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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 26, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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NEXTLINK COMMUNICATIONS, INC.
(Exact Name of Registrant as Specified in its Charter)
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DELAWARE 4813 91-1738221
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
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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)
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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)
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COPY TO:
BRUCE R. KRAUS, ESQ.
WILLKIE FARR & GALLAGHER
787 SEVENTH AVENUE
NEW YORK, NEW YORK 10019
(212) 728-8000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED OFFER TO THE PUBLIC:
FROM TIME TO TIME AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
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PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE OFFERING OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PRICE PER SHARE PRICE FEE
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6 1/2% Cumulative Convertible Preferred Stock..... 4,000,000 shares $50 $200,000,000 $59,000
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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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SUBJECT TO COMPLETION, DATED JUNE 25, 1998
PROSPECTUS
[LOGO]
NEXTLINK COMMUNICATIONS, INC.
This Prospectus relates to the proposed sale from time to time by certain
holders of up to 4,000,000 shares of 6 1/2% Cumulative Convertible Preferred
Stock (liquidation preference $50 per share) (the "Convertible Preferred Stock")
of NEXTLINK Communications, Inc. ("NEXTLINK" or the "Company") and of the Class
A Common Stock, par value $.02 per share (the "Class A Common Stock"), into
which the Convertible Preferred Stock is convertible.
The Convertible Preferred Stock or the Class A Common Stock may be offered
from time to time for the account of certain holders of Convertible Preferred
Stock and the Class A Common Stock named herein (the "Selling Stockholders") in
the amount and in the manner and on terms and conditions described herein. The
sale of the Convertible Preferred Stock or the Class A Common Stock by the
Selling Stockholders may be effected from time to time in one or more
transactions (which may involve block transactions) in the over-the-counter
market in the case of the Convertible Preferred Stock and on the Nasdaq National
Market ("NNM") (or any exchange on which the Class A Common Stock may then be
listed) in the case of the Class A Common Stock, in negotiated transactions,
through the writing of options on the Class A Common Stock (whether such options
are listed on an options exchange or otherwise) or a combination of such methods
of sale, at fixed prices that may be changed, at market prices prevailing at the
time of sale, at prices related to such prevailing market prices or at
negotiated prices. The Selling Stockholders may effect such transactions by
selling the Convertible Preferred Stock or the Class A Common Stock to or
through securities broker-dealers, and such broker-dealers may receive
compensation in the form of underwriting discounts, concessions or commissions
from the Selling Stockholders and/or purchasers of the Convertible Preferred
Stock or the Class A Common Stock for whom such broker-dealers may act as agent
or to whom they sell as principal, or both (which compensation as to a
particular broker-dealer might be in excess of customary commissions). The
Selling Stockholders may deliver the Convertible Preferred Stock or the Class A
Common Stock to close out previously established short positions, or in
connection with options or other derivative transactions, and may also pledge
the Convertible Preferred Stock or the Class A Common Stock as collateral for
margin accounts and such Convertible Preferred Stock or Class A Common Stock
could be resold pursuant to the terms of such accounts. The Selling Stockholders
and any participating brokers and dealers may be deemed to be underwriters as
defined in the Securities Act of 1933, as amended (the "Securities Act"). See
"Selling Stockholders" and "Plan of Distribution." The Company will not receive
any proceeds from the sale of the Convertible Preferred Stock or the Class A
Common Stock by the Selling Stockholders. See "Use of Proceeds" and "Selling
Stockholders."
The Company has agreed to bear all expenses (other than underwriting fees
and selling commissions and fees and expenses of counsel to the Selling
Stockholders) in connection with the registration of the Convertible Preferred
Stock or the Class A Common Stock offered by the Selling Stockholders estimated
to be $59,000. See "Plan of Distribution."
At June 25, 1998, the Company had 20,062,784 shares of its Class A Common
Stock outstanding. The Class A Common Stock is listed on the NNM under the
symbol "NXLK." On June 24, 1998, the last reported sale price for the Class A
Common Stock as reported by the NNM was $33 3/25 per share.
This Prospectus is being sent to all registered holders of Convertible
Preferred Stock as of , 1998.
SEE "RISK FACTORS" BEGINNING ON PAGE 18 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN CONNECTION WITH AN
INVESTMENT IN THE CONVERTIBLE PREFERRED STOCK OR THE CLASS A COMMON STOCK.
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.
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The date of this Prospectus is , 1998
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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. 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 to each person, including any beneficial
owner, to whom this prospectus is delivered upon written or oral request, at no
cost to the requestor, from the Company, General Counsel, 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-3 (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 Convertible Preferred
Stock and Class A Common Stock 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.
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN 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 CONVERTIBLE PREFERRED
STOCK OR THE CLASS A COMMON
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STOCK 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............................................................................................... 8
The Company................................................................................................ 15
Use of Proceeds............................................................................................ 15
Selling Shareholders....................................................................................... 15
Capitalization............................................................................................. 16
Selected Historical Consolidated Financial and Operating Data.............................................. 17
Description of Convertible Preferred Stock................................................................. 19
Certain United States Federal Income Tax Consequences...................................................... 36
Description of Capital Stock............................................................................... 42
Description of Certain Indebtedness........................................................................ 47
Plan of Distribution....................................................................................... 52
Legal Matters.............................................................................................. 53
Experts.................................................................................................... 53
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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
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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
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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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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
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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 Company's 9.45%
Senior Discount Notes due 2008 (the "9.45% 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.
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>
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>
6
<PAGE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
-------------------------
AS ADJUSTED
AS OF DECEMBER 31, FOR THE SALE
-------------------- OF THE 9.45%
1996 1997 ACTUAL 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 9.45% 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.
7
<PAGE>
RISK FACTORS
Prospective investors should consider carefully, together with the other
information contained in this Offering Memorandum, the following factors:
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. 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,
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.
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
Convertible 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. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
The Company expects to incur substantial additional indebtedness (including
secured indebtedness) during the next few years to finance the acquisition,
construction and expansion of networks, the potential 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. As of March
31, 1998, after giving pro forma
8
<PAGE>
effect to the 9.45% 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.
HOLDING COMPANY STRUCTURE
The Company is a holding company which derives substantially all of its
revenues from its subsidiaries.
The Company will be dependent upon payments from its subsidiaries to
generate the funds necessary to meet its obligations, including the payment of
cash dividends and any cash redemption of the Convertible Preferred Stock. 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.
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 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
9
<PAGE>
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
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
10
<PAGE>
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.
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
11
<PAGE>
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 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
12
<PAGE>
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.
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
13
<PAGE>
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 CONVERTIBLE PREFERRED STOCK; POSSIBLE
VOLATILITY OF STOCK PRICE
There is currently no public market for the Convertible Preferred Stock, and
there can be no assurance that an active trading market for the Convertible
Preferred Stock will develop or be sustained. There can be no assurance that
future market price for the Convertible Preferred Stock will equal or exceed the
current price. The market prices of securities of growth companies similar to
the Company have historically been highly volatile. Future announcements
concerning the Company or its competitors, including quarterly results,
technological innovations, services or government legislation or regulation, may
have a significant effect on the market price of the Convertible Preferred Stock
or the Class A Common Stock. See "Plan of Distribution."
SHARES ELIGIBLE FOR FUTURE SALE
No prediction can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price of the Convertible Preferred Stock or the Class A Common Stock prevailing
from time to time. Sales of substantial amounts of Class a Common Stock
(including shares issued upon the exercise of outstanding stock options), or the
perception that such sales could occur, could adversely affect the prevailing
market prices of the Convertible Preferred Stock and the Class A Common Stock
into which the Covnertible Preferred Stock is convertible.
None of the Company's shareholders, including officers and directors, has
been restricted in connection with the plan of distribution contemplated by this
Prospectus from offering or selling shares of Common Stock.
The Company has filed registration statements on Form S-8 (File Nos.
333-25907 and 383-51987) to register under the Securities Act 4,413,360 and
5,441,331 shares, respectively, of Class A Common Stock reserved for issuance or
sale under the Company's Stock Option Plan. In addition, the Company has filed a
registration statement and Form S-8 (File No. 333-57393) to register under the
Securities Act. 3,000,000 shares of Class A Common Stock reserved for issuance
under the Company's Employee Stock Purchase Plan.
In addition, the Company has granted certain holders of its capital stock
rights to require the registration for sale of such capital stock under the
Securities Act. See "Description of Capital Stock-- Registration Rights
Agreement."
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,
14
<PAGE>
install cable and facilities, including switching electronics, design and
construct LMDS systems and obtain rights-of-way, building access rights and any
required governmental authorizations, franchises and permits, all in a timely
manner, at reasonable costs and on satisfactory terms and conditions, as well as
regulatory, legislative and judicial developments that could cause actual
results to differ materially from the future results indicated; expressed or
implied, in such forward-looking statements.
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
The net proceeds of this offering will be received directly by each Selling
Stockholder. No proceeds will be received by the Company from the sale of either
the Convertible Preferred Stock or the Class A Common Stock offered hereby.
SELLING STOCKHOLDERS
The following table sets forth the name of each Selling Stockholder and the
number of shares of Convertible Preferred Stock and Class A Common Stock offered
by each. The number of shares of Convertible Preferred Stock and Class A Common
Stock that may be actually sold by each Selling Stockholder will be determined
by each such Selling Stockholder, and may depend upon a number of factors,
including, among other things, the market price of the Convertible Preferred
Stock and the Class A Common Stock. Because each of the Selling Stockholders may
offer all, some or none of the Convertible Preferred Stock or the Class A Common
Stock, and because the offering contemplated by this Prospectus is currently not
being underwritten, no estimate can be given as to the number of shares of
Convertible Preferred Stock or Class A Common Stock that will be held by each of
the Selling Stockholders upon or prior to termination of this offering.
The table below sets forth as of July - , 1998 the number of the shares
of Convertible Preferred Stock and Class A Common Stock owned by each of the
Selling Stockholders. No selling Stockholder has, within the past three years,
had a material relationship with the Company or its predecessors or affiliates.
<TABLE>
<CAPTION>
SHARES OF CONVERTIBLE SHARES OF
PREFERRED STOCK CLASS A COMMON STOCK
--------------------- ---------------------
<S> <C> <C>
</TABLE>
15
<PAGE>
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 9.45%
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.
16
<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>
17
<PAGE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
-------------------------
AS ADJUSTED
AS OF DECEMBER 31, FOR THE SALE
-------------------- OF THE 9.45%
1996 1997 ACTUAL 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 9.45% 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.
18
<PAGE>
DESCRIPTION OF CONVERTIBLE PREFERRED STOCK
The summary contained herein of certain provisions of the Convertible
Preferred Stock issued by the Company does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, all of the
provisions of the Certificate of Designations of rights and preferences relating
thereto ("Certificate of Designations"), a copy of which is included as an
exhibit to the registration statement of which this Prospectus is a part. See
"Definitions" below for the definitions of certain capitalized terms used
herein.
GENERAL
Pursuant to the Certificate of Designations, 4,600,000 shares of Convertible
Preferred Stock with a liquidation preference of $50 per share (the "Liquidation
Preference") have been authorized for issuance by the Company, 4,000,000 shares
of which have been issued and are fully paid and non-assessable and the holders
thereof do not have any subscription or preemptive rights in connection
therewith.
RANKING
The Convertible Preferred Stock, with respect to dividend rights and rights
on liquidation, winding-up and dissolution, ranks (i) senior to each other class
of capital stock outstanding or established hereafter by the Company the terms
of which do not expressly provide that it ranks senior to, or on a parity with,
the Convertible Preferred Stock as to dividend rights and rights on liquidation,
winding-up and dissolution of the Company (collectively referred to as "Junior
Shares"); (ii) on a parity with each other class or series of preferred stock
established hereafter by the Company the terms of which expressly provide that
such class or series will rank on a parity with the Convertible Preferred Stock
as to dividend rights and rights on liquidation, winding-up and dissolution
(collectively referred to as "Parity Shares"); and (iii) junior to the 14%
Senior Exchangeable Redeemable Preferred Shares (the "14% Preferred Shares") and
each other class or series of preferred stock established after the date hereof
by the Company the terms of which expressly provide that such class or series
will rank senior to the Convertible Preferred Stock as to dividend rights and
rights upon liquidation, winding-up and dissolution of the Company (collectively
referred to as the "Senior Shares").
Other than as described below, the Company is not subject to any limitation
on its ability to increase or decrease the number of its authorized shares or
classes of its capital stock. The terms of the 14% Preferred Shares, however,
limit the ability of the Company to issue shares of capital stock that are
senior to or in parity with the 14% Preferred Shares. See "Description of
Capital Stock--Preferred Stock."
DIVIDENDS
Holders of the outstanding shares of Convertible Preferred Stock are
entitled to receive, when, as and if declared by the Board of Directors of the
Company, out of funds legally available therefor, cash dividends at a rate of
$3.25 per share per annum, or $0.8125 per share per quarter, payable quarterly.
In the event that dividends on the Convertible Preferred Stock are in arrears
and unpaid for six or more quarterly dividend periods (whether or not
consecutive), holders of Convertible Preferred Stock will be entitled to certain
voting rights. See "--Voting Rights" below. All dividends will be cumulative,
whether or not earned or declared, on a daily basis from the Issue Date and will
be payable quarterly in arrears on March 31, June 30, September 30 and December
31 of each year (each a "Dividend Payment Date"), commencing on June 30, 1998,
to holders of record on the March 15, June 15, September 15 and December 15
immediately preceding the relevant Dividend Payment Date. Dividends payable on
the Convertible Preferred Stock for any period shorter than a quarterly dividend
period will be computed on the basis of a 360-day year of twelve 30-day months
and the actual number of days elapsed. The Indentures relating to the Company's
outstanding indebtedness limit the Company's ability to pay cash dividends on
its Capital Stock, including the Convertible Preferred Stock. See "Description
of Certain Indebtedness."
19
<PAGE>
No full dividends may be declared or paid or funds set apart for the payment
of dividends on any Parity Shares for any period unless full cumulative
dividends shall have been or contemporaneously are declared and paid in full or
declared and, if payable in cash, a sum in cash sufficient for such payment set
apart for such payment on the Convertible Preferred Stock. If full dividends are
not so paid, the Convertible Preferred Stock will share dividends PRO RATA with
the Parity Shares. No dividends may be paid or set apart for such payment on
Junior Shares (except dividends on Junior Shares payable in additional Junior
Shares) if full cumulative, accrued dividends have not been paid in full on the
Convertible Preferred Stock. Dividends on account of arrears for any past
Dividend Period and dividends in connection with any optional redemption may be
declared and paid at any time, without reference to any regular Dividend Payment
Date, to holders of record of shares of Convertible Preferred Stock on such
date, not more than forty-five (45) days prior to the payment thereof, as may be
fixed by the Board of Directors of the Company. So long as any shares of
Convertible Preferred Stock are outstanding, the Company shall not make any
payment on account of, or set apart for payment money for a sinking or other
similar fund for, the purchase, redemption or other retirement of, any Parity
Shares or Junior Shares, or any warrants, rights, calls or options to purchase
any Parity Shares or Junior Shares, and shall not permit any corporation or
other entity directly or indirectly controlled by the Company to purchase or
redeem any Parity Shares or Junior Shares or any such warrants, rights, calls or
options, unless full cumulative, accrued dividends determined in accordance
herewith on the Convertible Preferred Stock have been paid in full.
MANDATORY REDEMPTION
The Convertible Preferred Stock is subject to mandatory redemption (subject
to the legal availability of funds therefor) in whole on March 31, 2010, at a
price equal to 100% of the liquidation preference thereof, plus, without
duplication, all accumulated and unpaid dividends to the date of redemption.
Future agreements of the Company may restrict or prohibit the Company from
redeeming the Convertible Preferred Stock.
OPTIONAL REDEMPTION
The Convertible Preferred Stock is redeemable at the option of the Company
at any time on or after April 16, 2006, in whole or in part, at a price equal to
100% of the liquidation preference thereof plus, without duplication, all
accumulated and unpaid dividends to the date of redemption.
PROCEDURE FOR REDEMPTION
On and after the redemption date, unless the Company defaults in the payment
of the applicable redemption price, dividends will cease to accumulate on shares
of Convertible Preferred Stock called for redemption and all rights of holders
of such shares will terminate except for the right to receive the redemption
price, without interest; PROVIDED, HOWEVER, that if a notice of redemption shall
have been given as provided in the succeeding sentence and the funds necessary
for redemption (including an amount in respect of all dividends that will accrue
to the redemption date) shall have been segregated and irrevocably set apart by
the Company, in trust for the equal and ratable benefit of the holders of the
shares called for redemption, then dividends shall cease to accumulate on the
redemption date on the shares to be redeemed then, at the close of business of
the day on which such funds are segregated and set apart, the holders of the
shares to be redeemed shall cease to be shareholders of the Company and shall be
entitled only to receive the redemption price for such shares, without interest.
The Company will send a written notice of redemption by first class mail to each
holder of record of shares of Convertible Preferred Stock, not fewer than 30
days nor more than 60 days prior to the date fixed for such redemption at its
registered address. Shares of Convertible Preferred Stock issued and reacquired
will have the status of authorized but unissued preferred stock of the Company
undesignated as to series and may, with any and all other authorized but
unissued preferred stock of the Company, be designated or redesignated and
issued or reissued, as the case may be, as part of any series of preferred stock
of the Company, except that any
20
<PAGE>
issuance or reissuance of Convertible Preferred Stock must be in compliance with
the Certificate of Designations.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding-up of
the Company, holders of shares of Convertible Preferred Stock will be entitled
to be paid out of the assets of the Company available for distribution to the
shareholders, the liquidation preference of $50 per share of Convertible
Preferred Stock, plus, without duplication, an amount in cash equal to all
accumulated and unpaid dividends thereon to the date fixed for liquidation,
dissolution or winding-up (including an amount equal to a prorated dividend for
the period from the last Dividend Payment Date to the date fixed for
liquidation, dissolution or winding-up), before any distribution is made on any
Junior Shares, including without limitation, Common Stock of the Company. If,
upon any voluntary or involuntary liquidation, dissolution or winding-up of the
Company, the amounts payable with respect to the Convertible Preferred Stock and
all other Parity Shares are not paid in full, the holders of the Convertible
Preferred Stock and the Parity Shares will share equally and ratably in any
distribution of assets of the Company in proportion to the full liquidation
preference, including, without duplication, all accrued and unpaid dividends to
which each is entitled. After payment of the full amount of the liquidation
preference and accumulated and unpaid dividends to which they are entitled, the
holders of shares of Convertible Preferred Stock will not be entitled to any
further participation in any distribution of assets of the Company. However,
neither the sale, conveyance, exchange or transfer (for cash, shares of stock,
securities or other consideration) of all or substantially all of the property
or assets of the Company nor the consolidation or merger of the Company with one
or more entities shall be deemed to be a liquidation, dissolution or winding-up
of the affairs of the Company.
The Certificate of Designations does not contain any provision requiring
funds to be set aside to protect the liquidation preference of the Convertible
Preferred Stock.
VOTING RIGHTS
The holders of Convertible Preferred Stock, except as otherwise required
under applicable law or as set forth below, are not entitled or permitted to
vote on any matter required or permitted to be voted upon by the shareholders of
the Company.
The Certificate of Designations provides that if (i) dividends on the
Convertible Preferred Stock are in arrears and unpaid for six or more quarterly
dividend periods (whether or not consecutive); (ii) the Company fails to redeem
the Convertible Preferred Stock on March 31, 2010 or fails otherwise to
discharge any redemption obligation with respect to the Convertible Preferred
Stock; (iii) a breach or violation of any of the provisions described under the
caption "--Certain Covenants" occurs and the breach or violation continues for a
period of 30 days or more after the Company receives notice thereof specifying
the default from the holders of at least 25% of the shares of Convertible
Preferred Stock then outstanding; or (iv) the Company fails to pay at the final
stated maturity (giving effect to any extensions thereof) the principal amount
of any Debt of the Company or any Subsidiary of the Company, or the final stated
maturity of any such Debt is accelerated, if the aggregate principal amount of
such Debt, together with the aggregate principal amount of any other such Debt
in default for failure to pay principal at the final stated maturity (giving
effect to any extensions thereof) or which has been accelerated, aggregates $15
million or more at any time, in each case, after a 10-day period during which
such default shall not have been cured or such acceleration rescinded, then the
number of directors constituting the Board of Directors of the Company will be
adjusted to permit the holders of a majority of the then outstanding shares of
Convertible Preferred Stock, voting together with any outstanding Parity Shares
separately as a single class, to elect the lesser of two directors and that
number of directors constituting 25% of the members of such Board of Directors.
Such voting rights will continue until such time as, in the case of a dividend
default, all accumulated dividends in arrears on the Convertible Preferred Stock
are paid in full and, in all other cases, the failure, breach or default giving
rise to such Voting Rights Triggering Event is
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remedied or waived by the holders of at least a majority of the shares of
Convertible Preferred Stock then outstanding, at which time the term of any
directors elected pursuant to the provisions of this paragraph shall terminate.
Each such event described in clauses (i) through (iv) above is referred to
herein as a "Voting Rights Triggering Event." The voting rights provided herein
shall be the holders' exclusive remedy at law or in equity.
In addition to the provisions described above under "Ranking," the
Certificate of Designations provides that the Company will not, without the
approval of the holders of two-thirds of the shares of Convertible Preferred
Stock then outstanding amend, alter or repeal any of the provisions of the
Company's Certificate of Incorporation (including the Certificate of
Designations) or the bylaws of the Company so as to affect adversely the powers,
preferences or rights of the holders of the Convertible Preferred Stock or
reduce the time for any notice to which the holders of the Convertible Preferred
Stock may be entitled. Subject to the provisions described above under
"Ranking", the Certificate of Designations provides that an amendment of the
Company's Certificate of Incorporation to authorize or create, or to increase
the authorized amount, of Junior Shares, Parity Shares or Senior Shares shall
not be deemed to affect adversely the powers, preferences or rights of the
holders of the Convertible Preferred Stock. The above notwithstanding, the
Company's Certificate of Incorporation may be amended (i) to increase or
decrease the number of authorized shares of Preferred Stock (but not below the
number of shares thereof then outstanding) by the affirmative vote of the
holders of a majority of the stock of the Company entitled to vote thereon or
(ii) to authorize any other class or series of capital stock of the Company,
regardless of the relative rights, preferences, qualifications, limitations or
restrictions thereof, including an amendment to increase the authorized number
of shares of Common Stock or Preferred Stock of the Company without the vote of
the holders of shares of the Convertible Preferred Stock.
Notwithstanding the foregoing, modifications and amendments of the terms of
Certificate of Designations described below under "--Certain Covenants" may be
made by the Company with the consent of the holders of a majority of the shares
of Convertible Preferred Stock. The Certificate of Designations will provide
that holders of Convertible Preferred Stock will not have voting rights with
respect to mergers involving the Company, except as provided under "--Certain
Covenants" below. In addition, the holders of a majority of the outstanding
shares of Convertible Preferred Stock, on behalf of all holders of Convertible
Preferred Stock, may waive compliance by the Company with the covenants
described below under "--Certain Covenants" and may waive any past default of
the provisions of the Certificate of Designations described below under
"--Certain Covenants".
CONVERSION RIGHTS
The Convertible Preferred Stock is convertible at the option of the holder,
into shares of Class A Common Stock at any time, unless previously redeemed or
repurchased, at a conversion rate of 1.145 shares of Class A Common Stock per
share of the Convertible Preferred Stock (as adjusted pursuant to the provisions
hereof, the "Conversion Rate") (subject to the adjustments described below). The
right to convert a share of the Convertible Preferred Stock called for
redemption will terminate at the close of business on the Redemption Date for
such Convertible Preferred Stock. In addition, at any time from and after April
15, 2001, through and including April 15, 2006, the Company may elect to cause
such conversion right to expire, upon not less than 30 nor more than 60 days'
notice to the holders of shares of Convertible Preferred Stock, if the Closing
Price of the Class A Common Stock exceeds 120% of the Implied Conversion Price
for 20 Trading Days in any period of 30 consecutive Trading Days, including the
last Trading Day of such period. "Implied Conversion Price" means the quotient
obtained by dividing $50.00 by the Conversion Rate. Such conversion right shall
expire only if the Company is current in the payment of dividends on the
Convertible Preferred Stock at such expiration date.
The right of conversion attaching to any shares of Convertible Preferred
Stock may be exercised by the Holder thereof by delivering the shares to be
converted to the office of the Conversion Agent, accompanied by a duly signed
and completed notice of conversion in form reasonably satisfactory to the
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Conversion Agent. The conversion date will be the date on which the shares of
Convertible Preferred Stock and the duly signed and completed notice of
conversion are so delivered. As promptly as practicable on or after the
conversion date, the Company will issue and deliver to the Conversion Agent a
certificate or certificates for the number of full shares of Class A Common
Stock issuable upon conversion, with any fractional shares rounded up to full
shares or, at the Company's option, payment in cash in lieu of any fraction of a
share, based on the Closing Price of the Class A Common Stock on the Trading Day
preceding the conversion date. Such certificate or certificates will be
delivered by the Conversion Agent to the appropriate Holder on a book-entry
basis or by mailing certificates evidencing the additional shares to the Holders
at their respective addresses set forth in the register of Holders maintained by
the Transfer Agent. All shares of Class A Common Stock issuable upon conversion
of the Convertible Preferred Stock will be fully paid and nonassessable and will
rank PARI PASSU with the other shares of Class A Common Stock outstanding from
time to time. Any shares of Convertible Preferred Stock surrendered for
conversion during the period from the close of business on any Record Date to
the opening of business on the next succeeding Dividend Payment Date must be
accompanied by payment of an amount equal to the dividends payable on such
Dividend Payment Date on the shares of Convertible Preferred Stock being
surrendered for conversion. In the case of any shares of Convertible Preferred
Stock that have been converted after any Record Date but before the next
Dividend Payment Date, dividends that are payable on such Dividend Payment Date
will be payable on such Dividend Payment Date notwithstanding such conversion,
and such dividends will be paid to the Holder of such shares of Convertible
Preferred Stock on such Record Date. No other payment or adjustment for
dividends, or for any dividends in respect of shares of Class A Common Stock,
will be made upon conversion. Holders of Class A Common Stock issued upon
conversion will not be entitled to receive any dividends payable to holders of
Class A Common Stock as of any record time before the close of business on the
conversion date.
With respect to any shares of Convertible Preferred Stock that are
"restricted securities" on the conversion date, the shares of Class A Common
Stock distributed upon conversion will be treated as "restricted securities,"
will bear a legend to such effect and will not be transferable by the recipient
thereof except pursuant to an effective registration statement or pursuant to an
exemption from the registration requirements of the Securities Act. All such
shares will be issued in physical certificated form and will not be eligible for
receipt in global form through the facilities of the Depositary. With respect to
shares of Convertible Preferred Stock that are no longer "restricted securities"
on a conversion date, either as a result of a resale of the Convertible
Preferred Stock pursuant to the Shelf Registration Statement or otherwise, all
shares of Class A Common Stock distributed upon conversion will be freely
transferable without restriction under the Securities Act (other than by
affiliates), and such shares will be eligible for receipt in global form through
the facilities of the Depositary.
Under current Federal law, a Holder delivering shares of Convertible
Preferred Stock for conversion will not be required to pay any taxes or duties
in respect of the issue or delivery of Class A Common Stock on conversion but
will be required to pay any tax or duty that may be payable in respect of any
transfer involved in the issue or delivery of the shares of Class A Common Stock
in a name other than that of the Holder of the shares of Convertible Preferred
Stock. See "Certain United States Income Tax Considerations." Certificates
representing shares of Class A Common Stock will not be issued or delivered
unless all taxes and duties, if any, payable by the Holder have been paid.
The Conversion Rate is subject to adjustment in certain events, including,
without duplication; (a) dividends (and other distributions) paid in shares of
Common Stock, (b) subdivisions, combinations and reclassification of any shares
of Common Stock, (c) the issuance to holders of Common Stock or other securities
of rights, options or warrants entitling them to subscribe for or purchase any
shares of Common Stock of the Company (the "Rights") at less than the then
Current Market Price of Class A Common Stock (determined as of the record date
for shareholders entitled to receive such other securities or rights, options or
warrants), (d) distributions to holders of Common Stock of evidences of
indebtedness of the Company, shares of capital stock, cash or assets (including
securities, but excluding those dividends, Rights
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and distributions referred to above, dividends and distributions paid
exclusively in cash and distributions upon mergers or consolidations to which
the next succeeding clause applies), (e) distributions consisting exclusively of
cash (excluding any cash portion of distributions referred to in (d) above, or
cash distributed upon a merger or consolidation to which the next succeeding
clause applies) to holders of Common Stock in an aggregate amount that, combined
together with (i) other such all-cash distributions made within the preceding 12
months in respect of which no adjustment has been made and (ii) any cash and the
fair market value of other consideration payable in respect of any tender offer
or other stock repurchase program by the Company or any of its Subsidiaries for
Common Stock concluded within the preceding 12 months in respect of which no
adjustment has been made, exceeds 12.5% of the Company's market capitalization
(being the product of the then Current Market Price of the Class A Common Stock
and the number of shares of Common Stock then outstanding at the date of such
distribution) on the record date for such distribution and (f) the successful
completion of a tender offer by the Company or any of its Subsidiaries for
Common Stock that involves an aggregate consideration that, together with (i)
any cash and other consideration payable in a tender offer or other stock
repurchase program by the Company or any of its Subsidiaries for Common Stock
expiring within 12 months preceding the expiration of such tender offer in
respect of which no adjustment has been made and (ii) the aggregate number of
any such all-cash distributions referred to in (e) above to all holders of
Common Stock within the 12 months preceding the expiration of such tender offer
in respect of which no adjustments have been made, exceeds 12.5% of the
Company's market capitalization on the expiration of such tender offer. The
Certificate of Designations will provide that the Company may make voluntary
increases in the Conversion Rate in addition to those required in the foregoing
provisions, provided that each such increase is in effect for at least 20
calendar days. No adjustment of the Conversion Rate will be required to be made
until the cumulative adjustments amount to 1.0% or more of the Conversion Rate.
Notwithstanding any other provision in the preceding paragraphs to the
contrary, if any Change in Control (as defined) occurs, then the Conversion Rate
in effect will be adjusted immediately after such Change in Control as described
below. In addition, in the event of a Common Stock Change in Control (as
defined), each share of the Convertible Preferred Stock shall be convertible
solely into common stock of the kind received by holders of Class A Common Stock
as the result of such Common Stock Change in Control.
A "Change in Control" shall be deemed to have occurred at such time as (i)
the sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all the assets of the Company and its Subsidiaries taken as a
whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange
Act), (ii) the adoption of a plan relating to the liquidation or dissolution of
the Company, (iii) the consummation of any transaction (including any merger or
consolidation) the result of which is that any Person or any Persons acting
together that would constitute a "group" (a "Group") for purposes of Section
13(d) of the Exchange Act, or any successor provision thereto (other than Eagle
River, Mr. Craig O. McCaw and their respective Affiliates or an underwriter
engaged in a firm commitment underwriting on behalf of the Company), shall
beneficially own (within the meaning of Rule 13d-3 under the Exchange Act, or
any successor provision thereto) more than 50% of the aggregate voting power of
all classes of Voting Stock of the Company, (iv) 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 (v) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Board of
Directors of the Company (together with any new directors whose election by the
Board of Directors of the Company or whose nomination for election by the
shareholders of the Company was proposed by a vote of a majority of the
directors of the Company then still in office who were either directors at the
beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board of Directors of the Company then in office.
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The term "Common Stock Change in Control" means any Change in Control in
which more than 50% of the value (as determined in good faith by the Board of
Directors of the Company) of the consideration received by holders of Class A
Common Stock consists of common stock of another company that for each of the 10
consecutive Trading Days referred to in the definition of "Applicable Price"
below has been admitted for listing or admitted for listing subject to notice of
issuance on a national securities exchange or quoted on the NASDAQ National
Market; PROVIDED, HOWEVER, that a Change in Control shall not be a Common Stock
Change in Control unless either (i) the Company continues to exist after the
occurrence of such Change in Control and the outstanding shares of Convertible
Preferred Stock continue to exist as outstanding shares of Convertible Preferred
Stock, or (ii) not later than the occurrence of such Change in Control, the
outstanding shares of Convertible Preferred Stock are converted into or
exchanged for shares of convertible preferred stock of a corporation succeeding
to the business of the Company, which convertible preferred stock has powers,
preferences and relative, participating, optional or other rights, and
qualifications, limitations and restrictions, substantially similar to those of
the Convertible Preferred Stock.
The term "Non-Stock Change in Control" means any Change in Control other
than a Common Stock Change in Control.
The term "Applicable Price" means (i) in the event of a Non-Stock Change in
Control in which the holders of the Class A Common Stock receive only cash, the
amount of cash received by the holder of one share of Class A Common Stock and
(ii) in the event of any other Non-Stock Change in Control or any Common Stock
Change in Control, the average of the Closing Price for the Class A Common Stock
during the 10 Trading Days prior to and including the record date for the
determination of the holders of Class A Common Stock entitled to receive cash,
securities, property or other assets in connection with such Non-Stock Change in
Control or Common Stock Change in Control or, if there is no such record date,
the date upon which the holders of the Class A Common Stock shall have the right
to receive such cash, securities, property or other assets or the date upon
which such Non-Stock Change in Control is deemed to have occurred, as the case
may be, in each case as adjusted in good faith by the Board of Directors to
appropriately reflect any of the events referred to in clauses (a) through (f)
of the fifth paragraph of this subsection.
For purposes of calculating any adjustment to be made in the event of a
Change in Control, immediately after such Change in Control:
(i) in the case of a Non-Stock Change in Control, the Conversion Rate
will thereupon become the higher of (A) the Conversion Rate in effect
immediately prior to such Non-Stock Change in Control, but after giving
effect to any other prior adjustments, and (B) a fraction, the numerator of
which is the then-current deemed redemption price per share (I.E., 105.20%
in year one declining ratably to par in year nine and beyond) and the
denominator of which is the greater of the Applicable Price or the then
applicable Reference Market Price; and
(ii) in the case of a Common Stock Change in Control, the Conversion
Rate in effect immediately prior to such Common Stock Change in Control, but
after giving effect to any other prior adjustments, will thereupon be
adjusted by multiplying such Conversion Rate by a fraction, of which the
numerator will be the Applicable Price and the denominator will be the
Purchaser Stock Price (as defined); PROVIDED, HOWEVER, that in the event of
a Common Stock Change in Control in which (A) 100% of the value of the
consideration received by a holder of Class A Common Stock is common stock
of the successor, acquiror or other third party (and cash, if any, with
respect to any fractional interests) and (B) all the Class A Common Stock
(other than shares of Class A Common Stock for which cash was paid pursuant
to rights of dissent and appraisal) will have been exchanged for, converted
into, or acquired for, common stock (and cash with respect to fractional
interests) of the successor, acquiror or other third party, the Conversion
Rate in effect immediately prior to such Common Stock Change in Control will
thereupon be adjusted by multiplying such Conversion Rate by
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the number of shares of common stock of the successor, acquiror, or other
third party received by a holder of one share of Class A Common Stock as a
result of such Common Stock Change in Control.
The foregoing Conversion Rate adjustments in the event of a Non-Stock Change
in Control will apply in situations where a Change in Control not involving a
change in beneficial ownership of the Common Stock has occurred or where all or
substantially all of the Common Stock is acquired in a transaction in which 50%
or less of the value received by holders of Class A Common Stock consists of
common stock that has been admitted for listing on a national securities
exchange or quoted on the NASDAQ National Market. If the market price of the
Class A Common Stock immediately prior to a Non-Stock Change in Control is lower
than the Implied Conversion Price then in effect, the Conversion Rate will be
adjusted as described in (i) above and the holders of the Convertible Preferred
Stock will be entitled to receive the amount and kind of consideration that
would have been received if the Convertible Preferred Stock had been converted
into Class A Common Stock prior to the Non-Stock Change in Control after giving
effect to such adjustment.
The foregoing Conversion Rate adjustments in the event of a Common Stock
Change in Control will apply in situations whereby more than 50% of the value
received by holders of Class A Common Stock consists of common stock of another
company that has been admitted for listing on a national securities exchange or
quoted on the NASDAQ National Market, in which case the Convertible Preferred
Stock will become convertible into shares of common stock of the other company.
If consideration for the Class A Common Stock consists partly of common stock of
another company and partly of other securities, cash or property, each share of
Convertible Preferred Stock will be convertible solely into a number of shares
of such common stock determined so that the initial value of such shares
(measured as described in the definition of Purchaser Stock Price) equals the
value of the shares of Class A Common Stock into which such share of Convertible
Preferred Stock was convertible immediately before the transaction (measured as
described in the definition of Applicable Price). If consideration for Class A
Common Stock is solely common stock of another company, each share of
Convertible Preferred Stock will be convertible into the same number of shares
of such common stock receivable by a holder of the number of shares of Class A
Common Stock into which such share of Convertible Preferred Stock was
convertible immediately before such transaction.
The term "Purchaser Stock Price" means, with respect to any Common Stock
Change in Control, the average of the per share Closing Prices for the common
stock received as consideration in such Common Stock Change in Control for the
10 consecutive Trading Days prior to and including the record date for the
determination of the holders of Class A Common Stock entitled to receive such
common stock, or if there is no such record date, the date upon which the
holders of the Class A Common Stock shall have the right to receive such common
stock, in each case, as adjusted in good faith by the Board of Directors to
appropriately reflect any of the events referred to in clauses (a) through (f)
of the fifth paragraph of this subsection; PROVIDED, HOWEVER, that no such
Closing Prices exist, then the Purchaser Stock Price shall be set at a price
determined in good faith by the Board of Directors of the Company.
The term "Reference Market Price" shall initially mean $23.33 (which is an
amount equal to 66 2/3% of the reported last sale price for the Class A Common
Stock on the NASDAQ National Market on March 26, 1998), and in the event of any
adjustment to the Conversion Rate other than as a result of a Change in Control,
the Reference Market Price shall also be adjusted so that the ratio of the
Reference Market Price to the Implied Conversion Price after giving effect to
any such adjustment shall always be the same as the ratio of $23.33 to the
initial Implied Conversion Price of $43.67.
Depending upon whether the Change in Control is a Non-Stock Change in
Control or Common Stock Change in Control, a holder may receive significantly
different consideration upon conversion. In the event of a Non-Stock Change in
Control, the holder has the right to convert each share of the Convertible
Preferred Stock into the kind and amount of the shares of stock and other
securities or property or assets receivable by a holder of the number of shares
of Class A Common Stock issuable upon conversion of such
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share of the Convertible Preferred Stock immediately prior to such Non-Stock
Change in Control, but after giving effect to the adjustment described above.
However, in the event of a Common Stock Change in Control in which less than
100% of the value of the consideration received by a holder of Class A Common
Stock is common stock of the acquiror or other third party, a holder of a share
of Convertible Preferred Stock who converts a share following the Common Stock
Change in Control will receive consideration in the form of such common stock
only, whereas a holder who has converted his share prior to the Common Stock
Change in Control will receive consideration in the form of common stock as well
as any other securities or assets (which may include cash) receivable thereupon
by a holder of the number of shares of Class A Common Stock issuable upon
conversion of such share of Convertible Preferred Stock immediately prior to
such Common Stock Change in Control.
In the case of certain reclassifications, consolidations, mergers, sales or
transfers of assets or other transactions pursuant to which the Class A Common
Stock is converted into the right to receive other securities, cash or other
property, each share of Convertible Preferred Stock then outstanding would,
without the consent of any holders of Convertible Preferred Stock, become
convertible only into the kind and amount of securities, cash and other property
receivable upon the transaction by a holder of the number of shares of Class A
Common Stock which would have been received by a holder immediately prior to
such transaction if such holder had converted its share of Convertible Preferred
Stock.
The Company will provide to Holders of the Convertible Preferred Stock
reasonable notice of any event that would result in an adjustment to the
Conversion Rate pursuant to the foregoing paragraph so as to permit the Holders
to effect a conversion of shares of Convertible Preferred Stock into shares of
Common Stock prior to the occurrence of such event.
If at any time the Company makes a distribution of property to its
stockholders that would be taxable to such stockholders as a dividend for United
States federal income tax purposes (e.g., distributions of evidences of
indebtedness or assets of the Company, but generally not stock dividends on
common stock or rights to subscribe for common stock) and, pursuant to the
antidilution provisions of the Certificate of Designations, the number of shares
into which the Convertible Preferred Stock is convertible is increased, such
increase may be deemed for United States federal income tax purposes to be the
payment of a taxable dividend to Holders of the Convertible Preferred Stock. See
"Certain U.S. Federal Income Tax Considerations--Adjustment of Conversion
Price."
CERTAIN COVENANTS
MERGER, CONSOLIDATION AND SALE OF ASSETS. The Certificate of Designations
will provide that, without the affirmative vote of the holders of a majority of
the issued and outstanding shares of Convertible Preferred Stock, voting or
consenting as a separate class, the Company will not, in a single transaction or
a series of related transactions, consolidate with or merge with or into, or
sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its assets to, another Person or adopt a plan of
liquidation unless (i) either (1) the Company is the surviving or continuing
Person or (2) the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or the Person that acquires by
conveyance, transfer or lease the properties and assets of the Company
substantially as an entirety or in the case of a plan of liquidation, the Person
to which assets of the Company have been transferred, shall be a corporation,
limited liability company, partnership or trust organized and existing under the
laws of the United States or any State thereof or the District of Columbia; (ii)
either (1) the Company is the surviving or continuing Person and the outstanding
shares of Convertible Preferred Stock continue to exist as outstanding shares of
Convertible Preferred Stock or (2) the shares of Convertible Preferred Stock
shall be converted into or exchanged for and shall become shares of Capital
Stock of such successor, transferee or resulting Person having the same powers,
preferences and relative participating, optional or other special rights and the
qualifications, limitations or restrictions thereon, that the shares of
Convertible Preferred Stock had immediately prior to such transaction; (iii)
immediately after giving pro forma effect to such transactions, no Voting Rights
Triggering Event shall have occurred or be continuing; and (iv) the
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Company has delivered to the transfer agent for the Convertible Preferred Stock
prior to the consummation of the proposed transaction an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger or
transfer complies with the Certificate of Designations and that all conditions
precedent in the Certificate of Designations relating to such transaction have
been satisfied. For purposes of the foregoing, the transfer (by lease,
assignment, sale or otherwise, in a single transaction or series of related
transactions) of all or substantially all of the properties and assets of one or
more Subsidiaries, the Capital Stock of which constitutes all or substantially
all of the properties or assets of the Company, will be deemed to be the
transfer of all or substantially all of the properties and assets of the
Company.
REPORTS. The Certificate of Designations will provide that the Company will
provide to the holders of Convertible Preferred Stock, within 15 days after it
files them with the Commission, copies of the annual reports and of the
information, documents and other reports (or copies of such portions of any of
the foregoing as the Commission may by rules and regulations prescribe) which
the Company files with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act. In the event that the Company is no longer required to furnish
such reports to its securityholders pursuant to the Exchange Act, the Company
will cause its consolidated financial statements, comparable to those that would
have been required to appear in annual or quarterly reports, to be delivered to
the holders of Convertible Preferred Stock.
BOOK-ENTRY, DELIVERY AND FORM
The Convertible Preferred Stock will be issued in the form of a Global Share
Certificate. The Global Share Certificate will be deposited with, or on behalf
of, the Depositary and registered in the name of the Depositary or its nominee.
Except as set forth below, the Global Share Certificate may be transferred, in
whole and not in part, only to the Depositary or another nominee of the
Depositary. Investors may hold their beneficial interests in the Global Share
Certificate directly through the Depositary if they have an account with the
Depositary or indirectly through organizations which have accounts with the
Depositary.
Shares of Convertible Preferred Stock that are issued as described below
under "Certificated Convertible Preferred Stock" will be issued in definitive
form. Upon the transfer of Convertible Preferred Stock in definitive form, such
Convertible Preferred Stock will, unless the Global Share Certificate has
previously been exchanged for Convertible Preferred Stock in definitive form, be
exchanged for an interest in the Global Share Certificate representing the
liquidation preference of Convertible Preferred Stock being transferred.
The Depositary has advised the Company as follows: The Depositary is a
limited-purpose trust company organized under the laws of the State of New York,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. The
Depositary was created to hold securities of institutions that have accounts
with the Depositary ("participants") and to facilitate the clearance and
settlement of securities transactions among its participants in such securities
through electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. The
Depositary's participants include securities brokers and dealers (which may
include the Initial Purchasers), banks, trust companies, clearing corporations
and certain other organizations. Access to the Depositary's book-entry system is
also available to others such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a participant,
whether directly or indirectly.
Upon the issuance of the Global Share Certificate, the Depositary will
credit, on its book-entry registration and transfer system, the liquidation
preference of the Convertible Preferred Stock represented by such Global Share
Certificate to the accounts of participants. Ownership of beneficial interests
in the Global Share Certificate will be limited to participants or persons that
may hold interests through participants. Ownership of beneficial interests in
the Global Share Certificate will be shown on, and the transfer of those
ownership interests will be effected only through, records maintained by the
Depositary
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(with respect to participants' interest) and such participants (with respect to
the owners of beneficial interests in the Global Share Certificate other than
participants). The laws of some jurisdictions may require that certain
purchasers of securities take physical delivery of such securities in definitive
form. Such limits and laws may impair the ability to transfer or pledge
beneficial interests in the Global Share Certificate.
So long as the Depositary, or its nominee, is the registered holder and
owner of the Global Share Certificate, the Depositary or such nominee, as the
case may be, will be considered the sole legal owner and holder of the related
Convertible Preferred Stock for all purposes of such Convertible Preferred Stock
and the Certificate of Designations. Except as set forth below, owners of
beneficial interests in the Global Share Certificate will not be entitled to
have the Convertible Preferred Stock represented by the Global Share Certificate
registered in their names, will not receive or be entitled to receive physical
delivery of certificated Convertible Preferred Stock in definitive form and will
not be considered to be the owners or holders of any Convertible Preferred Stock
under the Global Share Certificate. The Company understands that under existing
industry practice, in the event an owner of a beneficial interest in the Global
Share Certificate desires to take any action that the Depositary, as the holder
of the Global Share Certificate, is entitled to take, the Depositary would
authorize the participants to take such action, and that the participants would
authorize beneficial owners owning through such participants to take such action
or would otherwise act upon the instructions of beneficial owners owning through
them.
Payment in respect of dividends and redemption payments on Convertible
Preferred Stock represented by the Global Share Certificate registered in the
name of and held by the Depositary or its nominee will be made to the Depositary
or its nominee, as the case may be, as the registered owner and holder of the
Global Share Certificate.
The Company expects that the Depositary or its nominee, upon receipt of any
payment in respect of dividends and redemption payments on the Global Share
Certificate, will credit participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the liquidation
preference of the Global Share Certificate as shown on the records of the
Depositary or its nominee. The Company also expects that payments by
participants to owners of beneficial interests in the Global Share Certificate
held through such participants will be governed by standing instructions and
customary practices and will be the responsibility of such participants. The
Company will not 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 Share Certificate for any Convertible Preferred Stock or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests or for any other aspect of the relationship
between the Depositary and its participants or the relationship between such
participants and the owners of beneficial interests in the Global Share
Certificate.
Unless and until it is exchanged in whole or in part for certificated
Convertible Preferred Stock in definitive form, the Global Share Certificate may
not be transferred except as a whole by the Depositary to a nominee of such
Depositary or by a nominee of such Depositary to such Depositary or another
nominee of such Depositary.
Although the Depositary has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Share Certificate among
participants of the Depositary, it is under no obligation to perform or continue
to perform such procedures, and such procedures may be discontinued at any time.
Neither the Transfer Agent nor the Company will have any responsibility for the
performance by the Depositary or its participants or indirect participants of
their respective obligations under the rules and procedures governing their
operations.
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CERTIFICATED CONVERTIBLE PREFERRED STOCK
The Convertible Preferred Stock represented by the Global Share Certificate
is exchangeable for certificated Convertible Preferred Stock in definitive form
of like tenor as such Convertible Preferred Stock if (i) the Depositary notifies
the Company that it is unwilling or unable to continue as Depositary for the
Global Share Certificate and a successor is not promptly appointed or if at any
time the Depositary ceases to be a clearing agency registered under the Exchange
Act or (ii) the Company in its discretion at any time determines not to have all
of the Convertible Preferred Stock represented by the Global Share Certificate.
Any Convertible Preferred Stock that is exchangeable pursuant to the preceding
sentence is exchangeable for certificated Convertible Preferred Stock issuable
in authorized denominations and registered in such names as the Depositary shall
direct. Subject to the foregoing, the Global Share Certificate is not
exchangeable, except for a Global Share Certificate of the same aggregate
denomination to be registered in the name of the Depositary or its nominee. In
addition, such certificates will bear the legend referred to under "Transfer
Restrictions" (unless the Company determines otherwise in accordance with
applicable law) subject, with respect to such Convertible Preferred Stock, to
the provisions of such legend.
TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company is the transfer agent and registrar
for the Convertible Preferred Stock (the "Transfer Agent").
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Certificate of Designations provisions. Reference is made to the Certificate of
Designations for the full definition of all such terms, as well as any other
terms used herein for which no definition is provided.
"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 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.
"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.
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"Closing Price " means, with respect to the Class A Common Stock of the
Company, for any day, the closing sale price (or, if no closing sale price is
reported, the last reported sale price) per share of the Class A Common Stock as
reported by the NASDAQ National Market, or, if the Class A Common Stock is not
so reported, on the principal national securities exchange or inter-dealer
quotation system on which the Class A Common Stock is listed or admitted to
trading, or if not listed or admitted to trading on any national securities
exchange or inter-dealer quotation system, the average of the closing bid and
asked prices per share in the over-the-counter market as reported by the
National Quotation Bureau or similar organization or as furnished by any New
York Stock Exchange member firm selected from time to time by the Company for
that purpose.
"Current Market Price" per Junior Share or any other security at any date
means (i) if the security is not registered under the Exchange Act, (a) the
value of the security, determined in good faith by the Board of Directors of the
Company, based on the most recently completed arm's-length transaction between
Company and a person other than an Affiliate of the Company and the closing of
which occurs on such date or shall have occurred within the six-month period
preceding such date, or (b) if no such transaction shall have occurred on such
date or within such six-month period, the value of the security as determined by
an independent financial expert (provided that, in the case of the calculation
of Current Market Price for determining the cash value of fractional shares, any
such determination within six months that is, in the good faith judgment of the
Board of Directors of the Company, a reasonable determination, may be utilized)
or (ii) (a) if the security is registered under the Exchange Act, the average of
the daily market prices of the security for the 20 consecutive trading days
immediately preceding such date, or (b) if the security has been registered
under the Exchange Act for less than 20 consecutive trading days before such
date, then the average of the closing sales prices for all of the trading days
before such date for which closing sales prices are available, in the case of
each of (ii) (a) and (ii) (b), as certified by the President, any Vice President
or the Chief Financial Officer of the Company. The market price for each such
trading day shall be: (A) in the case of a security listed or admitted to
trading on any national securities exchange or quotation system, the closing
sales price, regular way, on such day, or if no sale takes place on such day,
the average of the closing bid and asked prices on such day, (B) in the case of
a security not then listed or admitted to trading on any national securities
exchange or quotation system, the last reported sale price on such day, or if no
sale takes place on such day, the average of the closing bid and asked prices on
such day, as reported by a reputable quotation source designated by the Company,
(C) in the case of a security not then listed or admitted to trading on any
national securities exchange or quotation system and as to which no such
reported sale price or bid and asked prices are available, the average of the
reported high bid and low asked prices on such day, as reported by a reputable
quotation service, or a newspaper of general circulation in the Borough of
Manhattan, City and State of New York, customarily published on each Business
Day, designated by the Company, or, if there shall be no bid and asked prices on
such day, the average of the high bid and low asked prices, as so reported, on
the most recent day (not more than 30 days prior to the date in question) for
which prices have been so reported and (D) if there are no bid and asked prices
reported during the 30 days prior to the date in question, the Current Market
Price shall be determined as if the securities were not registered under the
Exchange Act.
"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 or Currency
Protection Agreements of such Person and (ix) every obligation of the type
referred to in clauses (i) through (viii) of another Person and all dividends of
another Person the payment of which, in either case, such Person has Guaranteed.
The "amount" or "principal amount" of Debt at any time of determination as used
herein represented by (a) any Debt issued at a price that is less than the
principal amount at maturity thereof, shall be the amount of the liability in
respect thereof determined in accordance with generally accepted accounting
principles, (b) any Receivables Sale, shall be the amount of the unrecovered
capital or principal investment of the purchaser (other than the Company or a
Wholly-Owned Restricted Subsidiary of the Company) thereof, excluding amounts
representative of yield or interest earned on such investment, (c) any
Disqualified Stock, shall be the maximum fixed redemption or repurchase price in
respect thereof, (d) any Capital Lease Obligation, shall be determined in
accordance with the definition thereof, or (e) any Permitted Interest Rate or
Currency Protection Agreement shall be zero. In no event shall Debt include any
liability for taxes.
"Disqualified Stock" of any Person means any Capital Stock of such Person
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder thereof,
in whole or in part, on or prior to the mandatory redemption date of the
Convertible Preferred Stock; provided, however, that any Convertible 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 Convertible Preferred Stock upon the occurrence of a Change of Control
occurring prior to the mandatory redemption date of the Convertible Preferred
Stock shall not constitute Disqualified Stock.
"Exchange Act" means the Securities Exchange Act of 1934, as amended (or any
successor act) and the rules and regulations thereunder.
"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 of) such
Debt or to purchase (or to advance or supply funds for the purchase 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 on real or personal property of such Restricted
Subsidiary 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, shall not be deemed to
constitute a Guarantee by such Restricted Subsidiary of any Purchase Money Debt
of the Company secured thereby; 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).
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"Holder" means a holder of shares of the Convertible Preferred Stock.
"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 or the Transfer Agent, as applicable,
and any borrowings or reborrowings by the Company or a Subsidiary under such
commitment up to the amount of such commitment designated by the Company as
Incurred shall not be deemed to be new Incurrences of Debt by the Company or
such Subsidiary.
"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.
"Issue Date" means the date on which the Convertible Preferred Stock is
first issued and delivered.
"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.
"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 Stock" of any Person means Capital Stock of such Person of any
class or classes (however designated) that ranks prior, as to the payment of
dividends or as to the distribution of assets upon any voluntary or involuntary
liquidation, dissolution or winding up of such Person, to shares of Capital
Stock of any other class of such Person.
"Purchase Money Debt" means (i) Acquired Debt Incurred in connection with
the acquisition of Telecommunications Assets and (ii) Debt of the Company or of
any Restricted Subsidiary of the Company (including, without limitation, Debt
represented by Capital Lease Obligations, Vendor Financing Facilities, mortgage
financings and purchase money obligations) Incurred for the purpose of financing
all or any part of the cost of construction, acquisition or improvement by the
Company or any Restricted Subsidiary of the Company or any Joint Venture of any
Telecommunications Assets of the Company, any Restricted Subsidiary of the
Company or any Joint Venture, and including any related notes, Guarantees,
collateral documents, instruments and agreements executed in connection
therewith, as the same may be amended, supplemented, modified or restated from
time to time.
"Receivables" means receivables, chattel paper, instruments, documents or
intangibles evidencing or relating to the right to payment of money in respect
of the sale of goods or services.
"Receivables Sale" of any Person means any sale of Receivables of such
Person (pursuant to a purchase facility or otherwise), other than in connection
with a disposition of the business operations of
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such Person relating thereto or a disposition of defaulted Receivables for
purpose of collection and not as a financing agreement.
"Restricted Subsidiary" of the Company means any Subsidiary, whether
existing on or after the Issue Date.
"Subsidiary" of any Person means (i) a corporation more than 50% of the
combined voting power of the outstanding Voting Stock of which is owned,
directly or indirectly, by such Person or by one or more other Subsidiaries of
such Person or by such Person and one or more Subsidiaries thereof or (ii) any
other Person (other than a corporation) in which such Person, or one or more
other Subsidiaries of such Person or such Person and one or more other
Subsidiaries thereof, directly or indirectly, has at least a majority ownership
and power to direct the policies, management and affairs thereof.
"Telecommunications Assets" means all assets, rights (contractual or
otherwise) and properties, whether tangible or intangible, used or intended for
use in connection with a Telecommunications Business.
"Telecommunications Business" means the business of (i) transmitting, or
providing services relating to the transmission of, voice, video or data through
owned or leased transmission facilities, (ii) creating, developing or marketing
communications related network equipment, software and other devices for use in
a Telecommunication Business or (iii) evaluating, participating or pursuing any
other activity or opportunity that is primarily related to those identified in
(i) or (ii) above and shall, in any event, include all businesses in which the
Company or any of its Subsidiaries are engaged on the Issue Date; provided that
the determination of what constitutes a Telecommunications Business shall be
made in good faith by the Board of Directors of the Company, which determination
shall be conclusive.
"Trading Day" means (i) if the Common Stock is admitted to trading on the
NASDAQ National Market or any other system of automated dissemination of
quotations of securities prices, a day on which trades may be effected through
such system; (ii) if the Common Stock is not so admitted for trading but is
listed or admitted for trading on the American Stock Exchange or any other
national securities exchange, a day on which such exchange is open for business;
or (iii) if the Common Stock is not listed or admitted for trading on any
national securities exchange or admitted to trading on the NASDAQ National
Market or any other system of automated dissemination of quotation of securities
prices, a day on which the Common Stock is traded regular way in the
over-the-counter market and for which a closing bid and a closing asked price
for the Class A Common Stock are available.
"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 certain covenants under the 12 1/2% Notes, the 9 5/8% Notes and the 9% Notes.
The Board of Directors of the Company may designate any Unrestricted Subsidiary
to be a Restricted Subsidiary, provided that, immediately after giving effect to
such
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designation, the Company could incur at least $1.00 of additional Debt pursuant
to certain covenants under the 12 1/2% Notes, the 9 5/8% Notes and the 9% Notes,
as applicable.
"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.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain United States federal
income tax considerations applicable to holders of the Convertible Preferred
Stock resulting from their purchase, ownership and disposition. This discussion
is based on the Internal Revenue Code of 1986, as amended (the "Code"),
regulations of the Treasury Department ("Treasury Regulations"), administrative
rulings and pronouncements of the Internal Revenue Service ("IRS") and judicial
decisions, all of which are subject to change, possibly with retroactive effect.
This discussion does not purport to address all the United States federal income
tax consequences that may be applicable to particular holders, including
broker-dealers, traders in securities that elect to mark to market, investors
liable for the alternative minimum tax, investors that hold Convertible
Preferred Stock as part of a hedging or conversion transaction, certain
insurance companies and tax-exempt organizations. In addition, except as
provided below with respect to Non-U.S. Holders, this discussion is limited to
U.S. persons who will hold the Convertible Preferred Stock and the Common Stock
as a "capital asset." As used in the discussion which follows, the term "U.S.
Holder" means any person or entity which is (a) a citizen or resident of the
United States, (b) a corporation or other entity taxable as a corporation
created or organized in or under the laws of the United States or of any state
thereof (including the District of Columbia) or (c) an estate or trust that is
described in Section 7701(a)(30) of the Code, and a "Non-U.S. Holder" means any
holder of the Convertible Preferred Stock and the Common Stock that is not a
U.S. Holder.
PROSPECTIVE HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO ANY FEDERAL,
STATE, LOCAL, FOREIGN OR OTHER TAX CONSEQUENCES TO THEM OF PURCHASING, OWNING
AND DISPOSING OF CONVERTIBLE PREFERRED STOCK.
TAX CONSIDERATIONS FOR U.S. HOLDERS OF CONVERTIBLE PREFERRED STOCK
DISTRIBUTIONS IN GENERAL
Distributions with respect to the Convertible Preferred Stock will be
treated as dividends (taxable as ordinary income) to the extent of the current
and accumulated earnings and profits of the Company. To the extent that the
amount of a distribution with respect to the Convertible Preferred Stock exceeds
the current and accumulated earnings and profits of the Company, it will be
treated first as a tax-free return of capital to the extent of the holder's
basis in the Convertible Preferred Stock, and thereafter as capital gain from
the sale of the Convertible Preferred Stock (taxable as described below under
"--Sale, Redemption or Other Taxable Disposition of Convertible Preferred
Stock").
DIVIDENDS TO CORPORATE HOLDERS
A U.S. Holder that is a corporation otherwise entitled to the dividends-
received deduction will be entitled to that deduction (generally at a 70% rate)
with respect to amounts treated as dividends on the Convertible Preferred Stock
but will not be entitled to that deduction with respect to amounts treated as a
return of capital or capital gain. In determining entitlement to the dividends-
received deduction, corporate holders should also consider the applicable
holding period requirements and the "debt-financed portfolio stock" limitations.
In addition, corporate holders should consider the rules under Section 1059 of
the Code that may reduce the holder's basis in the Convertible Preferred Stock
by the amount of the dividends-received deduction (and require immediate gain
recognition to the extent that the basis reduction would otherwise reduce the
holder's basis in such stock below zero).
RECEIPT OF COMMON STOCK UPON CONVERSION OF THE CONVERTIBLE PREFERRED STOCK
Gain or loss will not be recognized by a holder upon the conversion of the
Convertible Preferred Stock into Common Stock if no cash is received. A holder
who receives cash in lieu of a fractional share of Common Stock will in general
be treated as having received such fractional share and having exchanged it for
cash in a redemption, which would be treated in the manner described under
"--Sale, Redemption or other Taxable Disposition of the Convertible Preferred
Stock." As discussed therein, a holder who cannot
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qualify for sale or exchange treatment under the rules applicable to redemptions
will generally be taxable on the cash received in lieu of a fractional share as
a distribution described in "--Distributions in General" above.
Generally, a holder's basis in the Common Stock received upon the conversion
of the Convertible Preferred Stock will equal the adjusted tax basis of the
converted Convertible Preferred Stock (other than the portion of such
Convertible Preferred Stock, the conversion of which resulted in the recognition
of gain or loss due to the receipt of cash in lieu of fractional shares). The
holding period of such Common Stock will include the holding period of the
converted Convertible Preferred Stock.
ADJUSTMENT OF CONVERSION PRICE IN RESPECT OF CONVERTIBLE PREFERRED STOCK
Adjustments to the conversion price ratio in respect of the Convertible
Preferred Stock to take into account a stock dividend or stock split will not be
taxable. However, an adjustment to the conversion price ratio to reflect the
Company's issuance of certain rights, warrants, evidences of indebtedness,
securities or other assets to holders of Common Stock (an "Adjustment") may
result in constructive distributions to the holders of the Convertible Preferred
Stock. The amount of any such constructive distribution would be the fair market
value on the date of the Adjustment of the number of shares of Common Stock
which, if actually distributed to holders of Convertible Preferred Stock, would
produce the same increase in the proportionate interests of such holders in the
assets or earnings and profits of the Company as that produced by the
Adjustment. The distribution would be treated in the manner described above
under "-- Distributions in General" and "--Dividends to Corporate Holders."
EXCESSIVE REDEMPTION PRICE
Under Section 305 of the Code and Treasury Regulations authorized
thereunder, if the redemption price of Convertible Preferred Stock exceeds its
issue price (i.e., its fair market value at its date of original issue) by more
than a DE MINIMIS amount, such excess may be treated as a constructive
distribution that will be treated in the same manner as distributions described
above under "Distributions in General." A holder of such Convertible Preferred
Stock would be required to treat such excess as a constructive distribution
received by the holder over the life of such stock under a constant interest
(economic yield) method that takes into account the compounding of yield. It is
anticipated that the mandatory redemption price of the Convertible Preferred
Stock will not exceed its issue price by more than a DE MINIMIS amount.
ACCRUED DIVIDENDS ON THE CONVERTIBLE PREFERRED STOCK
Any unpaid dividends on the Convertible Preferred Stock will accrue and will
be payable upon the optional or mandatory redemption of the Convertible
Preferred Stock. The tax treatment of such accruing dividends ("Accrued
Dividends") is not free from doubt. Under current law, it appears that Accrued
Dividends would not be treated as having been received by holders of the
Convertible Preferred Stock until such Accrued Dividends were actually paid in
cash, at which time such amounts would be taxable for United States federal
income tax purposes in the same manner as distributions described above under
"Distributions in General." The Company intends to take this position and will
report to the IRS on that basis.
Prospective purchasers of Preferred Stock are urged to consult their own tax
advisors as to the tax treatment of Accrued Dividends.
SALE, REDEMPTION OR OTHER TAXABLE DISPOSITION OF THE CONVERTIBLE PREFERRED
STOCK
Upon a sale or other taxable disposition a holder generally (except upon
certain redemptions as discussed below) will recognize capital gain or loss for
United States federal income tax purposes in an amount equal to the difference
between (i) the sum of the amount of cash and the fair market value of any
property received upon such sale or other taxable disposition and (ii) the
holder's adjusted tax basis in the Convertible Preferred Stock being disposed.
Such gain or loss will be long-term capital gain or loss if the
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Convertible Preferred Stock has been held by the holder for more than one year
at the time of disposition. Capital gain on the sale or other taxable
disposition of the Convertible Preferred Stock held by noncorporate taxpayers
for (i) more than one year but not more than 18 months shall be subject to a
maximum tax rate of 28 percent, and (ii) more than 18 months shall be subject to
a maximum tax rate of 20 percent.
A holder's initial tax basis in the Convertible Preferred Stock generally
will be the price such holder paid for such Convertible Preferred Stock.
Gain or loss recognized by a holder on a redemption of the Convertible
Preferred Stock would be treated as a sale or exchange and therefore qualify for
the treatment described above if, taking into account stock that is actually or
constructively owned under the constructive ownership rules of Section 318 of
the Code by such holder, either (i) the holder's interest in the stock of the
Company is completely terminated as a result of the redemption, (ii) such
holder's percentage ownership of the Company's voting stock immediately after
the redemption is less than 80% of such holder's percentage ownership
immediately before the redemption or (iii) the redemption is "not essentially
equivalent to a dividend." Whether a redemption is not essentially equivalent to
a dividend depends on each holder's facts and circumstances, but in any event
requires a "meaningful reduction" in such holder's equity interest in the
Company. A holder of the Convertible Preferred Stock who sells some or all of
the stock of the Company owned by it may be able to take such sales into account
to satisfy one of the foregoing conditions. Conversely, a holder who purchases
additional shares of stock of the Company may be required to take such shares
into account in determining whether any of the foregoing conditions are
satisfied.
If none of the above conditions is satisfied to qualify for sale or exchange
treatment, the entire amount of the cash (or property) received on a redemption
will be treated as a distribution (without offset by the holder's tax basis in
the redeemed shares), which will be treated in the same manner as distributions
described above under "--Distributions in General." In such case, the holder's
basis in the redeemed the Convertible Preferred Stock would be transferred to
the holder's remaining shares of the Company's stock (if any). If the holder
does not retain any shares of the Company's stock, but dividend treatment arises
because of the constructive ownership rules, such basis will be entirely lost to
the holder.
INFORMATION REPORTING AND BACKUP WITHHOLDING ON U.S. HOLDERS
Information reporting and backup withholding may apply with respect to
payments by the Company of dividends on the Convertible Preferred Stock and to
certain payments of proceeds on the sale or redemption of the Convertible
Preferred Stock. Such payments will be subject to backup withholding at a rate
of 31 percent unless the beneficial owner of such security furnishes the payor
or its agent with a taxpayer identification number, certified under penalties of
perjury and certain other information, or otherwise establishes, in the manner
prescribed by law, an exemption from backup withholding. In addition, if the
Convertible Preferred Stock is sold to (or through) a "broker," the broker may
be required to withhold 31 percent of the entire sales price, unless either (i)
the broker determines that the seller is a corporation or other exempt recipient
or (ii) the seller provides, in the required manner, certain identifying
information. Such a sale must also be reported by the broker to the IRS, unless
the broker determines that the seller is an exempt recipient.
Any amount withheld under the backup withholding rules from a payment to a
holder is allowable as a credit against the holder's United States federal
income tax, which may entitle the holder to a refund, provided that the holder
furnishes the required information to the IRS. In addition, certain penalties
may be imposed by the IRS on a holder who is required to supply information but
does not do so in the proper manner.
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TAX CONSIDERATIONS FOR NON-U.S. HOLDERS OF CONVERTIBLE PREFERRED STOCK
DIVIDENDS
Dividends paid to a Non-U.S. Holder of Convertible Preferred Stock will be
subject to withholding of United States Federal income tax at a 30% rate or such
lower rate as may be provided by an income tax treaty between the United States
and the country of which the Non-U.S. Holder is a tax resident, unless (i) the
dividends are effectively connected with the conduct of a trade or business of
the Non-U.S. Holder within the United States and the Non-U.S. Holder provides
the payor with proper documentation or (ii) if a tax treaty applies, are
attributable to a United States permanent establishment maintained by the Non-
U.S. Holder. In order to claim the benefit of an applicable tax treaty rate, a
Non-U.S. Holder may have to file with the Company or its dividend paying agent
an exemption or reduced treaty rate certificate or letter in accordance with the
terms of such treaty. Dividends that are effectively connected with the conduct
of a trade or business within the United States or, if a tax treaty applies, are
attributable to such a United States permanent establishment, are subject to
United States Federal income tax on a net income basis (that is, after allowance
for applicable deductions) at applicable graduated individual or corporate
rates. Any such effectively connected dividends received by a foreign
corporation may, under certain circumstances, be subject to an additional
"branch profits tax" at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty.
Under current Treasury Regulations, dividends paid to an address outside the
United States are presumed to be paid to a resident of such country for purposes
of the withholding discussed above (unless the payor has knowledge to the
contrary) and, under the current interpretation of Treasury Regulations, for
purposes of determining the applicability of a tax treaty. However, in the case
of dividends paid after December 31, 1998 (December 31, 1999 in the case of
dividends paid to accounts in existence prior to December 31, 1998), a Non-U.S.
Holder generally would be subject to United States withholding tax at a 31% rate
under the backup withholding rules described below, rather than at a 30% rate or
a reduced rate under an income tax treaty, unless certain certification
procedures (or, in the case of payments made outside the United States with
respect to an offshore account, certain documentary evidence procedures) are
complied with, directly or through an intermediary. Certain certification and
disclosure requirements must be complied with in order to be exempt from
withholding under the effectively connected income exemption.
A Non-U.S. Holder of Common Stock eligible for a reduced rate of United
States withholding tax pursuant to an income tax treaty may obtain a refund of
any excess amounts withheld by filing an appropriate claim for refund with the
IRS, provided that the required information is furnished to the IRS.
See above "--Tax Considerations for U.S. Holders of Convertible Preferred
Stock" for when distributions will be treated as dividends.
GAIN ON DISPOSITION OF CONVERTIBLE PREFERRED STOCK
A Non-U.S. Holder generally will not be subject to United States federal
income tax with respect to gain recognized on a sale or other taxable
disposition of Convertible Preferred Stock unless (i) (a) the gain is
effectively connected with a trade or business conducted by the Non-U.S. Holder
within the United States or (b) if a tax treaty applies, the gain is
attributable to a United States permanent establishment maintained by the Non-
U.S. Holders, (ii) in the case of a Non-U.S. Holder who is an individual and
holds the Convertible Preferred Stock as a capital asset, such holder is present
in the United States for 183 or more days in the taxable year of the sale or
other disposition and certain other conditions are met, (iii) the Non-U.S.
Holder is subject to tax pursuant to certain provisions of the Code applicable
to United States expatriates and former residents, or (iv) the Company is or has
been a "U.S. real property holding corporation" for United States federal income
tax purposes at any time within the shorter of the five-year period preceding
such disposition or the period such Non-U.S. Holder held the Convertible
Preferred Stock. If the Company currently is, or were to become, a U.S. real
property holding corporation, gains realized upon a disposition of Convertible
Preferred Stock by a Non-U.S. Holder which did not directly or indirectly own
more than 5% of the Convertible Preferred Stock during the shorter of the
periods
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described above generally would not be subject to United States federal income
tax so long as the Convertible Preferred Stock is "regularly traded" on an
established securities market. The Company believes that it is not currently,
and does not anticipate becoming, a "U.S. real property holding corporation" for
United States federal income tax purposes.
If an individual Non-U.S. Holder falls under clause (i) above, such
individual generally will be taxed on the net gain derived from a sale under
regular graduated United States federal income tax rates. If an individual Non-
U.S. Holder falls under clause (ii) above, such individual generally will be
subject to a flat 30% tax on the gain derived from a sale, which may be offset
by certain United States capital losses (notwithstanding the fact that such
individual is not considered a resident of the United States). Thus, individual
Non-U.S. Holders who have spent (or expect to spend) 183 days or more in the
United States in the taxable year in which they contemplate a sale of
Convertible Preferred Stock are urged to consult their tax advisors as to the
tax consequences of such sale.
If a Non-U.S. Holder that is a foreign corporation falls under clause (i) of
the first sentence above, it generally will be taxed on its net gain under
regular graduated United States federal income tax rates and, in addition, will
be subject to the branch profits tax equal to 30% of its "effectively connected
earnings and profits" within the meaning of the Code for the taxable year, as
adjusted for certain items, unless it qualifies for a lower rate under an
applicable income tax treaty.
No United States federal income tax will be imposed on a Non-U.S. Holder
upon the conversion of the Convertible Preferred Stock into Common Stock if no
cash is received. See "--Tax Considerations for U.S. Holders of Convertible
Preferred Stock -- Receipt of Common Stock Upon Conversion of, the Convertible
Preferred Stock."
FEDERAL ESTATE TAX
Convertible Preferred Stock owned or treated as owned by an individual who
is neither a United States citizen nor a United States resident (as defined for
United States federal estate tax purposes) at the time of death will be included
the individual's gross estate for the United States federal estate tax purposes,
unless an applicable estate tax treaty provides otherwise and, therefore, may be
subject to United States federal estate tax.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
Under Treasury Regulations, the Company must report annually to the IRS and
to each Non-U.S. Holder the amount of dividends paid to such holder and the tax
withheld with respect to such dividends. These information reporting
requirements apply even if withholding was not required because the dividends
were effectively connected with a trade or business in the United States of the
Non-U.S. Holder or withholding was reduced or eliminated by an applicable income
tax treaty. Copies of the information returns reporting such dividends and
withholding may also be made available to the tax authorities in the country in
which the Non-U.S. Holder is a resident under the provisions of an applicable
income tax treaty or agreement.
United States backup withholding (which generally is a withholding tax
imposed at the rate of 31% on certain payments to persons that fail to furnish
certain information under the United States information reporting requirements)
generally will not apply to (i) dividends paid to Non-U.S. Holders that are
subject to the 30% withholding discussed above (or that are not so subject
because a tax treaty applies that reduces or eliminates such 30% withholding) or
(ii) under current law, dividends paid to a Non-U.S. Holder at an address
outside of the United States. However, in the case of dividends paid after
December 31, 1998 (December 31, 1999 in the case of dividends paid to accounts
in existence prior to December 31, 1998), a Non-U.S. Holder generally would be
subject to backup withholding at 31% rate, unless certain certification
procedures (or, in the case of payments made outside the United States with
respect to an offshore account, certain documentary evidence procedures) are
complied with, directly or through an intermediary.
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Backup withholding and information reporting generally will apply to
dividends paid to addresses inside the United States on shares of Convertible
Preferred Stock to beneficial owners that are not "exempt recipients" and that
fail to provide in the manner required certain identifying information.
Payment by a United States office of a broker of the proceeds of a sale of
Convertible Preferred Stock, or the proceeds of a redemption of Convertible
Preferred Stock that are not treated as a dividend is subject to both backup
withholding and information reporting unless the beneficial owner certifies
under penalties of perjury that it is a Non-U.S. Holder, or otherwise
establishes an exemption. Backup withholding and information reporting generally
will not apply to payment of the proceeds of a sale effected at a foreign office
of a broker. If, however, such broker is, for United States federal income tax
purposes, (i) a U.S. person, (ii) a controlled foreign corporation (iii) a
foreign person 50% or more of whose gross income for certain periods is derived
from activities that are effectively connected with the conduct of a trade or
business in the United States, 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, such payments will not be subject to backup
withholding but will be subject to information reporting unless (i) such broker
has documentary evidence in its records that the beneficial owner is a Non-U.S.
Holder and certain other certification conditions are met, or (ii) the
beneficial owner otherwise establishes an exemption, provided such broker does
not have actual knowledge that the payee is a United States person.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules will be allowed as a credit against such holder's
United States federal income tax liability, which may entitle such holder to a
refund, provided the required information is furnished to the IRS.
THE FOREGOING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION ONLY AND
DOES NOT DISCUSS ALL ASPECTS OF UNITED STATES FEDERAL INCOME TAXATION THAT MAY
BE RELEVANT TO A PARTICULAR PURCHASER OR HOLDER OF CONVERTIBLE PREFERRED STOCK
IN LIGHT OF ITS PARTICULAR CIRCUMSTANCES AND INCOME TAX SITUATION. ACCORDINGLY,
EACH PURCHASER OR HOLDER OF THE CONVERTIBLE PREFERRED STOCK SHOULD CONSULT WITH
ITS OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH PURCHASER OR
HOLDER FROM THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE CONVERTIBLE PREFERRED
STOCK, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN INCOME
AND OTHER TAX LAWS.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of: (i) 154,467,600
shares of Common Stock, $.02 par value per share, which is divided into two
classes, consisting of 110,334,000 shares of Class A Common Stock (19,167,899
shares outstanding as of December 31, 1997) and 44,133,600 shares of Class B
Common Stock (33,746,573 shares outstanding as of December 31, 1997) (together,
the "Common Stock"); and (ii) 25,000,000 shares of preferred stock, $.01 par
value per share (the "Serial Preferred Stock"), of which 6,322,031 14% Preferred
Shares, par value $.01 per share, are issued and outstanding as of December 31,
1997.
The following summary of the Company's capital stock does not purport to be
complete and is qualified in its entirety by reference to the Certificate of
Incorporation and By-laws of the Company and the Certificate of Designations of
rights and preferences relating to the 14% Preferred Shares ("Certificate of
Designations") that are included as exhibits to the Registration Statement of
which this Prospectus forms a part, and the applicable provisions of the
Delaware General Corporation Law ("DGCL").
COMMON STOCK
Except as outlined below, the Class A Common Stock and Class B Common Stock
are identical in all respects. Each share of Class B Common Stock may be
converted, at any time and at the option of the holder thereof, into one share
of Class A Common Stock. The Class A Common Stock and the Class B Common Stock
are entitled to vote on all matters which come before the shareholders, voting
together as a single class. Each share of Class A Common Stock has one (1) vote
and each share of Class B Common Stock has ten (10) votes on all matters on
which holders of Common Stock are entitled to vote. Accordingly, holders of a
majority of the shares of Class B Common Stock entitled to vote in any election
of directors may elect all of the directors standing for election unless a
Voting Rights Triggering Event has occurred. Holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared by the
Board of Directors out of funds legally available therefor, subject to any
preferential dividend rights of outstanding Serial Preferred Stock. Upon the
liquidation, dissolution or winding-up of the Company, the holders of Common
Stock are entitled to receive ratably the net assets of the Company available
after the payment of all debts and other liabilities and subject to the prior
rights of any outstanding Serial Preferred Stock. Holders of Common Stock have
no preemptive, subscription or redemption rights. All the outstanding shares of
Common Stock are fully paid and nonassessable. The rights, preferences and
privileges of holders of Common Stock are subject to, and may be adversely
affected by, the rights of the holders of shares of any series of Serial
Preferred Stock (including the Preferred Shares) that the Company may designate
and issue in the future.
PREFERRED STOCK
Under the terms of the Company's Certificate of Incorporation (the
"Certificate"), the Board of Directors of the Company is authorized to issue the
remaining shares of Serial Preferred Stock in one or more series without
shareholder approval, subject to any limitations prescribed by law and those
contained in the Certificate of Designations. Each series of Serial Preferred
Stock shall have such rights, preferences, privileges and restrictions,
including voting rights, dividend rights, conversion rights, redemption
privileges and liquidation privileges, as shall be determined by the Board of
Directors.
The purpose of authorizing the Board of Directors to issue Serial Preferred
Stock and determine its rights and preferences is to eliminate delays associated
with a shareholder vote on specific issuances. The issuance of Serial Preferred
Stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from acquiring, a majority of the outstanding voting stock of the Company.
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The 14% Preferred Shares, with respect to dividend rights and rights on
liquidation, winding-up and dissolution ranks (i) senior to each other class of
capital stock, including the Convertible Preferred Stock and the Common Stock,
the terms of which do not expressly provide that it ranks senior to, or on a
parity with, the 14% Preferred Share as to dividend rights and rights on
liquidation, winding-up and dissolution of the Company (collectively referred to
as "Junior Shares"); (ii) subject to certain conditions, on a parity with each
other class of preferred stock established hereafter by the Company the terms of
which expressly provide that such class or series will rank on a parity with the
14% Preferred Shares as to dividend rights and rights on liquidation, winding-up
and dissolution (collectively referred to as "Parity Shares"); and (iii) subject
to certain conditions, junior to each class of preferred stock established after
the date hereof by the 14% Preferred Shares as to dividend rights and rights
upon liquidation, winding-up and dissolution of the Company (collectively
referred to as the "Senior Shares"). The Company may not authorize any new class
of Senior Shares without the approval of the holders of at least two-thirds of
the 14% Preferred Shares then outstanding, voting or consenting as a separate
class. In addition, the Company may not authorize or issue any Parity Shares
(other than additional 14% Preferred Shares issued as dividends on the 14%
Preferred Shares) without the approval of the holders of at least a majority of
the 14 % Preferred Shares then outstanding , voting, or consenting as a separate
class, if after giving effect to the issuance of such Parity Shares the
aggregate liquidation preference of outstanding Parity Shares (other than the
14% Preferred Shares (other than the 14% Preferred Shares (including additional
14% Preferred Shares issued as dividends on the 14% Preferred Shares)) would
exceed the sum of (x) $50 million and (y) the aggregate amount of gross proceeds
received after the issue Date and on a prior to the date of issuance of such
Parity Shares from the issuance of Junior Shares which are not redeemable on a
prior to February 1, 2009, with certain exceptions.
Holders of the outstanding 14% Preferred Shares will be entitled to receive,
when as an if declared by the Board of Directors of the Company, out of funds
legally available therefor, dividends on the 14% Preferred Shares at a rate per
annum equal to 14% of the liquidation preference per 14% Preferred Share payable
quarterly.
No dividends may be paid or set apart for the payment on Junior Shares
(except dividends on Junior Shares payable in additional Junior Shares) if full
cumulative dividends have not been paid in full (or deemed paid) on the 14%
Preferred Shares. So long as any 14% Preferred Shares are outstanding, the
Company shall not make any payment on account of, or set apart for payment money
for a sinking or other similar fund for, the purchase, redemption or other
retirement of, any Parity Shares or Junior Shares, or any warrants, rights,
calls or options to purchase any Parity Shares or Junior Shares, and shall not
permit any corporation or other entity directly or indirectly controlled by the
Company to purchase or redeem any Parity Shares or Junior Shares or any such
warrants, rights, calls or options, unless full cumulative dividends determined
in accordance herewith on the 14% Preferred Shares have been ;paid (or are
deemed paid) in full. In addition, the certificate of designations of the 14%
Preferred Shares restricts the Company's ability to incur certain additional
indebtedness.
Pursuant to the Equity Offering, the Company has issued the Convertible
Preferred Stock, the terms of which are described in the "Description of
Convertible Preferred Stock."
REGISTRATION RIGHTS AGREEMENTS
Each share of the Company's Class B Common Stock is convertible at the
option of the holder thereof, at any time, into one share of Class A Common
Stock. The Company and the current holders of the Company's Class B Common Stock
and the holders of options to purchase Class Common Stock have entered into a
Registration Rights Agreement (the "Company Registration Rights Agreement"),
which among other things, will provide that any time after a Qualifying IPO (as
defined) and upon the request of holders of at least 4% of the outstanding Class
B Common Stock that is subject to the Company Registration Agreement, the
Company will register under the Securities Act any of the shares of Class A
Common Stock currently held by, or in the future by, such holders, for sale in
accordance with such
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holders' intended method of disposition thereof (a "Demand Registration"). The
holders of the Class B Common Stock will have the right to request two Demand
Registrations. The holders of the Class B Common Stock also have the right to
include the shares of Class A Common Stock held by them in certain other
registrations of common equity securities of the Company initiated by the
Company on its own behalf or on behalf of its shareholders. The holders' rights
under the Company Registration Rights Agreement are not transferable. In
addition, the holders of Class B Common Stock and options to purchase Class B
Common Stock have agreed to pay their pro rata share of all costs and expenses
incurred in connection with each registration of their respective shares of
Common Stock.
Pursuant to the terms of the Stock Purchase Agreement dated as of June 6,
1997 (the "Comidisco Agreement") between the Company and Comdisco, Inc. a
Delaware corporation ("Comdisco"), the Company granted Comdisco certain
registration rights with respect to shares of Class A Common Stock issuable to
Comdisco from time to time in consideration of certain services provided by
Comdisco pursuant to a Master Service Agreement dated June 6, 1997 (the "Master
Service Agreement"). The Comdisco Agreement provides that Comdisco has unlimited
"piggyback" registration rights with respect to any registration statement the
Company purposes to file with the Commission to register any of its Common
Stock, subject to certain reductions in the case of an underwritten offering to
the extent the managing underwriter determines that inclusion of all or a
portion of the shares to be included in such registration would adversely affect
the marketability of the offering of the securities to be sold by the Company.
If the Company has included shares in a registration statement pursuant to
Comdisco's "piggyback" registration rights, the Company not file or cause to be
effected any other registration of any equity securities or securities
convertible into equity securities until a period of 120 days has elapsed from
the date of effectiveness of such previous registration. Subject to minimum size
requirements, Comdisco has agreed that in connection with any underwritten
public offering of the Common Stock, it will not effect any public sale or
distribution if its shares except in connection with a "piggyback" registration
for a period of time requested by the managing underwriter, not to exceed 180
days. The Company has agreed to bear and pay all expenses incurred in connection
with any registration, filing or qualification with respect to a "piggyback"
registration.
The Comdisco Agreement also provides that commencing on June 6, 2000,
Comdisco has the option to require redemption of all, but not less than all, of
the initial 176,534 shares issued to Comdisco pursuant to the Master Service
Agreement at a purchase price of $26.06 per share, by giving notice to the
Company within 180 days, subject to the right of the Company to suspend such
right if redemption of such shares would violate any law applicable to the
Company or cause any breach by the Company of any material contractual
obligations in effect as of the date of he Comdisco Agreement. The expiration of
such rights shall be extended for the period of time equal to the period of any
such suspension. Comdisco's redemption right terminates upon the closing of a
sale to the public of any class of equity security issued by the Company and
will therefore terminate upon the consummation of the Stock Offering.
Pursuant to the terms of the Merger Agreement dated as of July 28, 1997 (the
"Chadwick Agreement") between the Company and R. Chadwick Paul, Jr. and John G.
Englesson (the "Chadwick Shareholders") the Company granted the Chadwick
Shareholders certain registration rights with respect to shares of Class A
Common Stock to be issued to the Chadwick Shareholders as partial consideration
for the merger of Chadwick into a wholly owned subsidiary of the Company. The
Chadwick Agreement provides that the Chadwick Shareholders will have unlimited
"piggyback" registration rights with respect to any registration statement the
Company proposed to file with the Commission to register any of its Class A
Common Stock, subject for a period of one year after the Closing Date (as
defined therein), to certain reductions in the case of an underwritten offering
to the extent the managing underwriter determines that inclusion of all or a
portion of the shares to be included in such registration would adversely affect
the marketability of the offering of the securities to be sold by the Company.
If the Company has included shares in a registration statement pursuant to the
Chadwick Shareholders' "piggyback" registration rights, the Company may not file
or cause to be effected any other registration of
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any equity securities or securities convertible into equity securities until a
period of 120 days has elapsed from the date of effectiveness of such previous
registration. The Company also agreed not to effect any public sale or
distribution of its equity securities or securities convertible into or
exchangeable or exercisable for such securities during the seven days prior to
and during the 90 day period beginning on the effective date of any registration
statement effected pursuant to the Chadwick Shareholders' "piggyback"
registration rights. Subject to minimum size requirements, the Chadwick
Shareholders have agreed that in connection with any underwritten public
offering of the Common Stock they will not effect any public sale or
distribution of their shares except in connection with a "piggyback"
registration for a period of time requested by the managing underwriter, not to
exceed 180 days. The Company has agreed to bear and pay all expenses incurred in
connection with any registration, filing or qualification with respect to a
"piggyback" registration.
Pursuant to the terms of an Exchange Agreement dated as of May 26, 1998
between the Company and Questar Infocomm, Inc, the Company granted Questar
Infocomm certain registration rights with respect to 189,312 shares of Class B
Common Stock issued to Questar Infocomm in consideration for its 10% interest in
Nextlink Capital, L.L.C. Such agreement provides that the Chadwick Shareholders
will have unlimited "piggyback" registration rights with respect to any
registration statement the Company proposed to file with the Commission to
registar any of its Class A Common Stock, subject for a period of one year after
the Closing Date (as defined therein), to certain reductions in the case of an
underwritten offering to the extent the managing underwriter determines that
inclusion of all or a portion of the shares to be included in such registration
would adversely affect the marketability of the offering of the securities to be
sold by the Company. Subject to minimum size requirements, Questar Infocomm has
agreed that in connection with any underwritten public offering of the Common
Stock they will not effect any public sale or distribution of its shares except
in connection with a "piggyback" registration for a period of time requested by
the managing underwriter, not to exceed 180 days. The Company has agreed to bear
and pay all expenses incurred in connection with any registration, filing or
qualification with respect to a "piggyback" registration.
DIRECTOR AND OFFICER INDEMNIFICATION
The Washington Business Corporation Act provides that a Washington
corporation may include provisions in its articles of incorporation relieving
each of its directors of monetary liability arising out of his or her conduct as
a director for breach of his or her fiduciary duty except liability for (i) acts
or omissions of a director that involve intentional misconduct or a knowing
violation of law, (ii) conduct in violation of Section 23B.08.310 of the
Washington Business Corporation Act (which section relates to unlawful
distributions) or (iii) any transaction from which a director personally
received a benefit in money, property or services to which the director was not
legally entitled. The Company's Certificate include such provisions.
The Company's Certificate and Bylaws provide that the Company shall , to the
fullest extent permitted by the Washington Business Corporation Act, as amended
from time to time, indemnify and advance expenses to each of its currently
acting and former directors and officers, and may so indemnify and advance
expenses to each of its current and former employees and agents. The Company
believes the foregoing provisions are necessary to attract and retain qualified
persons as directors and officers.
PROVISIONS AFFECTING ACQUISITIONS AND BUSINESS COMBINATIONS
Except under certain circumstances, Section 203 of the DGCL prohibits a
"business combination" between the corporation and an "interested stockholder"
within three years of the stockholder becoming an "interested stockholder".
Generally, an "interested stockholder" is a person or group that directly or
indirectly controls, or has the right to acquire or control, the voting or
disposition of 15% or more of the outstanding voting stock or is an affiliate or
associate of the corporation and was the owner of 15% or more of such voting
stock at any time within the previous three years. A "business combination" is
defined
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broadly to include, among others (i) mergers and sales or other dispositions of
10% or more of the assets of a corporation with or to an interested stockholder,
(ii) certain transactions resulting in the issuance or transfer to the
interested stockholder of any stock of the corporation or its subsidiaries,
(iii) certain transactions which would result in increasing the proportionate
share of the stock of a corporation or its subsidiaries owned by the interested
stockholder, and (iv) receipt by the interested stockholder of the benefit
(except proportionately as a shareholder) of any loans, advances, guarantees,
pledges, or other financial benefits.
A business combination between a corporation and an interested stockholder
is prohibited unless (i) prior to the date the person became an interested
stockholder, the board of directors approves either the business combination or
the transaction which results in the person becoming an interested stockholder,
(ii) upon consummation of the transaction that resulted in the person becoming
an interested stockholder, that person owns at least 85% of the corporation's
voting stock outstanding at the time the transaction is commenced (excluding
shares owned by persons who are both directors and officers and shares owned by
employee stock excluding shares owned by persons who are both directors and
officers and shares owned by employee stock plans in which participants do not
have the right to determine confidentially whether shares will be tendered in a
tender or exchange offer), or (iii) the business combination is approved by the
board of directors and authorized by the affirmative vote (at an annual or
special meeting and not by written consent) of at least 66 2/3% of the
outstanding voting stock not owned by the interested stockholder.
These restrictions placed on interested stockholders by Section 203 do not
apply under certain circumstances, including, but not limited to, the following:
(i) if the corporation's original certificate of incorporation contains a
provision expressly electing not to be governed by Section 203; or (ii) if the
corporation, by action of its shareholders, adopts an amendment to its bylaws or
cretificate of incorporation expressly electing not to be governed by Section
203, provided that such an amendment is approved by the affirmative vote of not
less than a majority of the outstanding shares entitled to vote. Such an
amendment, however, generally will not be effective until 12 months after its
adoption and will not apply to any business combination with a person who became
an interested stockholder at or prior to such adoption. The Company has not
elected to take itself outside of the coverage of Section 203.
LISTING
The Class A Common Stock has been qualified for inclusion in the Nasdaq
National Market under the symbol "NXLK."
TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company is the transfer agent and registrar
for the Class A Common Stock.
46
<PAGE>
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 9% 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.
47
<PAGE>
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.
48
<PAGE>
DESCRIPTION OF THE 12 1/2% NOTES
GENERAL. The Company and NEXTLINK Capital, Inc., a Washington corporation
and a wholly owned subsidiary of the Company ("Capital" and, together with the
Company, the "Issuers") issued $350 million of 12 1/2% Senior Notes Due April
15, 2006 pursuant to an Indenture among the Company, Capital and United States
Trust Company of New York, as trustee (the "Trustee"). On September 6, 1996, the
Company consummated an offer (the "Exchange Offer") to exchange such notes for
$350 million of 12 1/2% Senior Notes Due April 15, 2006 that had been registered
under the Securities Act.
PRINCIPAL, MATURITY AND INTEREST. The 12 1/2% Notes are limited in
aggregate principal amount to $350 million and will mature on April 15, 2006.
Interest on the 12 1/2% Notes accrues at 12 1/2% per annum and is payable
semiannually in arrears on April 15 and October 15 of each year. Interest is
computed on the basis of a 360-day year comprised of twelve 30-day months. At
the closing of the offering, the Company used $117.7 million of the net proceeds
of the offering of 12 1/2% Notes to purchase a portfolio of securities,
initially consisting of U.S. government securities (including any securities
substituted in respect thereof, the "Pledged Securities"), to pledge as security
for payment of interest on the 12 1/2% Notes through April 15, 1999 and, under
certain circumstances, as security for repayment of the principal of the 12 1/2%
Notes. Proceeds from the Pledged Securities may be used by the Company to make
interest payments on the 12 1/2% Notes through April 15, 1999. The Pledged
Securities are being held by the Trustee pending disbursement.
RANKING. The 12 1/2% Notes are unsecured senior obligations of the Issuers,
will rank PARI PASSU in right of payment with all existing and future senior
obligations of the Issuers, including the 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
49
<PAGE>
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.
DESCRIPTION OF THE 9.45% NOTES
GENERAL. The Company issued $636,974,000 million principal amount at stated
maturity of 9.45% Senior Notes Due 2008 pursuant to an Indenture among the
Company and United States Trust Company of New York, as trustee (the "Trustee").
PRINCIPAL, MATURITY AND INTEREST. The 9.45% Notes are limited to
$636,974,000 million aggregate principal amount at stated maturity and will
mature on April 15, 2008. The 9.45% Notes were issued at a discount from their
principal amount to generate aggregate gross of proceeds of approximately $400.0
million. The 9.45% 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 9.45% Notes prior to April 15, 2003. The 9.45% Notes 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.
RANKING. The 9.45% Notes are unsecured senior obligations of the Company,
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 9% Notes and will rank senior in right of payment to all future subordinated
obligations of the Company.
REDEMPTION. The 9.45% Notes are 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 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, 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 9.45% 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 the 9.45% Notes in a principal amount
of up to an aggregate amount equal to 33 1/3% of the original principal amount
of the 9.45% Notes, PROVIDED, HOWEVER, that at least 66 2/3% of the original
aggregate principal amount of the 9.45% 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 9.45% Notes 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 9.45% 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).
50
<PAGE>
COVENANTS. The indenture relating to the 9.45% 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 9.45% Notes. The indenture relating to the
9.45% 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 9.45% 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.
51
<PAGE>
PLAN OF DISTRIBUTION
The Selling Stockholders may from time to time offer and sell the
Convertible Preferred Stock or the Class A Common Stock at market prices then
prevailing or at prices and upon terms then obtainable. Sales may be made in
ordinary brokerage transactions, in block transactions, in privately negotiated
transactions, pursuant to Rule 144 or otherwise. If the Convertible Preferred
Stock or the Class A Common Stock is sold through brokers, customary brokerage
commissions and charges are expected to be paid by the Selling Stockholders.
The Convertible Preferred Stock and the Class A Common Stock are being
registered to permit public secondary trading of the Convertible Preferred
Stock and the Class A Common Stock from time to time after the date of this
Prospectus. The Company will bear all expenses (other than selling commissions,
underwriting discounts and fees and expenses of counsel to any Selling
Stockholder) to the Selling Stockholders in connection with the registration and
sale of the Convertible Preferred Stock and the Class A Common Stock. The
Company is registering the Convertible Preferred Stock and the Class A Common
Stock pursuant to or as required by the provisions of the agreements between
the Company and Smith Barney Inc. and Goldman, Sachs & Co.
The Selling Stockholders and any dealer, broker or other agent selling
securities offered hereby for a Selling Shareholder or purchasing any such
securities from a Selling Stockholder for purposes of resale may be deemed to be
an underwriter under the Securities Act and any compensation received by the
Selling Stockholder, dealer, broker or other agent may be deemed underwriting
compensation. The amount of such compensation cannot currently be estimated. The
Company knows of no existing arrangements between any Selling Stockholder and
any other dealer, broker or other agent.
To comply with certain states' securities laws, if applicable, the
Convertible Preferred Stock offered and the Class A Common Stock hereby may be
sold in such states only through brokers or dealers. In addition, in certain
states the Convertible Preferred Stock and the Class A Common Stock may not be
sold unless they have been registered or qualified for sale in such state or an
exemption from registration or qualification is available and is complied with.
52
<PAGE>
LEGAL MATTERS
The legality of the shares of Convertible Preferred Stock and the shares of
Class A Common Stock offered hereby and certain other legal matters in
connection with this offering 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.
53
<PAGE>
PART II
ITEM 14.
The expenses relating to the registration of Convertible Preferred Stock and
the Class A Common Stock issuable upon conversion thereof will be borne by the
registrant. Such expenses are estimated to be as follows:
<TABLE>
<S> <C>
Registration Fee--
Scurities and Exchange Commission........................ $ 59,000
Accountants' Fees.......................................... 1,000
Legal Fees................................................. 10,000
Miscellaneous.............................................. 2,000
---------
Total.................................................. $ 72,000
---------
---------
</TABLE>
ITEM 15. 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.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS:
<TABLE>
<S> <C>
1 --Purchase Agreement by and among the Company and Smith Barney Inc. and Goldman,
Sachs & Co.
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)
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)
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
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).
24 --Powers of Attorney (included on signature pages).
</TABLE>
- ------------------------
* To be filed by amendment.
(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 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the Securities
Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) (Section 230.424(b) of this chapter)
if, in the aggregate, the changes in volume and price represent no
II-3
<PAGE>
more than 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective registration
statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
Provided, however, That paragraphs (a)(1)(i) and (a)(1)(ii) of this section
do not apply if the registration statement is on Form S-3 (Section 239.13 of
this chapter), Form S-8 (Section 239.16b of this chapter) or Form F-8 (Section
239.33 of this chapter), and the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed with or furnished to the Commission by the registrant pursuant to section
13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the registration statement.
(2) That, for the purposes of determining any liability under the Securities Act
of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
the offering.
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 15 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 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-4
<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-3 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 25th day of June 1998.
NEXTLINK COMMUNICATIONS, INC.
BY: /S/ JAMES F. VOELKER
-----------------------------------------
James F. Voelker
PRESIDENT
POWER OF ATTORNEY
We, the undersigned officers and directors of NEXTLINK Communications, Inc.,
hereby severally and individually constitute and appoint James F. Voelker and R.
Bruce Easter, Jr., and each of them, as the true and lawful attorneys-in-fact
for the undersigned, in any and all capacities, with full power of substitution,
to sign any and all amendments to this Registration Statement (including
post-effective amendments), and to file the same with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact, and each of them, full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purposes as he or
she might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact, or either of them, may lawfully do or cause to be done by
virtue hereof.
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
- ------------------------------ --------------------------- -------------------
/s/ STEVEN W. HOOPER Chairman of the Board June 25, 1998
- ------------------------------
Steven W. Hooper
/s/ WAYNE M. PERRY Vice Chairman and Chief June 25, 1998
- ------------------------------ Executive Officer and
Wayne M. Perry Director
/s/ JAMES F. VOELKER President (Principal June 25, 1998
- ------------------------------ Executive Officer) and
James F. Voelker Director
Vice President, Chief June 25, 1998
Financial Officer and
/s/ KATHLEEN H. ISKRA Treasurer (Principal
- ------------------------------ Financial Officer and
Kathleen H. Iskra Principal Accounting
Officer)
II-5
<PAGE>
<TABLE>
<C> <S> <C>
/s/ CRAIG O. MCCAW Director June 25, 1998
- ------------------------------
Craig O. McCaw
/s/ DENNIS WEIBLING Director June 25, 1998
- ------------------------------
Dennis Weibling
/s/ SCOT JARVIS Director June 25, 1998
- ------------------------------
Scot Jarvis
/s/ WILLIAM A. HOGLUND Director June 25, 1998
- ------------------------------
William A. Hoglund
/s/ SHARON L. NELSON Director May 26, 1998
- ------------------------------
Sharon L. Nelson
/s/ JEFFREY S. RAIKES Director June 25, 1998
- ------------------------------
Jeffrey S. Raikes
/s/ GREGORY J. PARKER Director June 25, 1998
- ------------------------------
Gregory J. Parker
</TABLE>
II-6
<PAGE>
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS:
<TABLE>
<C> <S>
1 --Purchase Agreement by and among the Company and Smith Barney Inc. and Goldman,
Sachs & Co.
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)
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)
</TABLE>
<PAGE>
<TABLE>
<C> <S>
10.4 --Preferred Exchange and Registration Rights Agreement, dated as of January 31, 1997,
by and among the Company and the Initial Purchasers.(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).
24 --Powers of Attorney (included on signature pages).
</TABLE>
- ------------------------
* To be filed by amendment.
(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.
<PAGE>
NEXTLINK COMMUNICATIONS, INC.
6 1/2% CUMULATIVE CONVERTIBLE PREFERRED STOCK
(Liquidation Preference $50 per Share)
PURCHASE AGREEMENT
New York, New York
March 27, 1998
Smith Barney Inc.
Goldman, Sachs & Co.
As Representatives of the Initial Purchasers
c/o Smith Barney Inc.
Seven World Trade Center
New York, New York 10048
Ladies and Gentlemen:
NEXTLINK Communications, Inc., a corporation organized under the laws of
the State of Washington (the "Company"), proposes to issue and sell to the
parties named in Schedule I hereto (the "Initial Purchasers") an aggregate of
4,000,000 shares and, at the election of the Initial Purchasers, up to an
additional 600,000 such shares of 6 1/2% Cumulative Convertible Preferred Stock
(liquidation preference $50 per share) of the Company. The aggregate of
4,000,000 such shares to be sold by the Company is herein called the "Firm
Securities" and the aggregate of 600,000 additional such shares to be sold by
the Company is herein called the "Optional Securities" (the Firm Securities and
the Optional Securities that the Initial Purchasers elect to purchase pursuant
to Section 2 hereof are collectively called the "Securities"). The Securities
will be convertible in the manner described in the Offering Memorandum (as
defined below) into Class A Common Stock, par value $0.02 per share, of the
Company (the "Class A Common Stock"). If you are the only Initial Purchasers,
all references herein to the Representatives shall be deemed to be to the
Initial Purchasers.
The sale of the Securities to the Initial Purchasers will be made without
registration of the Securities under the Securities Act of 1933, as amended (the
"Act"), in reliance upon exemptions from the registration requirements of the
Act. You have advised the Company that the Initial Purchasers will offer and
sell the Securities purchased by them hereunder in accordance with Section 3
hereof as soon as you deem advisable.
In connection with the sale of the Securities, the Company will prepare an
offering memorandum, dated the date hereof (the "Execution Date"), including any
and all exhibits thereto and any and all documents incorporated by reference
therein (the "Offering Memorandum") subject to the approval of the Initial
Purchasers, which approval will not be unreasonably withheld or delayed.
References herein to the Offering Memorandum or to any amendment or supplement
thereto shall also mean information incorporated by reference therein.
References herein to the
<PAGE>
Offering Memorandum as of the date hereof refer to information contained in the
documents to be incorporated by reference therein. The Offering Memorandum will
set forth certain information concerning the Company and the Securities. The
Company hereby confirms that it has authorized the use of the Offering
Memorandum, and any amendment or supplement thereto, in connection with the
offer and sale of the Securities by the Initial Purchasers. Unless stated to
the contrary, all references herein to the Offering Memorandum are to the
Offering Memorandum at the Execution Time (as defined below) and are not meant
to include any amendment or supplement subsequent to the Execution Time.
The Initial Purchasers and their direct and indirect transferees of the
Securities will be entitled to the benefits of the Registration Rights
Agreement, substantially in the form attached hereto as Exhibit A (the
"Registration Rights Agreement"), pursuant to which the Company has agreed,
among other things, to file a registration statement (the "Registration
Statement") with the Securities and Exchange Commission (the "Commission")
registering the Securities or the Exchange Securities (as defined in the
Registration Rights Agreement) under the Act.
1. Representations and Warranties.
(a) The Company represents and warrants to each of the Initial Purchasers
as set forth below in this Section 1:
(i) Contents of Offering Memorandum. The Offering Memorandum, at
the Closing Date (as defined below), will not (and any amendment or
supplement thereto, at the date thereof and at the Closing Date, will not),
contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that the Company makes no representation or warranty as to the
information contained in or omitted from the Offering Memorandum, or any
amendment or supplement thereto, in reliance upon and in conformity with
information furnished in writing to the Company by or on behalf of the
Initial Purchasers through Smith Barney Inc. specifically for inclusion
therein. The documents incorporated by reference in the Offering
Memorandum, when they were filed with the Commission, conformed in all
material respects to the requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act") and the rules and regulations of the
Commission thereunder, and none of such documents contained an untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading; and any further documents so filed and incorporated by
reference in the Offering Memorandum or any further amendment or supplement
thereto, when such documents become effective or are filed with the
Commission, as the case may be, will conform in all material respects to
the requirements of the Act or the Exchange Act, as applicable, and the
rules and regulations of the Commission thereunder and will not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading; provided, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by an
Initial Purchaser through Smith Barney Inc. expressly for use therein;
2
<PAGE>
(ii) Independent Accountants. The accountants who certified the
financial statements included in the Offering Memorandum are independent
certified public accountants with respect to the Company and its
subsidiaries within the meaning of Regulation S-X under the Act;
(iii) Financial Statements. The financial statements, together
with the related notes, included or incorporated by reference in the
Offering Memorandum present fairly the financial position of the Company
and its consolidated subsidiaries at the dates indicated and the statement
of operations, shareholders' equity and cash flows of the Company and its
consolidated subsidiaries for the periods specified; said financial
statements have been prepared in conformity with generally accepted
accounting principles ("GAAP") applied on a consistent basis throughout the
periods involved. The selected financial data and the summary financial
information included in the Offering Memorandum present fairly the
information shown therein and have been compiled on a basis consistent with
that of the audited financial statements included in the Offering
Memorandum;
(iv) No Material Adverse Change in Business. Since the respective
dates as of which information is given in the Offering Memorandum, except
as otherwise stated therein, (1) there has been no material adverse change
in the condition, financial or otherwise, or in the earnings, business
affairs or business prospects of the Company and its subsidiaries
considered as one enterprise (a "Material Adverse Effect"), whether or not
arising in the ordinary course of business, (2) there have been no
transactions entered into by the Company or any of its subsidiaries, other
than those in the ordinary course of business, which are material with
respect to the Company and its subsidiaries considered as one enterprise
and (3) there has been no dividend or distribution of any kind declared,
paid or made by the Company on any class of its capital stock other than
scheduled or regular dividends, if any, on outstanding preferred stock of
the Company as previously disclosed to the Initial Purchasers;
(v) Good Standing of the Company. The Company has been duly
organized and is validly existing as a corporation under the laws of the
State of Washington and has power and authority to own, lease and operate
its properties and to conduct its business as described in the Offering
Memorandum and to enter into and perform its obligations under this
Agreement; and the Company is duly qualified as a foreign corporation to
transact business and is in good standing in each other jurisdiction in
which such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the failure so
to qualify or to be in good standing would not result in a Material Adverse
Effect;
(vi) Good Standing of Designated Subsidiaries. Each "significant
subsidiary" of the Company (as such term is defined in Rule 1-02 of
Regulation S-X) and NEXTLINK Pennsylvania, L.P. and NEXTLINK Ohio, L.L.C.
(each a "Designated Subsidiary" and, collectively, the "Designated
Subsidiaries") has been duly organized and is validly existing and in good
standing, where applicable, as a corporation,
3
<PAGE>
limited liability company or limited partnership, as the case may be, under
the laws of the jurisdiction of its formation, has power and authority to
own, lease and operate its properties and to conduct its business as
described in the Offering Memorandum and is duly qualified as a foreign
corporation, limited liability company or limited partnership, as the case
may be, to transact business and is in good standing in each jurisdiction
in which such qualification is required, whether by reason of the ownership
or leasing of property or the conduct of business, except where the failure
so to qualify or to be in good standing would not result in a Material
Adverse Effect; except as otherwise disclosed in the Offering Memorandum,
all of the issued and outstanding capital stock or other equity interest of
each Designated Subsidiary has been duly authorized and validly issued, is
fully paid and non-assessable and 99% thereof is owned by the Company,
directly or through subsidiaries, free and clear of any security interest,
mortgage, pledge, lien, encumbrance, claim or equity; none of the
outstanding shares of capital stock or other equity interest of the
Designated Subsidiaries was issued in violation of any preemptive or
similar rights arising by operation of law, or under the constituting or
operative document or agreement of any Designated Subsidiary or under any
agreement to which the Company or any Designated Subsidiary is a party;
(vii) Capitalization. The authorized, issued and outstanding
capital stock of the Company is as set forth in the Offering Memorandum as
of the dates indicated therein. The shares of issued and outstanding
capital stock of the Company have been duly authorized and validly issued
and are fully paid and non-assessable; and none of the outstanding shares
of capital stock of the Company was issued in violation of the preemptive
or other similar rights of any security holder of the Company, as
applicable;
(viii) Authorization of Purchase Agreement and Registration Rights
Agreement. This Agreement has been duly authorized, executed and delivered
by the Company; the Registration Rights Agreement has been duly authorized
by the Company and, when executed and delivered by the Company as of the
Closing Date, will constitute a valid and legally binding agreement of the
Company enforceable against the Company in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or
affecting creditors' rights and to general equity principles;
(ix) Authorization and Description of the Securities and Class A
Common Stock. The Securities have been duly and validly authorized and,
when issued and delivered pursuant to this Agreement against payment of the
consideration specified in this Agreement, the Securities will be duly and
validly issued and fully paid and non-assessable convertible preferred
stock of the Company; when so issued and delivered, the Securities will
have the rights set forth in the Certificate of Designation of the Powers,
Preferences and Relative Participating, Optional and Other Special Rights
of 61/2% Convertible Preferred Shares and Qualifications, Limitations and
Restrictions thereof (the "Certificate of Designations"), and the terms of
the Securities will conform to the description thereof contained in the
Offering Memorandum. All shares of Class A Common Stock initially
issuable upon conversion of the Securities have been duly and validly
authorized and reserved for issuance upon such conversion and, when issued
and delivered in accordance with the provisions of the Securities (assuming
issuance and delivery of the Securities pursuant to this Agreement against
payment of the consideration specified therefor), will be duly and validly
issued, fully paid and non-assessable and will conform to the description
thereof contained in the Offering Memorandum, and the holders of
outstanding capital stock of the Company are not entitled to preemptive or
other rights afforded by the Company to
4
<PAGE>
subscribe for the shares of the Class A Common Stock of the Company
issuable upon conversion of the Convertible Preferred Stock;
(x) Absence of Defaults and Conflicts. Neither the Company nor any
of its subsidiaries is in violation of its constituting or operative
document or agreement or in default in the performance or observance of any
material obligation, agreement, covenant or condition contained in any
contract, indenture, mortgage, deed of trust, loan or credit agreement,
note, lease or other agreement or instrument to which the Company or any of
its subsidiaries is a party, or by which any of them may be bound, or to
which any of the property or assets of the Company or any of its
subsidiaries is subject (collectively, "Agreements and Instruments") except
for such defaults that would not result in a Material Adverse Effect; the
execution, delivery and performance of this Agreement, the Registration
Rights Agreement and any other agreement or instrument entered into or
issued or to be entered into or issued by the Company in connection with
the transactions contemplated hereby, thereby or in the Offering Memorandum
and the consummation of the transactions contemplated herein, therein and
in the Offering Memorandum (including the issuance and sale of the
Securities by the Company hereunder), the compliance by the Company with
its obligations hereunder and under the Securities and the Registration
Rights Agreement have been duly authorized by all necessary action and do
not and will not, whether with or without the giving of notice or passage
of time or both, conflict with or constitute a breach of, or default or a
Repayment Event (as defined below) under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets
of the Company or any of its subsidiaries pursuant to, the Agreements and
Instruments except for such conflicts, breaches or defaults or liens,
charges or encumbrances that, singly or in the aggregate, would not result
in a Material Adverse Effect, nor will such action result in any violation
of the provisions of the constituting or operative document or agreement of
the Company or any of its subsidiaries or any applicable law, statute,
rule, regulation, judgment, order, writ or decree of any government,
government instrumentality or court, domestic or foreign, having
jurisdiction over the Company or any of its subsidiaries or any of their
assets or properties. As used herein, a "Repayment Event" means any event
or condition which gives the holder of any material note, debenture or
other evidence of indebtedness (or any person acting on such holder's
behalf) the right to require repurchase, redemption or repayment of all or
a portion of such indebtedness by the Company or any of its subsidiaries;
(xi) Possession of Licenses and Permits. Except as set forth in or
contemplated by the Offering Memorandum with respect to systems under
development and the offering of dial tone service, each of the Company and
its Designated Subsidiaries has all material certificates, consents,
exemptions, orders, permits, licenses, authorizations, franchises or other
material approvals (each, an "Authorization") of and from, and has made all
material declarations and filings with, all Federal, state, local and other
governmental authorities, all self-regulatory organizations and all courts
and other tribunals, necessary or appropriate for the Company and its
Designated Subsidiaries to own, lease, license, use and construct its
properties and assets and to conduct its business in the manner described
in the Offering Memorandum, except to the extent that the failure to obtain
any such Authorizations or make any such declaration or filing would not,
singly or in the aggregate, result in a Material Adverse Effect. Except as
set forth in or contemplated by the Offering Memorandum, all
5
<PAGE>
such Authorizations are in full force and effect with respect to the
Company and its Designated Subsidiaries; to the best knowledge of the
Company, no event has occurred that permits, or after notice or lapse of
time could permit, the revocation, termination or modification of any such
Authorization; the Company and its Designated Subsidiaries are in
compliance in all material respects with the terms and conditions of all
such Authorizations and with the rules and regulations of the regulatory
authorities and governing bodies having jurisdiction with respect thereto;
and, except as set forth in the Offering Memorandum, the Company has no
knowledge that any person is contesting or intends to contest the granting
of any material Authorization; and neither the execution and delivery of
this Agreement or the Securities, nor the consummation of the transactions
contemplated hereby and thereby nor compliance with the terms, conditions
and provisions hereof and thereof by the Company or any of its Designated
Subsidiaries will cause any suspension, revocation, impairment, forfeiture,
nonrenewal or termination of any Authorization;
(xii) Absence of Labor Dispute. No labor dispute with the
employees of the Company or any of its subsidiaries exists or, to the
knowledge of the Company, is imminent, and the Company is not aware of any
existing labor disturbance by the employees of any of its or any of its
subsidiaries' principal suppliers, manufacturers, customers or contractors,
which, in either case, would reasonably be expected to result in a Material
Adverse Effect;
(xiii) Absence of proceedings. Except as disclosed in the
Offering Memorandum, there is no action, suit, proceeding, inquiry or
investigation before or by any court or governmental agency or body,
domestic or foreign, now pending or, to the knowledge of the Company,
threatened against or affecting the Company or any of its subsidiaries
which could reasonably be expected to result in a Material Adverse Effect,
or which might reasonably be expected to materially and adversely affect
the properties or assets of the Company or any of its subsidiaries or the
consummation of this Agreement or the performance by the Company of its
obligations hereunder. The aggregate of all pending legal or governmental
proceedings to which the Company or any subsidiary thereof is a party or of
which any of their respective property or assets is the subject which are
not described in the Offering Memorandum, including ordinary routine
litigation incidental to the business, could not reasonably be expected to
result in a Material Adverse Effect;
(xiv) Possession of Intellectual Property. The Company and its
subsidiaries own or possess, or can acquire on reasonable terms, adequate
patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures),
trademarks, service marks, trade names or other intellectual property
(collectively, "Intellectual Property") necessary to carry on the business
now operated by them, and except as otherwise described in the Offering
Memorandum neither the Company nor any of its subsidiaries has received any
notice or is otherwise aware of any infringement of or conflict with
asserted rights of others with respect to any Intellectual Property or of
any facts or circumstances which would render any Intellectual Property
invalid or inadequate to protect the interest of the Company or any of its
subsidiaries therein, and which infringement or conflict (if the subject of
any unfavorable decision, ruling or finding) or invalidity or inadequacy,
singly or in the aggregate, would result in a Material Adverse Effect;
6
<PAGE>
(xv) Title of Property. The Company and its subsidiaries have good
and marketable title to all real property owned by them and good title to
all other properties owned by them, in each case, free and clear of all
mortgages, pledges, liens, security interests, claims, restrictions or
encumbrances of any kind except such as (a) are described in the Offering
Memorandum or (b) do not, singly or in the aggregate, materially affect the
value of such property and do not interfere with the use made and proposed
to be made of such property by the Company or any of its subsidiaries; and
all of the leases and subleases material to the business of the Company and
its subsidiaries, considered as one enterprise, and under which the Company
or any of its subsidiaries holds properties described in the Offering
Memorandum, are in full force and effect, and neither the Company nor any
of its subsidiaries has any notice of any material claim of any sort that
has been asserted by anyone adverse to the rights of the Company or any of
its subsidiaries under any of the leases or subleases mentioned above, or
affecting or questioning the rights of the Company or any subsidiary
thereof to the continued possession of the leased or subleased premises
under any such lease or sublease;
(xvi) Tax Returns. The Company and its subsidiaries have filed
all federal, state, foreign and, to the extent material, local tax returns
that are required to be filed or have duly requested extensions thereof and
have paid all taxes required to be paid by any of them and any related
assessments, fines or penalties, except for any such tax, assessment, fine
or penalty that is being contested in good faith and by appropriate
proceedings; and adequate charges, accruals and reserves have been provided
for in the financial statements referred to in Section 1(a)(iii) above in
respect of all federal, state, local and foreign taxes for all periods as
to which the tax liability of the Company or any of its subsidiaries has
not been finally determined or remains open to examination by applicable
taxing authorities;
(xvii) Environmental Laws. Except as described in the Offering
Memorandum and except such matters as would not, singly or in the
aggregate, result in a Material Adverse Effect, (A) neither the Company nor
any of its subsidiaries is in violation of any federal, state, local or
foreign statute, law, rule, regulation, ordinance, code, policy or rule of
common law or any judicial or administrative interpretation thereof,
including any judicial or administrative order, consent, decree or
judgment, relating to pollution or protection of human health, the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife, including,
without limitation, laws and regulations relating to the release or
threatened release of chemicals, pollutants, contaminants, wastes, toxic
substances, hazardous substances, petroleum or petroleum products
(collectively, "Hazardous Materials") or to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials (collectively, "Environmental Laws"), (B) the Company
and its subsidiaries have all permits, authorizations and approvals
required under any applicable Environmental Laws and are each in compliance
with their requirements, (C) there are no pending or, to the Company's
knowledge, threatened administrative, regulatory or judicial actions,
suits, demands, demand letters, claims, liens, notices of noncompliance or
violation, investigation or proceedings relating to any Environmental Law
against the Company or any of its subsidiaries and (D) there are no events
or circumstances that would reasonably be expected to form the basis of an
order for clean-up or remediation, or an action, suit or proceeding by
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any private party or governmental body or agency, against or affecting the
Company or any of its subsidiaries relating to Hazardous Materials or
Environmental Laws;
(xviii) Investment Company Act. The Company is not, and upon the
issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the Offering
Memorandum will not be, an "investment company" or an entity "controlled"
by an "investment company" as such terms are defined in the Investment
Company Act of 1940, as amended (the "1940 Act");
(xix) Certain Disclosures in Offering Memorandum. The statements
set forth in the Offering Memorandum under the caption "Description of
Convertible Preferred Stock," insofar as they purport to constitute a
summary of the terms of the Securities, and under the caption "Plan of
Distribution", and under the caption "Business-Regulatory Overview" in the
Company's Annual Report on Form 10-KSB, filed on March 25, 1998, which is
incorporated therein by reference, insofar as they purport to describe the
provisions of the laws and documents referred to therein, are accurate and
complete in all material respects; and the statements set forth in the
Offering Memorandum under the caption "Certain United States Federal Income
Tax Consequences", insofar as such statements purport to summarize certain
United States federal income and estate tax consequences of the ownership
and dispensation of the Securities by certain U.S. Holders and non-U.S.
Holders (as such terms are defined in the Offering Memorandum) of the
Securities, provide a fair summary of such consequences under current law;
(xx) Cuba. Neither the Company nor any of its affiliates does
business with the government of Cuba or with any person or affiliate
located in Cuba within the meaning of Section 517.075, Florida Statutes;
(xxi) No Manipulation or Stabilization. Neither the Company nor,
to its knowledge, any of its officers, directors or affiliates has taken
and will take, directly or indirectly, any action which is designed to or
which has constituted or which might reasonably be expected to cause or
result in stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Securities;
(xxii) Other Listed Securities. No securities of the Company or
any subsidiary that are of the same class (within the meaning of Rule 144A
under the Act) as the Securities are listed on a national securities
exchange registered under Section 6 of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), or quoted in a U.S. automated inter-dealer
quotation system;
(xxiii) No General Solicitation or Directed Selling Efforts.
Neither the Company nor any of its Affiliates (as defined in Rule 501(b) of
Regulation D under the Act ("Regulation D")), nor any person (excluding the
Initial Purchasers as to the actions of which the Company makes no
representation or warranty) acting on its or their behalf has offered or
sold the Securities by means of any general solicitation or general
advertising within the meaning of Rule 502(c) under the Act or, with
respect to Securities sold outside the United States to non-U.S. persons
(as defined in Rule 902 under the Act), by means of any directed selling
efforts within the meaning of Rule 902 under the Act and the Company,
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any Affiliate of the Company and any person acting on its or their behalf
has complied with and will implement the "offering restriction" within the
meaning of such Rule 902;
(xxiv) Eligibility of Securities. The Securities satisfy the
eligibility requirements of Rule 144A(d)(3) under the Act;
(xxv) Compliance with Exchange Act. The Company is subject to
and in full compliance with the reporting requirements of Section 13 or
Section 15(d) of the Exchange Act;
(xxvi) Other Agents. The Company has not paid or agreed to pay to
any person any compensation for soliciting another to purchase any
securities of the Company (except as contemplated by this Agreement); and
(xxvii) Additional Issuer Information. The information provided by
the Company pursuant to Section 4(f) hereof will not, at the date thereof,
contain any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(b) Officer's Certificates. Any certificate signed by any officer of the
Company or any of its subsidiaries delivered to the Initial Purchasers or to
counsel for the Initial Purchasers shall be deemed a representation and warranty
by the Company to each Initial Purchaser as to the matters covered thereby.
2. Sale and Delivery to Initial Purchasers.
(a) Securities. Subject to the terms and conditions and in reliance upon
the representations and warranties herein set forth, (i) the Company agrees to
sell to each Initial Purchaser, severally and not jointly, and each Initial
Purchaser agrees, severally and not jointly, to purchase from the Company, at a
purchase price per Security of $48.50, the number of Firm Securities set
forth opposite their respective names in Schedule A hereto and (ii) in the event
and to the extent that the Initial Purchasers shall exercise the election to
purchase Optional Securities as provided below, the Company agrees to issue and
sell to each of the Initial Purchasers, and each of the Initial Purchasers
agrees, severally and not jointly, to purchase from the Company, at the purchase
price per share set forth in clause (i) of this Section 2(a), that portion of
the number of Optional Securities as to which such election shall have been
exercised (to be adjusted by Smith Barney Inc. so as to eliminate fractional
shares) determined by multiplying such number of Optional Securities by a
fraction, the numerator of which is the maximum number of Optional Securities
which such Initial Purchaser is entitled to purchase as set forth opposite the
name of such Initial Purchaser in Schedule A hereto and the denominator of which
is the maximum number of Optional Securities that all of the Initial Purchasers
are entitled to purchase hereunder.
The Company hereby grants to the Initial Purchasers the right to purchase
at their election up to 600,000 Optional Securities, at the purchase price per
share set forth in the paragraph above, for the sole purpose of covering
overallotments in the sale of the Firm Securities. Any such election to
purchase Optional Securities may be exercised only by written notice from Smith
Barney Inc. to the Company, given within a period of 30 calendar days after the
date of this Agreement, setting
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<PAGE>
forth the aggregate number of Optional Securities to be purchased and the date
on which such Optional Securities are to be delivered, as determined by the
Smith Barney Inc. but in no event earlier than the First Closing Time (as
defined in Section 2(c) hereof) or, unless the Representatives and the Company
otherwise agree in writing, earlier than two or later than ten business days
after the date of such notice.
(b) Terms and Conditions of Sale. Upon the authorization by Smith Barney
Inc. of the release of the Firm Securities, the several Initial Purchasers
propose to offer the Firm Securities for sale upon the terms and conditions set
forth in the Offering Memorandum.
(c) Closing and Payment. (i) The Securities to be purchased by each
Initial Purchaser hereunder, in definitive form, and in such authorized
denominations and registered in such names as Smith Barney Inc. may
request upon at least forty-eight hours' prior notice to the Company shall
be delivered by or on behalf of the Company to the Initial Purchasers,
through the facilities of the Depository Trust Company ("DTC") (unless the
Initial Purchasers shall otherwise instruct) for the account of such
Initial Purchaser, against payment by or on behalf of such Initial
Purchaser of the purchase price therefor by wire transfer or certified or
official bank check or checks, payable to the order of the Company in
immediately available (same day) funds. The Company will cause the
certificates representing the Securities to be made available for checking
and packaging at least twenty-four hours prior to the Closing Time (as
defined below) with respect thereto at the offices of DTC or its designated
custodian (the "Designated Office"). The time and date of such delivery
and payment shall be, with respect to the Firm Securities, 10:00 a.m. on
March 31, 1998 (the "Closing Date"), or such other time and date as Smith
Barney Inc. and the Company may agree upon in writing, and, with respect to
the Optional Securities, 10:00 a.m. on the date specified by Smith Barney
Inc. in the written notice given by Smith Barney Inc. of the Initial
Purchaser's election to purchase such Optional Securities, or such other
time and date as Smith Barney Inc. and the Company may agree upon in
writing. Such time and date for delivery of the Firm Securities is herein
called the "First Closing Time", such time and date for delivery of the
Optional Securities, if not the First Closing Time, is herein called the
"Second Closing Time", and each such time and date for delivery is herein
called a "Closing Time".
(ii) The documents to be delivered at each Closing Time by or on
behalf of the parties hereto pursuant to Section 6 hereof, including the
cross receipt for the Securities and any additional documents requested by
the Initial Purchasers pursuant to Section 6(j) hereof, will be delivered
at the offices of Sullivan & Cromwell, 125 Broad Street, New York, New York
10004 (the "Closing Location"), and the Securities will be delivered at the
Designated Office, all at such Closing Time. A meeting will be held at the
Closing Location at 2:00 p.m. on the New York Business Day next preceding
the Closing Time, at which meeting the final drafts of the documents to be
delivered pursuant to the preceding sentence will be available for review
by the parties hereto. For the purposes of this Section 2, "New York
Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in New York are
generally authorized or obligated by law or executive order to close.
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3. Offering of Securities. Upon the authorization by you of the release
of the Securities, the Initial Purchasers propose to offer the Securities for
sale upon the terms and conditions set forth in this Agreement and the Offering
Memorandum and each Initial Purchaser hereby represents and warrants to, and
agrees with the Company that:
(a) It will offer and sell the Securities only to: (i) persons who it
reasonably believes are "qualified institutional buyers" ("QIBs") within the
meaning of Rule 144A under the Act in transactions meeting the requirements of
Rule 144A, or (ii) upon the terms and conditions set forth in Annex I to this
Agreement;
(b) It is a QIB; and
(c) It will not offer or sell the Securities by any form of general
solicitation or general advertising, including but not limited to the methods
described in Rule 502(c) under the Act.
4. Covenants. Covenants of the Company. The Company covenants and
agrees with each Initial Purchaser:
(a) Preparation of Offering Memorandum; Notices. To prepare the Offering
Memorandum in a form approved by the Initial Purchasers; to make no amendment or
any supplement to the Offering Memorandum which shall be disapproved by the
Initial Purchasers promptly after reasonable notice thereof; and to furnish the
Initial Purchasers with copies thereof;
(b) Copies of and Amendments to Offering Memorandum and Supplements. To
furnish the Initial Purchasers with copies in such quantities as the Initial
Purchasers may from time to time reasonably request of the Offering Memorandum
and each amendment or supplement thereto signed by an authorized officer of the
Company with the independent accountants' report(s) in the Offering Memorandum,
and any amendment or supplement containing amendments to the financial
statements covered by such report(s), signed by the accountants, and if, at any
time prior to the expiration of nine months after the Execution Date, any event
shall have occurred as a result of which the Offering Memorandum as then amended
or supplemented would include an untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made when such Offering
Memorandum is delivered, not misleading, or, if for any other reason it shall be
necessary or desirable during such same period to amend or supplement the
Offering Memorandum, to notify the Initial Purchasers and upon the request of
the Initial Purchasers to prepare and furnish without charge to each Initial
Purchaser and to any dealer in securities as many copies as the Initial
Purchasers may from time to time reasonably request of an amended Offering
Memorandum or a supplement to the Offering Memorandum which will correct such
statement or omission or effect such compliance;
(c) Lock-up. During the period beginning from the Execution Date and
continuing to and including the date 90 days after the Closing Date, not to
offer, sell, contract to sell or otherwise dispose of, directly or indirectly,
or announce an offering of, except as provided hereunder any shares of the
capital stock of the Company ("Stock") or any securities convertible into or
exchangeable for Stock (other than (i) grants of options and issuances and sales
of Class A Common Stock issued pursuant to any employee or director stock option
plan, stock ownership plan or stock purchase plan in effect on the date of this
Agreement, (ii) issuances of Class A Common Stock upon
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<PAGE>
the conversion of securities or the exercise of warrants outstanding on the date
of this Agreement, (iii) issuance of Class B Common Stock upon exercise of
options outstanding on the date of this Agreement, (iv) issuance of common stock
pursuant to agreements in effect on the date of this Agreement (which issuances
will not involve the issuance of a material amount of shares of Common Stock) or
(v) issuance of Common Stock in connection with acquisitions; provided that the
recipients of such shares of Common Stock agree in writing with Smith Barney
Inc. to be bound by the unexpired term of this agreement not to sell) without
the prior written consent of Smith Barney Inc.
(d) Investment Company. Not to be or become, at any time prior to the
expiration of three years after the Closing Date, an open-end investment
company, unit investment trust, closed-end investment company or face-amount
certificate company that is or is required to be registered under Section 8 of
the 1940 Act;
(e) Portal. To use its reasonable best efforts to cause the Securities to
be eligible for the PORTAL trading system of the National Association of
Securities Dealers, Inc.;
(f) Information to holders of Securities. (i) At any time when the
Company is not subject to Section 13 or 15(d) of the Exchange Act, for the
benefit of holders from time to time of Securities, to furnish at its
expense, upon request, to holders of Securities and prospective purchasers
of securities information (the "Additional Issuer Information") satisfying
the requirements of subsection (d)(4)(i) of Rule 144A under the Act;
(ii) To furnish to the holders of the Securities as soon as
practicable after the end of each fiscal year an annual report (including a
balance sheet and statements of income, stockholders' equity and cash flows
of the Company and its consolidated subsidiaries certified by independent
public accountants) and, as soon as practicable after the end of each of
the first three quarters of each fiscal year (beginning with the fiscal
quarter ending after the Execution Date), consolidated summary financial
information of the Company and its subsidiaries for such quarter in
reasonable detail;
(g) Initial Purchasers. During a period of five years from the Execution
Date, to furnish to the Initial Purchasers copies of all reports or other
communications (financial or other) furnished to stockholders of the Company,
and to deliver to the Initial Purchasers (i) as soon they are available, copies
of any reports and financial statements furnished to or filed with the
Commission or any securities exchange on which the Securities or any class of
securities or any class of securities of the Company is listed; and (ii) such
additional information concerning the business and financial condition of the
Company as the Initial Purchasers may from time to time reasonably request (such
financial statements to be on a consolidated basis to the extent the accounts of
the Company and its subsidiaries are consolidated in reports furnished to its
stockholders generally or to the Commission);
(h) Resales by Company and Affiliates. During the period of two years
after the Closing Date, the Company will not, and will not permit any of its
"affiliates" (as defined in Rule 144 under the Act) to, resell any of the
Securities which constitute "restricted securities" under Rule 144 that have
been reacquired by any of them;
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(i) Resale Registration. The Company shall file, on or prior to 90 days
after the Closing Date, and use its best efforts to cause to be declared or
become effective under the Act, on or prior to 120 days after the Closing Date,
a shelf registration statement on Form S-3 providing for the registration of the
Securities and the Class A Common Stock issuable upon conversion of the
Securities as described in the Offering Memorandum and provided for in the
Registration Rights Agreement;
(j) Use of Proceeds. To use the net proceeds received by it from the sale
of the Securities pursuant to this Agreement in the manner specified in the
Offering Memorandum under the caption "Use of Proceeds";
(k) Manner of Sale. Neither the Company nor any of its Affiliates nor any
person acting on its or their behalf will offer or sell the Securities by means
of any general solicitation or general advertising within the meaning of Rule
502(c) under the Act or, with respect to Securities sold outside the United
States to non-U.S. persons (as defined in Rule 902 under the Act), by means of
any directed selling efforts within the meaning of Rule 902 under the Act and
the Company, any Affiliate of the Company and any person acting on its or their
behalf will comply with and will implement the "offering restriction" within the
meaning of such Rule 902;
(l) DTC. The Company will cooperate with the Representatives and use its
best efforts to permit the Securities to be eligible for clearance and
settlement through The Depository Trust Company;
(m) Listing. The Company will use its best efforts to list, subject to
notice of issuance, the Class A Common Stock issuable upon conversion of the
Securities on the NASDAQ National Market;
(n) Free Shares. The Company will reserve and keep available at all
times, free of preemptive rights, shares of Class A Common Stock for the purpose
of enabling the Company to satisfy any obligations to issue shares of the common
stock of the Company upon conversion of the Securities.
5. Expenses. The Company covenants and agrees with the Initial
Purchasers that the Company will pay or cause to be paid all costs and expenses
incident to the performance of its obligations under this Agreement, whether or
not the transactions contemplated herein are consummated or this Agreement is
terminated pursuant to Section 10 hereof, including all costs and expenses
incident to (i) the fees, disbursements and expenses of the Company's counsel
and accountants and all other expenses in connection with the preparation, word
processing, printing or other production of the Offering Memorandum and
amendments and supplements thereto; (ii) the cost of word processing, printing
or reproducing this Agreement, the Agreement Among Underwriters, the Selling
Agreement, the Registration Rights Agreement, the Securities, closing documents
(including any compilations thereof) and any other documents in connection with
the offering, purchase, sale and delivery of the Securities; (iii) all
arrangements relating to the delivery to the Initial Purchasers and dealers of
copies of the foregoing documents; (iv) the costs and charges of any transfer
agent or registrar and of DTC; (v) reasonable expenses in connection with any
meetings with prospective investors in the Securities; (vi) all expenses and
listing fees incurred in connection with the application for quotation of the
Securities on the PORTAL market; and (vii) any
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<PAGE>
fees charged by investment rating agencies for the rating of the Securities. It
is understood, however, that, except as provided in this Section, and Sections
7, 8 and 11 hereof, the Initial Purchasers will pay all of their own costs and
expenses, including the fees of their counsel, transfer taxes on resale of any
of the Securities by them, and any advertising expenses connected with any
offers they may make.
If this Agreement is terminated by the Initial Purchasers in accordance
with the provisions of Section 6 or Section 10 hereof, the Company shall
reimburse the Initial Purchasers for all of their out of pocket expenses,
including the reasonable fees and disbursements of counsel for the Initial
Purchasers.
6. Conditions to the Obligations of the Initial Purchasers. The
obligations of the Initial Purchasers, as to the Securities to be delivered at
each Closing Time, are subject to the accuracy of the representations and
warranties on the part of the Company contained herein at the date and time that
this Agreement is executed and delivered by the parties hereto (the "Execution
Time") and at and as of such Closing Time, to the accuracy of the statements of
the Company made in any certificates pursuant to the provisions hereof, to the
performance by the Company of its obligations hereunder and to the following
additional conditions:
(a) Opinion of Counsel for Company. At the Closing Time, the Initial
Purchasers shall have received the favorable opinions, dated as of the Closing
Date, of Willkie Farr & Gallagher, counsel for the Company, of R. Bruce Easter,
Esq., Vice President, General Counsel and Secretary of the Company, and of Davis
Wright Tremaine LLP, special Washington counsel to the Company, in form and
substance satisfactory to counsel for the Initial Purchasers, to the effect set
forth in Exhibits A-1, A-2 and A-3 hereto, respectively, and to such further
effect as counsel to the Initial Purchasers may reasonably request;
(b) Opinion of Counsel for Initial Purchasers. At the Closing Time, the
Initial Purchasers shall have received the favorable opinion, dated as of the
Closing Date, of Sullivan & Cromwell, counsel for the Initial Purchasers, with
respect to the incorporation of the Company, the Securities being delivered at
the Closing Time, the common stock of the Company issuable upon conversion the
Securities, the Offering Memorandum and such other related matters as the
Initial Purchasers may reasonably request. In giving such opinion such counsel
may rely, as to all matters governed by the laws of jurisdictions other than the
law of the State of New York and the federal law of the United States, upon the
opinions of counsel satisfactory to the Initial Purchasers. Such counsel may
also state that, insofar as such opinion involves factual matters, they have
relied, to the extent they deem proper, upon certificates of officers of the
Company and its subsidiaries and certificates of public officials;
(c) Officers' Certificate. At such Closing Time, there shall not have
been, since the Execution Date or since the date of the most recent financial
statements included in the Offering Memorandum (exclusive of any supplement
thereto), any material adverse change in the condition, financial or otherwise,
or in the earnings, business affairs or business prospects of the Company and
its subsidiaries considered as one enterprise, whether or not arising from
transactions in the ordinary course of business except as set forth in the
Offering Memorandum (exclusive of any supplement thereto), and the Initial
Purchasers shall have received certificates of the Chairman of the Board, the
President or a Vice President of the Company and of the chief financial or chief
accounting
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officer of the Company, satisfactory to the Initial Purchasers, to the effect
that, at and as of such Closing Time, (i) they have carefully examined the
Offering Memorandum and any supplements thereto and this Agreement, (ii) there
has been no such material adverse change, (iii) the representations and
warranties of the Company in Section 1 hereof are true and correct in all
material respects on and as of the Closing Time with the same force and effect
as though expressly made at and as of such Closing Time, and (iv) the Company
has complied with all agreements and satisfied all conditions on its part to be
performed or satisfied at or prior to such Closing Time;
(d) Accountant's Comfort Letter. At the First Closing Time, the Initial
Purchasers shall have received from Arthur Andersen LLP a letter or letters
dated as of the Closing Date, in form and substance satisfactory to the Initial
Purchasers, containing statements and information of the type ordinarily
included in accountants' "comfort letters" to the Initial Purchasers with
respect to the financial statements and certain financial information contained
in the Offering Memorandum;
(e) Bring-down Comfort Letter. At the Second Closing Time, the Initial
Purchasers shall have received from Arthur Andersen LLP a letter, dated as of
the Closing Date, to the effect that they reaffirm the statements made in the
letter furnished pursuant to subsection (d) of this Section 6, except that the
specified date referred to shall be a date not more than three business days
prior to such Closing Date;
(f) No Material Adverse Change in Business. Since the respective dates as
of which information is given in the Offering Memorandum, except as otherwise
stated therein, (1) there has been no Material Adverse Effect, whether or not
arising in the ordinary course of business, (2) there have been no transactions
entered into by the Company or any of its subsidiaries, other than those in the
ordinary course of business, which are material with respect to the Company and
its subsidiaries considered as one enterprise (3) there has been no dividend or
distribution of any kind declared, paid or made by the Company on any class of
its capital stock and (4) there has been no change or decrease specified in the
letters referred to in Section 6(d) and 6(e) above, the effect of which, in any
case referred to in clauses (1) through (4) above, is, in the sole judgment of
the Initial Purchasers, so material and adverse as to make it impractical or
inadvisable to proceed with the offering or delivery of the Securities as
contemplated by the Offering Memorandum (exclusive of any amendment thereof or
supplement thereto);
(g) Maintenance of Rating. On or after the Execution Date, there shall
not have occurred a downgrading in the rating assigned to the Company's debt
securities or preferred stock by any nationally recognized securities rating
agency, and no such securities rating agency shall have publicly announced that
it has under surveillance or review, with possible negative implications, its
rating of any of the Company's debt securities or preferred stock;
(h) Offering Memorandum. The Offering Memorandum shall be in form and
substance reasonably satisfactory to the Initial Purchasers. The Company shall
have complied with the provisions of Section 4(c) hereof with respect to the
furnishing of Offering Memoranda on the New York Business Day next succeeding
the Execution Date;
(i) Adequate Disclosure of Litigation. There is no litigation or
governmental or other action, suit, claim, proceeding or investigation before
any court or any public, regulatory or governmental agency or body, pending or,
to the best of the Company's knowledge, threatened
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against the Company or any of its subsidiaries or any of their respective
officers (in their capacity as officers of the Company or such subsidiaries) or
any of the properties, assets, business or rights of the Company or such
subsidiaries which is of a character required to be disclosed in the Offering
Memorandum which is not disclosed therein;
(j) Additional Documents. At such Closing Time: (i) the Company shall
have furnished to the Initial Purchasers such further information, certificates
and documents as the Initial Purchasers may reasonably request; (ii) counsel for
the Initial Purchasers shall have been furnished with such documents and
opinions as they may require for the purpose of enabling them to pass upon the
issuance and sale of the Securities as herein contemplated, or in order to
evidence the accuracy of any of the representations or warranties, or the
fulfillment of any of the conditions, herein contained; and (iii) all
proceedings taken by the Company in connection with the issuance and sale of the
Securities as herein contemplated shall be satisfactory in form and substance to
the Initial Purchasers and counsel for the Initial Purchasers; and
(k) Termination of Agreement. If any condition specified in this Section
shall not have been fulfilled when and as required to be fulfilled, this
Agreement may be terminated by the Initial Purchasers by notice to the Company
at any time at or prior to such Closing Time, and such termination shall be
without liability of any party to any other party except as provided in
Section 5 and except that Sections 1, 7 and 8 shall survive any such termination
and remain in full force and effect.
7. Indemnification.
(a) Indemnification of Initial Purchasers. The Company agrees to
indemnify and hold harmless each Initial Purchaser, the directors, officers,
employees and agents of each Initial Purchaser and each person, if any, who
controls any Initial Purchaser within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act against any and all losses, liabilities (joint or
several), claims, damages and expenses whatsoever, to which they or any of them
may become subject under the Act, the Exchange Act or other Federal or state
statutory law or regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of a material
fact contained in the Offering Memorandum (or any amendment or supplement
thereto), or arise out of or are based upon the omission or alleged omission
therefrom of a material fact necessary in order to make the statements therein
not misleading, and agrees to reimburse each such indemnified party, as
incurred, for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any such untrue statement or alleged untrue
statement or omission or alleged omission made therein in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
any Initial Purchaser through the Initial Purchasers specifically for inclusion
therein. This indemnity agreement will be in addition to any liability which
the Company may otherwise have.
(b) Indemnification of Company, Directors and Officers. Each Initial
Purchaser severally agrees to indemnify and hold harmless the Company, each of
its directors (including any person who, with his or her consent, is named in
the Registration Statement as about to become a
16
<PAGE>
director of the Company) and each person, if any, who controls the Company
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act
against any and all losses, liabilities (joint or several), claims, damages and
expenses described in the indemnity contained in subsection (a) of this Section,
as incurred, but only with respect to written information furnished to the
Company by such Initial Purchaser through Smith Barney Inc. specifically for
inclusion in the documents referred to in the foregoing indemnity. The Company
acknowledges that the statements set forth in the last paragraph of the cover
page regarding delivery of the Securities, the stabilization legend in block
capital letters on the reverse of the cover page and, under the heading "Plan of
Distribution", the paragraph related to stabilization in the Offering Memorandum
constitute the only information furnished in writing by or on behalf of the
several Initial Purchasers for inclusion in such Offering Memorandum.
(c) Actions against Parties; Notification. Each indemnified party shall
give written notice as promptly as reasonably practicable to each indemnifying
party of any action commenced against it in respect of which indemnity may be
sought hereunder, but failure to so notify an indemnifying party (i) will not
relieve it from liability under paragraph (a) or (b) above unless and to the
extent it did not otherwise learn of such action and such failure results in the
forfeiture by the indemnifying party of substantial rights and defenses and (ii)
will not, in any event, relieve the indemnifying party from any obligations to
any indemnified party other than the indemnification obligation provided in
paragraph (a) or (b) above. The indemnifying party shall be entitled to appoint
counsel of the indemnifying party's choice at the indemnifying party's expense
to represent the indemnified party in any action for which indemnification is
sought (in which case the indemnifying party shall not thereafter be responsible
for the fees and expenses of any separate counsel retained by the indemnified
party or parties except as set forth below); provided, however, that such
counsel shall be satisfactory to the indemnified party. Notwithstanding the
indemnifying party's election to appoint counsel to represent the indemnified
party in an action, the indemnified party shall have the right to employ
separate counsel (including local counsel), and the indemnifying party shall
bear the reasonable fees, costs and expenses of such separate counsel if (i) the
use of counsel chosen by the indemnifying party to represent the indemnified
party would present such counsel with a conflict of interest, (ii) the actual or
potential defendants in, or targets of, any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be legal defenses available to it
and/or other indemnified parties which are different from or additional to those
available to the indemnifying party, (iii) the indemnifying party shall not have
employed counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of the institution of
such action or (iv) the indemnifying party shall authorize the indemnified party
to employ separate counsel at the expense of the indemnifying party. No
indemnifying party shall, without the prior written consent of the indemnified
parties, settle or compromise or consent to the entry of any judgment with
respect to any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim whatsoever in
respect of which indemnification or contribution could be sought under this
Section 7 or Section 8 hereof (whether or not the indemnified parties are actual
or potential parties thereto), unless such settlement, compromise or consent (i)
includes an unconditional release of each indemnified party from all liability
arising out of such litigation, investigation, proceeding or claim and (ii) does
not include a statement as to or an admission of fault, culpability or a failure
to act by or on behalf of any indemnified party.
17
<PAGE>
8. Contribution. If the indemnification provided for in Section 7 hereof
is for any reason unavailable to or insufficient to hold harmless an indemnified
party in respect of any losses, liabilities, claims, damages or expenses
referred to therein, then each indemnifying party shall contribute to the
aggregate amount of such losses, liabilities, claims, damages and expenses
(including legal or other expenses reasonably incurred in connection with
investigating or defending same) incurred by such indemnified party, as
incurred, (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and the Initial Purchasers on
the other hand from the offering of the Securities pursuant to this Agreement
(provided that in no case shall any Initial Purchaser (except as may be provided
in any agreement among Initial Purchasers relating to the offering of the
Securities) be responsible for any amount in excess of the underwriting discount
or commission applicable to the Securities purchased by such Initial Purchaser
hereunder) or (ii) if the allocation provided by clause (i) is unavailable for
any reason, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company on the one hand and of the Initial Purchasers on the other hand in
connection with the statements or omissions which resulted in such losses,
liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations.
The relative benefits received by the Company on the one hand and the
Initial Purchasers on the other hand in connection with the offering of the
Securities pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the
Securities pursuant to this Agreement (before deducting expenses) received by
the Company bear to the total underwriting discounts and commissions received by
the Initial Purchasers, in each case as set forth in the Offering Memorandum.
The relative fault of the Company on the one hand and the Initial
Purchasers on the other hand shall be determined by reference to, among other
things, whether any such untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Initial Purchasers and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Company and the Initial Purchasers agree that it would not be just and
equitable if contribution pursuant to this Section 8 were determined by pro rata
allocation (even if the Initial Purchasers were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 8.
Notwithstanding the provisions of this Section 8, no Initial Purchaser
shall be required to contribute any amount in excess of the amount by which the
total price at which the Securities underwritten by it and distributed to
investors were offered to investors exceeds the amount of any damages which such
Initial Purchaser has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 8, no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
For purposes of this Section 8, each person, if any, who controls an
Initial Purchaser within the meaning of Section 15 of the Act or Section 20 of
the Exchange Act shall have the same rights
18
<PAGE>
to contribution as such Initial Purchaser, and each person, if any, who controls
the Company within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act shall have the same rights to contribution as the Company. The
Initial Purchasers' respective obligations to contribute pursuant to this
Section 8 are several in proportion to the number of Securities set forth
opposite their respective names in Schedule I hereto and not joint.
9. Representations, Warranties and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement, or in
certificates of officers of the Company submitted pursuant hereto, shall remain
operative and in full force and effect, regardless of any investigation made by
or on behalf of any Initial Purchaser or controlling person, or by or on behalf
of the Company, and shall survive delivery of the Securities to the Initial
Purchasers.
10. Termination of Agreement.
(a) Termination; General. This Agreement shall be subject to termination
in the absolute discretion of the Initial Purchasers, by notice given to the
Company prior to delivery of and payment for the Securities, if at any time
prior to such time (i) trading in the Company's Common Stock shall have been
suspended by the Commission or the NASDAQ or trading in securities generally on
the New York Stock Exchange or the NASDAQ shall have been suspended or limited
or minimum prices shall have been established on such Exchange or NASDAQ, (ii) a
banking moratorium shall have been declared either by Federal or New York State
authorities or (iii) there shall have occurred any outbreak or escalation of
hostilities, declaration by the United States of a national emergency or war or
other calamity or crisis the effect of which on financial markets is such as to
make it, in the sole judgment of the Initial Purchasers, impractical or
inadvisable to proceed with the offering or delivery of the Securities as
contemplated by the Offering Memorandum (exclusive of any supplement thereto).
(b) Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 5 hereof, and provided further that Sections
1, 7 and 8 shall survive such termination and remain in full force and effect.
11. Default by One or More of the Initial Purchasers. If any one or more
of the Initial Purchasers shall fail to purchase and pay for any of the
Securities agreed to be purchased by such Initial Purchaser or Initial
Purchasers hereunder and such failure to purchase shall constitute a default in
the performance of its or their obligations under this Agreement, the remaining
Initial Purchasers shall be obligated severally to take up and pay for (in the
respective proportions which the amount of Securities set forth opposite their
names in Schedule I hereto bears to the aggregate amount of Securities set forth
opposite the names of all the remaining Initial Purchasers) the Securities which
the defaulting Initial Purchaser or Initial Purchasers agreed but failed to
purchase; provided, however, that in the event that the aggregate amount of
Securities which the defaulting Initial Purchaser or Initial Purchasers agreed
but failed to purchase shall exceed 10% of the aggregate amount of Securities
set forth in Schedule I hereto, the remaining Initial Purchasers shall have the
right to purchase all, but shall not be under any obligation to purchase any, of
the Securities, and if such nondefaulting Initial Purchasers do not purchase all
of the Securities, this Agreement will terminate without liability to any
nondefaulting Initial Purchaser or the Company. In the event of
19
<PAGE>
a default by any Initial Purchaser as set forth in this Section 11, the Closing
Time shall be postponed for such period, not exceeding five Business Days, as
the Initial Purchasers shall determine in order that the required changes in the
Offering Memorandum or in any other documents or arrangements may be effected.
Nothing contained in this Agreement shall relieve any defaulting Initial
Purchaser of its liability, if any, to the Company and any nondefaulting Initial
Purchaser for damages occasioned by its default hereunder.
12. Reliance; Notices. In all dealings hereunder, the Initial Purchasers
shall act on behalf of each of the Initial Purchasers, and the parties hereto
shall be entitled to act and rely upon any statement, request, notice or
agreement on behalf of any Initial Purchaser made or given by the Initial
Purchasers jointly or by Salomon Brothers Inc on their behalf.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Initial Purchasers shall be delivered or sent by mail,
telex or facsimile transmission to the Initial Purchasers in care of Smith
Barney Inc. General Counsel (fax no. (212) 783-1752) and confirmed to Salomon
Brothers Inc, Seven World Trade Center, New York, New York 10048, Attention:
General Counsel; and if to the Company shall be delivered or sent by mail, telex
or facsimile transmission to the address of the Company set forth in the
Offering Memorandum, Attention: General Counsel; provided, however, that any
notice to an Initial Purchaser pursuant to Section 7(c) hereof shall be
delivered or sent by mail, telex or facsimile transmission to such Initial
Purchaser at its address set forth in its Initial Purchasers' Questionnaire, or
telex constituting such Questionnaire, which address will be supplied to the
Company by the Initial Purchasers upon request. Any such statements, requests,
notices or agreements shall take effect upon receipt thereof.
13. Parties. This Agreement shall inure to the benefit of and be binding
upon the Initial Purchasers, the Company and their respective successors.
Nothing expressed or mentioned in this Agreement is intended or shall be
construed to give any person, firm or corporation, other than the Initial
Purchasers, the Company and the controlling persons and officers and directors
referred to in Sections 7 and 8 and their respective heirs, executors,
administrators, successors and assigns any legal or equitable right, remedy or
claim under or in respect of this Agreement or any provision herein contained.
This Agreement and all conditions and provisions hereof are intended to be for
the sole and exclusive benefit of the Initial Purchasers, the Company and said
controlling persons and officers and directors and their respective heirs,
executors, administrators, successors and assigns, and for the benefit of no
other person, firm or corporation. No purchaser of Securities from any Initial
Purchaser shall be deemed to be a successor by reason merely of such purchase.
14. Time of the Essence. Time shall be of the essence of this Agreement.
As used herein, the term "business day" shall mean any day when the Commission's
office in Washington, D.C. is open for business.
15. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
THE CONFLICTS OF LAWS PROVISIONS THEREOF. SPECIFIED TIMES OF DAY REFER TO NEW
YORK CITY TIME.
16. Effect of Headings. The Section and sub-section headings herein are
for convenience only and shall not affect the construction hereof.
20
<PAGE>
17. Counterparts. This Agreement may be executed by any one of more of
the parties hereto in any number of counterparts, each of which shall be deemed
to be an original, but all such counterparts shall together constitute one and
the same instrument.
21
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company a counterpart hereof, and upon the
acceptance hereof by Smith Barney Inc., on behalf of each of the Initial
Purchasers, this letter and such acceptance hereof shall constitute a binding
agreement between each of the Initial Purchasers and the Company. It is
understood that your acceptance of this letter on behalf of each of the Initial
Purchasers is pursuant to the authority set forth in a form of Agreement among
Initial Purchasers, the form of which shall be submitted to the Company for
examination upon request, but without warranty on your part as to the authority
of the signers thereof.
Very truly Yours,
NEXTLINK Communications, Inc.
By__________________________________
Name:
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
Smith Barney Inc.
Goldman, Sachs & Co.
By: Smith Barney Inc.
By____________________________________
Name:
Title:
For themselves and on behalf of the
other Initial Purchasers named in Schedule I hereto.
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Optional Securities
Total Number of to be Purchased if
Firm Securities to Maximum Option
Initial Purchaser be Purchased Exercised
----------------- ------------------ -------------------
<S> <C> <C>
Smith Barney Inc..................... 3,200,000 480,000
Goldman, Sachs & Co.................. 800,000 120,000
--------- -------
Total .......................... 4,000,000 600,000
--------- -------
--------- -------
</TABLE>
<PAGE>
ANNEX I
(1) The Securities have not been and will not be registered under the Act
and may not be offered or sold within the United States or to, or for the
account or benefit of, U.S. persons except in accordance with Regulation S under
the Act or pursuant to an exemption from the registration requirements of the
Act. The Initial Purchasers represent that they have offered and sold the
Securities, and will offer and sell the Securities (i) as part of their
distribution at any time and (ii) otherwise until 40 days after the later of the
commencement of the offering and the Closing Date, only in accordance with Rule
903 of Regulation S or Rule 144A under the Act. Accordingly, the Initial
Purchasers agree that neither they nor any persons acting on their behalf has
engaged or will engage in any directed selling efforts with respect to the
Securities, and they have complied and will comply with the offering
restrictions requirement of Regulation S. The Initial Purchasers agree that, at
or prior to confirmation of sale of Securities (other than a sale pursuant to
Rule 144A), they will have sent to each distributor, dealer or person receiving
a selling concession, fee or other remuneration that purchases Securities from
it during the restricted period a confirmation or notice to substantially the
following effect:
"THE SECURITIES COVERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND MAY NOT BE OFFERED AND
SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS (I) AS PART OF THEIR DISTRIBUTION AT ANY TIME OR (II) OTHERWISE
UNTIL 40 DAYS AFTER THE LATER OF THE COMMENCEMENT OF THE OFFERING AND THE
CLOSING DATE, EXCEPT IN EITHER CASE IN ACCORDANCE WITH REGULATION S (OR
RULE 144A IF AVAILABLE) UNDER THE SECURITIES ACT. TERMS USED ABOVE HAVE
THE MEANING GIVEN TO THEM BY REGULATION S."
Terms used in this paragraph have the meanings given to them by Regulation S.
The Initial Purchasers further agree that they have not entered and will
not enter into any contractual arrangement with respect to the distribution or
delivery of the Securities, except with their affiliates or with the prior
written consent of the Company.
(2) The Initial Purchasers further agree, on behalf of themselves and
their affiliates, that (a) they have not offered or sold and, prior to the date
six months after the date of issue of the Securities, will not offer or sell any
Securities to persons in the United Kingdom except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purpose of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995, (b) they have complied, and will comply,
with all applicable provisions of the Financial Services Act 1996 of Great
Britain with respect to anything done by them in relation to the Securities in,
from or otherwise involving the United Kingdom and (c) they have only issued or
passed on and will only issue or pass on in the United Kingdom any document
received by them in connection with the issuance of the Securities to a person
who is of a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996 of Great Britain or is a
person to whom the document may otherwise lawfully be issued or passed on.
<PAGE>
Exhibit A-1
FORM OF OPINION OF WILLKIE FARR & GALLAGHER
TO BE DELIVERED PURSUANT TO SECTION 6(a)
(i) The Company has been duly incorporated and is validly existing as a
corporation under the laws of the State of Washington.
(ii) The Company has power and authority to own, lease and operate its
properties and to conduct its business as described in the Offering Memorandum
and to enter into and perform its obligations under the Purchase Agreement.
(iii) The Company is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify or
to be in good standing would not result in a Material Adverse Effect.
(iv) The authorized, issued and outstanding capital stock of the Company is
as set forth in the Offering Memorandum as of the dates indicated therein;
except that the par value of the Class A Common Stock and the class B Common
Stock is $.022658473; the shares of issued and outstanding capital stock of the
Company have been duly authorized and validly issued and are fully paid and
non-assessable; and none of the outstanding shares of capital stock of the
Company was issued in violation of the preemptive or other similar rights of any
security holder of the Company.
(v) Each Designated Subsidiary has been duly formed and is validly
existing as a corporation, limited liability company or limited partnership in
good standing, as applicable, under the laws of the jurisdiction of its
formation, and has power and authority to own, lease and operate its properties
and to conduct its business as described in the Offering Memorandum; all of the
issued and outstanding shares, membership interests or partnership interests of
each Designated Subsidiary have been duly authorized and validly issued, are
fully paid and non-assessable and, except as otherwise set forth in the Offering
Memorandum in respect of the minority interests described therein, are owned by
the Company, directly or through subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity.
(vi) The Purchase Agreement and the Registration Rights Agreement have been
duly authorized, executed and delivered by the Company, and the Registration
Rights Agreement constitutes a valid and legally binding agreement of the
Company enforceable against the Company in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles, provided that such counsel need express no
opinion as to the enforceability of provisions with respect to indemnity for
liabilities arising under the Securities Act of 1933, as amended.
(vii) The issuance of the Securities is not subject to any statutory
preemptive or other similar rights of any security holder of the Company or, to
such counsel's knowledge, any other preemptive or other similar rights of any
security holder of the Company.
(viii) The Securities have been duly and validly authorized and
delivered and have been duly and validly issued and are fully paid and
non-assessable and conform in all material respects
A-1-1
<PAGE>
to the descriptions thereof in the Offering Memorandum. The shares of Class A
Common Stock of the Company to be issued upon conversion of the Securities have
been duly and validly authorized and reserved for issuance upon such conversion
and, when issued will be duly and validly issued, fully paid and non-assessable
and will conform in all material respects to the descriptions thereof in the
Offering Memorandum, and the holders of outstanding capital stock of the Company
are not entitled to preemptive or other rights afforded by the Company to
subscribe for the shares of the common stock of the Company issuable upon
conversion of the Securities
(ix) The information in the Offering Memorandum under the caption
"Description of Convertible Preferred Stock", to the extent that it constitutes
a summary of the terms of the Securities, and under the caption "Plan of
Distribution", and the information under the caption "Business -- Regulatory
Overview" included in the Company's Annual Report on Form 10-KSB, filed on March
25, 1998, which is incorporated therein by reference, to the extent that it
constitutes matters of law, summaries of legal matters, or legal conclusions,
has been reviewed by us and is correct in all material respects.
(x) The statements set forth in the Offering Memorandum under the caption
"Certain United States Federal Income Tax Consequences", insofar as such
statements purport to summarize certain United States federal income and estate
tax consequences of the ownership and dispensation of the Securities by certain
U.S. Holders and non-U.S. Holders of the Securities, provide a fair summary of
such consequences under current law.
(xi) All descriptions in the Offering Memorandum of contracts and other
documents to which the Company or any of its subsidiaries are a party are
accurate in all material respects; to the best of our knowledge, there are no
franchises, contracts, indentures, mortgages, loan agreements, notes, leases or
other instruments that would be required to be described in the Offering
Memorandum that are not described or referred to in the Offering Memorandum
other than those described or referred to therein and the descriptions thereof
or references thereto are correct in all material respects.
(xii) The documents incorporated by reference in the Offering
Memorandum (other than the financial statements and related schedules therein,
as to which such counsel need express no opinion), when they were filed with the
Commission, complied as to form in all material respects with the requirements
of the Exchange Act and the rules and regulations of the Commission thereunder;
and they have no reason to believe that any of such documents, when such
documents were so filed, contained an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made when such
documents were so filed, not misleading.
(xiii) To our best knowledge, neither the Company nor any of its
subsidiaries is in violation of its charter or by-laws or other constituting or
operative document or agreement and, to the best of our knowledge, no default by
the Company or any of its subsidiaries exists in the due performance or
observance of any material obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, loan agreement, note, lease or
other agreement or instrument that is described or referred to in the Offering
Memorandum.
(xiv) No filing with, or authorization, approval, consent, license,
order, registration, qualification or decree of, any court or governmental
authority or agency is necessary or required
A-1-2
<PAGE>
for the performance by the Company of its obligations under the Purchase
Agreement or the Registration Rights Agreement, in connection with the offering,
issuance or sale of the Securities hereunder or thereunder or the consummation
of the actions contemplated by the Purchase Agreement or the Registration Rights
Agreement, except the registration under the Act of the Securities and the
shares of Class A Common Stock to be issued upon conversion of the Securities in
connection with the Shelf Registration.
(xv) The issue and sale of the Securities, the execution, delivery and
performance of the Purchase Agreement, the Securities, the Registration Rights
Agreement and any other agreement or instrument entered into or issued or to be
entered into or issued by the Company in connection with the transactions
contemplated hereby, thereby or in the Offering Memorandum, and the consummation
of the transactions contemplated herein, therein and in the Offering Memorandum
(including the issuance and sale of the Securities by the Company hereunder),
the compliance by the Company with its obligations hereunder and thereunder have
been duly authorized by all necessary corporate action on the part of the
Company and do not and will not, whether with or without the giving of notice or
passage of time or both, conflict with or constitute a breach of, or default or
a Repayment Event under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or any of its
subsidiaries, pursuant to any contract, indenture, mortgage, deed of trust, loan
or credit agreement, note, lease, or any other agreement or instrument known to
such counsel to which the Company or any of its subsidiaries is a party or by
which it or any of them may be bound, or to which any of the property or assets
of the Company or any subsidiaries thereof is subject, except for such
conflicts, breaches or defaults or liens, charges or encumbrances that, singly
or in the aggregate, would not result in a Material Adverse Effect, nor will
such action result in any violation of the provisions of the constituting or
operative document or agreement of the Company or any of its subsidiaries or any
applicable law, statute, rule, regulation, judgment, order, writ or decree of
any government, government instrumentality or court, domestic or foreign, having
jurisdiction over the Company or any of its subsidiaries or any of their assets
or properties.
(xvi) The Company is not, and upon the issuance and sale of the
Securities and the application of the net proceeds therefrom will not be, an
"investment company" or an entity "controlled" by an "investment company," as
such terms are defined in the 1940 Act.
(xvii) Although such counsel does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the Offering
Memorandum, except for those referred to in subsection (x) of this opinion, such
counsel has no reason to believe that, as of its date, the Offering Memorandum
or any further amendment or supplement thereto made by the Company prior to each
Closing Time (other than the financial statements and related schedules therein,
as to which such counsel need express no opinion) contained an untrue statement
of a material fact or omitted to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading or that, as of such Closing Time, the Offering Memorandum or any
further amendment or supplement thereto made by the Company prior to such
Closing Time (other than the financial statements and related schedules therein,
as to which such counsel need express no opinion) contains an untrue statement
of a material fact or omits to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
A-1-3
<PAGE>
In rendering such opinion, such counsel (A) may rely (i) as to matters
involving the application of the laws of the State of Washington, upon the
opinion of Davis Wright Tremaine LLP, special Washington counsel to the Company
(which opinion shall be dated and furnished to the Initial Purchasers at the
Closing Time, shall be satisfactory in form and substance to counsel for the
Initial Purchasers and shall expressly state that the Initial Purchasers may
rely on such opinion as if it were addressed to them), provided that Willkie
Farr & Gallagher shall state in their opinion that they believe that they and
the Initial Purchasers are justified in relying upon such opinion, and (ii) as
to matters of fact (but not as to legal conclusions), to the extent they deem
proper, on certificates of responsible officers of the Company and public
officials and (B) may state that they express no opinion as to the laws of any
jurisdiction outside the United States. Such opinion shall not state that it is
to be governed or qualified by, or that it is otherwise subject to, any
treatise, written policy or other document relating to legal opinions,
including, without limitation, the Legal Opinion Accord of the ABA Section of
Business Law (1991).
A-1-4
<PAGE>
Exhibit A-2
FORM OF OPINION OF R. BRUCE EASTER, ESQ.
TO BE DELIVERED PURSUANT TO SECTION 6(a)
(i) There is not pending or, to the best of my knowledge, threatened any
action, suit, proceeding, inquiry or investigation, to which the Company or any
subsidiary thereof is a party, or to which the property of the Company or any
subsidiary thereof is subject, before or brought by any court or governmental
agency or body, which could reasonably be expected to result in a Material
Adverse Effect, or which might reasonably be expected to materially and
adversely affect the properties or assets thereof or the consummation of the
transactions contemplated in the Purchase Agreement, the Registration Rights
Agreement or the Securities or the performance by the Company of its obligations
thereunder or the transactions contemplated by the Offering Memorandum.
(ii) To the best of my knowledge and except as set forth in or contemplated
by the Offering Memorandum with respect to systems under development, (a) each
of the Company and its Designated Subsidiaries has all Authorizations of and
from, and has made all declarations and filings with, all Federal, state, local
and other governmental authorities, all self-regulatory organizations and all
courts and other tribunals, which are necessary or appropriate for the Company
and its Designated Subsidiaries to own, lease, license, use and construct its
properties and assets and to conduct its business in the manner described in the
Offering Memorandum, except to the extent that the failure to obtain any such
Authorizations or make any such declaration or filing would not, singly or in
the aggregate, reasonably be expected to result in a Material Adverse Effect,
(b) all such Authorizations are in full force and effect with respect to the
Company and its Designated Subsidiaries, (c) no event has occurred that permits,
or after notice or lapse of time could permit, the revocation, termination or
modification of any such Authorization and (d) the Company and its Designated
Subsidiaries are in compliance in all material respects with the terms and
conditions of all such Authorizations and with the rules and regulations of the
regulatory authorities and governing bodies having jurisdiction with respect
thereto.
(iii) To the best of my knowledge, neither the execution and delivery
of the Purchase Agreement, the Registration Rights Agreement or the Securities,
nor the consummation by the Company of the transactions contemplated hereby or
thereby will cause any suspension, revocation, impairment, forfeiture,
nonrenewal or termination of any Authorization.
In rendering such opinion, such counsel (A) may rely (i) as to matters
involving the application of the laws of the State of Washington, upon the
opinion of Davis Wright Tremaine LLP, special Washington counsel to the Company
(which opinion shall be dated and furnished to the Initial Purchasers at the
Closing Time, shall be satisfactory in form and substance to counsel for the
Initial Purchasers and shall expressly state that the Initial Purchasers may
rely on such opinion as if it were addressed to them), provided that Mr. Easter
shall state in his opinion that he believes that he and the Initial Purchasers
are justified in relying upon such opinion, and (ii) as to matters of fact (but
not as to legal conclusions), to the extent he deems proper, on certificates of
responsible officers of the Company and public officials and (B) may state that
he expresses no opinion as to the laws of any jurisdiction outside the United
States. Such opinion shall not state that it is to be governed or qualified by,
or that it is otherwise subject to, any treatise, written policy or other
document relating to legal opinions, including, without limitation, the Legal
Opinion Accord of the ABA Section of Business Law (1991).
A-2-1
<PAGE>
Exhibit A-3
FORM OF OPINION OF DAVIS WRIGHT TREMAINE LLP
TO BE DELIVERED PURSUANT TO SECTION 6(a)
(i) The Company has been duly incorporated and is validly existing as a
corporation under the laws of the State of Washington.
(ii) Each of the Purchase Agreement and the Registration Rights Agreement
has been duly authorized, executed and delivered by the Company under the laws
of the State of Washington.
(iii) The Securities have been duly and validly authorized and executed
by the Company and delivered and have been duly and validly issued and are fully
paid and non-assessable. The shares of Class A Common Stock of the Company to
be issued upon conversion of the Securities have been duly and validly
authorized and reserved for issuance upon such conversion and, when issued will
be duly and validly issued, fully paid and non-assessable and will conform in
all material respects to the descriptions thereof in the Offering Memorandum and
the holders of outstanding Capital Stock of the Company and are not entitled to
preemptive rights to subscribe for the shares of the Common Stock of the Company
issuable upon conversion of the Securities.
(iv) The issue and sale of the Securities, the execution, delivery and
performance of the Purchase Agreement, the Securities, the Registration Rights
Agreement and any other agreement or instrument entered into or issued or to be
entered into or issued by the Company in connection with the transactions
contemplated thereby or in the Offering Memorandum, and the consummation of the
transactions contemplated therein and in the Offering Memorandum (including the
issuance and sale of the Securities by the Company under the Purchase Agreement
and the use of the proceeds from the sale of the Securities as described in the
Offering Memorandum under the caption "Use of Proceeds"), the compliance by the
Company with its obligations under the Purchase Agreement have been duly
authorized by all necessary corporate action on the part of the Company and do
not and will not, whether with or without the giving of notice or passage of
time or both, conflict with, contravene or constitute a breach of the Company's
Articles of Incorporation or By-Laws.
(v) No filing with, or authorization, approval, consent, license, order,
registration, qualification or decree of, any court or governmental authority or
agency of the State of Washington is necessary or required for the performance
by the Company of its obligations under the Purchase Agreement or the
Registration Rights Agreement in connection with the offering, issuance or sale
of the Securities thereunder or the consummation of the actions contemplated by
the Purchase Agreement or the Registration Rights Agreement.
(vi) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the Offering
Memorandum and to enter into and perform its obligations under the Purchase
Agreement.
(vii) Each Designated Subsidiary formed under the laws of the State of
Washington has been duly formed and is validly existing as a limited liability
company or limited partnership under the laws of the State of Washington, each
such limited liability company has the power and authority under the Washington
limited liability company act and its limited liability company agreement, and
each such limited partnership has the partnership power and authority, to own,
lease and operate its respective properties and to conduct its respective
business as described in the Offering Memorandum, and all of the issued and
outstanding
A-3-1
<PAGE>
membership interests or partnership interests of each such Designated Subsidiary
have been duly authorized and validly issued.
(viii) The authorized capital stock of the Company is as set forth in
the Offering Memorandum, except that the par value of the Class A Common Stock
and the Class B Common Stock is $0.022658473; the shares of issued and
outstanding capital stock of the Company have been duly authorized and validly
issued and are fully paid and non-assessable.
(ix) To our knowledge, neither the Company nor any of its Designated
Subsidiaries is in violation of, as applicable, its articles of incorporation,
bylaws, limited liability company agreement or partnership agreement.
In rendering such opinion, such counsel (A) may rely as to matters of
fact (but not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Company and public officials and (B)
may state that they express no opinion as to the laws of any jurisdiction other
than the State of Washington. Such opinion shall not state that it is to be
governed or qualified by, or that it is otherwise subject to, any treatise,
written policy or other document relating to legal opinions, including, without
limitation, the Legal Opinion Accord of the ABA Section of Business Law (1991).
A-3-2
<PAGE>
Exhibit 5.2
[Letterhead of Davis Wright & Tremaine LLP]
June 26, 1998
NEXTLINK Communications, Inc.
155 108th Avenue N.E., 8th Floor
Bellevue, Washington 98004
Ladies and Gentlemen:
We have acted as counsel to NEXTLINK Communications, Inc., a Delaware
corporation (the "Company"), in connection with the filing by the Company with
the Securities and Exchange Commission on June 26, 1998 of a registration
statement (the "Registration Statement") on Form S-3 under the Securities Act of
1933, as amended (the "Securities Act"), registering 4,000,000 shares of 6-1/2%
Cumulative Convertible Preferred Stock (liquidation preference $50 per share)
(the "Convertible Preferred Stock") and of the Class A Common Stock, par value
$.02 per share (the "Class A Common Stock"), into which the Convertible
Preferred Stock is convertible.
We have examined the Registration Statement and the originals or copies of
such other documents, certificates and records as we have deemed relevant or
necessary as the basis for the opinions hereinafter expressed. We have assumed
the genuineness of all signatures, the authenticity of documents, certificates
and records submitted to us as originals, the conformity to the originals of all
documents, certificates and records submitted to us as certified or reproduction
copies, the legal capacity of all natural persons executing documents,
certificates and records, and the completeness and accuracy as of the date of
this opinion letter of the information contained in such documents, certificates
and records.
The law covered by opinions expressed herein is limited to the law of the
State of Washington and the General Corporation Law of the State of Delaware.
Based upon and subject to the foregoing, we are of the opinion that (i) the
shares of Convertible Preferred Stock have been duly and validly authorized and
are validly issued, fully
<PAGE>
paid and non-assessable and (ii) the shares of Class A Common Stock have been
duly and validly authorized and reserved for issuance upon conversion of the
Convertible Preferred Stock and, when issued will be duly and validly issued,
fully paid and non-assessable.
This opinion letter is delivered as of its date and without any undertaking
to advise you of any changes of law or fact that occur after the date of this
opinion letter even though the changes may affect a legal analysis or conclusion
or an information confirmation in this opinion letter.
We consent to being named in the Registration Statement and related
Prospectus as counsel who are passing upon the legality of the New Notes for the
Company and to the reference to our name under the caption "Legal Matters" in
such Prospectus. We further consent to your filing copies of this opinion as an
exhibit to the Registration Statement or any amendment thereto. In giving such
consents, we do not hereby admit that we are in the category of persons whose
consent is required under Section 7 of the Securities Act.
Very truly yours,
/s/ Davis Wright Tremaine LLP
0464681.01
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference to this registration statement on Form S-3 (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
June 22, 1998
