<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 23, 1998
REGISTRATION NO. 333-57811
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
NEXTLINK COMMUNICATIONS, INC.
(Exact Name of Registrant as Specified in its Charter)
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<S> <C> <C>
DELAWARE 4813 91-1738221
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Identification No.)
Incorporation or Classification Code
Organization) Number)
</TABLE>
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500 108TH AVENUE N.E., SUITE 2200, BELLEVUE, WASHINGTON 98004, (425) 519-8900
(Address, including ZIP code, and telephone number, including area code, of
the Registrant's principal executive offices)
------------------------
R. BRUCE EASTER JR., ESQ.
500 108TH AVENUE N.E., SUITE 2200
BELLEVUE, WASHINGTON 98004
(425) 519-8900
(Name, address, including ZIP code, and telephone number, including area code,
of agent for service)
------------------------
COPY TO:
BRUCE R. KRAUS, ESQ.
WILLKIE FARR & GALLAGHER
787 SEVENTH AVENUE
NEW YORK, NEW YORK 10019
(212) 728-8000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED OFFER TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
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<CAPTION>
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE OFFERING OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PRICE(1) PRICE FEE
<S> <C> <C> <C> <C>
9.45% Senior Discount Notes due 2008.............. $636,974,000 62.797% $400,000,563 $118,000(2)
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) 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 WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, 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>
[LOGO]
OFFER FOR ALL OUTSTANDING 9.45% SENIOR DISCOUNT NOTES
DUE 2008
IN EXCHANGE FOR UP TO $636,974,000 PRINCIPAL AMOUNT AT
STATED MATURITY OF 9.45% SENIOR DISCOUNT NOTES DUE 2008
OF
NEXTLINK COMMUNICATIONS, INC.
----------
THE EXCHANGE OFFER
WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON AUGUST 24, 1998
UNLESS EXTENDED
NEXTLINK Communications, Inc. (the "Company" or "NEXTLINK") hereby offers
upon the terms and subject to the conditions set forth in this Prospectus and
the accompanying Letter of Transmittal (which together constitute the "Exchange
Offer") to exchange $1,000 principal amount at maturity of the Company's 9.45%
Senior Discount Notes due 2008 (the "New Notes") for each $1,000 principal
amount at maturity of its issued and outstanding 9.45% Senior Discount Notes due
2008 (the "Old Notes" and, together with the New Notes, the "Notes") from the
holders (the "Holders") thereof. The terms of the New Notes are identical in all
material respects to the terms of the Old Notes, except that the New Notes have
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), and, therefore, will not bear legends restricting their transfer and will
not contain certain terms providing for an increase in the interest rate on the
Old Notes under certain circumstances described in the Registration Rights
Agreement (as defined). The New Notes evidence the same debt as the Old Notes
and will be issued pursuant to, and entitled to the same benefits under, the
Indenture (as defined) governing the Old Notes.
The Notes will mature on April 15, 2008. The Old Notes were sold at a price
of $627.97 per $1,000 principal amount at maturity, representing a yield to
maturity of 9.45% per annum (computed on a semi-annual bond equivalent basis)
calculated from April 1, 1998. The Notes will not accrue cash interest until
April 15, 2003, and thereafter cash interest on the Notes will accrue until
maturity at a rate of 9.45% per annum. Holders of the Notes will be required to
include original issue discount as interest income in advance of the receipt of
the cash payments to which such income is attributable. See "Description of the
Notes" and "Certain United States Federal Income Tax Consequences". The Notes
will be redeemable at the option of the Company, in whole or in part, at any
time on or after April 15, 2003, 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 April 15, 2001, the Company receives net proceeds from a sale
of its Common Equity (as defined), up to a maximum of 33 1/3% of the original
aggregate principal amount of the Notes then outstanding will, at the option of
the Company, be redeemable from the net cash proceeds of such sale at a
redemption price equal to 109.450% of the Accreted Value (as defined) thereof,
to the date of redemption, PROVIDED, HOWEVER, that at least 66 2/3% of the
original aggregate principal amount of the Notes remains 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 Accreted
Value thereof, plus accrued and unpaid interest, if any, to the date of
repurchase. See "Description of the Notes--Covenants--Change of Control."
The Notes are senior obligations of the Company, 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 2006 (the
"12 1/2% Notes"), the Company's 9 5/8% Senior Notes due 2007 (the "9 5/8%
Notes") and the Company's 9% Senior Notes due 2008 (the "9% Notes" and, together
with the Old Notes and the Company's 6 1/2% Cumulative Convertible Preferred
Stock (liquidation preference $50 per share), the "1998 Securities"), and will
rank senior in right of payment to all future subordinated obligations of the
Company. Holders of secured obligations of the Company, however, 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 are effectively subordinated
to all existing and future indebtedness of the Company's subsidiaries. As of
March 31, 1998, on a pro forma basis after giving effect to the sale of the Old
Notes, (i) the total amount of outstanding consolidated liabilities of the
Company and its Subsidiaries (as defined herein), including trade payables,
would have been approximately $1,631.3 million, $7.5 million of which were
secured obligations (excluding the 12 1/2% Notes, which are secured by a pledge
of $63.5 million of U.S. Treasury securities as of March 31, 1998) and (ii) the
total amount of outstanding liabilities of the Company's Subsidiaries, including
trade payables, was approximately $54.3 million, of which $7.5 million
represented secured obligations.
The New Notes will bear interest from and including their respective dates
of issuance. Interest on the Old Notes will accrete to, but not including, the
date of issuance of the New Notes, such accreted interest to be payable with the
principal payment on the New Notes, but will not receive the benefit of any
accreted interest on the Old Notes accrued after the issuance of the New Notes.
The Old Notes were originally issued and sold on April 1, 1998 in a
transaction not registered under the Securities Act in reliance upon the
exemption provided in Section 4(2) of the Securities Act and Rule 144A of the
Securities Act (the "Initial Offering"). The Company is making the Exchange
Offer in reliance on the position of the staff of the Securities and Exchange
Commission (the "Commission") as set forth in certain no-action letters
addressed to other parties in other transactions. However, the Company has not
sought its own no-action letter and there can be no assurance that the staff of
the Commission would make a similar determination with respect to the Exchange
Offer as in such other circumstances.
(COVER CONTINUED ON NEXT PAGE)
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS
THAT HOLDERS OF THE OLD NOTES SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE
OFFER AND THAT PROSPECTIVE INVESTORS IN THE NEW NOTES SHOULD CONSIDER IN
CONNECTION WITH SUCH INVESTMENT.
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.
------------------------------
The date of this Prospectus is July 24, 1998
<PAGE>
(COVER CONTINUED FROM PREVIOUS PAGE)
Each Holder desiring to participate in the Exchange Offer will be required
to represent, among other things, that (i) it is not an "affiliate" (as defined
in Rule 405 of the Securities Act) of the Company, (ii) it is not engaged in,
and does not intend to engage in, and has no arrangement or understanding with
any person to participate in, a distribution of the New Notes, and (iii) it is
acquiring the New Notes in the ordinary course of its business (a holder unable
to make the foregoing representations is referred to as a "Restricted Holder").
A Restricted Holder will not be able to participate in the Exchange Offer and
may only sell its Old Notes pursuant to a registration statement containing the
selling securityholder information required by Item 507 of Regulation S-K of the
Securities Act, or pursuant to an exemption from the registration requirement of
the Securities Act.
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer (a "Participating Broker-Dealer") is required to acknowledge
in the Letter of Transmittal that it acquired the Old Notes as a result of
market-making activities or other trading activities and that it will deliver a
prospectus in connection with the resale of such New Notes. Based upon
interpretations by the staff of the Commission, the Company believes that New
Notes issued pursuant to the Exchange Offer to Participating Broker-Dealers may
be offered for resale, resold, and otherwise transferred by a Participating
Broker-Dealer upon compliance with the prospectus delivery requirements, but
without compliance with the registration requirements, of the Securities Act.
The Company has agreed that for a period of 30 days following consummation of
the Exchange Offer it will make this Prospectus available to Participating
Broker-Dealers for use in connection with any such resale. During such period of
time, delivery of this Prospectus, as it may be amended or supplemented, will
satisfy the prospectus delivery requirements of a Participating Broker-Dealer
engaged in market making or other trading activities. See "Exchange Offer" and
"Plan of Distribution".
Based upon interpretations by the staff of the Commission, the Company
believes that the New Notes issued pursuant to the Exchange Offer may be offered
for resale, resold, and otherwise transferred by a Holder thereof (other than a
Participating Broker-Dealer) without compliance with the registration and
prospectus delivery requirements of the Securities Act.
The New Notes are new securities for which there is currently no market. The
Company presently does not intend to apply for listing of the New Notes on any
securities exchange or for quotation through the National Association of
Securities Dealers Automated Quotation System ("NASDAQ"). The Company has been
advised by the Initial Purchasers, Smith Barney, Inc. and Goldman, Sachs & Co.,
that, following completion of the Exchange Offer, they presently intend to make
a market in the New Notes; however, the Initial Purchasers are not obligated to
do so and any market-making activities with respect to the New Notes may be
discontinued at any time without notice. There can be no assurance that an
active public market for the New Notes will develop.
Any Old Notes not tendered and accepted in the Exchange Offer will remain
outstanding and will be entitled to all the rights and preferences and will be
subject to the limitations applicable thereto under the Indenture. Following
consummation of the Exchange Offer, the holders of Old Notes will continue to be
subject to the existing restrictions upon transfer thereof and the Company will
have no further obligation to such holders to provide for the registration under
the Securities Act of the Old Notes held by them. To the extent that Old Notes
are tendered and accepted in the Exchange Offer, a Holder's ability to sell
untendered Old Notes could be adversely affected. It is not expected that an
active market for the Old Notes will develop while they are subject to
restrictions on transfer.
The Company will accept for exchange any and all Old Notes that are validly
tendered and not withdrawn on or prior to 5:00 p.m., New York City time, on the
date the Exchange Offer expires, which will be August 24, 1998 (the "Expiration
Date"), unless the Exchange Offer is extended by the Company in its sole
discretion, in which case the term "Expiration Date" shall mean the latest date
and time to which the Exchange Offer is extended. Tenders of Old Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date. The Exchange Offer is not conditioned upon any minimum principal amount of
Old Notes being tendered for exchange. However, the Exchange Offer is subject to
certain conditions which may be waived by the Company in its reasonable
discretion and to the terms and provisions of the Registration Rights Agreement.
Old Notes may be tendered only in denominations of $1,000 principal amount at
stated maturity and integral multiples thereof. The Company has agreed to pay
all of the expenses incurred by it in connection with the Exchange Offer. See
"The Exchange Offer--Fees and Expenses."
This Prospectus, together with the Letter of Transmittal, is being sent to
all registered holders of Old Notes as of July 24, 1998.
The Company will not receive any proceeds from this Exchange Offer. No
dealer-manager is being used in connection with this Exchange Offer. See "Use of
Proceeds" and "Plan of Distribution."
ii
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by NEXTLINK with the Commission under file
number are incorporated herein by reference:
1. The Annual Report on Form 10-KSB for the fiscal year ended December 31,
1997 (the "1997 Form 10-KSB") filed pursuant to Section 13(a) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
2. The Current Report on Form 8-K, filed July 20, 1998.
3. The Current Report on Form 8-K, filed July 22, 1998.
4. All other reports filed by the Company pursuant to Section 13(a) or 15(d)
of the Exchange Act since December 31, 1997, consisting of the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1998 (the
"1998 Form 10-Q") and the Company's Current Reports on Form 8-K dated March 12,
1998 and April 14, 1998.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to
termination of this Exchange Offer shall be deemed to be incorporated by
reference into the Prospectus and to be part hereof from the dates of filing of
such documents.
These documents are available upon request from the Company, 500 108(th)
Avenue N.E., Suite 2200, Bellevue, Washington 98004 and its telephone number is
(425)519-8900.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Registration Statement," which term shall include all amendments,
exhibits, annexes and schedules thereto) pursuant to the Securities Act, and the
rules and regulations promulgated thereunder, covering the New Notes being
offered hereby. This Prospectus does not contain all the information set forth
in the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. Statements made in this
Prospectus as to the contents of any contract, agreement or other document
referred to in the Registration Statement are not necessarily complete. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.
The Company is subject to the information reporting requirements of the
Exchange Act, and in accordance therewith files reports and other information
with the Commission. Reports, proxy statements and other information concerning
the Company can be inspected without charge at the Public Reference Room
maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington
D.C. 20549. In addition, upon request, such reports, proxy statements and other
information will be made available for inspection and copying at the regional
offices of the Commission located at Seven World Trade Center, 13th Floor, New
York, New York 10048, and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained
upon request from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and its public reference facilities in New
York, New York and Chicago, Illinois, at the prescribed rates. Such material may
also be accessed electronically at the Commission's Web located at
http://www.sec.gov.
In the event that the Company ceases to be subject to the informational
reporting requirements of the Exchange Act, the Company has agreed that, whether
or not it is required to do so by the rules and regulations of the Commission,
for so long as any of the Notes remain outstanding, it will furnish to the
holders of the Notes and file with the Commission (unless the Commission will
not accept such a filing) (i) all quarterly and annual financial information
that would be required to be contained in such a filing
iii
<PAGE>
with the Commission on Forms 10-Q and 10-K as if the Company was required to
file such forms, including a "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and, with respect to the annual information
only, a report thereon by the Company's independent public accountants and (ii)
all reports that would be required to be filed with the Commission on Form 8-K
as if the Company was required to file such reports. In addition, for so long as
any of the Old Notes remain outstanding, the Company has agreed to make
available to any beneficial owner of the Old Notes, in connection with any sale
thereof, the information required by Rule 144A(d)(4) under the Securities Act.
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE EXCHANGE OFFER COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY, THE NEW NOTES IN ANY JURISDICTION WHERE,
OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATIONS THAT THERE HAS NOT BEEN ANY CHANGE IN
THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF.
TABLE OF CONTENTS
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PAGE
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Incorporation of Certain Documents by Reference............................................................ iii
Available Information...................................................................................... iii
Prospectus Summary......................................................................................... 1
Risk Factors............................................................................................... 12
The Company................................................................................................ 20
Use of Proceeds............................................................................................ 20
Capitalization............................................................................................. 21
Selected Historical Consolidated Financial and Operating Data.............................................. 22
The Exchange Offer......................................................................................... 24
Description of the Notes................................................................................... 33
Description of Certain Indebtedness........................................................................ 63
Certain United States Federal Income Tax Consequences...................................................... 66
Plan of Distribution....................................................................................... 70
Validity of the Notes...................................................................................... 71
Experts.................................................................................................... 71
</TABLE>
UNTIL OCTOBER 22, 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE NEW NOTES OFFERED HEREBY, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS,
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
------------------------
The Notes will be available initially in book-entry form, and the Company
expects that the Notes sold pursuant hereto will be issued in the form of a
Global Note (as defined), which will be deposited with, or on behalf of, The
Depository Trust Company (the "Depositary") and registered in its name or in the
name of Cede & Co., its nominee. Beneficial interests in the Global Note
representing the Notes will be shown on, and transfers thereof to qualified
institutional buyers will be effected through, records maintained by the
Depositary and its participants. After the initial issuance of the Global Note,
Notes in certificated form will be issued in exchange for the Global Note on the
terms set forth in the Indenture (as defined). See "Description of the
Notes--Book-Entry, Delivery and Form."
iv
<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 INCORPORATED HEREIN BY REFERENCE. UNLESS THE
CONTEXT OTHERWISE REQUIRES, THE TERMS "NEXTLINK" AND THE "COMPANY" REFER TO
NEXTLINK COMMUNICATIONS, INC., A DELAWARE CORPORATION, WHICH IS THE SUCCESSOR TO
NEXTLINK COMMUNICATIONS, INC., A WASHINGTON CORPORATION ("NEXTLINK
COMMUNICATIONS, (WASHINGTON) INC."), PURSUANT TO A REINCORPORATION MERGER THAT
WAS EFFECTED ON JUNE 4, 1998, ITS CONSOLIDATED SUBSIDIARIES AND 40% MEMBERSHIP
INTEREST IN TELECOMMUNICATIONS OF NEVADA, LLC, WHICH OPERATES A NETWORK THAT IS
MANAGED BY THE COMPANY. NEXTLINK COMMUNICATIONS (WASHINGTON), INC. IS THE
SUCCESSOR TO NEXTLINK COMMUNICATIONS, LLC, A WASHINGTON LIMITED LIABILITY
COMPANY ("NEXTLINK COMMUNICATIONS, LLC") PURSUANT TO A MERGER EFFECTED JANUARY
31, 1997. ALL OPERATIONAL STATISTICS OF THE COMPANY INCLUDED IN THIS PROSPECTUS
INCLUDE 100% OF THE OPERATIONAL STATISTICS OF TELECOMMUNICATIONS OF NEVADA, LLC.
ALL FINANCIAL AND OPERATIONAL DATA PRESENTED FOR PERIODS PRIOR TO JANUARY 31,
1997 RELATE TO NEXTLINK COMMUNICATIONS, L.L.C.
THE COMPANY
NEXTLINK was founded in 1994 by Craig O. McCaw, its largest and controlling
shareholder, to provide local facilities-based telecommunications services to
its targeted customer base of small and medium-sized businesses. In July 1996,
NEXTLINK became one of the first competitive local exchange carriers ("CLECs")
in the United States to provide facilities-based switched local services under
the Telecommunications Act of 1996 (the "Telecom Act"), which opened the entire
local exchange market to competition. In each of the markets it serves, NEXTLINK
seeks to become a principal competitor to the incumbent local exchange carrier
("ILEC") for its targeted customers by providing an integrated package of high
quality local, long distance and enhanced telecommunications services at
competitive prices. In October 1997, the Company completed an initial public
offering of shares of its Class A Common Stock (the "IPO").
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 5% of the
total business lines in the United States.
The Company's targeted customer base within the national telecommunications
market is small to medium-sized businesses, generally those businesses with
fewer than 50 access lines. Based on consultants' reports, the Company estimates
that as of year end 1996, there were approximately 170 million access lines
nationwide, including approximately 55 million business lines.
The Company develops and operates high capacity, fiber optic networks with
broad market coverage in a growing number of markets across the United States.
In its switched local service markets, the Company offers its customers a
bundled package of local and long distance services and also offers dedicated
transmission and competitive access services to long distance carriers and end
users. In addition, NEXTLINK offers a variety of interactive voice response
("IVR") products, which are non-network-based enhanced communications services
offered to customers nationwide.
The Company is one of two 50% owners of NEXTBAND Communications, L.L.C.
("NEXTBAND"), which was the successful bidder in 42 markets covering
approximately 105 million POPs, or persons located
1
<PAGE>
within the licensed areas, in the FCC's recently concluded LMDS spectrum
auctions. LMDS is a newly authorized fixed broadband point-to-multipoint service
which the license holder may deploy for wireless local loop telephone service,
high-speed data transfer and video broadcasting service, in any combination. Two
LMDS licenses are available in each of the nation's 493 Basic Trading Areas
("BTAs"); a 1,150 MHz block A license and a 150 MHz block B license.
At the conclusion of the LMDS auctions on March 25, 1998, NEXTBAND was the
high bidder in 13 block A markets, including Los Angeles, Seattle-Tacoma,
Sacramento, Portland (OR), Louisville and Birmingham and 29 block B markets,
including New York, Chicago, San Francisco, Washington (DC), Detroit, Boston,
Atlanta, Minneapolis-St. Paul and St. Louis. NEXTBAND's total bid in the LMDS
auctions was $134.7 million, for an average price per POP of $1.285. NEXTLINK
and Nextel Communications, Inc. ("Nextel"), a nationwide provider of wireless
telephone services and the co-owner of NEXTBAND, are developing a strategy to
implement LMDS technology as a cost-effective enhancement to their respective
businesses.
The Company currently operates 17 facilities-based networks providing
switched local and long distance services in 31 markets in eight states. The
Company anticipates developing additional new markets during 1998 which,
together with its existing markets, are expected to have a total of
approximately 15 million addressable business lines by the end of 1998. The
Company's goal is to add or expand markets to increase its addressable business
lines for markets in service or under development to approximately 21 million by
the end of 1999.
The Company's goal of targeting 15 million addressable business lines by
year-end 1998 represents a 36% increase over the Company's previous objective.
The Company has increased its line targets based principally on three factors:
initial success in establishing networks and launching services in major
metropolitan markets including Los Angeles, Chicago and Philadelphia; the
Company's significant growth in the sale and installation of access lines
throughout all markets; and the Company's review of several potential target
markets, which underlined the significant market opportunity available for
NEXTLINK in those markets.
NEXTLINK is pursuing its targeted customer base in markets of all sizes. In
larger markets, the Company has operational networks in Los Angeles, Chicago and
the San Francisco Bay Area, and networks under development in New York City and
Atlanta. The Company also has operational networks in medium-sized markets such
as Las Vegas and Nashville as well as smaller markets that have been clustered
in Orange County, California and central Pennsylvania. The Company will enter
large markets on a stand-alone basis where it is economically attractive to do
so and where competitive and other market factors warrant such entry. The
Company also considers pursuing smaller markets where it can extend or cluster
an existing network with relatively little incremental capital. The Company
anticipates that the addressable business lines in the larger markets that it is
currently operating and developing will represent the majority of the Company's
addressable business lines by year end 1998 and 1999.
NEXTLINK has experienced significant growth in its customer base. NEXTLINK's
customer access lines in service have increased from 11,256 access lines at
March 31, 1997 to 50,131 access lines at December 31, 1997, and 72,834 as of
March 31, 1998. This growth is attributable to both new network launches as well
as significant increases in growth rates in those markets where the Company
launched service in 1996. For markets launched in 1996, the Company has
increased its access lines in service by 227%, from 11,140 to 36,454 at March
31, 1997 and 1998, respectively, representing 41% of the Company's overall
increase in access lines in service over the respective periods. The Company has
also improved the quarterly rate of access line additions from 2,745 in the
first quarter of 1997 to 22,703 in the first quarter of 1998. Approximately 26%
of the increase in total quarterly installations was driven by an increase in
quarterly installations in those markets launched in 1996, where installations
increased from 2,629 in the first quarter 1997 to 7,727 in the first quarter of
1998.
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
2
<PAGE>
has built a management team that it believes is well suited to challenge the
dominance of the ILECs in the local exchange market. Craig O. McCaw, the
Company's founder and largest and controlling shareholder, Steven W. Hooper, the
Company's Chairman of the Board, Wayne M. Perry, the Company's Vice Chairman and
Chief Executive Officer, James F. Voelker, the Company's President, and George
M. Tronsrue III, the Company's Chief Operating Officer, each has 15 or more
years of experience in leading companies in competitive segments of the
telecommunications industry. In addition, the presidents of the Company's
operating subsidiaries and the Company's senior officers have an average of 14
years of experience in the telecommunications industry. Mr. Hooper and Mr. Perry
were members of the senior management team at McCaw Cellular Communications,
Inc. ("McCaw Cellular") during the years in which it became the nation's largest
cellular telephone company. Following McCaw Cellular's sale to AT&T Corp. in
1994, Messrs. Perry and Hooper were Vice Chairman and Chief Executive Officer,
respectively, of AT&T Wireless Services, Inc.
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 as well as promotional discounts,
depending on the individual market; and (iii) responsive customer service
and account management provided on a local level.
FOSTER DECENTRALIZED LOCAL MANAGEMENT AND CONTROL. The Company believes
that its success is enhanced by building locally based management teams that
are responsible for the Company's success in each of their operational
markets. The Company has recruited experienced entrepreneurs and industry
executives as presidents of each of the Company's operating subsidiaries,
many of whom have previously built and led their own start-up
telecommunications businesses. The local presidents and their teams are
charged with achieving growth objectives in their respective markets and
have decision making authority in key operating areas, including customer
care, network growth and building connectivity, and managing the
relationship and provisioning efforts with the ILEC. The Company has
established an incentive based compensation policy for these management
teams that is based upon the achievement of targeted growth and operational
objectives. The Company believes that this local management focus will
provide a critical competitive edge in customer acquisition and retention in
each market.
FURTHER DEVELOP EFFECTIVE DIRECT SALES AND CUSTOMER CARE
ORGANIZATIONS. NEXTLINK is building a highly motivated and experienced
direct sales force and customer care organization that is designed to
establish a direct and personal relationship with its customers. The Company
has expanded its sales force from 223 salespeople at year end 1997 to 239
salespeople at March 31, 1998. The Company expects to further increase its
sales force to approximately 350 salespeople by year end 1998. Salespeople
are given incentives through a commission structure that targets
approximately 40% of a
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<PAGE>
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 employed 157 personnel in its customer care
organization at March 31, 1998. The Company expects to further increase its
customer care organization to approximately 275 customer care employees by
year end 1998.
CONTINUOUSLY IMPROVE PROVISIONING PROCESSES TO ACCELERATE REVENUE
GROWTH. The Company believes that a significant ongoing challenge for CLECs
will be to continuously improve provisioning systems, which include the
complex process of transitioning ILEC customers to the Company's network.
Accordingly, the Company will continue to identify and focus, as a key
competitive strategy, on implementing best provisioning practices in each of
its markets that will provide for rapid and seamless transitions of
customers from the ILEC to the Company. To support the provisioning of its
services, the Company has begun the long-term development and implementation
of a comprehensive information technology platform geared toward delivering
information and automated ordering and provisioning capability directly to
the end-user as well as to the Company's internal staff. The Company
believes that these practices and its comprehensive information technology
platform, as developed, will provide the Company with a long-term
competitive advantage and allow it to more rapidly implement switched local
services in its markets and to shorten the time between the receipt of a
customer order and the generation of revenues.
DEVELOP HIGH CAPACITY FIBER OPTIC NETWORKS WITH BROAD MARKET
COVERAGE. NEXTLINK designs its networks with a long-term view focusing on
three key elements. First, the Company designs and builds its networks to
provide extensive coverage of those areas where the density of business
lines is highest and to enable the Company to provide direct connections to
a high percentage of 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, associated
distribution technology and other common transmission technologies enabling
the Company to (i) deploy features and functions quickly in all of its
networks, (ii) expand switching capacity in a cost effective manner and
(iii) lower maintenance costs through reduced training and spare parts
requirements. The Company currently has 14 operational Nortel DMS 500
switches, including one installed switch at the Company's testing and
network operations control center ("NEXTLAB"). For economic or strategic
reasons, the Company may in the future elect to utilize other switch vendors
and may also acquire and utilize non-Nortel switches in connection with
acquisitions of other companies. The Company 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 15 million by the end of 1998 and 21 million by the end of
1999. The Company anticipates continued expansion into new geographic areas,
including additional large markets, as opportunities arise either through
building new networks, acquiring existing networks or other
telecommunications companies, or acquiring or leasing dark fiber and fiber
capacity. NEXTLINK also believes that its strategy of operating its networks
in clusters (i) offers substantial advantages including economies of scale
in management, marketing, sales and
4
<PAGE>
network operations, (ii) enables the Company to capture a greater percentage
of regional traffic and to develop regional pricing plans, because the
Company believes that a significant level of traffic terminates within 300
miles of its origination and (iii) provides opportunities in smaller markets
that are too small to develop on a stand alone basis.
OFFER ENHANCED COMMUNICATIONS SERVICES. NEXTLINK offers customers
value-added services such as the Company's IVR products that are not
dependent on the Company's local facilities. The Company offers its enhanced
communications services in all of its markets as well as in areas of planned
network expansion. The Company believes these services increase its
visibility in attracting local exchange customers when it operates networks
in these markets.
REDUCE COST AND ACCELERATE MARKET PENETRATION USING LMDS
SPECTRUM. Through its ownership interest in NEXTBAND, the Company has
access to LMDS spectrum in 42 markets covering 105 million POPs. The Company
intends to use LMDS to create wireless local loops to accelerate and
supplement its fiber network build-out in selected localities on a
cost-effective basis. The Company believes, moreover, that the competitive
force created by wireless local loops may exert downward pressure on
unbundled local loop charges from the ILEC in certain markets, thus reducing
the Company's operating costs.
FINANCING PLAN
As of March 31, 1998, the Company had $1,070.7 million of unrestricted cash
and investments to pursue its growth plan, and $1,461.6 million on a pro forma
basis after giving effect to the April 1, 1998 sale of the Old Notes. The
Company's current plan contemplates an aggressive expansion into a number of new
markets throughout the United States. The Company may pursue various
alternatives for achieving its growth strategy, including: additional network
construction; additional leases of network capacity from third party providers;
acquisitions of existing networks; and spectrum purchased during the recently
concluded LMDS auction and associated facilities construction and deployment.
The Company also anticipates that a substantial amount of additional capital
expenditures will be made in 1999 and beyond. The funding for these expenditures
is expected to be provided by existing cash balances, future vendor and/ or
credit facilities, future public or private sales of debt securities, future
public or private sales of capital stock and joint ventures. The Indenture does
not limit the amount the Company may invest in Restricted Subsidiaries or
certain joint ventures (including NEXTBAND) engaged in one or more
Telecommunications Businesses or the amount of Debt the Company may incur to
fund investments in Restricted Subsidiaries or such joint ventures. See
"Description of the Notes."
RECENT DEVELOPMENTS
At its meeting of June 4, 1998, the Company's Board of Directors amended the
Company's Bylaws to increase the size of the Board from nine to ten persons and
appointed Gregory J. Parker to fill the new vacancy. Mr. Parker, who is 40 years
old, has been a partner of the law firm of Seed, Mackall & Cole LLP since 1990,
where his practice emphasizes financing, capital investment and real estate
matters. From 1994 to 1997, he was Managing Partner of the firm. Mr. Parker also
is a Vice President and the Chief Operating Officer of Ampersand Holdings, Inc.,
an investment management company and is the trustee of the Ampersand Telecom
Trust ("Ampersand"). Ampersand owns 9,722,649 shares of the Company's Class B
Common Stock, which represents 29% of the outstanding shares of Class B Common
Stock, 18% of the total outstanding shares of the Company's common stock, and
27% of the total voting power the Company's outstanding common stock. The
beneficiary of Ampersand is Mrs. Wendy P. McCaw.
5
<PAGE>
THE EXCHANGE OFFER
<TABLE>
<S> <C>
The Exchange Offer........... The Company is offering to exchange (the "Exchange Offer")
up to $636,974,000 aggregate principal amount at stated
maturity of 9.45% Senior Discount Notes due 2008 (the "New
Notes") for up to $636,974,000 aggregate principal amount at
stated maturity of their outstanding 9.45% Senior Discount
Notes due 2008 (the "Old Notes"). Upon consummation of the
Exchange Offer, the terms of the New Notes will be identical
in all material respects (including principal amount,
interest rate, maturity and ranking) to the terms of the Old
Notes for which they may be exchanged pursuant to the
Exchange Offer, except that the New Notes have been
registered under the Securities Act, and, therefore, will
not bear legends restricting their transfer and will not
contain certain terms providing for an increase in the
interest rate on the Old Notes under certain circumstances
described in the Registration Rights Agreement (as defined).
Minimum Condition............ The Exchange Offer is not conditioned upon any minimum
aggregate principal amounts of Old Notes being tendered for
exchange.
Expiration Date.............. The Exchange Offer will expire at 5:00 p.m., New York City
time, on August 24, 1998, unless extended (the "Expiration
Date").
Exchange Date................ The date of acceptance for exchange for the Old Notes will
be the first business day following the Expiration Date.
Conditions to the Exchange
Offer...................... The obligation of the Company to consummate the Exchange
Offer is subject to certain conditions. See "The Exchange
Offer--Conditions." The Company reserves the right to
terminate or amend the Exchange Offer at any time prior to
the Expiration Date upon the occurrence of any such
condition.
Withdrawal Rights............ Tenders may be withdrawn at any time prior to 5:00 p.m. on
the Expiration Date. Any Old Notes not accepted for any
reason will be returned without expense to the tendering
holders thereof as promptly as practicable after the
expiration or termination of the Exchange Offer.
Procedures for Tendering Old
Notes...................... See "The Exchange Offer--Procedures for Tendering."
Federal Income Tax
Consequences............... The exchange of Old Notes for New Notes by Holders will not
be a taxable exchange for federal income tax purposes, and
Holders, should not recognize any taxable gain or loss or
any interest income as a result of such exchange.
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
Certain Representations...... Each Holder desiring to participate in the Exchange Offer
will be required to represent, among other things, that (i)
it is not an "affiliate" (as defined in Rule 405 of the
Securities Act) of the Company, (ii) it is not engaged in,
and does not intend to engage in, and has no arrangement or
understanding with any person to participate in, a
distribution of the New Notes, and (iii) it is acquiring the
New Notes in the ordinary course of its business (a holder
unable to make the foregoing representations is referred to
as a "Restricted Holder").
Transfer Restrictions on New
Notes...................... Based upon interpretations by the staff of the Commission,
the Company believes that New Notes issued pursuant to the
Exchange Offer to Participating Broker-Dealers may be
offered for resale, resold, and otherwise transferred by a
Participating Broker-Dealer upon compliance with the
prospectus delivery requirements, but without compliance
with the registration requirements, of the Securities Act.
The Company has agreed that for a period of 30 days
following consummation of the Exchange Offer it will make
this Prospectus available to Participating Broker-Dealers
for use in connection with any such resale. During such
period of time, delivery of this Prospectus, as it may be
amended or supplemented, will satisfy the prospectus
delivery requirements of a Participating Broker-Dealer
engaged in market making or other trading activities. See
"Exchange Offer" and "Plan of Distribution". Based upon
interpretations by the staff of the Commission, the Company
believes that New Notes issued pursuant to the Exchange
Offer may be offered for resale, resold and otherwise
transferred by a Holder thereof (other than a Restricted
Holder or a Participating Broker-Dealer) without compliance
with the registration and prospectus delivery requirements
of the Securities Act.
Effect on Holders of Old
Notes...................... As a result of the making of this Exchange Offer, and upon
acceptance for exchange of all validly tendered Old Notes
pursuant to the terms of this Exchange Offer, the Company
will have fulfilled a covenant contained in the Registration
Rights Agreement (the "Registration Rights Agreement") dated
as of April 1, 1998 by and among the Company and the Initial
Purchasers, and the Company will have no further obligation
to such holders to provide for the registration under the
Securities Act of the Old Notes held by them. Holders of the
Old Notes who do not tender their Old Notes in the Exchange
Offer will continue to hold such Old Notes and will be
entitled to all the rights and limitations applicable
thereto under the Indenture dated as of April 1, 1998, among
the Company and The United States Trust Company, as trustee
(the "Trustee"), relating to the Old Notes and the New Notes
(the "Indenture"). All untendered, and tendered but
unaccepted, Old Notes will continue to be subject to the
restrictions on transfer provided for in the Old Notes and
the Indenture. To the extent that Old Notes are tendered and
accepted in the Exchange Offer, the trading market, if any,
for the Old Notes could be adversely affected. See "Risk
Factors--Consequences of Failure to Exchange."
</TABLE>
7
<PAGE>
THE NEW NOTES
<TABLE>
<S> <C>
Issuer....................... NEXTLINK Communications, Inc.
Maturity..................... April 15, 2008.
Interest..................... The Old Notes were issued at a discount from their principal
amount to generate aggregate gross proceeds to the Company
of approximately $400.0 million. The New Notes will accrete
at a rate of 9.45% compounded semi-annually, to an aggregate
principal amount of $636,974,000 by April 15, 2003. No cash
interest will accrue on the New Notes prior to April 15,
2003. Thereafter, the New Notes will accrue cash interest at
the rate of 9.45% per annum from April 15, 2003, payable
semi-annually in arrears on April 15 and October 15,
commencing October 15, 2003.
Ranking...................... The New Notes will be senior unsecured obligations of the
Company, will rank PARI PASSU in right of payment with all
existing and future senior unsecured 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
New Notes with respect to the assets securing such
obligations. The New Notes will be effectively subordinated
to all indebtedness and other liabilities and commitments
(including trade payables) of the Company's subsidiaries. As
of March 31, 1998, on a pro forma basis giving effect to the
sale of the Old Notes, (i) the total amount of outstanding
consolidated liabilities of the Company, including trade
payables, would have been approximately $1,631.3 million,
$7.5 million of which would have been secured obligations
(excluding the 12 1/2% Notes, which are secured by a pledge
of $63.5 million of U.S. Treasury securities as of March 31,
1998) and (ii) the total amount of outstanding liabilities
of the Company's subsidiaries, including trade payables, was
$54.3 million, of which $7.5 million would have been secured
obligations. See "Covenants" below.
Optional Redemption.......... The New Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or after April
15, 2003 at the redemption price set forth herein plus
accrued and unpaid interest, if any, to the date of
redemption. In the event that, on or before April 15, 2001,
the Company receives net proceeds from a sale of its Common
Equity, up to a maximum of 33 1/3% of the 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 109.450% of the Accreted
Value to but excluding the redemption date of the Notes so
redeemed, PROVIDED, HOWEVER, that at least 66 2/3% of thte
original aggregate principal amount of the Notes remains
outstanding after such redemption.
Change of Control............ In the event of a Change of Control (as defined), holders of
the New Notes will have the right to require the Company to
purchase their New Notes, in whole or in part, at a price
equal to 101% of the
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
principal amount thereof, plus accrued and unpaid interest,
if any, thereon to the date of purchase.
Covenants.................... The Indenture, pursuant to which the Old Notes were and the
New Notes will be 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. 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 will receive no cash proceeds from the issuance
of the New Notes offered hereby. 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.
9
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS)
The summary historical consolidated financial data presented below as of and
for the years ended December 31, 1996 and 1997 are derived from and qualified by
reference to the audited Consolidated Financial Statements of the Company
included in the 1997 Form 10-KSB. The Company's Consolidated Financial
Statements as of and for the years ended December 31, 1996 and 1997 have been
audited by Arthur Andersen LLP, independent public accountants, as stated in
their report, which is incorporated by reference herein. The summary historical
consolidated financial data presented below as of March 31, 1998 and for the
three-month periods ended March 31, 1997 and 1998, have been derived from the
unaudited Interim Consolidated Financial Statements of the Company included in
the 1998 Form 10-Q. 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-month
period ended March 31, 1998 are not necessarily indicative of the results that
may be expected for the full year ended December 31, 1998. 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,"
incorporated by reference herein. The Company's financial results for the years
ended December 31, 1996 and 1997 and the three-month periods ended March 31,
1997 and 1998 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>
THREE MONTHS ENDED MARCH
YEAR ENDED DECEMBER 31, 31,
------------------------ ------------------------
1996 1997 1997 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue.................................................................. $ 25,686 $ 57,579 $ 10,067 $ 26,545
Costs and expenses:
Operating.............................................................. 25,094 54,031 9,904 24,550
Selling, general and administrative.................................... 31,353 75,732 13,274 31,957
Deferred compensation.................................................. 9,914 3,247 892 624
Depreciation and amortization.......................................... 10,340 27,190 4,406 10,183
----------- ----------- ----------- -----------
Loss from operations..................................................... (51,015) (102,621) (18,409) (40,769)
Interest income.......................................................... 10,446 27,827 5,029 11,735
Interest expense......................................................... (30,876) (54,495) (11,043) (23,278)
----------- ----------- ----------- -----------
Loss before minority interests........................................... (71,445) (129,289) (24,423) (52,312)
Minority interests....................................................... 344 285 -- --
----------- ----------- ----------- -----------
Net loss................................................................. $ (71,101) $ (129,004) $ (24,423) $ (52,312)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
OTHER DATA:
Ratio of earnings to fixed charges(1).................................... -- -- -- --
EBITDA(2)................................................................ $ (30,761) $ (72,184) $ (13,111) $ (29,962)
Summary Cash Flow Information:
Net cash used in operating activities.................................. (40,563) (94,495) (14,123) (24,215)
Net cash used in investing activities.................................. (227,012) (470,195) (114,322) (440,901)
Net cash provided by financing activities.............................. 343,032 876,957 273,572 514,069
Capital expenditures, including acquisitions of businesses (net of cash
acquired) and investments in affiliates (3)............................ 85,872 232,069 54,687 44,501
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
-------------------------
AS ADJUSTED
FOR
AS OF DECEMBER 31, THE SALE OF
-------------------- THE
1996 1997 ACTUAL OLD NOTES(4)
--------- --------- --------- --------------
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities....................... $ 124,520 $ 742,357 $1,070,710 $1,461,611
Pledged securities(5).................................................. 101,438 62,610 63,542 63,542
Working capital........................................................ 137,227 741,685 1,010,352 1,401,253
Property and equipment, net............................................ 97,784 253,653 298,752 298,752
Total assets........................................................... 390,683 1,217,153 1,762,585 2,162,586
Long-term debt and capital lease obligations, less current portion..... 356,262 757,640 1,090,052 1,490,053
Redeemable preferred stock, net of issuance costs...................... -- 313,319 518,770 518,770
Equity units subject to redemption..................................... 4,950 -- -- --
Common stock subject to redemption..................................... -- 4,950 4,950 4,950
Total shareholders' equity (deficit)................................... (18,654) 68,460 7,607 7,607
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF AS OF AS OF AS OF
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1996 1997 1997 1997 1997
--------------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
OPERATING DATA(6):
Route miles(7).......................................... 1,080 1,355 1,595 1,757 1,897
Fiber miles(8).......................................... 66,046 90,378 117,464 124,399 133,224
On-net buildings connected(9)........................... 403 449 459 479 513
Switches installed(10).................................. 9 10 12 13 13
Access lines in service (11)............................ 8,511 11,256 17,409 30,944 50,131
Employees............................................... 568 679 845 1,027 1,327
<CAPTION>
AS OF
MARCH 31,
1998
-----------
<S> <C>
OPERATING DATA(6):
Route miles(7).......................................... 2,036
Fiber miles(8).......................................... 141,788
On-net buildings connected(9)........................... 571
Switches installed(10).................................. 14
Access lines in service (11)............................ 72,834
Employees............................................... 1,499
</TABLE>
- ------------------------------
(1) For the years ended December 31, 1996 and 1997, and for the three months
ended March 31, 1997 and 1998, earnings were insufficient to cover fixed
charges during the periods presented by the amount of loss before minority
interests of $71,445, $129,289, $24,423 and $52,312, 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.
(3) Total capital expenditures, acquisitions, and investments in affiliates
were funded as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER THREE MONTHS ENDED
31, MARCH 31,
-------------------- --------------------
1996 1997 1997 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Cash expended.............................................. $ 72,042 $ 210,545 $ 54,687 $ 44,501
Debt issued and assumed.................................... 8,228 5,000 -- --
Equity issued.............................................. 5,602 16,524 -- --
--------- --------- --------- ---------
Total...................................................... $ 85,872 $ 232,069 $ 54,687 $ 44,501
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
(4) As adjusted to give effect to the net proceeds to the Company of the sale
of the Old Notes.
(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 include 100% of 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) 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 March 31,
1998, the Company had 6,518 buildings physically connected to its networks,
including those buildings connected through unbundled ILEC facilities.
(10) All switch counts include two long distance switches acquired in the ITC
acquisition. Switch counts as of June 30, 1997 and thereafter include the
switch installed in NEXTLAB, the Company's testing facility. The Company
installed two additional switches in May 1998.
(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. Access lines in service as of March 31, 1998 includes
1,811 access lines acquired with the Company's shared tenant services
business.
11
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, before
tendering their Old Notes for the New Notes offered hereby, holders of Old Notes
should consider carefully the following factors, which (other than "Consequences
of Failure to Exchange" and "Absence of a Public Market for the New Notes;
Possible Volatility of Note Price") are generally applicable to the Old Notes as
well as the New Notes:
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act and applicable state
securities laws, or pursuant to an exemption therefrom. Except under certain
limited circumstances, the Company does not intend to register the Old Notes
under the Securities Act. In addition, any holder of Old Notes who tenders in
the Exchange Offer for the purpose of participating in a distribution of New
Notes may be deemed to have received restricted securities and, if so, will be
required to comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction. To the extent Old
Notes are tendered and accepted in the Exchange Offer, the trading market, if
any, for the Old Notes not tendered and the price at which they may be sold,
could be adversely affected. See "The Exchange Offer."
LEVERAGE
As of March 31, 1998, the Company's outstanding consolidated liabilities
(including current portion) were $1,231.3 million and, as adjusted for the sale
of the Old Notes, the Company's outstanding consolidated liabilities (including
current portion) would have been $1,631.3 million. Of the amount outstanding,
(i) $350.0 million was outstanding under the 12 1/2% Notes, which will rank PARI
PASSU with the Notes, (ii) $400.0 million was outstanding under the 9 5/8%
Notes, which will rank PARI PASSU with the Notes, (iii) $334.3 million was
outstanding under the 9% Notes, and (iv) approximately $54.3 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."
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 indentures relating to the 12 1/2% Notes, the 9 5/8% Notes
and the 9% 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
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Preferred Shares (the "14% Preferred Shares") restrict the Company's ability to
incur additional indebtedness.
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 the Company to incur secured debt, including, among other things,
purchase money indebtedness, which the Indenture will permit the Company to
incur in unlimited amounts, and indebtedness up to the greater of (x) $175
million and (y) 85% of the Eligible Receivables (as defined), which may be used
for any purpose. 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 March 31, 1998, $63.5 million of
U.S. Treasury securities were 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
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. The Company's
operations have resulted in net losses of $71.1 million and $129.0 million for
the years ended December 31, 1996 and 1997, respectively, and $24.4 million and
$52.3 million for the three-month periods ended March 31, 1997 and 1998,
respectively. The Company will continue to incur significant expenditures in the
future in connection with the acquisition, development and expansion of its
networks, services and customer base. There can be no assurance that the Company
will achieve or sustain profitability or generate positive cash flow in the
future.
The Company was formed in September 1994. A significant, but declining,
portion of the Company's revenue for the years ended December 31, 1996 and 1997,
and for the three-month period ended March 31, 1998, was derived from the
operations of the Company's IVR enhanced service offering, which operations were
acquired by the Company in September 1995. Prospective investors, therefore,
have limited historical financial information upon which to base an evaluation
of the Company's performance in the business which will be its principal focus
in the future. The Company has only recently commenced operations as a single
source service provider of telecommunications services. Given the Company's
limited operating history, there can be no assurance that it will be able to
compete successfully in the telecommunications business and to generate positive
cash flow in the future.
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SIGNIFICANT FUTURE CAPITAL REQUIREMENTS; SUBSTANTIAL INDEBTEDNESS
Expansion of the Company's existing networks and services and the
development and acquisition of new networks and services will require
significant capital expenditures. The Company will continue to evaluate
additional revenue opportunities in each of its markets and, as and when
attractive additional opportunities develop, the Company plans to make capital
investments in its networks that might be required to pursue such opportunities.
The Company expects to meet its additional capital needs with the proceeds from
credit facilities and other borrowings, the proceeds from public or private
sales of debt securities, the sale or issuance of equity securities and through
joint ventures. There can be no assurance, however, that the Company will be
successful in raising sufficient additional capital on terms that it will
consider acceptable or that the Company's operations will produce positive cash
flow in sufficient amounts to service its debt and to pay cash dividends on the
Company's 6 1/2% Cumulative Convertible Preferred Stock, liquidation preference
$50 per share ("6 1/2% Preferred Stock") and 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.
The Company expects to incur substantial additional indebtedness (including
secured indebtedness) during the next few years to finance the acquisition,
construction and expansion of networks, the potential acquisition of
telecommunications companies, the acquisition of LMDS spectrum and the
construction and deployment of associated facilities, the purchase of additional
switches, the offering of switched local and long distance services, the
introduction of other new service offerings and the development and
implementation of a comprehensive information technology platform. The Indenture
does not limit the amount the Company may invest in Restricted Subsidiaries or
certain joint ventures (including NEXTBAND) engaged in one or more
Telecommunications Businesses or the amount of Debt the Company may incur to
fund investments in Restricted Subsidiaries or such joint ventures. As of March
31, 1998, after giving pro forma effect to the sale of the Old Notes, the amount
of total consolidated liabilities of the Company would have been approximately
$1,631.3 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. To date, 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
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retaining qualified personnel, there can be no assurance that NEXTLINK will not
experience a shortage of qualified personnel in the future.
SWITCH AND EQUIPMENT INSTALLATION. An essential element of the Company's
current strategy is the provision of switched local service. There can be no
assurance that the installation of the required switches, fiber optic cable and
associated electronics necessary to implement the Company's business plan will
continue to be completed on time or that, during the testing of these switches
and related equipment, the Company will not experience technological problems
that cannot be resolved. The failure of the Company to install and operate
successfully additional switches and other network equipment could have a
material adverse effect upon the Company's ability to enter additional markets
as a single source provider of telecommunications services.
INTERCONNECTION AGREEMENTS. The Company has agreements or is currently
negotiating agreements for the interconnection of its networks with the networks
of the ILEC covering each market in which NEXTLINK either has or is constructing
a network. NEXTLINK may be required to negotiate new, or renegotiate existing
interconnection agreements as it enters new markets in the future. There can be
no assurance that the Company will successfully negotiate such other agreements
for interconnection with the ILEC or renewals of existing interconnection
agreements. The failure to negotiate required interconnection agreements could
have a material adverse effect upon the Company's ability to enter rapidly the
telecommunications market as a single source provider of telecommunications
services.
ORDERING, PROVISIONING AND BILLING. The Company has developed processes and
procedures and is working with external vendors, including the ILECs, in the
implementation of customer orders for services, the provisioning, installation
and delivery of such services and monthly billing for those services. In
connection with its development of a comprehensive information technology
platform, the Company is developing and implementing automated internal systems
for processing customer orders and provisioning. Billing is provided by
unaffiliated third-party vendors. The failure to develop effective internal
processes and systems for these service elements or the failure of the Company's
current vendors or the ILECs to deliver effectively ordering, provisioning
(including establishing sufficient capacity and facilities on the 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 sale of
the 1998 Securities to expand its networks and service offerings through
internal development and acquisitions, which could be material. Such
acquisitions, if made, could divert the resources and management time of the
Company and would require integration with the Company's existing networks and
services. There can be no assurance that any such acquisitions will occur or
that any such acquisitions, if made, would be on terms favorable to the Company
or would be successfully integrated into the Company's operations.
NEED TO OBTAIN AND MAINTAIN 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
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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.
COMPETITION
In each of the markets served by the Company's networks, the Company
competes principally with the ILEC serving that area. ILECs are established
providers of local telephone services to all or virtually all telephone
subscribers within their respective service areas. ILECs also have long-standing
relationships with regulatory authorities at the federal and state levels. While
recent FCC administrative decisions and initiatives provide increased business
opportunities to telecommunications providers such as the Company, they also
provide the ILECs with increased pricing flexibility for their private line and
special access and switched access services. In addition, with respect to
competitive access services (as opposed to switched local exchange services),
the FCC recently proposed a rule that would provide for increased ILEC pricing
flexibility and deregulation for such access services either automatically or
after certain competitive levels are reached. If the ILECs are allowed by
regulators to offer discounts to large customers through contract tariffs,
engage in aggressive volume and term discount pricing practices for their
customers, and/or seek to charge competitors excessive fees for interconnection
to their networks, the income of competitors to the ILECs, including the
Company, could be materially adversely affected. If future regulatory decisions
afford the ILECs increased access services pricing flexibility or other
regulatory relief, such decisions could also have a material adverse effect on
competitors to the ILEC, including the Company.
The Company also faces, and expects to continue to face, competition from
other current and potential market entrants, including long distance carriers
seeking to enter, reenter or expand entry into the local exchange market place
such as AT&T Corp. ("AT&T"), MCI Communications Corporation ("MCI"), Sprint
Corporation ("Sprint") and WorldCom, Inc. ("WorldCom"), and from other CLECs,
competitive access providers ("CAPs"), cable television companies, electric
utilities, microwave carriers, wireless telephone system operators and private
networks built by large end-users. In addition, a continuing trend toward
combinations and strategic alliances in the telecommunications industry could
give rise to significant new competitors. The Telecom Act includes provisions
which impose certain regulatory requirements on all local exchange carriers,
including competitors such as the Company, while granting the FCC expanded
authority to reduce the level of regulation applicable to any or all
telecommunications carriers, including ILECs. The manner in which these
provisions of the Telecom Act are implemented and enforced could have a material
adverse effect on the Company's ability to successfully compete against ILECs
and other telecommunications service providers. The Company also competes with
equipment vendors and installers, and telecommunications management companies
with respect to certain portions of its business. Many of the Company's current
and potential competitors have financial, personnel and other resources,
including brand name recognition, substantially greater than those of the
Company, as well as other competitive advantages over the Company.
The Company also competes with long distance carriers in the provision of
long distance services. Although the long distance market is dominated by four
major competitors, AT&T, MCI, Sprint and WorldCom, hundreds of other companies
also compete in the long distance marketplace.
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REGULATION
The Company is subject to varying degrees of federal, state and local
regulation. In each state in which the Company desires to offer its services,
the Company is required to obtain authorization from the appropriate state
commission. Although the Company has received such authorization for each of its
operational markets, there can be no assurance that the Company will receive
such authorization for markets to be launched in the future. The Company is not
currently subject to price cap or rate of return regulation, nor is it currently
required to obtain FCC authorization for the installation, acquisition or
operation of its wireline 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. On December 31, 1997, the district
court issued a decision holding that Sections 271 through 275, including the
long distance entry provisions, of the Telecom Act are unconstitutional because
they violate separation of powers principles and the bill of attainder provision
of the U.S. Constitution. On February 11, 1998, the district court granted the
CLECs' request for a stay of the December 31, 1997 decision pending appeal by
the U.S. government and a number of other intervenors, to the United States
Court of Appeals for the Fifth Circuit. That appeal is currently pending. If the
stay is lifted, or if the Fifth Circuit upholds the district court's ruling,
then the RBOCs would be free to enter the long distance market, providing
additional competition to the Company's bundled service offering. In addition,
the district court's ruling would eliminate the long distance entry incentives
under the Telecom Act that were designed to promote interconnection between the
ILEC and new competitors.
The FCC has significant responsibility in the manner in which the Telecom
Act will be implemented especially in the areas of universal service, access
charges, numbering, number portability and price caps. The details of the rules
adopted by the FCC will have a significant effect in determining the extent to
which barriers to competition in local services are removed, as well as the time
frame within which such barriers are eliminated. The FCC may also grant ILECs
increased pricing flexibility to enable them to respond to competition for
special access and private line services. To the extent such pricing flexibility
is granted, the Company's ability to compete for certain services may be
adversely affected.
On July 18, 1997, the United States Court of Appeals for the Eighth Circuit
overturned many of the rules the FCC had established pursuant to the Telecom Act
governing the terms under which CLECs may, among other things, interconnect with
ILECs, resell ILEC services, lease unbundled ILEC network elements and terminate
traffic on ILEC networks. On October 14, 1997, the Eighth Circuit vacated the
FCC's rule prohibiting ILECs from separating unbundled network elements that are
already combined, except at the request of the CLECs. On January 22, 1998, the
Eighth Circuit issued a writ of mandamus
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ordering the FCC to follow the Court's July 1997 decision in addressing certain
pricing issues in the context of an RBOC's petition to enter the long distance
market under the Telecom Act. These Eighth Circuit decisions substantially limit
the FCC's jurisdiction and expands the state regulators' jurisdiction to set and
enforce rules governing the development of local competition. As a result, it is
more likely that the rules governing local competition will vary substantially
from state to state. Most states, however, have already begun to establish rules
for local competition that are consistent with the FCC rules overturned by the
Eighth Circuit. If a patchwork of state regulations were to develop, it could
increase the Company's costs of regulatory compliance and could make competitive
entry in some markets more difficult and expensive than in others.
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 51%, 25% and 20% of the
Company's revenues in 1996, 1997 and for the three months ended March 31, 1998,
respectively. The Company does not have long-term service contracts with most of
these customers. The Company will continue to be dependent upon a small number
of customers for a substantial portion of its revenues until such time, if 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. In addition, the Company from time to time
receives requests to consider licensing certain patents held by third parties
that may have bearing on its IVR 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.
RISK RELATED TO LMDS STRATEGY
LMDS is a new service, and major telecommunications equipment manufacturers
have yet to introduce infrastructure products for the LMDS frequency band. As a
result, no wireless local loop systems are currently operating under LMDS, and
implementation of such systems could be subject to unforeseen delays, costs and
possible quality and implementation issues. Material aspects of the Company's
LMDS implementation strategy, and its operating relationships with NEXTBAND and
Nextel, are still being developed and defined, and there can be no assurance
that the Company will develop and implement a successful and profitable LMDS
strategy, or that implementation of its LMDS strategy will not involve
substantial expense.
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.
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VARIABILITY OF QUARTERLY OPERATING RESULTS
As a result of the significant expenses associated with the expansion and
development of its networks and services and the variability of the level of
revenues generated through sales of NEXTLINK's IVR enhanced communications
services, the Company anticipates that its operating results could vary
significantly from period to period.
CONTROL BY 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"), controls approximately 54% of the Company's total voting power. As a
result, Mr. McCaw has the ability to control the direction and future operations
of the Company. Mr. McCaw is not an executive officer of the Company and, in
addition to his investment in the Company through Eagle River, Mr. McCaw has
significant investments in other communications companies, including Nextel
Communications, Inc., Teledesic Corporation and Cable Plus Inc., some of which
could compete with the Company as a single source provider of telecommunications
services or act as a supplier to the Company of certain telecommunications
services. The Company does not have a noncompetition agreement with either Mr.
McCaw or Eagle River. Mr. McCaw is not bound by any contractual restrictions
against future sales of the Company's common stock.
ABSENCE OF A PUBLIC MARKET FOR THE NEW NOTES; POSSIBLE VOLATILITY OF NOTE PRICE
The New Notes are new securities for which there is currently no market. The
Company does not intend to apply for listing of the New Notes on any securities
exchange or for the inclusion of the New Notes in any automated quotation
system. The Old Notes have been designated for trading in the PORTAL market.
Although the Company has been advised by the Initial Purchasers that, following
completion of the Exchange Offer, they currently intend to make a market in the
New Notes, they are not obligated to do so and any such market making activities
may be discontinued at any time without notice. Accordingly, there can be no
assurance as to the development or liquidity of any market for the New Notes. If
a market for the New Notes were to develop, the New 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. 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 New Notes.
There can be no assurance that, if a market for the New Notes were to develop,
such a market would not be subject to similar disruptions.
RISKS REGARDING FORWARD LOOKING STATEMENTS
The statements contained in this Prospectus and in 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, design and
construct LMDS systems and obtain
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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.
THE COMPANY
NEXTLINK Communications, Inc. is a corporation organized under the laws of
the State of Delaware. NEXTLINK Communications, L.L.C., 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 NEXTLINK
Communications (Washington), Inc. On June 4, 1998, NEXTLINK Communications
(Washington), Inc. merged with and into what is now NEXTLINK Communications,
Inc., a Delaware corporation ("NEXTLINK" or the "Company"). The principal
executive offices of the Company are located at 500 108th Avenue N.E., Suite
2200, Bellevue, Washington 98004. The telephone number is (425) 519-8900.
USE OF PROCEEDS
NEXTLINK will not receive any cash proceeds from the issuance of the New
Notes as described in this Prospectus. NEXTLINK will receive in exchange Old
Notes in like principal amount. The Old Notes surrendered in exchange for the
New Notes will be retired and cancelled and cannot be reissued. Accordingly, the
issuance of the New Notes will not result in any change in the indebtedness of
NEXTLINK.
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CAPITALIZATION
(Dollars in thousands, except per share amounts)
The following table sets forth as of March 31, 1998, the actual
capitalization of the Company and the capitalization of the Company as adjusted
to reflect the sale of the Old Notes. This table should be read in conjunction
with the Selected Consolidated Financial and Operating Data included elsewhere
in this Prospectus and the Consolidated Financial Statements incorporated by
reference herein.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
--------------------------
<S> <C> <C>
AS ADJUSTED
FOR THE SALE
OF THE OLD
ACTUAL NOTES
------------ ------------
Cash, cash equivalents and marketable securities...................................... $ 1,070,710 $ 1,461,611
Pledged securities(1)................................................................. 63,542 63,542
------------ ------------
Total............................................................................... $ 1,134,252 $ 1,525,153
------------ ------------
------------ ------------
Current portion of long-term obligations.............................................. $ 1,775 $ 1,775
Capital lease obligations, less current portion....................................... 5,724 5,724
12 1/2% Senior Notes due 2006......................................................... 350,000 350,000
9 5/8% Senior Notes due 2007.......................................................... 400,000 400,000
9% Senior Notes due 2008.............................................................. 334,323 334,323
9.45% Senior Discount Notes due 2008.................................................. -- 400,001
------------ ------------
Total debt.......................................................................... 1,091,822 1,491,823
------------ ------------
Redeemable Preferred Stock, par value $0.01 per share, 25,000,000 shares authorized,
net of issuance costs:
14% Preferred Shares, 6,543,302 shares issued and outstanding..................... 324,870 324,870
6 1/2% Cumulative Convertible Preferred Stock, 4,000,000 shares issued and
outstanding..................................................................... 193,900 193,900
Common Stock, par value $.02 per share, 63,355 and 456,595 Class A and Class B shares
issued and outstanding, subject to redemption by the Company(2)..................... 4,950 4,950
Shareholders' equity:
Common Stock, par value $.02 per share, stated at amounts paid in; Class A,
110,334,000 shares authorized, 19,720,924 issued and outstanding; Class B,
44,133,600 shares authorized, 33,286,882 shares issued and outstanding(3)......... 334,067 334,067
Deferred compensation............................................................... (10,092) (10,092)
Accumulated deficit................................................................. (316,368) (316,368)
------------ ------------
Total shareholders' equity........................................................ 7,607 7,607
------------ ------------
Total capitalization.............................................................. $ 1,623,149 $ 2,023,150
------------ ------------
------------ ------------
</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) 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 terminated on May 25,
1998.
(3) Issued and outstanding does not include 5,687,277 and 654,858 shares of
Class A Common Stock and Class B Common Stock, respectively, issuable upon
exercise of outstanding options.
21
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
(Dollars in thousands)
The selected historical consolidated financial data presented below as of
and for the years ended December 31, 1996 and 1997 are derived from and
qualified by reference to the audited Consolidated Financial Statements of the
Company included in the 1997 Form 10-KSB. The Company's Consolidated Financial
Statements as of and for the years ended December 31, 1996 and 1997 have been
audited by Arthur Andersen LLP, independent public accountants, as stated in
their report, which is incorporated by reference herein. The summary historical
consolidated financial data presented below as of March 31, 1998 and for the
three-month periods ended March 31, 1997 and 1998, have been derived from the
unaudited Interim Consolidated Financial Statements of the Company included in
the 1998 Form 10-Q. 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 fair presentation of the financial position and the
results of operations for these periods. Operating results for the three-month
period ended March 31, 1998 are not necessarily indicative of the results that
may be expected for the full year ended December 31, 1998. 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,"
incorporated by reference herein. The Company's financial results for the years
ended December 31, 1996 and 1997 and the three-month periods ended March 31,
1997 and 1998 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>
YEAR ENDED DECEMBER THREE MONTHS
31, ENDED MARCH 31,
---------------------- ----------------------
1996 1997 1997 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue.................................................................. $ 25,686 $ 57,579 $ 10,067 $ 26,545
Costs and expenses:
Operating.............................................................. 25,094 54,031 9,904 24,550
Selling, general and administrative.................................... 31,353 75,732 13,274 31,957
Deferred compensation.................................................. 9,914 3,247 892 624
Depreciation and amortization.......................................... 10,340 27,190 4,406 10,183
---------- ---------- ---------- ----------
Loss from operations..................................................... (51,015) (102,621) (18,409) (40,769)
Interest income.......................................................... 10,446 27,827 5,029 11,735
Interest expense......................................................... (30,876) (54,495) (11,043) (23,278)
---------- ---------- ---------- ----------
Loss before minority interests........................................... (71,445) (129,289) (24,423) (52,312)
Minority interests....................................................... 344 285 -- --
---------- ---------- ---------- ----------
Net loss................................................................. $ (71,101) $ (129,004) $ (24,423) $ (52,312)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
OTHER DATA:
Ratio of earnings to fixed charges(1).................................... -- -- -- --
EBITDA(2)................................................................ $ (30,761) $ (72,184) $ (13,111) $ (29,962)
Summary Cash Flow Information:
Net cash used in operating activities.................................. (40,563) (94,495) (14,123) (24,215)
Net cash used in investing activities.................................. (227,012) (470,195) (114,322) (440,901)
Net cash provided by financing activities.............................. 343,032 876,957 273,572 514,069
Capital expenditures, including acquisitions of businesses (net of cash
acquired) and investments in affiliates (3)............................ 85,872 232,069 54,687 44,501
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
-------------------------
AS ADJUSTED
FOR
AS OF DECEMBER 31, THE SALE OF
-------------------- THE
1996 1997 ACTUAL OLD NOTES(4)
--------- --------- --------- --------------
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities............... $ 124,520 $ 742,357 $1,070,710 $1,461,611
Pledged securities(5).......................................... 101,438 62,610 63,542 63,542
Working capital................................................ 137,227 741,685 1,010,352 1,401,253
Property and equipment, net.................................... 97,784 253,653 298,752 298,752
Total assets................................................... 390,683 1,217,153 1,762,585 2,162,586
Long-term debt and capital lease obligations, less current
portion...................................................... 356,262 757,640 1,090,052 1,490,053
Redeemable preferred stock, net of issuance costs.............. -- 313,319 518,770 518,770
Equity units subject to redemption............................. 4,950 -- -- --
Common stock subject to redemption............................. -- 4,950 4,950 4,950
Total shareholders' equity (deficit)........................... (18,654) 68,460 7,607 7,607
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF AS OF AS OF AS OF AS OF
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1996 1997 1997 1997 1997 1998
--------------- ----------- ----------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA(6):
Route miles(7)..................... 1,080 1,355 1,595 1,757 1,897 2,036
Fiber miles(8)..................... 66,046 90,378 117,464 124,399 133,224 141,788
On-net buildings connected(9)...... 403 449 459 479 513 571
Switches installed(10)............. 9 10 12 13 13 14
Access lines in service (11)....... 8,511 11,256 17,409 30,944 50,131 72,834
Employees.......................... 568 679 845 1,027 1,327 1,499
</TABLE>
- ------------------------
(1) For the years ended December 31, 1996 and 1997, and for the three months
ended March 31, 1997 and 1998, earnings were insufficient to cover fixed
charges during the periods presented by the amount of loss before minority
interests of $71,445, $129,289, $24,423 and $52,312, 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.
(3) Total capital expenditures, acquisitions, and investments in affiliates were
funded as follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------- --------------------
1996 1997 1997 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Cash expended............................................... $ 72,042 $ 210,545 $ 54,687 $ 44,501
Debt issued and assumed..................................... 8,228 5,000 -- --
Equity issued............................................... 5,602 16,524 -- --
--------- --------- --------- ---------
Total....................................................... $ 85,872 $ 232,069 $ 54,687 $ 44,501
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
(4) As adjusted to give effect to the net proceeds to the Company of the sale of
the Old Notes.
(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 include 100% of 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) 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 March 31,
1998, the Company had 6,518 buildings physically connected to its networks,
including those buildings connected through unbundled ILEC facilities.
(10) All switch counts include two long distance switches acquired in the ITC
acquisition. Switch counts as of June 30, 1997 and thereafter include the
switch installed in NEXTLAB, the Company's testing facility. The Company
installed two additional switches in May 1998.
(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. Access lines in service as of March 31, 1998 includes
1,811 access lines acquired with the Company's shared tenant services
business.
23
<PAGE>
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were sold by the Company on April 1, 1998 to the Initial
Purchasers, who placed the Old Notes with certain institutional investors. In
connection therewith, the Company and the Initial Purchasers entered into the
Registration Rights Agreement, pursuant to which the Company agreed, for the
benefit of the Holders of the Old Notes, that the Company would, at its sole
cost, (i) within 90 days following the original issuance of the Old Notes, file
with the Commission the Exchange Offer Registration Statement (of which this
Prospectus is a part) under the Securities Act with respect to an issue of a
series of new notes of the Company identical in all material respects to the
series of Old Notes and (ii) use its reasonable best efforts to cause such
Exchange Offer Registration Statement to become effective under the Securities
Act at the earliest possible time, but in no event later than 120 days following
the original issuance of the Old Notes. Upon the effectiveness of the Exchange
Offer Registration Statement (of which this Prospectus is a part), the Company
will offer to the Holders of the Old Notes the opportunity to exchange their Old
Notes for a like principal amount of New Notes, to be issued without a
restrictive legend and which may, subject to certain exceptions described below,
be reoffered and resold by the Holder without restrictions or limitations under
the Securities Act. The term "Holder" with respect to any Note means any person
in whose name such Note is registered on the books of NEXTLINK.
Each Holder desiring to participate in the Exchange Offer will be required
to represent, among other things, that (i) it is not an "affiliate" (as defined
in Rule 405 of the Securities Act) of the Company, (ii) it is not engaged in,
and does not intend to engage in, and has no arrangement or understanding with
any person to participate in, a distribution of the New Notes, and (iii) it is
acquiring the New Notes in the ordinary course of its business (a holder unable
to make the foregoing representations is referred to herein as a "Restricted
Holder"). A Restricted Holder will not be able to participate in the Exchange
Offer, and may only sell its Old Notes pursuant to a registration statement
containing the selling securityholder information required by Item 507 of
Regulation S-K of the Securities Act, or pursuant to an exemption from the
registration requirement of the Securities Act.
Each Participating Broker-Dealer is required to acknowledge in the Letter of
Transmittal that it acquired the Old Notes as a result of market-making
activities or other trading activities and that it will deliver a prospectus in
connection with the resale of such New Notes. Based upon interpretations by the
staff of the Commission, the Company believes that New Notes issued pursuant to
the Exchange Offer to Participating Broker-Dealers may be offered for resale,
resold, and otherwise transferred by a Participating Broker-Dealer upon
compliance with the prospectus delivery requirements, but without compliance
with the registration requirements, of the Securities Act. The Company has
agreed that for a period of 30 days following consummation of the Exchange Offer
they will make this Prospectus available to Participating Broker-Dealers for use
in connection with any such resale. During such period of time, delivery of this
Prospectus, as it may be amended or supplemented, will satisfy the prospectus
delivery requirements of a Participating Broker-Dealer engaged in market-making
or other trading activities.
Based upon interpretations by the staff of the Commission, the Company
believes that New Notes issued pursuant to the Exchange Offer may be offered for
resale, resold and otherwise transferred by a Holder thereof (other than a
Participating Broker-Dealer) without compliance with the registration and
prospectus delivery requirements of the Securities Act.
If prior to the consummation of the Exchange Offer existing Commission
interpretations are changed such that the New Notes received by holders other
than Restricted Holders in the Exchange Offer for Registrable Securities are not
or would not be, upon receipt, transferable by each such holder without
restriction under the Securities Act, then the Company is required under the
Registration Rights Agreement to file with the Commission a shelf registration
statement (the "Shelf Registration Statement"). The Company is required under
the Registration Rights Agreement to use its reasonable best efforts to cause
the Shelf Registration Statement to be declared effective at the earliest
possible time but in no event later than 120 days after the issuance of the Old
Notes and to keep such Shelf Registration
24
<PAGE>
continuously effective for a period ending on the earlier of the second
anniversary of the issuance of the Old Notes or such time as there are no longer
any Registrable Securities outstanding.
Registrable Securities shall mean the Old Notes unless such Old Notes are
sold pursuant to Rule 144 (or any successor provision) promulgated under the
Securities Act under circumstances in which any legend borne by such Notes
relating to restrictions on transferability thereof, under the Securities Act or
otherwise, is removed by the Company or pursuant to the Indenture or such Notes
are eligible to be sold pursuant to paragraph (k) of Rule 144 or (when) such
Notes shall cease to be outstanding.
The Company will, in the event of the filing of the Shelf Registration
Statement, provide to each Holder of Registrable Securities covered by the Shelf
Registration Statement copies of any Shelf Registration Statement or any
prospectus which is a part of the Shelf Registration Statement, notify each such
Holder when the Shelf Registration Statement has become effective and take
certain other actions as are required to permit unrestricted resales of
Registrable Securities. A Holder of Registrable Securities that sells such
Registrable Securities pursuant to the Shelf Registration Statement generally
will be required to be named as a selling security holder in the related
prospectus and to deliver a prospectus to the purchaser, will be subject to
certain of the civil liability provisions under the Securities Act in connection
with such sales and will be bound by the provisions of the Registration Rights
Agreement which are applicable to such Holder (including certain indemnification
obligations). In addition, Holders of Registrable Securities will be required to
deliver information to be used in connection with the Shelf Registration
Statement and to provide comments on the Shelf Registration Statement within the
time periods set forth in the Registration Rights Agreement in order to have
their Registrable Securities included in the Shelf Registration Statement and
benefit from the provisions regarding Liquidated Damages, if any, set forth in
the following paragraph.
If (i) the Company is required to file the Shelf Registration Statement and
(ii) the Shelf Registration has not become effective or been declared effective
by the Commission on or before the 120th day after the issuance of the Old
Notes, or (iii) the Shelf Registration Statement is filed and declared effective
but shall thereafter cease to be effective (except as specifically permitted in
the Registration Rights Agreement) without being succeeded promptly by an
additional registration statement filed and declared effective (each such event
referred to in clauses (i) through (iii), a "Registration Default"), then
interest will accrue (in addition to any stated interest on the Securities) a
the rate of 0.5% per annum on the principal amount of the Old Notes, determined
daily (calculated on the same basis as interest on the Notes shall be
calculated) for the period from the occurrence of the Registration Default until
such time as no Registration Default is in effect (after which time no such
special interest will accrue). Such additional interest (the "Additional
Interest") will be payable in cash semi-annually in arrears on each March 15 and
September 15 in accordance with the Indenture. In addition, in the event that
the Shelf Registration has not become effective or been declared effective by
the Commission on or before the 165th day after the issuance of the Old Notes,
then the per annum rate of Additional Interest shall increase by an additional
0.25% for each subsequent 90-day period (provided that such Additional Interest
shall in no event exceed 1.0% per annum in the aggregate), that Additional
Interest will be paid at such increased rate until such time as the Shelf
Registration has become or been declared effective.
Payment of Additional Interest is the sole remedy available to the Holders
of Registrable Securities in the event that the Company does not comply with the
deadlines set forth in the Registration Rights Agreement with respect to the
registration of Registrable Securities for resale under the Shelf Registration
Statement.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. The Company will issue $1,000 principal amount at stated
maturity of New Notes in exchange for each $1,000 principal amount at stated
maturity of
25
<PAGE>
outstanding Old Notes accepted in the Exchange Offer. Holders may tender some or
all of their Old Notes pursuant to the Exchange Offer. However, Old Notes may be
tendered only in integral multiples of $1,000 at stated maturity.
The form and terms of the New Notes will be identical in all material
respects (including principal amount, interest rate, maturity and ranking) to
terms of the Old Notes for which they may be exchanged pursuant to the Exchange
Offer except that the New Notes have been registered under the Securities Act
and, therefore, will not bear legends restricting their transfer and will not
contain certain terms providing for an increase in the interest rate on the Old
Notes under certain circumstances described in the Registration Rights Agreement
(as defined). The New Notes will evidence the same debt as the Old Notes and
will be entitled to the benefits of the Indenture under which the Old Notes
were, and the New Notes will be, issued.
As of the date of this Prospectus, $636,974,000 million aggregate principal
amount at stated maturity of the Old Notes is outstanding. The Company has fixed
the close of business on July 16, 1998 as the record date for the Exchange Offer
for purposes of determining the persons to whom this Prospectus, together with
the Letter of Transmittal, will initially be sent. As of such date, there was
one registered Holder of the Old Notes.
Holders of the Old Notes do not have any appraisal or dissenters' rights
under law or the Indenture in connection with the Exchange Offer. The Company
intends to conduct the Exchange Offer in accordance with the applicable
requirements of the Exchange Act and the rules and regulations of the Commission
thereunder.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commission or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offer. See
"--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
August 24, 1998, unless the Company, in its reasonable discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent (as defined) of any extension by oral or written notice and will make a
public announcement thereof prior to 9:00 a.m., New York City time, on the next
business day after each previously scheduled Expiration Date, unless otherwise
required by applicable law or regulation.
The Company reserves the right, in its reasonable discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or, if in their reasonable
judgment any of the conditions set forth below under the caption "--Conditions"
shall not have been satisfied, to terminate the Exchange Offer, by giving oral
or written notice of such delay, extension or termination to the Exchange Agent,
or (ii) to amend the terms of the Exchange Offer in any manner. Any such delay
in acceptance, extension, termination or amendment will be followed as promptly
as practicable by a public announcement thereof. If the Exchange Offer is
amended in a manner determined by the Company to constitute a material change,
the Company will promptly disclose such amendment by means of a prospectus
supplement that will be distributed to the registered Holders, and the Company
will extend the Exchange Offer for a period of five to ten business days,
depending upon the significance of the amendment and the manner of disclosure to
the registered Holders, if the Exchange Offer would otherwise expire during such
five to ten business day period.
Without limiting the manner in which the Company may choose to make a public
announcement of any delay, extension, termination or amendment of the Exchange
Offer, the Company shall have no
26
<PAGE>
obligation to publish, advertise or otherwise communicate any such public
announcement, other than by making a timely release to the Dow Jones News
Service.
PROCEDURES FOR TENDERING
Only a Holder of Old Notes may tender such Old Notes in the Exchange Offer.
A Holder who wishes to tender Old Notes for exchange pursuant to the Exchange
Offer must transmit a properly completed and duly executed Letter of
Transmittal, or a facsimile thereof, together with any required signature
guarantees, or, in the case of a book-entry transfer, Agent's Message (as
defined), and any other required documents, to the Exchange Agent prior to
Midnight, New York City time, on the Expiration Date. In addition, either (i)
certificates for such Old Notes must be received by the Exchange Agent prior to
the Expiration Date along with the Letter of Transmittal, (ii) a timely
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Old
Notes into the Exchange Agent's account at The Depository Trust Company ("DTC"
or the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date or (iii) the Holder must comply with the guaranteed delivery
procedures described below. To be tendered effectively, the Old Notes, or
Book-Entry Confirmation, as the case may be, the Letter of Transmittal and other
required documents must be received by the Exchange Agent at the address set
forth below under "--Exchange Agent" prior to 5:00 p.m., New York City time, on
the Expiration Date. DELIVERY OF DOCUMENTS TO THE BOOK ENTRY TRANSFER FACILITY
IN ACCORDANCE WITH ITS PROCEDURE DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE
AGENT.
DTC has authorized DTC participants that hold Old Notes on behalf of
beneficial owners of Old Notes through DTC to tender their Old Notes as if they
were Holders. To effect a tender of Old Notes, DTC participants should either
(i) complete and sign the Letter of Transmittal (or a manually signed facsimile
thereof), have the signature thereon guaranteed if required by the Instructions
to the Letter of Transmittal, and mail or deliver the Letter of Transmittal (or
such manually signed facsimile) to the Exchange Agent pursuant to the procedure
set forth in "Procedures for Tendering" or (ii) transmit their acceptance to DTC
through the DTC Automated Tender Offer Program ("ATOP") for which the
transaction will be eligible and follow the procedure for book-entry transfer
set forth in "--Book-Entry Transfer."
The tender by a Holder will constitute an agreement between such Holder and
the Company in accordance with the terms and subject to the conditions set forth
herein and in the Letter of Transmittal.
The method of delivery of the Old Notes and the Letter of Transmittal and
all other required documents to the Exchange Agent is at the election and risk
of the Holder. Instead of delivery by mail, it is recommended that Holders use
an overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure delivery to the Exchange Agent before the Expiration Date. No
Letter of Transmittal or Old Notes, or Book-Entry Confirmation, as the case may
be, should be sent to the Company.
Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
should contact the registered Holder promptly and instruct such registered
Holder to tender on such beneficial owner's behalf. If such beneficial owner
wishes to tender on such beneficial owner's own behalf, such owner must, prior
to completing and executing the Letter of Transmittal and delivering such
beneficial owner's Old Notes, either make appropriate arrangement to register
ownership of the Old Notes in such owner's name or obtain a properly completed
bond power from the registered Holder. The transfer of registered ownership may
take considerable time.
If the Letter of Transmittal is signed by a person other than the registered
Holder of any Old Notes listed therein, such Old Notes must be endorsed or
accompanied by a properly completed bond power and signed by such registered
Holder as such registered Holder's name appears on such Old Notes.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or
27
<PAGE>
representative capacity, such persons should so indicate when signing, and
unless waived by the Company, evidence satisfactory to the Company of their
authority to so act must be submitted with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (as defined below) unless
the Old Notes tendered pursuant thereto are tendered (i) by a registered Holder
who has not completed the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution. In the event that signatures on a Letter of
Transmittal or a notice of withdrawal, as the case may be, are required to be
guaranteed, such guarantee must be by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-5 under the Exchange Act (an "Eligible Institution").
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Old Notes will be determined by
the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all Old Notes
not properly tendered or any Old Notes the Company's acceptance of which would,
in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right to waive any defects, irregularities or conditions of tender
as to particular Old Notes. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) shall be final and binding on all parties. Unless waived, any
defects of irregularities in connection with tenders of Old Notes must be cured
within such time as the Company shall determine. Neither the Company, the
Exchange Agent nor any other person shall incur any liability for failure to
give notice of any defect or irregularity with respect to any tender of Old
Notes. Tenders of Old Notes will not be deemed to have been made until such
defects or irregularities have been cured or waived. Any Old Notes received by
the Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will not be deemed to have been
properly tendered. Any Old Notes received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned by the Exchange Agent to the tendering Holders,
unless otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
By tendering, each Holder will represent to the Company, among other things,
that such Holder is not a Restricted Holder. Each Participating Broker-Dealer
must acknowledge that it will deliver a prospectus in connection with any resale
of such New Notes. See "Plan of Distribution."
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
For each Old Note accepted for exchange, the Holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. For purposes of the Exchange Offer, the Company shall be deemed to
have accepted properly tendered Old Notes for exchange when, as and if the
Company has given oral or written notice thereof to the Exchange Agent.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry
Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal or Agent's Message and all other required documents. If any tendered
Old Notes are not accepted for any reason set forth in the terms and conditions
of the Exchange Offer or if Old Notes are submitted for a greater principal
amount than the Holder desires to exchange, such unaccepted or non-exchanged Old
Notes will be returned without expense to the tendering Holder thereof (or, in
the case of Old Notes tendered by book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described below, such non-exchanged Old Notes will be credited to an
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<PAGE>
account maintained with such Book-Entry Transfer Facility) as promptly as
practicable after the Expiration Date.
BOOK-ENTRY TRANSFER
The Exchange Agent will establish a new account or utilize an existing
account with respect to the Old Notes at DTC promptly after the date of this
Prospectus, and any financial institution that is a participant in DTC and whose
name appears on a security position listing as the owner of Old Notes may make a
book-entry tender of Old Notes by causing DTC to transfer such Old Notes into
the Exchange Agent's account in accordance with DTC's procedures for such
transfer. However, although tender of Old Notes may be effected through
book-entry transfer into the Exchange Agent's account at DTC, the Letter of
Transmittal (or a manually signed facsimile thereof), properly completed and
validly executed, with any required signature guarantees, or an Agent's Message
in lieu of the Letter of Transmittal, and any other required documents, must, in
any case, be received by the Exchange Agent at its address set forth below under
the caption "Exchange Agent" on or prior to the Expiration Date, or the
guaranteed delivery procedures described below must be complied with. The
confirmation of a book-entry transfer of Old Notes into the Exchange Agent's
account at DTC as described above is referred to herein as a "Book-Entry
Confirmation." Delivery of documents to DTC in accordance with DTC's procedures
does not constitute delivery to the Exchange Agent.
The term "Agent's Message" means a message transmitted by DTC to, and
received by, the Exchange Agent and forming a part of a Book-Entry Confirmation,
which states that DTC has received an express acknowledgment from the
participant in DTC tendering the Old Notes stating (i) the aggregate principal
amount of Old Notes which have been tendered by such participant, (ii) that such
participant has received and agrees to be bound by the term of the Letter of
Transmittal and (iii) that the Company may enforce such agreement against the
participant.
GUARANTEE DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date or (iii) who cannot complete the procedure for book-entry
transfer on a timely basis, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of Guaranteed
Delivery (by facsimile transmission, mail or hand delivery) setting forth the
name and address of the Holder, the certificate number(s) of such Old Notes and
the principal amount of Old Notes tendered, stating that the tender is being
made thereby and guaranteeing that, within three New York Stock Exchange trading
days after the Expiration Date, the Letter of Transmittal (or facsimile thereof)
or, in the case of a book-entry transfer, an Agent's Message, together with the
certificate(s) representing the Old Notes, or a Book-Entry Confirmation, as the
case may be, and any other documents required by the Letter of Transmittal will
be deposited by the Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or facsimile
thereof) or, in the case of a book-entry transfer, an Agent's Message, as well
as the certificate(s) representing all tendered Old Notes in proper form for
transfer, or a Book-Entry Confirmation, as the case may be, and all other
documents required by the Letter of Transmittal are received by the Exchange
Agent within three New York Stock Exchange trading days after the Expiration
Date.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
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To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having deposited the Old Notes to be withdrawn (the "Depositor"),
(ii) identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Old Notes), (iii) be signed by the Holder
in the same manner as the original signature on the Letter of Transmittal by
which such Old Notes were tendered (including any required signature guarantees)
or be accompanied by documents of transfer sufficient to have the Trustee with
respect to the Old Notes register the transfer of such Old Notes into the name
of the person withdrawing the tender and (iv) specify the name in which any such
Old Notes are to be registered, if different from that of the Depositor. If
certificates for Old Notes have been delivered or otherwise identified to the
Exchange Agent, then, prior to the release of such certificates, the withdrawing
Holder must also submit the serial numbers of the particular certificates to be
withdrawn and a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution unless such Holder is an Eligible Institution. If Old Notes
have been tendered pursuant to the procedure for book-entry transfer described
above, any notice of withdrawal must specify the name and number of the account
at the Book-Entry Transfer Facility to be credited with the withdrawn Old Notes
and otherwise comply with the procedures of the Book-Entry Transfer Facility.
All questions as to the validity, form and eligibility (including time of
receipt) of such notices will be determined by the Company in its sole
discretion, which determination shall be final and binding on all parties. Any
Old Notes so withdrawn will be deemed not to have been validly tendered for
purposes of the Exchange Offer and no New Notes will be issued with respect
thereto unless the Old Notes so withdrawn are validly retendered. Properly
withdrawn Old Notes may be retendered by following one of the procedures
described above under "--Procedures for Tendering" at any time prior to the
Expiration Date.
Any Old Notes which have been tendered but which are not accepted for
payment due to withdrawal, rejection of tender or termination of the Exchange
Offer will be returned as soon as practicable after withdrawal, rejection of
tender or termination of the Exchange Offer to the Holder thereof without cost
to such Holder (or, in the case of Old Notes tendered by book-entry transfer
into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant
to the book-entry transfer procedures described above, such Old Notes will be
credited to an account maintained with such Book-Entry Transfer Facility for the
Old Notes).
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange New Notes for, any Old Notes,
and may terminate the Exchange Offer as provided herein before the acceptance of
such Old Notes, if:
(a) any action or proceeding is instituted or threatened in any court or by
or before any governmental agency with respect to the Exchange Offer which, in
the reasonable judgment of the Company, might materially impair the ability of
the Company to proceed with the Exchange Offer or materially impair the
contemplated benefits of the Exchange Offer to the Company, or any material
adverse development has occurred in any existing action or proceeding with
respect to the Company or any of its subsidiaries;
(b) any change, or any development involving a prospective change, in the
business or financial affairs of the Company or any of their subsidiaries has
occurred which, in the reasonable judgment of the Company, might materially
impair the ability of the Company to proceed with the Exchange Offer or
materially impair the contemplated benefits of the Exchange Offer to the
Company;
(c) any law, statute, rule or regulation is proposed, adopted or enacted,
which, in the reasonable judgment of the Company, might materially impair the
ability of the Company to proceed with the Exchange Offer or materially impair
the contemplated benefits of the Exchange Offer to the Company; or
30
<PAGE>
(d) any governmental approval has not been obtained, which approval the
Company shall, in its reasonable discretion, deem necessary for the consummation
of the Exchange Offer as contemplated hereby.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in their reasonable discretion. The failure by the Company at
any time to exercise any of the foregoing rights shall not be deemed a waiver of
such right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
If the Company determines in its reasonable discretion that any of the
conditions are not satisfied, the Company may (i) refuse to accept any Old Notes
and return all tendered Old Notes to the tendering Holders, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the expiration of the
Exchange Offer, subject, however, to the rights of Holders to withdraw such Old
Notes (see "--Withdrawal of Tenders" above) or (iii) waive such unsatisfied
conditions with respect to the Exchange Offer and accept all properly tendered
Old Notes which have not been withdrawn. If such waiver constitutes a material
change to the Exchange Offer, the Company will promptly disclose such waiver by
means of a prospectus supplement that will be distributed to the registered
Holders, and the Company will extend the Exchange Offer for a period of five to
ten business days, depending upon the significance of the waiver and the manner
of disclosure to the registered Holders, if the Exchange Offer would otherwise
expire during such five to ten business day period.
EXCHANGE AGENT
United States Trust Company has been appointed as Exchange Agent for the
Exchange Offer. Requests for additional copies of this Prospectus or of the
Letter of Transmittal should be directed to the Exchange Agent addressed as
follows:
To: United States Trust Company
By Hand/Overnight Courier:
United States Trust Company
114 West 47(th) Street
New York, NY 10036
Attn: Patricia Sterner
Reorganization Section
Facsimile Transmission
(212) 852-1625
Confirm by Telephone: (212) 852-1664
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The Company
has not retained any dealer-manager in connection with the Exchange Offer and
will not make any payments to brokers, dealers or others soliciting acceptances
of the Exchange Offer. The Company, however, will pay the exchange agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing New Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be issued in the name
of, any person other than the registered Holder of the Old Notes tendered, or if
tendered Old Notes are
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<PAGE>
registered in the name of any person other than the person signing the Letter of
Transmittal, or if a transfer tax is imposed for any reason other than the
exchange of Old Notes pursuant to the Exchange Offer, then the amount of any
such transfer taxes (whether imposed on the registered Holder or any other
persons) will be payable by the tendering Holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering Holder.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
which is the principal amount as reflected in the Company's accounting records
on the date of the exchange. Accordingly, no gain or loss for accounting
purposes will be recognized. The expenses of the Exchange Offer and the
unamortized expenses related to the issuance of the Old Notes will be amortized
over the term of the Notes.
REGULATORY APPROVALS
The Company does not believe that the receipt of any material federal or
state regulatory approvals will be necessary in connection with the Exchange
Offer, other than the effectiveness of the Exchange Offer Registration Statement
under the Securities Act.
OTHER
Participation in the Exchange Offer is voluntary and Holders of Old Notes
should carefully consider whether to accept the terms and conditions thereof.
Holders of the Old Notes are urged to consult their financial and tax advisors
in making their own decisions on what action to take with respect to the
Exchange Offer.
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DESCRIPTION OF THE NOTES
The New Notes, like the Old Notes, will be issued under the Indenture, dated
April 1, 1998, by and between NEXTLINK and The The United States Trust Company
as trustee (the "Trustee"). The terms of the New Notes are identical in all
material respects to the terms of the Old Notes, except that the New Notes have
been registered under the Securities Act, and, therefore, will not bear legends
restricting their transfer and will not contain certain terms providing for an
increase in the interest rate on the Old Notes under the circumstances described
in the Registration Rights Agreement. The terms of the Notes include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Notes
are subject to all such terms, and Holders of Notes are referred to the
Indenture and the Trust Indenture Act for a statement thereof. 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. 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" referes to NEXTLINK Communications, Inc. and does not
include its subsidiaries except for purposes of financial data determined on a
consolidated basis. A copy of the Indenture and Registration Rights Agreement
are filed as exhibits to the Registration Statement of which this Prospectus is
a part. The definitions of certain terms used in the following summary are set
forth below under "--Certain Definitions."
GENERAL
The New Notes will be senior obligations of the Company, will be limited to
$637.0 million aggregate principal amount at stated maturity and will mature on
April 15, 2008. The Old Notes were issued at a discount from their principal
amount to generate aggregate gross of proceeds of approximately $400.0 million.
The Notes accrete at a rate of 9.45% compounded semi-annually, to an aggregate
principal amount of $636,974,000 by April 15, 2003. No interest will accrue on
the Notes prior to April 15, 2003. The New Notes will bear interest at 9.45% per
annum payable semi-annually on April 15 and October 15 of each year, commencing
October 15, 2003, accruing from April 15, 2003, or from the most recent Interest
Payment Date to which interest has been paid or provided for, to the Person in
whose name the New Note (or any predecessor Note) is registered at the close of
business on the preceding April 1 or October 1, as the case may be. Interest on
the New 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 New Notes will be
payable, and the New 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 New Notes may be made by check mailed to
the address of the Person entitled thereto as it appears on 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)
RANKING
The Notes are senior obligations of the Company, rank PARI PASSU in right of
payment with all existing and future senior obligations of the Company,
including, without limitation, the 9% Notes, the 9 5/8% Notes and the 12 1/2%
Notes, and 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.
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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 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 March 31, 1998, on a pro forma basis after giving effect to the sale
of the Old Notes, (i) the total amount of outstanding consolidated liabilities
of the Company and its Subsidiaries, including trade payables, was approximately
$1,631.3 million, of which $7.5 million represents secured obligations
(excluding the 12 1/2% Notes, which are secured by a pledge of $63.5 million of
U.S. Treasury securities as of March 31, 1998) and (ii) the total amount of
outstanding liabilities of the Company's Subsidiaries, including trade payables,
was $54.3 million, of which $7.5 million represented secured obligations. See
"Description of Certain Indebtedness" and "Selected Historical Consolidated
Financial and Operating Data."
FORM, DENOMINATION, TRANSFER, EXCHANGE AND BOOK-ENTRY PROCEDURES
New Notes will be issued only in fully registered form, without interest
coupons (each, a "Global Note"), in minimum denominations of $1,000 principal
amount at maturity and any integral multiples of $1,000 in excess thereof. New
Notes will not be issued in bearer form. New Notes will be issued only against
tender of Old Notes and, upon issuance, each Global Note will be deposited with,
or on behalf of, The Depositary Trust Company ("DTC") and registered in the name
of Cede & Co., as nominee of DTC.
EXCHANGES OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES. A beneficial interest
in a Global Note may not be exchanged for a Note in certificated form unless (i)
DTC (x) notifies the Company that it is unwilling or unable to continue as
Depositary for the Global Note or (y) has ceased to be a clearing agency
registered under the Exchange Act and in either case the Company thereupon fails
to appoint a successor Depositary, (ii) the Company, at is option, notifies the
Trustee in writing that it elects to cause the issuance of the Notes in
certificated form or (iii) there shall have occurred and be continuing an Event
of Default or any event which after notice or lapse of time or both would be an
Event of Default or any event which after notice or lapse of time or both would
be an Event of Default with respect to the Notes. In all cases, certificated
Notes delivered in exchange for any Global Note or beneficial interests therein
will be registered in the names, and issued in any approved denominations,
requested by or on behalf of the Depositary (in accordance with its customary
procedures). Any certificated Note issued in exchange for an interest in a
Global Note will bear the legend restricting transfers that is borne by such
Global Note. Any such exchange will be effected through the DWAC System and an
appropriate adjustment will be made in the records of the Security Registrar to
reflect a decrease in the principal amount of the relevant Global Note.
CERTAIN BOOK-ENTRY PROCEDURES FOR GLOBAL NOTES. THE DESCRIPTIONS OF THE
OPERATIONS AND PROCEDURES OF DTC, EUROCLEAR AND CEDEL THAT FOLLOW ARE PROVIDED
SOLELY AS A MATTER OF CONVENIENCE. THESE OPERATIONS AND PROCEDURES ARE SOLELY
WITHIN THE CONTROL OF THE RESPECTIVE SETTLEMENT SYSTEMS AND ARE SUBJECT TO
CHANGES BY THEM FROM TIME TO TIME. THE COMPANY TAKES NO RESPONSIBILITY FOR THESE
OPERATIONS AND PROCEDURES AND URGES INVESTORS TO CONTACT THE SYSTEM OR THEIR
PARTICIPANTS DIRECTLY TO DISCUSS THESE MATTERS.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal reserve System, a "clearing corporation"
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within the meaning of the Uniform Commercial Code and a "Clearing Agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
was created to hold securities for its participants ("participants") and
facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical transfer and delivery of
certificates. Participants include securities brokers and dealers (including the
Initial Purchasers), banks, trust companies and clearing corporations and may
include certain other organizations. Indirect access to the DTC system is
available to other entities such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a participant,
either directly or indirectly ("indirect participants").
DTC has advised the Company that its current practice, upon the issuance of
the Global Note, is to credit, on its internal system, the respective principal
amount of the individual beneficial interests represented by such Global Notes
to the accounts with DTC of the participants through which such interests are to
be held. Ownership of beneficial interests in the Global Notes will be shown on,
and the transfer of that ownership will be effected only through, records
maintained by DTC or its nominees (with respect to interests of participants)
and the records of participants and indirect participants (with respect to
interests of persons other than participants).
AS LONG AS DTC, OR ITS NOMINEE, IS THE REGISTERED HOLDER OF A GLOBAL NOTE,
DTC OR SUCH NOMINEE, AS THE CASE MAY BE, WILL BE CONSIDERED THE SOLE OWNER AND
HOLDER OF THE NOTES REPRESENTED BY SUCH GLOBAL NOTE FOR ALL PURPOSES UNDER THE
INDENTURE AND THE NOTES. Except in the limited circumstances described above
under "--Exchanges of Book-Entry Notes for Certificated Notes", owners of
beneficial interests in a Global Note will not be entitled to have any portions
of such Global Note registered in their names, will not receive or be entitled
to receive physical delivery of Notes in definitive form and will not be
considered the owners or Holders of the Global Note (or any Notes represented
thereby) under the Indenture or the Notes.
Investors may hold their interests in the Restricted Global Note directly
through DTC, if they are participants in such system, or indirectly through
organizations (including Euroclear and CEDEL) which are participants in such
system. All interests in a Global Note, including those held through Euroclear
or CEDEL, will be subject to the procedures and requirements of DTC. Those
interests held through Euroclear or CEDEL will also be subject to the procedures
and requirements of such system.
The laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer beneficial interests in a Global Note to such persons may be limited to
that extent. Because DTC can act only on behalf of its participants, which in
turn act on behalf of indirect participants and certain banks, the ability of a
person having beneficial interests in a Global Note to pledge such interest to
persons or entities that do not participate in the DTC system, or otherwise take
actions in respect of such interests, may be affected by the lack of a physical
certificate evidencing such interests.
Payments of the principal of, premium, if any, and interest on Global Notes
will be made to DTC or its nominee as the registered owner thereof. Neither the
Company, the Trustee nor any of their respective agents 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.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal or interest in respect of a Global Note representing any Notes held by
it or its nominee, will immediately credit participants' accounts with payments
in amounts proportionate to their respective beneficial interests in the
principal amount of such Global Note for such Notes as shown on the records of
DTC or its nominee. The Company also expects that payments by participants to
owners of beneficial interests in such Global Note held through such
participants will be governed by standing instructions and customary practice,
as is the case with securities held for the accounts of customers registered in
"street name." Such payments will be the responsibility of such participants.
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Except for trades involving only Euroclear and CEDEL participants, interests
in the Global Notes will trade in DTC's settlement system and secondary market
trading activity in such interests will therefore settle in immediately
available funds, subject in all cases to the rules and procedures of DTC and its
participants. Transfers between participants in DTC will be effected in
accordance with DTC's procedures, and will be settled in same-day funds.
Transfers between participants in Euroclear and CEDEL will be effected in the
ordinary way in accordance with their respective rules and operating procedures.
Subject to compliance with the transfer and exchange restrictions applicable
to the Notes described elsewhere herein, cross-market transfers between DTC
participants, on the one hand, and Euroclear or CEDEL participants, on the other
hand, will be effected by DTC in accordance with DTC's rules on behalf of
Euroclear or CEDEL, as the case may be, by its respective depository; however,
such cross-market transactions will require delivery of instructions to
Euroclear or CEDEL, as the case may be, by the counterparty in such system in
accordance with the rules and procedures and within the established deadlines
(Brussels time) of such system. Euroclear or CEDEL, as the case may be, will, if
the transaction meets its settlement requirements, deliver instructions to its
respective depository to take action to effect final settlement on its behalf by
delivering or receiving interests in the relevant Global Note in DTC, and making
or receiving payment in accordance with normal procedures or same-day funds
settlement applicable to DTC, Euroclear participants and CEDEL participants may
not deliver instructions directly to the depositories for Euroclear or CEDEL.
Because of time zone differences, the securities account of a Euroclear or
CEDEL participant purchasing an interest in a Global Note from a DTC participant
will be credited, and any such crediting will be reported to the relevant
Euroclear or CEDEL participant, during the securities settlement processing day
(which must be a business day for Euroclear and CEDEL) immediately following the
DTC settlement date. Cash received in Euroclear or CEDEL participant to a DTC
participant will be received with value on the DTC settlement date but will be
available in the relevant Euroclear or CEDEL cash account only as of the
business day for Euroclear or CEDEL following the DTC settlement date.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Notes (including the presentation of Notes for exchange as
described below) only at the direction of one or more participants to whose
account with DTC interests in the Global Notes are credited and only in respect
of such portion of the aggregate principal amount of the Notes as to which such
participant or participants has or have given such direction. However, if there
is an Event of Default (as defined below) under the Notes, DTC reserves the
right to exchange the Global Notes for legended Notes in certificated form, and
to distribute such Notes to its participants.
Although DTC, Euroclear and CEDEL have agreed to the foregoing procedures in
order to facilitate transfers of beneficial ownership interests in the Global
Notes among participants of DTC, Euroclear and CEDEL, they are under no
obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. None of the Company, the Trustee nor
any of their respective agents will have any responsibility for the performance
by DTC. Euroclear and CEDEL, their participants or indirect participants of
their respective obligations under the rules and procedures governing their
operations, including maintaining, supervising or reviewing the records relating
to, or payments made on account of, beneficial ownership interests in Global
Notes.
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 April 15, 2003 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 principal amount at maturity 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
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Date to receive interest due on an Interest Payment Date that is on or prior to
the Redemption Date), if redeemed during the 12 month period beginning April 15
of the years indicated:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- --------------------------------------------------------------------------------- -----------
<S> <C>
2003............................................................................. 104.725%
2004............................................................................. 103.150%
2005............................................................................. 101.575%
2006 and thereafter.............................................................. 100.000%
(SectionSection 203, 1101, 1105 and 1107)
</TABLE>
The Notes will be redeemable prior to April 15, 2003 only in the event that
on or before April 15, 2001 the Company receives net proceeds from a sale of its
Common Equity, in which case the Company may, at its option, use all or a
portion of any such net proceeds to redeem 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 at least 66 2/3% of the original aggregate
principal amount of the Notes remains 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 principal amount at maturity or an integral multiple of $1,000 at a
redemption price of 109.450% of the Accreted Value of the Notes to but excluding
the Redemption Date (subject to the right of Holders of record 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 (x)
any such Debt had been Incurred and the proceeds thereof had been applied at the
beginning of such four fiscal quarters, (y) the net income (or loss) for such
period of any Person or related to any assets disposed of by the Company or a
Restricted Subsidiary of the Company prior to the end of such period had been
excluded from Consolidated Net Income and (z) the net income (or loss) for such
period of any Person or related to any assets acquired by the Company or any
Restricted Subsidiary prior to the end of such period had been included in
Consolidated Net Income, would be less than 5.5 to 1 for such four quarter
periods ending on or prior to December 31, 1999 and 5.0 to 1 for such periods
ending thereafter, or (b) the Company's Consolidated Capital Ratio as of the
most recent available quarterly or annual balance sheet, after giving pro forma
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effect to the Incurrence of such Debt, any issuance of capital stock (other than
Disqualified Stock) since such balance sheet date, any increase in
paid-in-capital (other than in respect of Disqualified Stock) since such balance
sheet date and the Incurrence of any other Debt since such balance sheet date
and the receipt and application of the proceeds thereof, is less than 2.0 to 1.
Notwithstanding the foregoing limitation, the Company and any Restricted
Subsidiary may Incur the following:
(i) Debt under any one or more Bank Credit Agreements or Vendor
Financing Facilities in an aggregate principal amount at any one time not to
exceed the greater of (x) $175 million and (y) 85% of the Eligible
Receivables, and any renewal, extension, refinancing or refunding thereof in
an amount which, together with any principal amount remaining outstanding or
available under all Bank Credit Agreements and Vendor Financing Facilities
of the Company and its Restricted Subsidiaries, plus the amount of any
premium required to be paid in connection with such refinancing pursuant to
the terms of any Bank Credit Agreement so refinanced plus the amount of
expenses incurred in connection with such refinancing, does not exceed the
aggregate principal amount outstanding or available under all such Bank
Credit Agreements and Vendor Financing Facilities of the Company and its
Restricted Subsidiaries immediately prior to such renewal, extension,
refinancing or refunding;
(ii) Purchase Money Debt Incurred to finance the construction,
acquisition or improvement of Telecommunications Assets, provided that the
net proceeds of such Purchase Money Debt do not exceed 100% of the cost of
construction, acquisition or improvement price of the applicable
Telecommunications Assets;
(iii) Debt owed by the Company to any Restricted Subsidiary of the
Company or Debt owed by a Restricted Subsidiary of the Company to the
Company or a Restricted Subsidiary of the Company; provided, however, that
upon either (x) the transfer or other disposition by such Restricted
Subsidiary or the Company of any Debt so permitted to a Person other than
the Company or another Restricted Subsidiary of the Company or (y) the
issuance (other than directors' qualifying shares), sale, lease, transfer or
other disposition of shares of Capital Stock (including by consolidation or
merger) of such Restricted Subsidiary, as a result of which the obligor of
such Debt ceases to be a Restricted Subsidiary, the provisions of this
clause (iii) shall no longer be applicable to such Debt and such Debt shall
be deemed to have been Incurred at the time of such transfer or other
disposition;
(iv) Debt Incurred to renew, extend, refinance or refund (each, a
"refinancing") Debt outstanding at the date of 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
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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 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) or the first unnumbered paragraph of this
"Limitation on Consolidated Debt", the Company shall have the right, in its sole
discretion, to classify such item of Debt and shall only be required to include
the amount and type of such Debt under the clause or paragraph permitting the
Debt as so classified. For purposes of determining any particular amount of Debt
under such covenant, Guarantees or Liens with respect to letters of credit
supporting Debt otherwise included in the determination of a particular amount
shall not be included. (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 Old Notes;
(ii) Debt Incurred or Preferred Stock issued to and held by the Company
or a Restricted Subsidiary of the Company (provided that such Debt or
Preferred Stock is at all times held by the Company or a Restricted
Subsidiary of the Company);
(iii) Debt Incurred or Preferred Stock issued by a Person prior to the
time (A) such Person became a Restricted Subsidiary of the Company, (B) such
Person merges into or consolidates with a Restricted Subsidiary of the
Company or (C) another Restricted Subsidiary of the Company merges into or
consolidates with such Person (in a transaction in which such Person becomes
a Restricted
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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 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 100% of the cost of
construction, acquisition or improvement price of the applicable
Telecommunications Assets;
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(x) Debt consisting of performance and other similar bonds and
reimbursement obligations Incurred in the ordinary course of business
securing the performance of contractual, franchise or license obligations of
the Company or a Restricted Subsidiary, or in respect of a letter of credit
obtained to secure such performance; and
(xi) Debt not otherwise permitted to be incurred pursuant to clauses (i)
through (x) above, which, together with any other outstanding Debt incurred
pursuant to this clause (xi), has an aggregate principal amount (or, in the
case of Debt issued at a discount, an accreted amount (determined in
accordance with generally accepted accounting principles) at the time of
Incurrence) not in excess of $10 million at any time outstanding.
(Section1008)
For purposes of determining compliance with this "Limitation on Debt and
Preferred Stock of Restricted Subsidiaries" covenant, in the event that an item
of Debt meets the criteria of more than one of the types of Debt a Restricted
Subsidiary of the Company is permitted to incur pursuant to the foregoing
clauses (i) through (xi), the Company shall have the right, in its sole
discretion, to classify such item of Debt and shall be only required to include
the amount and type of such Debt under the clause permitting the Debt as so
classified. For purposes of determining any particular amount of Debt under such
covenant, Guarantees or Liens with respect to letters of credit supporting Debt
or otherwise included in the determination of a particular amount shall not be
included.
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
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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 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
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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)
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
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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)
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 in Telecommunications Assets (within 180
days prior to and 360 days following such disposition), are applied within 360
days of such disposition (1) first, to the permanent repayment or reduction of
Debt then outstanding under any Bank Credit Agreement or Vendor Financing
Facility, to the extent such agreements would require such application or
prohibit payments pursuant to clause (2) following, (2) second, to the extent of
remaining Net Available Proceeds, to make an Offer to Purchase outstanding Notes
at 100% of their principal amount, plus accrued interest to the date of purchase
(or 100% of the accreted value thereof, in the case of Debt issued at an
original issue discount) and, to the extent required by the terms thereof, any
other Debt of the Company that is PARI PASSU with the 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".
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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)
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 reasonably be obtained in a
comparable arm's length transaction with an entity that is not an Affiliate or
Related Person and is in the best interests of such Company or such Restricted
Subsidiary. For any transaction that involves in excess of $1 million but less
than or equal to $15 million, the Chief Executive Officer of the Company shall
determine that the transaction satisfies the above criteria and shall evidence
such a determination by a certificate filed with the Trustee. For any
transaction that involves in excess of $15 million, the Company shall also
obtain an opinion from a nationally recognized expert with experience in
appraising the terms and conditions, taken as a whole, of the type of
transaction (or series of related transactions) for which the opinion is
required stating that such transaction (or series of related transactions) is on
terms and conditions, taken as a whole, no less favorable to the Company or such
Restricted Subsidiary than those that could be obtained in a comparable arm's
length transaction with an entity that is not an Affiliate or Related Person of
the Company, which opinion shall be filed with the Trustee. This covenant shall
not apply to Investments by an Affiliate or a Related Person of the Company in
the Capital Stock (other than Disqualified Stock) of the Company or any
Restricted Subsidiary of the Company. (Section 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 the Accreted Value (if such Offer to Purchase is made on or
prior to April 15, 2003) or 101% of their principal amount plus accrued and
unpaid interest to the date of purchase if such Offer to Purchase is made
thereafter. 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
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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 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 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 indentures relating to the 9 5/8%
Notes and the 12 1/2% Notes would require the Company to make an offer to
purchase the 9 5/8% Notes and the 12 1/2% Notes. The Company does not currently
have adequate financial resources to effect a repurchase of the 9 5/8% 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 14e1 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
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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 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)
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"Accreted Value" means, with respect to any Note, (i) as of any date prior
to April 15, 2003, an amount per $1,000 principal amount at maturity of such
Note that is equal to the sum of (a) the offering price ($627.97 per $1,000
principal amount at maturity of Notes) of such Note and (b) the portion of the
excess of the principal amount at maturity of such Note over such offering price
which shall have been amortized through such date, such amount to be so
amortized on a daily basis and compounded semiannually on each April 15 and
October 15, at a rate of 9.45% per annum from the date of original issue of the
Notes through the date of determination computed on the basis of a 360-day year
of twelve 30-day months, and (ii) as of any date on or after April 15, 2003, the
principal amount at maturity of such Note.
"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 the Company or any Restricted Subsidiary means any
transfer, conveyance, sale, lease or other disposition(other than a creation of
a Lien) by such Person (including a consolidation or merger or other sale of any
such Restricted Subsidiary with, into or to another Person in a transaction in
which such Restricted Subsidiary ceases to be a Restricted Subsidiary of the
Company, but excluding a disposition by a Restricted Subsidiary of the Company
to the Company or a Restricted Subsidiary of the Company or by the Company to a
Restricted Subsidiary of the Company) of (i) shares of Capital Stock or other
ownership interests of a Restricted Subsidiary of the Company, other than as
permitted by the provisions of 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 the Company or any of, its Restricted
Subsidiaries representing a division or line of business (other than as part of
a Permitted Investment) or (iii) other assets or rights of the Company or any of
its Restricted Subsidiaries other than (A) in the ordinary course of business or
(B) that constitutes a Restricted Payment which is permitted 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.
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"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 (or in the case of Debt
issued at a discount the accreted amount thereof) of such Person then
outstanding (which amount of Debt shall be reduced by any amount of cash or cash
equivalent collateral securing on a perfected basis and dedicated for
disbursement exclusively to the payment of principal of and interest on such
Debt) to (ii) the aggregate consolidated Capital Stock (other than Disqualified
Stock) and paid in capital (other than in respect of Disqualified Stock) of such
Person as of such date.
"Consolidated Cash Flow Available for Fixed Charges" for any period means
the Consolidated Net Income of the Company and its Restricted Subsidiaries for
such period increased by the sum of (i) Consolidated Interest Expense of the
Company and its Restricted Subsidiaries for such period, plus (ii) Consolidated
Income Tax Expense of the Company and its Restricted Subsidiaries for such
period, plus (iii) the consolidated depreciation and amortization expense
included in the income statement of the Company and its Restricted Subsidiaries
for such period plus (iv) any noncash expense for such period (excluding any
noncash charge to the extent that it requires an accrual of or a reserve for
cash disbursements in any future period), plus (v) any charge related to any
premium or penalty paid in connection with redeeming or retiring any Debt prior
to its stated maturity; PROVIDED, HOWEVER, that there shall be excluded
therefrom the Consolidated Cash Flow Available for Fixed Charges (if positive)
of any Restricted Subsidiary of the Company (calculated separately for 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
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or foreign currency hedge, exchange or similar agreements; (iv) Preferred
Dividends of the Company and its Restricted Subsidiaries (other than dividends
paid in shares of Preferred Stock that is not Disqualified Stock) declared and
paid or payable; (v) accrued Disqualified Stock dividends of the Company and its
Restricted Subsidiaries, whether or not declared or paid; (vi) interest on Debt
guaranteed by the Company and its Restricted Subsidiaries and (vii) the portion
of any Capital Lease Obligation paid or accrued during such period that is
allocable to interest expense.
"Consolidated Net Income" for any period means the consolidated net income
(or loss) of the Company and its Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with generally accepted
accounting principles; PROVIDED that there shall be excluded therefrom (a) the
net income (or loss) of any Person acquired by the Company or a Restricted
Subsidiary of the Company in a pooling of interests transaction for any period
prior to the date of such transaction, (b) the net income (or loss) of any
Person that is not a Restricted Subsidiary of the Company except to the extent
of the amount of dividends or other distributions actually paid to the Company
or a Restricted Subsidiary of the Company by such Person during such period, (c)
gains or losses on Asset Dispositions by the Company or its Restricted
Subsidiaries, (d) all extraordinary gains and extraordinary losses, (e) the
cumulative effect of changes in accounting principles, (f) noncash gains or
losses resulting from fluctuations in currency exchange rates, (g) any noncash
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 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
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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
(other than Capital Stock outstanding on the Issue Date) which, by its terms (or
by the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
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 an asset sale or a Change of Control
occurring prior to the final Stated Maturity of the Notes shall not constitute
Disqualified Stock if the asset sale or change of control provisions applicable
to such Preferred Stock are no more favorable to the holders of such Preferred
Stock than the provisions applicable to the Notes contained in the covenant
described under "Covenants--Limitation on Asset Dispositions" or
"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--Limitation on
Asset Dispositions" or "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.
"Eligible Receivables" means, at any time, Receivables of the Company and
its Restricted Subsidiaries, as evidenced on the most recent quarterly
consolidated balance sheet of the Company as at a date at least 45 days prior to
such time arising in the ordinary course of business of the Company or any
Restricted Subsidiary of the Company.
"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.
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"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
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
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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 or
demand 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 "P1" or higher according to Moody's Investors Service, Inc.,
"A1" or higher according to Standard & Poor's Ratings Group or "A1" or higher
according to Duff & Phelps Credit Rating Co. (or such similar equivalent rating
by at least one "nationally recognized statistical rating organization" (as
defined in Rule 436 under the Securities Act)); (iv) any banker's acceptances or
money market deposit accounts issued or offered by an Eligible Institution; (v)
repurchase obligations with a term of not more than 7 days for Government
Securities entered into with an Eligible Institution; (vi) auction rate
preferred stocks of any corporation maturing within 90 days after the date of
acquisition by the Company thereof, having a rating of at least AA by Standard &
Poor's; and (vii) any fund investing exclusively in investments of the types
described in clauses (i) through (vi) above.
"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 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.
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"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;
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
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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.
"Permitted Interest Rate or Currency Protection Agreement" of any Person
means any Interest Rate or Currency Protection Agreement entered into with one
or more financial institutions in the ordinary course of business that is
designed to protect such Person against fluctuations in interest rates or
currency exchange rates with respect to Debt Incurred and which shall have a
notional amount no greater than the payments due with respect to the Debt being
hedged thereby and not for purposes of speculation.
"Permitted Investment" means (i) any Investment in a Joint Venture
(including the purchase or acquisition of any Capital Stock of a Joint Venture),
provided the aggregate amount of all outstanding Investments pursuant to this
clause (i) in Joint Ventures in which the Company owns, directly or indirectly,
a less than 50% interest shall not exceed $25 million, (ii) any Investment in
any Person as a result of which such Person becomes a Restricted Subsidiary or,
subject to the proviso to clause (i) of this definition, becomes a Joint Venture
of the Company, (iii) any Investment in Marketable Securities, (iv)Investments
in Permitted Interest Rate or Currency Protection Agreements, (v) Investments
made as a result of the receipt of noncash consideration from an Asset
Disposition that was made pursuant to and in compliance with the covenant
described under "Covenants--Limitation on Asset Dispositions" above and (vi)
other Investments in an aggregate amount not to exceed the aggregate net
proceeds received by the Company or any Restricted Subsidiary after the date of
the Indenture from the sale or liquidation of any Unrestricted Subsidiary or any
interest therein (except to the extent that any such amount is included in the
calculation of Consolidated Net Income).
"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
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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).
"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 Bank Credit Agreements, Capital Lease Obligations, Vendor
Financing Facilities, mortgage financings and purchase money obligations)
Incurred for the purpose of financing all or any part of the cost of
construction, acquisition or improvement by the Company or any Restricted
Subsidiary of the Company or any Joint Venture of any Telecommunications Assets
of the Company, any Restricted Subsidiary of the Company or any Joint Venture,
and including any related notes, Guarantees, collateral documents, instruments
and agreements executed in connection therewith, as the same may be amended,
supplemented, modified or restated from time to time.
"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,
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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 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
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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 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, if such Unrestricted Subsidiary has Debt outstanding at such time, either
(a) immediately after giving effect to such designation, the Company could Incur
at least $1.00 of additional Debt pursuant to the first paragraph under
"Covenants-- Limitation on Consolidated Debt" above or (b) the Company or such
Restricted Subsidiary could Incur such Debt hereunder (other than as Acquired
Debt).
"Vendor Financing Facility" means any agreements between the Company or a
Restricted Subsidiary of the Company and one or more vendors or lessors of
equipment or other capital assets 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 or other capital assets from any such vendor or lessor.
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"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 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.
(Section512)
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 nonpayment 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
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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)
DEFEASANCE
The Indenture provides 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
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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 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.
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GOVERNING LAW
The Indenture and the Old Notes are, and the New 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 9% NOTES
GENERAL. The Company issued $335 million of 9% Senior Notes Due 2008
pursuant to an Indenture among the Company and United States Trust Company of
New York, as trustee. The 9% Notes have not been registered under the Securities
Act. The Company has agreed to use its best efforts to exchange the 9% Notes for
a new issue of 9% Senior Notes Due 2008 that will be registered under the
Securities Act.
PRINCIPAL, MATURITY AND INTEREST. The 9% Notes are limited in aggregate
principal amount to $335 million and will mature on March 15, 2008. Interest on
the 9% Notes accrues at 9% per annum and is payable semiannually in arrears on
March 15 and September 15 of each year. Interest is computed on the basis of a
360-day year comprised of twelve 30-day months.
RANKING. The 9% Notes are unsecured senior obligations of the Company, will
rank PARI PASSU in right of payment with all existing and future senior
obligations of the Company, including the 9 5/8% Notes, the 12 1/2% Notes and
the Notes and will rank senior in right of payment to all future subordinated
obligations of the Company.
REDEMPTION. The 9% Notes are not redeemable at the Company's option prior
to March 15, 2003. Thereafter, the 9% 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 March 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---------------------------------------------------------------------------------- -----------
<S> <C>
2003.............................................................................. 104.500%
2004.............................................................................. 103.000%
2005.............................................................................. 101.500%
2006 and thereafter............................................................... 100.000%
</TABLE>
In addition, at any time on or before March 15, 2003, the Company may redeem
up to 33 1/3% of the original aggregate principal amount of the 9% Notes with
the net proceeds of a sale of common equity at a redemption price equal to 109%
of the principal amount thereof, plus accrued and unpaid interest thereon, if
any, to the date of redemption, provided that at least 66 2/3% of the original
aggregate principal amount of 9% Notes remains outstanding immediately after
such redemption. Except in connection with a Change of Control or an Asset Sale
(as defined in the indenture relating to the 9% Notes) of the Company is not
required to make mandatory redemptions or sinking fund payments with respect to
the 9% Notes.
COVENANTS. The indenture relating to the 9% 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 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 9% Notes. The indenture relating to the 9%
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 9% 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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DESCRIPTION OF THE 9 5/8% NOTES
GENERAL. The Company issued $400 million of 9 5/8% Senior Notes Due 2007
pursuant to an Indenture by and between the Company and United States Trust
Company of New York, as trustee (the "Trustee"). The 9 5/8% Notes have been
registered under the Securities Act.
PRINCIPAL, MATURITY AND INTEREST. The 9 5/8% Notes are limited in aggregate
principal amount to $400 million and will mature on October 1, 2007. Interest on
the 9 5/8% Notes accrues at 9 5/8% per annum and is payable semiannually in
arrears on April 1 and October 1 of each year. Interest is computed on the basis
of a 360-day year comprised of twelve 30-day months.
RANKING. The 9 5/8% 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 12 1/2% Notes, the 9.45% Notes and the
Notes and will rank senior in right of payment to all future subordinated
obligations of the Issuers.
REDEMPTION. Generally, the 9 5/8% Notes are not redeemable at the Company's
option prior to October 1, 2002. Thereafter, the 9 5/8% 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 October 1 of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- -------------------------------------------------------------------------------------- -----------
<S> <C>
2002.................................................................................. 104.813%
2003.................................................................................. 103.208%
2004.................................................................................. 101.604%
2005 and thereafter................................................................... 100.000%
</TABLE>
The Company may redeem up to 33 1/3% of the original aggregate principal
amount of the 9 5/8% Notes prior to October 1, 2002 with the net proceeds of a
sale of common equity received prior to October 1, 2000, at a redemption price
equal to 109.625% of the principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the date of redemption, provided that at least
$266.7 million of aggregate principal amount of 9 5/8% Notes remains outstanding
immediately after such redemption. Except in connection with a Change of Control
(as defined in the indenture relating to the 9 5/8% Notes) of the Company, the
Issuers are not required to make mandatory redemption or sinking fund payments
with respect to the 9 5/8% Notes.
COVENANTS. The indenture relating to the 9 5/8% 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 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 9 5/8% Notes.
The indenture relating to the 9 5/8% 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 9 5/8% 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.
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
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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 9 5/8% Notes, the 9.45% Notes and the
Notes and will rank senior in right of payment to all future subordinated
obligations of the Issuers.
REDEMPTION. Generally, 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>
The Company may redeem up to 33 1/3% of the original aggregate principal
amount of the 12 1/2% Notes prior to April 15, 2001 with the net proceeds of a
sale of common equity received prior to April 15, 1999, 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 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. 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,
traders in securities that elect to mark to market, 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.
ORIGINAL ISSUE DISCOUNT
The issuance of the Notes will result in original issue discount ("OID") in
an amount equal to the excess of the stated redemption price at maturity over
the issue price of the Notes. The "issue price" of a Note will equal the first
price at which a substantial number of Notes are sold for money, excluding sales
to underwriters, placement agents or wholesalers. The "stated redemption price
at maturity" is the sum of all payments to be made on the Notes other than
"qualified stated interest." The term "qualified stated interest" means,
generally, stated interest that is unconditionally payable at least annually at
a single fixed rate. Because no interest will be paid on the Notes before 2003,
none of the interest paid on the Notes will be qualified stated interest.
U.S. Holders of Notes must, in general, include in income OID calculated on
constant-yield method in advance of the receipt of some or all of the related
cash payments. The amount of OID includible in income by an initial U.S. Holder
of Notes is the sum of the "daily portions" of OID with respect to such Notes
for each day during the taxable year or portion of the taxable year in which
such U.S. Holder held such Notes ("Accrued OID"). The daily portion is
determined by allocating to each day in any "accrual period" a pro rata portion
of the OID allocable to that accrual period. The "accrual period" for the Notes
may be of any length selected by the U.S. Holder and may vary in length over the
term of the Notes, provided that each accrual period is no longer than one year
and each scheduled payment of principal or interest occurs on the first day or
the final day of an accrual period. The amount of OID allocable to any accrual
period is an amount equal to the product of the Notes' adjusted issue price at
the beginning of such accrual period and its yield to maturity (determined on
the basis of compounding at the close of each accrual period and properly
adjusted for the length of the accrual period). OID allocable to the final
accrual period is the difference between the amount payable at maturity of the
Note and the Note's adjusted issue price at the beginning of the final accrual
period. Special rules will apply for calculating OID for an initial short
accrual period. The "adjusted issue price" of the Notes at the beginning of any
accrual period is equal to its price increased by the Accrued OID for each prior
accrual period (determined
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without regard to the amortization of any acquisition or bond premium, as
described below) and reduced by any payments made on such Notes on or before the
first day of the accrual period. Stated interest paid on the Notes will not be
includible in a U.S. Holder's gross income to the extent of previously accrued
OID. Under these rules, a U.S. Holder will have to include in income
increasingly greater amounts of OID during the period prior to the time in which
the Company is required to pay interest on the Notes, and subsequently, accruals
of OID on the Notes will be approximately equal to the stated interest received
by a holder.
U.S. Holders of any Notes may elect to treat all interest on the Notes as
OID and calculate the amount includible in gross income under the constant yield
method described above. For the purposes of this election, interest includes
stated interest, acquisition discount OID, de minimis OID, market discount, de
minimis market discount and unstated interest, as adjusted by any amortizable
bond premium or acquisition premium. The election is to be made for the taxable
year in which the U.S. Holder acquired Notes, and may not be revoked without the
consent of the Internal Revenue Service (the "IRS"). U.S. Holders should consult
with their own tax advisors regarding this election.
MARKET DISCOUNT
If a U.S. Holder purchases Notes for an amount that is less than the revised
issue price of the Notes (or, in the case of a subsequent purchaser, its
principal amount), such U.S. Holder will be treated as having purchased such
Note at a "market discount," unless the amount of such market discount is less
than a specified DE MINIMIS amount. The revised issue price of a Note generally
equals its issue price, increased by the amount of OID that has accrued on the
Note. 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 IRS. U.S.
Holders should consult with their own tax advisors regarding this election.
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 debt obligations (other than debt obligations 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.
ACQUISITION PREMIUM
A U.S. Holder that purchases Notes for an amount (i) less than or equal to
the sum of all amounts payable on the Notes after the purchase date and (ii) in
excess of its adjusted issue price (any such excess
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being "acquisition premium") and does not elect to treat all interest on the
Notes as OID shall reduce the daily portions of OID by a fraction, the numerator
of which is the excess of the U.S. Holder's adjusted basis in the Notes
immediately after its purchase over the adjusted issue price of the Notes, and
the denominator of which is the excess of the sum of all amounts payable on the
Notes after the purchase date over the Notes' adjusted issue price.
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 OID or market discount included in the
U.S. Holder's income and reduced by any amortized bond premium and any cash
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.
EXCHANGE OFFER
The exchange of Notes for new notes pursuant to the Exchange Offer should
not be taxable to the holders of the Notes. The Additional Interest to be paid
by the Company upon an event constituting a Registration Default should not be
considered in the computation of the OID amount attributable to the Notes prior
to the actual event of default. Any Additional Interest payment due to the
holders of the Notes will be taxable income and may be characterized as
additional interest income for tax purposes.
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 total combined voting power of all
classes of stock in the Company and (b) the income on
68
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the Note would not have been effectively connected with a United States
trade or business of the individual at the individual's death.
Recently finalized regulations (the "Final Withholding Regulations"), that
are generally effective with respect to the payments after December 31, 1998,
would provide alternative methods for satisfying the certification requirement
described in clause (i)(c) above. The Final Withholding Regulations also
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 will apply in the case of tiered partnerships.
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 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. 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 is notified by the IRS that
it has failed to report in full dividend and interest income.
NON-UNITED STATES HOLDERS
Under current law, 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 information reporting may apply to
such payments if the broker is (i) a United States person, (ii) a controlled
foreign corporation for United States tax purposes, (iii) 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, or (iv) with respect to
payments made after December 31, 1998, a foreign partnership, if at any time
during its tax year 50% or more of its income or capital interests are held by
United States persons or if at any time during its tax year it is engaged in the
conduct of a trade or business in the United States. 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 Final Withholding
Regulations.
69
<PAGE>
PLAN OF DISTRIBUTION
Each Holder desiring to participate in the Exchange Offer will be required
to represent, among other things, that (i) it is not an "affiliate" (as defined
in Rule 405 of the Securities Act) of the Company, (ii) it is not engaged in,
and does not intend to engage in, and has no arrangement or understanding with
any person to participate in, a distribution of the New Notes, and (iii) it is
acquiring the New Notes in the ordinary course of its business (a holder unable
to make the foregoing representations is referred to herein as a "Restricted
Holder"). A Restricted Holder will not be able to participate in the Exchange
Offer, and may only sell its Old Notes pursuant to a registration statement
containing the selling securityholder information required by Item 507 of
Regulation S-K of the Securities Act, or pursuant to an exemption from the
registration requirement of the Securities Act.
Each Participating Broker-Dealer is required to acknowledge in the Letter of
Transmittal that it acquired the Old Notes as a result of market-making
activities or other trading activities and that it will deliver a prospectus in
connection with the resale of such New Notes. Based upon interpretations by the
staff of the Commission, the Company believes that New Notes issued pursuant to
the Exchange Offer to Participating Broker-Dealers may be offered for resale,
resold, and otherwise transferred by a Participating Broker-Dealer upon
compliance with the prospectus delivery requirements, but without compliance
with the registration requirements, of the Securities Act. The Company has
agreed that for a period of 30 days following consummation of the Exchange
Offer, they will make this Prospectus available to Participating Broker-Dealers
for use in connection with any such resale. During such period of time, delivery
of this Prospectus, as it may be amended or supplemented, will satisfy the
prospectus delivery requirements of a Participating Broker-Dealer engaged in
market making or other trading activities.
Based upon interpretations by the staff of the Commission, the Company
believes that New Notes issued pursuant to the Exchange Offer may be offered for
resale, resold and otherwise transferred by a Holder thereof (other than a
Participating Broker-Dealer) without compliance with the registration and
prospectus delivery requirements of the Securities Act.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by Participating Broker-Dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such methods
of resale, at market prices prevailing at the time of resale, at prices related
to such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
Participating Broker-Dealer and/or the purchasers of any such New Notes. Any
Participating Broker-Dealer that resells New Notes that were received by it for
its own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such New Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of New Notes and any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The Letter of Transmittal states that by acknowledging that it will deliver and
by delivering a prospectus, a Participating Broker-Dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
The Company has agreed to pay all expenses incidental to the Exchange Offer
other than commissions and concessions of any brokers or dealers and will
indemnify holders of the Notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act, as set forth in the
Registration Rights Agreement.
70
<PAGE>
VALIDITY OF THE NOTES
The validity of the New Notes will be passed upon for the Company by Willkie
Farr & Gallagher, New York, New York. As to matters of Delaware law, Willkie
Farr & Gallagher will rely upon the opinion of Davis Wright Tremaine LLP,
Seattle, Washington.
EXPERTS
The audited financial statements included in the Company's Annual Report on
Form 10-KSB, filed on March 25, 1998, which is incorporated herein by reference,
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
71
<PAGE>
PART II
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is a Delaware corporation. In its Certificate of Incorporation,
the Company has adopted the provisions of Section 102(b)(7) of the Delaware
General Corporation Law (the "Delaware Law"), which enables a corporation in its
original certificate of incorporation or an amendment thereto to eliminate or
limit the personal liability of a director for monetary damages for breach of
the director's fiduciary duty, except (i) for any breach of the director's duty
of loyalty to the corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) pursuant to Section 174 of the Delaware law (providing for
liability of directors for unlawful payment of dividends or unlawful stock
purchases or redemptions) or (iv) for any transaction from which a director will
personally receive a benefit in money, property or services to which the
director is not legally entitled.
The Company has also adopted indemnification provisions pursuant to Section
145 of the Delaware Law, which provides that a corporation may indemnify any
persons, including officers and directors, who are, or are threatened to be
made, parties to any threatened, pending or completed legal action, suit or
proceedings, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation), by reason of the fact
that such person was an officer, director, employee or agent of the corporation,
or is or was serving at the request of such corporation as a director, officer,
employee or agent of another corporation or enterprise. The indemnity may
include expenses (including attorneys fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding, provided such officer, director, employee or
agent acted in good faith and in a manner he reasonably believed to be in or not
opposed to the corporation's best interests and, with respect to criminal
proceedings, had no reasonable cause to believe that his conduct was unlawful. A
Delaware corporation may indemnify officers or directors in an action by or in
the right of the corporation under the same conditions, except that no
indemnification is permitted without judicial approval if the officer of
director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against expenses
(including attorney's fees) that such officer or director actually and
reasonably incurred.
The Company intends to enter into indemnification agreements with each of
the Company's officers and directors.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS:
<TABLE>
<S> <C>
1 --Purchase Agreement by and among the Company and the Initial Purchasers.*
3.1 --Certificate of Incorporation of the Company.(1)
3.2 --By-laws of the Company.(1)
4.1 --Form of Exchange Note Indenture, by and among NEXTLINK Communications, Inc. and
United States Trust Company of New York, as Trustee, relating to the Exchange
Notes, including form of Exchange Note.(3)
4.2 --Certificate of Designation of the Powers, Preferences and Relative, Participating,
Optional and Other Special Rights of 14% Senior Exchangeable Redeemable Preferred
Shares and Qualifications, Limitations and Restrictions Thereof.(1)
4.3 --Form of stock certificate of 14% Senior Exchangeable Redeemable Preferred
Shares.(3)
4.4 --Indenture, dated as of April 25, 1996, by and among NEXTLINK Communications, Inc.,
NEXTLINK Capital, Inc. and United States Trust Company of New York, as Trustee,
relating to 12 1/2% Senior Notes due April 15, 2006, including form of global
note.(2)
</TABLE>
II-1
<PAGE>
<TABLE>
<S> <C>
4.5 --First Supplemental Indenture, dated as of January 31, 1997, by and among the
Company, NEXTLINK Communications, L.L.C., NEXTLINK Capital, Inc. and United States
Trust Company of New York, as Trustee.(3)
4.6 --Form of Indenture between United States Trust Company, as Trustee and NEXTLINK
Communications, Inc., relating to the 9 5/8% Senior Notes due 2007.(4)
4.7 --Indenture, dated March 3, 1998, between United States Trust Company, as Trustee and
NEXTLINK Communications, Inc., relating to the 9% Senior Notes due 2008.(5)
4.8 --Certificate of Designation of Powers, Preferences and Relative, Participating,
Optional and Other Special Rights of 6 1/2% Cumulative Convertible Preferred Stock
and Qualifications, Limitations and Restrictions Thereof.(1)
4.9 --Indenture, dated April 1, 1998, between United States Trust Company, as Trustee and
NEXTLINK Communications, Inc., relating to the 9.45% Senior Discount Notes due
2008.(6)
4.10 --Second Supplemental Indenture, dated June 3, 1998, amending Indenture dated April
25, 1996, by and among NEXTLINK Communications, Inc., NEXTLINK Capital, Inc. and
United States Trust Company of New York, as Trustee.(1)
4.11 --First Supplemental Indenture, dated June 3, 1998, amending Indenture dated
September 25, 1997, by and between NEXTLINK Communications, Inc. and United States
Trust Company of New York, as Trustee.(1)
4.12 --First Supplemental Indenture, dated June 3, 1998, amending Indenture dated March 3,
1998, by and between NEXTLINK Communications, Inc. and United States Trust Company
of New York, as Trustee.(1)
4.13 --First Supplemental Indenture, dated June 3, 1998, amending Indenture dated April 1,
1998, by and between NEXTLINK Communications, Inc. and United States Trust Company
of New York, as Trustee.(1)
5.1 --Opinion of Willkie Farr & Gallagher.*
5.2 --Opinion of Davis Wright Tremaine, LLP*
8.1 --Tax Opinion of Willkie Farr & Gallagher*
10.1 --Stock Option Plan of the Company, as amended.(1)
10.2 --Employee Stock Purchase Plan of the Company.(1)
10.3 --Registration Rights Agreement dated as of January 15, 1997, between the Company and
the signatories listed therein(3).
10.4 --Preferred Exchange and Registration Rights Agreement, dated as of January 31, 1997,
by and among the Company and the Initial Purchasers(3).
10.5 --Fiber Lease and Innerduct Use Agreement, dated February 23, 1998, by and between
the Company and Metromedia Fiber Network, Inc. (5)
10.6 --Amendment No. 1 to Fiber Lease and Innerduct Use Agreement, dated March 4, 1998, by
and between the Company and Metromedia Fiber Network, Inc. (5)
21 --Subsidiaries of the Registrant(5).
23.1 --Consent of Arthur Andersen LLP.
23.2 --Consent of Willkie Farr & Gallagher (included in their opinion filed as Exhibit 5.1
and Exhibit 8.1).*
23.3 --Consent of Davis Wright Tremaine, LLP (included in their opinion filed as Exhibit
5.2)*
25 --Statement on Form T-1 of Eligibility of Trustee.*
99.1 --Form of Letter of Transmittal.*
99.2 --Form of Notice of Guaranteed Delivery.*
99.3 --Form of Letter to Clients.*
99.4 --Form of Letter to Nominees.*
</TABLE>
II-2
<PAGE>
- ------------------------
* Previously filed.
(1) Incorporated herein by reference to the exhibit filed with the Registration
Statement on Form S-4 of NEXTLINK Communications, Inc. (Commission File No.
333-53975).
(2) Incorporated herein by reference to the exhibit filed with the Registration
Statement on Form S-4 of NEXTLINK Communications, L.L.C. (the predecessor of
NEXTLINK Communications, Inc.) and NEXTLINK Capital, Inc. (Commission File
No. 333-4603).
(3) Incorporated herein by reference to the exhibit filed with the Annual Report
on Form 10-KSB for the year ended December 31, 1996 of NEXTLINK
Communications, Inc. and NEXTLINK Capital, Inc. (Commission File Nos.
33-04603 and 333-04603-01).
(4) Incorporated here by reference to the exhibit filed with the Registration
Statement on Form S-1 of NEXTLINK Communications, Inc. (Commission File No.
333-32003).
(5) Incorporated herein by reference to the exhibit filed with the Annual Report
on Form 10-KSB for the year ended December 31, 1997 of NEXTLINK
Communications, Inc. and NEXTLINK Capital, Inc. (Communication File Nos.
333-04603 and 333-04603-01).
(6) Incorporated herein by reference to the exhibit filed with the quarterly
report on Form 10-Q for the quarterly period ended March 31, 1998 of
NEXTLINK Communications, Inc. Commission File No. 000-22939.
B FINANCIAL STATEMENT SCHEDULES.
None.
ITEM 22. UNDERTAKINGS.
Insofar as indemnifications 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 20 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 option of their 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.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of this Registration Statement through the date
of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this Registration Statement when it became effective.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant certifies
that it has reasonable grounds to believe that it meets all of the requirements
for filing a Form S-4 and has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Bellevue, State of Washington, on the 23th day of July 1998.
NEXTLINK COMMUNICATIONS, INC.
BY: /S/ R. BRUCE EASTER, JR.
-----------------------------------------
R. Bruce Easter, Jr.
VICE PRESIDENT, GENERAL COUNSEL AND
SECRETARY
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
* Chairman of the Board July 23, 1998
- ------------------------------
Steven W. Hooper
Vice Chairman and Chief July 23, 1998
* Executive Officer
- ------------------------------ (Principal Executive
Wayne M. Perry Officer) and Director
Vice President, Chief July 23, 1998
Financial Officer and
* Treasurer (Principal
- ------------------------------ Financial Officer and
Kathleen H. Iskra Principal Accounting
Officer)
* Director July 23, 1998
- ------------------------------
Craig O. McCaw
* Director July 23, 1998
- ------------------------------
Dennis Weibling
* Director July 23, 1998
- ------------------------------
Scot Jarvis
II-4
<PAGE>
<TABLE>
<C> <S> <C>
* Director July 23, 1998
- ------------------------------
William A. Hoglund
* Director July 23, 1998
- ------------------------------
Sharon L. Nelson
* Director July 23, 1998
- ------------------------------
Jeffrey S. Raikes
* Director July 23, 1998
- ------------------------------
Gregory J. Parker
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ R. BRUCE EASTER,
JR.
-------------------------
R. Bruce Easter, Jr.
</TABLE>
II-5
<PAGE>
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS:
<TABLE>
<C> <S>
1 --Purchase Agreement by and among the Company and the Initial Purchasers.*
3.1 --Certificate of Incorporation of the Company.(1)
3.2 --By-laws of the Company.(1)
4.1 --Form of Exchange Note Indenture, by and among NEXTLINK Communications, Inc. and
United States Trust Company of New York, as Trustee, relating to the Exchange
Notes, including form of Exchange Notes.(3)
4.2 --Certificate of Designations of the Powers, Preferences and Relative, Participating,
Optional and Other Special Rights of 14% Senior Exchangeable Redeemable Preferred
Shares and Qualifications, limitations and Restrictions Thereof.(1)
4.3 --Form of stock certificate of 14% Senior Exchangeable Redeemable Preferred
Shares.(3)
4.4 --Indenture, dated as of April 25, 1996, by and among NEXTLINK Communications, Inc.,
NEXTLINK Capital, Inc., and United States Trust Company of New York, as Trustee,
relating to 12 1/2% Senior Notes due April 15, 2006, including Form of global
note.(2)
4.5 --First Supplemental Indenture, dated as of January 31, 1997, by and among the
Company, NEXTLINK Communications, L.L.C., NEXTLINK Capital, Inc. and United States
Trust Company of New York, as Trustee.(3)
4.6 --Form of Indenture between United States Trust Company, as Trustee and NEXTLINK
Communications, Inc., relating to the 9 5/8% Senior Notes due 2007.(4)
4.7 --Indenture, dated March 3, 1998, between United States Trust Company, as Trustee and
NEXTLINK Communications, Inc., relating to the 9% Senior Notes due 2008.(5)
4.8 --Certificate of Designation of Powers, Preferences and Relative, Participating,
Optional and Other Special Rights of 6 1/2% Cumulative Convertible Preferred Stock
and Qualifications, Limitations and Restrictions Thereof.(1)
4.9 --Indenture, dated April 1, 1998, between United States Trust Company, as Trustee and
NEXTLINK Communications, Inc., relating to the 9.45% Senior Discount Notes due
2008.(6)
4.10 --Second Supplemental Indenture, dated June 3, 1998, amending Indenture dated April
25, 1996, by and among NEXTLINK Communications, Inc., NEXTLINK Capital, Inc. and
United States Trust Company of New York, as Trustee.(1)
4.11 --First Supplemental Indenture, dated June 3, 1998, amending Indenture dated
September 25, 1997, by and between NEXTLINK Communications, Inc. and United States
Trust Company of New York, as Trustee.(1)
4.12 --First Supplemental Indenture, dated June 3, 1998, amending Indenture dated March 3,
1998, by and between NEXTLINK Communications, Inc. and United States Trust Company
of New York, as Trustee.(1)
4.13 --First Supplemental Indenture, dated June 3, 1998, amending Indenture dated April 1,
1998, by and between NEXTLINK Communications, Inc. and United States Trust Company
of New York, as Trustee.(1)
5.1 --Opinion of Willkie Farr & Gallagher.*
5.2 --Opinion of Davis Wright Tremaine, LLP*
8.1 --Tax Opinion of Willkie Farr & Gallagher*
10.1 --Stock Option Plan of the Company, as amended.(1)
10.2 --Employee Stock Purchase of the Company.(1)
10.3 --Registration Rights Agreement dated as of January 15, 1997, between the Company and
the signatories listed therein(3).
10.4 --Preferred Exchange and Registration Rights Agreement, dated as of January 31, 1997,
by and among the Company and the Initial Purchasers(3).
10.5 --Fiber Lease and Innerduct Use Agreement, dated February 23, 1998, by and between
the Company and Metromedia Fiber Network, Inc. (5)
</TABLE>
<PAGE>
<TABLE>
<C> <S>
10.6 --Amendment No. 1 to Fiber Lease and Innerduct Use Agreement, dated March 4, 1998, by
and between the Company and Metromedia Fiber Network, Inc. (5)
21 --Subsidiaries of the Registrant(5).
23.1 --Consent of Arthur Andersen LLP.
23.2 --Consent of Willkie Farr & Gallagher (included in their opinion filed as Exhibit 5.1
and Exhibit 8.1).*
23.3 --Consent of Davis Wright Tremaine, LLP (included in their opinion filed as Exhibit
5.2)*
25 --Statement on Form T-1 of Eligibility of Trustee.*
99.1 --Form of Letter of Transmittal.*
99.2 --Form of Notice of Guaranteed Delivery.*
99.3 --Form of Letter to Clients.*
99.4 --Form of Letter to Nominees.*
</TABLE>
- ------------------------
* Previously filed.
(1) Incorporated herein by reference to the exhibit filed with Registration
Statement on Form S-4 of NEXTLINK Communications, Inc. (Commission File No
333-53975).
(2) Incorporated herein by reference to the exhibit filed with the Registration
Statement on Form S-4 of NEXTLINK Communications, L.L.C. (the predecessor of
NEXTLINK Communications, Inc.) and NEXTLINK Capital, Inc. (Commission File
No. 333-4603).
(3) Incorporated herein by reference to the exhibit filed with the Annual Report
on Form 10-KSB for the year ended December 31, 1996 of NEXTLINK
Communications, Inc. and NEXTLINK Capital, Inc. (Commission File Nos.
33-04603 and 333-04603-01).
(4) Incorporated here by reference to the exhibit filed with the Registration
Statement on Form S-1 of NEXTLINK Communications, Inc. (Commission File No.
333-32003).
(5) Incorporated herein by reference to the exhibit filed with the Annual Report
on Form 10-KSB for the year ended December 31, 1997 of NEXTLINK
Communications, Inc. and NEXTLINK Capital, Inc. (Communication File Nos.
333-04603 and 333-04603-01).
(6) Incorporated herein by reference to the exhibit filed with the Quarter
Report on Form 10-Q for the quarterly period ended March 31, 1998 of
NEXTLINK Communications, Inc. (Commission File No. 000-22939).
B FINANCIAL STATEMENT SCHEDULES.
None.
<PAGE>
EXHIBIT 23.1
[Letterhead of Arthur Andersen LLP]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference to this registration statement on Form S-4 (the "Registration
Statement") of our report dated March 12, 1998 included in NEXTLINK
Communications, Inc.'s Form 10-KSB for the year ended December 31, 1997 and to
all references to our Firm included in this Registration Statement.
/s/ Arthur Andersen LLP
Seattle, Washington
July 22, 1998
