Class A Common
Stock held by them in certain other registrations of common equity securities of
the Company initiated by the Company on its own behalf or on behalf of its
shareholders. The holders' rights under the Company Registration Rights
Agreement are not transferable. In addition, the holders of Class B Common Stock
and options to purchase Class B Common Stock have agreed to pay their pro rata
share of all costs and expenses incurred in connection with each registration of
their respective shares of Class A Common Stock. For purposes of the Company
Registration Rights Agreement, "Qualifying IPO" means a public offering of Class
A Common Stock that results in net proceeds to the Company of not less than
$75,000,000 or such lesser amount as the Board of Directors of the Company may,
in their discretion, determine to be adequate to commence the rights of the
holders under the Company Registration Rights Agreement.
In June 1997, the Company issued options to purchase 441,336 shares of Class
A Common Stock to each of Wayne M. Perry and Steven W. Hooper. The options vest
25% at the end of each of the four years after grant, and were issued with
exercise prices of $7.93 per share. None of such options are currently
exercisable.
On August 26, 1997, the Company agreed to lend to James F. Voelker,
President of the Company, R. Bruce Easter, Jr., Vice President, General Counsel
and Secretary of the Company, Gary Rawding, President of NEXTLINK Pennsylvania,
L.P., and Don Hillenmeyer, President of NEXTLINK Tennessee, L.L.C., up to $2.2
million, $79,000, $85,000 and $100,000, respectively, in connection with the
payment of income taxes incurred upon the exercise of stock options. These loans
(i) bear interest at a fixed rate of 7.70%, (ii) will be secured by shares of
Class A Common Stock with a market value equal to 2.5 times the amount of the
loan and (iii) require payment of principal and accrued interest on February 26,
1999.
In September 1997, the Company agreed to issue options to purchase 22,067
shares of Class A Common Stock to each of Sharon L. Nelson and Jeffrey S. Raikes
upon their joining the Board of Directors of the Company. The options vest 25%
at the end of each of the fours years after grant, and were issued with exercise
prices of $7.93 per share. None of such options are currently exercisable.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of June 30, 1997, with
respect to the beneficial ownership of NEXTLINK's capital stock by (i) each
person known by the Company to own beneficially 5% or more of the outstanding
shares of capital stock, (ii) the Company's Board of Directors and persons
having agreed to be named thereto, (iii) the Company's Chief Executive Officer
and each of the Named Executive Officers and (iv) all directors, and persons
having agreed to be named a director, and executive officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
PRIOR TO THE STOCK OFFERING (1)
---------------------------------------------------------
PERCENT OF
AMOUNT AND PERCENT OF TOTAL
NAME AND ADDRESS OF TITLE OF NATURE OF PERCENT OF TOTAL SHARES VOTING
BENEFICIAL OWNER CLASS OWNERSHIP CLASS (%) OUTSTANDING (%) POWER (%)
- ---------------------------------- -------- ------------ ---------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Eagle River Investments, LLC...... Class A 0 0 86.57 86.95
2300 Carillon Point Class B 31,912,086 86.99
Kirkland, WA 98033
BWP, Inc. ........................ Class A 0 0
707 S.W. Washington, Class B 2,610,280(2) 7.12 7.08 7.11
8th Floor
Portland, OR 97205
Craig O. McCaw.................... Class A 6,620(3) 3.61
2300 Carillon Point Class B 32,178,552(3) 87.72 87.30 87.67
Kirland, WA 98033
Dennis Weibling................... Class A 0 0
2300 Carillon Point Class B 31,912,086(4) 86.99 86.57 86.95
Kirkland, WA 98033
James F. Voelker.................. Class A 266,457(5) 60.15
155 108th Avenue, N.E., Class B 1,576,172(6) 4.12 4.76 4.18
Suite 810
Bellevue, WA 98004
Comdisco, Inc. ................... Class A 176,534 100.00
6111 North River Road Class B 0 0 * *
Rosemont, IL 60018
Wayne M. Perry.................... Class A 0 0
Class B 0 0 0 0
Steven W. Hooper.................. Class A 0 0 0 0
Class B 0 0
Scot Jarvis....................... Class A 0 0
Class B 295,820(8) * * *
William A. Hoglund................ Class A 0 0 0 0
Class B 0 0
Kathleen H. Iskra................. Class A 26,866(5) 13.21 *
Class B 0 0 *
Charles P. Daniels................ Class A 18,481(5) 9.48 *
Class B 0 0 *
Sharon L. Nelson.................. Class A 0 0 * *
Class B 0 0
Jeffrey S. Raikes................. Class A 0 0 * *
Class B 0 0
All directors and executive (5) 89.14 89.37
officers as a group (23
persons)......................... Class A 523,306 74.78
Class B 34,205,864(9) 89.40
<CAPTION>
SHARES BENEFICIALLY OWNED
AFTER THE STOCK OFFERING (1)
-------------------------------------------------------
PERCENT OF
AMOUNT AND PERCENT OF TOTAL
NAME AND ADDRESS OF NATURE OF PERCENT OF TOTAL SHARES VOTING
BENEFICIAL OWNER OWNERSHIP CLASS (%) OUTSTANDING (%) POWER (%)
- ---------------------------------- ---------- ---------- --------------- -----------
<S> <C> <C> <C> <C>
Eagle River Investments, LLC...... 0 0 58.56 81.70
2300 Carillon Point 28,612,086 85.45
Kirkland, WA 98033
BWP, Inc. ........................ 0 0 5.34 7.45
707 S.W. Washington, 2,610,280(2) 7.80
8th Floor
Portland, OR 97205
Craig O. McCaw.................... 6,620(3) * 59.11 82.46
2300 Carillon Point 28,878,552(3) 86.24
Kirland, WA 98033
Dennis Weibling................... 0 0 58.56 81.70
2300 Carillon Point 28,612,086(4) 85.45
Kirkland, WA 98033
James F. Voelker.................. 266,457(5) 1.70 3.63 4.38
155 108th Avenue, N.E., 1,576,172(6) 4.50
Suite 810
Bellevue, WA 98004
Comdisco, Inc. ................... 176,534 1.15 * *
6111 North River Road 0 0
Rosemont, IL 60018
Wayne M. Perry.................... 0 0 * *
50,000(7) *
Steven W. Hooper.................. 0 0 * *
50,000(7) *
Scot Jarvis....................... 0 0 * *
295,820(8) *
William A. Hoglund................ 0 0 0 0
0
Kathleen H. Iskra................. 26,866(5) * * *
0 0
Charles P. Daniels................ 18,481(5) * * *
0 0
Sharon L. Nelson.................. 0 0 * *
0 0
Jeffrey S. Raikes................. 0 0 * *
0 0
All directors and executive (5) 61.87 84.74
officers as a group (23
persons)......................... 523,306 3.29
31,005,864(9) 88.43
</TABLE>
(FOOTNOTES APPEAR ON FOLLOWING PAGE.)
65
<PAGE>
- ------------------------------
(1) In accordance with Commission rules, each beneficial owner's holdings have
been calculated assuming full exercise of outstanding options exercisable by
such owner within 60 days after June 30, 1997, but no exercise of
outstanding options held by any other person. The table set forth below
assumes that the over-allotment option is not exercised by the underwriters
in the Stock Offering and gives effect to the Stock Split. The information
presented excludes certain holders who at June 30, 1997 and prior to the
Stock Offering would hold more than 5% of the total outstanding shares of
Class A Common Stock solely as a result of exercisable options. It is
anticipated that after the Stock Offering each of these individuals would
beneficially own less than 5% of the total outstanding shares of Class A
Common Stock.
(2) Represents shares of Class B Common Stock held beneficially by Douglas Bean
and Robert F. Kingery, who own 39.88% and 35.19%, respectively of the total
shares held by BWP, Inc.
(3) Represents shares of Class A Common Stock and Class B Common Stock held
beneficially by Mr. McCaw as a result of his ownership interests in Eagle
River and NEXTLINK, Inc.
(4) Mr. Weibling, who is President of Eagle River, Inc., an affiliate of Eagle
River, disclaims beneficial ownership in all securities held by Eagle River,
except to the extent of his pecuniary interest therein. Mr. Weibling is a
member of Eagle River.
(5) Represents shares of Class A Common Stock issuable upon exercise of stock
options that are either currently exercisable or are exercisable during the
next 60 days from June 30, 1997.
(6) Represents shares of Class B Common Stock that are eligible for acquisition
upon exercise of a currently exercisable stock option, which was exercised
in part on August 26, 1997 resulting in the issuance of 921,314 shares,
leaving 654,858 unissued.
(7) Represents shares of Class B Common Stock to be acquired from Eagle River
Investments, L.L.C. at the Class A Common Stock initial public offering
price, concurrently with and contingent upon the closing of the Stock
Offering. If the value of the 50,000 shares acquired is less than $1.0
million at the time of the Stock Offering's closing, additional shares of
Class B Common Stock will be purchased from Eagle River Investments, L.L.C.
in an amount sufficient to generate aggregate proceeds to Eagle River
Investments, L.L.C. of $1.0 million.
(8) Includes 59,164 shares of Class B Common Stock held by the Rowena Family
Limited Liability Company, of which Mr. Jarvis is the sole managing member.
(9) See notes (3), (4), (6), (7) and (8) above.
* Less than 1%.
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<PAGE>
DESCRIPTION OF THE NOTES
The Notes are to be issued under an Indenture, to be dated as of ,
1997 (the "Indenture"), between the Company and United States Trust Company of
New York, as trustee (the "Trustee"). The statements under this caption relating
to the Notes and the Indenture are summaries and do not purport to be complete,
and are subject to, and are qualified in their entirety by reference to, all the
provisions of the Indenture, including the definitions of certain terms therein.
A copy of the Indenture is filed as an exhibit to the registration statement of
which this Prospectus forms a part. Unless otherwise indicated, references under
this caption to sections, "Section" or articles are references to the Indenture.
Where reference is made to particular provisions of the Indenture or to defined
terms not otherwise defined herein, such provisions or defined terms are
incorporated herein by reference. For purposes of the description of the Notes,
the term "Company" refers to NEXTLINK Communications, Inc. and does not include
its subsidiaries except for purposes of financial data determined on a
consolidated basis.
GENERAL
The Notes will be senior obligations of the Company, will be limited to $400
million aggregate principal amount and will mature on , 2007. The Notes
will bear interest at the rate per annum shown on the front cover of this
Prospectus, payable semi-annually on and of each year, commencing
, 1998, to the Person in whose name the Note (or any predecessor Note) is
registered at the close of business on the preceding or , as the
case may be. Interest on the Notes will be computed on the basis of a 360-day
year of twelve 30-day months. (SectionSection 301, 307 and 310)
Principal of and premium, if any, and interest on the Notes will be payable,
and the Notes may be presented for registration of transfer and exchange, at the
office or agency of the Company maintained for that purpose in the Borough of
Manhattan, The City of New York PROVIDED that at the option of the Company,
payment of interest on the Notes may be made by check mailed to the address of
the Person entitled thereto as it appears in the Note Register. Until otherwise
designated by the Company, such office or agency will be the corporate trust
office of the Trustee, as Paying Agent and Registrar. (SectionSection 301, 305
and 1002)
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and integral multiples thereof. (Section 302) No service
charge will be made for any registration of transfer or exchange of Notes, but
the Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith. (Section 305)
RANKING
The Notes will be senior obligations of the Company, will rank PARI PASSU in
right of payment with all existing and future senior obligations of the Company,
including, without limitation, the 12 1/2% Notes, and will rank senior in right
of payment to all future subordinated obligations of the Company. Holders of
secured obligations of the Company, however, will have claims that are prior to
the claims of the holders of the Notes with respect to the assets securing such
other obligations.
The Company's principal operations are conducted through its Subsidiaries,
and the Company is therefore dependent upon the cash flow of its Subsidiaries to
meet its obligations. The Company's Subsidiaries will have no obligation to
guarantee or otherwise pay amounts due under the Notes. Therefore, the Notes
will be effectively subordinated to all indebtedness and other liabilities and
commitments (including trade payables) of the Company's Subsidiaries. Any right
of the Company to receive assets of any of its Subsidiaries upon any liquidation
or reorganization of such Subsidiary (and the consequent right of holders of the
Notes to participate in those assets) will be effectively subordinated to the
claims of the Subsidiary's creditors, except to the extent that the Company
itself is recognized as a creditor of the Subsidiary. Any recognized claims of
the Company as a creditor of the Subsidiary would
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<PAGE>
be subordinate to any prior security interest held by any other creditor of the
Subsidiary and obligations of the Subsidiary that are senior to those owing to
the Company.
As of June 30, 1997, on a pro forma basis after giving effect to the
Offerings, (i) the total amount of outstanding consolidated liabilities of the
Company and its Subsidiaries, including trade payables, would have been
approximately $791.8 million, $6.7 million of which would have been secured
obligations (excluding the 12 1/2% Notes, which are secured by a pledge of $82.3
million of U.S. Treasury securities as of June 30, 1997) and (ii) the total
amount of outstanding liabilities of the Company's Subsidiaries, including trade
payables, would have been $23.9 million, of which $6.7 million represented
secured obligations.
BOOK-ENTRY SYSTEM
The Notes will be issued in the form of one or more fully registered global
notes (collectively, the "Global Notes"), which will be deposited with, or on
behalf of, The Depository Trust Company, New York, New York (the "Depositary")
and registered in the name of the Depositary's nominee. Except as set forth
below, the Global Notes may be transferred, in whole and not in part, only to
the Depositary or another nominee of the Depositary.
The Depositary has advised the Company as follows: The Depositary is a
limited-purpose trust company organized under the laws of the State of New York,
a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and "clearing agency" registered
pursuant to the provisions of Section 17A of the Securities Exchange Act of
1934, as amended. The Depositary was created to hold securities of institutions
that have accounts with the Depositary ("participants") and to facilitate the
clearance and settlement of securities transactions among its participants in
such securities through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of securities
certificates. The Depositary's participants include securities brokers and
dealers (including the Underwriters), banks, trust companies, clearing
corporations and certain other organizations, some of whom (and/or their
representatives) own the Depositary. Access to the Depositary's book-entry
system is also available to others such as banks, brokers, dealers, and trust
companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly. The Depositary agrees with and
represents to its participants that it will administer its book-entry system in
accordance with its rules and bylaws and requirements of law.
Upon the issuance of the Global Notes, the Depositary will credit, on its
book-entry registration and transfer system, the respective principal amounts of
the Notes represented by such Global Notes to the accounts of participants. The
accounts to be credited shall be designated by the Underwriters. Ownership of
beneficial interest in the Global Notes will be limited to participants or
persons that may hold interests through participants. Ownership of interests in
the Global Notes will be shown on, and the transfer of those ownership interests
will be effected only through, records maintained by the Depositary (with
respect to participants' interests) and such participants (with respect to the
owners of beneficial interest in the Global Notes through such participants).
The laws of some jurisdictions may require that certain purchasers of securities
take physical delivery of such securities in definitive form. Such limits and
laws may impair the ability to transfer beneficial interests in the Global
Notes.
So long as the Depositary, or its nominee, is the registered holder and
owner of the Global Notes, the Depositary or such nominee, as the case may be,
will be considered the sole owner and holder thereof for all purposes of such
Notes and under the Indenture. Except as set forth below, owners of beneficial
interests in the Global Notes will not be entitled to have the Notes represented
by such Global Notes registered in their names, will not receive or be entitled
to receive physical delivery of certificated Notes in definitive form and will
not be considered to be the owners or holders of any Notes under the Indenture.
Accordingly, each person owning a beneficial interest in the Global Notes must
rely on the
68
<PAGE>
procedures of the Depositary and, if such person is not a participant, on the
procedures of the participant through which such person owns its interest, to
exercise any rights of a holder of Notes under the Indenture or the Global
Notes. The Company understands that under existing industry practice, in the
event the Company requests any action that the Depositary, as the holder of the
Global Notes, is entitled to take, the Depositary would authorize the
participants to take such action, and that the participants would authorize
beneficial owners owning through such participants to take such action or would
otherwise act upon the instructions of beneficial owners owning through them.
Payment of principal of (and premium, if any) and interest on Notes
represented by the Global Notes registered in the name of or held by the
Depositary or its nominee will be made to the Depositary or its nominee, as the
case may be, as the registered owner and holder of the Global Notes.
The Company expects that the Depositary, upon receipt of any payment of
principal (and premium, if any) or interest in respect of the Global Notes, will
credit immediately participants' accounts with payment in amounts proportionate
to their respective beneficial interests in the principal amount of the Global
Notes as shown on the records of the Depositary. The Company also expects that
payments by participants to owners of beneficial interests in the Global Notes
held through such participants will be governed by standing instructions and
customary practices, as is the case with securities held for the accounts of
customers in bearer form or registered in "street name," and will be the
responsibility of such participants. None of the Company, the Trustee, any agent
of the Company or the Trustee or the Underwriters will have any responsibility
or liability for any aspect of the records relating to, or payments made on
account of, beneficial ownership interests in the Global Notes or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests or for any other aspect of the relationship between the
Depositary and its participants or the relationship between such participants
and the owners of beneficial interests in the Global Notes owning through such
participants.
Unless and until they are exchanged in whole or in part for certificated
Notes in definitive form, the Global Notes may not be transferred except as a
whole by the Depositary to a nominee of such Depositary or by a nominee of such
Depositary to such Depositary or another nominee of such Depositary.
The Notes represented by the Global Notes are exchangeable for certificated
Notes in definitive registered form in denominations of $1,000 and in any
greater amount that is an integral multiple thereof if (i) the Depositary
notifies the Company that it is unwilling or unable to continue as Depositary
for the Global Notes or if at any time the Depositary ceases to be a clearing
agency registered under the Securities Exchange Act of 1934, as amended, (ii)
the Company in its discretion at any time determines not to have all of the
Notes represented by the Global Notes and notifies the Trustee thereof or (iii)
an Event of Default with respect to the Notes has occurred and is continuing.
Any Notes that are exchangeable pursuant to the preceding sentence are
exchangeable for certificated Notes issuable in authorized denominations and
registered in such names as the Depositary shall direct. Subject to the
foregoing, the Global Notes are not exchangeable except for a Global Note or
Global Notes of the same aggregate denominations to be registered in the name of
the Depositary or its nominee.
OPTIONAL REDEMPTION
The Notes will be subject to redemption, at the option of the Company, in
whole or in part, at any time on or after , 2002 and prior to maturity,
upon not less than 30 nor more than 60 days' notice mailed to each Holder of
Notes to be redeemed at such Holder's address appearing in the Note Register, in
amounts of $1,000 or an integral multiple of $1,000, at the following Redemption
Prices (expressed as percentages of the principal amount) plus accrued 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
69
<PAGE>
an Interest Payment Date that is on or prior to the Redemption Date), if
redeemed during the 12-month period beginning of the years indicated:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- -------------------------------------------------------------------------------- ------------
<S> <C>
2002............................................................................ %
2003............................................................................ %
2004............................................................................ %
2005 and thereafter............................................................. 100.000%
</TABLE>
(SectionSection 203, 1101, 1105 and 1107)
The Notes will be redeemable prior to , 2002 only in the event that on
or before , 2000 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 Notes in a principal amount of up to
an aggregate amount equal to 33 1/3% of the original principal amount of the
Notes, PROVIDED, HOWEVER, that Notes in an aggregate principal amount equal to
at least $266.7 million remain outstanding after such redemption. Such
redemption must occur on a Redemption Date within 90 days of such sale and upon
not less than 30 nor more than 60 days' notice mailed to each Holder of Notes to
be redeemed at such Holder's address appearing in the Note Register, in amounts
of $1,000 or an integral multiple of $1,000 at a redemption price of % of
their 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 Date that is
on or prior to the Redemption Date).
If less than all the Notes are to be redeemed, the Trustee shall select, on
a pro rata basis, by lot or by such other method as the Trustee shall deem fair
and appropriate, the particular Notes to be redeemed or any portion thereof that
is an integral multiple of $1,000. (Section 1104)
MANDATORY REDEMPTION; SINKING FUND
Except as set forth under "Covenants--Limitation on Asset Sales" and
"Covenants--Change of Control" below, the Company is not required to purchase or
make mandatory redemption payments or sinking fund payments with respect to the
Notes.
COVENANTS
The Indenture contains, among others, the following covenants:
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 any
such Debt had been Incurred and the proceeds thereof had been applied at the
beginning of such four fiscal quarters, 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 and any other Debt Incurred
since such balance sheet date and the receipt and application of the proceeds
thereof, is less than 2.0 to 1.
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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 $125 million, and any renewal, extension, refinancing or refunding
thereof in an amount which, together with any principal amount remaining
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 90% of the cost of
construction, acquisition or improvement price of the applicable
Telecommunications Assets;
(iii) Debt owed by the Company to any Wholly-Owned Restricted Subsidiary
of the Company or Debt owed by a Restricted Subsidiary of the Company to the
Company or a Wholly-Owned Restricted Subsidiary of the Company; PROVIDED,
HOWEVER, that upon either (x) the transfer or other disposition by such
Wholly-Owned Restricted Subsidiary or the Company of any Debt so permitted
to a Person other than the Company or another Wholly-Owned 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 Wholly-Owned
Restricted Subsidiary to a Person other than the Company or another such
Wholly-Owned 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 the Indenture or Incurred
pursuant to the preceding paragraph or clause (ii) of this paragraph or the
Notes 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 Notes or Debt which is PARI PASSU to the Notes or debt which
is subordinate in right of payment to the Notes shall only be permitted if
(A) in the case of any refinancing of the Notes or Debt which is PARI PASSU
to the Notes, the refinancing Debt is made PARI PASSU to the Notes or
subordinated to the Notes, and, in the case of any refinancing of Debt which
is subordinated to the Notes, 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
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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 those described under "--Change of
Control" or which is pursuant to provisions substantially similar to those
described under
"--Limitation on Asset Dispositions";
(v) Debt consisting of Permitted Interest Rate and Currency Protection
Agreements;
(vi) Debt outstanding under the Notes;
(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 described under "--Change of Control" below;
(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 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 "Limitation on Consolidated
Debt" covenant, 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), 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 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. (Section1007)
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
Notes 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 the Indenture
after giving effect to the application of the proceeds of the Notes;
(ii) Debt Incurred or Preferred Stock issued to and held by the Company
or a Wholly-Owned Restricted Subsidiary of the Company (provided that such
Debt or Preferred Stock is at all times held by the Company or a
Wholly-Owned 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;
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(iv) Debt consisting of Permitted Interest Rate and Currency 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 the
"Limitation on Consolidated Debt";
(vii) Debt consisting of Guarantees of the Notes;
(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 (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 those contained in the
Indenture described under "-- Change of Control" or which is pursuant to
provisions substantially similar to those described under "--Limitation on
Asset Dispositions", 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 90% of the cost of
construction, acquisition or improvement price of the applicable
Telecommunications Assets; and
(x) Debt not otherwise permitted to be incurred pursuant to clauses (i)
through (ix) above, which, together with any other outstanding Debt incurred
pursuant to this clause (x), 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.
(Section1008)
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LIMITATION ON RESTRICTED PAYMENTS
The Company (i) may not, directly or indirectly, declare or pay any
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 Notes (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 terms of the Indenture described in the first paragraph of "--Limitation
on Consolidated Debt" above; 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 of the
Company, 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 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 under "--Limitation on Consolidated Debt" above; 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
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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 good faith
determination of the Company be permitted under the Indenture, such Restricted
Payment shall be deemed to have been made in compliance with the Indenture
notwithstanding any subsequent adjustments 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
1009 )
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
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 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 the "Limitation on Consolidated Debt", 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 the 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 the Indenture and the Notes; 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. (Section 1010)
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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
Notes (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 Notes, 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 Notes
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 the 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
the 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 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 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
"--Limitation on Consolidated Debt"; (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 1011)
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 described under "--Limitation on Liens" above, equal in amount
to the Attributable Value of the Sale and Leaseback Transaction without equally
and ratably securing the Notes; or (ii) the Sale and Leaseback Transaction is
treated as an Asset Disposition and all of the conditions of the Indenture
described under "--Limitation on Asset Dispositions" (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 received in respect of an Asset Disposition for purposes of such
covenant. (Section 1012)
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LIMITATION ON ASSET DISPOSITIONS
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 of the Company 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 Notes) 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
Proceeds, less any amounts invested within 360 days of such disposition in new
Telecommunications Assets, 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 Notes at 100% of their
principal amount, plus accrued interest to the date of purchase and, to the
extent required by the terms thereof, any other Debt of the Company that is PARI
PASSU with the Notes 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 the Indenture. (Section 1013) Notwithstanding the foregoing,
these provisions 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 as described under "--Mergers,
Consolidations and Certain Sales of Assets".
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
described under "--Limitation on Asset Dispositions" above 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 described under "--Limitation on Debt and Preferred Stock of
Restricted Subsidiaries" above; 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 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. (Section1014)
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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 of the Company, either directly or
indirectly, unless such transaction is on terms 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 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 $5 million, the Chief Executive Officer of the Company shall
determine that the transaction satisfies the above criteria and shall evidence
such a determination by a certificate filed with the Trustee. For any
transaction that involves in excess of $5 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 1015)
CHANGE OF CONTROL
Within 30 days of the occurrence of a Change of Control, the Company will be
required to make an Offer to Purchase all outstanding Notes at a purchase price
equal to 101% of their principal amount plus accrued and unpaid interest to the
date of purchase. 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 Securities
Exchange Act of 1934, 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 of the Company (together with any new directors whose election by the
Board of Directors of the Company 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 of the Company then in office. (Section1016)
Except as described above with respect to a Change of Control, the Indenture
does not contain provisions that permit the Holders of the Notes to require that
the Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar restructuring.
Restrictions in the Indenture described herein on the ability of the Company
and its Restricted Subsidiaries to incur additional Indebtedness, to grant Liens
on its or their property, to make Restricted Payments and to make Asset Sales
may also make more difficult or discourage a takeover of the Company, whether
favored or opposed by the management of the Company. Consummation of any such
transaction in certain circumstances may require redemption or repurchase of the
Notes, and there can be no assurance that the Company or the acquiring party
will have sufficient financial resources to
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effect such redemption or repurchase. Such restrictions and the restrictions on
transactions with Affiliates may, in certain circumstances, make more difficult
or discourage any leveraged buyout of the Company or any of its Subsidiaries by
the management of the Company or other Persons. While such restrictions cover a
variety of arrangements which have traditionally been used to effect highly
leveraged transactions, the Indenture may not afford the Holders of Notes
protection in all circumstances from the adverse aspects of a highly leveraged
transaction, reorganization, restructuring, merger or similar transaction.
In the event of a Change of Control, the indenture relating to the 12 1/2%
Notes would require the Company to make an offer to purchase the 12 1/2% Notes.
The Company does not currently have adequate financial resources to effect a
repurchase of the Notes and the 12 1/2% Notes upon a Change of Control and there
can be no assurance that the Company will have such resources in the future. The
inability of the Company to repurchase the Notes upon a Change of Control would
constitute an Event of Default.
In addition, there may be restrictions contained in instruments evidencing
Indebtedness incurred by the Company or its Restricted Subsidiaries permitted
under the Indenture which restrict or prohibit the ability of the Company to
effect any repurchase required under the Indenture in connection with a Change
of Control.
In the event that the Company makes an Offer to Purchase the Notes, 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.
PROVISION OF FINANCIAL INFORMATION
The Company has agreed that, for so long as any Notes remain outstanding, it
will file with the Trustee within 15 days after it files them with the
Commission copies of the annual and quarterly reports and the information,
documents, and other reports that the Company is required to file with the
Commission pursuant to Section 13(a) or 15(d) of the Exchange Act ("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 Notes 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 1017)
MERGERS, CONSOLIDATIONS AND CERTAIN SALES OF ASSETS
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 the
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
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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 the
Indenture described under "Covenants--Limitation on Liens" above, the Company or
the successor entity to the Company shall have secured the Notes as required by
said covenant; and (5) certain other conditions are met. (Section 801)
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 Notes and the 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 the Indenture and the Notes; PROVIDED that solely for the
purpose of calculating amounts described in clause (3) under
"Covenant--Limitations on Restricted Payments", 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 801)
The meaning of the phrase "all or substantially all" as used above varies
according to the facts and circumstances of the subject transaction, has no
clearly established meaning under relevant law and is subject to judicial
interpretation. Accordingly, in certain circumstances, there may be a degree of
uncertainty in ascertaining whether a particular transaction would involve a
disposition of "all or substantially all" of the assets of the Company, and
therefore it may be unclear whether the foregoing provisions are applicable.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided. (Section 101)
"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.
"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such 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.
"Asset Disposition" by any Person means any transfer, conveyance, sale,
lease or other disposition by such Person or any of its Restricted Subsidiaries
(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 specified
Person, but excluding a disposition by a Restricted Subsidiary of such Person to
such Person or a Wholly-Owned Restricted Subsidiary of such Person or by such
Person to a Wholly-Owned Restricted Subsidiary of such Person) of (i) shares of
Capital Stock or other ownership interests of a Restricted Subsidiary of such
Person, other than as
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permitted by the provisions of the Indenture described above under the Caption
"--Limitation on Debt and Preferred Stock of Restricted Subsidiaries" or
pursuant to a transaction in compliance with the covenant described under
"--Mergers, Consolidations and Certain Sales of Assets" above, (ii)
substantially all of the assets of such Person 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 such Person 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 under the covenant
"--Limitation on Restricted Payments" above; 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"
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.
"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.
"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.
"Consolidated Capital Ratio" of any Person as of any date means the ratio of
(i) the aggregate consolidated principal amount of Debt of such Person then
outstanding 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.
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"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 non-cash expense related to the issuance to
employees of the Company or any Restricted Subsidiary of the Company of options
to purchase Capital Stock of the Company or such Restricted Subsidiary, 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 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 Stock 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 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
provisions described under "Covenants--Limitation on Restricted Payments," 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
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Company, adjustments following the date of the 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 the 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.
"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
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 and
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.
"Disqualified Stock" of any Person means any Capital Stock of such Person
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 at the option of the holder thereof,
in whole or in part, on or prior to the final Stated Maturity of the Notes;
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 a Change of Control occurring prior to the final Stated Maturity
of the Notes shall not constitute Disqualified Stock if the change of control
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provisions applicable to such Preferred Stock are no more favorable to the
holders of such Preferred Stock than the provisions applicable to the Notes
contained in the covenant described under "Covenants--Change of Control" 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 Notes as are required to be repurchased pursuant to the
covenant described under "Covenants-- Change of Control".
"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.
"Event of Default" has the meaning set forth under "Events of Default"
below.
"Exchange Act" means the Securities Exchange Act of 1934, as amended (or any
successor act) and the rules and regulations thereunder.
"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
the "Limitation on Liens" covenant shall not be deemed to constitute a Guarantee
by such Restricted Subsidiary of any Purchase Money Debt of the Company secured
thereby.
"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
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commitment designated by the Company as Incurred shall not be deemed to be new
lncurrences of Debt by the Company or such Subsidiary.
"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 receivables and other commercially reasonable
extensions of trade credit.
"Issue Date" means the date on which the Notes are first authenticated and
delivered under the 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 &
Poors; and (vii) any fund investing exclusively in investments of the types
described in clauses (i) through (vi) above.
"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
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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 of the Company, 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 the Indenture and the Notes 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 Note Register on the date of the Offer offering to purchase up to the
principal amount of Notes specified in such Offer at the purchase price
specified in such Offer (as determined pursuant to the 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")
for purchase of Notes 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 the 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 Notes pursuant to the
Offer to Purchase. The Offer shall also state:
a. the Section of the Indenture pursuant to which the Offer to Purchase
is being made;
b. the Expiration Date and the Purchase Date;
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c. the aggregate principal amount of the outstanding Notes 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 the
Indenture provision requiring the Offer to Purchase) (the "Purchase
Amount");
d. the purchase price to be paid by the Company for each $1,000
aggregate principal amount of Notes accepted for payment (as specified
pursuant to the Indenture) (the "Purchase Price");
e. that the holder may tender all or any portion of the Notes
registered in the name of such holder and that any portion of a Note
tendered must be tendered in an integral multiple of $1,000 principal
amount;
f. the place or places where Notes are to be surrendered for tender
pursuant to the Offer to Purchase;
g. that interest on any Note 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 Note 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 Note pursuant to the Offer to
Purchase will be required to surrender such Note at the place or places
specified in the Offer prior to the close of business on the Expiration Date
(such Note 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
Notes 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 Note the holder tendered, the certificate number of the Note
the holder tendered and a statement that such holder is withdrawing all or a
portion of his tender;
k. that (a) if Notes 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 Notes and (b) if
Notes 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 Notes 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 Notes in denominations of $1,000 or integral
multiples thereof shall be purchased);
l. that in the case of any holder whose Note is purchased only in
part, the Company shall execute, and the Trustee shall authenticate and
deliver to the holder of such Note without service charge, a new Note or
Notes, 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 Note so tendered; and
m. the CUSIP number or numbers of the Notes 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.
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"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, and (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 the covenant
described under "Covenants--Limitation on Asset Dispositions" above.
"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.
"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).
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"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 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 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.
"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.
"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.
"Restricted Subsidiary" of the Company means any Subsidiary, whether
existing on or after the date of the Indenture, unless such Subsidiary is an
Unrestricted Subsidiary.
"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.
"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.
"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
Notes 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 Notes 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 Notes, upon notice by 25% or more
in principal amount of the Notes 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 Notes has been rescinded or annulled, whichever
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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 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 executing 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 Notes 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 Notes, 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 described
under "Covenants-- Change of Control" (and which shall provide that such Debt
will not be repurchased pursuant to such provisions prior to the Company's
repurchase of the Notes required to be repurchased by the Company pursuant to
the provisions described under "Covenants--Change of Control").
"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.
"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 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 of the Company, which determination
shall be conclusive.
"Unrestricted Subsidiary" means (1) any Subsidiary of the Company designated
as such by the Board of Directors of the Company 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 of the Company may designate any Subsidiary to be an Unrestricted
Subsidiary unless such Subsidiary owns any Capital
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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 under "Covenants--Limitation on
Consolidated Debt" above 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 the covenant described under
"Covenants-- Limitation on Restricted Payments" and such amount is thereafter
treated as a Restricted Payment for the purpose of calculating the aggregate
amount available for Restricted Payments thereunder. The Board of Directors of
the Company may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary, provided that, immediately after giving effect to such designation,
the Company could Incur at least $1.00 of additional Debt pursuant to the first
paragraph under "Covenants--Limitation on Consolidated Debt" above.
"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.
"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.
EVENTS OF DEFAULT
The following will be Events of Default under the Indenture: (a) failure to
pay principal of (or premium, if any, on) any Note when due; (b) failure to pay
any interest on any Note when due, continued for 30 days; (c) default in the
payment of principal and interest on Notes required to be purchased pursuant to
an Offer to Purchase as described under "Covenants--Change of Control" when due
and payable; (d) failure to perform or comply with the provisions described
under "Mergers, Consolidations and Certain Sales of Assets"; (e) failure to
perform any other covenant or agreement of the Company under the Indenture or
the Notes continued for 60 days after written notice to the Company by the
Trustee or Holders of at least 25% in aggregate principal amount of outstanding
Notes; (f) default under the terms of any instrument evidencing or securing Debt
of the Company or any Significant Subsidiary having an outstanding principal
amount of $10 million individually or in the aggregate which default results in
the acceleration of the payment of such Debt or constitutes the failure to pay
such Debt when due; (g) the rendering of a final judgment or judgments (not
subject to appeal) for the payment of money against the Company or any
Significant Subsidiary in an aggregate amount in excess of $10 million which
remains undischarged or unstayed for a period of 45 days after the date on which
the right to appeal all such judgments has expired; and (h) certain events of
bankruptcy, insolvency or reorganization affecting the Company or any
Significant Subsidiary. (Section 501) Subject to the provisions of the Indenture
relating to the duties of the Trustee in case an Event of Default shall occur
and be continuing, the Trustee will be under no obligation to exercise any of
its rights or powers under the Indenture at the request or direction of any of
the Holders, unless such Holders shall have offered to the Trustee reasonable
indemnity. (Section 603) Subject to such provisions for the indemnification of
the Trustee, the Holders of a majority in aggregate principal amount of the
outstanding Notes will have the right to direct
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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. 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 512)
If an Event of Default (other than an Event of Default described in Clause
(h) above with respect to the Company) shall occur and be continuing, either the
Trustee or the Holders of at least 25% in aggregate principal amount of the
outstanding Notes may accelerate the maturity of all Notes; PROVIDED, HOWEVER,
that after such acceleration, but before a judgment or decree based on
acceleration, the Holders of a majority in aggregate principal amount of
outstanding Notes may, under certain circumstances, rescind and annul such
acceleration if all Events of Default, other than the non-payment of accelerated
principal, have been cured or waived as provided in the Indenture. If an Event
of Default specified in Clause (h) above occurs with respect to the Company, the
outstanding Notes will IPSO FACTO become immediately due and payable without any
declaration or other act on the part of the Trustee or any Holder. (Section 502)
For information as to waiver of defaults, see "Modification and Waiver".
No Holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such Holder shall
have previously given to the Trustee written notice of a continuing Event of
Default (as defined) and unless also the Holders of at least 25% in aggregate
principal amount of the outstanding Notes shall have made written request, and
offered reasonable indemnity, to the Trustee to institute such proceeding as
trustee, and the Trustee shall not have received from the Holders of a majority
in aggregate principal amount of the outstanding Notes a direction inconsistent
with such request and shall have failed to institute such proceeding within 60
days. (Section 507) However, such limitations do not apply to a suit instituted
by a Holder of a Note for enforcement of payment of the principal of and
premium, if any, or interest on such Note on or after the respective due dates
expressed in such Note. (Section 508)
The Indenture provides that if a Default occurs and is continuing, generally
the Trustee must, within 90 days after the occurrence of such Default, give to
the Holders notice of such Default. The Trustee may withhold from Holders of the
Notes notice of any continuing Default or Event of Default (except a Default or
Event of Default relating to the payment of principal of, premium, if any or
interest) if it determines that withholding notice is in their interest;
PROVIDED HOWEVER, that in the case of any default of a character specified in
Clause (e) above, no such notice to holders shall be given until at least 30
days after the occurrence thereof. (Section 602)
The Company will be required to furnish to the Trustee quarterly a statement
as to the performance by the Company of certain of its obligations under the
Indenture and the Company is required upon becoming aware of any Default or
Event of Default to deliver to the Trustee a statement specifying such Default
or Event of Default. (Section 1018)
SATISFACTION AND DISCHARGE OF THE INDENTURE
The Indenture will cease to be of further effect as to all outstanding Notes
(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 Notes, (iii) rights of Holders to
receive payment of principal of and premium, if any, and interest on the Notes,
(iv) rights, obligations and immunities of the Trustee under the Indenture and
(v) rights of the Holders of the Notes as beneficiaries of the Indenture with
respect to any property deposited with the Trustee payable to all or any of
them), if (x) the Company will have paid or caused to be paid the principal of
and premium, if any, and interest on the Notes as and when the same will have
become due and payable or (y) all outstanding Notes (except lost, stolen or
destroyed Notes which have been replaced or paid) have been delivered to the
Trustee for cancellation. (Section 401)
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DEFEASANCE
The Indenture will provide that, at the option of the Company, (a) if
applicable, the Company will be discharged from any and all obligations in
respect of the outstanding Notes or (b) if applicable, the Company may omit to
comply with certain restrictive covenants, and that such omission shall not be
deemed to be an Event of Default under the Indenture and the Notes, in either
case (a) or (b) upon irrevocable deposit with the Trustee, in trust, of money
and/or U.S. government obligations which will provide money in an amount
sufficient in the opinion of a nationally recognized firm of independent
certified public accountants to pay the principal of and premium, if any, and
each installment of interest, if any, on the outstanding Notes on the Stated
Maturity. With respect to clause (b), the obligations under the Indenture other
than with respect to such covenants and the Events of Default other than the
Events of Default relating to such covenants above shall remain in full force
and effect. Such trust may only be established if, among other things (i) with
respect to clause (a), the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or there has been a change
in law after the Issue Date, which in the Opinion of Counsel provides that
holders of the Notes will not recognize 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; or, with respect to clause (b), the Company has delivered to
the Trustee an Opinion of Counsel to the effect that the holders of the Notes
will not recognize gain or loss for Federal income tax purposes as a result of
such deposit and 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 deposit and defeasance had not occurred; (ii) no Default or Event
of Default shall have occurred or be continuing; (iii) the Company has delivered
to the Trustee an Opinion of Counsel to the effect that such deposit shall not
cause the Trustee or the trust so created to be subject to the Investment
Company Act of 1940, as amended; and (iv) certain other customary conditions
precedent are satisfied. (Section 1201)
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company and
the Trustee with the consent of the holders of a majority in aggregate principal
amount of the outstanding Notes; PROVIDED, HOWEVER, that no such modification or
amendment may, without the consent of the holder of each outstanding Note
affected thereby, (a) change the due date of the principal of, or any
installment of interest on, any Note, (b) reduce the principal amount of, or the
premium or interest on, any Note, (c) change the place or currency of payment of
principal of, or premium or interest on, any Note, (d) impair the right to
institute suit for the enforcement of any payment on or with respect to any
Note, (e) reduce the above-stated percentage of outstanding Notes necessary to
modify or amend the Indenture, (f) reduce the percentage of aggregate principal
amount of outstanding Notes necessary for waiver of compliance with certain
provisions of the Indenture or for waiver of certain defaults, (g) modify any
provisions of the Indenture relating to the modification and amendment of the
Indenture or the waiver of past defaults or covenants, except as otherwise
specified, or (h) following the mailing of any Offer to Purchase and until the
Expiration Date of that Offer to Purchase, modify any Offer to Purchase for the
Notes required under the "Limitation on Asset Dispositions" and the "Change of
Control" covenants contained in the Indenture in a manner materially adverse to
the Holders thereof. (Section 902)
Notwithstanding the foregoing, without the consent of any holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to provide for the
assumption of the Company's obligations to holders of Notes in the case of a
merger or consolidation, to make any change that would provide any additional
rights or benefits to holders of Notes or that does not adversely affect the
legal rights under the Indenture of any such holder, or to comply with
requirements
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of the Commission in order to maintain the qualification of the Indenture under
the Trust Indenture Act . (Section 901)
The holders of a majority in aggregate principal amount of the outstanding
Notes, on behalf of all holders of Notes, may waive compliance by the Company
with certain restrictive provisions of the Indenture. (Section 1019) Subject to
certain rights of the Trustee, as provided in the Indenture, the holders of a
majority in aggregate principal amount of the outstanding Notes, on behalf of
all holders of Notes, may waive any past default under the Indenture, except a
default in the payment of principal, premium or interest or a default arising
from failure to purchase any Note tendered pursuant to an Offer to Purchase.
(Section 513)
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes or the Indenture or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each holder of Notes by accepting a Note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
Commission that such waiver is against public policy.
GOVERNING LAW
The Indenture and the Notes will be governed by the laws of the State of New
York.
THE TRUSTEE
The Trustee's current address is 114 West 47th Street, New York, New York
10036.
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. During the existence of an Event of Default, the Trustee will
exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise as a prudent person would exercise
under the circumstances in the conduct of such person's own affairs. (Section
601)
The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee, should it
become a creditor of the Company, to obtain payment of claims in certain cases
or to realize on certain property received by it in respect of any such claim as
security or otherwise. The Trustee is permitted to engage in other transactions
with the Company or any Affiliate, PROVIDED, HOWEVER, that if it acquires any
conflicting interest (as defined in the Indenture or in the Trust Indenture
Act), it must eliminate such conflict or resign. (SectionSection 608, 613)
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DESCRIPTION OF CERTAIN INDEBTEDNESS
DESCRIPTION OF THE 12 1/2% NOTES
GENERAL. The Company and NEXTLINK Capital, Inc., a Washington corporation
and a wholly owned subsidiary of the Company ("Capital" and, together with the
Company, the "Issuers") issued $350 million of 12 1/2% Senior Notes Due April
15, 2006 pursuant to an Indenture among the Company, Capital and United States
Trust Company of New York, as trustee (the "Trustee"). On September 6, 1996, the
Company consummated an offer (the "Exchange Offer") to exchange such notes for
$350 million of 12 1/2% Senior Notes Due April 15, 2006 that had been registered
under the Securities Act.
PRINCIPAL, MATURITY AND INTEREST. The 12 1/2% Notes are limited in
aggregate principal amount to $350 million and will mature on April 15, 2006.
Interest on the 12 1/2% Notes accrues at 12 1/2% per annum and is payable
semiannually in arrears on April 15 and October 15 of each year. Interest is
computed on the basis of a 360-day year comprised of twelve 30-day months. At
the closing of the offering, the Company used $117.7 million of the net proceeds
of the offering of 12 1/2% Notes to purchase a portfolio of securities,
initially consisting of U.S. government securities (including any securities
substituted in respect thereof, the "Pledged Securities"), to pledge as security
for payment of interest on the 12 1/2% Notes through April 15, 1999 and, under
certain circumstances, as security for repayment of the principal of the 12 1/2%
Notes. Proceeds from the Pledged Securities may be used by the Company to make
interest payments on the 12 1/2% Notes through April 15, 1999. The Pledged
Securities are being held by the Trustee pending disbursement.
RANKING. The 12 1/2% Notes are unsecured senior obligations of the Issuers,
will rank PARI PASSU in right of payment with all existing and future senior
obligations of the Issuers, including the Notes and will rank senior in right of
payment to all future subordinated obligations of the Issuers.
REDEMPTION. The 12 1/2% Notes are not redeemable at the Company's option
prior to April 15, 2001. Thereafter, the 12 1/2% Notes are subject to redemption
at the option of the Company, in whole or in part, at the redemption prices
(expressed as percentages of principal amount) set forth below plus accrued and
unpaid interest thereon to the applicable redemption date, if redeemed during
the twelve-month period beginning on April 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ------------------------------------------------------------------------------------- -----------
<S> <C>
2001................................................................................. 106.250%
2002................................................................................. 104.167%
2003................................................................................. 102.083%
2004 and thereafter.................................................................. 100.000%
</TABLE>
In addition, at any time on or before March 15, 1999, the Company may redeem
up to 33 1/3% of the original aggregate principal amount of the 12 1/2% Notes
with the net proceeds of a sale of common equity at a redemption price equal to
112.50% of the principal amount thereof, plus accrued and unpaid interest
thereon, if any, to the date of redemption, provided that at least $175 million
of aggregate principal amount of 12 1/2% Notes remains outstanding immediately
after such redemption. Except in connection with a Change of Control (as defined
in the indenture relating to the 12 1/2% Notes) of the Company, the Issuers are
not required to make mandatory redemption or sinking fund payments with respect
to the 12 1/2% Notes.
COVENANTS. The indenture relating to the 12 1/2% Notes restricts, among
other things, the Company's ability to incur additional indebtedness, pay
dividends or make certain other restricted payments, incur certain liens to
secure PARI PASSU or subordinated indebtedness, engage in any sale and leaseback
transaction, sell assign, transfer, lease, convey or otherwise dispose of
substantially all of the assets of
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the Company, enter into certain transactions with affiliates, or incur
indebtedness that is subordinate in right of payment to any senior indebtedness
and senior in right of payment to the 12 1/2% Notes. The indenture relating to
the 12 1/2% Notes permits, under certain circumstances, the Company's
subsidiaries to be deemed unrestricted subsidiaries and thus not subject to the
restrictions of the indenture.
EVENTS OF DEFAULT. The indenture relating to the 12 1/2% Notes contains
standard events of default, including (i) defaults in the payment of principal,
premium or interest, (ii) defaults in the compliance with covenants contained in
the indenture, (iii) cross defaults on more than $10 million of other
indebtedness, (iv) failure to pay more than $10 million of judgments and (v)
certain events of its subsidiaries.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain United States federal income tax
consequences associated with the ownership and disposition of the Notes by
initial purchasers. Except where noted, it deals only with Notes held as capital
assets and does not deal with special situations, such as those of dealers in
securities or currencies, financial institutions, life insurance companies,
tax-exempt organizations or U.S. holders (defined below) whose "functional
currency" is not the U.S. dollar or who hold the Notes as a hedge or part of a
straddle or conversion transaction. Furthermore, the discussion below is based
upon the provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), and regulations, rulings and judicial decisions thereunder as of the
date hereof, and, at any time and without prior notice, such authorities may be
repealed, revoked or modified so as to result in federal income tax consequences
different from those discussed below.
PERSONS CONSIDERING THE PURCHASE, OWNERSHIP OR DISPOSITION OF NOTES SHOULD
CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL INCOME TAX CONSEQUENCES
AND CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTION.
UNITED STATES HOLDERS
A United States holder (a "U.S. Holder") is generally, a citizen or resident
of the United States, a corporation, a partnership or other entity created or
organized in or under the laws of the United States or any political subdivision
thereof, or an estate the income of which is subject to United States federal
income taxation regardless of its source, a trust if a United States court can
exercise primary supervision over the administration of the trust and one or
more United States persons have the authority to control all substantial
decisions of the trust, or any other person whose worldwide income or gain is
otherwise subject to United States federal income taxation on a net income
basis.
Interest on the Notes will be taxable to a U.S. Holder as ordinary interest
income in accordance with the U.S. Holder's method of tax accounting at the time
that such interest is accrued or (actually or constructively) received.
MARKET DISCOUNT
If a U.S. Holder purchases Notes for an amount that is less than the
principal amount of the Notes, the amount of the difference will be treated as
"market discount" for federal income tax purposes, unless such difference is
less than a specified DE MINIMIS amount. Under the market discount rules, a U.S.
Holder will be required to treat any gain on the maturity, sale, exchange,
retirement or other disposition of Notes as ordinary income to the extent of the
market discount which has not previously been included in income and is treated
as having accrued on such Notes at the time of such disposition. In addition, a
U.S. Holder may be required to defer, until the maturity of the Notes or earlier
disposition in a taxable transaction, the deduction of all or a portion of the
interest expense on any indebtedness incurred or continued to purchase or carry
such Notes.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the Notes, unless the U.S.
Holder elects to accrue on a constant yield method. A U.S. Holder of Notes may
elect to include market discount in income currently as it accrues (on either a
ratable or constant yield method), in which case the rule described above
regarding deferral of interest deductions will not apply. This election to
include market discount in income currently, once made, applies to all market
discount obligations acquired in or after the first taxable year to which the
election applies and may not be revoked without the consent of the Internal
Revenue Service ("IRS"). U.S. Holders should consult with their own tax advisors
regarding this election.
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AMORTIZABLE BOND PREMIUM
A U.S. Holder that purchases Notes for an amount greater than the sum of all
amounts payable on the Notes after the purchase date, will be considered to have
purchased such Notes with a "bond premium." The U.S. Holder may elect, subject
to certain limitations, to deduct the allowable amortizable bond premium when
computing such holder's taxable income. Any election to amortize bond premium
applies to all bonds (other than bonds the interest on which is excludible from
gross income) held by the U.S. Holder at the beginning of the first taxable year
to which the election applies or thereafter acquired by the U.S. Holder, and may
not be revoked without the consent of the IRS. U.S. Holders should consult with
their tax advisors regarding this election.
SALE, EXCHANGE AND RETIREMENT OF NOTES
A U.S. Holder's adjusted tax basis in Notes will, in general, equal the
holder's cost therefor, increased by any market discount included in the U.S.
Holder's income and reduced by any amortized bond premium and any cash payments,
other than interest payments, on the Notes. Upon the sale, exchange or
retirement of Notes, a U.S. Holder will recognize gain or loss equal to the
difference between the amount realized upon the sale, exchange or retirement and
the U.S. Holder's adjusted tax basis in the Notes. Except with respect to market
discount (see above) and accrued but unpaid interest, such gain or loss will be
capital gain or loss. Long-term capital gain of an individual U.S. Holder is
generally subject to a maximum tax rate of 28% in respect of property held for
more than one year and the maximum rate is reduced to 20% in respect of property
held in excess of 18 months. The deductibility of capital losses is subject to
limitations.
NON-UNITED STATES HOLDERS
For purposes of this discussion, a "Non-U.S. Holder" is any holder of a Note
who is (i) a nonresident alien individual or (ii) a foreign corporation,
partnership or estate or trust which is not subject to United States federal
income tax on a net income basis in respect of income or gain from a Note.
Under present United States federal income and estate tax law, and subject
to the discussion of backup withholding below:
(i) payments of principal, premium, if any, and interest by the Company
or any of its paying agents to a Non-U.S. Holder will not be subject to
United States federal withholding tax if, in the case of interest, (a) the
beneficial owner of the Note does not actually or constructively own 10% or
more of the total combined voting power of all classes of stock of in the
Company, (b) the beneficial owner of the Note is not a controlled foreign
corporation that is related to the Company through stock ownership, and (c)
either (A) the beneficial owner of the Note certifies to the Company or its
agent, under penalties of perjury, that it is not a U.S. Holder and provides
its name and address or (B) a securities clearing organization, bank or
other financial institution that holds customers' securities in the ordinary
course of its trade or business (a "financial institution") and holds the
Note certifies to the Company or its agent under penalties of perjury that
such statement has been received from the beneficial owner by it or by a
financial institution between it and the beneficial owner and furnishes the
payor with a copy thereof;
(ii) a Non-U.S. Holder of a Note will not be subject to United States
federal withholding tax on any gain realized on the sale or exchange of a
Note; and
(iii) a Note held by an individual who at death is not a citizen or
resident of the United States will not be includible in the individual's
gross estate for purposes of the United States federal estate tax as a
result of the individual's death if (a) the individual did not actually or
constructively own 10% or more of the capital or profits interests in the
Company and (b) the income on the Note would not
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have been effectively connected with a United States trade or business of
the individual at the individual's death.
Regulations have been proposed (the "Proposed Regulations") that would, if
adopted as final regulations in the form in which they have been proposed, alter
the certification requirements described above. The Proposed Regulations also
would require, in the case of Notes held by a foreign partnership, that (x) the
certification described in clause (i)(c) above be provided by the partners
rather than by the foreign partnership and (y) the partnership provide certain
information, including a United States taxpayer identification number. A
look-through rule would apply in the case of tiered partnerships. There can be
no assurance that the Proposed Regulations will be adopted or as to the
provisions that they will include if and when adopted in temporary or final
form.
BACKUP WITHHOLDING AND INFORMATION REPORTING
UNITED STATES HOLDERS
In general, information reporting requirements will apply to certain
payments of principal, premium, if any, and interest, and premium paid on Notes
and to the proceeds of sale of a Note made to holders other than certain exempt
recipients (such as corporations). Backup withholding and information reporting
generally will not apply to payments of principal, premium, if any, and interest
on Notes made outside the United States (other than payments made to an address
in the United States or by transfer to an account maintained by the holder with
a bank in the United States) by the Company or any paying agent (acting in its
capacity as such) to a holder. Holders must provide Internal Revenue Service
Form W-8 or Form W-9, as the case may be, in order to avoid the imposition of
backup withholding. A 31% backup withholding tax may apply to such payments if
the U.S. Holder fails to provide a taxpayer identification number or
certification of foreign or other exempt status or fails to report in full
dividend and interest income.
NON-UNITED STATES HOLDERS
Information reporting on Internal Revenue Service Form 1099 and backup
withholding will not apply to payments of principal, premium (if any) and
interest made by the Company or a paying agent to a Non-U.S. Holder on a Note;
provided, the certification described in clause (i)(c) under "Non-United States
Holders" above is received, and provided further that the payor does not have
actual knowledge that the holder is a United States person. The Company or a
paying agent, however, may report (on Internal Revenue Service Form 1042S)
payments of interest on Notes.
Payments of the proceeds from the sale by a Non-U.S. Holder of a Note made
to or through a foreign office of a broker will not be subject to information
reporting or backup withholding, except that if the broker is a United States
person, a controlled foreign corporation for United States tax purposes or a
foreign person 50% or more of whose gross income is effectively connected with a
United States trade or business for a specified three-year period, information
reporting may apply to such payments. Payments of the proceeds from the sale of
a Note to or through the United States office of a broker is subject to
information reporting and backup withholding unless the holder or beneficial
owner certifies as to its non-United States status or otherwise establishes an
exemption from information reporting and backup withholding. See the discussion
above with respect to the rules under the Proposed Regulations.
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UNDERWRITING
The Underwriters named below have severally agreed, subject to the terms and
conditions of the Underwriting Agreement, with the Company, to purchase from the
Company the aggregate principal amount of Notes set forth opposite their
respective names. The Underwriters are committed to purchase all of the Notes if
any are purchased.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
UNDERWRITERS OF NOTES
- ------------------------------------------------------------------------------------------------ ----------------
<S> <C>
Salomon Brothers Inc............................................................................ $
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..........................................................................
Bear, Stearns & Co. Inc.........................................................................
TD Securities (USA) Inc.........................................................................
----------------
Total....................................................................................... $ 400,000,000
----------------
----------------
</TABLE>
The Underwriters have advised the Company that they propose initially to
offer the Notes to the public at the public offering price set forth on the
cover page of this Prospectus and to certain dealers at such price less a
concession not in excess of % of the principal amount of the Notes. The
Underwriters may allow, and such dealers may reallow, a discount not in excess
of % of the principal amount of the Notes on sales to certain other dealers.
After the initial public offering, the public offering price, concession and
discount may be changed.
The Company has agreed not to offer, sell, contract to sell or otherwise
dispose of any debt securities of the Company in an offering to the public (or
in a private offering where holders of the debt securities are granted rights to
have such debt securities registered under the Securities Act, or to exchange
such debt securities for other debt securities that are so registered) for a
period of 180 days from the date of this Prospectus without the prior written
consent of Salomon Brothers Inc.
The Notes are a new issue of securities with no established trading market.
The Company has been advised by the Underwriters that the Underwriters currently
intend to make a market in the Notes. However, the Underwriters are not
obligated to do so and may discontinue any market making activities at any time
without notice. Accordingly, no assurance can be given about the development of
liquidity of any trading market for the Notes.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including certain liabilities under the Securities Act, or
contribute to payments the Underwriters may be required to make in respect
thereof.
In connection with the Debt Offering, the Underwriters may purchase and sell
the Notes in the open market in accordance with Regulation M under the Exchange
Act. These transactions may include over-allotment and stabilizing transactions
and purchase to cover short positions created by the Underwriters in connection
with the Debt Offering. Stabilizing transactions consist of certain bids or
purchases for the purpose of preventing or retarding a decline in the market
price of the Notes; and short positions created by the Underwriters involve the
sale by the Underwriters of a greater number of Notes than they are required to
purchase from the Company in the Debt Offering. The Underwriters also may impose
a penalty bid, whereby selling concessions allowed to broker-dealers in respect
of the securities sold in the Debt Offering may be reclaimed by the Underwriters
if such securities are repurchased by the Underwriters in stabilizing or
covering transactions. These activities may stabilize, maintain or otherwise
affected the market price of the Notes, which may be higher than the price that
might otherwise prevail in the open market; and these activities, if commenced,
may be discontinued at any time. These transactions may be effected on the
Nasdaq National Market in the over-the-counter market or otherwise.
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VALIDITY OF THE NOTES
The validity of the Notes will be passed upon for the Company by Willkie
Farr & Gallagher, New York, New York and for the Underwriters by Sullivan &
Cromwell, New York, New York. As to matters of Washington law, Willkie Farr &
Gallagher and Sullivan & Cromwell will rely upon the opinion of Davis Wright
Tremaine LLP, Seattle, Washington.
EXPERTS
The audited financial statements included in this Prospectus have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports.
AVAILABLE INFORMATION
The Company has filed with the Commission, Washington, D.C. 20549, a
Registration Statement on Form S-1, Commission File No. 333-32003, under the
Securities Act with respect to the Notes offered by the Debt Offering. This
Prospectus, which is part of the Registration Statement, does not contain all of
the information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Notes, reference is made to the Registration Statement and the exhibits and
schedules filed therewith. Statements contained in this Prospectus as to the
contents of any contract or any other document to which reference is made are
necessarily summaries thereof, and in each instance reference is made to the
copy of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.
NEXTLINK is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports and other information with the Commission. Copies of the Registration
Statement, periodic reports and other information filed by the Company with the
Commission may be inspected at prescribed rates at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, or at its regional offices located at Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and
Seven World Trade Center, Suite 1300, New York, New York 10048. In addition, the
Commission maintains a website that contains periodic reports and other
information filed by the Company via the Commission's Electronic Data Gathering
and Retrieval System (EDGAR). This website can be accessed at www.sec.gov.
Copies of such material can be also be obtained from the Company upon request by
contacting the Company at its principal executive office.
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ANNEX A TO THE PROSPECTUS
GLOSSARY
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 competition with the ILEC.
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 providing local telephone
services.
A-1
<PAGE>
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 a 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.
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 a 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.
A-2
<PAGE>
NEXTLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
<S> <C>
Consolidated Balance Sheet as of June 30, 1997....................................... F-2
Consolidated Statements of Operations for the Three and Six Month Periods Ended June
30, 1996 and 1997.................................................................. F-3
Consolidated Statement of Changes in Shareholders' Deficit for the Six Months Ended
June 30, 1997...................................................................... F-4
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1996 and
1997............................................................................... F-5
Notes to Interim Consolidated Financial Statements................................... F-6
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants............................................. F-12
Consolidated Balance Sheets as of December 31, 1995 and 1996......................... F-13
Consolidated Statements of Operations for the Period from Inception (September 16,
1994) to December 31, 1994, and for the Years Ended December 31, 1995 and 1996..... F-14
Consolidated Statements of Changes in Members' Equity (Deficit) for the Period from
Inception (September 16, 1994) to December 31, 1994, and for the Years Ended
December 31, 1995 and 1996......................................................... F-15
Consolidated Statements of Cash Flows for the Period from Inception (September 16,
1994) to December 31, 1994, and for the Years Ended December 31, 1995 and 1996..... F-16
Notes to Consolidated Financial Statements........................................... F-18
SOUND RESPONSE CORPORATION
Report of Independent Public Accountants............................................. F-30
Statements of Operations For the Years Ended December 31, 1993 and 1994, and for the
Eight Months ended August 31, 1995................................................. F-31
Notes to Financial Statements........................................................ F-32
</TABLE>
F-1
<PAGE>
NEXTLINK COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30,
1997
--------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................................................... $ 198,763
Marketable securities......................................................................... 76,525
Accounts receivable, net...................................................................... 9,790
Other......................................................................................... 1,127
Pledged securities............................................................................ 40,970
--------------
Total current assets...................................................................... 327,175
Pledged securities................................................................................ 41,307
Property and equipment, net....................................................................... 161,250
Goodwill, net..................................................................................... 53,825
Other intangible assets, net...................................................................... 11,304
Other assets, net................................................................................. 19,349
--------------
Total assets.............................................................................. $ 614,210
--------------
--------------
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable.............................................................................. $ 13,863
Accrued expenses.............................................................................. 7,775
Accrued interest payable...................................................................... 8,885
Current portion of capital lease obligations.................................................. 1,310
Payable to affiliate.......................................................................... 1,500
--------------
Total current liabilities................................................................. 33,333
Long-term debt.................................................................................... 350,000
Capital lease obligations......................................................................... 5,357
Deferred compensation............................................................................. --
Other............................................................................................. 3,106
--------------
Total liabilities......................................................................... 391,796
Commitments and contingencies
Minority interests................................................................................ 137
Redeemable preferred stock (par value $0.01 per share, aggregate liquidation preference $301,971;
5,901,706 shares issued and outstanding)........................................................ 291,353
Class B common stock, subject to redemption (par value $0.02 per share, 519,950 shares issued and
outstanding).................................................................................... 4,950
Shareholders' deficit:
Class A common stock (par value $0.02 per share, stated at amounts paid in, 110,334,000 shares
authorized, 176,534 shares issued and outstanding)........................................... 16,763
Class B common stock (par value $0.02 per share, stated at amounts paid in, 44,133,600 shares
authorized, 36,165,259 shares issued and outstanding)........................................ 65,527
Deferred compensation......................................................................... (4,011)
Accumulated deficit........................................................................... (152,305)
--------------
Total shareholders' deficit............................................................... (74,026)
--------------
Total liabilities and shareholders' deficit............................................... $ 614,210
--------------
--------------
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
F-2
<PAGE>
NEXTLINK COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
<S> <C> <C> <C> <C>
1996 1997 1996 1997
---------- -------------- ---------- --------------
Revenues................................................ $ 6,671 $ 11,601 $ 12,041 $ 21,668
Costs and expenses:
Operating............................................. 6,117 12,037 10,813 21,941
Selling, general and administrative................... 6,975 15,829 12,491 29,103
Deferred compensation................................. -- 223 -- 1,115
Depreciation.......................................... 1,310 3,206 2,387 6,054
Amortization.......................................... 1,013 1,319 1,765 2,877
---------- -------------- ---------- --------------
Total costs and expenses.......................... 15,415 32,614 27,456 61,090
---------- -------------- ---------- --------------
Loss from operations.................................... (8,744) (21,013) (15,415) (39,422)
Interest income......................................... 2,857 5,492 3,099 10,521
Interest expense........................................ (7,902) (10,902) (8,638) (22,041)
---------- -------------- ---------- --------------
Loss before minority interests.......................... (13,789) (26,423) (20,954) (50,942)
Minority interests in loss of consolidated
subsidiaries.......................................... 72 75 121 171
---------- -------------- ---------- --------------
Net loss................................................ $ (13,717) $ (26,348) $ (20,833) $ (50,771)
---------- -------------- ---------- --------------
---------- -------------- ---------- --------------
Preferred stock dividends and accretion of preferred
stock redemption obligation, including issue costs.... (10,550) (17,353)
-------------- --------------
Net loss applicable to common shares.................... $ (36,898) $ (68,124)
-------------- --------------
-------------- --------------
Pro Forma:
Net loss per share.................................... $ (0.98) $ (1.80)
-------------- --------------
-------------- --------------
Shares used in computation of pro forma net loss per
share............................................... 37,817,826 37,803,685
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
F-3
<PAGE>
NEXTLINK COMMUNICATIONS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
CLASS A COMMON CLASS B COMMON
---------------------- -------------------------- DEFERRED ACCUMULATED
SHARES AMOUNT SHARES AMOUNT COMPENSATION DEFICIT
---------- ---------- -------------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996.................... -- $ -- -- $ -- $ -- $ (84,181)
Merger of NEXTLINK Communications,
L.L.C. with and into NEXTLINK
Communications, Inc. ....................... -- -- 36,165,259 65,527 -- --
Conversion of Equity Option Plan into Stock
Option Plan................................. -- 15,363 -- -- (4,234) --
Compensation attributable to stock options
vesting..................................... -- -- -- -- 223 --
Issuance of common stock under leasing
arrangement................................. 176,534 1,400 -- -- -- --
Cumulative redeemable preferred
stock dividends............................. -- -- -- -- -- (16,971)
Accretion of preferred stock redemption
obligation, including issue costs........... -- -- -- -- -- (382)
Net loss...................................... -- -- -- -- -- (50,771)
---------- ---------- -------------- ---------- ------- -------------
Balance at June 30, 1997........................ 176,534 $ 16,763 36,165,259 $ 65,527 $ (4,011) $ (152,305)
---------- ---------- -------------- ---------- ------- -------------
---------- ---------- -------------- ---------- ------- -------------
<CAPTION>
MEMBERS'
CAPITAL TOTAL
----------- -----------
<S> <C> <C>
Balance at December 31, 1996.................... $ 65,527 $ (18,654)
Merger of NEXTLINK Communications,
L.L.C. with and into NEXTLINK
Communications, Inc. ....................... (65,527) --
Conversion of Equity Option Plan into Stock
Option Plan................................. -- 11,129
Compensation attributable to stock options
vesting..................................... -- 223
Issuance of common stock under leasing
arrangement................................. -- 1,400
Cumulative redeemable preferred
stock dividends............................. -- (16,971)
Accretion of preferred stock redemption
obligation, including issue costs........... -- (382)
Net loss...................................... -- (50,771)
----------- -----------
Balance at June 30, 1997........................ $ -- $ (74,026)
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
F-4
<PAGE>
NEXTLINK COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------
<S> <C> <C>
1996 1997
---------- ----------
OPERATING ACTIVITIES:
Net loss................................................................................. $ (20,833) $ (50,771)
Adjustments to reconcile net loss to net cash used in operating activities:
Deferred compensation expense........................................................ -- 1,115
Equity in loss of affiliates......................................................... -- 1,015
Depreciation and amortization........................................................ 4,152 8,931
Minority interests in loss of consolidated subsidiaries.............................. (121) (171)
Changes in assets and liabilities, net of effects from acquisitions:
Accounts receivable.................................................................. (3,446) (2,764)
Other current assets................................................................. 82 815
Other long-term assets............................................................... (1,254) (351)
Accounts payable..................................................................... 4,733 (5,333)
Accrued expenses..................................................................... 2,522 1,959
Accrued interest payable............................................................. 8,021 (365)
Other long-term liabilities.......................................................... (74) 123
---------- ----------
14,615 4,974
---------- ----------
Net cash used in operating activities.................................................... (6,218) (45,797)
INVESTING ACTIVITIES:
Purchase of property and equipment................................................... (31,495) (55,181)
Net assets acquired in business and asset acquisitions (net of cash acquired)........ (10,503) (41,239)
Cash withdrawn from escrow to be used in business acquisition........................ -- 6,000
Investments in unconsolidated affiliates............................................. (2,500) (4,275)
Maturity of pledged securities....................................................... -- 18,049
Purchase of marketable securities, net............................................... (117,688) (28,812)
---------- ----------
Net cash used in investing activities.................................................... (162,186) (105,458)
FINANCING ACTIVITIES:
Net proceeds from issuance of redeemable preferred stock............................. -- 274,000
Capital contributions................................................................ 9,921 --
Proceeds from payable to affiliates.................................................. 28,766 --
Repayment of payable to affiliate.................................................... (32,203) --
Repayment of capital lease obligations............................................... -- (789)
Bank overdraft....................................................................... (1,373) --
Costs increased in connection with financing......................................... (9,700) --
Proceeds from issuance of senior notes............................................... 350,000 --
---------- ----------
Net cash provided by financing activities................................................ 345,411 273,211
---------- ----------
Net increase in cash and cash equivalents................................................ 177,007 121,956
Cash and cash equivalents, beginning of period........................................... 1,350 76,807
---------- ----------
Cash and cash equivalents, end of period................................................. $ 178,357 $ 198,763
---------- ----------
---------- ----------
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Noncash financing and investing activities:
Class A common stock issued under lease arrangement.................................. $ -- $ 1,400
---------- ----------
---------- ----------
Redeemable preferred stock dividends, paid in stock.................................. $ -- $ 10,086
---------- ----------
---------- ----------
Accrued cumulative redeemable preferred stock dividends, payable in stock............ $ -- $ 6,885
---------- ----------
---------- ----------
Cash paid for interest................................................................... $ 1,277 $ 22,406
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
F-5
<PAGE>
NEXTLINK COMMUNICATIONS, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
1. BASIS OF PRESENTATION:
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 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 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), 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.
These financial statements have been prepared without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. These condensed
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto contained elsewhere in this
Prospectus.
The financial information included herein reflects all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
management, necessary to a fair presentation of the results for interim periods.
The results of operations for the three and six month periods ended June 30,
1997 are not necessarily indicative of the results to be expected for the full
year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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 using the treasury stock
method. Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83, shares issued and stock options granted at prices below the assumed
initial public offering price of $16.50 per share 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, using the
treasury stock method, as if such shares and options were outstanding for all
periods presented.
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
F-6
<PAGE>
NEXTLINK COMMUNICATIONS, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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.
The conversion of the Company to a taxable corporation resulted in the
Company recording fully reserved net deferred tax assets. Major items giving
rise to deferred tax assets included deferred compensation and certain operating
expenses capitalized for tax purposes. Management believes that, based on a
number of factors, the available objective evidence created sufficient
uncertainty regarding the realization of net deferred tax assets. Accordingly, a
valuation allowance was provided for the net deferred tax assets of the Company.
The gross amount of deferred tax assets is not material in relation to the
Company's financial statements taken as a whole. The Company intends to make the
required annual disclosures of SFAS 109 in its consolidated financial statements
as of and for the year ended December 31, 1997.
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock-Based Compensation." Under Statement No. 123,
stock-based compensation expense is measured using either the intrinsic-value
method as prescribed by Accounting Principles Board (APB) Opinion No. 25 or the
fair value method described in Statement No. 123. The Company has chosen to
account for compensation cost associated with its stock option plan in
accordance with APB Opinion No. 25.
3. INCORPORATION:
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. 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. 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 options to purchase
shares of Class A common stock on a one to one basis. As of June 30, 1997, the
Company had 44,133,600 and 36,685,209 shares of Class B common stock authorized
and outstanding, respectively, and 110,334,000 and 176,534 shares of Class A
common stock authorized and outstanding, respectively. In addition, there were
options to purchase 3,392,734 shares of Class A common stock and options to
purchase 1,576,172 shares of Class B common stock outstanding. The Company also
had 25,000,000 and 5,901,706 shares of Preferred Stock authorized and
outstanding, respectively.
F-7
<PAGE>
NEXTLINK COMMUNICATIONS, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
4. 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. Dividends on
the Preferred Shares will accrue from January 31, 1997 and will be 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.
Subject to certain conditions, the Preferred Shares are exchangeable in
whole, but not in part, at the option of the Company, on any dividend payment
date, for the 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.
The contingent warrants are exercisable on any business day after February
1, 1998, if a Qualifying Event has not occurred on or prior to February 1, 1998.
A Qualifying Event means a public equity offering (as defined) or one or more
strategic equity investments (as defined) which, in either case, results in
aggregate net proceeds to the Company of not less than $75 million.
5. ACQUISITION:
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.
The assets acquired and consideration given were as follows (in thousands):
<TABLE>
<S> <C>
Fair value of tangible assets and liabilities acquired............ $ 12,003
Fair value of intangible assets acquired.......................... 29,682
---------
$ 41,685
---------
---------
Cash paid for assets, including repayment of debt................. $ 41,685
---------
---------
</TABLE>
F-8
<PAGE>
NEXTLINK COMMUNICATIONS, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
6. PROPERTY AND EQUIPMENT:
Networks and equipment consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
1997
-----------
<S> <C>
Telecommunications networks...................................................... $ 117,857
Office equipment, leasehold improvements, furniture and other.................... 21,346
-----------
139,203
Less accumulated depreciation.................................................... 14,380
-----------
124,823
Network construction in progress................................................. 36,427
-----------
$ 161,250
-----------
-----------
</TABLE>
Included in property and equipment are capitalized direct costs of
construction, including $365 of interest costs related to construction during
the six months ended June 30, 1997.
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 each of Atlanta, Chicago, New York City,
Newark, New Jersey, and Philadelphia which it agreed to make available to the
Company in each of those markets at a substantial discount. 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, 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 has been
placed in escrow pending completion of certain building connections by the
lessor.
Both leasing 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.
7. STOCK OPTION PLAN:
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 similar 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 interests 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 3), 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
F-9
<PAGE>
NEXTLINK COMMUNICATIONS, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
7. STOCK OPTION PLAN: (CONTINUED)
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 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 by the Board of Directors in its discretion. 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 additional paid-in capital (included in Class A 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.
During the six months ended June 30, 1997, the Company recorded $223,000 and
$892,000 of deferred compensation expense related to the Stock Option Plan and
Equity Option Plan, respectively.
Information with respect to the Plan is as follows:
<TABLE>
<CAPTION>
WEIGHTED
SHARES SUBJECT AVERAGE EXERCISE
TO OPTION OPTION PRICE RANGE PRICE
--------------- ------------------- -------------------
<S> <C> <C> <C>
Balance, December 31, 1996...... 2,004,646 $ 0.02 -- 7.93 $ 0.45
Granted....................... 1,550,041 $ 7.93 $ 7.93
Exercised..................... (9,102) $ 0.02 $ 0.02
Canceled...................... (152,851) $ 0.02 -- 7.93 $ 0.52
---------------
Balance, June 30, 1997 3,392,734 $ 0.02 -- 7.93 $ 3.77
---------------
---------------
</TABLE>
As of June 30, 1997, there were 923,493 options vested, with a weighted
average exercise price of $0.20. As of June 30, 1997, there were 1,020,626
shares of Class A common stock available for future grants. The Company intends
to make the complete annual disclosures required under Statement of Financial
Accounting Standards No. 123, "Stock-Based Compensation," in its financial
statements as of and for the year ended December 31, 1997.
F-10
<PAGE>
NEXTLINK COMMUNICATIONS, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
8. RECLASSIFICATIONS:
Certain reclassifications have been made to prior period amounts in order to
conform to the current presentation.
9. INITIAL PUBLIC OFFERING:
On July 21, 1997, the Company's Board of Directors authorized management to
file a registration statement with the Securities and Exchange Commission to
permit the Company to sell shares of its Class A common stock to the public.
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 included in this Prospectus have been adjusted
retroactively to give effect to the reverse stock split.
F-11
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Members of NEXTLINK Communications, L.L.C.:
We have audited the accompanying consolidated balance sheets of NEXTLINK
Communications, L.L.C. (a Washington limited liability company) and subsidiaries
as of December 31, 1995 and 1996, and the related consolidated statements of
operations, changes in members' equity (deficit) and cash flows for the period
from inception (September 16, 1994) to December 31, 1994, and for the years
ended December 31, 1995 and 1996. 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,
L.L.C. and subsidiaries as of December 31, 1995 and 1996, and the results of
their operations and their cash flows for the period from inception (September
16, 1994) to December 31, 1994, and for the years ended December 31, 1995 and
1996 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Seattle, Washington,
September 22, 1997
F-12
<PAGE>
NEXTLINK COMMUNICATIONS, L.L.C. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................. $ 1,350 $ 76,807
Marketable securities................................................................. -- 47,713
Accounts receivable, net.............................................................. 3,563 7,008
Other................................................................................. 746 607
Pledged securities.................................................................... -- 39,770
----------- -----------
Total current assets.............................................................. 5,659 171,905
Pledged securities...................................................................... -- 61,668
Property and equipment, net............................................................. 29,664 97,784
Goodwill, net........................................................................... 12,137 24,110
Other intangible assets, net............................................................ 5,751 11,243
Other long-term assets, net............................................................. 250 23,973
----------- -----------
Total assets...................................................................... $ 53,461 $ 390,683
----------- -----------
----------- -----------
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
Current liabilities:
Bank overdraft........................................................................ $ 1,373 $ --
Accounts payable...................................................................... 4,315 18,622
Accrued expenses...................................................................... 1,266 4,112
Accrued interest payable.............................................................. -- 9,250
Current portion of capital lease obligations.......................................... -- 1,194
Payable to affiliates................................................................. 4,937 1,500
----------- -----------
Total current liabilities......................................................... 11,891 34,678
Long-term liabilities:
Long-term debt........................................................................ -- 350,000
Capital lease obligations............................................................. -- 6,262
Other................................................................................. 1,965 13,139
----------- -----------
Total liabilities................................................................. 13,856 404,079
Commitments and contingencies
Minority interests...................................................................... 2,886 308
Equity units subject to redemption (397,202 units outstanding as of December 31,
1996)................................................................................. -- 4,950
Members' equity (deficit) (21,977,941 and 28,154,509 units outstanding as of December
31, 1995 and 1996, respectively)...................................................... 36,719 (18,654)
----------- -----------
Total liabilities and members' equity (deficit)................................... $ 53,461 $ 390,683
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-13
<PAGE>
NEXTLINK COMMUNICATIONS, L.L.C. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (SEPTEMBER 16, 1994) TO DECEMBER 31, 1994,
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1994 1995 1996
--------- ---------- -------------
<S> <C> <C> <C>
Revenue...................................................................... $ -- $ 7,552 $ 25,686
Costs and expenses:
Operating.................................................................. 106 6,618 25,094
Selling, general and administrative........................................ 232 9,563 31,353
Deferred compensation...................................................... -- 375 9,914
Depreciation............................................................... 7 1,125 6,640
Amortization of intangible assets.......................................... 7 2,333 3,700
--------- ---------- -------------
Total costs and expenses............................................... 352 20,014 76,701
--------- ---------- -------------
Loss from operations......................................................... (352) (12,462) (51,015)
Interest income.............................................................. -- -- 10,446
Interest expense............................................................. -- (499) (30,876)
--------- ---------- -------------
Loss before minority interests............................................... (352) (12,961) (71,445)
Minority interests in loss of consolidated subsidiaries...................... 3 230 344
--------- ---------- -------------
Net loss..................................................................... $ (349) $ (12,731) $ (71,101)
--------- ---------- -------------
--------- ---------- -------------
Pro Forma:
Net loss per share....................................................... $ (1.89)
-------------
-------------
Shares used in computation of pro forma net loss per share, as adjusted
for conversion of membership units into shares of the Company's Class A
and Class B common stock upon incorporation (See NOTE 12).............. 37,560,463
-------------
-------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-14
<PAGE>
NEXTLINK COMMUNICATIONS, L.L.C. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION (SEPTEMBER 16, 1994) TO DECEMBER 31, 1994,
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
UNITS AMOUNT
------------- ----------
<S> <C> <C>
BALANCE, INCEPTION (SEPTEMBER 16, 1994)............................................... -- $ --
Contributed capital................................................................. 450,739 1,021
Net loss............................................................................ -- (349)
------------- ----------
BALANCE, DECEMBER 31, 1994............................................................ 450,739 672
Contributed capital................................................................. 19,580,054 44,366
Issuance of units for NEXTLINK Interactive acquisition.............................. 1,947,148 4,412
Net loss............................................................................ -- (12,731)
------------- ----------
BALANCE, DECEMBER 31, 1995............................................................ 21,977,941 36,719
Contributed capital................................................................. 4,193,584 9,502
Issuance of units for NEXTLINK Ohio acquisition..................................... 287,721 652
Impact of recapitalization and merger of affiliates................................. 1,695,263 5,574
Net loss............................................................................ -- (71,101)
------------- ----------
BALANCE, DECEMBER 31, 1996............................................................ 28,154,509 $ (18,654)
------------- ----------
------------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-15
<PAGE>
NEXTLINK COMMUNICATIONS, L.L.C. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (SEPTEMBER 16, 1994) TO DECEMBER 31, 1994,
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995 1996
--------- ---------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss........................................................................ $ (349) $ (12,731) $ (71,101)
Adjustments to reconcile net loss to net cash used in operating activities:
Deferred compensation expense............................................... -- 375 9,914
Equity in loss of affiliates................................................ -- -- 1,100
Depreciation and amortization............................................... 14 3,458 10,340
Minority interest in loss of consolidated subsidiaries...................... (3) (230) (344)
Changes in assets and liabilities, net of effects from acquisitions:
Accounts receivable......................................................... -- (2,529) (1,659)
Other current assets........................................................ -- (638) (42)
Other long-term assets...................................................... (79) (500) (1,430)
Accounts payable............................................................ -- 2,163 993
Accrued expenses............................................................ 21 1,452 2,416
Accrued interest payable.................................................... -- -- 9,250
--------- ---------- ----------
Total adjustments....................................................... (47) 3,551 30,538
--------- ---------- ----------
Net cash used in operating activities........................................... (396) (9,180) (40,563)
INVESTING ACTIVITIES:
Purchase of property and equipment.......................................... (140) (17,778) (51,920)
Net assets acquired in business and asset acquisitions...................... (460) (17,639) (15,169)
Cash placed into escrow for business acquisition............................ -- -- (6,000)
Investments in unconsolidated affiliates.................................... -- -- (4,953)
Purchase of pledged securities.............................................. -- -- (117,688)
Maturity of pledged securities.............................................. -- -- 16,431
Purchase of marketable securities,net....................................... -- -- (47,713)
--------- ---------- ----------
Net cash used in investing activities........................................... (600) (35,417) (227,012)
FINANCING ACTIVITIES:
Proceeds from issuance of senior notes...................................... -- -- 350,000
Capital contributions....................................................... 1,021 37,091 9,935
Proceeds from payable to affiliates......................................... -- 7,458 28,766
Repayment of payables to affiliates......................................... -- -- (33,703)
Bank overdraft.............................................................. -- 1,373 (1,373)
Costs incurred in connection with financing................................. -- -- (9,822)
Repayment of capital lease obligations...................................... -- -- (771)
--------- ---------- ----------
Net cash provided by financing activities....................................... 1,021 45,922 343,032
--------- ---------- ----------
Net increase in cash and cash equivalents....................................... 25 1,325 75,457
Cash and cash equivalents, beginning of period.................................. -- 25 1,350
--------- ---------- ----------
Cash and cash equivalents, end of period........................................ $ 25 $ 1,350 $ 76,807
--------- ---------- ----------
--------- ---------- ----------
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest, net of amount capitalized........................... $ -- $ 16 $ 20,912
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
F-16
<PAGE>
NEXTLINK COMMUNICATIONS, L.L.C. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (SEPTEMBER 16, 1994) TO DECEMBER 31, 1994,
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
(DOLLARS IN THOUSANDS)
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Noncash investing and financing activities:
During 1995 and 1996, the Company completed various acquisitions of
businesses and assets (see Note 3). In connection with these acquisitions, the
Company issued equity units and assumed liabilities as follows:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Fair value of tangible assets acquired..................................................... $ 11,500 $ 12,579
Liabilities assumed........................................................................ (3,554) (8,228)
Fair value of intangible assets acquired................................................... 19,335 16,420
--------- ---------
$ 27,281 $ 20,771
--------- ---------
--------- ---------
Cash paid for assets....................................................................... $ 17,022 $ 15,169
Deferred purchase consideration............................................................ 3,000 --
Equity units issued:
Company units issued (1)................................................................. 4,412 5,602
Subsidiary units and options issued...................................................... 2,847 --
--------- ---------
$ 27,281 $ 20,771
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(1) Company units issued in 1996 includes 397,202 Class A Units valued at $4,950
which are subject to redemption (see Note 3).
During 1996, the Company acquired $1,377 in property and equipment under
capital lease obligations, exclusive of property and equipment under capital
lease obligations which were acquired in acquisitions.
In January 1996, the Company recognized additional members' equity and
goodwill of $5,574 and $2,907, respectively, and a reduction in minority
interests of $2,667 relating to a recapitalization and merger of companies
holding minority equity interests in certain subsidiaries of the Company, which
exchanged these interests for Class A Units of the Company.
In December 1995, the Company issued 3,210,242 Class A Units to an affiliate
in satisfaction of a payable of $7,274.
The accompanying notes are an integral part of these consolidated statements.
F-17
<PAGE>
NEXTLINK COMMUNICATIONS, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION:
The consolidated financial statements include the accounts of NEXTLINK
Communications, L.L.C., a Washington limited liability company, and its
majority-owned subsidiaries (the Company). The Company, through predecessor
entities, was formed on September 16, 1994 and, through its subsidiaries,
provides competitive local 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).
Prior to January 31, 1997, the Company was organized and operated under a
limited liability company agreement. The agreement provided, among other things,
for specific allocation of net profits and losses to each member, allocations
and distributions to members, and a preferred return to members on their
respective contributions invested in the Company, as well as a return of their
respective investments in the Company. On January 31, 1997, NEXTLINK
Communications, L.L.C. merged with and into NEXTLINK Communications, Inc., a
Washington corporation (the Incorporation). See Note 12 for further discussion.
Unless otherwise indicated all information presented herein is presented for
periods prior to the Incorporation, and therefore relate to the time that the
Company was a limited liability company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The Company's consolidated 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 are reflected as minority interests. The Company's
investments in entities in which it has voting interests of at least 20% but not
more than 50% are accounted for using the equity method and investments in
entities in which it has voting interests of not more than 20% are accounted for
using the cost method. All significant intercompany accounts and transactions
have been eliminated.
REVENUE RECOGNITION
The Company recognizes revenue on telecommunications and enhanced
communications services in the period that service is provided.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with original
maturities of three months or less at the time of purchase.
MARKETABLE SECURITIES
Marketable securities consist of U.S. government securities and commercial
paper with original maturities beyond three months, but less than 12 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.
F-18
<PAGE>
NEXTLINK COMMUNICATIONS, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PLEDGED SECURITIES
In connection with the sale of Senior Notes (see Note 6), a portion of the
net proceeds were 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 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.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Direct costs of construction are
capitalized, including $853,000 of interest costs related to construction during
1996. There were no interest costs capitalized prior to 1996. Depreciation is
computed using the straight-line method over estimated useful lives beginning in
the month an asset is put into service.
Estimated useful lives of property and equipment are as follows:
<TABLE>
<S> <C>
Telecommunications switching and other equipment... 5-10 years
Fiber optic network................................ 15-20 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>
LONG-LIVED ASSETS
The Company periodically reviews the carrying value of its long-lived
assets, including property, equipment and intangible assets, whenever events or
changes in circumstances indicate that the carrying value may not be
recoverable. To the extent the estimated future cash inflows attributable to the
asset, less estimated future cash outflows, is less than the carrying amount, an
impairment loss is recognized.
F-19
<PAGE>
NEXTLINK COMMUNICATIONS, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INCOME TAXES
The Company has been organized and operated under a limited liability
company agreement structured in a manner that is intended to result in the
classification of the Company as a partnership for federal income tax purposes.
Accordingly, no provision for income taxes has been made. See Note 12 for
discussion regarding the effect of the Incorporation.
CONCENTRATION OF CREDIT RISK
The Company is exposed to concentration of credit risk principally from
accounts receivable. The Company had three customers whose revenue each
represented approximately 12-14% of the Company's 1995 revenue and one customer
whose revenue represented approximately 23% of the Company's 1996 revenue.
ESTIMATES USED IN FINANCIAL STATEMENT PRESENTATION
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications have been made to prior period amounts in order to
conform to the current presentation.
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 using the treasury stock
method. Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83, shares issued and stock options granted at prices below the assumed
initial public offering price of $16.50 per share 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, using the
treasury stock method, as if such shares and options were outstanding for the
year ended December 31, 1996.
3. ACQUISITIONS:
In December 1996, the Company acquired ITC, a switched-based long-distance
reseller based in Salt Lake City, Utah. ITC has approximately 9,000
long-distance customers in Utah, Colorado, Arizona, New Mexico and Idaho.
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. The Company has
granted the seller an option requiring the Company to repurchase the units at
$26.06 per unit beginning three years from the date of the closing of the
acquisition in the event that the Company has not completed a public offering of
its equity securities prior to that time. The Company has valued the units,
including the put option, at $4,950,000, or $12.46 per unit.
F-20
<PAGE>
NEXTLINK COMMUNICATIONS, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
3. ACQUISITIONS: (CONTINUED)
In January 1996, the Company acquired certain assets of FoneNet, Inc. and
U.S. Network, Inc. through NEXTLINK Ohio, L.L.C. NEXTLINK Ohio, L.L.C. is
currently constructing fiber optic telecommunications systems for the Ohio
region. 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.
In September 1995, the Company acquired certain assets of Sound Response
Corporation and immediately contributed the assets to NEXTLINK Interactive,
L.L.C. NEXTLINK Interactive, L.L.C. provides interactive voice response and
debit card services. The total cost of the acquisition was approximately $12.2
million. Included in the cost of the acquisition are 1,947,148 Class A Units of
the Company valued at $4,411,941 and $3.0 million of deferred purchase
consideration payable to BWP, Inc. (formerly known as Sound Response
Corporation) of which $1.5 million was paid during 1996 and $1.5 million is
payable during 1997.
In May 1995, the Company acquired certain assets of City Signal, Inc. and
Teledial America, Inc. relating to the Magic Number service, through NEXTLINK
Solutions, L.L.C. These assets are used by NEXTLINK Solutions, L.L.C. to offer a
virtual communications center for mobile professionals and workgroups. The total
cost of the acquisition was approximately $617,000.
In April 1995, the Company acquired the telecommunications business of
Tel-West Central Services, Inc., a local exchange service reseller in Spokane,
Washington, through acquisition of the ownership units of NEXTLINK Washington,
L.L.C. The total cost of the acquisition was approximately $1.2 million.
In January 1995, the Company acquired certain assets of City Signal, Inc.
(which is also known as U.S. Signal) through NEXTLINK Tennessee, L.L.C,
primarily consisting of an existing fiber optic telecommunications network in
Memphis and another network then under development in Nashville. NEXTLINK
Tennessee, L.L.C. is expanding the networks and is currently providing switched
local and long-distance telecommunications services in these markets. The total
cost of the acquisition was approximately $17.5 million. Included in the cost of
the acquisition were 1,256,680 Class A Units and related options of NEXTLINK
Tennessee, L.L.C. valued at $2,847,444.
In September 1994, the Company acquired certain assets of Penns Light
Communications, Inc. through NEXTLINK Pennsylvania, L.P. The total cost of the
acquisition was approximately $460,000.
The above described acquisitions have been accounted for as purchases and,
accordingly, the acquired assets and liabilities have been recorded at their
estimated fair values at the date of the acquisition, and the results of
operations have been included in the accompanying consolidated financial
statements since the dates of acquisition. The total purchase price in excess of
the fair market value of the net assets acquired was recorded as goodwill. See
Note 10 for a discussion of valuation of Class A Units.
The following unaudited pro forma information presents the results of the
Company as if the above described acquisitions plus the Linkatel acquisition
(see Note 12) had occurred as of the beginning of 1995. These results include
certain adjustments consistent with the Company's accounting policies.
F-21
<PAGE>
NEXTLINK COMMUNICATIONS, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
3. ACQUISITIONS: (CONTINUED)
These results are not necessarily indicative of the results that actually would
have been attained if the acquisitions had been in effect at the beginning of
1995 or which may be attained in the future.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1995 1996
---------- ----------
<CAPTION>
(UNAUDITED, IN
THOUSANDS)
<S> <C> <C>
Revenue.................................................................................. $ 25,620 $ 36,105
Net loss................................................................................. $ (15,992) $ (67,616)
</TABLE>
4. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1995 1996
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Telecommunications networks................................................................ $ 15,358 $ 66,762
Office equipment, leasehold improvements, furniture and other.............................. 3,710 18,097
--------- ---------
19,068 84,859
Less accumulated depreciation.............................................................. (1,125) (8,369)
--------- ---------
17,943 76,490
Network construction in progress........................................................... 11,721 21,294
--------- ---------
$ 29,664 $ 97,784
--------- ---------
--------- ---------
</TABLE>
5. OTHER LONG-TERM ASSETS:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1995 1996
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Financing costs............................................................................... $ -- $ 9,822
Cash held in escrow for acquisitions.......................................................... -- 8,682
Equity investments............................................................................ -- 3,853
Advances to business to be acquired........................................................... -- 1,490
Other noncurrent assets....................................................................... 250 854
--------- ---------
250 24,701
Less accumulated amortization................................................................. -- (728)
--------- ---------
$ 250 $ 23,973
--------- ---------
--------- ---------
</TABLE>
The Company's equity investments include (i) a 40% investment in
Telecommunications of Nevada, L.L.C., which operates a fiber optic
telecommunications network serving the Las Vegas market and (ii) a $3.2 million
investment in convertible preferred stock of Intermind Corporation, representing
a 13.6% voting interest. Intermind markets an interactive communications tool
for the World Wide Web and intranet applications.
F-22
<PAGE>
NEXTLINK COMMUNICATIONS, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
6. LONG-TERM DEBT:
On April 25, 1996, the Company completed the issuance and sale of $350.0
million in principal amount of 12.5% 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 Senior Notes through April 15, 1999 and used an additional $32.2
million to repay the 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 Senior Notes are due semi-annually. As of December 31, 1996, the fair
value of long-term debt approximated carrying value.
The Senior Notes will be redeemable at the option of the Company, in whole
or in part, at any time on or after April 15, 2001 at the following prices
(expressed in percentages of the principal amount thereof at stated maturity) if
redeemed during the 12-month period beginning April 15 of the years indicated
below, in each case together with interest accrued to the redemption date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ------------------------------------------------------------------------------------- -----------
<S> <C>
2001................................................................................. 106.250%
2002................................................................................. 104.167%
2003................................................................................. 102.083%
2004 and thereafter.................................................................. 100.000%
</TABLE>
The indenture pursuant to which the 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 Senior Notes will have the right to require the
Company to purchase their 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 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.
7. RELATED PARTY TRANSACTIONS:
During 1995, Eagle River loaned the Company $7.3 million at an interest rate
of prime plus 2%. On December 1, 1995, the note payable and accrued interest
were converted to equity.
Included in payable to affiliates is $1.5 million payable to a Company
member in conjunction with the Sound Response Corporation acquisition. The
amount is due September 1, 1997.
The Company incurred expenses provided by an affiliate and minority member
for administrative services as a result of a temporary agreement related to
certain acquisitions. The Company recorded expenses in connection with fees to
this affiliate of approximately $1.5 million in 1995.
F-23
<PAGE>
NEXTLINK COMMUNICATIONS, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
8. 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 2015.
Future minimum payments required under the capital leases and operating
leases and agreements that have an initial or remaining noncancelable lease term
in excess of one year at December 31, 1996 are summarized below:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEARS ENDING DECEMBER 31, LEASES LEASES
- ---------------------------------------------------------------------- --------- -----------
<S> <C> <C>
(IN THOUSANDS)
1997 $ 2,322 $ 2,562
1998 2,310 2,568
1999 2,213 2,537
2000 1,921 2,338
2001 285 1,971
Thereafter............................................................ 1,376 8,051
---------
Total minimum lease payments.......................................... 10,427
Amounts representing interest......................................... (2,971)
---------
Present value of future minimum lease payments........................ 7,456
Less amounts due in one year.......................................... (1,194)
---------
$ 6,262
---------
---------
</TABLE>
Total rent expense amounted to $18,000, $579,000 and $2,248,000, in 1994,
1995 and 1996, respectively.
The Company is obligated under a supply agreement with a telecommunications
equipment vendor to purchase a certain dollar volume of equipment over the next
four years in order to obtain special pricing. If the Company is unable to meet
the required purchase commitment, the Company will be obligated to pay
additional amounts for previous purchases.
9. EMPLOYEE BENEFIT PLAN:
The Company offers a 401(k) Plan to eligible employees as part of a 401(k)
Plan administered by an affiliate and Company member. All employees who have
worked at least 1,000 hours and have attained the age of 21 are eligible to
participate in the plan. Company contributions to the plan totaled $50,000 and
$357,000 in 1995 and 1996, respectively.
10. MEMBERS' EQUITY:
MEMBERSHIP UNITS
The Company's limited liability company agreement provides for both Class A
and Class B membership interests in the Company. Class A Unit holders are
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
F-24
<PAGE>
NEXTLINK COMMUNICATIONS, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
10. MEMBERS' EQUITY: (CONTINUED)
Units are granted in connection with the Company's Amended and Restated Equity
Option Plan (EOP). Although Class B Units, when exercised, will constitute an
ownership interest in the Company, the interest is limited to the appreciation
in the value of the Company, that is the distributable profits interest, if any,
of the Company. On January 31, 1997, the Company merged with and into NEXTLINK
Communications, Inc. (see Note 12).
The valuation of membership units is determined by the EOP Administrative
Committee. The value of Class A Units as of December 31, 1995 and 1996 was
determined to be approximately $3.29 and $9.88, respectively, and the
appreciation interest per unit for Class B Units was approximately $1.00 and
$7.93 as of the same dates.
RECAPITALIZATION
Effective January 1, 1996, the Company merged four of its five operating
subsidiaries with newly formed entities owned by the Company (the
Recapitalization). 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 has been 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. These options are
included in the summary of information regarding the EOP that follows.
EQUITY OPTION PLANS
The Company and certain of its subsidiaries provided for grants of equity
option interests (EO Interests) during 1994 and 1995. The various option grants,
including those granted pursuant to the Recapitalization, are considered
compensatory and are accounted for similar to stock appreciation rights. The
Company recognizes compensation expense over the vesting period based on the
excess of the fair value of the Class B Units, as determined by the
Administrative Committee, over the exercise price of the option and such expense
is periodically adjusted for changes in the fair value of the Class B units.
Effective January 1, 1996, the various option plans mentioned above were
replaced by the EOP. The EOP provides for the grant of EO Interests in the
Company. Options generally expire 15 years from the date of grant and vest 25%
at the end of each of the next four years. Previously granted options continue
to vest under their previous schedule which, in most cases, vested 20% at
employment and 20% at the end of each subsequent year.
F-25
<PAGE>
NEXTLINK COMMUNICATIONS, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
10. MEMBERS' EQUITY: (CONTINUED)
Information regarding the Company's EOP is summarized below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF UNITS PRICES
----------- --------------
<S> <C> <C>
Balance, inception (September 16, 1994).........................
Granted....................................................... 396,759 $ 0.02
-----------
Balance, December 31, 1994...................................... 396,759 $ 0.02
Granted....................................................... 500,994 $ 0.02
Granted pursuant to the Recapitalization...................... 862,219 $ 0.02
Canceled...................................................... (165,501) $ 0.02
-----------
Balance, December 31, 1995...................................... 1,594,471 $ 0.02
Granted....................................................... 455,018 $ 1.93
Canceled...................................................... (44,843) $ 0.02
-----------
Balance, December 31, 1996...................................... 2,004,646 $ 0.45
-----------
-----------
</TABLE>
Of the options outstanding at December 31, 1996, there were 1,934,694 with
exercise prices ranging from $0.02 to $1.00 and 69,952 with an exercise price of
$7.93.
As of December 31, 1994, 1995 and 1996, there were 26,105, 355,657 and
684,857 options vested, respectively. For the same periods, the weighted average
exercise for these vested options were $0.02, $0.02 and $0.05, respectively. The
Company recorded $375,000 and $9,914,000 of deferred compensation expense
related to the EOP during 1995 and 1996, respectively. Such deferred
compensation is included in other long-term liabilities.
On January 31, 1997, in conjunction with the Incorporation, the Company
established a new stock option plan. All options previously outstanding will be
regranted under the new plan with terms and conditions substantially the same as
under the previous 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.
11. QUARTERLY SUMMARY OF OPERATIONS (UNAUDITED):
The financial information presented below reflects all adjustments
(consisting of normal recurring adjustments) which are, in the opinion of
management, necessary to a fair presentation of the results for the interim
periods.
F-26
<PAGE>
NEXTLINK COMMUNICATIONS, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
11. QUARTERLY SUMMARY OF OPERATIONS (UNAUDITED): (CONTINUED)
Summarized quarterly financial data for 1995 and 1996 is as follows
(unaudited, in thousands):
<TABLE>
<CAPTION>
1995
---------------------------------------------
<S> <C> <C> <C> <C>
1ST 2ND 3RD 4TH
--------- ---------- ---------- ----------
Revenue...................................... $ 399 $ 1,000 $ 2,825 $ 3,328
Cost and expenses............................ 2,003 3,289 5,271 9,451
--------- ---------- ---------- ----------
Loss from operations......................... (1,604) (2,289) (2,446) (6,123)
Other income, net............................ 43 36 (95) (253)
--------- ---------- ---------- ----------
Net loss..................................... $ (1,561) $ (2,253) $ (2,541) $ (6,376)
--------- ---------- ---------- ----------
--------- ---------- ---------- ----------
<CAPTION>
1996
---------------------------------------------
1ST 2ND 3RD 4TH
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue...................................... $ 5,370 $ 6,671 $ 6,919 $ 6,726
Cost and expenses............................ 12,041 15,415 23,050 26,195
--------- ---------- ---------- ----------
Loss from operations......................... (6,671) (8,744) (16,131) (19,469)
Other income (expense), net.................. (445) (4,973) (7,371) (7,297)
--------- ---------- ---------- ----------
Net loss..................................... $ (7,116) $ (13,717) $ (23,502) $ (26,766)
--------- ---------- ---------- ----------
--------- ---------- ---------- ----------
</TABLE>
12. SUBSEQUENT EVENTS:
INCORPORATION
On January 31, 1997, the Company was merged into NEXTLINK Communications,
Inc. (Communications), a Washington corporation in a tax-free transaction. In
the merger, the Company's Class A membership interests were converted into
shares of Class B common stock of Communications, and options to purchase Class
B membership interests were converted into options to purchase shares of Class A
common stock of Communications. Communications Class A common stock and Class B
common stock will be identical in dividend and liquidation rights, and will 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. In
calculating the number of shares of Communications common stock that each of the
Company's Class A members received in the merger, the Company applied a formula
that reflected each members' revalued capital account balance as of January 31,
1997. Class B membership options were converted on a one to one basis. After the
incorporation, Communications had 44,133,600 and 36,685,209 shares of Class B
common stock authorized and outstanding, respectively and 110,334,000 and 0
shares of Class A common stock authorized and outstanding, respectively with
options to purchase 2,060,559 shares of Class A common stock outstanding.
Communications also has 25,000,000 shares of Preferred Shares authorized,
5,700,000 are outstanding. See below under "Financing." The amount of Class B
common stock outstanding excludes 1,576,172 shares of Class B common stock
issuable upon exercise of an option granted to Mr. James F. Voelker, the
Company's President.
F-27
<PAGE>
NEXTLINK COMMUNICATIONS, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
12. SUBSEQUENT EVENTS: (CONTINUED)
The conversion of the Company to a taxable corporation will result in the
Company recording fully reserved net deferred tax assets. Major items giving
rise to deferred tax assets include deferred compensation and certain operating
expenses capitalized for tax purposes. Management believes that, based on a
number of factors, the available objective evidence creates sufficient
uncertainty regarding the realization of the net deferred tax assets.
Accordingly, a valuation allowance will be provided for the net deferred tax
assets of the Company.
FINANCING
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. Dividends on
the Preferred Shares will accrue from January 31, 1997 and will be 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.
Subject to certain conditions, the Preferred Shares are exchangeable in
whole, but not in part, at the option of the Company, on any dividend payment
date, for the 14% senior subordinated notes (Senior Subordinated Notes) due
February 1, 2009 of the Company. All terms and conditions of the Senior
Subordinated Notes would be substantially the same as those of the Preferred
Shares.
The contingent warrants are only exercisable on any business day after
February 1, 1998 if a Qualifying Event has not occurred on or prior to February
1, 1998. A Qualifying Event means a public equity offering (as defined) or one
or more strategic equity investments (as defined) which in either case results
in aggregate net proceeds to the Company of not less than $75 million.
In the event of a change in control of the Company, the Company will be
required to offer to purchase all of the then outstanding Preferred Shares at a
price equal to 101% of the liquidation preference thereof, plus accumulated and
unpaid dividends to the date of redemption.
ACQUISITION
On February 4, 1997, the Company completed the acquisition of substantially
all of the assets of Linkatel Pacific, L.P. (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 acquired assets
consist primarily of fiber optic network equipment and rights-of-way. The
Company plans to expand the network and add switching facilities in order to
provide switched local services during 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.
F-28
<PAGE>
NEXTLINK COMMUNICATIONS, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
12. SUBSEQUENT EVENTS: (CONTINUED)
The assets acquired and consideration given were as follows (in thousands):
<TABLE>
<S> <C>
Fair value of tangible assets and liabilities acquired............ $ 12,003
Fair value of intangible assets acquired.......................... 29,682
---------
$ 41,685
---------
---------
Cash paid for assets, including repayment of debt................. $ 41,685
---------
---------
</TABLE>
REVERSE STOCK SPLIT
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 included in this Prospectus have been
adjusted retroactively to give effect to the reverse stock split.
F-29
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Sound Response Corporation:
We have audited the accompanying statements of operations of Sound Response
Corporation (an Oregon corporation) for the years ended December 31, 1993 and
1994, and for the eight months ended August 31, 1995. 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 statements of operations referred to above present
fairly, in all material respects, the results of operations of Sound Response
Corporation for the years ended December 31, 1993 and 1994, and for the eight
months ended August 31, 1995, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Seattle, Washington,
March 22, 1996
F-30
<PAGE>
SOUND RESPONSE CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
EIGHT
YEARS ENDED MONTHS
DECEMBER 31, ENDED
---------------------------- AUGUST 31,
1993 1994 1995
------------- ------------- -------------
<S> <C> <C> <C>
REVENUE............................................................. $ 1,888,805 $ 3,232,907 $ 8,285,795
------------- ------------- -------------
COST AND EXPENSES:
Operating....................................................... 606,690 885,781 2,565,889
Selling, general and administrative............................. 1,094,155 1,889,106 3,330,860
Depreciation and amortization................................... 70,410 102,012 151,328
------------- ------------- -------------
1,771,255 2,876,899 6,048,077
------------- ------------- -------------
INCOME FROM OPERATIONS.............................................. 117,550 356,008 2,237,718
INTEREST EXPENSE.................................................... 17,563 20,320 16,848
------------- ------------- -------------
NET INCOME.......................................................... $ 99,987 $ 335,688 $ 2,220,870
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
SOUND RESPONSE CORPORATION
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of Sound Response Corporation,
an Oregon S corporation. The Company was formed August 12, 1991, and is
principally engaged in the ownership and operation of enhanced or intelligent
communications services.
REVENUE RECOGNITION
The Company recognizes revenue in the period that service is provided. Bad
debt expense of $2,952, $28,739 and $40,000, are included in selling, general
and administrative expenses for the periods ended December 31, 1993 and 1994,
and August 31, 1995, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Provisions for depreciation are
computed using the straight-line method over estimated useful lives, which range
from five to seven years, beginning in the month an asset is put into service.
Leasehold improvements are amortized using the straight-line method over the
term of the lease.
INCOME TAXES
The Company has been organized and operated under a subchapter S tax status
structured in a manner that is intended to result in the classification of the
Company as a partnership for federal income tax purposes. Accordingly, no
provision for income taxes has been made.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentration
of credit risk consist principally of accounts receivable. Concentrations of
credit risk with respect to accounts receivable are limited due to the
dispersion of the Company's customer base among different industries and
remedies provided by terms of contracts and statutes.
Certain of the Company's customers provide a significant portion of the
Company's revenues. Customers providing more than 10% of the Company's revenues
during the periods ending December 31, 1993 and 1994 and August 31, 1995 are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, EIGHT MONTHS
ENDED AUGUST
------------------------ 31,
1993 1994 1995
----- ----- ---------------
<S> <C> <C> <C>
Number of customers......................................... 3 2 2
Percentage of revenues...................................... 71% 42% 97%
</TABLE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets
F-32
<PAGE>
SOUND RESPONSE CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
and liabilities and the disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
2. LONG TERM DEBT:
During 1995, the Company entered into several operating line-of-credit
agreements with interest rates ranging from 9.5% to 10.5%. All agreements were
cancelled as of August 31, 1995.
3. COMMITMENTS AND CONTINGENCIES:
Total rent expense amounted to approximately $51,000 and $78,000 for the
years ended December 31, 1993 and 1994, respectively, and $115,000 for the eight
months ended August 31, 1995.
4. EMPLOYEE STOCK AWARD PLAN:
During 1993, the Company established the Key Employee Stock Award Plan (the
Plan). During the years ended December 31, 1993 and 1994, and the eight months
ended August 31, 1995, 110,000, 75,000 and 2,500 shares were awarded,
respectively. Compensation expense was recorded upon award of the shares.
Compensation expense of $88,000, $142,500 and $0 was recognized in the years
ended December 31, 1993 and 1994, and the eight months ended August 31, 1995
respectively. The Plan was terminated as of August 31, 1995.
5. SUBSEQUENT EVENT:
In September 1995, NEXTLINK Communications, L.L.C. (NEXTLINK) acquired
certain assets of the Company and immediately contributed the assets to NEXTLINK
Interactive, L.L.C. NEXTLINK Interactive, L.L.C. provides interactive nationwide
voice response and debit card services. The total cost of the acquisition was
approximately $12,193,000. Included in the cost of the acquisition are 1,947,148
units of NEXTLINK valued at $4,411,941 and $3,000,000 of deferred purchase
consideration payable to BWP, Inc. (formerly known as Sound Response
Corporation). In addition, NEXTLINK made a distribution of $905,000 to BWP,
Inc., in 1996 to satisfy certain liabilities in connection with the acquisition.
F-33
<PAGE>
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATES AS OF WHICH INFORMATION IS GIVEN IN THIS PROSPECTUS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR
TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary................................. 1
Risk Factors....................................... 10
The Company........................................ 17
Use of Proceeds.................................... 17
Capitalization..................................... 18
Selected Historical Consolidated Financial and
Operating Data................................... 19
Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. 22
Business........................................... 29
Management......................................... 52
Certain Relationships and Related Transactions..... 62
Security Ownership of Certain Beneficial Owners and
Management....................................... 64
Description of the Notes........................... 66
Description of Certain Indebtedness................ 94
Certain United States Federal Income Tax
Consequences..................................... 96
Underwriting....................................... 99
Validity of the Notes.............................. 100
Experts............................................ 100
Available Information.............................. 100
Glossary........................................... A-1
Index to Financial Statements...................... F-1
</TABLE>
$400,000,000
NEXTLINK
COMMUNICATIONS,
INC.
% SENIOR NOTES DUE 2007
[LOGO]
SALOMON BROTHERS INC
MERRILL LYNCH & CO.
BEAR, STEARNS & CO. INC.
TD SECURITIES
PROSPECTUS
DATED , 1997
<PAGE>
'
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a list of the estimated expenses to be incurred by the
Company in connection with the distribution of the Senior Notes being registered
hereby. Except for the Securities and Exchange Commission Registration Fee and
the NASD Filing Fee, all amounts are estimates.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee.............. $ 121,212
NASD Filing Fee.................................................. 30,500
Printing and Engraving Costs..................................... 100,000
Accounting Fees and Expenses..................................... 65,000
Legal Fees and Expenses (excluding Blue Sky)..................... 150,000
Blue Sky Fees and Expenses....................................... 6,000
Trustee Fees..................................................... 5,000
Miscellaneous.................................................... 22,288
---------
Total........................................................ 500,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 23B.08.510 of the Revised Code of Washington authorizes Washington
corporations to indemnify their officers and directors under certain
circumstances against expenses and liabilities incurred in legal proceedings
involving such persons because of their being or having been an officer or
director. The Company's Articles of Incorporation and By-laws require
indemnification of the Company's officers and directors to the fullest extent
permitted by Washington law. The Company also maintains directors' and officers'
liability insurance.
The Company's By-laws and Articles of Incorporation provide that the Company
shall, to the full extent permitted by the Washington Business Corporation Act
(the "Washington Business Act") of the State of Washington, as amended from time
to time, indemnify all directors and officers of the Company. In addition, the
Company's Articles of Incorporation contains a provision eliminating the
personal liability of directors to the Company or its shareholders for monetary
damages arising out of a breach of fiduciary duty. Under Washington law, this
provision eliminates the liability of a director for breach of fiduciary duty
but does not eliminate the personal liability of any director for (i) acts of
omissions of a director that involve intentional misconduct or a knowing
violation of law, (ii) conduct in violation of Section 23B.08.310 of the Revised
Code of Washington (which section relates to unlawful distributions) or (iii)
any transaction from which a director personally received a benefit in money,
property or services to which the director was not legally entitled.
The Company intends to enter into separate indemnification agreements with
each of its directors and executive officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In the three years preceding the filing of this Registration Statement, the
Company has issued the following securities that were not registered under the
Securities Act (numbers adjusted for the Company's 0.441336-for-1 reverse stock
split):
II-1
<PAGE>
In June 1997, the Company issued 176,534 shares of Class A Common Stock to
Comdisco, Inc. ("Comdisco") in connection with the execution of a Master Service
Agreement dated as of June 6, 1997 between the Company whereby Comdisco agreed
to provide certain telecommunications services to the company in Chicago,
Illinois, New York, New York, Atlanta, Georgia, Dallas, Texas and Philadelphia,
Pennsylvania and any other areas the parties may agree upon in the future. Such
shares of Class A Common Stock were paid in consideration of the exclusivity
agreement by Comdisco to refrain from offering its services to any other carrier
or reseller in any of the geographical areas covered by the Master Services
Agreement. Such shares of Class A Common Stock were issued in reliance upon an
exemption from registration contained in Section 4(2) of the Securities Act.
On January 31, 1997, the Company, issued and sold 5,700,000 Units consisting
of (i) 14% Senior Exchangeable Redeemable Preferred Shares, liquidation
preference $50 per share and (ii) Contingent Warrants to Merrill Lynch & Co. and
Toronto Dominion Securities (USA) Inc., as representatives of several
underwriters, pursuant to an exemption from registration contained in Section
4(2) of the Securities Act.
On April 25, 1996, NEXTLINK Communications, L.L.C., the predecessor to the
Company, and NEXTLINK Capital, Inc., a Washington corporation and a wholly owned
subsidiary of the Company, issued and sold $350,000,000 aggregate principal
amount of their 12 1/2% Senior Notes due April 15, 2006 to Goldman, Sachs & Co.,
Bear, Stearns & Co. Inc., Salomon Brothers Inc and Toronto Dominion Securities
(USA) Inc., as representatives of several underwriters, pursuant to an exemption
from registration contained in Section 4(2) of the Securities Act.
Effective January 1, 1996, the Company issued 287,721 Class A Units to U.S.
Network Corporation in connection with the Company's acquisition of an existing
fiber optic network and switching facilities in the downtown business centers of
Cleveland, Columbus and Akron, Ohio. Such Class A Units were issued in reliance
upon an exemption from registration contained in Section 4(2) of the Securities
Act.
Effective March 28, 1996, the Company merged four of its five operating
subsidiaries with newly formed entities owned by the Company (the
"Recapitalization"). 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 has been 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. Such securities were issued in reliance upon an
exemption from registration contained in Section 4(2) of the Securities Act.
On December 13, 1996, the Company issued 397,202 Class A Units to the prior
owners of ITC in connection with the acquisition of ITC by the Company. ITC is a
switched-based long distance reseller based in Salt Lake City, Utah with
operations in Utah, Colorado, Arizona, New Mexico and Idaho. Such Class A Units
were issued in reliance upon an exemption from registration contained in Section
4(2) of the Securities Act.
At various times during 1996 and January 1997, the Company issued options
under the Amended and Restated Equity Option Plan of NEXTLINK Communications,
L.L.C. (the "EOP") to its employees to purchase an aggregate of 554,540 Class B
Units. The exercise prices of these options range from $0.02 (with respect to
options to purchase 78,394 Class B Units) to $1.00 (with respect to options to
purchase 319,913 Class B Units) to $7.93 (with respect to options to purchase
156,233 Class B Units). The options
II-2
<PAGE>
granted generally vest over four years. Such options were issued in reliance
upon an exemption from registration contained in Section 4(2) of the Securities
Act.
From the inception of NEXTLINK through the end of 1995, NEXTLINK's capital
and operational funding was provided on an as needed basis, primarily by Eagle
River. During this period, under NEXTLINK's limited liability company agreement,
one equity unit was issued for each dollar in cash or assets contributed to
NEXTLINK. The equity ownership units issued from time to time during the course
of this period thus reflect this one dollar to one equity unit equivalency. As
of December 31, 1996, Eagle River had contributed approximately $53.9 million to
NEXTLINK and had received approximately 23.8 million Class A Units in NEXTLINK
Communications, L.L.C., which were converted to approximately 31.9 million
shares of Class B Common Stock of the Company on January 31, 1997, including
certain issuances described below.
On September 1, 1995, NEXTLINK agreed to pay $3.0 million to BWP, Inc. in
connection with the acquisition of certain assets of Sound Response Corporation.
A payment of $1.5 million was made on September 1, 1996 and an additional
payment of $1.5 million is due September 1, 1997. In addition, NEXTLINK issued
approximately 1.9 million Class A Units in NEXTLINK Communications, L.L.C.,
which were converted to approximately 2.6 million shares of Class B Common Stock
of the Company on January 31, 1997, to BWP, Inc. in connection with this asset
acquisition.
On January 31, 1995, Eagle River lent NEXTLINK $3.3 million in connection
with the acquisition of certain assets from City Signal, Inc. The note was
unsecured and bore interest at the prime rate plus 2%. The note plus accrued
interest was repaid with a portion of the net proceeds of NEXTLINK's offering of
12 1/2% Notes. NEXTLINK's principal equity owner, Mr. Craig O. McCaw, through
Eagle River made advances to NEXTLINK primarily to fund NEXTLINK's capital
expenditures (excluding acquisitions) and operating losses between January 1996
and April 1996. These advances of approximately $32.2 million, including accrued
interest, were repaid using a portion of the net proceeds of the offering of the
12 1/2% Notes.
During 1995, Eagle River lent NEXTLINK $7.3 million in connection with asset
acquisitions and operating expenses. The note bore interest at the prime rate
plus 2% and, on December 1, 1995, was converted to equity and approximately 3.2
million Class A Units in NEXTLINK Communications, L.L.C., which, along with the
other Units owned by Eagle River, were converted to shares of Class B Common
Stock of the Company on January 31, 1997.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<C> <S>
1.1 --Form of Underwriting Agreement.
+3.1 --Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.1
to the Registration Statement on Form S-4 of the Company, file no. 333-23377).
+3.2 --By-laws of the Company (incorporated by reference to Exhibit 3.2 to the
Registration Statement on Form S-4 of the Company, file no. 333-23377).
4.1 --Indenture dated as of , 1997 between United States Trust Company of New York,
as Trustee, and the Company, including form of Global Note.
+4.2 --Indenture dated as of April 25, 1996 between the United States Trust Company of
New York, as Trustee, and the Company (incorporated by reference to Exhibit 4.1 to
the Registration Statement on Form S-4 of NEXTLINK Communications, L.L.C. (the
predecessor of the Company), file no. 333-4603).
+4.3 --Certificate of Designations of the Powers, Preferences and Relative,
Participating, Optional and other Special Rights of the 14% Preferred Shares
(incorporated by reference to Exhibit 4.3 to the Registration Statement on Form
S-4 of the Company, file no. 333-23377).
5.1 --Opinion of Willkie Farr & Gallagher.
5.2 --Opinion of Davis Wright Tremaine, LLP.
5.3 --Tax Opinion of Willkie Farr & Gallagher.
+10.1 --Stock Option Plan of the Company (incorporated by reference to Exhibit 10.1 to the
Registration Statement on Form S-4 of the Company, file no. 333-23377).
+10.2 --Management Agreement, dated as of April 30, 1996, by and between NEXTLINK
Management Services, L.L.C. and Telecommunications of Nevada, L.L.C. (incorporated
by reference to Exhibit 10.2 to the Registration Statement on Form S-4 of NEXTLINK
Communications, L.L.C. (the predecessor of the Company) file no. 333-4603).
+10.3 --Collateral Pledge Agreement dated April 25, 1996 between the Company and the
United States Trust Company of New York (incorporated by reference to Exhibit 4.2
to the Registration Statement on Form S-4 of NEXTLINK Communications, L.L.C. (the
predecessor of the Company), file no. 333-4603).
21 --Subsidiaries of the Registrant.
23.1 --Consent of Arthur Andersen LLP.
23.2 --Consent of Willkie Farr & Gallagher (included in their opinions filed as Exhibits
5.1 and 5.3).
23.3 --Consent of Davis Wright Tremaine, LLP (included in their opinion filed as Exhibit
5.2).
23.4 --Consent of Sharon L. Nelson.
23.5 --Consent of Jeffrey S. Raikes.
25 --Statement on Form T-1 of Eligibility of Trustee.
</TABLE>
- ------------------------
+ Previously filed.
(b) Financial Statement Schedules:
II-4
<PAGE>
All schedules have been omitted because they are not applicable or not
required or the required information is included in the financial statements or
notes thereto.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that:
(1) For the purpose of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that item shall be
deemed to be the initial bona fide public offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions, described under Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Bellevue, State of
Washington, on September 22, 1997.
NEXTLINK COMMUNICATIONS, INC.
BY: /S/ R. BRUCE EASTER, JR.
-----------------------------------------
R. Bruce Easter, Jr.
TITLE: VICE PRESIDENT
Pursuant to the requirements of the Securities Act, this Amendment has been
signed by the following persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
---------------------------- --------------------------- -------------------
* Chairman of the Board and September 22, 1997
---------------------------- Director
Steven W. Hooper
* Vice Chairman of the Board September 22, 1997
---------------------------- and Chief Executive
Wayne M. Perry Officer (Principal
Executive Officer) and
Director
* President and Director September 22, 1997
----------------------------
James F. Voelker
* Vice President, Chief September 22, 1997
---------------------------- Financial Officer
Kathleen H. Iskra (Principal Financial
Officer and Principal
Accounting Officer)
* Director September 22, 1997
----------------------------
Craig O. McCaw
* Director September 22, 1997
----------------------------
Dennis Weibling
* Director September 22, 1997
----------------------------
Scot Jarvis
* Director September 22, 1997
----------------------------
William A. Hoglund
*
/s/ R. BRUCE EASTER, JR. Attorney-in-fact September 22, 1997
----------------------------
R. Bruce Easter, Jr.
II-6
<PAGE>
EXHIBIT 1.1
NEXTLINK COMMUNICATIONS, INC.
__% SENIOR NOTES DUE 2007
UNDERWRITING AGREEMENT
----------------------
New York, New York, USA
September __, 1997
Salomon Brothers Inc
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Bear, Stearns & Co. Inc.
Toronto Dominion Securities (USA) Inc.
c/o Salomon Brothers Inc
Seven World Financial Center
New York, New York 10048
United States of America
Ladies and Gentlemen:
NEXTLINK Communications, Inc., a corporation organized under the laws of
the State of Washington (the "Company"), confirms its agreement with the
underwriters named in Schedule A hereto (the "Underwriters") with respect to
the issue and sale by the Company and the purchase by the Underwriters,
acting severally and not jointly, of an aggregate of $400,000,000 principal
amount of the Notes specified above (the "Securities").
SECTION 1. REPRESENTATIONS AND WARRANTIES.
(a) REPRESENTATIONS AND WARRANTIES BY THE COMPANY. The Company
represents and warrants to each of the Underwriters as of the date hereof and
as of the Closing Time referred to in Section 2(c) hereof, and agrees with
each of the Underwriters as follows:
(i) Effectiveness of Registration Statement. A registration
statement on Form S-1 (File No. 333-32003) (the "Initial Registration
Statement") in respect of the Securities has been filed with the Securities
and Exchange Commission (the "Commission"); the Initial Registration
Statement and any post-effective amendment thereto, each in the form
heretofore delivered to the Underwriters have been declared effective by the
Commission in such form; other than a registration
<PAGE>
statement, if any, increasing the size of the offering (a "Rule 462(b)
Registration Statement") filed pursuant to Rule 462(b) under the Securities
Act of 1933, as amended (the "1933 Act") which became effective upon filing,
no other document with respect to the Initial Registration Statement has
heretofore been filed with the Commission; and no stop order suspending the
effectiveness of the Initial Registration Statement, any post-effective
amendment thereto or the Rule 462(b) Registration Statement, if any, has been
issued and no proceeding for that purpose has been initiated or threatened by
the Commission (any preliminary prospectus included in the Initial
Registration Statement or filed with the Commission pursuant to Rule 424(a)
of the rules and regulations of the Commission under the 1933 Act, is
hereinafter called a "Preliminary Prospectus"; the various parts of the
Initial Registration Statement and the Rule 462(b) Registration Statement, if
any, including all exhibits thereto but excluding Form T-1 and including the
information contained in the form of final Prospectus filed with the
Commission pursuant to Rule 424(b) under the 1933 Act in accordance with
Section 3(a) hereof and deemed by virtue of Rule 430A under the 1933 Act to
be part of the Initial Registration Statement at the time it was declared
effective, or such part of the Rule 462(b) Registration Statement, if any, at
the time it became effective (each such part of a registration statement as
amended at the time such part became effective), are hereinafter collectively
called the "Registration Statement"; and such final Prospectus, in the form
first filed pursuant to Rule 424(b) under the 1933 Act, is hereinafter called
the "Prospectus").
(ii) Compliance of Preliminary Prospectus with the
Requirements of the 1933 Act. No order preventing or suspending the use of
any Preliminary Prospectus has been issued by the Commission, and each
Preliminary Prospectus, at the time of filing thereof, conformed in all
material respects to the requirements of the 1933 Act and the Trust Indenture
Act of 1939, as amended (the "Trust Indenture Act"), and the rules and
regulations of the Commission thereunder, and did not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; PROVIDED,
HOWEVER, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter through
Salomon Brothers expressly for use therein or by the Selling Shareholder
expressly for use in the preparation of the answers therein to items 7 and
11(1) of Form S-1.
(iii) Compliance of Registration Statement and Prospectus with
the Requirements of the 1933 Act. The Registration Statement conforms, and
the Prospectus and any further amendments or supplements to the Registration
Statement or the Prospectus will conform, in all material respects to the
requirements of the 1933 Act and the Trust Indenture Act and the rules and
regulations of the Commission thereunder and do not and will not, as of the
applicable effective date as to the Registration Statement and any amendment
thereto, and as of the applicable filing date as to the Prospectus and any
amendment or supplement thereto, contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; PROVIDED, HOWEVER,
that this representation and warranty shall not apply to any statements or
omissions made in reliance upon and in conformity with information furnished
in writing to the Company by an Underwriter through Salomon Brothers
expressly for use therein or by the Selling Shareholder expressly for use in
the preparation of the answers therein to items 7 and 11(1) of Form S-1.
-2-
<PAGE>
(iv) Independent Accountants. The accountants who certified
the financial statements included in the Prospectus are independent certified
public accountants with respect to the Company and its subsidiaries within
the meaning of Regulation S-X under the 1933 Act.
(v) Financial Statements. The financial statements, together
with the related notes, included in the Prospectus present fairly the
financial position of the Company and its consolidated subsidiaries at the
dates indicated and the statement of operations, shareholders' equity and
cash flows of the Company and its consolidated subsidiaries for the periods
specified; said financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP") applied on a consistent
basis throughout the periods involved. The selected financial data and the
summary financial information included in the Prospectus present fairly the
information shown therein and have been compiled on a basis consistent with
that of the audited financial statements included in the Prospectus.
(vi) No Material Adverse Change in Business. Since the
respective dates as of which information is given in the Prospectus, except
as otherwise stated therein, (1) there has been no material adverse change in
the condition, financial or otherwise, or in the earnings, business affairs
or business prospects of the Company and its subsidiaries considered as one
enterprise (a "Material Adverse Effect"), whether or not arising in the
ordinary course of business, (2) there have been no transactions entered into
by the Company or any of its subsidiaries, other than those in the ordinary
course of business, which are material with respect to the Company and its
subsidiaries considered as one enterprise and (3) there has been no dividend
or distribution of any kind declared, paid or made by the Company on any
class of its capital stock.
(vii) Good Standing of the Company. The Company has been duly
organized and is validly existing as a corporation under the laws of the
State of Washington and has power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectus and to
enter into and perform its obligations under this Agreement; and the Company
is duly qualified as a foreign corporation to transact business and is in
good standing in each other jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or the
conduct of business, except where the failure so to qualify or to be in good
standing would not result in a Material Adverse Effect.
(viii) Good Standing of Designated Subsidiaries. Each
"significant subsidiary" of the Company (as such term is defined in Rule 1-02
of Regulation S-X) and NEXTLINK Pennsylvania, L.P. and NEXTLINK Ohio, L.L.C.
(each a "Designated Subsidiary" and, collectively, the "Designated
Subsidiaries") has been duly organized and is validly existing and in good
standing, where applicable, as a corporation, limited liability company or
limited partnership, as the case may be, under the laws of the jurisdiction
of its formation, has power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectus and is
duly qualified as a foreign corporation, limited liability company or limited
partnership, as the case may be, to transact business and is in good standing
in each jurisdiction in which such qualification is required, whether by
reason of the ownership or leasing of property or the conduct of business,
except where the failure so to qualify or to be in good standing would not
result in a Material Adverse Effect; except as otherwise disclosed in the
Prospectus, all of the issued and outstanding capital stock or other equity
interest of each Designated Subsidiary has been duly authorized and validly
issued, is fully paid and non-assessable and 99% thereof is owned by the
Company, directly or through
-3-
<PAGE>
subsidiaries, free and clear of any security interest, mortgage, pledge,
lien, encumbrance, claim or equity; none of the outstanding shares of capital
stock or other equity interest of the Designated Subsidiaries was issued in
violation of any preemptive or similar rights arising by operation of law, or
under the constituting or operative document or agreement of any Designated
Subsidiary or under any agreement to which the Company or any Designated
Subsidiary is a party.
(ix) Capitalization. The authorized, issued and outstanding
capital stock of the Company is as set forth in the Prospectus as of the
dates indicated therein. The shares of issued and outstanding capital stock
of the Company have been duly authorized and validly issued and are fully
paid and non-assessable; and none of the outstanding shares of capital stock
of the Company was issued in violation of the preemptive or other similar
rights of any securityholder of the Company, as applicable.
(x) Authorization of Underwriting Agreements. This Agreement
has been duly authorized, executed and delivered by the Company.
(xi) Authorization and Description of the Securities and the
Indenture. The Securities have been duly authorized for issuance and sale to
the Underwriters pursuant to this Agreement and, when issued and delivered by
the Company pursuant to this Agreement against payment of the consideration
set forth herein, will have been duly executed, authenticated, issued and
delivered and will constitute valid and legally binding obligations of the
Company entitled to the benefits provided by the indenture to be dated as of
____________________, 1997 (the "Indenture") between the Company and United
States Trust Company of New York, as Trustee (the "Trustee"), under which
they are to be issued, which will be substantially in the form filed as an
exhibit to the Registration Statement; the Indenture has been duly authorized
and duly qualified under the Trust Indenture Act and, when executed and
delivered by the Company and the Trustee, will constitute a valid and legally
binding instrument, enforceable in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, reorganization and other laws of
general applicability relating to or affecting creditors' rights and to
general equity principles; and the Securities and the Indenture will conform
in all material respects to the descriptions thereof in the Prospectus and
will be in substantially the form previously delivered to the Underwriters.
(xii) Absence of Defaults and Conflicts. Neither the Company
nor any of its subsidiaries is in violation of its constituting or operative
document or agreement or in default in the performance or observance of any
material obligation, agreement, covenant or condition contained in any
contract, indenture, mortgage, deed of trust, loan or credit agreement, note,
lease or other agreement or instrument to which the Company or any of its
subsidiaries is a party, or by which or any of them may be bound, or to which
any of the property or assets of the Company or any of its subsidiaries is
subject (collectively, "Agreements and Instruments") except for such defaults
that would not result in a Material Adverse Effect; the issue and sale of the
Securities, the execution, delivery and performance of this Agreement, the
Indenture, the Securities and any other agreement or instrument entered into
or issued or to be entered into or issued by the Company in connection with
the transactions contemplated hereby, thereby or in the Prospectus and the
consummation of the transactions contemplated herein, therein and in the
Prospectus (including the issuance and sale of the Securities by the Company
hereunder), the compliance by the Company with its obligations hereunder and
under the Indenture and the Securities have been duly authorized by all
necessary
-4-
<PAGE>
action and do not and will not, whether with or without the giving of notice
or passage of time or both, conflict with or constitute a breach of, or
default or a Repayment Event (as defined below) under, or result in the
creation or imposition of any lien, charge or encumbrance upon any property
or assets of the Company or any of its subsidiaries pursuant to, the
Agreements and Instruments except for such conflicts, breaches or defaults or
liens, charges or encumbrances that, singly or in the aggregate, would not
result in a Material Adverse Effect, nor will such action result in any
violation of the provisions of the constituting or operative document or
agreement of the Company or any of its subsidiaries or any applicable law,
statute, rule, regulation, judgment, order, writ or decree of any government,
government instrumentality or court, domestic or foreign, having jurisdiction
over the Company or any of its subsidiaries or any of their assets or
properties. As used herein, a "Repayment Event" means any event or condition
which gives the holder of any material note, debenture or other evidence of
indebtedness (or any person acting on such holder's behalf) the right to
require to repurchase, redemption or repayment of all or a portion of such
indebtedness by the Company or any of its subsidiaries.
(xiii) Absence of Further Requirements. No filing with, or
authorization, approval, consent, license, order, registration, qualification
or decree of, any court or governmental authority or agency is necessary or
required for the performance by the Company of its obligations hereunder, in
connection with the offering, issuance or sale of the Securities hereunder or
the consummation of the actions contemplated by this Agreement or the
Indenture, except the registration under the 1933 Act of the Securities, such
as have been obtained under the Trust Indenture Act and such consents,
approvals, authorizations, registrations or qualifications as may be required
under state securities or Blue Sky laws in connection with the purchase and
distribution of the Securities by the Underwriters.
(xiv) Possession of Licenses and Permits. Except as set forth
in or contemplated by the Prospectus with respect to systems under
development and the offering of dial tone service, each of the Company and
its Designated Subsidiaries has all material certificates, consents,
exemptions, orders, permits, licenses, authorizations, franchises or other
material approvals (each, an "Authorization") of and from, and has made all
material declarations and filings with, all Federal, state, local and other
governmental authorities, all self-regulatory organizations and all courts
and other tribunals, necessary or appropriate for the Company and its
Designated Subsidiaries to own, lease, license, use and construct its
properties and assets and to conduct its business in the manner described in
the Prospectus, except to the extent that the failure to obtain any such
Authorizations or make any such declaration or filing would not, singly or in
the aggregate, result in a Material Adverse Effect. Except as set forth in
or contemplated by the Prospectus, all such Authorizations are in full force
and effect with respect to the Company and its Designated Subsidiaries; to
the best knowledge of the Company, no event has occurred that permits, or
after notice or lapse of time could permit, the revocation, termination or
modification of any such Authorization; the Company and its Designated
Subsidiaries are in compliance in all material respects with the terms and
conditions of all such Authorizations and with the rules and regulations of
the regulatory authorities and governing bodies having jurisdiction with
respect thereto; and, except as set forth in the Prospectus, the Company has
no knowledge that any person is contesting or intends to contest the granting
of any material Authorization; and neither the execution and delivery of this
Agreement, the Indenture or the Securities, nor the consummation of the
transactions contemplated hereby and thereby nor compliance with the terms,
conditions and provisions hereof and thereof by the Company or any of
-5-
<PAGE>
its Designated Subsidiaries will cause any suspension, revocation,
impairment, forfeiture, nonrenewal or termination of any Authorization.
(xv) Absence of Labor Dispute. No labor dispute with the
employees of the Company or any of its subsidiaries exists or, to the
knowledge of the Company, is imminent, and the Company is not aware of any
existing labor disturbance by the employees of any of its or any of its
subsidiaries' principal suppliers, manufacturers, customers or contractors,
which, in either case, would reasonably be expected to result in a Material
Adverse Effect.
(xvi) Absence of Proceedings. Except as disclosed in the
Prospectus, there is no action, suit, proceeding, inquiry or investigation
before or by any court or governmental agency or body, domestic or foreign,
now pending or, to the knowledge of the Company, threatened against or
affecting the Company or any of its subsidiaries which could reasonably be
expected to result in a Material Adverse Effect, or which might reasonably be
expected to materially and adversely affect the properties or assets of the
Company or any of its subsidiaries or the consummation of this Agreement or
the performance by the Company of its obligations hereunder. The aggregate
of all pending legal or governmental proceedings to which the Company or any
subsidiary thereof is a party or of which any of their respective property or
assets is the subject which are not described in the Prospectus, including
ordinary routine litigation incidental to the business, could not reasonably
be expected to result in a Material Adverse Effect.
(xvii) Possession of Intellectual Property. The Company
and its subsidiaries own or possess, or can acquire on reasonable terms,
adequate patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable proprietary
or confidential information, systems or procedures), trademarks, service
marks, trade names or other intellectual property (collectively,
"Intellectual Property") necessary to carry on the business now operated by
them, and except as otherwise described in the Prospectus neither the Company
nor any of its subsidiaries has received any notice or is otherwise aware of
any infringement of or conflict with asserted rights of others with respect
to any Intellectual Property or of any facts or circumstances which would
render any Intellectual Property invalid or inadequate to protect the
interest of the Company or any of its subsidiaries therein, and which
infringement or conflict (if the subject of any unfavorable decision, ruling
or finding) or invalidity or inadequacy, singly or in the aggregate, would
result in a Material Adverse Effect.
(xviii) Title to Property. The Company and its subsidiaries
have good and marketable title to all real property owned by them and good
title to all other properties owned by them, in each case, free and clear of
all mortgages, pledges, liens, security interests, claims, restrictions or
encumbrances of any kind except such as (a) are described in the Prospectus
or (b) do not, singly or in the aggregate, materially affect the value of
such property and do not interfere with the use made and proposed to be made
of such property by the Company or any of its subsidiaries; and all of the
leases and subleases material to the business of the Company and its
subsidiaries, considered as one enterprise, and under which the Company or
any of its subsidiaries holds properties described in the Prospectus, are in
full force and effect, and neither the Company nor any of its subsidiaries
has any notice of any material claim of any sort that has been asserted by
anyone adverse to the rights of the Company or any of its subsidiaries under
any of the leases or subleases mentioned above, or affecting or questioning
the rights of the Company or any subsidiary thereof to the continued
possession of the leased or subleased premises under any such lease or
sublease.
-6-
<PAGE>
(xix) Tax Returns. The Company and its subsidiaries have
filed all federal, state, foreign and, to the extent material, local tax
returns that are required to be filed or have duly requested extensions
thereof and have paid all taxes required to be paid by any of them and any
related assessments, fines or penalties, except for any such tax, assessment,
fine or penalty that is being contested in good faith and by appropriate
proceedings; and adequate charges, accruals and reserves have been provided
for in the financial statements referred to in Section 1(a)(v) above in
respect of all federal, state, local and foreign taxes for all periods as to
which the tax liability of the Company or any of its subsidiaries has not
been finally determined or remains open to examination by applicable taxing
authorities.
(xx) Environmental Laws. Except as described in the
Prospectus and except such matters as would not, singly or in the aggregate,
result in a Material Adverse Effect, (A) neither the Company nor any of its
subsidiaries is in violation of any federal, state, local or foreign statute,
law, rule, regulation, ordinance, code, policy or rule of common law or any
judicial or administrative interpretation thereof, including any judicial or
administrative order, consent, decree or judgment, relating to pollution or
protection of human health, the environment (including, without limitation,
ambient air, surface water, groundwater, land surface or subsurface strata)
or wildlife, including, without limitation, laws and regulations relating to
the release or threatened release of chemicals, pollutants, contaminants,
wastes, toxic substances, hazardous substances, petroleum or petroleum
products (collectively, "Hazardous Materials") or to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials (collectively, "Environmental Laws"), (B) the
Company and its subsidiaries have all permits, authorizations and approvals
required under any applicable Environmental Laws and are each in compliance
with their requirements, (C) there are no pending or, to the Company's
knowledge, threatened administrative, regulatory or judicial actions, suits,
demands, demand letters, claims, liens, notices of noncompliance or
violation, investigation or proceedings relating to any Environmental Law
against the Company or any of its subsidiaries and (D) there are no events or
circumstances that would reasonably be expected to form the basis of an order
for clean-up or remediation, or an action, suit or proceeding by any private
party or governmental body or agency, against or affecting the Company or any
of its subsidiaries relating to Hazardous Materials or Environmental Laws.
(xxi) Investment Company Act. The Company is not, and upon
the issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the Prospectus will
not be, an "investment company" or an entity "controlled" by an "investment
company" as such terms are defined in the Investment Company Act of 1940, as
amended (the "1940 Act").
(xxii) Certain Disclosures in Prospectus. The statements
set forth in the Prospectus under the caption "Description of Notes", insofar
as they purport to constitute a summary of the terms of the Securities, and
under the captions "Business Regulatory Overview" and "Underwriting", insofar
as they purport to describe the provisions of the laws and documents referred
to therein, are accurate and complete in all material respects; and the
statements set forth in the Prospectus under the caption "Certain United
States Federal Income Tax Consequences", insofar as such statements purport
to summarize certain United States federal income and estate tax consequences
of the ownership and dispensation of the Securities by certain U.S. Holders
and non-U.S. Holders (as such terms are defined in the Prospectus) of the
Securities, provide a fair summary of such consequences under current law.
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(xxiii) Cuba. Neither the Company nor any of its
affiliates does business with the government of Cuba or with any person or
affiliate located in Cuba within the meaning of Section 517.075, Florida
Statutes.
(xxiv) No Manipulation or Stabilization. Neither the
Company nor, to its knowledge, any of its officers, directors or affiliates
has taken and will take, directly or indirectly, any action which is designed
to or which has constituted or which might reasonably be expected to cause or
result in stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Securities.
(b) OFFICER'S CERTIFICATES. Any certificate signed by any officer
of the Company or any of its subsidiaries delivered to the Underwriters or to
counsel for the Underwriters shall be deemed a representation and warranty by
the Company to each Underwriter as to the matters covered thereby.
SECTION 2. SALE AND DELIVERY TO UNDERWRITERS; CLOSING.
(a) SECURITIES. On the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth,
the Company agrees to issue and sell to each Underwriter, severally and not
jointly, and each Underwriter, severally and not jointly, agrees to purchase
from the Company, at a purchase price of ___.___ % of the principal amount
thereof, plus accrued interest, if any, from _______, 1997, the principal
amount of Securities set forth in Schedule A opposite the name of such
Underwriter.
(a) TERMS AND CONDITIONS OF SALE. Upon the authorization by Salomon
Brothers on behalf of the Underwriters of the release of the Securities, the
several Underwriters propose to offer the Securities for sale upon the terms
and conditions set forth in the Prospectus.
(c) CLOSING AND PAYMENT. (i) The Securities to be purchased by each
Underwriter hereunder, in definitive form, and in such authorized
denominations and registered in such names as Salomon Brothers may request
upon at least forty-eight hours' prior notice to the Company shall be
delivered by or on behalf of the Company to the Underwriters, through the
facilities of the Depository Trust Company ("DTC") (unless the Underwriters
shall otherwise instruct) for the account of such Underwriter, against
payment by or on behalf of such Underwriter of the purchase price therefor by
wire transfer or certified or official bank check or checks, payable to the
order of the Company in immediately available (same day) funds. The Company
will cause the certificates representing the Securities to be made available
for checking and packaging at least twenty-four hours prior to the Closing
Time (as defined below) with respect thereto at the offices of DTC or its
designated custodian (the "Designated Office"). The time and date of such
delivery and payment shall be 10:00 a.m. on _______ _, 1997 or such other
time and date as Salomon Brothers and the Company may agree upon in writing,
such time and date for delivery of the Securities is herein "Closing Time".
(ii) The documents to be delivered at the Closing Time by or on
behalf of the parties hereto pursuant to Section 5 hereof, including the
cross receipt for the Securities and any additional documents requested by
the Underwriters pursuant to Section 5(k) hereof, will be delivered at the
offices of Sullivan & Cromwell, 125 Broad Street, New York, New York 10004
(the "Closing Location"), and the Securities will be delivered at the
Designated Office, all at the Closing Time. A meeting will be held at the
Closing Location at 2:00 p.m. on the New York Business Day next preceding the
Closing Time, at which meeting the final drafts of the documents to be
delivered pursuant to the preceding sentence will be available for
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review by the parties hereto. For the purposes of this Section 2 and Section
3(a)(iii) below, "New York Business Day" shall mean each Monday, Tuesday,
Wednesday, Thursday and Friday which is not a day on which banking
institutions in New York are generally authorized or obligated by law or
executive order to close.
(iii) It is understood and agreed that the closing of the sale of the
Securities hereunder is conditioned upon the concurrent closing, or the
closing prior to the Closing Time hereunder, of the sale of the Company's
Class A Common Stock (the "Equity Offering") pursuant to the Underwriting
Agreement (U.S. Version) and the Underwriting Agreement (International
Version) each among the Company and the Underwriters named therein and each
of even date herewith (together the "Equity Underwriting Agreements").
SECTION 3. COVENANTS.
(a) COVENANTS OF THE COMPANY. The Company covenants with each
Underwriter as follows:
(i) Preparation of Prospectus; Notices. To prepare the Prospectus
in a form approved by the Underwriters and to file such Prospectus, properly
completed, and any supplement thereto, pursuant to Rule 424(b) under the 1933
Act not later than the Commission's close of business on the second business
day following the execution and delivery of this Agreement, or, if
applicable, such earlier time as may be required by Rule 430A(a)(3) under the
1933 Act, and to provide evidence satisfactory to the Underwriters of such
timely filing; to use its best efforts to cause the Registration Statement,
if not effective at the time of execution of this Agreement, to become
effective; prior to termination of the offering of the Securities, to make or
file no further amendment or any supplement to the Registration Statement or
Prospectus which shall be disapproved by the Underwriters promptly after
reasonable notice thereof; to advise the Underwriters, promptly after it
receives notice thereof, of the time when the Registration Statement or any
amendment thereto has been filed or becomes effective or the Prospectus or
any supplement thereto or any amended Prospectus has been filed and to
furnish the Underwriters with copies thereof; to advise the Underwriters,
promptly after it receives notice thereof, of the issuance by the Commission
of any stop order or of any order preventing or suspending the use of any
Preliminary Prospectus or Prospectus, of the suspension of the qualification
of the Securities for offering or sale in any jurisdiction, of the initiation
or threatening of any proceeding for any such purpose, or of any request by
the Commission for the amending or supplementing of the Registration
Statement or Prospectus or for additional information; and, in the event of
the issuance of any stop order or of any order preventing or suspending the
use of any Preliminary Prospectus or Prospectus or suspending any such
qualification, promptly to use its best efforts to obtain the withdrawal of
such order.
(ii) Qualifications of the Securities under State Securities Laws.
Promptly from time to time to take such action as the Underwriters may
reasonably request to qualify the Securities for offering and sale under the
securities laws of such jurisdictions as they may request and to comply with
such laws so as to permit the continuance of sales and dealings therein in
such jurisdictions for as long as may be necessary to complete the
distribution of the Securities, provided that in connection therewith the
Company shall not be required to qualify as a foreign corporation or to file
a general consent to service of process in any jurisdiction.
(iii) Copies of and Amendments to Prospectus and Supplements. Prior to
12:00 noon on the New York Business Day next succeeding the date of this
Agreement and from time to time, to furnish the
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Underwriters with copies of the Prospectus in New York City in such
quantities as the Underwriters may reasonably request, and, if the delivery
of a Prospectus is required at any time prior to the expiration of nine
months after the time of issue of the Prospectus in connection with the
offering or sale of the Securities and if at such time any event shall have
occurred as a result of which the Prospectus as then amended or supplemented
would include an untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made when such Prospectus is
delivered, not misleading, or, if for any other reason it shall be necessary
during such period to amend or supplement the Prospectus in order to comply
with the 1933 Act, to notify the Underwriters and upon their request to
prepare and furnish without charge to each Underwriter and to any dealer in
securities as many copies as the Underwriters may from time to time
reasonably request of an amended Prospectus or a supplement to the Prospectus
which will correct such statement or omission or effect such compliance, and
in case any Underwriter is required to deliver a Prospectus in connection
with sales of any of the Securities at any time nine months or more after the
time of issue of the Prospectus, upon the Underwriters' request but at the
expense of such Underwriter, to prepare and deliver to such Underwriter as
many copies as the Underwriters may request of an amended or supplemented
Prospectus complying with Section 10(a)(3) of the 1933 Act. The Company will
advise the Underwriters promptly of any proposal to amend or supplement the
Prospectus and will not effect such amendment or supplement without the
consent of the Underwriters. Neither the consent of the Underwriters, nor
the Underwriter's delivery of any such amendment or supplement, shall
constitute a waiver of any of the conditions set forth in Section 5 hereof.
(iv) Earning Statement. To make generally available to its
securityholders as soon as practicable, but in any event not later than the
30th day following the end of the fiscal quarter first occurring after the
first anniversary of the effective date of the Registration Statement (as
defined in Rule 158(c) under the 1933 Act), an earning statement of the
Company and its subsidiaries (which need not be audited) complying with
Section 11(a) of the 1933 Act and the rules and regulations thereunder
(including, at the option of the Company, Rule 158).
(v) Lock-Up. During the period beginning from the date hereof and
continuing to and including the date 180 days after the date of the
Prospectus, not to offer, sell, contract to sell or otherwise dispose of,
directly or indirectly, or announce an offering of, except as provided
hereunder any debt securities of the Company in an offering to the public (or
in a private offering where holders of the debt securities are granted rights
to have such debt securities registered under the Securities Act, or to
exchange such debt securities for other debt securities that are so
registered) without the prior written consent of Salomon Brothers.
(vi) Investment Company. Not to be or become, at any time prior
to the expiration of three years after the Closing Time, an open-end
investment company, unit investment trust, closed-end investment company or
face-amount certificate company that is or is required to be registered under
Section 8 of the 1940 Act.
(vii) Information to the Securityholders. To furnish to holders
of the Securities as soon as practicable after the end of each fiscal year an
annual report (including a balance sheet and statements of income,
shareholders' equity and cash flows of the Company and its consolidated
subsidiaries certified by independent public accountants) and, as soon as
practicable after the end of each of the first three quarters of each fiscal
year (beginning with the fiscal quarter ending after the effective date of
the Registration Statement), consolidated summary financial information of
the Company and its subsidiaries for such quarter in reasonable detail.
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(viii) Information to the Underwriters. During a period of five
years from the effective date of the Registration Statement, to furnish to
the Underwriters copies of all reports or other communications (financial or
other) furnished to shareholders, and to deliver to the Underwriters (i) as
soon as they are available, copies of any reports and financial statements
furnished to or filed with the Commission or any national securities exchange
on which any class of securities of the Company is listed; and (ii) such
additional information concerning the business and financial condition of the
Company as the Underwriters may from time to time reasonably request (such
financial statements to be on a consolidated basis to the extent the accounts
of the Company and its subsidiaries are consolidated in reports furnished to
its stockholders generally or to the Commission).
(ix) Use of Proceeds. To use the net proceeds received by it from
the sale of the Securities pursuant to this Agreement in the manner specified
in the Prospectus under "Use of Proceeds".
(x) Rule 462(b) Registration Statement. If the Company elects to
rely upon Rule 462(b), to file a Rule 462(b) Registration Statement with the
Commission in compliance with Rule 462(b) by 10:00 P.M., Washington, D.C.
time, on the date of this Agreement, and at the time of filing to either pay
to the Commission the filing fee for the Rule 462(b) Registration Statement
or give irrevocable instructions for the payment of such fee pursuant to Rule
111(b) under the 1933 Act.
SECTION 4. PAYMENT OF EXPENSES.
(a) EXPENSES. The Company covenants and agrees with the several
Underwriters that the Company will pay or cause to be paid the following: (i)
the fees, disbursements and expenses of the Comp any's counsel and
accountants in connection with the registration of the Securities under the
1933 Act and all other expenses in connection with the preparation, printing
and filing of the Registration Statement, any Preliminary Prospectus and the
Prospectus and amendments and supplements thereto and the mailing and
delivering of copies thereof to the Underwriters and dealers; (ii) the
cost of printing or reproducing any Agreement among Underwriters, this
Agreement, the Selling Agreement, the Indenture, the Blue Sky Memorandum,
closing documents (including any compilations thereof) and any other
documents in connection with the offering, purchase, sale and delivery of the
Securities; (iii) al l expenses in connection with the qualification of the
Securities for offering and sale under state securities laws as provided in
Section 3(b) hereof, including the fees and disbursements of counsel for the
Underwriters in connection with such qua lification and in connection with
the Blue Sky survey, (iv) any fees charged by securities rating services for
rating the Securities, (v) the filing fees incident to, and the fees and
disbursements of counsel for the Underwriters in connection with, securing
any required review by the National Association of Securities Dealers, Inc.
of the terms of the sale of the Securities; (vi) the cost of preparing the
Securities; (vii) the cost and charges of any transfer agent or registrar and
of DTC; (viii) the fees and expenses of the Trustee and any agent of the
Trustee and the fees and disbursements of counsel for the Trustee in
connection with the Indenture and the Securities, and (ix) all other costs
and expenses incident to the performance of its obligations hereunder which
are not otherwise specifically provided for in this Section. It is
understood, however, that, except as provided in this Section, and Sections
6, 7 and 10(d) hereof, the Underwriters will pay all of their own costs and
expenses, including the fees of their counsel, transfer taxes on resale of
any of the Securities by them, and any advertising expenses connected
with any offers they may make.
(b) TERMINATION OF AGREEMENT. If this Agreement is terminated by
the Underwriters in accordance with the provisions of Section 5 or Section
9(a)(i) hereof, the Company shall reimburse the
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Underwriters for all of their out-of-pocket expenses, including the
reasonable fees and disbursements of counsel for the Underwriters.
SECTION 5. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of
the several Underwriters hereunder, as to the Securities to be delivered at
the Closing Time, are subject to the accuracy, at and as of the Closing Time,
of the representations and warranties of the Company contained in Section 1
hereof or in certificates of any officer of the Company or any of its
subsidiaries delivered pursuant to the provisions hereof, to the performance
by each of the Company of its covenants and other obligations hereunder, and
to the following further conditions:
(a) FILING OF PROSPECTUS AND EFFECTIVENESS OF REGISTRATION STATEMENT.
If the Registration Statement has not become effective prior to execution of
this Agreement, unless the Underwriters agree in writing to a later time, the
Registration Statement shall have become effective not later than (i) 6:00
p.m. on the date of determination of the public offering price, if such
determination occurred at or prior to 3:00 p.m. on such date or (ii) 9:30
a.m. on the business day following the day on which the public offering price
was determined, if such determination occurred after 3:00 p.m. on such date;
if filing is required pursuant to Rule 424(b), the Prospectus shall have been
filed with the Commission pursuant to such Rule within the applicab le time
period prescribed for such filing by the rules and regulations under the 1933
Act and in accordance with Section 3(a) her eof; no stop order suspending the
effectiveness of the Registration Statement or any part thereof shall have
been issued and no proceeding for that purpose shall have been initiated or
threatened by the Commission; and all requests for additional information on
the part of the Commission shall have been complied with to the Underwriters'
reasonable satisfaction.
(b) OPINION OF COUNSEL FOR COMPANY. At the Closing Time, the
Underwriters shall have received the favorable opinions, dated as of the
Closing Time, of Willkie Farr & Gallagher, counsel for the Company, of R.
Bruce Easter, Esq., Vice President, General Counsel and Secretary of the
Company, and of Davis Wright Tremaine LLP, special Washington counsel to the
Company, in form and substance satisfactory to counsel for the Underwriters,
to the effect set forth in Exhibits A-1, A-2 and A-3 hereto, respectively,
and to such further effect as counsel to the Underwriters may reasonably
request.
(c) OPINION OF COUNSEL FOR UNDERWRITERS. At the Closing Time, the
Underwriters shall have received the favorable opinion, dated as of the
Closing Time, of Sullivan & Cromwell, counsel for the Underwriters, with
respect to the incorporation of the Company, the Indenture, the validity of
the Securities being delivere d at the Closing Time, the Registration
Statement, the Prospectus and such other related matters as the Underwriters
may reasonably request. In giving such opinion such counsel may rely, as to
all matters governed by the laws of jurisdictions other than the law of the
State of New York and the federal law of the United States, upon the opinions
of counsel satisfactory to the Underwriters. Such counsel may also state
that, insofar as such opinion involves factual matters, they have relied, to
the extent they deem proper, upon certificates of officers of the Company and
its subsidiaries and certificates of public officials.
(d) OFFICERS' CERTIFICATE. At such Closing Time, there shall not have
been, since the date hereof or since the date of the most recent financial
statements included in the Prospectus (exclusive of any supplement thereto),
any material adverse change in the condition, financial or otherwise, or in
the earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, whether or not arising from
transactions in the ordinary course of business except as set forth in the
Prospectus (exclusive of any suppleme nt thereto), and the Underwriters shall
have received certificates of the Chairman of the Board, the President or a
Vice President of the Company and of the chief financial or
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chief accounting officer of the Company, satisfactory to the Underwriters, to
the effect that, at and as of such Closing Time, (i) they have carefully
examined the Registration Statement, the Preliminary Prospectus, the
Prospectus and any supplements thereto and this Agreement, (ii) there has
been no such material adverse change, (iii) the representations and
warranties of the Company in Section 1 hereof are true and correct in all
material respects on and as of the Closing Time with the same force and
effect as though expressly made at and as of such Closing Time, (iv) the
Company has complied with all agreements and satisfied all conditions on its
part to be performed or satisfied at or prior to such Closing Time, and (v)
no stop order suspending the effectiveness of the Registration Statement has
been issued and no proceedings for that purpose have been instituted or, to
the Company's knowledge, threatened.
(e) ACCOUNTANT'S COMFORT LETTER. On the date of the Prospect us at a
time prior to the execution of this Agreement, and at 10:00 a.m. on the
effective date of any post-effective amendment to the Registration Statement
filed subsequent to the date of this Agreement, the Underwriters shall have
received from Arthur Andersen LLP a letter or letters dated the respective
dates of delivery thereof, in form and substance satisfactory to the Unde
rwriters, containing statements and information of the type ordinarily
included in accountants' "comfort letters" to the Underwriters with respect
to the financial statements and certain financial information contained in
the Prospectus.
(f) BRING-DOWN COMFORT LETTER. At the Closing Time, the Underwriters
shall have received from Arthur Andersen LLP a letter, dated as of the
Closing Time, to the effect that they reaffirm the statements made in the
letter furnished pursuant to subsection (e) of this Section 5, except that
the specified date referred to shall be a date not more than three business
days prior to such Closing Time.
(g) NO MATERIAL ADVERSE CHANGE IN BUSINESS. Since the respective dates
as of which information is given in the Prospect us, except as otherwise
stated therein, (1) there has been no Material Adverse Effect, whether or
not arising in the ordinary course of business, (2) there have been no
transactions entered into by the Company or any of its subsidiaries, other
than those in the ordinary course of business, which are material with res
pect to the Company and its subsidiaries considered as one enterprise (3)
there has been no dividend or distribution of any kind declared, paid or
made by the Company on any class of its capital stock and (4) there has been
no change or decrease specified in the letters referred to in Section 5(e)
and 5(f) above, t he effect of which, in any case referred to in clauses (1)
through (4) above, is, in the sole judgment of the Underwriters, so material
and adverse as to make it impractical or inadv isable to proceed with the
offering or delivery of the Securities as contemplated by the Registration
Statement (exclusive of any amendment thereof) and the Prospectus (exclusive
of any supplement thereto).
(h) MAINTENANCE OF RATING. On or after the date of this Agreement,
there shall not have occurred a downgrading in the rating assigned to the
Company's debt securities or preferred stock by any nationally recognized
securities rating agency, and no such securities rating agency shall have
publicly announced that it has under surveillance or review, with possible
negative implications, its rating of any of the Company's debt securities or
preferred stock.
(i) DELIVERY OF PROSPECTUSES. The Company shall have complied with the
provisions of Section 3(a)(iii) hereof with respect to the furnishing of
Prospectuses on the New York Business Day next succeeding the date of this
Agreement.
(j) ADEQUATE DISCLOSURE OF LITIGATION. There is no litigation or
governmental or other action, suit, claim, proceeding or investigation before
any court or any public, regulatory or governmental agency
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or body, pending or, to the best of the Company's knowledge, threatened
against the Company or any of its subsidiaries or any of their respective
officers (in their capacity as officers of the Company or such subsidiaries)
or any of the properties, assets, business or rights of the Company or such
subsidiaries which is of a character required to be disclosed in the
Registration Statement and Prospectus which is not disclosed therein.
(k) ADDITIONAL DOCUMENTS. At the Closing Time: (i) the Company shall
have furnished to the Underwriters such further information, certificates and
documents as the Underwriters may reasonably request; (ii) counsel for the
Underwriters shall have been furnished with such documents and opinions as
they may require for the purpose of enabling them to pass upon the issuance
and sale of the Securities as herein contemplated, or in order to evidence
the accuracy of any of the representations or warranties, or the fulfillment
of any of the conditions, herein contained; and (iii) all proceedings taken
by the Company in connection with the issuance and sale of the Securities as
herein contemplated shall be satisfactory in form and substance to the
Underwriters and counsel for the Underwriters.
(l) TERMINATION OF AGREEMENT. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled,
this Agreement may be terminated by the Underwriters by notice to the Company
at any time at or prior to the Closing Time, and such termination shall be
without liability of any party to any other party except as provided in
Section 4 and except that Sections 1, 6 and 7 shall survive any such
termination and remain in full force and effect.
(m) EQUITY OFFERING. The conditions to the Underwriters' obligations
set forth in Section 5 of the Equity Underwriting Agreements shall have been
satisfied and the closing for the Equity Offering shall have occurred
pursuant to the Equity Underwriting Agreements concurrently with, or prior
to, the Closing Time hereunder.
SECTION 6. INDEMNIFICATION.
(a) INDEMNIFICATION OF UNDERWRITERS. The Company agrees to indemnify
and hold harmless each Underwriter, the directors, officers, employees and
agents of each Underwriter and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act against any and all losses, liabilities (joint or several),
claims, damages and expenses whatsoever, to which they or any of them may
become subject under the 1933 Act, the 1934 Act or other Federal or state
statutory law or regulation, at common law or otherwise, insofar as such
losses, claims, damages or liabilities (or acti ons in respect thereof) arise
out of or are based upon any untr ue statement or alleged untrue statement of
a material fact contained in the registration statement for the registration
of the Securities as originally filed or in any amendment thereof, or in any
Preliminary Prospectus or Prospectus (or any amendmen t or supplement
thereto), or arise out of or are based upon the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary in
order to make the statements therein not misleading, and agrees to reimburse
each such indemnified party, as incurred, for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; PROVIDED, HOWEVER, that the
Company will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information furnished
to the Company by or on behalf of any Underwriter through the Underwriters
specifically for inclusion therein. This indemnity agreement will be in
addition to any liability which the Company may otherwise have.
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(b) INDEMNIFICATION OF COMPANY, DIRECTORS AND OFFICERS. Each
Underwriter severally agrees to indemnify and hold harmless the Company, each
of its directors, each of its officers who sign the Registration Statement
(including any person who, with his or her consent, is named in the
Registration Statement as about to become a director of the Company) and each
person, if any, who controls the Company within the meaning of Section 15 of
the 1933 Act or Section 20 of the 1934 Act against any and all losses,
liabilities (joint or several), claims, damages and expenses described in the
indemnity contained in subsection (a) of this Section, as incurred, but only
with respect to written information furnished to the Company by such
Underwriter through Salomon Brothers specifically for inclusion in the
documents referred to in the foregoing indemnity. The Company acknowledges
that the statements set forth in the last paragraph of the cover page
regarding delivery of the Securities, the stabilization legend in block
capital letters on the reverse of the cover page and, under the heading
"Underwriting", (i) the sentences related to concessions and reallowances and
(ii) the paragraph related to stabiliz ation in the Preliminary Prospectus,
the Registration Statement or the Prospectus constitute the only information
furnished in writing by or on behalf of the several Underwriters for
inclusion in such Preliminary Prospectus, Registration Statement or
Prospectus.
(c) ACTIONS AGAINST PARTIES; NOTIFICATION. Each indemnified party
shall give written notice as promptly as reasonably practicable to each
indemnifying party of any action commenced against it in respect of which
indemnity may be sought hereunder, but failure to so notify an indemnifying
party (i) will not relieve it from liability under paragraph (a) or (b)
above unless and to the extent it did not otherwise learn of such action and
such failure results in the forfeiture by the indemnifying party of
substantial rights and defenses and (ii) will not, in any event, relieve the
indemnifying party from any obligations to any indemnified party other than
the indemnification obligation provided in paragraph (a) or (b) above. The
indemnifying party shall be entitled to appoint counselof the indemnifying
party's choice at the indemnifying party's expense to represent the
indemnified party in any action for which indemnification is sought (in which
case the indemnifying party shall not thereafter be responsible for the fees
and expenses of any separate counsel retained by the indemnified party or
parties except as set forth below); PROVIDED, HOWEVER, that such counsel
shall be satisfactory to the indemnified party. Notwithstanding the
indemnifying party's election to appoint counsel to represent the indemnified
party in an action, the indemnified party shall have the right to employ
separate counsel (including local counsel), and the indemnifying party shall
bear the reasonable fees, costs and expenses of such separate counsel if (i)
the use of counsel chosen by the indemnifying party to represent the
indemnified party would present such counsel with a conflict of interest,
(ii) the actual or potential defendants in, or targets of, any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, (iii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of the institution of such action or (iv) the indemnifying party
sh all authorize the indemnified party to employ separate counsel at the
expense of the indemnifying party. No indemnifying party shall, without the
prior written consent of the indemnified parties, settle or compromise or
consent to the entry of any judgment with respect to any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever in respect of which indemnification or
contribution could be sought under this Section 6 or Section 7 hereof
(whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising
out of such litigation, investigation, proceeding or claim and (ii) does not
include a statement as to or an admission of fault, culpability or a failure
to act by or on behalf of any indemnified party.
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SECTION 7. CONTRIBUTION. If the indemnification provided for in
Section 6 hereof is for any reason unavailable to or insufficient to hold
harmless an indemnified party in respect of any losses, liabilities, claims,
damages or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount of such losses, liabilities, claims,
damages and expenses (including legal or other expenses reasonably incurred
in connection with investigating or defending same) incurred by such
indemnified party, as incurred, (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and the
Underwriters on the other hand from the offering of the Securities pursuant
to this Agreement (provided that in no case shall any Underwriter (except as
may be provided in any agreement among underwriters relating to the offering
of the Securities) be responsible for any amount in excess of the
underwriting discount or commission applicable to the Securities purchased by
such Underwriter hereunder) or (ii) if the allocation provided by clause (i)
is unavailable for any reason, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company on the one hand and of the
Underwriters on the other hand in connection with the statements or omissions
which resulted in such losses, liabilities, claims, damages or expenses, as
well as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
Underwriters on the other hand in connection with the offering of the
Securities pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the
Securities pursuant to this Agreement (before deducting expenses) received by
the Company and the total underwriting discount received by the Underwriters,
in each case as set forth on the cover page of the Prospectus, bear to the
aggregate initial offering price of the Securities.
The relative fault of the Company on the one hand and the Underwriters
on the other hand shall be determined by reference to, among other things,
whether any such untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of
the equitable considerations referred to above in this Section 7.
Notwithstanding the provisions of this Section 7, no Underwriter shall
be required to contribute any amount in excess of the amount by which the
total price at which the Securities underwritten by it and distributed to the
public were offered to the public exceeds the amount of any damages which
such Underwriter has otherwise been required to pay by reason of such untrue
or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such Underwriter,
and each person, if any, who controls the Company within the meaning of
Section 15 of the
-16-
<PAGE>
1933 Act or Section 20 of the 1934 Act shall have the same rights to
contribution as the Company. The Underwriters' respective obligations to
contribute pursuant to this Section 7 are several in proportion to the number
of Securities set forth opposite their respective names in Schedule A hereto
and not joint.
SECTION 8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties and agreements contained in this
Agreement, or in certificates of officers of the Company submitted pursuant
hereto, shall remain operative and in full force and effect, regardless of
any investigation made by or on behalf of any Underwriter or controlling
person, or by or on behalf of the Company, and shall survive delivery of the
Securities to the Underwriters.
SECTION 9. TERMINATION OF AGREEMENT.
(a) TERMINATION; GENERAL. This Agreement shall be subject to
termination in the absolute discretion of the Underwriters, by notice given
to the Company prior to delivery of and payment for the Securities, if at any
time prior to such time (i) trading in the Company's Common Stock shall
have been suspended by the Commission or the NASDAQ or trading in securities
generally on the New York Stock Exchange or the NASDAQ shall have been
suspended or limited or minimum prices shall have been established on such
Exchange or NASDAQ, a banking moratorium shall have been declared either by
Federal or New York State authorities or there shall have occurred any
outbreak or escalation of hostilities, declaration by the United States of a
national emergency or war or other calamity or crisis the effect of which on
financial markets is such as to make it, in the sole judgment of the
Underwriters, impractical or inadvisable to proceed with the offering or
delivery of the Securities as contemplated by the Prospectus (exclusive of
any supplement thereto).
(b) LIABILITIES. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any
other party except as provided in Section 4 hereof, and provided further that
Sections 1, 6 and 7 shall survive such termination and remain in full force
and effect.
SECTION 10. DEFAULT BY ONE OR MORE OF THE UNDERWRITERS. If any one or
more of the Underwriters shall fail to purchase and pay for any of the
Securities agreed to be purchased by such Underwriter or Underwriters
hereunder and such failure to purchase shall constitute a default in the
performance of its or their obligations under this Agreement, the remaining
Underwriters shall be obligated severally to take up and pay for (in the
respective proportions which the amount of Securities set forth opposite
their names in Schedule A hereto bears to the aggregate amount of Securities
set forth opposite the names of all the remaining Underwriters) the
Securities which the defaulting Underwriter or Underwriters agreed but failed
to purchase; PROVIDED, HOWEVER, that in the event that the aggregate amount
of Securities which the defaulting Underwriter or Underwriters agreed but
failed to purchase shall exceed 10% of the aggregate amount of Securities set
forth in Schedule A hereto, the remaining Underwriters shall have the right
to purchase all, but shall not be under any obligation to purchase any, of
the Securities, and if such nondefaulting Underwriters do not purchase all of
the Securities, this Agreement will terminate without liability to any
nondefaulting Underwriter or the Company. In the event of a default by any
Underwriter as set forth in this Section 10, the Closing Time shall be
postponed for such period, not exceeding five Business Days, as the
Underwriters shall determine in order that the required changes in the
Registration Statement and the Prospectus or in any other documents or
arrangements may be effected. Nothing contained in this Agreement shall
relieve any defaulting Underwriter of its liability, if any, to the Company
and any nondefaulting Underwriter for damages occasioned by its default
hereunder.
-17-
<PAGE>
SECTION 11. RELIANCE; NOTICES. In all dealings hereunder, the
Underwriters shall act on behalf of each of the Underwriters, and the parties
hereto shall be entitled to act and rely upon any statement, request, notice
or agreement on behalf of any Underwriter made or given by the Underwriters
jointly or by Salomon Brothers on their behalf.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex
or facsimile transmission to the Underwriters in care of Salomon Brothers Inc
General Counsel (fax no. (212) 783-1752) and confirmed to Salomon Brothers
Inc, Seven World Trade Center, New York, New York 10048, Attention: General
Counsel; and if to the Company shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set forth in the
Prospectus, Attention: General Counsel; PROVIDED, HOWEVER, that any notice to
an Underwriter pursuant to Section 6(c) hereof shall be delivered or sent by
mail, telex or facsimile transmission to such Underwriter at its address set
forth in its Underwriters' Questionnaire, or telex constituting such
Questionnaire, which address will be supplied to the Company by the
Underwriters upon request. Any such statements, requests, notices or
agreements shall take effect upon receipt thereof.
SECTION 12. PARTIES. This Agreement shall inure to the benefit of and
be binding upon the Underwriters, the Company and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the
Underwriters, the Company and their respective successors and the controlling
persons and officers and directors referred to in Sections 6 and 7 and their
heirs and legal Underwriters, any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provision herein contained. This
Agreement and all conditions and provisions hereof are intended to be for the
sole and exclusive benefit of the Underwriters, the Company and their
respective successors, and said controlling persons and officers and
directors and their heirs and legal Underwriters, and for the benefit of no
other person, firm or corporation. No purchaser of Securities from any
Underwriter shall be deemed to be a successor by reason merely of such
purchase.
SECTION 13. TIME OF THE ESSENCE. Time shall be of the essence of
this Agreement. As used herein, the term "business day" shall mean any day
when the Commission's office in Washington, D.C. is open for business.
SECTION 14. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 15. EFFECT OF HEADINGS. The Section headings herein are for
convenience only and shall not affect the construction hereof.
SECTION 16. COUNTERPARTS. This Agreement may be executed by any one
of more of the parties hereto in any number of counterparts, each of which
shall be deemed to be an original, but all such counterparts shall together
constitute one and the same instrument.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, and
upon the acceptance hereof by Salomon Brothers, on behalf of each of the
Underwriters, this letter and such acceptance hereof shall constitute a
binding agreement between each of the Underwriters and the Company. It is
understood that your acceptance of this letter on behalf of each
-18-
<PAGE>
of the Underwriters is pursuant to the authority set forth in a form of
Agreement among Underwriters, the form of which shall be submitted to the
Company for examination upon request, but without warranty on your part as to
the authority of the signers thereof.
Very truly Yours,
NEXTLINK Communications, Inc.
By__________________________________
Name: R. Bruce Easter, Jr.
Title: Vice President
CONFIRMED AND ACCEPTED,
as of the date first above written:
Salomon Brothers Inc
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Bear, Stearns & Co. Inc.
Toronto Dominion Securities (USA) Inc.
By: Salomon Brothers Inc
By____________________________________
Name:
Title:
For themselves and on behalf of the
other Underwriters named in Schedule A hereto.
-19-
<PAGE>
SCHEDULE A
Aggregate
Principal Amount
of
Notes to be
Underwriter Purchased
----------- ---------------
Salomon Brothers Inc.......................................... $
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..................................... $
Bear, Stearns & Co. Inc....................................... $
Toronto Dominion Securities (USA)Inc......................... $-----------
Total.................................................... $400,000,000
------------
------------
Sch A-1
<PAGE>
Exhibit A-1
FORM OF OPINION OF WILKIE FARR & GALLAGHER
TO BE DELIVERED PURSUANT TO SECTION 5(b)
(i) The Company has been duly incorporated and is validly
existing as a corporation under the laws of the State of Washington.
(ii) The Company has power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under the
Underwriting Agreement.
(iii) The Company is duly qualified as a foreign
corporation to transact business and is in good standing in each jurisdiction
in which such qualification is required, whether by reason of the ownership
or leasing of property or the conduct of business, except where the failure
so to qualify or to be in good standing would not result in a Material
Adverse Effect.
(iv) The authorized, issued and outstanding capital stock
of the Company is as set forth in the Prospectus as of the dates indicated
therein; the shares of issued and outstanding capital stock of the Company
have been duly authorized and validly issued and are fully paid and
non-assessable; and none of the outstanding shares of capital stock of the
Company was issued in violation of the preemptive or other similar rights of
any securityholder of the Company.
(v) Each Designated Subsidiary has been duly formed and
is validly existing as a corporation, limited liability company or limited
partnership in good standing, as applicable, under the laws of the
jurisdiction of its formation, and has power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus; all of the issued and outstanding shares, membership interests or
partnership interests of each Designated Subsidiary has been duly authorized
and validly issued, is fully paid and non-assessable and, except as otherwise
set forth in the Prospectus in respect of the minority interests described
therein, is owned by the Company, directly or through subsidiaries, free and
clear of any security interest, mortgage, pledge, lien, encumbrance, claim or
equity.
(vi) The Underwriting Agreement has been duly authorized,
executed and delivered by the Company.
(vii) The Indenture has been duly authorized, executed and
delivered; and, assuming due execution by the Trustee, the Indenture
constitutes a valid and legally binding obligation of the Company enforceable
in accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general
equity principles.
(viii) The Securities have been duly authorized and executed
by the Company and authenticated, issued and delivered in accordance with the
Indenture and constitute valid and legally binding obligations of the Company
entitled to the benefits provided by the Indenture, subject, as to
enforcement, to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles. In rendering the opinion
set forth in this paragraph (viii), as to authentication we have relied
solely on a certificate of the Trustee as to the
A-1-1
<PAGE>
authentication of the Securities by a duly authorized representative of the
Trustee and have assumed that the Securities so authenticated have been
delivered to you and paid for by you in accordance with the Underwriting
Agreement. The Securities and the Indenture conform in all material respects
to the descriptions thereof in the Prospectus;
(ix) The information in the Prospectus under the caption
"Description of the Notes", to the extent that it constitutes a summary of
the terms of the Securities, and under the captions "Business Regulatory
Overview" and "Underwriting", to the extent that it constitutes matters of
law, summaries of legal matters, or legal conclusions, has been reviewed by
us and is correct in all material respects.
(x) The statements set forth in the Prospectus under the
caption "Certain United States Federal Income Tax Consequences", insofar as
such statements purport to summarize certain United States federal income and
estate tax consequences of the ownership and dispensation of the Securities
by certain U.S. Holders and non-U.S. Holders (as such terms are defined
therein) of the Securities, provide a fair summary of such consequences
under current law.
(xi) All descriptions in the Prospectus of contracts and
other documents to which the Company or any of its subsidiaries are a party
are accurate in all material respects; to the best of our knowledge, there
are no franchises, contracts, indentures, mortgages, loan agreements, notes,
leases or other instruments that would be required to be described in the
Prospectus that are not described or referred to in the Prospectus other than
those described or referred to therein and the descriptions thereof or
references thereto are correct in all material respects.
(xii) Neither the Company nor any of its subsidiaries is in
violation of its charter or by-laws or other constituting or operative
document or agreement and, to the best of our knowledge, no default by the
Company or any of its subsidiaries exists in the due performance or
observance of any material obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, loan agreement, note, lease
or other agreement or instrument that is described or referred to in the
Prospectus.
(xiii) No filing with, or authorization, approval, consent,
license, order, registration, qualification or decree of, any court or
governmental authority or agency is necessary or required for the performance
by the Company of its obligations under the Underwriting Agreement or the
Indenture, in connection with the offering, issuance or sale of the
Securities hereunder or thereunder or the consummation of the actions
contemplated by the Underwriting Agreement or the Indenture, except such as
have been obtained under the 1933 Act and the Trust Indenture Act, and such
consents, approvals, authorizations, registrations or qualifications as may
be required under state securities or Blue Sky laws in connection with the
purchase and distribution of the Securities by the Underwriters.
(xiv) The issue and sale of the Securities, the execution,
delivery and performance of the Underwriting Agreement, the Indenture and
the Securities and any other agreement or instrument entered into or issued
or to be entered into or issued by the Company in connection with the
transactions contemplated hereby, thereby or in the Prospectus, and the
consummation of the transactions contemplated herein, therein and in the
Prospectus (including the issuance and sale of the Securities by the Company
hereunder), the compliance by the Company with its obligations hereunder and
thereunder have been duly authorized by all necessary action and do not and
will not, whether with or without the giving of notice or passage of time or
both, conflict with or constitute a breach of, or default or a Repayment
Event under, or
A-1-2
<PAGE>
result in the creation or imposition of any lien, charge or encumbrance upon
any property or assets of the Company or any of its subsidiaries, pursuant to
any contract, indenture, mortgage, deed of trust, loan or credit agreement,
note, lease, or any other agreement or instrument known to such counsel to
which the Company or any of its subsidiaries is a party or by which it or any
of them may be bound, or to which any of the property or assets of the
Company or any subsidiaries thereof is subject, except for such conflicts,
breaches or defaults or liens, charges or encumbrances that, singly or in the
aggregate, would not result in a Material Adverse Effect, nor will such
action result in any violation of the provisions of the constituting or
operative document or agreement of the Company or any of its subsidiaries or
any applicable law, statute, rule, regulation, judgment, order, writ or
decree of any government, government instrumentality or court, domestic or
foreign, having jurisdiction over the Company or any of its subsidiaries or
any of their assets or properties.
(xv) The Company is not, and upon the issuance and sale of the
Securities and the application of the net proceeds therefrom will not be, an
"investment company" or an entity "controlled" by an "investment company," as
such terms are defined in the 1940 Act.
(xvi) The Registration Statement and the Prospectus and any
further amendments and supplements thereto made by the Company prior to each
Closing Time (other than the financial statements and related schedules
therein, as to which such counsel need express no opinion) comply as to form
in all material respects with the requirements of the 1933 Act and the rules
and regulations thereunder; although they do not assume any responsibility
for the accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus, except for those referred to in
subsection (ix) of this opinion, they have no reason to believe that, as of
its effective date, the Registration Statement or any further amendment
thereto made by the Company prior to such Closing Time (other than the
financial statements and related schedules therein, as to which such counsel
need express no opinion) contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading or that, as if its date, the
Prospectus or any further amendment or supplement thereto made by the Company
prior to such Closing Time (other than the financial statements and related
schedules therein, as to which such counsel need express no opinion)
contained an untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading or that, as of such
Closing Time, either the Registration Statement or the Prospectus or any
further amendment or supplement thereto made by the Company prior to such
Closing Time (other than the financial statements and related schedules
therein, as to which such counsel need express no opinion) contains an untrue
statement of a material fact or omits to state a material fact necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading; and they do not know of any amendment to the
Registration Statement required to be filed or of any contracts or other
documents of a character required to be filed as an exhibit to the
Registration Statement or required to be described in the Registration
Statement or the Prospectus which are not filed or described as required.
In rendering such opinion, such counsel (A) may rely (i) as to matters
involving the application of the laws of the State of Washington, upon the
opinion of Davis Wright Tremaine LLP, special Washington counsel to the
Company (which opinion shall be dated and furnished to the Underwriters at
the Closing Time, shall be satisfactory in form and substance to counsel for
the Underwriters and shall expressly state that the Underwriters may rely on
such opinion as if it were addressed to them), provided that Willkie Farr &
Gallagher shall state in their opinion that they believe that they and the
Underwriters are justified in relying upon such opinion, and (ii) as to
matters of fact (but not as to legal conclusions), to the extent they deem
proper, on certificates of responsible officers of the Company and public
officials and (B) may state that they
A-1-3
<PAGE>
express no opinion as to the laws of any jurisdiction outside the United
States. Such opinion shall not state that it is to be governed or qualified
by, or that it is otherwise subject to, any treatise, written policy or other
document relating to legal opinions, including, without limitation, the Legal
Opinion Accord of the ABA Section of Business Law (1991).
A-1-4
<PAGE>
Exhibit A-2
FORM OF OPINION OF R. BRUCE EASTER, ESQ.
TO BE DELIVERED PURSUANT TO SECTION 5(b)
(i) There is not pending or, to the best of my knowledge, threatened
any action, suit, proceeding, inquiry or investigation, to which the Company
or any subsidiary thereof is a party, or to which the property of the Company
or any subsidiary thereof is subject, before or brought by any court or
governmental agency or body, which could reasonably be expected to result in
a Material Adverse Effect, or which might reasonably be expected to
materially and adversely affect the properties or assets thereof or the
consummation of the transactions contemplated in the Underwriting Agreement,
the Indenture or the Securities or the performance by the Company of its
obligations thereunder or the transactions contemplated by the Prospectus.
(ii) To the best of my knowledge and except as set forth in or
contemplated by the Prospectus with respect to systems under development, (a)
each of the Company and its Designated Subsidiaries has all Authorizations of
and from, and has made all declarations and filings with, all Federal, state,
local and other governmental authorities, all self-regulatory organizations
and all courts and other tribunals, which are necessary or appropriate for
the Company and its Designated Subsidiaries to own, lease, license, use and
construct its properties and assets and to conduct its business in the manner
described in the Prospectus, except to the extent that the failure to obtain
any such Authorizations or make any such declaration or filing would not,
singly or in the aggregate, reasonably be expected to result in a Material
Adverse Effect, (b) all such Authorizations are in full force and effect with
respect to the Company and its Designated Subsidiaries, (c) no event has
occurred that permits, or after notice or lapse of time could permit, the
revocation, termination or modification of any such Authorization and (d) the
Company and its Designated Subsidiaries are in compliance in all material
respects with the terms and conditions of all such Authorizations and with
the rules and regulations of the regulatory authorities and governing bodies
having jurisdiction with respect thereto.
(iii) To the best of my knowledge, neither the execution and
delivery of the Underwriting Agreement, the Indenture or the Securities, nor
the consummation by the Company of the transactions contemplated hereby or
thereby will cause any suspension, revocation, impairment, forfeiture,
nonrenewal or termination of any Authorization.
In rendering such opinion, such counsel (A) may rely (i) as to matters
involving the application of the laws of the State of Washington, upon the
opinion of Davis Wright Tremaine LLP, special Washington counsel to the
Company (which opinion shall be dated and furnished to the Underwriters at
the Closing Time, shall be satisfactory in form and substance to counsel for
the Underwriters and shall expressly state that the Underwriters may rely on
such opinion as if it were addressed to them), provided that Mr. Easter shall
state in his opinion that he believes that he and the Underwriters are
justified in relying upon such opinion, and (ii) as to matters of fact (but
not as to legal conclusions), to the extent he deems proper, on certificates
of responsible officers of the Company and public officials and (B) may state
that he expresses no opinion as to the laws of any jurisdiction outside the
United States. Such opinion shall not state that it is to be governed or
qualified by, or that it is otherwise subject to, any treatise, written
policy or other document relating to legal opinions, including, without
limitation, the Legal Opinion Accord of the ABA Section of Business Law
(1991).
A-2-1
<PAGE>
Exhibit A-3
FORM OF OPINION OF DAVIS WRIGHT TREMAINE LLP
TO BE DELIVERED PURSUANT TO SECTION 5(b)
(i) The Company has been duly incorporated and is validly
existing as a corporation under the laws of the State of Washington.
(ii) Each of the Indenture and the Underwriting Agreement has
been duly authorized, executed and delivered by the Company under the laws of
the State of Washington.
(iii) The Securities have been duly authorized and executed by
the Company and issued and delivered in accordance with the Indenture by the
Company.
(iv) The issue and sale of the Securities, the execution,
delivery and performance of the Underwriting Agreement, the Indenture, the
Securities and any other agreement or instrument entered into or issued or to
be entered into or issued by the Company in connection with the transactions
contemplated thereby or in the Prospectus, and the consummation of the
transactions contemplated therein and in the Prospectus (including the
issuance and sale of the Securities by the Company under the Underwriting
Agreement and the use of the proceeds from the sale of the Securities as
described in the Prospectus under the caption "Use of Proceeds"), the
compliance by the Company with its obligations under the Underwriting
Agreement have been duly authorized by all necessary action and do not and
will not, whether with or without the giving of notice or passage of time or
both, conflict with, contravene or constitute a breach of the Company's
Articles of Incorporation or By-Laws.
(v) No filing with, or authorization, approval, consent,
license, order, registration, qualification or decree of, any court or
governmental authority or agency of the State of Washington is necessary or
required for the performance by the Company of its obligations under the
Underwriting Agreement or the Indenture, in connection with the offering,
issuance or sale of the Securities thereunder or the consummation of the
actions contemplated by the Underwriting Agreement or the Indenture, except
such consents, approvals, authorizations, registrations or qualifications as
may be required under federal law or securities or Blue Sky laws of the State
of Washington in connection with the purchase and distribution of the
Securities by the Underwriters.
In rendering such opinion, such counsel (A) may rely as to matters
of fact (but not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Company and public officials and
(B) may state that they express no opinion as to the laws of any jurisdiction
other than the State of Washington. Such opinion shall not state that it is
to be governed or qualified by, or that it is otherwise subject to, any
treatise, written policy or other document relating to legal opinions,
including, without limitation, the Legal Opinion Accord of the ABA Section of
Business Law (1991).
A-3-1
<PAGE>
EXHIBIT 4.1
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
NEXTLINK COMMUNICATIONS, INC.
TO
UNITED STATES TRUST COMPANY OF NEW YORK
TRUSTEE
Indenture
Dated as of September __, 1997
$400,000,000
____% SENIOR NOTES
DUE 2007
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
<PAGE>
NEXTLINK COMMUNICATIONS, INC.
Certain Sections of this Indenture relating to
Sections 310 through 318 of the
Trust Indenture Act of 1939:
TRUST INDENTURE INDENTURE
ACT SECTION SECTION
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
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . 513
_______________
Note: This reconciliation and tie shall not, for any purpose, be deemed to
be a part of the Indenture.
-i-
<PAGE>
TRUST INDENTURE INDENTURE
ACT SECTION SECTION
(a)(2) . . . . . . . . . . . . . . . . . . . . Not
Applicable
(b) . . . . . . . . . . . . . . . . . . . . 508
(c) . . . . . . . . . . . . . . . . . . . . 104
Section 317(a)(1) . . . . . . . . . . . . . . . . . . . . 503
(a)(2) . . . . . . . . . . . . . . . . . . . . 504
(b) . . . . . . . . . . . . . . . . . . . . 1003
Section 318(a) . . . . . . . . . . . . . . . . . . . . 107
_______________
Note: This reconciliation and tie shall not, for any purpose, be deemed
to be a part of the Indenture.
-ii-
<PAGE>
TABLE OF CONTENTS
PAGE
Parties . . . . . . . . . . . . . . . . . . . . . . 1
Recitals of the Company . . . . . . . . . . . . . . . . . . . . 1
ARTICLE ONE
Definitions and Other Provisions of
General Application
SECTION 101. Definitions:
Act . . . . . . . . . . . . . . . . . . . . . . 2
Acquired Debt . . . . . . . . . . . . . . . . . . 2
Affiliate . . . . . . . . . . . . . . . . . . . . 2
Agent Member. . . . . . . . . . . . . . . . . . . 2
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 . . . . . . . . . . . . . . . . . . 4
Change of Control . . . . . . . . . . . . . . . . 4
Commission. . . . . . . . . . . . . . . . . . . . 5
Common Equity . . . . . . . . . . . . . . . . . . 5
Company . . . . . . . . . . . . . . . . . . . . . 5
Company Request; Company Order. . . . . . . . . . 5
Consolidated Capital Ratio. . . . . . . . . . . . 5
Consolidated Cash Flow Available for Fixed Charges 5
Consolidated Income Tax Expense . . . . . . . . . 6
Consolidated Interest Expense . . . . . . . . . . 6
Consolidated Net Income . . . . . . . . . . . . . 6
Consolidated Net Worth. . . . . . . . . . . . . . 7
Consolidated Tangible Assets. . . . . . . . . . . 7
Corporate Trust Office. . . . . . . . . . . . . . 7
corporation . . . . . . . . . . . . . . . . . . . 8
Debt . . . . . . . . . . . . . . . . . . . . . . 8
Default . . . . . . . . . . . . . . . . . . . . . 9
Defaulted Interest. . . . . . . . . . . . . . . . 9
Depository. . . . . . . . . . . . . . . . . . . . 9
_______________
Note: This table of contents shall not, for any purpose, be deemed to
be a part of the Indenture.
-iii-
<PAGE>
PAGE
Disqualified Stock. . . . . . . . . . . . . . . . 9
DTC . . . . . . . . . . . . . . . . . . . . . . 9
Eagle River . . . . . . . . . . . . . . . . . . . 9
Eligible Institution. . . . . . . . . . . . . . . 9
Event of Default. . . . . . . . . . . . . . . . . 10
Exchange Act. . . . . . . . . . . . . . . . . . . 10
Global Security . . . . . . . . . . . . . . . . . 10
Government Securities . . . . . . . . . . . . . . 10
Guarantee . . . . . . . . . . . . . . . . . . . . 10
Holder. . . . . . . . . . . . . . . . . . . . . . 11
Incur . . . . . . . . . . . . . . . . . . . . . . 11
Indenture . . . . . . . . . . . . . . . . . . . . 11
Interest Payment Date . . . . . . . . . . . . . . 11
Interest Rate or Currency Protection
Agreement. . . . . . . . . . . . . . . . . . . 11
Investment. . . . . . . . . . . . . . . . . . . . 11
Issue Date. . . . . . . . . . . . . . . . . . . . 12
Joint Venture . . . . . . . . . . . . . . . . . . 12
Lien . . . . . . . . . . . . . . . . . . . . . . 12
Marketable Securities . . . . . . . . . . . . . . 12
Maturity. . . . . . . . . . . . . . . . . . . . . 13
Net Available Proceeds. . . . . . . . . . . . . . 13
Offer to Purchase . . . . . . . . . . . . . . . . 14
Officers' Certificate . . . . . . . . . . . . . . 16
Opinion of Counsel. . . . . . . . . . . . . . . . 17
Outstanding . . . . . . . . . . . . . . . . . . . 17
Paying Agent. . . . . . . . . . . . . . . . . . . 18
Permitted Interest Rate or Currency
Protection Agreement. . . . . . . . . . . . . . 18
Permitted Investment. . . . . . . . . . . . . . . 18
Permitted Liens . . . . . . . . . . . . . . . . . 18
Person. . . . . . . . . . . . . . . . . . . . . . 19
Predecessor Security. . . . . . . . . . . . . . . 19
Preferred Dividends . . . . . . . . . . . . . . . 20
Preferred Stock . . . . . . . . . . . . . . . . . 20
Purchase Date . . . . . . . . . . . . . . . . . . 20
Purchase Money Debt . . . . . . . . . . . . . . . 20
readily marketable cash equivalents . . . . . . . 20
Receivables . . . . . . . . . . . . . . . . . . . 21
Receivables Sale. . . . . . . . . . . . . . . . . 21
Redemption Date . . . . . . . . . . . . . . . . . 21
Redemption Price. . . . . . . . . . . . . . . . . 21
Regular Record Date . . . . . . . . . . . . . . . 21
_______________
Note: This table of contents shall not, for any purpose, be deemed to
be a part of the Indenture.
-iv-
<PAGE>
PAGE
Related Person. . . . . . . . . . . . . . . . . . 21
Responsible Officer . . . . . . . . . . . . . . . 21
Restricted Subsidiary . . . . . . . . . . . . . . 22
Sale and Leaseback Transaction. . . . . . . . . . 22
SEC Reports . . . . . . . . . . . . . . . . . . . 22
Securities. . . . . . . . . . . . . . . . . . . . 22
Securities Act. . . . . . . . . . . . . . . . . . 22
Security Register; Security Registrar . . . . . . 22
Significant Subsidiary. . . . . . . . . . . . . . 22
Special Record Date . . . . . . . . . . . . . . . 22
Stated Maturity . . . . . . . . . . . . . . . . . 23
Subordinated Debt . . . . . . . . . . . . . . . . 23
Subsidiary. . . . . . . . . . . . . . . . . . . . 24
Successor Security. . . . . . . . . . . . . . . . 24
Telecommunications Assets . . . . . . . . . . . . 24
Telecommunications Business . . . . . . . . . . . 24
Trustee . . . . . . . . . . . . . . . . . . . . . 25
Trust Indenture Act . . . . . . . . . . . . . . . 25
Unrestricted Subsidiary . . . . . . . . . . . . . 25
Vendor Financing Facility . . . . . . . . . . . . 26
Vice President. . . . . . . . . . . . . . . . . . 26
Voting Stock. . . . . . . . . . . . . . . . . . . 26
Wholly-Owned Restricted Subsidiary. . . . . . . . 26
SECTION 102. Compliance Certificates and
Opinions. . . . . . . . . . . . . . . . . . . . 26
SECTION 103. Form of Documents Delivered to
Trustee . . . . . . . . . . . . . . . . . . . . 27
SECTION 104. Acts of Holders; Record Dates . . . . . . . . . . 28
SECTION 105. Notices, Etc., to Trustee and
Company . . . . . . . . . . . . . . . . . . . . 31
SECTION 106. Notice to Holders; Waiver . . . . . . . . . . . . 31
SECTION 107. Conflict with Trust Indenture Act . . . . . . . . 32
SECTION 108. Effect of Headings and
Table of Contents . . . . . . . . . . . . . . . 32
_______________
Note: This table of contents shall not, for any purpose, be deemed to
be a part of the Indenture.
-v-
<PAGE>
PAGE
SECTION 109. Successors and Assigns. . . . . . . . . . . . . . 32
SECTION 110. Separability Clause . . . . . . . . . . . . . . . 32
SECTION 111. Benefits of Indenture . . . . . . . . . . . . . . 32
SECTION 112. Governing Law . . . . . . . . . . . . . . . . . . 33
SECTION 113. Legal Holidays. . . . . . . . . . . . . . . . . . 33
ARTICLE TWO
Security Forms
SECTION 201. Forms Generally . . . . . . . . . . . . . . . . . 33
SECTION 202. Form of Face of Security. . . . . . . . . . . . . 34
SECTION 203. Form of Reverse of Security . . . . . . . . . . . 37
SECTION 204. Additional Provisions Required
in Global Security. . . . . . . . . . . . . . . 41
SECTION 205. Form of Trustee's Certificate of
Authentication. . . . . . . . . . . . . . . . . 41
ARTICLE THREE
The Securities
SECTION 301. Title and Terms . . . . . . . . . . . . . . . . . 42
SECTION 302. Denominations . . . . . . . . . . . . . . . . . . 43
SECTION 303. Execution, Authentication,
Delivery and Dating . . . . . . . . . . . . . . 43
SECTION 304. Temporary Securities. . . . . . . . . . . . . . . 44
SECTION 305. Registration, Registration of
Transfer and Exchange. . . . . . . . . . . . . 44
_______________
Note: This table of contents shall not, for any purpose, be deemed to
be a part of the Indenture.
-vi-
<PAGE>
PAGE
SECTION 306. Mutilated, Destroyed, Lost and
Stolen Securities . . . . . . . . . . . . . . . 46
SECTION 307. Payment of Interest; Interest Rights
Preserved . . . . . . . . . . . . . . . . . . . 47
SECTION 308. Persons Deemed Owners . . . . . . . . . . . . . . 48
SECTION 309. Cancellation. . . . . . . . . . . . . . . . . . . 49
SECTION 310. Computation of Interest . . . . . . . . . . . . . 49
SECTION 311. CUSIP Numbers . . . . . . . . . . . . . . . . . . 49
ARTICLE FOUR
Satisfaction and Discharge
SECTION 401. Satisfaction and Discharge of
Indenture . . . . . . . . . . . . . . . . . . . 49
SECTION 402. Application of Trust Money. . . . . . . . . . . . 51
ARTICLE FIVE
Remedies
SECTION 501. Events of Default . . . . . . . . . . . . . . . . 51
SECTION 502. Acceleration of Maturity; Rescission
and Annulment . . . . . . . . . . . . . . . . . 54
SECTION 503. Collection of Indebtedness and Suits
for Enforcement by Trustee. . . . . . . . . . . 55
SECTION 504. Trustee May File Proofs of Claim. . . . . . . . . 56
SECTION 505. Trustee May Enforce Claims Without
Possession of Securities. . . . . . . . . . . . 57
SECTION 506. Application of Money Collected. . . . . . . . . . 57
_______________
Note: This table of contents shall not, for any purpose, be deemed to
be a part of the Indenture.
-vii-
<PAGE>
PAGE
SECTION 507. Limitation on Suits . . . . . . . . . . . . . . . 57
SECTION 508. Unconditional Right of Holders to
Receive Principal, Premium and
Interest . . . . . . . . . . . . . . . . . . . 58
SECTION 509. Restoration of Rights and Remedies. . . . . . . . 59
SECTION 510. Rights and Remedies Cumulative. . . . . . . . . . 59
SECTION 511. Delay or Omission Not Waiver. . . . . . . . . . . 59
SECTION 512. Control by Holders. . . . . . . . . . . . . . . . 60
SECTION 513. Waiver of Past Defaults . . . . . . . . . . . . . 60
SECTION 514. Undertaking for Costs . . . . . . . . . . . . . . 61
SECTION 515. Waiver of Stay or Extension Laws. . . . . . . . . 61
ARTICLE SIX
The Trustee
SECTION 601. Certain Duties and Responsibilities . . . . . . . 61
SECTION 602. Notice of Defaults. . . . . . . . . . . . . . . . 62
SECTION 603. Certain Rights of Trustee . . . . . . . . . . . . 62
SECTION 604. Not Responsible for Recitals or
Issuance of Securities. . . . . . . . . . . . . 63
SECTION 605. May Hold Securities . . . . . . . . . . . . . . . 64
SECTION 606. Money Held in Trust . . . . . . . . . . . . . . . 64
SECTION 607. Compensation and Reimbursement. . . . . . . . . . 64
SECTION 608. Disqualification; Conflicting
Interests . . . . . . . . . . . . . . . . . . . 65
_______________
Note: This table of contents shall not, for any purpose, be deemed to
be a part of the Indenture.
-viii-
<PAGE>
PAGE
SECTION 609. Corporate Trustee Required;
Eligibility . . . . . . . . . . . . . . . . . . 65
SECTION 610. Resignation and Removal; Appointment
of Successor. . . . . . . . . . . . . . . . . . 66
SECTION 611. Acceptance of Appointment by
Successor . . . . . . . . . . . . . . . . . . . 67
SECTION 612. Merger, Conversion, Consolidation
or Succession to Business . . . . . . . . . . . 68
SECTION 613. Preferential Collection of Claims
Against Company . . . . . . . . . . . . . . . . 68
SECTION 614. Appointment of Authenticating Agent . . . . . . . 68
ARTICLE SEVEN
Holders' Lists and Reports by Trustee and The Company
SECTION 701. Company to Furnish Trustee Names
and Addresses of Holders. . . . . . . . . . . . 70
SECTION 702. Preservation of Information;
Communications to Holders . . . . . . . . . . . 71
SECTION 703. Reports by Trustee. . . . . . . . . . . . . . . . 71
SECTION 704. Reports by Company . . . . . . . . . . . . . . . 71
ARTICLE EIGHT
Merger, Consolidation, Etc.
SECTION 801. Mergers, Consolidations and Certain
Sales of Assets . . . . . . . . . . . . . . . . 72
SECTION 802. Successor Substituted . . . . . . . . . . . . . . 74
_______________
Note: This table of contents shall not, for any purpose, be deemed to
be a part of the Indenture.
-ix-
<PAGE>
PAGE
ARTICLE NINE
Supplemental Indentures
SECTION 901. Supplemental Indentures Without
Consent of Holders. . . . . . . . . . . . . . . 74
SECTION 902. Supplemental Indentures with
Consent of Holders. . . . . . . . . . . . . . . 75
SECTION 903. Execution of Supplemental Indentures. . . . . . . 76
SECTION 904. Effect of Supplemental Indentures . . . . . . . . 76
SECTION 905. Conformity with Trust Indenture Act . . . . . . . 76
SECTION 906. Reference in Securities to
Supplemental Indentures . . . . . . . . . . . . 77
ARTICLE TEN
Covenants
SECTION 1001. Payment of Principal, Premium and
Interest. . . . . . . . . . . . . . . . . . . . 77
SECTION 1002. Maintenance of Office or Agency . . . . . . . . . 77
SECTION 1003. Money for Security Payments to be
Held in Trust . . . . . . . . . . . . . . . . . 78
SECTION 1004. Existence . . . . . . . . . . . . . . . . . . . . 80
SECTION 1005. Maintenance of Properties and
Insurance . . . . . . . . . . . . . . . . . . . 80
SECTION 1006. Payment of Taxes and Other Claims . . . . . . . . 80
SECTION 1007. Limitation on Consolidated Debt . . . . . . . . . 81
SECTION 1008. Limitation on Debt and Preferred
Stock of Restricted Subsidiaries . . . . . . . 84
_______________
Note: This table of contents shall not, for any purpose, be deemed to
be a part of the Indenture.
-x-
<PAGE>
PAGE
SECTION 1009. Limitation on Restricted Payments . . . . . . . . 86
SECTION 1010. Limitations on Dividend and Other
Payment Restrictions Affecting
Restricted Subsidiaries . . . . . . . . . . . . 89
SECTION 1011. Limitation on Liens. . . . . . . . . . . . . . . 90
SECTION 1012. Limitation on Sale and Leaseback
Transactions. . . . . . . . . . . . . . . . . . 91
SECTION 1013. Limitation on Asset Dispositions. . . . . . . . . 92
SECTION 1014. Limitation on Issuances and Sales
of Capital Stock of Restricted
Subsidiaries. . . . . . . . . . . . . . . . . . 94
SECTION 1015. Transactions with Affiliates and
Related Persons . . . . . . . . . . . . . . . . 95
SECTION 1016. Change of Control . . . . . . . . . . . . . . . . 95
SECTION 1017. Provision of Financial Information. . . . . . . . 97
SECTION 1018. Statement by Officers as to Default . . . . . . . 97
SECTION 1019. Waiver of Certain Covenants . . . . . . . . . . . 97
ARTICLE ELEVEN
Redemption of Securities
SECTION 1101. Right of Redemption . . . . . . . . . . . . . . . 98
SECTION 1102. Applicability of Article. . . . . . . . . . . . . 99
SECTION 1103. Election to Redeem; Notice to
Trustee . . . . . . . . . . . . . . . . . . . . 99
_______________
Note: This table of contents shall not, for any purpose, be deemed to
be a part of the Indenture.
-xi-
<PAGE>
PAGE
SECTION 1104. Securities to Be Redeemed Pro Rata. . . . . . . . 99
SECTION 1105. Notice of Redemption. . . . . . . . . . . . . . . 100
SECTION 1106. Deposit of Redemption Price . . . . . . . . . . . 101
SECTION 1107. Securities Payable on Redemption
Date. . . . . . . . . . . . . . . . . . . . . . 101
SECTION 1108. Securities Redeemed in Part . . . . . . . . . . . 102
ARTICLE TWELVE
Defeasance and Covenant Defeasance
SECTION 1201. Company' Option to Effect Defeasance
or Covenant Defeasance. . . . . . . . . . . . . 102
SECTION 1202. Defeasance and Discharge . . . . . . . . . . . . 102
SECTION 1203. Covenant Defeasance. . . . . . . . . . . . . . . 103
SECTION 1204. Conditions to Defeasance or Covenant
Defeasance. . . . . . . . . . . . . . . . . . . 103
SECTION 1205. Deposited Money and U.S. Government
Obligations to Be Held in Trust;
Other Miscellaneous Provisions. . . . . . . . . 106
SECTION 1206. Reinstatement . . . . . . . . . . . . . . . . . . 106
SECTION 1207. Repayment to Company. . . . . . . . . . . . . . . 107
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . 108
_______________
Note: This table of contents shall not, for any purpose, be deemed to
be a part of the Indenture.
-xii-
<PAGE>
INDENTURE, dated as of September __, 1997 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
$400,000,000 aggregate principal amount of its ____% Senior Notes due 2007 (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.
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;
(2) all other terms used herein which are defined in the Trust
Indenture Act, either
<PAGE>
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.
"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.
"Asset Disposition" by any Person means any transfer, conveyance,
sale, lease or other disposition by such
-2-
<PAGE>
Person or any of its Restricted Subsidiaries (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 specified Person, but excluding a disposition by a
Restricted Subsidiary of such Person to such Person or a Wholly-Owned Restricted
Subsidiary of such Person or by such Person to a Wholly-Owned Restricted
Subsidiary of such Person) of (i) shares of Capital Stock or other ownership
interests of a Restricted Subsidiary of such Person (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 such Person 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 such
Person 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"
means, as to a Capital Lease Obligation, the principal amount thereof.
-3-
<PAGE>
"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 the board of directors of the Company.
"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.
"Change of Control" has the meaning specified in Section 1016.
"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
perform-
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ing 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 of such Person
then outstanding 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 non-cash expense related to the issuance to
employees of the Company or any Restricted Subsidiary of the Company of options
to purchase Capital Stock of the Company or such Restricted Subsidiary, 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 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
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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 Stock 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 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
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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
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.
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"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 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.
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"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 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 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 a Change of Control occurring prior to the final Stated Maturity
of the Securities shall not constitute Disqualified Stock if the 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 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 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.
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"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.
"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.
"Incur" means, with respect to any Debt or other obligation of any
Person, to create, issue, incur (by
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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
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or any of its Restricted Subsidiaries in the ordinary course of business,
accounts receivable and other commercially reasonable extensions of trade
credit.
"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
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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.
"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
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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")
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
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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 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);
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(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
(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.
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"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.
"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;
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
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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, and (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.
"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
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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
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
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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 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 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.
"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 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
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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.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the ________ or ________ (whether or not a Business Day), as the case
may be, next preceding such Interest Payment Date.
"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.
"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
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officer to whom such matter is referred because of his knowledge of and
familiarity with the particular subject.
"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.
"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" has the meaning specified in the second paragraph of this
instrument.
"Securities Act" means the Securities Act of 1933 and any statute
successor thereto, in each case as amended from time to time.
"Security Register" and "Security Registrar" have the respective
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.
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"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 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
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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
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
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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 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 amount available for Restricted Payments thereunder. The Board of
Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary, PROVIDED that, immediately after giving effect to such designation,
the Company could Incur at least $1.00 of
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additional Debt pursuant to the first paragraph of Section 1007.
"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.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include
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(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,
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certificates, statements, opinions or other instruments under this Indenture,
they may, but need not, be consolidated and form one instrument.
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,
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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,
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
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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 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.
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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, 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 notifi-
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cation as shall be made with the approval of the Trustee shall constitute a
sufficient notification for every purpose hereunder.
SECTION 107. CONFLICT WITH 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.
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.
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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 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.
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.
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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 the Security is a Global Security, insert the legends required by
Section 204 of the Indenture]
NEXTLINK Communications, Inc.
____% SENIOR NOTES DUE 2007
CUSIP NUMBER: __________
No. __________ $_______________
NEXTLINK Communications, Inc., a corporation organized under the laws
of the State of Washington (herein called the "Company", which term includes any
successor Person under the Indenture hereinafter referred to), for value
received, hereby promises to pay to __________, or registered assigns, the
principal sum of _____________ Dollars on [September] __, 2007, and to pay
interest thereon from [September] __, 1997 or from the most recent Interest
Payment Date to which interest has been paid or duly provided for, semi-annually
on ____________, and ____________ in each year, commencing ____________, 1998 at
the rate of ____% per annum, until the principal hereof is paid or made
available for payment. 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 ____________ or ____________ (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
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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.
Payments on this Security issued as a Global Security shall be made in
immediately available funds to the Depositary. In the event that 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:
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<PAGE>
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 Senior Notes due 2007 (the "Securities") issued
under an Indenture, dated as of [September] __, 1997 (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 under the Indenture). The Securities are limited in
aggregate principal amount to $400,000,000. 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 __________, 2002 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 ___________________, of each of
the years indicated below:
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REDEMPTION
YEAR PRICE
2002 %
2003 %
2004 %
and thereafter at a Redemption Price equal to 100% 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 __________,
2002 only in the event that on or before __________, 2000 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 331/3% of the
original principal amount of the Securities, PROVIDED, HOWEVER, that Securities
in an amount equal to at least $133 million 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 ______% 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)
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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.
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 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.
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
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<PAGE>
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, 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,
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<PAGE>
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:
$___________
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.
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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
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
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<PAGE>
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 $400,000,000,
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 Securities shall be known and designated as the "____% Senior
Notes due 2007" of the Company. The Stated Maturity of the Securities shall be
[September] __, 2007. The Securities shall bear interest at the rate of ____%
per annum, from [September] __, 1997 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 __________ and __________, commencing
___________, 1998, until the principal thereof is paid or made available for
payment.
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.
Payments on the Securities issued as a Global Security shall be made
in immediately available funds to the Depositary. In the event that Securities
are issued in certificated form, 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.
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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
Company as provided in Article Twelve.
SECTION 302. DENOMINATIONS.
The Securities are issuable only in registered form without coupons 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.
Each Security shall be dated the date of its authentication.
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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.
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
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purpose of registering Securities and transfers and exchanges of Securities as
herein provided. Such Security Register shall distinguish between Original
Securities and Exchange Securities.
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, 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 the applicable legends set forth in Section 202.
At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denominations and of a like tenor and aggregate
principal amount and bearing the applicable legends set forth in Section 202,
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 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, other
than exchanges pursuant to Section 304, 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
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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.
The provisions of Clauses (1), (2), (3) and (4) below shall apply only
to Global Securities:
(1) Each Global Security authenticated under this Indenture shall be
registered in the name of the Depositary designated for such Global
Security or a nominee thereof and delivered to such Depositary or a nominee
thereof or custodian therefor, and each such Global Security shall
constitute a single Security for all purposes of this Indenture.
(2) Notwithstanding any other provisions in this Indenture, no Global
Security may be exchanged in whole or in part for Securities registered,
and no transfer of a Global Security in whole or in part may be registered,
in the name of any Person other than the Depositary for such Global
Security or a nominee thereof unless (A) such Depositary (i) has notified
the Company that it is unwilling or unable to continue as Depositary for
such Global Security or (ii) has ceased to be a clearing agency registered
under the Exchange Act, or (B) there shall have occurred and be continuing
an Event of Default with respect to such Global Security.
(3) Subject to Clause (2) above, any exchange of a Global Security
for other Securities may be made in whole or in part, and all Securities
issued in exchange for a Global Security or any portion thereof shall be
registered in such names as the Depositary for such Global Security shall
direct.
(4) Every Security authenticated and delivered upon registration of
transfer of, or in exchange for or in lieu of, a Global Security or any
portion thereof, whether pursuant to this Section, Section 304, 306, 906 or
1108 or otherwise, shall be authenticated and delivered in the form of, and
shall be, a Global Security, unless such Security is registered in the name
of a Person other than the Depositary for such Global Security or a nominee
thereof.
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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.
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.
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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 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 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
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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.
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.
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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 NUMBERS.
The Company shall in issuing the Securities use CUSIP numbers, and the
Trustee shall use the applicable CUSIP number in notices of redemption or
exchange as a convenience to the Holders; PROVIDED, that any such notice may
state that no representation is made as to the accuracy of correctness of the
CUSIP number or numbers printed in the notice or on the certificates
representing the Securities and that reliance may be placed only on the other
identification numbers printed on the certificates representing the Securities.
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
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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 and (v) rights of the 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), 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;
(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
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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):
(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
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(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
decree or order for relief in
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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.
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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 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
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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.
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
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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.
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
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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
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
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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;
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
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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 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.
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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 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 Inden-
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ture; 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 covenant that they 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
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 pro-
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vided, 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
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;
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(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)
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or liability in connection with the exercise or performance of any of its
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
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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.
(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
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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 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.
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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,
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
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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.
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
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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
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
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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.
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.
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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.
ARTICLE EIGHT
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
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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.
(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
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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 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
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order 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
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
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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.
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.
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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 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
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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 Paying Agent will:
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(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
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City of New York, New York, 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 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.
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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 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 any
such Debt had been Incurred and the proceeds thereof had been applied at the
beginning of such four fiscal quarters, 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 and any other Debt Incurred
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 $125 million, and any renewal, extension,
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refinancing or refunding thereof in an amount which, together with any
principal amount remaining 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 90% of the cost of
construction, acquisition or improvement price of the applicable
Telecommunications Assets;
(iii) Debt owed by the Company to any Wholly-Owned Restricted Subsidiary
of the Company or Debt owed by a Restricted Subsidiary of the Company to
the Company or a Wholly-Owned Restricted Subsidiary of the Company;
PROVIDED, HOWEVER, that upon either (x) the transfer or other disposition
by such Wholly-Owned Restricted Subsidiary or the Company of any Debt so
permitted to a Person other than the Company or another Wholly-Owned
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
Wholly-Owned Restricted Subsidiary to a Person other than the Company or
another such Wholly-Owned 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
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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, 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
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(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 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), 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 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;
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(ii) Debt Incurred or Preferred Stock issued to and held by the Company
or a Wholly-Owned Restricted Subsidiary of the Company (provided that such
Debt or Preferred Stock is at all times held by the Company or a
Wholly-Owned 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 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
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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 (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 90% of the cost of
construction, acquisition or improvement price of the applicable
Telecommunications Assets; and
(x) Debt not otherwise permitted to be incurred pursuant to clauses (i)
through (ix) above, which, together with any other outstanding Debt
incurred pursuant to this clause (x), has an aggregate principal amount
(or, in the case of Debt issued at a discount, an accreted amount
(determined in accordance with
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generally accepted accounting principles) at the time of Incurrence) not in
excess of $10 million at any time outstanding.
SECTION 1009. LIMITATION ON RESTRICTED PAYMENTS.
The Company (i) may not, directly or indirectly, declare or pay any
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
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(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 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
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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
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)
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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.
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
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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 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
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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 Proceeds, less any amounts invested within 360 days of
such disposition in new Telecommunications Assets, 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
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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 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 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 neces-
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sary) 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
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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 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 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
$5 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 $5 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.
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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.
(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
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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.
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.
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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
Redemption of Securities
SECTION 1101. RIGHT OF REDEMPTION.
(a) The Securities may be redeemed prior to __________, 2002 only in
the event that on or before __________, 2000 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 331/3% of the original
principal amount of the Securities PROVIDED, HOWEVER, that Securities in an
amount equal to at least $133 million 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 ______% 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 __________, 2002 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
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$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 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
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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:
(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,
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(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
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.
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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
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
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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 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
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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.
(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
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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.
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(8) The Company shall have delivered to the Trustee an Opinion of
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 a 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.
-107-
<PAGE>
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
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.
-108-
<PAGE>
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
Name: R. Bruce Easter, Jr.
Title: Vice President, General Counsel and Secretary
Attest:
By
UNITED STATES TRUST COMPANY
OF NEW YORK
By__________________________
Name:
Title:
[SEAL]
Attest:
___________________________
By
-109-
<PAGE>
STATE OF NEW YORK ) ss.:
COUNTY OF NEW YORK )
On this __________ day of [September], 1997, before me personally
appeared R. Bruce Easter, 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.
______________________________
Notary Public
STATE OF NEW YORK ) ss.:
COUNTY OF NEW YORK )
On this __________ day of [September], 1997, before me personally
appeared ______________, to me known, who, being duly sworn, did depose and say
that he 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 he executed the same by authority of the Board of
Directors of said corporation.
______________________________
Notary Public
<PAGE>
EXHIBIT 5.1
Willkie Farr & Gallagher
153 East 53rd Street
New York, New York 10022
September 22, 1997
NEXTLINK Communications, Inc.
155 108th Avenue, N.E., 8th Floor
Bellevue, Washington 98004
Ladies and Gentlemen:
We have acted as counsel to NEXTLINK Communications, Inc. (the "Company"), a
corporation organized under the laws of the State of Washington, in
connection with the preparation of a registration statement on Form S-1 (as
amended, the "Registration Statement") relating to the offer and sale of
Senior Notes due 2007 of the Company (the "Notes") to be issued under an
Indenture (the "Indenture") to be entered into by the Company and United
States Trust Company of New York, as Trustee and sold pursuant to the terms
of an underwriting agreement to be executed by the Company, Salomon Brothers
Inc, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Bear, Stearns & Co.
Inc. and TD Securities (USA) Inc. (the "Underwriters").
We have examined copies of the certificate of incorporation and by-laws of
the Company, and the amendments thereto, the Registration Statement, certain
resolutions adopted by the Company's Board of Directors and other records and
documents that we have deemed necessary for the purpose of this opinion. We
have also examined such other documents, papers, statutes and authorities as
we have deemed necessary to form a basis for the opinion hereinafter
expressed. In our examination, we have assumed the genuineness of all
signatures and the conformity to original documents of all copies submitted
to us. As to various questions of fact material to our opinion, we have
relied on statements and certificates of officers and representatives of the
Company and public officials.
Based on the foregoing, we are of the opinion that
1. The Notes have been duly authorized by all necessary corporate action
of the Company, and when executed, authenticated and delivered by or on
behalf of the Company and paid for by the Underwriters, will be valid
and binding obligations of the Company, entitled to the benefits of the
Indenture, and enforceable against the Company in accordance with the
terms thereof, except as enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, fraudulent conveyance and other
similar laws affecting the enforcement of creditors' rights generally
and except as enforcement thereof is subject to general principles of
equity (regardless of whether enforcement is considered in a proceeding
in equity or at law); and
2. The Indenture, when duly executed and delivered by the Company and the
Trustee, will constitute a valid and binding instrument of the Company
and will be enforceable against the Company in accordance with the
terms thereof, except as enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, fraudulent conveyance and other
similar laws affecting the
<PAGE>
enforcement of creditors' rights generally and except as enforcement
thereof is subject to general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law).
We are not admitted to practice in the State of Washington and, to the
extent that our opinions expressed herein contain conclusions as to
matters of Washington law, we have relied upon the opinion of even date
herewith delivered to you by Davis Wright Tremaine, LLP, counsel to the
Company, a copy of which opinion is attached hereto. Our opinion is
limited to the laws of the State of New York and the federal laws of
the United States of the type typically applicable to transactions
contemplated by the proposed offering, and we do not express any opinion
with respect to the laws of any other country, state or jurisdiction.
This opinion letter is limited to the matters stated herein and no opinion
is implied or may be inferred beyond the matters expressly stated.
This letter speaks only as of the date hereof and is limited to present
statutes, regulations and administrative and judicial interpretations.
We undertake no responsibility to update or supplement this letter after
the date hereof.
We consent to being named in the Registration Statement and related
Prospectus as counsel who are passing upon the legality of the Notes for
the Company and to the reference to our name under the caption "Validity
of the Notes" in such Registration Statement and Prospectus. We further
consent to your filing copies of this opinion as an exhibit to the
Registration Statement or any amendment thereto. In giving such
consents, we do not hereby admit that we are in the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended.
Very truly yours,
/s/ WILLKIE FARR & GALLAGHER
- ----------------------------
WILLKIE FARR & GALLAGHER
<PAGE>
Exhibit 5.2
DAVIS WRIGHT TREMAINE LLP
LAW OFFICES
September 22, 1997
NEXTLINK Communications, Inc.
155 108th Avenue, N.E., 8th Floor
Bellevue, Washington 98004
Willkie Farr & Gallagher
153 East 53rd Street
New York, NY 10022
Ladies and Gentlemen:
We represent NEXTLINK Communications, Inc. (the "Company"), a corporation
organized under the laws of the State of Washington. We are providing this
opinion letter at the request of the Company, in connection with the
preparation of a registration statement on Form S-1 (as amended, the
"Registration Statement") relating to the offer and sale of Senior Notes due
2007 of the Company (the "Notes") to be issued under an Indenture (the
"Indenture") to be entered into by the Company and United States Trust
Company of New York, as Trustee and sold pursuant to the terms of an
underwriting agreement to be executed by the Company, Salomon Brothers Inc,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Bear, Stearns & Co. Inc.
and TD Securities (USA) Inc. (the "Underwriters").
We have examined copies of the certificate of incorporation and by-laws of
the Company, and the amendments thereto, certain resolutions adopted by the
Company's Board of Directors and other records and documents that we have
deemed necessary for the purpose of this opinion. We have also examined such
other documents, papers, statutes and authorities as we have deemed necessary
to form a basis for the opinion hereinafter expressed. In our examination, we
have assumed the genuineness of all signatures and the conformity to original
documents of all copies submitted to us. As to various questions of fact
material to our opinion, we have relied on statements and certificates of
officers and representatives of the Company and public officials.
Based on the foregoing, we are of the opinion that the Notes and the Indenture
have been duly authorized by all necessary corporate action of the Company.
Our opinion is limited to the laws of the State of Washington of the type
typically applicable to transactions contemplated by the proposed offering,
and we do not express any opinion with respect to the laws of any other state
or jurisdiction.
This opinion letter is limited to the matters stated herein and no opinion is
implied or may be inferred beyond the matters expressly stated in this letter.
<PAGE>
September 22, 1997
Page 2
This letter speaks only as of the date hereof and is limited to present
statutes, regulations and administrative and judicial interpretations. We
undertake no responsibility to update or supplement this letter after the
date hereof.
We consent to being named in the Registration Statement and related
Prospectus as counsel who are passing upon the legality of the Notes for the
Company and to the reference to our name under the caption "Validity of the
Notes" in such Registration Statement and Prospectus. We further consent to
your filing copies of this opinion as an exhibit to the Registration Statement
or any amendment thereto. In giving such consents, we do not hereby admit
that we are in the category of persons whose consent is required under Section 7
of the Securities Act of 1933, as amended.
Very truly yours,
/s/ Davis Wright Tremaine LLP
-----------------------------
Davis Wright Tremaine LLP
<PAGE>
EXHIBIT 5.3
Willkie Farr & Gallagher
153 East 53rd Street
New York, NY 10022
September 22, 1997
NEXTLINK Communications, Inc.
155 108th Avenue, N.E.
8th Floor
Bellevue, Washington 98004
Ladies and Gentlemen:
We have acted as counsel to NEXTLINK Communications, Inc. (the "Company"), a
corporation organized under the laws of the State of Washington, in
connection with the preparation of a registration statement on Form S-1 (as
amended, the "Registration Statement") relating to the offer and sale of
Senior Notes due 2007 of the Company (the "Notes") to be issued under an
Indenture (the "Indenture") to be entered into by the Company and United
States Trust Company of New York, as Trustee and sold pursuant to the terms
of an underwriting agreement to be executed by the Company, Salomon Brothers
Inc, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Bear, Stearns & Co.
Inc. and TD Securities (USA) Inc. (the "Underwriters").
You have asked us for an opinion on the material United States federal income
tax consequences anticipated for holders of the Notes. Capitalized terms
used herein that are not otherwise defined have the meanings ascribed thereto
as set forth in the Registration Statement.
We have examined copies of the certificate of incorporation and by-laws of
the Company, and the amendments thereto, the Registration Statement, certain
resolutions adopted by the Company's Board of Directors and other records and
documents that we have deemed necessary for the purpose of this opinion. We
have also examined such other documents, papers, statutes and authorities as
we have deemed necessary to form a basis for the opinion hereinafter
expressed. In our examination, we have assumed the genuineness of all
signatures and the conformity to original documents of all copies submitted
to us. As to various questions of fact material to our opinion, we have
relied on statements and certificates of officers and representatives of the
Company and public officials.
Our opinion is based on statutory provisions, regulations promulgated
thereunder and interpretations thereof by the Internal Revenue Service
and the courts having jurisdiction over such matters, all of which are
subject to change either prospectively or retroactively. Any variation or
difference in the relevant facts from those set forth in the Registration
Statement may affect the conclusions stated herein.
Based on the foregoing, it is our opinion that the section in the
Registration Statement under the caption "Certain United States Federal
Income Tax Consequences," while not purporting to discuss all tax matters
relating to the Notes, sets forth the material United States federal income
tax consequences relating to the Notes, subject to the qualifications set
forth therein.
This opinion is furnished to you solely for use in connection with the
Registration Statement. We hereby consent to the filing of this opinion as
an exhibit to the Registration Statement.
Very truly yours,
/s/ WILLKIE FARR & GALLAGHER
- ----------------------------
WILLKIE FARR & GALLAGHER
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
NEXTLINK Communications, Inc. Jurisdiction of Organization
- ----------------------------- ----------------------------
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
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of
this registration statement.
/s/ ARTHUR ANDERSEN LLP
-----------------------
Seattle, Washington,
September 22, 1997
<PAGE>
Exhibit 23.4
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
Pursuant to Rule 438 under the Securities Act of 1933, as amended, the
undersigned hereby consents to being named in the prospectus forming a part
of this Registration Statement (File No. 333-32003) as a person about to
become a director of NEXTLINK Communications, Inc.
/s/ Sharon L. Nelson
---------------------
Sharon L. Nelson
Date: September 22, 1997
<PAGE>
EXHIBIT 23.5
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
Pursuant to Rule 438 under the Securities Act of 1933, as amended, the
undersigned hereby consents to being named in the prospectus forming a part of
this Registration Statement (No. 333-32003) as a person about to become a
director of NEXTLINK Communications, Inc.
/s/ Jeffrey S. Raikes
------------------------------
Jeffrey S. Raikes
Date: September 20, 1997
<PAGE>
Exhibit 25
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-------------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
-------------------------
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
Section 305(b)(2) _______
-------------------------
UNITED STATES TRUST COMPANY OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-3818954
(Jurisdiction of incorporation or (I. R. S. Employer
organization if not a U. S. national bank) Identification Number)
114 West 47th Street 10036-1532
New York, New York (Zip Code)
(Address of principal
executive offices)
-------------------------
NEXTLINK COMMUNICATIONS, INC.
(Exact name of OBLIGOR as specified in its charter)
Washington 91-1738221
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
155 108th Avenue, NW 98004
Bellevue, Washington (Zip code)
(Address of principal executive offices)
-------------------------
___% Senior Notes due 2007
(Title of the indenture securities)
<PAGE>
- 2 -
GENERAL
1. GENERAL INFORMATION
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Federal Reserve Bank of New York (2nd District), New York, New York
(Board of Governors of the Federal Reserve System).
Federal Deposit Insurance Corporation, Washington, D. C.
New York State Banking Department, Albany, New York
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. AFFILIATIONS WITH THE OBLIGOR
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
3,4,5,6,7,8,9,10,11,12,13,14 and 15.
The obligor is currently not in default under any of its outstanding
securities for which United States Trust Company of New York is Trustee.
Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and
15 of Form T-1 are not required under General Instruction B.
16. LIST OF EXHIBITS
T-1.1 -- Organization Certificate, as amended, issued by the State of
New York Banking Department to transact business as a Trust
Company, is incorporated by reference to Exhibit T-1.1 to
Form T-1 filed on September 15, 1995 with the Commission
pursuant to the Trust Indenture Act of 1939, as amended by
the Trust Indenture Reform Act of 1990 (Registration No.
33-97056).
T-1.2 -- Included in Exhibit T-1.1.
T-1.3 -- Included in Exhibit T-1.1.
<PAGE>
- 3 -
16. LIST OF EXHIBITS (continued)
T-1.4 -- The By-laws of the United States Trust Company of New York,
as amended, is incorporated by reference to Exhibit
T-1.4 to Form T-1 filed on September 15, 1995 with the
Commission pursuant to the Trust Indenture Act of 1939, as
amended by the Trust Indenture Reform Act of 1990
(Registration No. 33-97056).
T-1.6 -- The consent of the trustee required by Section 321(b) of the
Trust Indenture Act of 1939, as amended by the Trust
Indenture Reform Act of 1990.
T-1.7 -- A copy of the latest report of condition of the trustee
pursuant to law or the requirements of its supervising or
examining authority.
NOTE
As of September 22, 1997, the trustee had 2,999,020 shares of Common Stock
outstanding, all of which are owned by its parent company, U. S. Trust
Corporation. The term "trustee" in Item 2, refers to each of United States
Trust Company of New York and its parent company, U. S. Trust Corporation.
In answering Item 2 in this statement of eligibility, as to matters
peculiarly within the knowledge of the obligor or its directors, the
trustee has relied upon information furnished to it by the obligor and will
rely on information to be furnished by the obligor and the trustee
disclaims responsibility for the accuracy or completeness of such
information.
--------------------
Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, United States Trust Company of New York, a corporation organized
and existing under the laws of the State of New York, has duly caused this
statement of eligibility to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of New York, and State of New
York, on the 22nd day of September, 1997.
UNITED STATES TRUST COMPANY OF
NEW YORK, Trustee
By: /s/ Patricia Stermer
-------------------------------------
Patricia Stermer
Assistant Vice President
<PAGE>
EXHIBIT T-1.6
-------------
The consent of the trustee required by Section 321(b) of the Act.
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
September 1, 1995
Securities and Exchange Commission
450 5th Street, N.W.
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of 1939,
as amended by the Trust Indenture Reform Act of 1990, and subject to the
limitations set forth therein, United States Trust Company of New York ("U.S.
Trust") hereby consents that reports of examinations of U.S. Trust by Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.
Very truly yours,
UNITED STATES TRUST COMPANY
OF NEW YORK
----------------------------------
By: /S/Gerard F. Ganey
Senior Vice President
<PAGE>
EXHIBIT T-1.7
UNITED STATES TRUST COMPANY OF NEW YORK
CONSOLIDATED STATEMENT OF CONDITION
JUNE 30, 1997
-------------
(IN THOUSANDS)
ASSETS
Cash and Due from Banks $ 83,529
Short-Term Investments 259,746
Securities, Available for Sale 924,165
Loans 1,437,342
Less: Allowance for Credit Losses 13,779
-------------
Net Loans 1,423,563
Premises and Equipment 61,515
Other Assets 122,696
-------------
TOTAL ASSETS $ 2,875,214
=============
LIABILITIES
Deposits:
Non-Interest Bearing $ 763,075
Interest Bearing 1,409,017
-------------
Total Deposits 2,172,092
Short-Term Credit Facilities 404,212
Accounts Payable and Accrued Liabilities 132,213
-------------
TOTAL LIABILITIES $ 2,708,517
=============
STOCKHOLDER'S EQUITY
Common Stock 14,995
Capital Surplus 49,541
Retained Earnings 100,930
Unrealized Gains (Losses) on Securities
Available for Sale, Net of Taxes 1,231
-------------
TOTAL STOCKHOLDER'S EQUITY 166,697
-------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 2,875,214
=============
I, Richard E. Brinkmann, Senior Vice President & Comptroller of the named bank
do hereby declare that this Statement of Condition has been prepared in
conformance with the instructions issued by the appropriate regulatory authority
and is true to the best of my knowledge and belief.
Richard E. Brinkmann, SVP & Controller
August 7, 1997
