<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 25, 1999
REGISTRATION NO. 333-77819
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
NEXTLINK COMMUNICATIONS, INC.
(Exact Name of Registrant as Specified in its Charter)
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<S> <C> <C>
DELAWARE 4813 91-1738221
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
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500 108TH AVENUE N.E., SUITE 2200, BELLEVUE, WASHINGTON 98004, (425) 519-8900
(Address, including ZIP code, and telephone number, including area code, of
the Registrant's principal executive offices)
------------------------
R. BRUCE EASTER JR., ESQ.
500 108TH AVENUE N.E., SUITE 2200
BELLEVUE, WASHINGTON 98004
(425) 519-8900
(Name, address, including ZIP code, and telephone number, including area code,
of agent for service)
------------------------
COPIES TO:
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BRUCE R. KRAUS, ESQ. ROBERT E. BUCKHOLZ, ESQ.
WILLKIE FARR & GALLAGHER SULLIVAN & CROMWELL
787 SEVENTH AVENUE 125 BROAD STREET
NEW YORK, NEW YORK 10019 NEW YORK, NEW YORK 10004
(212) 728-8000 (212) 558-4000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED OFFER TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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. / /
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 this Form is a post-effective amendment filed pursuant to Rule 462(b)
under the Securities Act, 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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<CAPTION>
PROPOSED
AMOUNT PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE MAXIMUM OFFERING AGGREGATE REGISTRATION
TO BE REGISTERED(1) REGISTERED PRICE(1) OFFERING PRICE FEE
<S> <C> <C> <C> <C>
% Senior Notes Due 2009........................ $575,000,000 100%
% Senior Discount Notes Due 2009............... $496,940,575 57.854% $ 862,500,000 $ 236,300(2)
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) $208,500 of this fee has been previously paid.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION, MAY 25, 1999
PROSPECTUS
[LOGO]
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT OFFER THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
$750,000,000 GROSS PROCEEDS
NEXTLINK COMMUNICATIONS, INC.
% SENIOR NOTES DUE 2009
% SENIOR DISCOUNT NOTES DUE 2009
---------
NEXTLINK Communications, Inc. intends to raise gross proceeds of
$750,000,000 through this offering of senior notes and senior discount notes.
Interest on the senior notes is payable semi-annually on June and December
each year, beginning December , 1999.
The senior discount notes will be sold at a substantial discount to their
principal amount and will not pay interest until the fifth anniversary of their
issuance. The accreted value of the senior discount notes will increase, or
accrete, from the issue price at a rate of % per annum, compounded
semi-annually, until June , 2004, when it will reach 100% of the senior
discount notes' principal amount. Thereafter, interest on the senior discount
notes will be payable semi-annually on June and December of each year,
beginning on December , 2004.
We may redeem all or a portion of either or both series of notes at any time
on or after June , 2004 at the redemption prices set forth in this prospectus,
plus accrued and unpaid interest. Upon a change of control, you will have the
right to require us to repurchase senior notes at a price equal to 101% of the
principal amount thereof, or senior discount notes at a price equal to 101% of
the accreted value, in each case plus accrued and unpaid interest, if any, to
the date of repurchase.
Neither series of notes will trade on any established exchange.
--------------
INVESTING IN THE NOTES INVOLVES RISKS DESCRIBED BEGINNING ON PAGE 5.
Neither the Securities and Exchange Commission nor any state securities
commission has approved these securities or determined that this prospectus is
accurate or complete. Any representation to the contrary is a criminal offense.
--------------
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SENIOR NOTES SENIOR DISCOUNT NOTES
------------------------- ------------------------
PER SENIOR PER SENIOR
NOTE TOTAL DISCOUNT NOTE TOTAL
-------------- --------- ------------- ---------
<S> <C> <C> <C> <C>
Public Offering Price............................................. % $ % $
Underwriting Discount............................................. % $ % $
Proceeds to NEXTLINK (before expenses)............................ % $ % $
</TABLE>
NEXTLINK has granted to the underwriters the right to purchase up to an
aggregate of $ of additional principal amount of senior notes and an
aggregate of $ principal amount at stated maturity of senior discount
notes to cover any over-allotments. We expect to deliver the notes in New York,
New York, on or about , 1999.
--------------
SALOMON SMITH BARNEY
GOLDMAN, SACHS & CO.
BEAR, STEARNS & CO. INC.
CREDIT SUISSE FIRST BOSTON
CHASE SECURITIES INC.
, 1999
<PAGE>
[Graphic: Map of United States and southern Canada showing NEXTLINK's local
networks, broadband spectrum licenses and route of national fiber optic network
now under construction.]
In connection with this offering, the underwriters may engage in
transactions that stabilize, maintain, or otherwise affect the price of the
notes, including over-allotment, bidding for or purchasing such securities to
stabilize their market price, purchasing such securities to cover some or all of
a short position in such securities maintained by the underwriters, and the
imposition of penalty bids. For a description of these activities, see
"Underwriting".
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
Prospectus Summary......................................................................................... 1
Risk Factors............................................................................................... 5
Use of Proceeds............................................................................................ 12
Capitalization............................................................................................. 13
Selected Historical Consolidated Financial and Operating Data.............................................. 14
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 17
Business................................................................................................... 23
Regulation................................................................................................. 32
Description of the Notes................................................................................... 34
Book-Entry; Delivery and Form.............................................................................. 74
Material United States Federal Income Tax Consequences..................................................... 76
Description of Other Material Indebtedness................................................................. 79
Underwriting............................................................................................... 85
Validity of the Notes...................................................................................... 87
Experts.................................................................................................... 87
Where You Can Find More Information........................................................................ 87
</TABLE>
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information or to make any
representation to you that is not contained in this prospectus. This prospectus
is not an offer to sell these securities in any jurisdiction where the offer or
sale is not permitted. You should not under any circumstances assume that the
information in this prospectus is correct on any date after the date of this
prospectus.
<PAGE>
PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND NOTES TO THE FINANCIAL STATEMENTS
INCORPORATED BY REFERENCE FROM OUR 1998 FORM 10-K, DATED MARCH 29, 1999.
OUR BUSINESS
Since 1996, NEXTLINK has provided high-quality telecommunications services
to the rapidly growing business market. We believe that increasing usage of both
telephone service and newer data and information services will continue to
increase demand for telecommunications capacity, or bandwidth, and for new
telecommunications services and applications.
To serve our customers' broad and expanding telecommunications needs, we
have assembled a unique collection of high-bandwidth, local and national network
assets. We intend to integrate these assets with advanced communications
technologies and services in order to become one of the nation's leading
providers of comprehensive end-to-end telecommunications services.
To accomplish this:
- we have built 23 high-bandwidth, or broadband, local networks in 14
states, generally located in the central business districts of the cities
we serve, and we are continuing to build additional networks;
- we have become the nation's largest holder of broadband fixed wireless
spectrum, with FCC licenses covering 95% of the population of the 30
largest U.S. cities, which we will use to extend the reach of our networks
to additional customers; and
- we have acquired exclusive interests in a national broadband network now
being built to traverse over 16,000 miles and to connect more than 50
cities, including all of the largest cities that our current and planned
local networks serve.
As our networks become increasingly optimized for data transmission, we plan
to offer our customers high-speed Internet access and additional services, such
as Internet web hosting and support for e-commerce. By web hosting, we mean
support for customers' web sites at our central offices, running either on their
computers or on ours, together with website design and maintenance services. We
also plan to build on our existing expertise in communicating customized
information to mass-market customers and automated order fulfillment to serve
clients with e-commerce businesses, that is, businesses conducting high volume
retail transactions over the Internet.
We are now operating local networks in 38 cities. We provided nearly 225,000
business telephone lines to our customers as of March 31, 1999, of which more
than 50,000 were installed in the first quarter of 1999. We are currently
building additional networks, and plan to have operational networks in most of
the 30 largest U.S. cities by the end of 2000.
Our local and national networks employ fiber optic technology, which uses
light waves to transmit signals over cables consisting of many glass fiber
strands. Each strand in these fiber optic cables has enough capacity to carry
over 100,000 times more traffic than a strand of
<PAGE>
traditionally-configured copper wire. Rings of our fiber optic cables typically
encircle a city's central business district and connect to our central offices.
These central offices contain the switches and routers that direct calls and
data traffic to their destinations, and have space to house the additional
equipment necessary for future telecommunications services. Wherever we can, we
build and own these networks ourselves. This enables us to deliver higher
quality services and will enable us to deliver new services that we expect will
increase our operating margins.
Our goal is to provide our customers with complete voice and data network
solutions for all of their communications needs, using our own fiber, switches
and other facilities to the greatest extent possible. Today, however, we
frequently lease the existing copper telephone wires from the dominant local
telephone company to make the physical connection for the short distance -which
we refer to as the "first mile"- between our customers and our fiber optic
networks.
To reduce our reliance on first mile connections leased from the dominant
carrier, we intend to increase the number of customers connected directly to our
networks. In some cases, we will construct a new fiber optic extension from our
network to the customer's premises. In other cases, we will deploy a
high-bandwidth wireless connection between an antenna on the roof of the
customer's premises and an antenna attached to our fiber rings. These wireless
connections offer high-quality broadband capacity and often cost less than fiber
to install. We expect to deploy wireless first mile extensions in 25 markets by
the end of 2000.
We are also deploying a technology called Digital Subscriber Line, or DSL,
to meet the high bandwidth needs of those customers whose first mile connection
remains over copper wire. DSL increases the effective capacity of existing
copper telephone wires. We are installing our own DSL equipment to provide these
services ourselves, and also resell another provider's DSL services.
Our networks support a variety of communications technologies, which permits
us to offer customers a set of technology options to meet their changing needs,
and introduce new technologies as they become available. For example, we have
begun to add new technologies to our networks including Internet Protocol, or
IP, routers and switches, and Asynchronous Transfer Mode, or ATM switches. ATM
switches will enable us to meet the demands of large, high-volume customers,
while IP routers and switches will enable us to carry Internet traffic more
efficiently and to provide more services.
As IP technology evolves and matures, we believe it will gradually replace
ATM, and we therefore intend to invest heavily in optimizing our networks for
present and future IP implementations. We anticipate that future IP technologies
will enable the high-bandwidth, end-to-end national network we are building to
carry data, voice and video. Such a network should also enable us to offer our
customers entirely new classes of IP services. We intend to remain flexible in
our technology choices, to serve our customers' present needs and to take
advantage of the future opportunities that technological advances may bring.
2
<PAGE>
THE OFFERING
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<S> <C>
Securities Offered.............. $ principal amount of % senior notes due 2009.
$ aggregate principal amount at stated maturity of
% senior discount notes due 2009. We have granted the
underwriters the right to purchase up to an aggregate of
$ of additional principal amount of senior notes and
an aggregate of $ of principal amount at stated
maturity of senior discount notes to cover any
over-allotments.
We will issue the senior notes and senior discount notes
under separate indentures, and sometimes refer to both
issues of notes collectively as the "notes."
Issuer.......................... NEXTLINK Communications, Inc.
Issue Price..................... % for the senior notes.
% for the senior discount notes.
Maturity........................ June , 2009 for both the senior notes and the senior
discount notes.
Interest and Accretion.......... Interest on the senior notes will accrue from June ,
1999 at the rate of % per year, payable semi-annually
on each June and December , beginning on December ,
1999.
No cash interest will accrue on the senior discount notes
until June , 2004. From the date these notes are issued
through June , 2004, the aggregate accreted value of the
senior discount notes will increase from $ million at
a rate of % per year, compounded semi-annually, to
their aggregate principal amount at stated maturity of
$ million. After that date, cash interest on the senior
discount notes will accrue at the rate of % per year,
payable semi-annually on June and December of each
year, beginning on December , 2004.
Ranking......................... The notes will be unsecured and not guaranteed by any of
our operating subsidiaries.
Optional Redemption............. On or after June , 2004, we will have the right to redeem
any or all of the notes at their principal amount at
maturity plus accrued interest and a premium initially
equal to %, in the case of the senior notes and % in
the case of the senior discount notes, and declining
annually after that date.
In addition, before June , 2002, we have the right to use
the net cash proceeds of qualifying equity offerings to
redeem:
- up to % of the senior notes originally outstanding at
their principal amount plus accrued interest, provided,
that senior notes in an aggregate principal amount of at
least $ million remain outstanding after the
redemption; and
- up to % of the senior discount notes at a redemption
price equal to % of their accreted value, provided
that senior discount notes in an aggregate principal
amount of at least $ million remain outstanding after
the redemption.
Tax Consequences of Holding
Senior Discount Notes......... The accretion of the senior discount notes from their
issue price to their principal amount will produce taxable
ordinary interest income in the amount of the accretion
for holders of the senior
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
discount notes during the accretion period. The Internal
Revenue Code calls this original issue discount, or OID.
Change of Control............... If an event treated as a change of control occurs, we must
make an offer to purchase any and all of the notes then
outstanding at the following prices:
- Senior notes: 101% of their aggregate principal amount,
plus accrued and unpaid interest, if any, to the date of
purchase;
- Senior discount notes: 101% of their accreted value (if
prior to June , 2004) or 101% of the aggregate
principal amount, plus accrued interest (if on or after
June , 2004).
Covenants....................... The indentures under which the senior notes and senior
discount notes are being issued contain covenants for your
benefit which, among other things and subject to important
exceptions, restrict our ability and the ability of our
subsidiaries to:
- borrow money;
- pay dividends on stock or purchase stock;
- make investments;
- use assets as security in other transactions; and
- sell certain assets or merge with or into other
companies.
Each indenture allows modification and amendment of these
and other covenants by a vote of holders of a majority in
aggregate principal amount of the notes issued under that
indenture, subject to exceptions described in the
indentures. Also, holders of a majority in aggregate
principal amount of the notes issued under an indenture
may waive our compliance with certain other restrictive
covenants in that indenture.
Concurrent Equity Offering...... We are offering, under a separate prospectus, 4,982,050
shares of our Class A common stock, from which we expect
to receive net proceeds of approximately $343.8 million,
at an assumed public offering price of $73.25 per share.
This debt offering is not conditioned on the closing of
the concurrent equity offering and if this offering closes
before the concurrent equity offering does, you should not
assume that the equity offering will necessarily close on
these terms, if at all.
Use of Proceeds................. We intend to use substantially all of the net proceeds
from this debt offering and the concurrent equity offering
to expand our networks and services, introduce new
technologies and to fund operating losses, working capital
and possible acquisitions.
</TABLE>
RISK FACTORS AND ADDITIONAL INFORMATION
See "Risk Factors" beginning on page 5 for a discussion of risks relating to
the senior and senior discount notes. For additional information regarding the
notes, see "Description of the Notes" and "Material United States Federal Income
Tax Consequences."
4
<PAGE>
RISK FACTORS
You should consider carefully the following risks before you decide to buy
our senior or senior discount notes.
WE HAVE SUBSTANTIAL EXISTING DEBT AND WILL INCUR SUBSTANTIAL ADDITIONAL DEBT, SO
WE MAY BE UNABLE TO PAY INTEREST ON THE NOTES BEING OFFERED
As of March 31, 1999, NEXTLINK had outstanding five issues of senior notes
totaling $2,023.0 million in principal amount, or $2,773.0 million on a pro
forma basis to include the effect of this debt offering (not including any
exercise of the underwriters' over-allotment option), and approximately $73.2
million in miscellaneous debt obligations of our subsidiaries. Because we have
these substantial obligations, we may be unable to pay interest or principal on
any or all of these outstanding notes and the notes being offered.
For each period since our inception, we have had substantial and increasing
net losses and negative cash flow from operations. Consequently, we do not
currently generate cash flows from which we can make payments on our outstanding
notes. We cannot assure you that we will ever establish an adequate revenue base
or generate enough positive cash flow to provide future capital expenditures and
repayment of debt.
Our indentures permit us to incur substantial additional debt, and we fully
expect to borrow substantial additional funds in the next several years. This
additional indebtedness will further increase the risk of a default unless we
can establish an adequate revenue base and generate sufficient cash flow to
repay our indebtedness.
SIGNIFICANT CAPITAL EXPENDITURES WILL DIVERT FUNDS WHICH COULD BE USED TO MAKE
PAYMENTS ON THE NOTES
We expect to make significant capital expenditures in the future. These
expenditures will divert funds which could be used to make payments on the
notes. In addition to the expenditures required to implement our strategy
discussed under "Business," additional expenditures are likely to include the
potential acquisition of other telecommunications companies and the continued
development and implementation of a comprehensive information technology
platform.
IF WE ARE NOT SUCCESSFUL IN RAISING ADDITIONAL CAPITAL, WE WILL NOT BE ABLE TO
BUILD AND MAINTAIN OUR NETWORKS
Building our business will require substantial additional capital spending.
Our capital spending plans have increased dramatically over time, as our
strategy has evolved and our planned network has grown larger and more robust.
Because our anticipated future capital requirements will exceed the $1,244.4
million in cash and marketable securities we had on hand as of March 31, 1999,
the $732.6 million net proceeds we expect to receive from this debt offering
(not including any exercise of the underwriters' over-allotment option) and the
$343.8 million in net proceeds we expect to receive from the concurrent equity
offering, we will be required to raise additional capital. If we fail to raise
sufficient capital, we may be required to delay or abandon some of our planned
future expansion or expenditures, which could have a material adverse effect on
our growth and our ability to compete in the telecommunications services
industry and could even result in a payment default on our existing debt.
5
<PAGE>
BECAUSE THE NOTES WILL BE STRUCTURALLY SUBORDINATED TO THE OBLIGATIONS OF OUR
SUBSIDIARIES, YOU MAY NOT BE FULLY REPAID IF WE BECOME INSOLVENT
Because our cash flows from operations arise at the subsidiary level, all of
our senior notes are structurally subordinated to the debts of our subsidiaries.
Creditors of any NEXTLINK subsidiary, including trade creditors, have and will
have claims that will be senior to the notes with respect to the assets of that
subsidiary. In addition, some of our subsidiaries are subject to capital and
other lease obligations.
OUR SUBSIDIARIES MUST MAKE PAYMENTS TO US IN ORDER FOR US TO MAKE PAYMENTS ON
THE NOTES
We depend upon cash payments from our subsidiaries to meet our fixed-charge
payment obligations, including our obligation to pay you as a holder of notes.
We cannot assure you that our subsidiaries will have sufficient cash to make any
payments to us, as their cash flows from operations are currently negative. Our
indentures generally permit us to invest proceeds from the sale of our debt
securities in subsidiaries and joint ventures that we manage.
BECAUSE THE NOTES WILL NOT BE SECURED, YOU MAY NOT BE FULLY REPAID IF WE BECOME
INSOLVENT
The notes will not be secured by any of the assets of NEXTLINK or its
subsidiaries. Therefore, you may not be fully repaid if we become insolvent.
Moreover, our indentures permit us to incur secured debt. If we were to incur
secured debt and we become insolvent, the holders of the secured debt would
receive payments from the assets used as security before you receive payments.
IF WE CANNOT QUICKLY AND EFFICIENTLY INSTALL OUR HARDWARE, WE WILL BE UNABLE TO
GENERATE REVENUE
Each of our networks consists of many different pieces of hardware,
including switches, routers, fiber optic cables, electronics, and combination
radio transmitter/receivers, known as transceivers, and associated equipment,
which are difficult to install. If we cannot install this hardware quickly, the
time in which customers can be connected to our network and we can begin to
generate revenue from our network will be delayed. You should be aware that the
construction of our national fiber optic network is not under our control, but
is under the control of Level 3 Communications. We cannot assure you that the
Level 3 network will be completed, that it will be placed in service within the
expected time frame or that it will contain the contemplated number of fibers
and conduits throughout the entire network. Failure of Level 3 to complete its
network in a timely manner would delay implementation of our strategy of linking
our local networks to one another and creating an end-to-end national network.
IP TECHNOLOGY HAS NOT YET BEEN PERFECTED FOR FULL SERVICE NETWORKS LIKE OURS
We plan to rely on IP technology as the basis for our planned end-to-end
network. Although IP technology is used throughout the Internet, its extension
to support other telecommunications applications, such as voice and video, has
not yet been perfected, and currently has several deficiencies, including poor
reliability and quality. Integrating these technologies into our network may
prove difficult and may be subject to delays. We cannot assure you that these
improvements will become available in a timely fashion or at reasonable cost, if
at all, or that the technology choices we make will prove to be cost effective
and correct.
6
<PAGE>
WE MAY NOT BE ABLE TO CONNECT OUR NETWORK TO THE INCUMBENT CARRIER'S NETWORK OR
TO THE INTERNET ON FAVORABLE TERMS
We require interconnection agreements with the dominant local telephone
company to connect calls between our customers and non-customers. Congress and
our industry refer to this dominant local carrier as the incumbent local
exchange carrier, or the incumbent carrier. We cannot assure you that we will be
able to negotiate or renegotiate interconnection agreements in all of our
markets on favorable terms.
To become an Internet service provider, or ISP, we will require peering
arrangements with other ISPs, particularly the large, national ISPs. While we
anticipate that we will enter into the agreements necessary to become an ISP,
the terms and conditions of these so-called peering agreements are becoming more
restrictive as Internet service becomes increasingly commercialized, and we
cannot be sure that our peering arrangements will be on favorable terms.
THE REQUIREMENT THAT WE OBTAIN PERMITS AND RIGHTS-OF-WAY INCREASES OUR COST OF
DOING BUSINESS
In order for us to acquire and develop our fiber networks, we must obtain
local franchises and other permits, as well as rights-of-way and fiber capacity
from entities such as incumbent carriers and other utilities, railroads, long
distance companies, state highway authorities, local governments and transit
authorities. You should be aware that the process of obtaining these permits and
rights-of-way increases our cost of doing business.
We cannot assure you that we will be able to maintain our existing
franchises, permits and rights-of-way that we need to implement our business.
Nor can we assure you that we will be able to obtain and maintain the other
franchises, permits and rights that we require. A sustained and material failure
to obtain or maintain these rights could materially adversely affect our
business in the affected metropolitan area.
OUR DEPLOYMENT OF WIRELESS FIRST MILE CONNECTIONS COULD BE DELAYED BY A LACK OF
ACCEPTABLE EQUIPMENT AND BY INSTALLATION RISKS
The FCC licensed our broadband wireless spectrum in what it calls the Local
Multipoint Distribution Services, or LMDS. LMDS is a newly-authorized service,
and equipment vendors are only beginning to offer radios, transceivers and
related equipment designed to work at its frequencies. We are testing several
vendors' equipment, but can't be certain that any equipment meeting our
standards will be available in time to meet our development schedule.
LMDS first mile connections require us to obtain access to rooftops from
building owners and to satisfy local construction and zoning rules for antennas
and transmitters. The need to obtain these authorizations could be an additional
source of delay.
WE CANNOT ACCURATELY PREDICT THE TOTAL COST OF OUR WIRELESS FIRST MILE
DEPLOYMENT
Since we have not negotiated final contracts to purchase any LMDS equipment,
we don't know precisely how much the equipment we will need will cost.
Installation costs will vary greatly, depending on the particular
characteristics of the locations to be served. After initial installation, we
expect to incur additional costs to reconfigure, redeploy and upgrade our
wireless first mile as technologies improve.
7
<PAGE>
IN LOCAL MARKETS, WE COMPETE AGAINST THE INCUMBENT CARRIER, WHO HAS A VESTED
INTEREST IN MAKING IT DIFFICULT FOR US TO CONNECT CUSTOMERS TO OUR NETWORK
In each of the local markets served by our networks, we compete principally
with the incumbent carrier in that market.
The incumbent carriers are already established providers of local telephone
services to all or virtually all telephone subscribers within their respective
service areas. The incumbent carriers have begun to provide data services and
are seeking to provide service using DSL technology. Their physical connections
from their premises to those of their customers are expensive and difficult to
duplicate. In addition, they have long-standing relationships with regulatory
authorities at the federal and state levels.
It is expensive and difficult for us to switch a new customer to our network
because:
- a potential customer faces switching costs if it decides to become our
customer, and
- we require cooperation from the incumbent carrier.
Due to our competitor's advantages, we cannot assure you that we will be
able to compete successfully with the incumbent carriers.
WE FACE COMPETITION IN LOCAL MARKETS FROM OTHER CARRIERS, PUTTING DOWNWARD
PRESSURE ON PRICES
We also face competition from recent and potential market entrants,
including long distance carriers seeking to enter, reenter or expand entry into
the local exchange marketplace such as AT&T, MCI WorldCom and Sprint. This
places downward pressure on prices for local telephone service and for data
services and makes it more difficult for us to achieve positive operating cash
flow. In addition, we expect competition from other companies, such as cable
television companies, electric utilities, microwave carriers, wireless telephone
system operators and private networks built by large end-users. We cannot assure
you that we will be able to compete effectively with these industry
participants.
WE FACE COMPETITION IN LONG DISTANCE MARKETS, PUTTING DOWNWARD PRESSURE ON
PRICES
We also face intense competition from long distance carriers in the
provision of long distance services, which places downward pressure on prices
for long distance service, including both voice and data services, and makes it
difficult for us to achieve positive operating cash flow. Although the long
distance market is dominated by three major competitors, AT&T, MCI WorldCom and
Sprint, hundreds of other companies also compete in the long distance
marketplace. We also anticipate that the incumbent carriers will be competing in
the long distance market in the near future. We cannot assure you that we will
be able to effectively compete with any of these industry participants.
WE ALSO FACE COMPETITION IN CREATING A NATIONAL BROADBAND NETWORK
Several of our competitors, such as Qwest, Level 3, IXC and Williams, have
announced an intention to create end-to-end broadband networks that would
compete directly with the network we are building. In addition, the major
long-distance and incumbent local carriers have the ability to do so as well. We
cannot assure you that we will be able to successfully compete with these
service providers.
8
<PAGE>
OUR COMPETITION MAY HAVE SUPERIOR RESOURCES, PLACING US AT A COST AND PRICE
DISADVANTAGE
Many of our current and potential competitors have financial, personnel and
other resources, including brand name recognition substantially greater than
those of NEXTLINK. As a result, some of our competitors can raise capital at a
lower cost than we can. Also, our competitors' greater name recognition may
require us to price our services at lower levels in order to win business.
Finally, our competitors' cost advantages give them the ability to reduce their
prices for an extended period of time if they so choose.
OUR COMPANY AND INDUSTRY ARE HIGHLY REGULATED, IMPOSING SUBSTANTIAL COMPLIANCE
COSTS AND RESTRICTING OUR ABILITY TO COMPETE IN OUR TARGET MARKETS
We are subject to varying degrees of federal, state and local regulation.
This regulation imposes substantial compliance costs on us. It also restricts
our ability to compete. For example, in each state in which we desire to offer
our services, we are required to obtain authorization from the appropriate state
commission. We cannot assure you that we will receive authorization for markets
to be launched in the future.
The NEXTBAND LMDS licenses, described in more detail in "Management's
Discussion and Analysis of Financial Condition and Results of Operations," are
subject to a petition for reconsideration filed by another auction participant.
The petition asks the FCC to revoke and reauction NEXTBAND's licenses. Because
the matter remains pending, we cannot assure you that the FCC will not grant the
petitions and relief sought.
THE TECHNOLOGIES THAT WE USE MAY BECOME OBSOLETE, WHICH WOULD LIMIT OUR ABILITY
TO COMPETE EFFECTIVELY
The telecommunications industry is subject to rapid and significant changes
in technology. If we do not replace or upgrade technology and equipment that
becomes obsolete, we will be unable to compete effectively because we will not
be able to meet the expectations of our customers.
The following technologies and equipment that we use or will use are subject
to obsolescence: wireline and wireless transmission technologies, circuit and
packet switching technologies and data transmission technologies, including the
Nortel DMS 500 switches, DSL, ATM and IP technologies. In addition, we cannot
assure you that the technologies that we choose to invest in will lead to
successful implementation of our business plan.
WE MAY BE REQUIRED TO PAY PATENT LICENSING FEES, WHICH WILL DIVERT FUNDS WHICH
COULD BE USED FOR OTHER PURPOSES
From time to time we receive requests to consider licensing certain patents
held by third parties that may have bearing on our interactive voice response,
other enhanced, or data services. Should we be required to pay license fees in
the future, such payments, if substantial, could have a material adverse effect
on our results of operations.
IF WE LOSE KEY PERSONNEL AND QUALIFIED TECHNICAL STAFF, OUR ABILITY TO MANAGE
THE DAY-TO-DAY ASPECTS OF OUR COMPLEX NETWORK WILL BE WEAKENED
We believe that a critical component for our success will be the attraction
and retention of qualified professional and technical personnel. If we lose key
personnel and qualified technical staff, or are unable to recruit qualified
personnel, our ability to manage the day-to-day aspects of our complex network
will be weakened. You should be aware that we
9
<PAGE>
face significant competition in the attraction and retention of personnel who
possess the skill sets that we seek.
In addition, we must also develop and retain a large and sophisticated sales
force. If we fail to do so, there will be an adverse effect on our ability to
generate revenue and, consequently, our operating cash flow.
CRAIG O. MCCAW, WHO WILL CONTROL APPROXIMATELY 57% OF NEXTLINK'S VOTING POWER
AFTER THE CONCURRENT EQUITY OFFERING, MAY HAVE INTERESTS WHICH ARE ADVERSE TO
YOUR INTERESTS
Craig O. McCaw, primarily through his majority ownership and control of
Eagle River Investments, LLC, will control approximately 57% of NEXTLINK's total
voting power after giving effect to the additional shares that are expected to
be issued in the concurrent equity offering. Because Mr. McCaw has the ability
to control the direction and future operations of NEXTLINK and has interests in
other companies that may compete with NEXTLINK, he may make decisions which are
adverse to your interests.
In addition to his investment in NEXTLINK through Eagle River, Mr. McCaw has
significant investments in other communications companies, including Nextel
Communications, Teledesic Corporation and INTERNEXT, some of which could compete
with us or act as one of our suppliers of certain telecommunications services.
You should be aware that we do not have a noncompetition agreement with either
Mr. McCaw or Eagle River. Mr. McCaw is not bound by any contracts with NEXTLINK
restricting his future sales of our common stock.
WE MAY FACE ADDITIONAL COSTS AND OTHER ADVERSE EFFECTS DUE TO YEAR 2000 ISSUES
To ensure that our computer systems and applications will function properly
beyond 1999, we have implemented a year 2000 program. As part of this program,
we conducted an inventory of network equipment and enterprise systems that
execute primary business processes, such as accounting, service assurance,
service delivery, customer service and billing. We cannot be sure that mission
critical equipment has not been overlooked.
Our determinations whether any systems or applications require modification
or replacement are based in part on statements made to us by vendors used by us
as to the year 2000 compliance of the systems and applications used by us. We
will not be able to independently confirm the accuracy or completeness of these
vendor representations.
Telecommunications and data traffic between our customers who are directly
connected to one of our networks and parties who are not customers of ours are
routed over networks that we do not control. In addition, many of our customers
are connected to one of our networks through facilities of the incumbent
carrier. Consequently, our customers may not be able to complete calls or data
transmissions if the computer, telecommunications and other systems of outside
entities, including local and interexchange carriers and Internet service
providers that interchange traffic, are not year 2000 compliant. A failure by
some or all of these entities to make their systems year 2000 compliant could
create substantial disruptions, which in turn could have a material adverse
effect on our operations.
For further discussion on our year 2000 program, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Impact
of Year 2000" in our Annual Report on Form 10-K for 1998.
10
<PAGE>
THIS PROSPECTUS INCLUDES FORWARD-LOOKING STATEMENTS, BUT ACTUAL RESULTS MAY
DIFFER SIGNIFICANTLY
Some statements and information contained in this prospectus are not
historical facts, but are "forward-looking statements", as such term is defined
in the Private Securities Litigation Reform Act of 1995. We wish to caution you
that these forward-looking statements are only predictions, and actual events or
results may differ materially as a result of risks that we face, including those
set forth herein under "Risk Factors." These forward-looking statements can be
identified by the use of forward-looking terminology such as "believes",
"expects", "plans", "may", "will", "would," "could," "should", or "anticipates"
or the negative of these words or other variations of these words or other
comparable words, or by discussions of strategy that involve risks and
uncertainties. Such forward-looking statements include, but are not limited to:
- the number of markets we expect to serve, the expected number of
addressable business lines in markets in which we currently provide
service and the markets in which we expect to provide service;
- our expectations regarding our ability to attract and retain customers;
- our beliefs regarding certain competitive advantages, including that of
our management structure and provisioning processes and systems;
- our expectation regarding the size of our sales and customer care forces;
- our belief regarding traffic flow over our networks and the effects and
benefits of high capacity networks with broad coverage based on a uniform
technology platform;
- our plans to install additional switches, data networking capabilities
such as IP and ATM facilities and high speed technologies such as DSL;
- our plans to implement wireless first mile connections;
- our ability to maintain technological flexibility;
- our expectation regarding the development of a national network and the
implementation of a national network end-to-end strategy;
- our anticipated capital expenditures, funding thereof and levels of
indebtedness and our expectations regarding additional indebtedness; and
- statements with respect to our Year 2000 project.
11
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the notes will be
approximately $732.6 million, after deducting the estimated underwriting
discounts and offering expenses. If the underwriters exercise their
over-allotment option in full, we estimate that the net proceeds for the
additional senior and senior discount notes we would issue in connection with
the over-allotment option would be approximately $109.7 million.
In the concurrent equity offering, we are offering 4,982,050 shares of Class
A common stock, from which we anticipate net proceeds of approximately $343.8
million, at an assumed offering price of $73.25 per share, after deducting
estimated expenses. This debt offering, however, is not contingent upon
completion of the concurrent equity offering.
We plan to use the net proceeds from this offering, together with our cash
on hand and the net proceeds from the concurrent equity offering, to expand our
existing networks and services, to provide new communications and data services
and implement new technologies, to provide electronics and equipment for our
national network, develop and acquire new networks and services, to potentially
acquire other communications and data services companies. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
12
<PAGE>
CAPITALIZATION
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The following table sets forth as of March 31, 1999, the actual
capitalization of NEXTLINK and the capitalization of NEXTLINK as adjusted to
reflect NEXTLINK's sale of notes in this offering (not including any exercise of
the underwriters' over-allotment option), the acquisitions of WNP and the 50%
interest in NEXTBAND that we do not already own, and the concurrent equity
offering. This debt offering is not conditioned on the completion of our
concurrent equity offering.
This table should be read in conjunction with the Selected Historical
Consolidated Financial and Operating Data included elsewhere in this prospectus,
and the audited Consolidated Financial Statements and notes thereto included in
our 1998 Form 10-K, which is incorporated herein by reference.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
------------------------------------------------------------------
<S> <C> <C> <C> <C>
AS ADJUSTED
AS ADJUSTED FOR
FOR THE DEBT AND
THE DEBT EQUITY
AS ADJUSTED OFFERING AND OFFERINGS, AND
FOR THE WNP AND THE WNP AND
THE DEBT NEXTBAND NEXTBAND
ACTUAL OFFERING TRANSACTIONS(3) TRANSACTIONS(3)
------------------ -------------- -------------- --------------
Cash, cash equivalents and marketable
securities................................. $1,244,406 $ 1,976,981 $ 1,491,489 $ 1,835,301
Pledged securities(1)........................ 21,821 21,821 21,821 21,821
------------------ -------------- -------------- --------------
Total...................................... $1,266,227 $ 1,998,802 $ 1,513,310 $ 1,857,122
------------------ -------------- -------------- --------------
------------------ -------------- -------------- --------------
Current portion of long-term obligations..... $ 2,760 $ 2,760 $ 2,760 $ 2,760
Other long-term liabilities.................. 16,304 16,304 16,304 16,304
12 1/2% Senior Notes due 2006................ 350,000 350,000 350,000 350,000
9 5/8% Senior Notes due 2007................. 400,000 400,000 400,000 400,000
9% Senior Notes due 2008..................... 334,396 334,396 334,396 334,396
9.45% Senior Discount Notes due 2008......... 438,636 438,636 438,636 438,636
10 3/4% Senior Notes due 2008................ 500,000 500,000 500,000 500,000
% Senior Notes due 2009.................. --
% Senior Discount Notes due 2009......... --
------------------ -------------- -------------- --------------
Total debt................................. 2,042,096 2,792,096 2,792,096 2,792,096
Redeemable Preferred Stock, par value $0.01
per share, 25,000,000 shares authorized,
net of issuance costs:
14% Preferred Shares, 7,508,588 shares
issued and outstanding................. 375,177 375,177 375,177 375,177
6 1/2% Cumulative Convertible Preferred
Stock, 4,000,000 shares issued and
outstanding............................ 194,341 194,341 194,341 194,341
Shareholders' equity (deficit):
Common stock, par value $.02 per share,
stated at amounts paid in; Class A,
110,334,000 shares authorized, 25,712,771
issued and outstanding (31,428,602 as
adjusted to reflect the acquisition of
WNP, and 36,410,652 as further adjusted
to reflect the sale of common stock in
the concurrent equity offering); Class B,
44,133,600 shares authorized, 29,184,372
shares issued and outstanding(2)......... 360,213 360,213 710,651 1,054,463
Deferred compensation...................... (10,399) (10,399) (10,399) (10,399)
Accumulated other comprehensive income..... 119,844 119,844 119,844 119,844
Accumulated deficit........................ (708,504) (708,504) (708,504) (708,504)
------------------ -------------- -------------- --------------
Total shareholders' equity (deficit)....... (238,846) (238,846) 111,592 455,404
------------------ -------------- -------------- --------------
Total capitalization....................... $2,372,768 $ 3,122,768 $ 3,473,206 $ 3,817,018
------------------ -------------- -------------- --------------
------------------ -------------- -------------- --------------
</TABLE>
- ------------------------------
(1) Pledged U.S. Treasury securities, which represent funds sufficient to
provide for payment in full of interest through April 15, 1999 on NEXTLINK's
12 1/2% Senior Notes due April 15, 2006.
(2) Issued and outstanding does not include 11,582,405 and 654,858 shares of
Class A common stock and Class B common stock, respectively, issuable upon
exercise of outstanding options as of March 31, 1999.
(3) The acquisition of WNP closed on April 26, 1999. We expect the NEXTBAND
transaction to close shortly after the closing of the concurrent equity
offering.
13
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The summary historical consolidated financial data below as of March 31,
1999 and for the three-month periods ended March 31, 1998 and 1999 have been
derived from our unaudited interim consolidated financial statements. In
management's opinion, the unaudited interim consolidated 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 our financial position and results of
operations. Operating results for the three-month period ended March 31, 1999
are not necessarily indicative of the results that may be expected for the full
year ended December 31, 1999.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEAR ENDED DECEMBER 31, 31,
--------------------------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- ----------- ----------- ----------- -----------
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenue................................. $ -- $ 7,552 $ 25,686 $ 57,579 $ 139,667 $ 26,545 $ 48,586
Costs and expenses:
Operating............................. 106 6,618 25,094 54,031 123,675 24,550 43,699
Selling, general and administrative... 232 9,563 31,353 75,732 156,929 31,957 52,334
Deferred compensation................. -- 375 9,914 3,247 4,993 624 1,059
Depreciation and amortization......... 14 3,458 10,340 27,190 60,254 10,183 22,853
--------- --------- --------- ----------- ----------- ----------- -----------
Loss from operations.................... (352) (12,462) (51,015) (102,621) (206,184) (40,769) (71,359)
Interest expense, net................... 3 (269) (20,086) (26,383) (72,156) (11,543) (30,927)
--------- --------- --------- ----------- ----------- ----------- -----------
Net loss................................ $ (349) $ (12,731) $ (71,101) $ (129,004) $ (278,340) $ (52,312) $ (102,286)
--------- --------- --------- ----------- ----------- ----------- -----------
--------- --------- --------- ----------- ----------- ----------- -----------
Net loss applicable to common shares.... $ (349) $ (12,731) $ (71,101) $ (168,324) $ (337,113) $ (63,863) $ (118,886)
--------- --------- --------- ----------- ----------- ----------- -----------
--------- --------- --------- ----------- ----------- ----------- -----------
Net loss per share...................... $ (1.81) $ (3.91) $ (6.26) $ (1.19) $ (2.17)
--------- ----------- ----------- ----------- -----------
--------- ----------- ----------- ----------- -----------
OTHER DATA:
Ratio of earnings to fixed charges(1)... -- -- -- -- -- -- --
EBITDA(2)............................... $ (338) $ (8,629) $ (30,761) $ (72,184) $ (140,937) $ (29,962) $ (47,447)
Capital expenditures, including
acquisitions of businesses (net of
cash acquired) and investments in
affiliates (3)........................ $ 600 $ 49,230 $ 85,872 $ 232,069 $ 416,445 $ 44,501 $ 112,051
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
-------------------------------------------
AS ADJUSTED
FOR THE DEBT
OFFERING AND
THE WNP AND
AS OF DECEMBER 31, AS ADJUSTED NEXTBAND
--------------------------------------------------------- FOR THE DEBT TRANSACTIONS
1994 1995 1996 1997 1998 ACTUAL OFFERING (5)
--------- --------- --------- ----------- ----------- ----------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Cash, cash equivalents
and marketable
securities.......... $ 25 $ 1,350 $ 124,520 $ 742,357 $ 1,478,062 $ 1,244,406 $ 1,976,981 $ 1,491,489
Pledged
securities(4)....... -- -- 101,438 62,610 21,500 21,821 21,821 21,821
Working capital....... 14 (6,232) 137,227 744,510 1,408,501 1,195,396 1,927,971 1,442,479
Property and
equipment, net...... 134 29,664 97,784 253,653 594,408 701,546 701,546 701,546
Total assets.......... 690 53,461 390,683 1,219,978 2,483,106 2,506,678 3,256,678 3,607,116
Long-term debt........ -- 1,590 356,262 750,000 2,013,192 2,023,032 2,773,032 2,773,032
Redeemable preferred
stock, net of
issuance costs...... -- -- -- 313,319 556,168 569,518 569,518 569,518
Equity units subject
to redemption....... -- -- 4,950 -- -- -- -- --
Class B common stock
subject to
redemption.......... -- -- -- 4,950 -- -- -- --
Total stockholders'
equity (deficit).... 672 36,719 (18,654) 71,285 (246,463) (238,846) (238,846) 111,592
<CAPTION>
AS ADJUSTED
FOR THE DEBT
AND EQUITY
OFFERINGS, AND
THE WNP AND
NEXTBAND
TRANSACTIONS
(5)
--------------
<S> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Cash, cash equivalents
and marketable
securities.......... $ 1,835,301
Pledged
securities(4)....... 21,821
Working capital....... 1,786,291
Property and
equipment, net...... 701,546
Total assets.......... 3,950,928
Long-term debt........ 2,773,032
Redeemable preferred
stock, net of
issuance costs...... 569,518
Equity units subject
to redemption....... --
Class B common stock
subject to
redemption.......... --
Total stockholders'
equity (deficit).... 455,404
</TABLE>
- --------------------------
(1) For the years ended December 31, 1994, 1995, 1996, 1997 and 1998, and for
the three-month periods ended March 31, 1998 and 1999, earnings were
insufficient to cover fixed charges during the periods presented by the net
loss amounts of $349, $12,731, $71,101, $129,004, $278,340, $52,312 and
$102,286, respectively.
(2) EBITDA consists of net loss before net interest expense, 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 our anticipated ability 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>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
Cash expended........................ $ 600 $ 35,417 $ 72,042 $ 210,545 $ 416,445 $ 44,501 $ 112,051
Debt issued and assumed.............. -- 6,554 8,228 5,000 -- -- --
Equity issued........................ -- 7,259 5,602 16,524 -- -- --
--------- --------- --------- --------- --------- --------- ---------
Total................................ $ 600 $ 49,230 $ 85,872 $ 232,069 $ 416,445 $ 44,501 $ 112,051
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
(4) Pledged U.S. Treasury securities, which represent funds sufficient to
provide for payment in full of interest through April 15, 1999 on our
12 1/2% Senior Notes.
(5) The acquisition of WNP closed on April 26, 1999. We expect the NEXTBAND
transaction to close shortly after the closing of the concurrent equity
offering.
15
<PAGE>
The operating data contained in the table below includes the statistics of
our Las Vegas network, which we manage and in which we have a 40% membership
interest. Terms used in this table are defined as follows:
A "route mile" measures the expansiveness of our network, and is equal to
the number of physical miles along which we have installed or leased fiber optic
cable.
A "fiber strand" is an advanced fiber optic line which can carry a large
volume of data transmissions and voice communications. The number of "fiber
miles" that we have installed is equal to our estimate of the number of fiber
strands that we have installed along our network, multiplied by the number of
route miles covered by our network. It is a measure of our carrying capacity of
large volumes of data transmissions and voice communications.
"On-net buildings connected" means buildings physically connected to our
network, excluding those buildings which are connected to our network by
facilities leased from the incumbent telephone company. "Off-net buildings
connected" are those buildings connected to our network by facilities leased
from the incumbent or other carriers.
"Switches" are electronic devices that route data transmissions and voice
communications to their final destination. All switch counts include two long
distance switches acquired in 1996 as well as the switch installed in NEXTLAB,
our telecommunications and data testing facility.
An "access line" is a telephone connection between a customer purchasing
local telephone services and our facilities. This definition of access lines is
adjusted to reflect the fact that some high performance connections, known as
primary rate interface, can carry comparatively larger volumes of data and voice
communications. Lines over which primary rate interface service is provided are
counted as 23 access lines. The number of "access lines installed" represents
the number of access lines for which NEXTLINK is billing services. This number
includes access lines that are provisioned through the resale of services. We
serviced 2,894 resold access lines as of March 31, 1999.
<TABLE>
<CAPTION>
AS OF AS OF AS OF AS OF AS OF
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1998 1998 1998 1998 1999
---------- ---------- ------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Route miles.................................... 2,036 2,099 2,150 2,477 2,897
Fiber miles.................................... 141,788 152,225 158,987 195,531 223,463
On-net buildings connected..................... 571 658 736 801 854
Off-net buildings connected.................... 5,947 8,448 9,688 13,443 13,950
Switches installed............................. 14 17 18 21 22
Access lines installed......................... 72,834 102,887 134,107 174,182 224,713
Employees...................................... 1,499 1,756 2,065 2,299 2,539
</TABLE>
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1998
For the three months ended March 31, 1999, total revenue was $48.6 million,
an 83% increase over the $26.5 million in revenue reported in the first quarter
of 1998.
NEXTLINK's core services revenue, which consists of bundled local and long
distance and dedicated services, rose 217% over the same period in 1998 to $34.9
million in the first quarter of 1999.
The increase in core services revenue was driven by the increasing number of
access lines installed during the first quarter. NEXTLINK installed 50,531
access lines during the first quarter of 1999, compared to 22,703 access lines
added during the first quarter of 1998. Total access lines installed was 224,713
as of March 31, 1999.
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
Revenue increased 143% to $139.7 million in 1998 from $57.6 million in 1997.
The increase was driven by 277% growth in revenues from bundled local and long
distance services and dedicated services. The acquisitions of Start
Technologies, a shared tenant services provider, and Chadwick
Telecommunications, a switch-based long distance service reseller, in the fourth
quarter of 1997, also contributed to this increase. Revenue reported consisted
of the following components (in thousands):
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Bundled local and long distance services and dedicated services........ $ 76,654 $ 20,342
Shared tenant services................................................. 12,781 2,018
Long distance telephone services....................................... 26,937 16,478
Enhanced services...................................................... 23,295 18,741
---------- ---------
$ 139,667 $ 57,579
---------- ---------
---------- ---------
</TABLE>
Enhanced services revenue consists primarily of revenue generated from our
interactive voice response services.
We began offering switched local and long distance services in our first
seven markets in July 1996, in 18 markets during 1997 and 12 additional markets
during 1998. In addition, since January 1995 we have offered private, leased
line, or dedicated services.
Our quarterly installation rate of customer access lines increased from
19,187 in the fourth quarter of 1997 to 40,075 during the fourth quarter of
1998. At December 31, 1998, we had 174,182 access lines in service, compared to
50,131 as of December 31, 1997.
Operating expenses consist of costs directly related to providing
facilities-based network and enhanced communications services and also include
salaries and benefits and related costs of operations and engineering personnel.
Operating expenses increased 129% in 1998 to
17
<PAGE>
$123.7 million, an increase of $69.6 million over the same period in 1997. These
increases primarily resulted from:
- increased network costs related to provisioning higher volumes of local,
long distance and enhanced communications services;
- an increase in the number of our employees; and
- an increase in other related costs primarily to expand our switched local
and long distance service businesses in our existing and planned markets.
To a lesser extent, the acquisitions of Start and Chadwick in the fourth quarter
of 1997 also contributed to the increase in operating costs over those in 1997.
Selling, general and administrative expenses include salaries and related
personnel costs, facilities expenses, sales and marketing, information systems
costs, consulting and legal fees and equity in losses of affiliates. Selling,
general and administrative expenses increased 107% for the year ended December
31, 1998 as compared to the corresponding period in 1997. The increase was
primarily due to an increase in the number of our employees, as well as other
costs associated with the expansion of our switched local and long distance
service businesses in our existing and planned markets.
We recorded deferred compensation expense in connection with options granted
under our Equity Option Plan until April 1997, and our Stock Option Plan, which
replaced the Equity Option Plan, subsequent to April 1997. The stock options
granted under the Equity Option Plan were considered compensatory and we
accounted for them on a basis similar to that used for stock appreciation
rights. All options outstanding under the Equity Option Plan were regranted
under the Stock Option Plan with terms and conditions substantially the same as
under the Equity Option Plan. As a result, we continue to record deferred
compensation expense for the compensatory stock options issued under both plans
over their vesting periods, based on the excess of the fair value at the date of
grant over their exercise prices.
Depreciation expense increased primarily due to placement in service of
additional telecommunications network assets, including switches, fiber optic
cable, network electronics and related equipment. We expect depreciation expense
to continue to increase as we expand our networks and install additional
switches and related equipment. Amortization of intangible assets increased
primarily as a result of the Start and Chadwick acquisitions in the fourth
quarter of 1997.
Interest expense increased 165% in 1998 over the prior year due to an
increase in our average outstanding indebtedness over this period. Interest
expense will increase in future periods as a result of our issuing $500.0
million in aggregate principal amount of 10 3/4% Senior Notes in November 1998.
Statement of Financial Accounting Standards No. 34 requires us to capitalize a
portion of our interest costs as part of the construction cost of our
communications networks. Capitalized interest during 1998 totaled $4.3 million.
Our interest income resulted from investment of excess cash and certain
securities pledged as collateral to secure repayment of our 12 1/2% Senior
Notes. The increase in interest income in 1998 over 1997 corresponded to the
increase in our average outstanding cash balances.
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YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
Revenue increased 124% to $57.6 million in 1997 from $25.7 million in the
same period in 1996. The increase was primarily due to 45% growth in our local
and long distance services (both switched and resale), dedicated services and
enhanced communications services. The increase was also attributable to the fact
that we recorded a full year's revenue from ITC, a switch-based long distance
reseller we acquired in December 1996. To a lesser extent, our acquisitions of
Start and Chadwick in the fourth quarter of 1997 also contributed to the
increase in revenue. Revenues reported in 1997 included $38.9 million derived
from local and long distance, competitive access, dedicated line services and
shared tenant services and $18.7 million derived from enhanced communications
services. Our interactive voice response subsidiary contributed 27% and 52% of
our revenues during 1997 and 1996, respectively.
Our quarterly rate for installing customer access lines increased from 1,604
in the fourth quarter of 1996 to 19,187 during the fourth quarter of 1997. As of
December 31, 1997, we had 50,131 access lines in service, compared to 8,511 as
of December 31, 1996. Access lines in service includes lines provided through
resale of Centrex services.
Operating expenses increased 115% in 1997 to $54.0 million, an increase of
$28.9 million over the same period in 1996. This increase resulted primarily
from:
- an increase in network costs related to the provision of increased volumes
of local, long distance and enhanced communications services;
- an increase in the number of our employees; and
- an increase in other related costs primarily to expand our switched local
and long distance service businesses in our existing and planned markets.
Additionally, the effects of the ITC acquisition in December 1996 and the Start
and Chadwick acquisitions in the fourth quarter of 1997 further contributed to
the increase in 1997 operating expenses over those of the prior year.
Selling, general and administrative expenses increased 142% for the year
ended December 31, 1997 as compared to the corresponding period in 1996. The
increase was primarily due to:
- an increase in the number of our employees;
- other costs associated with the expansion of our switched local and long
distance service businesses in our existing and planned markets; and
- the ITC acquisition.
We recorded deferred compensation expense in connection with options granted
under our Equity Option Plan until April 1997, and our Stock Option Plan, which
replaced the Equity Option Plan, subsequent to April 1997. All options
outstanding under the Equity Option Plan were regranted under the Stock Option
Plan with terms and conditions substantially the same as under the Equity Option
Plan. The stock options granted under the Equity Option Plan were compensatory
and were accounted for on a basis similar to that used for stock appreciation
rights. As a result, we continued to record deferred compensation expense for
the compensatory stock options issued under both plans over their vesting
periods, based on the excess of the fair value at the date of grant over their
exercise price.
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Depreciation expense increased primarily due to placement in service of
additional telecommunications network assets, including switches, fiber optic
cable, network electronics and related equipment. Amortization of intangible
assets increased primarily as a result of the ITC acquisition in December 1996,
as well as our acquisitions of Start, Chadwick and Linkatel Pacific in 1997.
Linkatel Pacific owned and operated a fiber optic network that provided
communication services to customers in portions of Orange and Los Angeles
counties.
Interest expense increased 76% in 1997 over the prior year due to an
increase in our average outstanding indebtedness over the respective periods,
primarily relating to the 12 1/2% and 9 5/8% senior notes we issued in April
1996 and October 1997, respectively. Statement of Financial Accounting Standards
No. 34 requires us to capitalize a portion of our interest costs as part of the
construction cost of our communications networks. Capitalized interest during
1997 totaled $1.8 million. Our interest income resulted from investment of
excess cash as well as certain securities that have been pledged as collateral
to secure repayment of our 12 1/2% Senior Notes. The increase in interest income
in 1997 over 1996 corresponded to the increase in our average outstanding cash
balances.
LIQUIDITY AND CAPITAL RESOURCES
Our business is capital intensive and, as such, has required and will
continue to require substantial capital investment. We build high capacity
networks with broad market coverage, a strategy that initially increases our
level of capital expenditures and operating losses and requires us to make a
substantial portion of our capital investment before we realize any revenue from
them. These capital expenditures, together with the associated early operating
expenses, will continue to result in negative cash flow unless and until we are
able to establish an adequate customer base. We believe, however, that over the
long term this strategy will enhance our financial performance by increasing the
traffic flow over our networks.
During 1998, we used $174.5 million in cash for operating activities,
compared to $97.3 million used in 1997 and $40.6 million used in 1996. The
increase was primarily due to a substantial increase in our activities
associated with the continued development and expansion of switched local and
long distance service operations. In addition, during 1998, we invested an
additional $508.4 million in property and equipment, acquisitions of
telecommunications assets and equity investments in telecommunications
businesses. During 1997 and 1996, we invested $210.5 million and $78.0 million,
respectively, in property and equipment, acquisitions of telecommunications
assets and businesses and equity investments in telecommunications businesses.
Our current 1999 and 2000 plans call for approximately $2,000 million in
total capital expenditures (including the commitments of the INTERNEXT joint
venture described below), of which $112.1 million was spent in the first quarter
of 1999. Our actual capital spending may be higher or lower than these amounts.
We expect to make substantial capital expenditures relating to our existing and
planned network development and operations. These expenditures include:
- the purchase and installation of switches, routers, servers and other
data-related equipment and related electronics in existing networks and in
networks to be constructed or acquired in new or adjacent markets;
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- the purchase and installation of fiber optic cable and electronics to
expand existing networks and develop new networks, including the
connection of new buildings;
- the development of our comprehensive information technology platform;
- the purchase and installation of equipment associated with the deployment
of LMDS using our LMDS spectrum;
- funding of the INTERNEXT venture described below, and related expenses we
expect to incur in building our national network;
- the purchase and installation of equipment associated to deployment of
DSL; and
- the funding of operating losses and working capital.
Our strategic plan calls also for expansion into additional market areas.
This expansion will require significant additional capital for:
- potential acquisitions of businesses or assets;
- design, development and construction of new networks; and
- the funding of operating losses and working capital during the start-up
phase of each market.
As of March 31, 1999, we had unrestricted cash and investments of $1,244.4
million, $1,977.0 million on a pro forma basis after giving effect to this debt
offering (not including the exercise of the underwriters' over-allotment
option), and $2,320.8 million on a pro forma basis after giving effect to this
debt offering and the concurrent equity offering.
In April 1999, we acquired WNP Communications, Inc. for $698.2 million. Of
this amount, $157.7 million was paid in cash to the FCC for license fees,
including interest. The remainder was paid to stockholders of WNP, and consisted
of $190.1 million cash and 5,715,831 shares of Class A common stock. In this
transaction, we acquired 39 A block LMDS wireless licenses covering an area
where approximately 98 million people live and work and one B block LMDS
wireless license covering an area where approximately 16 million people live or
work. We plan to use the fixed wireless licenses acquired in the WNP transaction
to extend the reach of our fiber networks and to connect additional customers
directly to our fiber networks. Deploying the technologies associated with our
LMDS strategy will require additional capital expenditures.
In January 1998, we formed NEXTBAND, a joint venture that is owned 50% each
by us and Nextel. NEXTBAND owns LMDS licenses in 42 markets throughout the U.S.
On March 30, 1999, we entered into a definitive agreement to acquire Nextel's
50% interest in NEXTBAND for approximately $137.7 million, consisting of at
least $68.9 million in cash, with the remainder payable at our election in cash
or shares of Class A common stock. The purchase price was determined based on a
formula derived from the purchase price paid in the WNP merger. The minimum cash
consideration will increase by an amount equal to 25% of the proceeds NEXTLINK
receives in the concurrent equity offering up to the amount of the total
purchase price.
In January 1999, we entered into a strategic agreement with Covad
Communications Group, Inc., a leading provider of high-speed digital
communications services using DSL technology. Pursuant to this agreement, we
will become a preferred provider to Covad for
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local transport and colocation services for Covad's regional data centers. We
also invested $20.0 million in Covad under this agreement, and Covad will become
a preferred provider to us of DSL services, where we elect not to provide such
services ourselves.
In July 1998, we formed INTERNEXT L.L.C., which is beneficially owned 50%
each by us and Eagle River Investments L.L.C., and is managed by us. INTERNEXT
entered into an agreement with Level 3 Communications, Inc. Level 3 is
constructing a national fiber optic network that is expected to cover more than
16,000 route miles with six or more conduits and connect 50 cities in the United
States and Canada. Pursuant to this agreement, INTERNEXT will receive an
exclusive interest in 24 fibers in a shared, filled conduit, one entire empty
conduit and the right to 25% of the fibers pulled through the sixth and any
additional conduits in the network. INTERNEXT will pay $700.0 million in
exchange for these rights, the majority of which will be payable as segments of
the network are completed and accepted by INTERNEXT, which is expected to occur
substantially during 2000 and 2001. NEXTLINK has guaranteed 50% of the financial
obligations of INTERNEXT under this agreement and, together with Eagle River,
has also guaranteed the performance of certain other obligations of INTERNEXT.
In addition, our operating flexibility with respect to certain business
matters is, and will continue to be, limited by covenants associated with our
outstanding senior notes. Among other things, these covenants limit the ability
of us and our subsidiaries to incur additional indebtedness, create liens upon
assets, apply the proceeds from the disposal of assets, make dividend payments
and other distributions on capital stock and redeem capital stock. A covenant in
the indenture for the 10 3/4% senior notes, requires us to use the net proceeds
from the sale of those notes to fund not more than 80% of the cost of
expenditures relating to the construction, improvement and acquisition of new
and existing networks and services and direct or indirect investments in certain
joint ventures, including NEXTBAND and INTERNEXT, and to fund similar
expenditures. We expect to fund the remainder of these costs with the proceeds
of equity offerings.
In addition, the terms of our 14% Senior Exchangeable Redeemable Preferred
Stock contain covenants that may limit our flexibility in incurring additional
indebtedness and issuing additional preferred shares. We were in compliance with
all covenants associated with our notes and the 14% preferred stock as of March
31, 1999.
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BUSINESS
Since 1996, NEXTLINK has provided high-quality telecommunications services
to the rapidly growing business market. To serve our customers' broad and
expanding telecommunications needs, we have assembled a unique collection of
high-bandwidth, local and national network assets.
These assets include:
- 23 broadband local networks operating in 14 states, the number of which is
increasing as we continue to build additional networks;
- high-capacity fixed broadband spectrum covering 52 cities including 95% of
the population of the 30 largest U.S. cities; and
- exclusive interests in a national fiber optic network now being built that
will connect all of the largest cities that our current and planned local
networks serve.
We intend to integrate these assets into a seamless network that will
support the most advanced communications technologies available, and make us the
provider best positioned to deliver the broad variety of data and voice
applications our customers require.
BUSINESS STRATEGY
Our goal is to provide integrated, end-to-end solutions for all of our
customers' communications needs over our own network. We plan to deliver these
solutions primarily through equipment and networks we own and therefore continue
to be a facilities-based carrier. The key components of our strategy to achieve
this goal are to:
- BUILD BROADBAND LOCAL NETWORKS. We build high-bandwidth local networks
using fiber optic cable bundles, which are capable of carrying high
volumes of data, voice, video and Internet traffic as well as other high
bandwidth services. In our newer markets, we install up to 400 fiber
strands in each network, with built-in capacity for future growth. We plan
to have completed broadband local networks in most of the nation's 30
largest cities by the end of 2000.
- INCREASE CUSTOMER FIRST MILE CONNECTIONS. We generally build our networks
in the central business districts of our markets to permit direct
connections to a high percentage of the area's commercial buildings. For
buildings where direct fiber connections to our networks are not economic,
we will use our wireless spectrum to make broadband first mile connections
where appropriate.
- CREATE AN INTEGRATED, END-TO-END, FACILITIES-BASED NATIONAL NETWORK. We
will use our interest in a national fiber optic network now under
construction to offer end-to-end services over our own facilities, rather
than lines leased from others. This network will be able to operate at
very high speeds in order to meet our customers' current and future
broadband data needs.
- DEPLOY NEW TECHNOLOGY OPTIMIZED FOR IP. We are adding IP and ATM routers
and switches to our network to meet our customers' growing data needs. We
believe that future IP technologies will gradually replace ATM and enable
our network to carry all types of communications traffic: data, voice and
video.
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- INTRODUCE NEW INTERNET SERVICES. In addition to high-speed Internet
access, we plan to offer customers secure, robust web hosting services at
our central offices, and provide extensive back-office support for their
e-commerce operations.
- BUILD ON OUR CUSTOMER BASE, STAFF, AND SYSTEMS TO SUCCEED IN THE DATA
SERVICES MARKET. We will apply the strategies and skills we have developed
competing successfully in the local exchange market to the expanding data
services market. These include a focus on the business customer,
decentralized, local management, close attention to customer care and
effective, reliable back-office systems.
- ATTRACT AND RETAIN EXPERIENCED MANAGEMENT AT ALL KEY LEVELS. Under the
leadership of Craig McCaw, we have retained highly-qualified senior
management. Experienced technology industry executives will lead the
implementation of our data strategy. Seasoned industry entrepreneurs and
executives run our regional groups and operating subsidiaries.
OUR NETWORK
We have built, and are continuing to build, operational fiber optic networks
with robust capacity in urban centers across the country. Our IP-optimized
national network will connect these local networks to one another. Our fiber
optic and wireless first mile connections will complete our goal of becoming an
end-to-end, facilities-based provider of broadband communications services.
LOCAL FIBER OPTIC NETWORKS
The core of each of our local networks is a ring of fiber optic cable in the
city's central business district that connects to our central offices. These
facilities contain the switches and routers that direct data and voice traffic
to their destinations, and also have the space to house the additional equipment
necessary for future telecommunications services.
We are now operating 23 local networks in 38 cities. We serve larger cities,
such as New York, Los Angeles, Chicago, Atlanta, the San Francisco Bay Area,
Denver, Dallas and Miami, medium-sized markets, such as Salt Lake City and
Nashville, and clusters of smaller markets in Orange County, California and
central Pennsylvania.
Based on our recent successes in operating and expanding our existing
networks, as well as new opportunities in other markets, we are pursuing an
aggressive growth plan. We are currently building additional local networks, and
plan to have operational networks in most of the 30 largest U.S. cities by the
end of 2000. We launched telephone service in San Diego earlier this year, and
the next phase of our expansion plan includes the launch of service in
Washington, D.C. and Seattle in the second quarter of 1999, and in Newark,
Detroit, Boston, Phoenix and Houston by the end of 1999.
We build high capacity networks using a backbone density ranging between 72
and 432 strands of fiber optic cable. Each fiber strand has the capacity, or
bandwidth, to carry over 100,000 times the amount of traffic as a strand of
traditionally-configured copper wire. We believe that installing high-count
fiber strands will allow us to offer a higher volume of broadband and voice
services without incurring significant additional construction costs.
We design wide, expansive networks, rather than a simple core fiber optic
ring in a downtown metropolitan area. This design maximizes the number of
customers that can be
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connected directly to our networks with fiber strands that we own. We believe
that controlling first mile connections is critical to being able to meet our
customers' complete communications requirements and by controlling the first
mile we enhance our ability to:
- ensure technological support for high bandwidth communications;
- manage and control the quality of services used by our customers;
- meet the varying bandwidth needs of our customers; and
- achieve better operating margins.
BROADBAND WIRELESS SPECTRUM
We intend to reduce our reliance on first mile connections leased from the
incumbent carrier by increasing the number of customers connected directly to
our networks. In some cases, we will construct a new fiber optic extension from
the customer's premises to our network. In other cases, we will deploy a
high-bandwidth wireless connection between an antenna on the roof of the
customer's premises and an antenna attached to our fiber rings. These wireless
connections offer high-quality broadband capacity and often cost less to
install. We expect to deploy wireless first mile extensions in 25 markets by the
end of 2000.
Through a series of auction bids and acquisition transactions, we have
become the largest holder of broadband fixed wireless spectrum in North America.
We hold licenses to 1,150 to 1,300 MHz of LMDS spectrum in 52 cities, covering
areas where 95 percent of the population the 30 largest U.S. cities live or
work. Our spectrum assets are very large in comparison to cellular and PCS
licenses (up to 30 MHz) and to other fixed wireless licenses (80-400 MHz ). Our
licenses also include 150 MHz of LMDS spectrum in 13 smaller cities. We believe
that, for many locations, broadband wireless connections from customer buildings
to our local fiber optic networks will offer a lower cost solution for providing
high-quality broadband services than fiber or copper extensions.
LMDS is a newly authorized fixed broadband service that the license holder
may use to provide high-speed data transfer, wireless local telephone service,
wireless transmission of telephone calls in bulk quantity, video broadcasting
and videoconferencing, in any combination. This spectrum is not suitable for
portable telephones, but can transmit voice, data or video signals from one
fixed antenna to many others. As the word "local" in the local multipoint
distribution service name implies, the radio links provided using LMDS
frequencies are of limited distance, typically of a few miles or less, due to
the degradation of these high-frequency signals over distances greater than a
few miles.
A wireless connection typically consists of paired antennas generally placed
at a distance of approximately 2.5 miles from one another with a direct,
unobstructed line of sight. The antennas are typically installed on rooftops,
towers or windows. Point-to-multipoint technology allows a single hub site
antenna to be used to form multiple paths with antennas located on numerous
customer buildings. As few as four hub site antennas can provide
telecommunications connections to buildings in all directions that have line of
sight visibility.
Wireless local loop technology typically utilizes millimeter wave
transmissions having narrow beam width, reducing the potential for channel
interference and allowing dense deployment and channel re-use. This means that,
like cellular technology, LMDS sites can be split into sectors in order to
increase the available capacity. The large amount of capacity in each channel
permits the simultaneous use of multiple voice and data applications. Properly
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deployed, wireless local loop technology can substantially reduce the cost of
connecting customers to a network.
LMDS and other wireless broadband services require a direct line of sight
between two antennas comprising a link and are subject to distance and rain
attenuation. We expect that the average coverage radius of a base station will
be up to approximately 2.5 miles, depending on local conditions, and we expect
that our base stations will utilize power control to increase signal strength
and mitigate the effects of rain attenuation. In areas of heavy rainfall,
transmission links will be engineered for shorter distances and greater power to
maintain transmission quality. This reduction of path link distances to maintain
transmission quality requires more closely spaced transceivers and therefore
tends to increase the cost of service coverage.
Due to line of sight limitations, we currently plan to install our
transceivers and antennas on the rooftops of buildings. Line of sight and
distance limitations generally do not present problems in urban areas, provided
that suitable roof rights can be obtained, due to the existence of unobstructed
structures from which to transmit and the concentration of customers within a
limited area. Line of sight and distance limitations in non-urban areas can
arise due to lack of structures with sufficient height to clear local
obstructions. We may have to plan to construct intermediate links or use other
means to resolve line of sight and distance issues. These limitations, however,
may render point-to-multipoint links uneconomical in certain locations.
In order to obtain the necessary access to install our transceivers and
antennas and connect its intended customers, we must secure roof and other
building access rights, or rights to access other line of sight locations,
including access to conduits and wiring from the owners of each building or
other structure on which we propose to install our equipment, and may require
construction, zoning, franchises or other governmental permits.
LMDS equipment is not in general commercial service at this time, but we are
testing the offerings of several vendors, and expect to begin to deploy LMDS in
1999.
DSL TECHNOLOGY
We are also currently deploying DSL technology to meet the high bandwidth
needs of those customers located less than three miles from the incumbent
carrier's central office and whose first mile connection remains over copper
wire. DSL technology reduces the bottleneck in the transport of information,
particularly for data services, by increasing the data carrying capacity of
copper telephone lines.
We have arrangements with incumbent carriers with respect to more than 150
of their central offices that enable us to make first mile connections to each
business or resident connected to that central office over leased lines. These
arrangements are known in our industry as colocations. We plan to introduce our
own DSL equipment and services at many of our colocation sites to provide our
customers with increased data carrying capacity.
In December of 1998, we also formed a strategic relationship with Covad
Communications, a DSL provider, under which Covad will become a preferred
provider of DSL services to us in locations where we do not provide our own DSL
service. As of January 31, 1999, Covad had established arrangements to maintain
its equipment over 165 incumbent carrier central office spaces.
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NATIONAL NETWORK
We are creating a single, end-to-end network by linking our local networks
to one another through the use of a national fiber optic backbone network
currently being constructed by Level 3 Communications. This network is expected
to cover more than 16,000 route miles with six or more conduits and connect 50
cities in the United States and Canada. INTERNEXT L.L.C., a joint venture
managed by us and owned 50% each by us and Eagle River, has entered into a cost
sharing agreement with Level 3 with respect to this network. Under this
agreement, INTERNEXT has:
- an exclusive interest in 24 fibers in a shared, filled conduit throughout
this network;
- an exclusive interest in one empty conduit, through which we expect to be
able to pull up to 432 fiber optic strands; and
- the right to 25% of the fibers pulled by Level 3 through the sixth and any
additional conduits in the network.
INTERNEXT expects the network build-out to occur substantially in years 2000
and 2001. When our system of local city networks is linked together by this
interstate fiber optic network, we will be able to offer our customers
integrated, end-to-end telecommunications services over facilities we control.
TECHNOLOGY
The wires, cables and spectrum that comprise the physical layer of our
networks can support a variety of communications technologies. We seek to offer
customers a set of technology options to meet their changing needs, and
introduce new technologies as necessary. Specifically, we believe that a service
platform based on IP will provide us with significant future opportunities,
because it will enable data, voice and video to be carried inexpensively over
our end-to-end, facilities-based network. We have, therefore, begun to
supplement our current data and voice switching technology with Internet
Protocol, or IP, and Asynchronous Transfer Mode, or ATM, equipment.
These technologies will enable us to offer our customers additional
services, such as high-speed Internet access, Internet web hosting, e-commerce
and other Internet services. Because they are more efficient, IP and ATM
technology increase the effective capacity of networks for these types of
applications, and in the future may become the preferred technology for voice
calls and faxes as well.
CIRCUIT SWITCHING VS. PACKET SWITCHING
There are two widely used switching technologies in currently deployed
communications networks: circuit-switching systems and packet-switching systems.
Circuit switch-based communications systems, which currently dominate the public
telephone network, establish a dedicated channel for each communication (such as
a telephone call for voice or fax), maintain the channel for the duration of the
call, and disconnect the channel at the conclusion of the call.
Packet-switch based communications systems, which format the information to
be transmitted into a series of shorter digital messages called "packets," are
the preferred means of data transmission. Each packet consists of a portion of
the complete message plus the addressing information to identify the destination
and return address. A key feature that
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distinguishes Internet architecture from the public telephone network is that on
the packet-switched Internet, a single dedicated channel between communication
points is not required.
Packet switch-based systems offer several advantages over circuit
switch-based systems, particularly the ability to commingle packets from several
communications sources together simultaneously onto a single channel. For most
communications, particularly those with bursts of information followed by
periods of "silence," the ability to commingle packets provides for superior
network utilization and efficiency, resulting in more information being
transmitted through a given communication channel.
IP technology, an open protocol that allows unrelated computer networks to
exchange data, is the technological basis of the Internet. The Internet's
explosive growth in recent years has focused intensive efforts worldwide on
developing IP-based networks and applications. In contrast to protocols like
ATM, which was the product of elaborate negotiations between the world's
monopoly telephone companies, IP is an open standard, subject to continuous
improvement.
We believe that a form of IP-based switching will eventually replace both
ATM and circuit switched technologies, and will be the foundation of integrated
networks that treat all transmissions -- including voice, fax and video --
simply as forms of data transmission. Current implementations of IP technology
over the Internet lack necessary quality of service to support real-time
applications like voice and fax at commercially acceptable quality levels. We
fully expect that a combination of increased bandwidth and improved technology
will correct these deficiencies.
We are in the process of configuring our network to add packet switch-based
technology to our current circuit switch-based systems. Our goal is to meet the
current demands of our customers for reliable, high-quality switched telephone
connections, while also deploying the facilities, hardware and software
necessary to satisfy their growing demand for high-speed data transmission.
We believe that the IP deployment currently under way on our network will
enable us to implement new services based on current IP technology, and position
us to adopt future IP technology implementations as they evolve to support
fully-integrated communications networks. We anticipate remaining flexible in
our use of technology, however, so that as underlying communications technology
changes, we will have the ability to take advantage of and implement these new
technologies.
APPLICATIONS AND SERVICES
VOICE APPLICATIONS AND SERVICES
In each market in which we operate, we currently offer the telephone
services listed below, at prices that are determined and implemented locally in
each market. These prices are generally 10% to 15% lower than the pricing for
comparable local services from the incumbent carrier. Our service offerings
include:
- standard dial tone, including touch tone dialing, 911, and operator
assisted calling;
- multi-trunk services, including direct inward dialing (DID) and direct
outward dialing (DOD);
- long distance service, including 1+, 800/888 and operator services;
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- voice messaging with personalized greetings, send, transfer, reply and
remote retrieval capabilities; and
- directory listings and assistance.
In each of our operational markets, we have negotiated and entered into
interconnection agreements with the incumbent carrier, and implemented permanent
local number portability, which allows customers to retain their telephone
numbers when changing telephone service providers.
Additionally, in each of our markets we offer the following services to long
distance carriers and high volume customers, which our customers use as both
primary and back-up circuits:
- special access circuits that connect end users to long distance carriers;
- special access circuits that connect long distance carriers' facilities to
one another; and
- private line circuits that connect several facilities owned by the same
end user.
We also provide shared tenant services, which consist of telecommunications
management services we provide to groups of small to medium sized businesses.
This enables business that are too small to justify hiring their own
telecommuinications managers to benefit from efficencies, including volume
discounts, normally available only to larger enterprises.
DATA APPLICATIONS AND SERVICES
We currently offer customers the ability to use our networks for data
services including facsimile and e-mail. Deploying ATM and IP facilities will
enable us to offer our customers extensive bandwidth capacity with increased
speed and reliability. This will allow us to offer data services such as:
Our central offices are the hubs of our network. We expect that their
location on our network's backbone, their electrical and environmental controls
and 24-hour maintenance and technical support will make them attractive
locations for our customers to locate their larger computers (which are known as
servers) or run important applications on servers we will maintain there. This
will enable us to offer:
- WEB HOSTING: support for customers' websites, including design,
maintenance and telecommunications services;
- SERVER HOSTING: colocation of customers' servers in our central offices;
- APPLICATION HOSTING: running our customers' enterprise-wide applications
at our central offices and distributing them as needed over our network to
ensure uniformity, reduce costs and implement upgrades on a continuous and
immediate basis; and
- E-COMMENCE SUPPORT: support for high-volume purchases over the Internet,
including system design, order fulfillment and network security.
We plan to combine the capabilities of our national IP-optimized network
with the mass-market e-commerce expertise we have developed through NEXTLINK
Interactive to offer customers a broad range of services to their e-commerce
activities, including telecommunications, web-site design, order fulfillment and
back-office systems.
We also intend to develop and offer our own Internet access services as an
Internet service provider in the year 2000. In the interim, we have also entered
into agreements with
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PSINet that will allow us to resell PSINet's Internet access service directly to
our customers under our "NEXTLINK" brand. To become an Internet service
provider, or ISP, ourselves we will need to establish arrangements, known as
peering agreements, with other ISPs to allow us to exchange traffic with them.
As ownership of the Internet backbone has become increasingly concentrated, the
terms and conditions of peering agreements are becoming increasingly
restrictive. We can't predict the terms of our future peering agreements.
Through our NEXTLINK Interactive subsidiary, we currently provide a number
of voice response, speech recognition and e-commerce services for Fortune 100
companies. These systems offer consumer-oriented businesses telephone and
Internet-based automated systems that process orders and supply information to
their customers about their products. We design and operate voice and
Internet-based systems to meets these clients' needs by integrating existing
third-party software applications. These service offerings, however, are not
integrated with our local networks at this time. Examples of systems that we
have developed and operated for our clients include:
- Systems that help our clients' customers locate the nearest dealer, office
or other location;
- Systems that give our clients' customers information, including cost
information, about the clients' products and services and automate their
purchases; and
- Automated order entry systems.
GROWTH IN CUSTOMER BASE
We have been successful in attracting customers in the markets that we
serve. Our customer base has been growing rapidly, as the following table of
access lines installed on our networks illustrates:
<TABLE>
<CAPTION>
TOTAL ACCESS
MARKETS IN LINES
DATE SERVICE INSTALLED
- ---------------------------------------------- ------------- --------------
<S> <C> <C>
December 31, 1996............................. 7 8,511
December 31, 1997............................. 25 50,131
December 31, 1998............................. 37 174,182
March 31, 1999................................ 38 224,713
</TABLE>
In addition, we have increased the rate at which we install access lines
each quarter. The following table illustrates this improvement:
<TABLE>
<CAPTION>
ACCESS LINE
INSTALLATIONS
PERIOD PER QUARTER
- ------------------------------------------------------------- -------------
<S> <C>
Fourth Quarter 1996.......................................... 1,604
Fourth Quarter 1997.......................................... 19,187
Fourth Quarter 1998.......................................... 40,075
First Quarter 1999........................................... 50,531
</TABLE>
We also have successfully developed and deployed order entry/provisioning,
billing/ collection and other back-office systems for each market in which we
operate. We anticipate that we will continue to develop and deploy new
back-office systems to improve our capabilities as we add new technologies and
services to our networks.
30
<PAGE>
MANAGEMENT TEAM
We believe that the quality of our management team and their extensive
experience in the telecommunications industry is one of our competitive
advantages and a critical factor in the successful implementation of our
strategy. The following key members of our management team each has 16 or more
years of experience in leading companies in competitive segments of the
telecommunications industry:
- CRAIG O. MCCAW - our founder, largest and controlling shareholder and
member of our Board of Directors, who, prior to founding NEXTLINK, was the
founder of McCaw Cellular Communications, Inc., which became the nation's
largest cellular telephone company.
- STEVEN W. HOOPER - our Chairman of the Board and Chief Executive Officer,
who was a member of the senior management team at McCaw Cellular, and was
Chief Executive Officer of AT&T Wireless Services following McCaw
Cellular's sale to AT&T, prior to joining NEXTLINK.
- WAYNE M. PERRY - our Vice Chairman and member of our Board of Directors,
who was a member of the senior management team at McCaw Cellular and was
Vice Chairman of AT&T Wireless Services following McCaw Cellular's sale to
AT&T, prior to joining NEXTLINK.
- GEORGE M. TRONSRUE III - our President and Chief Operating Officer, who
held senior management positions with ACSI, Teleport Communications Group
and MFS Communications prior to joining NEXTLINK.
In addition, the presidents of our operating subsidiaries and our other
senior officers have an average of 18 years of experience in the
telecommunications industry.
The members of our senior management team who will lead our design and
implementation of technologies include:
- DOUG CARTER - our Senior Vice President, Chief Technology Officer, who was
the Senior Vice President of Network Operations of AT&T Wireless prior to
joining NEXTLINK.
- JOHN CURRAN - our Vice President, Internet Technology and head of our
Cambridge, MA - based IP Design Center, who was Chief Technology Officer
of GTE Internetworking prior to joining NEXTLINK.
- CHUCK DANIELS - our Vice President, Implementation and head of our Plano,
Texas implementation center, who was Vice President of Engineering of MCI
prior to joining NEXTLINK.
- NICK KAUSER - a member of our Board of Directors, who was the Chief
Technology Officer of AT&T Wireless prior to joining NEXTLINK.
31
<PAGE>
REGULATION
The federal Telecommunications Act of 1996 opened local telephone markets to
competition from companies like NEXTLINK. Prior to that time, states typically
granted an exclusive franchise in each local service area to a single dominant
carrier/often a former subsidiary of AT&T known as a "Baby Bell" which owned and
operated the entire local exchange network. The 1996 Act preserved state and
local jurisdiction over many aspects of local telephone service, and, as a
result, NEXTLINK is subject to varying degrees of federal, state and local
regulation. FCC and state regulators, and other legislative or judicial
initiatives relating to the telecommunications industry, could help or hinder
our business.
We are not currently required to obtain FCC authorization for the
installation, acquisition or operation of our wireline network facilities. We
are required to hold and we have obtained FCC authorizations for the operation
of our wireless facilities. In each state in which we desire to offer our
services, we also must first obtain authorization from the appropriate state
commission. Although we currently hold the required state authorizations in each
of our operational markets, we can't be certain that we will receive the
necessary state authorizations for markets to be launched in the future.
Unlike the incumbent carriers, we are not currently subject to price cap or
rate of return regulation, which leaves us more free to set our own pricing
policies. The FCC requires us to file interstate tariffs on an ongoing basis for
interstate and international interexchange traffic. An FCC order that would have
exempted us from any requirement to file tariffs for interstate access and
domestic long distance service has been stayed pending further judicial review,
and, as a result, we currently file tariffs for these services. Our intrastate
services are also generally subject to state certification and tariff or price
list filing requirements.
The 1996 Act gave the FCC significant responsibility for its implementation,
especially in the areas of universal service, access charges, numbering, number
portability and price caps. The details of the rules adopted by the FCC, and the
extent to which they are upheld by the courts reviewing the FCC's rules, will
have a significant effect on when and to what extent barriers to competition in
local services are removed. For example, the FCC has the power to grant
incumbent carriers increased flexibility to enable them to reduce prices for
special access, private line services and advanced telecommunications services.
The 1996 Act provides incentives to most of the incumbent carriers to enter
into interconnection agreements with carriers like NEXTLINK. We need
interconnection agreements to gain access to the incumbent carriers' networks.
Although we have interconnection agreements in all of our currently operational
markets, we can't be certain that incumbent carriers in new markets we seek to
enter will negotiate quickly with us or that any resulting agreements will be on
terms favorable to us.
The incumbent carriers have frequently resorted to litigation in an attempt
to obtain the benefits of these incentives without offering consumers and
competitors like NEXTLINK the full benefits intended by the 1996 Act. For
example, in September 1998, the FCC ruled that certain incumbent carrier
"teaming" arrangements with long distance carriers, which would have allowed
incumbent carriers to offer a form of "one stop shopping" in competition with
NEXTLINK's combined local and long distance offerings, violated the 1996 Act. In
response, the incumbent carriers have filed petitions with the United States
Court of Appeals for the
32
<PAGE>
District of Columbia seeking to overturn this ruling. If this FCC's ruling is
reversed by the courts, one of our current competitive advantages would be
undermined.
In January 1999, the U.S. Supreme Court upheld key provisions of the FCC
rules implementing the 1996 Act, in a decision that was generally favorable to
competitive telephone companies like NEXTLINK. In two earlier decisions, the
United States Court of Appeals for the Eighth Circuit had invalidated these
rules. The Supreme Court's decision reinstated all but one of the FCC rules
invalidated by the Eighth Circuit. The Supreme Court held that the FCC has
general jurisdiction to implement the 1996 Act's local competition provisions,
including pricing and enforcement jurisdiction. Significantly, the Court upheld
that the FCC's "pick and choose" rule, which allows competitors to choose which
provisions of other carriers' interconnection agreements they wish to
incorporate in their own interconnection agreements with that incumbent carrier.
A key provision of the 1996 Act requires incumbent carriers to make elements
of their networks available to competing carriers like NEXTLINK at reasonable
rates. The Supreme Court broadly affirmed these provisions, but held that the
FCC did not correctly determine precisely which network elements must be
unbundled and made available to competitors like NEXTLINK. This ruling cast
existing interconnection agreements in doubt when some incumbent carriers stated
that they would no longer make elements of their networks available until the
FCC clarified which elements they must offer to competitors. These incumbent
carriers subsequently assured FCC officials that they would continue to provide
currently available network elements to their competitors and continue to
negotiate new interconnection agreements in good faith.
Until the FCC adopts new rules complying with the Supreme Court's decision,
competitors like NEXTLINK will need to rely to a great extent on the continued
good faith of the incumbent carriers, rather than express regulatory rights, to
obtain new interconnection agreements and network elements.
The Supreme Court decision did not address or resolve the incumbent
carriers' challenge to the FCC's forward-looking pricing methodology for
unbundled network elements. The incumbent carriers have challenged this
methodology, claiming that any correct procedure would take into account
historical costs. If the incumbent carriers succeed in this contention, we would
have to pay more to purchase network elements, which could significantly
increase our cost of doing business.
33
<PAGE>
DESCRIPTION OF THE NOTES
The senior notes and the senior discount notes will be issued under two
separate indentures, each dated May , 1999, between NEXTLINK and United States
Trust Company, as trustee. Since many provisions of the indentures are
identical, they are described together below, but the provisions of each
indenture apply only to the notes outstanding thereunder.
The indentures contain the full legal text of the matters described in this
section. Copies of the indentures can be obtained at the corporate office of the
trustee and has been filed with the SEC as part of our Registration Statement.
See "Where You Can Find More Information" on page 87 for information on how to
obtain copies.
Because this section is a summary, it does not describe every aspect of the
notes. This summary is subject to and qualified in its entirety by reference to
all the provisions of each of the indentures, including definitions of some
terms used in each of the indentures. For example, in this section we use
capitalized words to signify defined terms that have been given special meaning
in each of the indentures. We describe the meaning for only the more important
terms, under "Definitions". We also include references in parentheses to certain
sections of each of the indentures.
Whenever we refer to particular sections or defined terms of the indentures
in this prospectus, these sections or defined terms are incorporated by
reference into this prospectus.
In this description of notes, the term "NEXTLINK" refers to NEXTLINK
Communications, Inc. and does not include its subsidiaries except for purposes
of financial data determined on a consolidated basis.
BRIEF DESCRIPTION OF THE NOTES
THE SENIOR NOTES:
- will be senior obligations of NEXTLINK;
- will be limited to $ million principal amount;
- will mature on June , 2009; and
- will bear interest at the rate of % per annum to be paid
semi-annually on June and December of each year, commencing December
, 1999, to the registered holder at the close of business on the
preceding or .
THE SENIOR DISCOUNT NOTES:
- will be senior obligations of NEXTLINK;
- will be issued at a discount from their aggregate principal amount at
stated maturity to generate gross proceeds of approximately $ ;
- will mature on June , 2009;
- will not accrue cash interest prior to June , 2004;
- will accrete at a rate of % per annum, compounded semi-annually to
an aggregate principal amount of $ ; and
- beginning on June , 2004 will bear cash interest at the rate of %
per annum to be paid semi-annually on June and December of each
year,
34
<PAGE>
commencing December , 2004 to the registered holder at the close of
business on the preceding or .
In a NEXTLINK bankruptcy, holders of senior discount notes would have a
claim measured by their notes' accreted value, not their principal amount.
Interest on the senior and senior discount notes will be computed on the
basis of a 360 day year of twelve 30 day months. (Section 301, 307 and 310)
METHODS OF RECEIVING PAYMENTS ON THE NOTES
NEXTLINK will pay interest, principal and any other money due on the senior
and senior discount notes at the corporate trust office of the trustee in New
York City. That office is currently located at 114 West 47th Street, New York,
New York 10036. You must make arrangements to have your payments picked up at or
wired from that office. NEXTLINK may also choose to pay interest by mailing
checks. (Section 301, 305 and 1002)
The senior and senior discount notes will be issued only in fully registered
form, without coupons, in denominations of $1,000 and any integral multiple of
$1,000. (Section 302) You will not be required to pay a service charge to
transfer or exchange notes, but you may be required to pay for any tax or other
governmental charge associated with the exchange or transfer. (Section 305)
RANKING
The notes:
- will be senior obligations of NEXTLINK;
- will rank equally in right of payment with each other and all existing
and future senior obligations of NEXTLINK, including our 9% Notes,
9 5/8% Notes, 12 1/2% Notes, 9.45% Notes the 10 3/4% Notes; and
- will rank senior in right of payment to all future subordinated
obligations of NEXTLINK.
Holders of secured obligations of NEXTLINK will, however, have claims that
are prior to the claims of the holders of the senior and senior discount notes
with respect to the assets securing those other obligations.
NEXTLINK's principal operations are conducted through its Subsidiaries, and
NEXTLINK is therefore dependent upon the cash flow of its Subsidiaries to meet
its obligations. NEXTLINK's Subsidiaries will have no obligation to guarantee or
otherwise pay amounts due under the senior and senior discount notes. Therefore,
the senior and senior discount notes will be effectively subordinated to all
indebtedness and other liabilities and commitments, including trade payables, of
NEXTLINK's Subsidiaries. Any right of NEXTLINK to receive assets of any
Subsidiary upon any liquidation or reorganization of that Subsidiary (and the
consequent right of holders of the senior and senior discount notes to
participate in those assets) will be effectively subordinated to the claims of
the Subsidiary's creditors, except to the extent that NEXTLINK itself is
recognized as a creditor of the Subsidiary.
35
<PAGE>
As of March 31, 1999:
- the total amount of outstanding consolidated liabilities of NEXTLINK
and its Subsidiaries, including trade payables, was approximately
$2,176.0 million, of which $15.6 million were secured obligations; and
- the total amount of outstanding liabilities of NEXTLINK's Subsidiaries,
including trade payables, was $73.2 million, of which $3.5 million were
secured obligations.
For more information, see "Description of Other Material Indebtedness" and
"Selected Historical Consolidated Financial and Operating Data."
OPTIONAL REDEMPTION
SENIOR NOTES
NEXTLINK may opt to redeem the senior notes, in whole or in part, at any
time on or after June , 2004. If NEXTLINK chooses this optional redemption, it
is required to mail a notice of the redemption not less than 30 and not more
than 60 days after the redemption to each holder of senior notes to be redeemed
at the holder's address as it appears in the note register.
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ---------------------------------------------------------------------------- ----------------
<S> <C>
2004........................................................................
2005........................................................................
2006........................................................................
2007 and thereafter.........................................................
</TABLE>
The prices are expressed as percentages of the principal amount.
(SectionSection 203, 1101, 1105 and 1107)
NEXTLINK may only redeem the senior notes in amounts of $1,000 principal
amount or an integral multiple of $1,000 at a redemption price of % of their
principal amount plus accrued and unpaid interest before June , 2002, if, on
or before that date, NEXTLINK receives net proceeds from a sale of its Common
Equity.
If, in addition:
- at least % of the principal amount of the senior notes remains
outstanding after the redemption; and
- the redemption occurs on a redemption date within 90 days of the sale
and NEXTLINK mails not less than 30 and not more than 60 days after the
redemption a notice to each holder of notes to be redeemed,
NEXTLINK may opt to use all or a portion of any such net proceeds to redeem
senior notes in a principal amount of up to % of the original principal
amount of the senior notes.
If less than all of the senior notes are to be redeemed, the trustee shall
select the particular notes to be redeemed or any portion thereof that is an
integral multiple of $1,000. The trustee shall make this selection on a pro rata
basis, by lot or by such other method as it shall deem fair and appropriate.
36
<PAGE>
SENIOR DISCOUNT NOTES
NEXTLINK may opt to redeem the senior discount notes, in whole or in part,
at any time on or after June , 2004. If NEXTLINK chooses this optional
redemption, it is required to mail a notice of the redemption not less than 30
and not more than 60 days after the redemption to each holder of senior discount
notes to be redeemed at the holder's address as it appears in the note register.
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ---------------------------------------------------------------------------- ----------------
<S> <C>
2004........................................................................ %
2005........................................................................
2006........................................................................
2007 and thereafter.........................................................
</TABLE>
The prices are expressed as percentages of the principal amount.
(SectionSection 203, 1101, 1105 and 1107)
NEXTLINK may only redeem the senior discount notes in amounts of $1,000
principal amount or an integral multiple of $1,000 at a redemption price of %
of the Accreted Value of the senior discount notes plus accrued and unpaid
interest before June , 2002, if, on or before that date, NEXTLINK receives net
proceeds from a sale of its Common Equity.
If, in addition:
- at least % of the original aggregate principal amount of the senior
discount notes remains outstanding after the redemption; and
- the redemption occurs on a redemption date within 90 days of the sale
and NEXTLINK mails not less than 30 and not more than 60 days after the
redemption a notice to each holder of notes to be redeemed
NEXTLINK may opt to use all or a portion of any such net proceeds to redeem
senior discount notes in a principal amount of up to % of their original
principal amount of the senior discount notes.
If less than all of the senior discount notes are to be redeemed, the
trustee shall select the particular notes to be redeemed or any portion thereof
that is an integral multiple of $1,000. The trustee shall make this selection on
a pro rata basis, by lot or by such other method as it shall deem fair and
appropriate.
MANDATORY REDEMPTION; SINKING FUND
Except as described under "Covenants--Limitation on Asset Dispositions" and
"Covenants--Change of Control" below, NEXTLINK is not required to purchase or
make mandatory redemption payments or sinking fund payments with respect to the
senior or senior discount notes.
COVENANTS
In the indentures, NEXTLINK agreed to certain restrictions that limit its
and its Restricted Subsidiaries' ability to:
(1) Incur additional Debt;
(2) issue Preferred Stock;
37
<PAGE>
(3) pay dividends, acquire shares of Capital Stock of NEXTLINK, make
Investments or redeem Debt of NEXTLINK which is subordinate in right of
payment to the senior or senior discount notes;
(4) restrict the ability of any Restricted Subsidiary to pay dividends,
to make loans or advances to NEXTLINK or any other Restricted Subsidiary or
to transfer any of its property or assets to NEXTLINK or any other
Restricted Subsidiary;
(5) create liens;
(6) engage in sale-leaseback transactions;
(7) make Asset Dispositions;
(8) issue or sell shares of Capital Stock of Restricted Subsidiaries;
and
(9) enter into transactions with Affiliates and Related Persons.
In addition, if a Change of Control occurs, each holder of notes will have
the right to require NEXTLINK to repurchase all or part of such holder's notes
at a price equal to: (1) in the case of senior notes, 101% of their principal
amount plus accrued and unpaid interest to the date of purchase or (2) in the
case of senior discount notes, 101% of their Accreted Value (if the Offer to
Purchase is made on or prior to June , 2004) or 101% of their principal amount
plus accrued and unpaid interest to the date of purchase (if such Offer to
Purchase is consummated thereafter). The above limitations are "restrictive
covenants" that are promises that we make to you about how we will run our
business, or business actions that we promise not to take. A more detailed
description of the restrictive covenants and the exceptions to them follows
below.
LIMITATION ON CONSOLIDATED INDEBTEDNESS
NEXTLINK may not, and may not permit any Restricted Subsidiary to, Incur any
Debt unless either:
(1) the ratio of:
(a) the aggregate consolidated principal amount of Debt of NEXTLINK
outstanding as of the most recent available quarterly or annual balance
sheet, after giving pro forma effect to the Incurrence of such Debt and
any other Debt Incurred since such balance sheet date and the receipt and
application of the proceeds thereof
to
(b) Consolidated Cash Flow Available for Fixed Charges for the four
full fiscal quarters next preceding the Incurrence of such Debt for which
consolidated financial statements are available, determined on a pro
forma basis as if
(x) any such Debt had been Incurred and the proceeds thereof
had been applied at the beginning of such four fiscal quarters;
(y) the net income (or loss) for such period of any Person or
related to any assets disposed of by NEXTLINK or a Restricted
Subsidiary prior to the end of such period had been excluded from
Consolidated Net Income; and
38
<PAGE>
(z) the net income (or loss) for such period of any Person or
related to any assets acquired by NEXTLINK or any Restricted
Subsidiary prior to the end of such period had been included in
Consolidated Net Income;
would be less than 5.5 to 1 for such four quarter periods ending on or
prior to December 31, 1999 and 5.0 to 1 for such periods ending
thereafter;
or
(2) NEXTLINK's Consolidated Capital Ratio as of the most recent
available quarterly or annual balance sheet, after giving pro forma effect
to the Incurrence of such Debt, any issuance of capital stock (other than
Disqualified Stock) since such balance sheet date, any increase in
paid-in-capital (other than in respect of Disqualified Stock) since such
balance sheet date and the Incurrence of any other Debt since such balance
sheet date and the receipt and application of the proceeds thereof, is less
than 2.0 to 1.
Notwithstanding the foregoing limitation, NEXTLINK and any Restricted
Subsidiary may Incur the following:
(1) Debt under any one or more Bank Credit Agreements or Vendor
Financing Facilities in an aggregate principal amount at any one time not to
exceed the greater of:
(a) $250 million and
(b) 85% of the Eligible Receivables, and any renewal, extension,
refinancing or refunding thereof in an amount which, together with any
principal amount remaining outstanding or available under all Bank Credit
Agreements and Vendor Financing Facilities of NEXTLINK and its Restricted
Subsidiaries, plus the amount of any premium required to be paid in
connection with such refinancing pursuant to the terms of any Bank Credit
Agreement so refinanced plus the amount of expenses incurred in
connection with such refinancing, does not exceed the aggregate principal
amount outstanding or available under all such Bank Credit Agreements and
Vendor Financing Facilities of NEXTLINK and its Restricted Subsidiaries
immediately prior to such renewal, extension, refinancing or refunding;
(2) Purchase Money Debt Incurred to finance the construction,
acquisition or improvement of Telecommunications Assets, provided that the
net proceeds of such Purchase Money Debt do not exceed 100% of the cost of
construction, acquisition or improvement price of the applicable
Telecommunications Assets;
(3) Debt owed by NEXTLINK to any Restricted Subsidiary of NEXTLINK or
Debt owed by a Restricted Subsidiary to NEXTLINK or a Restricted Subsidiary
of NEXTLINK; provided, however, that upon either
(a) the transfer or other disposition by such Restricted Subsidiary
or NEXTLINK of any Debt so permitted to a Person other than NEXTLINK or
another Restricted Subsidiary of NEXTLINK or
(b) the issuance (other than directors' qualifying shares), sale,
lease, transfer or other disposition of shares of Capital Stock
(including by consolidation or merger) of such Restricted Subsidiary, as
a result of which the obligor of such Debt ceases to be a Restricted
Subsidiary, the provisions of this clause (3) shall no longer be
applicable to such Debt and such Debt shall be deemed to have been
Incurred at the time of such transfer or other disposition;
39
<PAGE>
(4) Debt Incurred to renew, extend, refinance or refund (each, a
"refinancing") Debt outstanding at the date of the indentures or incurred
pursuant to the preceding paragraph or clause (2) of this paragraph or the
senior or senior discount notes in an aggregate principal amount not to
exceed the aggregate principal amount of and accrued interest on the Debt so
refinanced plus the amount of any premium required to be paid in connection
with such refinancing pursuant to the terms of the Debt so refinanced or the
amount of any premium reasonably determined by NEXTLINK as necessary to
accomplish such refinancing by means of a tender offer or privately
negotiated repurchase, plus the amount of expenses of NEXTLINK incurred in
connection with such refinancing; provided, however, that Debt the proceeds
of which are used to refinance the senior or senior discount notes or Debt
which is PARI PASSU to the senior or senior discount notes or debt which is
subordinate in right of payment to the senior or senior discount notes shall
only be permitted if:
(a) in the case of any refinancing of the senior or senior discount
notes or Debt which is PARI PASSU to the senior or senior discount notes,
the refinancing Debt is made PARI PASSU to the senior or senior discount
notes or subordinated to the senior or senior discount notes, and, in the
case of any refinancing of Debt which is subordinated to the senior or
senior discount notes, the refinancing Debt constitutes Subordinated Debt
and
(b) in either case, the refinancing Debt by its terms, or by the
terms of any agreement or instrument pursuant to which such Debt is
issued,
(x) does not provide for payments of principal of such Debt at
the stated maturity thereof or by way of a sinking fund applicable
thereto or by way of any mandatory redemption, defeasance,
retirement or repurchase thereof by NEXTLINK (including any
redemption, retirement or repurchase which is contingent upon events
or circumstances, but excluding any retirement required by virtue of
acceleration of such Debt upon any event of default thereunder), in
each case prior to the time the same are required by the terms of
the Debt being refinanced and
(y) does not permit redemption or other retirement (including
pursuant to an offer to purchase made by NEXTLINK) of such debt at
the option of the holder thereof prior to the final stated maturity
of the Debt being refinanced, other than a redemption or other
retirement at the option of the holder of such Debt (including
pursuant to an offer to purchase made by NEXTLINK) which is
conditioned upon a change substantially similar to those described
under "--Change of Control" or which is pursuant to provisions
substantially similar to those described under "--Limitation on
Asset Dispositions;"
(5) Debt consisting of Permitted Interest Rate or Currency Protection
Agreements;
(6) Debt outstanding under the senior or senior discount notes;
(7) Subordinated Debt invested by:
(a) a group of employees of NEXTLINK, which includes the Chief
Executive Officer of NEXTLINK, who own, directly or indirectly, through
an employee stock ownership plan or arrangement, shares of NEXTLINK's
Capital Stock or
40
<PAGE>
(b) any other Person that controls NEXTLINK:
(x) on the Issue Date or
(y) after a Change of Control, provided that NEXTLINK is not in
default with respect to its obligations described under "--Change of
Control" below;
(8) Debt consisting of performance and other similar bonds and
reimbursement obligations Incurred in the ordinary course of business
securing the performance of contractual, franchise or license obligations of
NEXTLINK or a Restricted Subsidiary, or in respect of a letter of credit
obtained to secure such performance; and
(9) Debt not otherwise permitted to be Incurred pursuant to clauses (1)
through (8) above, which, together with any other outstanding Debt Incurred
pursuant to this clause (9), has an aggregate principal amount or, in the
case of Debt issued at a discount, an accreted amount (determined in
accordance with generally accepted accounting principles) at the time of
Incurrence not in excess of $10 million at any time outstanding.
For purposes of determining compliance with this "Limitation on Consolidated
Debt" covenant, if an item of Debt meets the criteria of more than one of the
types of Debt NEXTLINK is permitted to incur pursuant to the foregoing clauses
(1) through (9) or the first unnumbered paragraph of this "Limitation on
Consolidated Indebtedness," NEXTLINK shall have the right, in its sole
discretion, to classify such item of Debt and shall only be required to include
the amount and type of such Debt under the clause or paragraph permitting the
Debt as so classified. The determination of any particular amount of Debt under
such covenant shall be made without duplication for Guarantees or Liens
supporting Debt otherwise included in the determination of a particular amount.
(Section 1007)
LIMITATION ON DEBT AND PREFERRED STOCK OF RESTRICTED SUBSIDIARIES
NEXTLINK may not permit any Restricted Subsidiary (other than a Restricted
Subsidiary that has fully and unconditionally Guaranteed the notes on an
unsubordinated basis) to Incur or suffer to exist any Debt or issue any
Preferred Stock except:
(1) Debt or Preferred Stock outstanding on the date of the Indenture
after giving effect to the application of the proceeds of the senior or
senior discount notes;
(2) Debt Incurred or Preferred Stock issued to and held by NEXTLINK or
a Restricted Subsidiary of NEXTLINK (provided that such Debt or Preferred
Stock is at all times held by NEXTLINK or a Restricted Subsidiary of
NEXTLINK);
(3) Debt Incurred or Preferred Stock issued by a Person prior to the
time:
(a) such Person became a Restricted Subsidiary of NEXTLINK,
(b) such Person merges into or consolidates with a Restricted
Subsidiary of NEXTLINK or
(c) another Restricted Subsidiary of NEXTLINK merges into or
consolidates with such Person (in a transaction in which such Person
becomes a Restricted Subsidiary of NEXTLINK), which Debt or Preferred
Stock was not Incurred or issued in anticipation of such transaction and
was outstanding prior to such transaction;
41
<PAGE>
(4) Debt consisting of Permitted Interest Rate and Currency Protection
Agreements;
(5) Debt or Preferred Stock of a Joint Venture;
(6) Debt under any one or more Bank Credit Agreements or Vendor
Financing Facilities (and renewals, extensions, refinancings or refundings
thereof) which is permitted to be outstanding under clause (1) of the
"--Limitation on Consolidated Indebtedness";
(7) Debt consisting of Guarantees of the senior or senior discount
notes;
(8) Debt or Preferred Stock which is exchanged for, or the proceeds of
which are used to refinance, refund or redeem, any Debt or Preferred Stock
permitted to be outstanding pursuant to clauses (1), (3) and (9) hereof (or
any extension or renewal thereof) (for purposes hereof, a "refinancing"), in
an aggregate principal amount, in the case of Debt, or with an aggregate
liquidation preference, in the case of Preferred Stock, not to exceed the
aggregate principal amount of the Debt so refinanced or the aggregate
liquidation preference of the Preferred Stock so refinanced, plus the amount
of any premium required to be paid in connection with such refinancing
pursuant to the terms of the Debt or Preferred Stock so refinanced or the
amount of any premium reasonably determined by NEXTLINK as necessary to
accomplish such refinancing by means of a tender offer or privately
negotiated repurchase, plus the amount of expenses of NEXTLINK and the
Restricted Subsidiary incurred in connection therewith and provided the Debt
or Preferred Stock incurred or issued upon such refinancing by its terms, or
by the terms of any agreement or instrument pursuant to which such Debt or
Preferred Stock is Incurred or issued,
(a) does not provide for payments of principal or liquidation value
at the stated maturity of such Debt or Preferred Stock or by way of a
sinking fund applicable to such Debt or Preferred Stock or by way of any
mandatory redemption, defeasance, retirement or repurchase of such Debt
or Preferred Stock by NEXTLINK or any Restricted Subsidiary of NEXTLINK
(including any redemption, retirement or repurchase which is contingent
upon events or circumstances, but excluding any retirement required by
virtue of acceleration of such Debt upon an event of default thereunder),
in each case prior to the time the same are required by the terms of the
Debt or Preferred Stock being refinanced and
(b) does not permit redemption or other retirement (including
pursuant to an offer to purchase made by NEXTLINK or a Restricted
Subsidiary) of such Debt or Preferred Stock at the option of the holder
thereof prior to the stated maturity of the Debt or Preferred Stock being
refinanced, other than a redemption or other retirement at the option of
the holder of such Debt or Preferred Stock (including pursuant to an
offer to purchase made by NEXTLINK or a Restricted Subsidiary) which is
conditioned upon the change of control of NEXTLINK pursuant to provisions
substantially similar to those contained in the Indenture described under
"--Change of Control" or which is pursuant to provisions substantially
similar to those described under "--Limitation on Asset Dispositions",
and provided, further, that in the case of any exchange or redemption of
Preferred Stock of a Restricted Subsidiary, such Preferred Stock may only
be exchanged for or redeemed with Preferred Stock of such Restricted
Subsidiary;
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(9) Purchase Money Debt Incurred to finance the construction,
acquisition or improvement of Telecommunications Assets, provided that the
net proceeds of such Purchase Money Debt do not exceed 100% of the cost of
construction, acquisition or improvement price of the applicable
Telecommunications Assets;
(10) Debt consisting of performance and other similar bonds and
reimbursement obligations Incurred in the ordinary course of business
securing the performance of contractual, franchise or license obligations of
NEXTLINK or a Restricted Subsidiary, or in respect of a letter of credit
obtained to secure such performance; and
(11) Debt not otherwise permitted to be incurred pursuant to clauses
(1) through (10) above, which, together with any other outstanding Debt
incurred pursuant to this clause (11), has an aggregate principal amount
(or, in the case of Debt issued at a discount, an accreted amount
(determined in accordance with generally accepted accounting principles) at
the time of Incurrence) not in excess of $10 million at any time
outstanding. (Section 1008)
For purposes of determining compliance with this "Limitation on Debt and
Preferred Stock of Restricted Subsidiaries" covenant, in the event that an item
of Debt meets the criteria of more than one of the types of Debt a Restricted
Subsidiary is permitted to incur pursuant to the foregoing clauses (1) through
(9), NEXTLINK shall have the right, in its sole discretion, to classify such
item of Debt and shall be only required to include the amount and type of such
Debt under the clause permitting the Debt as so classified. The determination of
any particular amount of Debt under such covenant shall be made without
duplication for Guarantees or Liens supporting Debt or otherwise included in the
determination of a particular amount. (Section 1008)
LIMITATION ON RESTRICTED PAYMENTS
NEXTLINK may not:
(1) directly or indirectly, declare or pay any dividend, or make any
distribution, in respect of its Capital Stock or to the holders thereof (in
their capacity as such), excluding any dividends or distributions payable
solely in shares of its Capital Stock (other than Disqualified Stock) or in
options, warrants or other rights to acquire its Capital Stock (other than
Disqualified Stock);
(2) permit any Restricted Subsidiary to, purchase, redeem, or otherwise
retire or acquire for value:
(a) any Capital Stock of NEXTLINK or any Related Person of NEXTLINK;
or
(b) any options, warrants or rights to purchase or acquire shares of
Capital Stock of NEXTLINK or any Related Person of NEXTLINK or any
securities convertible or exchangeable into shares of Capital Stock of
NEXTLINK or any Related Person of NEXTLINK;
(3) make, or permit any Restricted Subsidiary to make, any Investment
in, or payment on a Guarantee of any obligation of, any Person, other than
NEXTLINK or a Restricted Subsidiary of NEXTLINK, except for Permitted
Investments; and
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(4) and may not permit any Restricted Subsidiary to, redeem, defease,
repurchase, retire or otherwise acquire or retire for value, prior to any
scheduled maturity, repayment or sinking fund payment, Debt of NEXTLINK
which is subordinate in right of payment to the Notes (each of clauses (1)
through (4) being a "Restricted Payment")
if:
(a) a Default or an Event of Default shall have occurred and is
continuing; or
(b) upon giving effect to such Restricted Payment, NEXTLINK could
not Incur at least $1.00 of additional Debt pursuant to the terms of the
indentures described in the first paragraph of "--Limitation on
Consolidated Indebtedness" above; or
(c) upon giving effect to such Restricted Payment, the aggregate of
all Restricted Payments from April 25, 1996 exceeds the sum of:
(A) 50% of cumulative Consolidated Net Income (or, in the case
Consolidated Net Income shall be negative, less 100% of such
deficit) since the end of the last full fiscal quarter prior to
April 25, 1996 through the last day of the last full fiscal quarter
ending immediately preceding the date of such Restricted Payment;
plus
(B) $5 million; plus
(C) 100% of the net reduction in Investments in any
Unrestricted Subsidiary since the end of the last full fiscal
quarter prior to April 25, 1996 resulting from payments of interest
on Debt, dividends, repayments of loans or advances, or other
transfers of assets, in each case to NEXTLINK or any Restricted
Subsidiary of NEXTLINK from such Unrestricted Subsidiary (except to
the extent that any such payment is included in the calculation of
Consolidated Net Income) or from redesignations of Unrestricted
Subsidiaries as Restricted Subsidiaries; PROVIDED that the amount
included in this clause (C) shall not exceed the amount of
Investments previously made by NEXTLINK and its Restricted
Subsidiaries in such Unrestricted Subsidiary;
PROVIDED, FURTHER, that NEXTLINK or a Restricted Subsidiary of NEXTLINK may
make any Restricted Payment with the aggregate net proceeds received after
April 25, 1996, including the fair value of property other than cash
(determined in good faith by the Board of Directors of NEXTLINK, as
conclusively evidenced by a Board Resolution filed with the trustee), as
capital contributions to NEXTLINK or from the issuance (other than to a
Restricted Subsidiary) of Capital Stock (other than Disqualified Stock) of
NEXTLINK and warrants, rights or options on Capital Stock (other than
Disqualified Stock) of NEXTLINK and the principal amount of Debt of NEXTLINK
that has been converted into Capital Stock (other than Disqualified Stock
and other than by a Restricted Subsidiary) of NEXTLINK after April 25, 1996.
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Notwithstanding the foregoing:
(1) NEXTLINK may pay any dividend on Capital Stock of any class
within 60 days after the declaration thereof if, on the date when the
dividend was declared, NEXTLINK could have paid such dividend in
accordance with the foregoing provisions;
(2) NEXTLINK may repurchase any shares of its Common Equity or
options to acquire its Common Equity from Persons who were formerly
officers or employees of NEXTLINK, PROVIDED that the aggregate amount of
all such repurchases made pursuant to this clause (2) shall not exceed $2
million, plus the aggregate cash proceeds received by NEXTLINK since
April 25, 1996 from issuances of its Common Equity or options to acquire
its Common Equity to members, officers, managers, directors and employees
of NEXTLINK or any of its Subsidiaries;
(3) NEXTLINK and its Restricted Subsidiaries may refinance any Debt
otherwise permitted by clause (4) of the second paragraph under
"--Limitation on Consolidated Indebtedness" above; and
(4) NEXTLINK and its Restricted Subsidiaries may retire or repurchase
any Capital Stock or Subordinated Debt of NEXTLINK in exchange for, or out
of the proceeds of the substantially concurrent sale (other than to a
Restricted Subsidiary of NEXTLINK) of, Capital Stock (other than
Disqualified Stock) of NEXTLINK. If NEXTLINK makes a Restricted Payment
which, at the time it is made, would in good faith determination of NEXTLINK
be permitted under the indentures, such Restricted Payment shall be deemed
to have been made in compliance with the indenture notwithstanding any
subsequent adjustments in good faith to NEXTLINK financial statements
affecting Consolidated Net Income for any period.
In determining the aggregate amount expended or available for Restricted
Payments in accordance with clause (c) of the first paragraph above,
(1) no amounts expended under clauses (3) or (4) of the immediately
preceding paragraph shall be included,
(2) 100% of the amounts expended under clauses (1) and (2) of the
immediately preceding paragraph shall be included, and
(3) no amount shall be credited in respect of issuances of Capital
Stock in transactions under clause (4) of the immediately preceding
paragraph. (Section 1009)
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES
NEXTLINK may not, and may not permit any Restricted Subsidiary to, directly
or indirectly, create or otherwise cause or suffer to exist or become effective
any consensual encumbrance or restriction on the ability of any Restricted
Subsidiary of NEXTLINK:
(1) to pay dividends (in cash or otherwise) or make any other
distributions in respect of its Capital Stock owned by NEXTLINK or any other
Restricted Subsidiary or pay any Debt or other obligation owed to NEXTLINK
or any other Restricted Subsidiary;
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(2) to make loans or advances to NEXTLINK or any other Restricted
Subsidiary; or
(3) to transfer any of its property or assets to NEXTLINK or any other
Restricted Subsidiary.
Notwithstanding the foregoing, NEXTLINK may, and may permit any Restricted
Subsidiary to, suffer to exist any such encumbrance or restriction:
(a) pursuant to any agreement in effect on the Issue Date;
(b) pursuant to an agreement relating to any Acquired Debt, which
encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person so acquired and
its Subsidiaries;
(c) pursuant to any one or more Bank Credit Agreements or Vendor
Financing Facilities (and renewals, extensions, refinancings or
refundings thereof) which is permitted to be outstanding under clause (1)
or (2) of "Limitation on Consolidated Indebtedness" or clause (6) or (9)
of "Limitation on Debt and Preferred Stock of Restricted Subsidiaries",
PROVIDED that such restriction is consistent with, and not materially
more restrictive (as conclusively determined in good faith by the Chief
Financial Officer of NEXTLINK), taken as a whole, than, comparable
provisions included in similar agreements or facilities extended to
comparable credits engaged in the Telecommunications Business and
provided further that, in the case of any such Bank Credit Agreement or
Vendor Financing Facility entered into by a Restricted Subsidiary under
clause (2) of "Limitation on Consolidated Indebtedness" or clause (9) of
"Limitation on Debt and Preferred Stock of Restricted Subsidiaries", such
encumbrances or restricitons do not prohibit dividends, distributions,
loans or advances by such Restricted Subsidiary to the Company or another
Restricted Subsidiary to the extent that the failure to make such
distribution, loan or advance would result in the Company defaulting in
the payment of principal or interest on its Debt;
(d) pursuant to an agreement effecting a renewal, refunding or
extension of Debt Incurred pursuant to an agreement referred to in clause
(a) or (b) above or (e) below, PROVIDED, HOWEVER, that the provisions
contained in such renewal, refunding or extension agreement relating to
such encumbrance or restriction are not materially more restrictive (as
conclusively determined in good faith by the Chief Financial Officer of
NEXTLINK), taken as a whole, than the provisions contained in the
agreement the subject thereof;
(e) in the case of clause (3) above, restrictions contained in any
security agreement (including a Capital Lease Obligation) securing Debt
of NEXTLINK or a Restricted Subsidiary otherwise permitted under the
indenture, but only to the extent such restrictions restrict the transfer
of the property subject to such security agreement;
(f) in the case of clause (3) above, customary nonassignment
provisions entered into in the ordinary course of business in leases and
other agreements;
(g) any restriction with respect to a Restricted Subsidiary of
NEXTLINK imposed pursuant to an agreement which has been entered into for
the sale or
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disposition of all or substantially all of the Capital Stock or assets of
such Restricted Subsidiary, PROVIDED that consummation of such
transaction would not result in a Default or an Event of Default, that
such restriction terminates if such transaction is not consummated and
that such consummation or abandonment of such transaction occurs within
one year of the date such agreement was entered into;
(h) pursuant to applicable law or regulations;
(i) pursuant to the indentures and the senior and senior discount
notes; or
(j) any restriction on the sale or other disposition of assets or
property securing Debt as a result of a Permitted Lien on such assets or
property. (Section 1010)
LIMITATION ON LIENS
NEXTLINK may not, and may not permit any Restricted Subsidiary to, Incur or
suffer to exist any Lien on or with respect to any property or assets now owned
or hereafter acquired to secure any Debt without making, or causing such
Restricted Subsidiary to make, effective provision for securing the senior and
senior discount notes:
(1) equally and ratably with (or prior to) such Debt as to such
property for so long as such Debt will be so secured or
(2) in the event such Debt is Debt of NEXTLINK which is subordinate in
right of payment to the senior and senior discount notes, prior to such Debt
as to such property for so long as such Debt will be so secured.
The foregoing restrictions shall not apply to:
(1) Liens existing on the Issue Date and securing Debt outstanding on
the Issue Date or securing the senior or senior discount notes or Liens
securing Debt incurred pursuant to any Bank Credit Agreement or Vendor
Financing Facility (whether or not such Bank Credit Agreement or Vendor
Financing Facility was outstanding on the Issue Date);
(2) Liens securing Debt in an amount which, together with the aggregate
amount of Debt then outstanding or available under the Bank Credit Agreement
and the Vendor Financing Facility (or under refinancings or amendments of
such agreements), does not exceed 1.5 times NEXTLINK's Consolidated Cash
Flow Available for Fixed Charges for the four full fiscal quarters preceding
the Incurrence of such Lien for which consolidated financial statements are
available, determined on a pro forma basis as if such Debt had been Incurred
and the proceeds thereof had been applied at the beginning of such four
fiscal quarters;
(3) Liens in favor of NEXTLINK or any Wholly Owned Restricted
Subsidiary of NEXTLINK;
(4) Liens on real or personal property of NEXTLINK or a Restricted
Subsidiary of NEXTLINK acquired, constructed or constituting improvements
made after the Issue Date to secure Purchase Money Debt which is Incurred
for the construction, acquisition and improvement of Telecommunications
Assets and is otherwise permitted under the indenture, provided, however,
that:
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(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);
(5) Liens to secure Acquired Debt, provided, however, that:
(a) such Lien attaches to the acquired asset prior to the time of
the acquisition of such asset and
(b) such Lien does not extend to or cover any other asset;
(6) Liens to secure Debt Incurred to extend, renew, refinance or refund
(or successive extensions, renewals, refinancings or refundings), in whole
or in part, Debt secured by any Lien referred to in the foregoing clauses
(1), (2), (4) and (5) so long as such Lien does not extend to any other
property and the principal amount of Debt so secured is not increased except
as otherwise permitted under clause (4) of "--Limitation on Consolidated
Indebtedness";
(7) Liens securing Debt not otherwise permitted by the foregoing
clauses (1) through (4) in an amount not to exceed 5% of NEXTLINK's
Consolidated Tangible Assets determined as of the most recent available
quarterly or annual balance sheet; and
(8) Permitted Liens. (Section 1011)
LIMITATION ON SALE AND LEASEBACK TRANSACTIONS
NEXTLINK may not, and may not permit any Restricted Subsidiary to, enter
into any Sale and Leaseback Transaction unless:
(1) NEXTLINK or such Restricted Subsidiary would be entitled to incur a
Lien to secure Debt by reason of the provisions described under
"--Limitation on Liens" above, equal in amount to the Attributable Value of
the Sale and Leaseback Transaction without equally and ratably securing the
senior and senior discount notes; or
(2) the Sale and Leaseback Transaction is treated as an Asset
Disposition and all of the conditions of the indenture described under
"--Limitation on Asset Dispositions" (including the provisions concerning
the application of Net Available Proceeds) are satisfied with respect to
such Sale and Leaseback Transaction, treating all of the consideration
received in such Sale and Leaseback Transaction in the same manner as
consideration received in respect of an Asset Disposition for purposes of
such covenant. (Section 1012)
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LIMITATION ON ASSET DISPOSITIONS
NEXTLINK may not, and may not permit any Restricted Subsidiary to, make any
Asset Disposition in one or more related transactions occurring within any 12
month period unless:
(1) NEXTLINK or the Restricted Subsidiary, as the case may be, receives
consideration for such disposition at least equal to the fair market value
for the assets sold or disposed of as determined by the Board of Directors
of NEXTLINK in good faith and evidenced by a Board Resolution filed with the
Trustee, which determination shall be conclusive;
(2) at least 75% of the consideration for such disposition consists of:
(a) cash or readily marketable cash equivalents or the assumption of
Debt or other obligations of NEXTLINK (other than Debt that is
subordinated to the senior and senior discount notes) or of the
Restricted Subsidiary and release from all liability on the Debt or other
obligations assumed;
(b) Telecommunications Assets; or
(c) shares of publicly traded Voting Stock of any Person engaged in
the Telecommunications Business in the United States; and
(3) all Net Available Proceeds, less any amounts invested in
Telecommunications Assets (within 180 days prior to and 360 days following
such disposition), are applied within 360 days of such disposition:
(a) first, to the permanent repayment or reduction of Debt then
outstanding under any Bank Credit Agreement or Vendor Financing Facility,
to the extent such agreements would require such application or prohibit
payments pursuant to clause (b) following,
(b) second, to the extent of remaining Net Available Proceeds, to
make an Offer to Purchase outstanding senior notes at 100% of their
principal amount, plus accrued interest to the date of purchase, and
outstanding senior discount notes at 100% of their Accreted Value (if
such Offer to Purchase is made on or before June , 2004) or 100% of
their principal amount plus accrued interest to the date of purchase (if
such offer to Purchase is made thereafter) and, to the extent required by
the terms thereof, any other Debt of NEXTLINK that is PARI PASSU with the
notes at a price no greater than 100% of the principal amount thereof
plus accrued interest to the date of purchase (or 100% of the Accreted
Value thereof in the case of Debt issued at an original issue discount)
and
(c) third, to the extent of any remaining Net Available Proceeds
following the completion of the Offer to Purchase, to the repayment of
other Debt of NEXTLINK or Debt of a Restricted Subsidiary of NEXTLINK, to
the extent permitted under the terms thereof. To the extent any Net
Available Proceeds remain after such uses, NEXTLINK and its Restricted
Subsidiaries may use such amounts for any purposes not prohibited by the
indenture. (Section 1013)
Notwithstanding the foregoing, these provisions shall not apply to any Asset
Disposition which constitutes a transfer, conveyance, sale, lease or other
disposition of all or substantially
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all of NEXTLINK's properties or assets as described under "--Mergers,
Consolidations and Certain Sales of Assets."
LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES
NEXTLINK may not, and may not permit any Restricted Subsidiary to, issue,
transfer, convey, sell or otherwise dispose of any shares of Capital Stock of a
Restricted Subsidiary of NEXTLINK or securities convertible or exchangeable
into, or options, warrants, rights or any other interest with respect to,
Capital Stock of a Restricted Subsidiary of NEXTLINK to any person other than
NEXTLINK or a Wholly Owned Restricted Subsidiary of NEXTLINK except:
(1) in a transaction that complies with the provisions described under
"--Limitation on Asset Dispositions" above;
(2) if required, the issuance, transfer, conveyance, sale or other
disposition of directors' qualifying shares;
(3) in a transaction in which, or in connection with which, NEXTLINK or
a Restricted Subsidiary acquires at the same time sufficient Capital Stock
of such Restricted Subsidiary to at least maintain the same percentage
ownership interest it had prior to such transaction;
(4) constituting the issuance of Preferred Stock permitted by the
provisions described under "--Limitation on Debt and Preferred Stock of
Restricted Subsidiaries" above; and
(5) Disqualified Stock issued in exchange for, or upon conversion of,
or the proceeds of the issuance of which are used to redeem, refinance,
replace or refund shares of Disqualified Stock of such Restricted
Subsidiary, provided that the amounts of the redemption obligations of such
Disqualified Stock shall not exceed the amounts of the redemption
obligations of, and such Disqualified Stock shall have redemption
obligations no earlier than those required by, the Disqualified Stock being
exchanged, converted, redeemed, refinanced, replaced or refunded. (Section
1014)
TRANSACTIONS WITH AFFILIATES AND RELATED PERSONS
NEXTLINK may not, and may not permit any Restricted Subsidiary to, enter
into any transaction (or series of related transactions) with an Affiliate or
Related Person of NEXTLINK (other than NEXTLINK or a Wholly Owned Restricted
Subsidiary of NEXTLINK), including any Investment, but excluding transactions
pursuant to employee compensation arrangements approved by the Board of
Directors of NEXTLINK, either directly or indirectly, unless such transaction is
on terms no less favorable to NEXTLINK or such Restricted Subsidiary than those
that could reasonably be obtained in a comparable arm's length transaction with
an entity that is not an Affiliate or Related Person and is in the best
interests of NEXTLINK or such Restricted Subsidiary. For any transaction that
involves in excess of $1 million but less than or equal to $15 million, the
Chief Executive Officer of NEXTLINK shall determine that the transaction
satisfies the above criteria and shall evidence such a determination by a
certificate filed with the trustee. For any transaction that involves in excess
of $15 million, NEXTLINK shall also either (1) obtain the approval of the
transaction from the Board of Directors including a majority of the
disinterested members of
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the Board of Directors or (2) obtain an opinion from a nationally recognized
investment bank or other expert with experience in appraising the terms and
conditions, taken as a whole, of the type of transaction (or series of related
transactions) for which the opinion is required stating that such transaction
(or series of related transactions) is on terms and conditions, taken as a
whole, no less favorable to NEXTLINK or such Restricted Subsidiary than those
that could be obtained in a comparable arm's length transaction with an entity
that is not an Affiliate or Related Person of NEXTLINK, which opinion shall be
filed with the Trustee. This covenant shall not apply to Investments by an
Affiliate or a Related Person of NEXTLINK in the Capital Stock (other than
Disqualified Stock) of NEXTLINK or any Restricted Subsidiary of NEXTLINK.
(Section 1015)
CHANGE OF CONTROL
Within 30 days of the occurrence of a Change of Control, NEXTLINK will be
required to make an Offer to Purchase all outstanding senior notes at a purchase
price equal to 101% of their principal amount plus accrued and unpaid interest
to the date of purchase, or, in the case of senior discount notes, 101% of their
Accreted Value (if the Offer to Purchase is made on or before June , 2004), or
101% of their principal amount plus accrued and unpaid interest to the date of
purchase (if the Offer to Purchase the senior discount notes is consummated
after June , 2004).
A "Change of Control" will be deemed to have occurred at such time as
either:
(1) any Person or any Persons acting together that would constitute a
"group" (a "Group") for purposes of Section 13(d) of the Securities Exchange
Act of 1934, or any successor provision thereto (other than Eagle River, Mr.
Craig O. McCaw and their respective Affiliates or an underwriter engaged in
a firm commitment underwriting on behalf of NEXTLINK), 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 NEXTLINK; or
(2) neither Mr. Craig O. McCaw nor any person designated by him to
NEXTLINK as acting on his behalf shall be a director of NEXTLINK; or
(3) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of NEXTLINK
(together with any new directors whose election by the Board of Directors of
NEXTLINK or whose nomination for election by the shareholders was proposed
by a vote of a majority of the directors of NEXTLINK 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 NEXTLINK then in
office. (Section 1016)
Except as described above with respect to a Change of Control, the
indentures do not contain provisions that permit the holders of the senior and
senior discount notes to require that NEXTLINK repurchase or redeem the notes in
the event of a takeover, recapitalization or similar restructuring.
Restrictions in the indentures described herein on the ability of NEXTLINK
and its Restricted Subsidiaries to incur additional Debt, to grant Liens on its
or their property, to make Restricted Payments and to make Asset Sales may also
make more difficult or
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discourage a takeover of NEXTLINK, whether favored or opposed by the management
of NEXTLINK. Consummation of any such transaction in certain circumstances may
require redemption or repurchase of the senior and senior discount notes, and
there can be no assurance that NEXTLINK or the acquiring party will have
sufficient financial resources to effect such redemption or repurchase. Such
restrictions and the restrictions on transactions with Affiliates may, in
certain circumstances, make more difficult or discourage any leveraged buyout of
NEXTLINK or any of its Subsidiaries by the management of NEXTLINK or other
Persons. While such restrictions cover a variety of arrangements which have
traditionally been used to effect highly leveraged transactions, the indentures
may not afford the holders of senior and senior discount notes protection in all
circumstances from the adverse aspects of a highly leveraged transaction,
reorganization, restructuring, merger or similar transaction.
In the event of a Change of Control, the indentures relating to the 9.45%
Notes, the 9% Notes, the 9 5/8% Notes, the 12 1/2% Notes and the 10 3/4% Notes
would require NEXTLINK to make an offer to purchase those securities. NEXTLINK
does not currently have adequate financial resources to effect such repurchases
and repurchase the senior and senior discount notes upon a Change of Control and
there can be no assurance that NEXTLINK will have such resources in the future.
The inability of NEXTLINK to repurchase the senior and senior discount notes
upon a Change of Control would constitute an Event of Default.
In addition, there may be restrictions contained in instruments evidencing
Debt incurred by NEXTLINK or its Restricted Subsidiaries permitted under the
indentures which restrict or prohibit the ability of NEXTLINK to effect any
repurchase required under the indentures in connection with a Change of Control.
In the event that NEXTLINK makes an Offer to Purchase the senior and senior
discount notes, NEXTLINK intends to comply with any applicable securities laws
and regulations, including any applicable requirements of Section 14(e) of, and
Rule 14e-1 under, the Exchange Act.
PROVISION OF FINANCIAL INFORMATION
NEXTLINK has agreed that, for so long as any senior or senior discount notes
remain outstanding, it will file with the trustee within 15 days after it files
them with the SEC, copies of the annual and quarterly reports and the
information, documents, and other reports that NEXTLINK is required to file with
the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act ("SEC Reports").
In the event NEXTLINK shall cease to be required to file SEC Reports pursuant to
the Exchange Act, NEXTLINK will nevertheless continue to file such reports with
the SEC (unless the SEC will not accept such a filing) and the trustee. NEXTLINK
will furnish copies of the SEC Reports to the holders of senior or senior
discount notes at the time NEXTLINK is required to file the same with the
trustee and will make such information available to investors who request it in
writing. (Section 1017)
LIMITATION ON USE OF PROCEEDS
NEXTLINK will apply the net proceeds from the sale of the senior and senior
discount notes toward the construction, improvement and acquisition by NEXTLINK,
or one or more Restricted Subsidiaries of NEXTLINK or Joint Ventures, of
Telecommunications Assets of NEXTLINK, such Restricted Subsidiaries or Joint
Ventures (or will advance such net proceeds to such Restricted Subsidiaries of
NEXTLINK or Joint Ventures for such purpose);
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provided, however, pending such application, the net proceeds of the sale of the
senior or senior discount notes may be invested in Marketable Securities.
(Section 1020)
MERGERS, CONSOLIDATIONS AND CERTAIN SALES OF ASSETS
NEXTLINK may not, in a single transaction or a series of related
transactions:
(1) consolidate with or merge into any other Person or permit any other
Person to consolidate with or merge into NEXTLINK (other than a
consolidation or merger of a Wholly Owned Restricted Subsidiary organized
under the laws of a State of the United States into NEXTLINK), or
(2) directly or indirectly, transfer, sell, lease or otherwise dispose
of all or substantially all of its assets (determined on a consolidated
basis for NEXTLINK and its Restricted Subsidiaries taken as a whole and
provided that the creation of a Lien on or in any of its assets shall not in
and of itself constitute the transfer, sale, lease or disposition of the
assets subject to the Lien),
unless:
(a) in a transaction in which NEXTLINK does not survive or in which
NEXTLINK sells, leases or otherwise disposes of all or substantially all
of its assets to any other Person, the successor entity to NEXTLINK shall
be a corporation organized under the laws of the United States of America
or any State thereof or the District of Columbia and shall expressly
assume, by a supplemental indenture executed and delivered to the trustee
in form satisfactory to the trustee, all of NEXTLINK's obligations under
the indentures;
(b) immediately after giving pro forma effect to such transaction as
if such transaction had occurred at the beginning of the last full fiscal
quarter immediately prior to the consummation of such transaction with
the appropriate adjustments with respect to the transaction being
included in such pro forma calculation and treating any Debt which
becomes an obligation of NEXTLINK or a Subsidiary as a result of such
transaction as having been incurred by NEXTLINK or such Subsidiary at the
time of the transaction, no Default or Event of Default shall have
occurred and be continuing;
(c) immediately after giving effect to such transaction, the
Consolidated Net Worth of NEXTLINK (or other successor entity to
NEXTLINK) is equal to or greater than that of NEXTLINK immediately prior
to the transaction;
(d) if, as a result of any such transaction, property or assets of
NEXTLINK would become subject to a Lien prohibited by the provisions of
the indentures described under "Covenants--Limitation on Liens" above,
NEXTLINK or the successor entity to NEXTLINK shall have secured the notes
as required by said covenant; and
(e) certain other conditions are met. (Section 801)
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In the event of any transaction (other than a lease) described in and
complying with the immediately preceding paragraph in which NEXTLINK is not the
surviving Person and the surviving Person assumes all the obligations of
NEXTLINK under the senior and senior discount notes and each of the indentures
pursuant to a supplemental indenture, such surviving Person shall succeed to,
and be substituted for, and may exercise every right and power of, NEXTLINK, and
NEXTLINK will be discharged from its obligations under the indentures and the
senior and senior discount notes; provided that solely for the purpose of
calculating amounts described in clause (c) under "Covenants--Limitations on
Restricted Payments," any such surviving Person shall only be deemed to have
succeeded to and be substituted for NEXTLINK with respect to the period
subsequent to the effective time of such transaction, and NEXTLINK (before
giving effect to such transaction) shall be deemed to be the "Indenture obligor"
for such purposes for all prior periods. (Section 801)
The meaning of the phrase "all or substantially all" as used above varies
according to the facts and circumstances of the subject transaction, has no
clearly established meaning under relevant law and is subject to judicial
interpretation. Accordingly, in certain circumstances, there may be a degree of
uncertainty in ascertaining whether a particular transaction would involve a
disposition of "all or substantially all" of the assets of NEXTLINK, and
therefore it may be unclear whether the foregoing provisions are applicable.
CERTAIN DEFINITIONS
Set forth below is a summary of some of the definitions used in the
indentures. Reference is made to the indentures for the definition of all such
terms, as well as any other term used herein for which no definition is
provided. (Section 101)
"Acquired Debt" means, with respect to any specified Person,
(1) 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
(2) 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.
"Accreted Value" means, as of any date prior to June , 2004, an amount
per $1,000 principal amount at stated maturity of that is equal to the sum of:
(1) the offering price ($ per $1000 principal amount at stated
maturity of such senior discount notes) of the senior discount notes and
(2) the portion of the excess of the principal amount of such senior
discount note over the offering price which shall have been amortized on a
daily basis and compounded semi-annually on each and at the rate of
per annum from the Issue Date computed on the basis of a 360 day
year of twelve 30 day months, and as of any date on or after June , 2004,
the principal amount of each senior discount note.
"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For the purposes of this definition, "control" when used with
respect to any specified Person means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
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"Asset Disposition" by NEXTLINK or any Restricted Subsidiary means any
transfer, conveyance, sale, lease or other disposition (other than a creation of
a Lien) by such Person (including a consolidation or merger or other sale of any
such Restricted Subsidiary with, into or to another Person in a transaction in
which such Restricted Subsidiary ceases to be a Restricted Subsidiary of
NEXTLINK, but excluding a disposition by a Restricted Subsidiary of NEXTLINK to
NEXTLINK or a Restricted Subsidiary of NEXTLINK or by NEXTLINK to a Restricted
Subsidiary of NEXTLINK) of:
(1) shares of Capital Stock or other ownership interests of a
Restricted Subsidiary of NEXTLINK, (including the issuance of Capital Stock
by a Restricted Subsidiary) other than as permitted by the provisions of the
Indenture described above under the Caption "--Limitation on Debt and
Preferred Stock of Restricted Subsidiaries" or pursuant to a transaction in
compliance with the covenant described under "Mergers, Consolidations and
Certain Sales of Assets" above;
(2) substantially all of the assets of NEXTLINK or any of, its
Restricted Subsidiaries representing a division or line of business (other
than as part of a Permitted Investment); or
(3) other assets or rights of NEXTLINK or any of its Restricted
Subsidiaries other than:
(a) in the ordinary course of business or
(b) that constitutes a Restricted Payment which is permitted under
the covenant "--Limitation on Restricted Payments" above; provided that a
transaction described in clauses (1), (2) and (3) shall constitute an
Asset Disposition only if the aggregate consideration for such transfer,
conveyance, sale, lease or other disposition is equal to $5 million or
more in any 12 month period.
"Attributable Value" means, as to any particular lease under which any
Person is at the time liable other than a Capital Lease Obligation, and at any
date as of which the amount thereof is to be determined, the total net amount of
rent required to be paid by such Person under such lease during the initial term
thereof as determined in accordance with generally accepted accounting
principles, discounted from the last date of such initial term to the date of
determination at a rate per annum equal to the discount rate which would be
applicable to a Capital Lease Obligation with like term in accordance with
generally accepted accounting principles. The net amount of rent required to be
paid under any such lease for any such period shall be the aggregate amount of
rent payable by the lessee with respect to such period after excluding amounts
required to be paid on account of insurance, taxes, assessments, utility,
operating and labor costs and similar charges. In the case of any lease which is
terminable by the lessee upon the payment of penalty, such net amount shall also
include the lesser of the amount of such penalty (in which case no rent shall be
considered as required to be paid under such lease subsequent to the first date
upon which it may be so terminated) or the rent which would otherwise be
required to be paid if such lease is not so terminated. "Attributable Value"
means, as to a Capital Lease Obligation, the principal amount thereof.
"Bank Credit Agreement" means any one or more credit agreements (which may
include or consist of revolving credits) between NEXTLINK or any Restricted
Subsidiary of NEXTLINK and one or more banks or other financial institutions
providing financing for the business of NEXTLINK and its Restricted
Subsidiaries.
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"Capital Lease Obligation" of any Person means the obligation to pay rent or
other payment amounts under a lease of (or other Debt arrangements conveying the
right to use) real or personal property of such Person which is required to be
classified and accounted for as a capital lease or a liability on the face of a
balance sheet of such Person in accordance with generally accepted accounting
principles (a "Capital Lease"). The stated maturity of such obligation shall be
the date of the last payment of rent or any other amount due under such lease
prior to the first date upon which such lease may be terminated by the lessee
without payment of a penalty. The principal amount of such obligation shall be
the capitalized amount thereof that would appear on the face of a balance sheet
of such Person in accordance with generally accepted accounting principles.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of corporate stock or
other equity participations, including partnership interests, whether general or
limited, of such Person.
"Common Equity" of any Person means Capital Stock of such Person that is not
Disqualified Stock, and a "sale of Common Equity" includes any sale of Common
Equity effected by private sale or public offering.
"Consolidated Capital Ratio" of any Person as of any date means the ratio
of:
(1) the aggregate consolidated principal amount of Debt (or in the case
of Debt issued at a discount the accreted amount thereof) of such Person
then outstanding (which amount of Debt shall be reduced by any amount of
cash or cash equivalent collateral securing on a perfected basis and
dedicated for disbursement exclusively to the payment of principal of and
interest on such Debt)
to
(2) the aggregate consolidated Capital Stock (other than Disqualified
Stock) and paid in capital (other than in respect of Disqualified Stock) of
such Person as of such date.
"Consolidated Cash Flow Available for Fixed Charges" for any period means
the Consolidated Net Income of NEXTLINK and its Restricted Subsidiaries for such
period increased by the sum of:
(1) Consolidated Interest Expense of NEXTLINK and its Restricted
Subsidiaries for such period, plus
(2) Consolidated Income Tax Expense of NEXTLINK and its Restricted
Subsidiaries for such period, plus
(3) the consolidated depreciation and amortization expense included in
the income statement of NEXTLINK and its Restricted Subsidiaries for such
period plus
(4) any noncash expense for such period (excluding any noncash charge
to the extent that it requires an accrual of or a reserve for cash
disbursements in any future period), plus
(5) any charge related to any premium or penalty paid in connection
with redeeming or retiring any Debt prior to its stated maturity; PROVIDED,
HOWEVER, that there shall be excluded therefrom the Consolidated Cash Flow
Available for Fixed Charges (if
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positive) of any Restricted Subsidiary of NEXTLINK (calculated separately
for such Restricted Subsidiary in the same manner as provided above for
NEXTLINK) that is subject to a restriction which prevents the payment of
dividends or the making of distributions to NEXTLINK or another Restricted
Subsidiary of NEXTLINK to the extent of such restriction.
"Consolidated Income Tax Expense" for any period means the consolidated
provision for income taxes of NEXTLINK and its Restricted Subsidiaries for such
period calculated on a consolidated basis in accordance with generally accepted
accounting principles.
"Consolidated Interest Expense" means for any period the consolidated
interest expense included in a consolidated income statement (excluding interest
income) of NEXTLINK and its Restricted Subsidiaries for such period calculated
on a consolidated basis in accordance with generally accepted accounting
principles, including without limitation or duplication (or, to the extent not
so included, with the addition of):
(1) the amortization of Debt discounts;
(2) any payments or fees with respect to letters of credit, bankers'
acceptances or similar facilities;
(3) fees with respect to interest rate swap or similar agreements or
foreign currency hedge, exchange or similar agreements;
(4) Preferred Dividends of NEXTLINK and its Restricted Subsidiaries
(other than dividends paid in shares of Preferred Stock that is not
Disqualified Stock) declared and paid or payable;
(5) accrued Disqualified Stock dividends of NEXTLINK and its Restricted
Subsidiaries, whether or not declared or paid;
(6) interest on Debt guaranteed by NEXTLINK and its Restricted
Subsidiaries; and
(7) the portion of any Capital Lease Obligation paid or accrued during
such period that is allocable to interest expense.
"Consolidated Net Income" for any period means the consolidated net income
(or loss) of NEXTLINK and its Restricted Subsidiaries for such period determined
on a consolidated basis in accordance with generally accepted accounting
principles; PROVIDED that there shall be excluded therefrom:
(1) the net income (or loss) of any Person acquired by NEXTLINK or a
Restricted Subsidiary of NEXTLINK in a pooling of interests transaction for
any period prior to the date of such transaction;
(2) the net income (or loss) of any Person that is not a Restricted
Subsidiary of NEXTLINK except to the extent of the amount of dividends or
other distributions actually paid to NEXTLINK or a Restricted Subsidiary of
NEXTLINK by such Person during such period;
(3) gains or losses on Asset Dispositions by NEXTLINK or its Restricted
Subsidiaries;
(4) all extraordinary gains and extraordinary losses;
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(5) the cumulative effect of changes in accounting principles;
(6) noncash gains or losses resulting from fluctuations in currency
exchange rates;
(7) any noncash gain or loss realized on the termination of any
employee pension benefit plan; and
(8) the tax effect of any of the items described in clauses (1) through
(8) above, provided, further, that for purposes of any determination
pursuant to the provisions described under "Covenants--Limitation on
Restricted Payments," there shall further be excluded therefrom the net
income (but not net loss) of any Restricted Subsidiary of NEXTLINK that is
subject to a restriction which prevents the payment of dividends or the
making of distributions to NEXTLINK or another Restricted Subsidiary of
NEXTLINK to the extent of such restriction.
"Consolidated Net Worth" of any Person means the consolidated stockholders'
equity of such Person, determined on a consolidated basis in accordance with
generally accepted accounting principles, less amounts attributable to
Disqualified Stock of such Person; PROVIDED that, with respect to NEXTLINK,
adjustments following the date of the indentures to the accounting books and
records of NEXTLINK in accordance with Accounting Principles Board Opinions Nos.
16 and 17 (or successor opinions thereto) or otherwise resulting from the
acquisition of control of NEXTLINK by another Person shall not be given effect
to.
"Consolidated Tangible Assets" of any Person means the total amount of
assets (less applicable reserves and other properly deductible items) which
under generally accepted accounting principles would be included on a
consolidated balance sheet of such Person and its Restricted Subsidiaries after
deducting therefrom all goodwill, trade names, trademarks, patents, unamortized
debt discount and expense and other like intangibles, which in each case under
generally accepted accounting principles would be included on such consolidated
balance sheet; provided that, with respect to NEXTLINK, adjustments following
the date of the indentures to the accounting books and records of NEXTLINK in
accordance with Accounting Principles Board Opinions Nos. 16 and 17 (or
successor opinions thereto) or otherwise resulting from the acquisition of
control of NEXTLINK by another Person shall not be given effect to.
"Debt" means (without duplication), with respect to any Person, whether
recourse is to all or a portion of the assets of such Person and whether or not
contingent:
(1) every obligation of such Person for money borrowed;
(2) 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;
(3) every reimbursement obligation of such Person with respect to
letters of credit, bankers' acceptances or similar facilities issued for the
account of such Person;
(4) 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);
(5) every Capital Lease Obligation of such Person;
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(6) all Receivables Sales of such Person, together with any obligation
of such Person to pay any discount, interest, fees, indemnities, penalties,
recourse, expenses or other amounts in connection therewith;
(7) all obligations to redeem Disqualified Stock issued by such Person;
(8) every obligation under Interest Rate and Currency Protection
Agreements of such Person; and
(9) every obligation of the type referred to in clauses (1) through (8)
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:
(1) 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;
(2) any Receivables Sale, shall be the amount of the unrecovered
capital or principal investment of the purchaser (other than NEXTLINK or a
Wholly Owned Restricted Subsidiary of NEXTLINK) thereof, excluding amounts
representative of yield or interest earned on such investment;
(3) any Disqualified Stock, shall be the maximum fixed redemption or
repurchase price in respect thereof;
(4) any Capital Lease Obligation, shall be determined in accordance
with the definition thereof; or
(5) any Permitted Interest Rate or Currency Protection Agreement, shall
be zero. In no event shall Debt include any liability for taxes.
"Default" means an event that with the passing of time or the giving of
notice or both shall constitute an Event of Default.
"Disqualified Stock" of any Person means any Capital Stock of such Person
(other than Capital Stock outstanding on the Issue Date) which, by its terms (or
by the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
final Stated Maturity of the Securities (or, if earlier, the date as of which
the Securities have been paid in full); PROVIDED, HOWEVER, that any Preferred
Stock which would not constitute Disqualified Stock but for provisions thereof
giving holders thereof the right to require NEXTLINK to repurchase or redeem
such Preferred Stock upon the occurrence of an asset sale or a Change of Control
occurring prior to the final Stated Maturity of the senior or senior discount
notes shall not constitute Disqualified Stock if the asset sale or change of
control provisions applicable to such Preferred Stock are no more favorable to
the holders of such Preferred Stock than the provisions applicable to the senior
or senior discount notes contained in the covenant described under
"Covenants--Limitation on Asset Dispositions" or "Covenants--Change of Control"
and such Preferred Stock specifically provides that NEXTLINK will not repurchase
or redeem any such stock pursuant to such provisions prior
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to NEXTLINK's repurchase of such notes as are required to be repurchased
pursuant to the covenant described under "Covenants--Limitation on Asset
Dispositions" or "Covenants-- Change of Control".
"Eligible Institution" means a commercial banking institution that has
combined capital and surplus of not less than $500 million or its equivalent in
foreign currency, whose debt is rated "A 3" or higher, "A" or higher or "A" or
higher according to Moody's Investors Service, Inc., Standard & Poor's Ratings
Group or Duff & Phelps Credit Rating Co. (or such similar equivalent rating by
at least one "nationally recognized statistical rating organization" (as defined
in Rule 436 under the Securities Act)) respectively, at the time as of which any
investment or rollover therein is made.
"Eligible Receivables" means, at any time, Receivables of NEXTLINK and its
Restricted Subsidiaries, as evidenced on the most recent quarterly consolidated
balance sheet of NEXTLINK as at a date at least 45 days prior to such time
arising in the ordinary course of business of NEXTLINK or any Restricted
Subsidiary of NEXTLINK.
"Event of Default" has the meaning set forth under "Events of Default"
below.
"Exchange Act" means the Securities Exchange Act of 1934, as amended (or any
successor act) and the rules and regulations thereunder.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which obligations
or guarantee the full faith and credit of the United States is pledged and which
have a remaining weighted average life to maturity of not more than 18 months
from the date of Investment therein.
"Guarantee" by any Person means any obligation, contingent or otherwise, of
such Person guaranteeing, or having the economic effect of guaranteeing, any
Debt of any other Person (the "primary obligor") in any manner, whether directly
or indirectly, and including, without limitation, any obligation of such Person:
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt or to purchase (or to advance or supply funds for the
purchase of) any security for the payment of such Debt;
(2) to purchase property, securities or services for the purpose of
assuring the holder of such Debt of the payment of such Debt; or
(3) 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 NEXTLINK of a lien permitted under clause (4) of the
second paragraph of the "Limitation on Liens" covenant shall not be deemed to
constitute a Guarantee by such Restricted Subsidiary of any Purchase Money Debt
of NEXTLINK secured thereby.
"Incur" means, with respect to any Debt or other obligation of any Person,
to create, issue, incur (by conversion, exchange or otherwise), assume,
Guarantee or otherwise become
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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 NEXTLINK may elect to treat all or any
portion of revolving credit debt of NEXTLINK or a Subsidiary as being Incurred
from and after any date beginning the date the revolving credit commitment is
extended to NEXTLINK or a Subsidiary, by furnishing notice thereof to the
Trustee, and any borrowings or reborrowings by NEXTLINK or a Subsidiary under
such commitment up to the amount of such commitment designated by NEXTLINK as
Incurred shall not be deemed to be new lncurrences of Debt by NEXTLINK or such
Subsidiary.
"Interest Rate or Currency Protection Agreement" of any Person means any
forward contract, futures contract, swap, option or other financial agreement or
arrangement (including, without limitation, caps, floors, collars and similar
agreements) relating to, or the value of which is dependent upon, interest rates
or currency exchange rates or indices.
"Investment" by any Person means any direct or indirect loan, advance or
other extension of credit or capital contribution (by means of transfers of cash
or other property to others or payments for property or services for the account
or use of others, or otherwise) to, or purchase or acquisition of Capital Stock,
bonds, notes, debentures or other securities or evidence of Debt issued by, any
other Person, including any payment on a Guarantee of any obligation of such
other Person, but excluding any loan, advance or extension of credit to an
employee of NEXTLINK or any of its Restricted Subsidiaries in the ordinary
course of business, accounts receivables and other commercially reasonable
extensions of trade credit.
"Issue Date" means , 1999.
"Joint Venture" means a corporation, partnership or other entity engaged in
one or more Telecommunications Businesses as to which NEXTLINK (directly or
through one or more Restricted Subsidiaries) exercises managerial control and in
which NEXTLINK owns
(1) a 50% or greater interest; or
(2) a 30% or greater interest, together with options or other
contractual rights, exercisable not more than seven years after NEXTLINK's
initial Investment in such Joint Venture, to increase its interest to not
less than 50%.
"Lien" means, with respect to any property or assets, any mortgage or deed
of trust, pledge, hypothecation, assignment, Receivables Sale, deposit
arrangement, security interest, lien, charge, easement (other than any easement
not materially impairing usefulness or marketability), encumbrance, preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such property or assets (including,
without limitation, any conditional sale or other title retention agreement
having substantially the same economic effect as any of the foregoing).
"Marketable Securities" means:
(1) Government Securities;
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(2) any time or demand deposit account, money market deposit and
certificate of deposit maturing not more than 365 days after the date of
acquisition issued by, or time deposit of, an Eligible Institution;
(3) commercial paper maturing not more than 365 days after the date of
acquisition issued by a corporation (other than an Affiliate of NEXTLINK)
with a rating, at the time as of which any investment therein is made, of
"P1" or higher according to Moody's Investors Service, Inc., "A1" or higher
according to Standard & Poor's Ratings Group or "A1" or higher according to
Duff & Phelps Credit Rating Co. (or such similar equivalent rating by at
least one "nationally recognized statistical rating organization" (as
defined in Rule 436 under the Securities Act));
(4) any banker's acceptances or money market deposit accounts issued or
offered by an Eligible Institution;
(5) repurchase obligations with a term of not more than 7 days for
Government Securities entered into with an Eligible Institution;
(6) auction rate preferred stocks of any corporation maturing within 90
days after the date of acquisition by NEXTLINK thereof, having a rating of
at least AA by Standard & Poor's; and
(7) any fund investing exclusively in investments of the types
described in clauses (1) through (6) above.
"Net Available Proceeds" from any Asset Disposition by any Person means cash
or readily marketable cash equivalents received (including by way of sale or
discounting of a note, installment receivable or other receivable, but excluding
any other consideration received in the form of assumption by the acquiror of
Debt or other obligations relating to such properties or assets) therefrom by
such Person, net of:
(1) all legal, title and recording tax expenses, commissions and other
fees and expenses Incurred and all federal, state, provincial, foreign and
local taxes (including taxes payable upon payment or other distribution of
funds from a foreign subsidiary to NEXTLINK or another Subsidiary of
NEXTLINK) required to be accrued as a liability as a consequence of such
Asset Disposition;
(2) all payments made by such Person or its Restricted Subsidiaries on
any Debt which is secured by such assets in accordance with the terms of any
Lien upon or with respect to such assets or which must by the terms of such
Lien, or in order to obtain a necessary consent to such Asset Disposition or
by applicable law, be repaid out of the proceeds from such Asset
Disposition;
(3) all distributions and other payments made to minority interest
holders in Restricted Subsidiaries of such Person or joint ventures as a
result of such Asset Disposition;
(4) appropriate amounts to be provided by such Person or any Restricted
Subsidiary thereof, as the case may be, as a reserve in accordance with
generally accepted accounting principles against any liabilities associated
with such assets and retained by such Person or any Restricted Subsidiary
thereof, as the case may be, after such Asset Disposition, including,
without limitation, liabilities under any indemnification obligations
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and severance and other employee termination costs associated with such
Asset Disposition, in each case as determined by the Board of Directors of
NEXTLINK, in its reasonable good faith judgment evidenced by a Board
Resolution filed with the Trustee; provided, however, that any reduction in
such reserve within twelve months following the consummation of such Asset
Disposition will be treated for all purposes of the indentures and the
senior and senior discount as a new Asset Disposition at the time of such
reduction with Net Available Proceeds equal to the amount of such reduction;
and
(5) any consideration for an Asset Disposition (which would otherwise
constitute Net Available Proceeds) that is required to be held in escrow
pending determination of whether a purchase price adjustment will be made,
but amounts under this clause shall become Net Available Proceeds at such
time and to the extent such amounts are released to such Person.
"Offer to Purchase" means a written offer (the "Offer") sent by NEXTLINK by
first class mail, postage prepaid, to each holder at his address appearing in
the note register on the date of the Offer describing the transaction or
transactions necessitating the Offer and offering to purchase up to the
principal amount of the notes specified in such Offer at the purchase price
specified in such Offer (as determined pursuant to the indenture). Unless
otherwise required by applicable law, the Offer shall specify an expiration date
(the "Expiration Date") of the Offer to Purchase which shall be, subject to any
contrary requirements of applicable law, not less than 30 days or more than 60
days after the date of such Offer and a settlement date (the "Purchase Date")
for purchase of notes within five Business Days after the Expiration Date. The
Offer shall contain all instructions and materials necessary to enable the
holders to tender the senior or senior discount notes pursuant to the Offer to
Purchase.
"Permitted Interest Rate or Currency Protection Agreement" of any Person
means any Interest Rate or Currency Protection Agreement entered into with one
or more financial institutions in the ordinary course of business that is
designed to protect such Person against fluctuations in interest rates or
currency exchange rates with respect to Debt Incurred and which shall have a
notional amount no greater than the payments due with respect to the Debt being
hedged thereby and not for purposes of speculation.
"Permitted Investment" means:
(1) any Investment in a Joint Venture (including the purchase or
acquisition of any Capital Stock of a Joint Venture), provided the aggregate
amount of all outstanding Investments pursuant to this clause (1) in Joint
Ventures in which NEXTLINK owns, directly or indirectly, a less than 50%
interest shall not exceed $25 million;
(2) any Investment in any Person as a result of which such Person
becomes a Restricted Subsidiary or, subject to the proviso to clause (1) of
this definition, becomes a Joint Venture of NEXTLINK;
(3) any Investment in Marketable Securities;
(4) Investments in Permitted Interest Rate or Currency Protection
Agreements;
(5) Investments made as a result of the receipt of noncash
consideration from an Asset Disposition that was made pursuant to and in
compliance with the covenant described under "Covenants--Limitation on Asset
Dispositions" above; and
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(6) other Investments in an aggregate amount not to exceed the
aggregate net proceeds received by NEXTLINK or any Restricted Subsidiary
after the date of the Indenture from the sale or liquidation of any
Unrestricted Subsidiary or any interest therein (except to the extent that
any such amount is included in the calculation of Consolidated Net Income).
"Permitted Liens" means:
(1) Liens for taxes, assessments, governmental charges or claims which
are not yet delinquent or which are being contested in good faith by
appropriate proceedings, if a reserve or other appropriate provision, if
any, as shall be required in conformity with generally accepted accounting
principles shall have been made therefor;
(2) other Liens incidental to the conduct of NEXTLINK's and its
Restricted Subsidiaries' business or the ownership of its property and
assets not securing any Debt, and which do not in the aggregate materially
detract from the value of NEXTLINK's and its Restricted Subsidiaries'
property or assets when taken as a whole, or materially impair the use
thereof in the operation of its business;
(3) Liens with respect to assets of a Restricted Subsidiary granted by
such Restricted Subsidiary to NEXTLINK to secure Debt owing to NEXTLINK;
(4) pledges and deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
types of statutory obligations (including to secure government contracts);
(5) deposits made to secure the performance of tenders, bids, leases,
and other obligations of like nature incurred in the ordinary course of
business (exclusive of obligations for the payment of borrowed money);
(6) zoning restrictions, servitudes, easements, rights-of-way,
restrictions and other similar charges or encumbrances incurred in the
ordinary course of business which, in the aggregate, do not materially
detract from the value of the property subject thereto or interfere with the
ordinary conduct of the business of NEXTLINK or its Restricted Subsidiaries;
(7) Liens arising out of judgments or awards against NEXTLINK or any
Restricted Subsidiary with respect to which NEXTLINK or such Restricted
Subsidiary is prosecuting an appeal or proceeding for review and NEXTLINK or
such Restricted Subsidiary is maintaining adequate reserves in accordance
with generally accepted accounting principles;
(8) any interest or title of a lessor in the property subject to any
lease other than a Capital Lease; and
(9) any statutory warehousemen's, materialmen's or other similar Liens
for sums not then due and payable (or which, if due and payable, are being
contested in good faith and with respect to which adequate reserves are
being maintained to the extent required by generally accepted accounting
principles).
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint stock company, trust, unincorporated
organization, government or agency or political subdivision thereof or any other
entity.
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"Preferred Dividends" for any Person means for any period the quotient
determined by dividing the amount of dividends and distributions paid or accrued
(whether or not declared) on Preferred Stock of such Person during such period
calculated in accordance with generally accepted accounting principles, by 1
minus the maximum statutory income tax rate then applicable to NEXTLINK
(expressed as a decimal).
"Preferred Stock" of any Person means Capital Stock of such Person of any
class or classes (however designated) that ranks prior, as to the payment of
dividends or as to the distribution of assets upon any voluntary or involuntary
liquidation, dissolution or winding up of such Person, to shares of Capital
Stock of any other class of such Person.
"Purchase Money Debt" means
(1) Acquired Debt Incurred in connection with the acquisition of
Telecommunications Assets and
(2) Debt of NEXTLINK or of any Restricted Subsidiary of NEXTLINK
(including, without limitation, Debt represented by Bank Credit Agreements,
Capital Lease Obligations, Vendor Financing Facilities, mortgage financings
and purchase money obligations) Incurred for the purpose of financing all or
any part of the cost of construction, acquisition or improvement by NEXTLINK
or any Restricted Subsidiary of NEXTLINK or any Joint Venture of any
Telecommunications Assets of NEXTLINK, any Restricted Subsidiary of NEXTLINK
or any Joint Venture, and including any related notes, Guarantees,
collateral documents, instruments and agreements executed in connection
therewith, as the same may be amended, supplemented, modified or restated
from time to time.
"Receivables" means receivables, chattel paper, instruments, documents or
intangibles evidencing or relating to the right to payment of money in respect
of the sale of goods or services.
"Receivables Sale" of any Person means any sale of Receivables of such
Person (pursuant to a purchase facility or otherwise), other than in connection
with a disposition of the business operations of such Person relating thereto or
a disposition of defaulted Receivables for purpose of collection and not as a
financing arrangement.
"Related Person" of any Person means any other Person directly or indirectly
owning
(1) 10% or more of the Outstanding Common Equity of such Person (or, in
the case of a Person that is not a corporation, 10% or more of the equity
interest in such Person) or
(2) 10% or more of the combined voting power of the Voting Stock of
such Person.
"Restricted Subsidiary" of NEXTLINK means any Subsidiary, whether existing
on or after the date of the Indenture, unless such Subsidiary is an Unrestricted
Subsidiary.
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"Sale and Leaseback Transaction" of any Person means an arrangement with any
lender or investor or to which such lender or investor is a party providing for
the leasing by such Person of any property or asset of such Person which has
been or is being sold or transferred by such Person more than 365 days after the
acquisition thereof or the completion of construction or commencement of
operation thereof to such lender or investor or to any person to whom funds have
been or are to be advanced by such lender or investor on the security of such
property or asset. The stated maturity of such arrangement shall be the date of
the last payment of rent or any other amount due under such arrangement prior to
the first date on which such arrangement may be terminated by the lessee without
payment of a penalty.
"Significant Subsidiary" means a Restricted Subsidiary that is a
"significant subsidiary" as defined in Rule 102(w) of Regulation S-X under the
Securities Act and the Exchange Act.
"Subordinated Debt" means Debt of NEXTLINK as to which the payment of
principal of (and premium, if any) and interest and other payment obligations in
respect of such Debt shall be subordinate to the prior payment in full of the
notes to at least the following extent:
(1) no payments of principal of (or premium, if any) or interest on or
otherwise due in respect of such Debt may be permitted for so long as any
default in the payment of principal (or premium, if any) or interest on the
senior and senior discount notes exists;
(2) in the event that any other default that with the passing of time
or the giving of notice, or both, would constitute an Event of Default
exists with respect to the notes, upon notice by 25% or more in principal
amount of the notes to the trustee, the trustee shall have the right to give
notice to NEXTLINK and the holders of such Debt (or trustees or agents
therefor) of a payment blockage, and thereafter no payments of principal of
(or premium, if any) or interest on or otherwise due in respect of such Debt
may be made for a period of 179 days from the date of such notice or for the
period until such default has been cured or waived or ceased to exist and
any acceleration of the senior and senior discount notes has been rescinded
or annulled, whichever period is shorter (which Debt may provide that no new
period of payment blockage may be commenced by a payment blockage notice
unless and until 360 days have elapsed since the effectiveness of the
immediately prior notice, no nonpayment default that existed or was
continuing on the date of delivery of any payment blockage notice to such
holders (or such agents or trustees) shall be, or be made, the basis for a
subsequent payment blockage notice and failure of NEXTLINK to make payment
on such Debt when due or within any applicable grace period, whether or not
on account of such payment blockage provisions, shall constitute an event of
default thereunder); and
(3) such Debt may not provide for payments of principal of such Debt at
the stated maturity thereof or by way of a sinking fund applicable thereto
or by way of any mandatory redemption, defeasance, retirement or repurchase
thereof by NEXTLINK (including any redemption, retirement or repurchase
which is contingent upon events or circumstances, but executing any
retirement required by virtue of acceleration of such Debt upon an event of
default thereunder), in each case prior to the final Stated Maturity of the
senior or senior discount notes or permit redemption or other retirement
(including pursuant to an offer to purchase made by NEXTLINK) of such other
Debt at the option of the holder thereof prior to the final Stated Maturity
of the senior or senior
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discount notes, other than a redemption or other retirement at the option of
the holder of such Debt (including pursuant to an offer to purchase made by
NEXTLINK) which is conditioned upon a change of control of NEXTLINK pursuant
to provisions substantially similar to those described under
"Covenants--Change of Control" (and which shall provide that such Debt will
not be repurchased pursuant to such provisions prior to NEXTLINK's
repurchase of the senior or senior discount notes required to be repurchased
by NEXTLINK pursuant to the provisions described under "Covenants-- Change
of Control").
"Subsidiary" of any Person means:
(1) 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
(2) 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:
(1) transmitting, or providing services relating to the transmission
of, voice, video or data through owned or leased transmission facilities,
(2) creating, developing or marketing communications related network
equipment, software and other devices for use in a Telecommunication
Business or
(3) evaluating, participating or pursuing any other activity or
opportunity that is primarily related to those identified in (1) or (2)
above and shall, in any event, include all businesses in which NEXTLINK 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 NEXTLINK, which
determination shall be conclusive.
"Unrestricted Subsidiary" means:
(1) any Subsidiary of NEXTLINK designated as such by the Board of
Directors of NEXTLINK as set forth below where:
(a) neither NEXTLINK nor any of its other Subsidiaries (other than
another Unrestricted Subsidiary)
(x) 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
(y) is directly or indirectly liable for any Debt of such Subsidiary
or any Subsidiary of such Subsidiary, and
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(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 NEXTLINK 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 NEXTLINK 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 NEXTLINK
which is not a Subsidiary of the Subsidiary to be so designated or otherwise an
Unrestricted Subsidiary, provided that either:
(a) the Subsidiary to be so designated has total assets of $1,000 or
less or
(b) immediately after giving effect to such designation, NEXTLINK
could Incur at least $1.00 of additional Debt pursuant to the first
paragraph under "Covenants--Limitation on Consolidated Indebtedness"
above and provided, further, that NEXTLINK could make a Restricted
Payment in an amount equal to the greater of the fair market value and
the book value of such Subsidiary pursuant to the covenant described
under "Covenants--Limitation on Restricted Payments" and such amount is
thereafter treated as a Restricted Payment for the purpose of calculating
the aggregate amount available for Restricted Payments thereunder. The
Board of Directors of NEXTLINK may designate any Unrestricted Subsidiary
to be a Restricted Subsidiary, PROVIDED that, if such Unrestricted
Subsidiary has Debt outstanding at such time, either:
(x) immediately after giving effect to such designation, NEXTLINK
could Incur at least $1.00 of additional Debt pursuant to the
first paragraph under "Covenants--Limitation on Consolidated
Indebtedness" above or
(y) NEXTLINK or such Restricted Subsidiary could Incur such Debt
hereunder (other than as Acquired Debt).
"Vendor Financing Facility" means any agreements between NEXTLINK or a
Restricted Subsidiary and one or more vendors or lessors of equipment or other
capital assets to NEXTLINK or any of its Restricted Subsidiaries (or any
affiliate of any such vendor or lessor) providing financing for the acquisition
by NEXTLINK or any such Restricted Subsidiary of equipment or other capital
assets from any such vendor or lessor.
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons performing
similar functions) of such Person, whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person 99% or more of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person or by such Person and one or more Wholly Owned
Restricted Subsidiaries of such Person.
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EVENTS OF DEFAULT
The following are Events of Default under each of the indentures:
(1) failure to pay principal of (or premium, if any, on) any note
issued under that indenture when due;
(2) failure to pay any interest on any note issued under that indenture
when due, continued for 30 days;
(3) default in the payment of principal and interest on notes issued
under that indenture required to be purchased pursuant to an Offer to
Purchase as described under "Covenants--Change of Control" when due and
payable;
(4) failure to perform or comply with the provisions described under
"Mergers, Consolidations and Certain Sales of Assets;"
(5) failure to perform any other covenant or agreement of NEXTLINK
under the applicable indenture or note continued for 60 days after written
notice to NEXTLINK by the trustee or Holders of at least 25% in aggregate
principal amount of outstanding series of notes in question;
(6) default under the terms of any instrument evidencing or securing
Debt of NEXTLINK or any Significant Subsidiary having an outstanding
principal amount of $10 million individually or in the aggregate which
default results in the acceleration of the payment of such Debt or
constitutes the failure to pay such Debt when due;
(7) the rendering of a final judgment or judgments (not subject to
appeal) for the payment of money against NEXTLINK or any Significant
Subsidiary in an aggregate amount in excess of $10 million which remains
undischarged or unstayed for a period of 45 days after the date on which the
right to appeal all such judgments has expired; and
(8) certain events of bankruptcy, insolvency or reorganization
affecting NEXTLINK or any Significant Subsidiary. (Section 501)
Subject to the provisions of the indentures relating to the duties of the
trustee in case an Event of Default shall occur and be continuing, the trustee
will be under no obligation to exercise any of its rights or powers under the
indentures at the request or direction of any of the holders, unless such
holders shall have offered to the trustee reasonable indemnity. (Section 603)
Subject to such provisions for the indemnification of the trustee, the holders
of a majority in aggregate principal amount of the outstanding senior or senior
discount notes will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the trustee or exercising
any trust or power conferred on the trustee. The trustee may refuse, however, to
follow any direction that the trustee, in its sole discretion, determines may be
unduly prejudicial to the rights of another holder or that may subject the
trustee to any liability or expense if the trustee determines, in its sole
discretion, that it lacks indemnification against such loss or expense. (Section
512)
If an Event of Default (other than an Event of Default described in Clause
(8) above with respect to NEXTLINK) shall occur and be continuing, either the
trustee or the holders of at least 25% in aggregate principal amount at maturity
of the outstanding series of notes in question may accelerate the maturity of
all senior or senior discount notes; provided, however, that after such
acceleration, but before a judgment or decree based on acceleration, the
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holders of a majority in aggregate principal amount at maturity of such notes
outstanding may, under certain circumstances, rescind and annul such
acceleration if all Events of Default, other than the nonpayment of accelerated
principal, have been cured or waived as provided in each of the indentures. If
an Event of Default specified in clause (8) above occurs with respect to
NEXTLINK, the outstanding notes of each series will IPSO FACTO become
immediately due and payable without any declaration or other act on the part of
the trustee or any holder. (Section 502) For information as to waiver of
defaults, see "Modification and Waiver".
However, upon an acceleration of the senior discount notes or an Event of
Default specified in clause (8) above, in each case prior to June , 2004, the
holders of the senior discount notes will be entitled to receive only a default
amount equal to the Accreted Value of the senior discount notes (plus any
accrued and unpaid interest and premium, if any, not otherwise included in the
Accreted Value to such date), which until June , 2004 will be less than the
face amount of the senior discount notes.
No holder of any senior or senior discount note will have any right to
institute any proceeding with respect to the indentures or for any remedy
thereunder, unless such holder shall have previously given to the trustee
written notice of a continuing Event of Default (as defined) and unless also the
holders of at least 25% in aggregate principal amount of the notes outstanding
thereunder shall have made written request, and offered reasonable indemnity, to
the trustee to institute such proceeding as trustee, and the trustee shall not
have received from the holders of a majority in aggregate principal amount of
the notes outstanding thereunder a direction inconsistent with such request and
shall have failed to institute such proceeding within 60 days. (Section 507)
However, such limitations do not apply to a suit instituted by a holder of a
senior or senior discount note for enforcement of payment of the principal of
and premium, if any, or interest on the senior or senior discount note on or
after the respective due dates expressed in the senior or senior discount note.
(Section 508)
Each indenture provides that if a Default with respect to notes outstanding
thereunder occurs and is continuing, generally the trustee must, within 90 days
after the occurrence of such Default, give to the holders notice of such
Default. The trustee may withhold from holders of the senior or senior discount
notes notice of any continuing Default or Event of Default (except a Default or
Event of Default relating to the payment of principal of, premium, if any or
interest) if it determines that withholding notice is in their interest;
provided, however, that in the case of any default of a character specified in
clause (e) above, no such notice to holders shall be given until at least 30
days after the occurrence thereof. (Section 602)
NEXTLINK will be required to furnish to the trustee quarterly a statement as
to the performance by NEXTLINK of certain of its obligations under the
indentures and NEXTLINK is required upon becoming aware of any Default or Event
of Default to deliver to the trustee a statement specifying such Default or
Event of Default. (Section 1018)
SATISFACTION AND DISCHARGE OF THE INDENTURES
Each of the indentures will cease to be of further effect as to all
outstanding senior or senior discount notes except as to:
(1) NEXTLINK's right of optional redemption;
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(2) substitution of apparently mutilated, defaced, destroyed, lost or
stolen senior or senior discount notes;
(3) rights of holders to receive payment of principal of and premium,
if any, and interest on the senior and senior discount notes;
(4) rights, obligations and immunities of the trustee under the
indentures; and
(5) rights of the holders of the senior and senior discount notes as
beneficiaries of the indentures under which such notes are outstanding with
respect to any property deposited with the trustee payable to all or any of
them,
if:
(a) NEXTLINK shall have paid or caused to be paid the principal of
and premium, if any, and interest on the senior or senior discount notes
as and when the same will have become due and payable or
(b) all outstanding senior or senior discount notes (except lost,
stolen or destroyed notes which have been replaced or paid) have been
delivered to the trustee for cancellation. (Section 401)
DEFEASANCE
The indentures provide that, at the option of NEXTLINK:
(1) if applicable, NEXTLINK will be discharged from any and all
obligations in respect of the notes outstanding thereunder or
(2) if applicable, NEXTLINK may omit to comply with certain restrictive
covenants, and that such omission shall not be deemed to be an Event of
Default under the indentures and the notes outstanding thereunder, in either
case (1) or (2) upon irrevocable deposit with the trustee, in trust, of
money and/or U.S. government obligations which will provide money in an
amount sufficient in the opinion of a nationally recognized firm of
independent certified public accountants to pay the principal of and
premium, if any, and each installment of interest, if any, on the
outstanding senior or senior discount notes on the Stated Maturity. With
respect to clause (2), the obligations under the indentures other than with
respect to such covenants and the Events of Default other than the Events of
Default relating to such covenants above shall remain in full force and
effect. Such trust may only be established if, among other things:
(a) with respect to clause (1), NEXTLINK has received from, or there
has been published by, the Internal Revenue Service a ruling or there has
been a change in law after the Issue Date, which in the opinion of
counsel provides that holders of the senior or senior discount notes will
not recognize gain or loss for federal income tax purposes as a result of
such deposit, defeasance and discharge and will be subject to federal
income tax on the same amounts, in the same manner and at the same times
as would have been the case if such deposit, defeasance and discharge had
not occurred; or, with respect to clause (2), NEXTLINK has delivered to
the trustee an opinion of counsel to the effect that the holders of the
notes will not recognize gain or loss for federal income tax purposes as
a result of such deposit and defeasance and will be subject to federal
income tax on the same amounts, in the same manner
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and at the same times as would have been the case if such deposit and
defeasance had not occurred;
(b) no Default or Event of Default shall have occurred or be
continuing;
(c) NEXTLINK has delivered to the trustee an opinion of counsel to
the effect that such deposit shall not cause the trustee or the trust so
created to be subject to the Investment Company Act of 1940, as amended;
and
(d) certain other customary conditions precedent are satisfied.
(Section1201)
MODIFICATION AND WAIVER
Modifications and amendments of either of the indentures may be made by
NEXTLINK and the trustee with the consent of the holders of a majority in
aggregate principal amount of the notes outstanding thereunder; PROVIDED,
HOWEVER, that no such modification or amendment may, without the consent of the
holder of each outstanding note affected thereby:
(1) change the due date of the principal of, or any installment of
interest on, any senior or senior discount note;
(2) reduce the principal amount of, or the premium or interest on, any
senior or senior discount note;
(3) change the place or currency of payment of principal of, or premium
or interest on, any senior or senior discount note;
(4) impair the right to institute suit for the enforcement of any
payment on or with respect to any senior or senior discount note;
(5) reduce the above stated percentage of outstanding senior and senior
discount notes necessary to modify or amend the indentures;
(6) reduce the percentage of aggregate principal amount of outstanding
senior or senior discount notes necessary for waiver of compliance with
certain provisions of the indenture or for waiver of certain defaults;
(7) modify any provisions of either of the indentures relating to the
modification and amendment of the indentures or the waiver of past defaults
or covenants, except as otherwise specified; or
(8) following the mailing of any Offer to Purchase and until the
Expiration Date of that Offer to Purchase, modify any Offer to Purchase for
the senior or senior discount notes required under the "Limitation on Asset
Dispositions" and the "Change of Control" covenants contained in the
indentures in a manner materially adverse to the holders thereof. (Section
902)
Notwithstanding the foregoing, without the consent of any holder of senior
or senior discount notes, NEXTLINK and the trustee may amend or supplement the
indenture under which such notes are outstanding or the senior or senior
discount notes:
- to cure any ambiguity, defect or inconsistency,
- to provide for uncertificated notes in addition to or in place of
certificated notes,
- to provide for the assumption of NEXTLINK's obligations to holders of
senior or senior discount notes in the case of a merger or consolidation,
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- to make any change that would provide any additional rights or benefits to
holders of senior or senior discount notes or that does not adversely
affect the legal rights under the indentures of any such holder, or
- to comply with requirements of the SEC in order to maintain the
qualification of the indentures under the Trust Indenture Act. (Section
901)
The holders of a majority in aggregate principal amount of the outstanding
senior or senior discount notes, on behalf of all holders of senior or senior
discount notes, may waive compliance by NEXTLINK with certain restrictive
provisions of the indentures. (Section 1019) Subject to certain rights of the
trustee, as provided in the indentures, the holders of a majority in aggregate
principal amount of the outstanding senior or senior discount notes, on behalf
of all holders of senior or senior discount notes, may waive any past default
under the indentures, except a default in the payment of principal, premium or
interest or a default arising from failure to purchase any note tendered
pursuant to an Offer to Purchase. (Section 513)
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of NEXTLINK, as
such, shall have any liability for any obligations of NEXTLINK under the senior
or senior discount notes or the indentures or for any claim based on, in respect
of, or by reason of, such obligations or their creation. Each holder of senior
or senior discount notes by accepting a senior or senior discount note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the senior or senior discount notes. Such waiver
may not be effective to waive liabilities under the federal securities laws and
it is the view of the SEC that such waiver is against public policy.
GOVERNING LAW
The indentures and the senior and senior discount notes will be governed by
the laws of the State of New York.
THE TRUSTEE
The indentures provide that, except during the continuance of an Event of
Default, the trustee will perform only such duties as are specifically set forth
in the indentures. During the existence of an Event of Default, the trustee will
exercise such rights and powers vested in it under the indentures and use the
same degree of care and skill in its exercise as a prudent person would exercise
under the circumstances in the conduct of such person's own affairs.
(Section601)
The indentures and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the trustee, should it
become a creditor of NEXTLINK, to obtain payment of claims in certain cases or
to realize on certain property received by it in respect of any such claim as
security or otherwise. The trustee is permitted to engage in other transactions
with NEXTLINK or any Affiliate, provided, however, that if it acquires any
conflicting interest (as defined in the indentures or in the Trust Indenture
Act), it must eliminate such conflict or resign. (SectionSection 608, 613)
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BOOK-ENTRY; DELIVERY AND FORM
Each of the notes initially will be represented by one or more permanent
global certificates in definitive, fully registered form. The global note for
the senior notes and the senior discount notes will be deposited upon issuance
with The Depository Trust Company, New York, New York and registered in the name
of a nominee of the Depository Trust Company
THE GLOBAL NOTES. We expect that pursuant to procedures established by The
Depository Trust Company
(1) upon the issuance of the global notes, The Depository Trust Company
or its custodian will credit, on its internal system, the principal amount
of the individual beneficial interests represented by the global notes to
the respective accounts of persons who have accounts with such depository
and
(2) ownership of beneficial interests in the global notes will be shown
on, and the transfer of ownership will be effected only through, records
maintained by The Depository Trust Company or its nominee (with respect to
interests of participants) and the records of participants (with respect to
interests of persons other than participants).
Ownership of beneficial interests in the global notes will be limited to persons
who have accounts with The Depository Trust Company or persons who hold
interests through participants.
So long as The Depository Trust Company or its nominee is the registered
owner or holder of the senior notes and the senior discount notes, The
Depository Trust Company or its nominee will be considered the sole owner or
holder of the notes represented by the global notes for all purposes under the
two indentures relating to each of the senior notes and the senior discount
notes. No beneficial owner of an interest in either global note will be able to
transfer that interest except in accordance with The Depository Trust Company's
procedures.
Payments of interest, principal and other amounts due on the global notes
will be made to The Depository Trust Company or its nominee as the registered
owner. None of NEXTLINK, the trustee or any Paying Agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the global notes
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interest.
We expect that The Depository Trust Company or its nominee, upon receipt of
any payment of interest, principal or other amounts due on the global notes,
will credit participants' accounts with payments in amounts proportionate to
their respective beneficial interests in the global notes as shown on the
records of The Depository Trust Company. We also expect that payments by
participants to owners of beneficial interests in the global notes held through
such participants will be governed by standing instructions and customary
practice, as is the case with securities held for the accounts of customers
registered in the names of nominees for those customers. Such payments will be
the responsibility of the participants.
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Transfers between participants in The Depository Trust Company will be
effected in the ordinary way through The Depository Trust Company's settlement
system in accordance with The Depository Trust Company rules and will be settled
in same day funds.
The Depository Trust Company has advised us that it will take any action
permitted to be taken by a holder of the notes only at the direction of a
participant to whose account The Depository Trust Company's interests in the
global notes are credited and only as to such portion of the notes as to which
the participant has given such direction. However, if there is an Event of
Default under the indenture, The Depository Trust Company will exchange the
global note, to which such Event of Default relates for certificated notes,
which it will distribute to its participants.
The Depository Trust Company has advised us as follows: The Depository Trust
Company 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 Uniform Commercial Code and a "Clearing Agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. The
Depository Trust Company was created to hold securities for its participants and
facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks, trust
companies and clearing corporations and certain other organizations. Indirect
access to The Depository Trust Company system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly
("indirect participants").
Although The Depository Trust Company has agreed to the foregoing procedures
in order to facilitate transfers of interests in the global notes among
participants of The Depository Trust Company, it is under no obligation to
perform those procedures, and those procedures may be discontinued at any time.
Neither NEXTLINK nor the trustee will have any responsibility of the performance
by The Depository Trust Company or its participants or indirect participants of
their respective obligations under the rules and procedures governing their
operations.
CERTIFICATED SECURITIES. If The Depository Trust Company is at any time
unwilling or unable to continue as a depository for the global notes and a
successor depository is not appointed by NEXTLINK within 90 days, certificated
notes will be issued in exchange for the global notes.
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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
PROSPECTIVE HOLDERS OF NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS WITH
REGARD TO THE APPLICATION OF THE TAX CONSIDERATIONS DISCUSSED BELOW TO THEIR
PARTICULAR SITUATIONS AS WELL AS THE APPLICATION OF ANY STATE, LOCAL, FOREIGN OR
OTHER TAX LAWS, INCLUDING GIFT AND ESTATE TAX LAWS.
This section discusses the rules applicable to U.S. note holders only. A
U.S. holder is any of the following:
- citizens and residents of the United States for U.S. federal income
tax purposes;
- corporations, partnerships, and other entities created or organized
in or under the laws of the United States or any political subdivision
thereof;
- estates, if the income of the estate is subject to U.S. federal
income taxation regardless of its sources and trusts, if a U.S. court can
exercise primary supervision over the administration of the trust and one or
more U.S. persons have the authority to control all substantial decisions of
the trust; and
- other persons whose worldwide income or gain is otherwise subject to
U.S. federal income taxation on a net income basis.
Non-U.S. holders are subject to substantially different rules, not described
here.
INTEREST ON SENIOR NOTES
Cash basis taxpayers, including most individuals, will recognize ordinary
interest income when they receive interest payments on the senior notes. Accrual
basis taxpayers, including corporations, will recognize ordinary interest income
as interest on the senior notes accrues.
ORIGINAL ISSUE DISCOUNT ON SENIOR DISCOUNT NOTES
The senior discount notes will be issued with original issue discount
("OID"). In general, holding senior discount notes will result in taxable
ordinary interest income in an amount equal to the accretion on the senior
discount notes during their accretion period, and the interest that accrues on
their principal amount thereafter. Thus, even cash basis taxpayers will have to
recognize interest income on the senior discount notes as it accrues throughout
the period they hold them, even when interest is payable in cash.
OID is defined as the excess of:
(1) the stated redemption price at maturity of a senior discount note
over
(2) its issue price.
The "stated redemption price at maturity" of a senior discount note is the
sum of all payments (including cash interest) provided by the senior discount
note. The "issue price" of a senior discount note is the first price at which a
substantial amount of the senior discount notes are sold to the public for cash
(excluding sales to bond houses, brokers or similar persons or organizations
acting in the capacity as underwriters, placement agents or wholesalers).
A note holder is required to include OID in income as ordinary interest as
it accrues under the constant yield method in advance of receipt of the cash
payments attributable to such income, regardless of the note holder's regular
method of accounting. Because OID is
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defined to include cash interest payments, they need not be reported separately
as taxable income.
In general, the amount of OID included in income by the holder of a senior
discount note is the sum of the daily portions of OID for each day during the
taxable year or portion of the taxable year on which such holder held such
senior discount note. The "daily portion" is determined by allocating the OID
for the actual period ratably to each day in that accrual period. The "accrual
period" for a senior discount note may be of any length and may vary in length
over the term of a senior discount note, provided that each accrual period is no
longer than one year and each scheduled payment of principal or interest occurs
either on the first or final day of an accrual period.
The amount of OID for an accrual period is generally equal to the product of
the senior discount note's adjusted issue price at the beginning of such accrual
period and its yield to maturity. The "adjusted issue price" of a senior
discount note at the beginning of any accrual period is the sum of the issue
price of the senior discount note plus the amount of OID allocable to all prior
accrual periods minus the amount of any prior payments on the senior discount
note. Under the constant yield method of determining OID, a note holder
generally will have to include increasingly greater amounts of OID in income in
successive accrual periods.
SALE, EXCHANGE AND RETIREMENT OF NOTES
A note holder will recognize gain or loss upon the sale, retirement or other
taxable disposition of a note. Such gain or loss will generally equal the
difference between:
- the amount of cash and the fair market value of property received
for the note (other than amounts representing accrued but unpaid stated
interest) and
- the holder's adjusted tax basis in the note.
A note holder's adjusted tax basis in notes will generally equal the
holder's purchase price, increased by any accrued OID, and reduced by any cash
payments on the notes. Gain or loss generally will be capital gain or loss and
will be long-term capital gain or loss, if the holder has held such notes for
more than one year. Long-term capital gain of a non-corporate note holder is
generally subject to a maximum tax rate of 20%. There are limits on the
deductibility of capital losses. Any amounts paid with respect to accrued but
unpaid stated interest generally will be taxable as ordinary interest income.
Gain or loss realized on the sale, retirement or other taxable disposition of a
note derived by a note holder generally will be treated as U.S. source income or
loss for foreign tax credit purposes.
BACKUP WITHHOLDING AND INFORMATION REPORTING
In general, information reporting requirements will apply to certain
payments of principal, premium, if any, and interest and to the proceeds of sale
of a note made to holders other than exempt recipients, such as corporations.
Backup withholding and information reporting generally will not apply to
payments of principal, premium, if any, and interest on notes made outside the
United States (other than payments made to an address in the United States or by
transfer to an account maintained by the holder with a bank in the United
States) by us or any paying agent (acting in its capacity as such) to a holder.
A 31% backup withholding tax may apply to such payments if a U.S. note holder
fails to provide a taxpayer
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<PAGE>
identification number or certification of foreign or other exempt status or is
notified by the IRS that it has failed to report its full dividend and interest
income.
THIS TAX DISCUSSION IS NOT COMPLETE
The above is a general discussion of United States federal income tax
consequences of the purchase, ownership and sale of the notes by note holders.
It only applies to note holders who purchase their notes at the issue price, and
it does not purport to be a complete analysis of all potential tax effects. The
discussion is based on the tax law as it exists today although it could change
at any time, and any change could be applied retroactively in a manner that
could adversely affect a holder of the notes. This discussion does not address
the special rules applicable to note holders such as insurance companies and
other financial institutions, dealers in securities, tax-exempt organizations
and persons holding the notes as part of a "straddle," "hedge" or "conversion
transaction," and deals only with notes held as "capital assets" within the
meaning of Section 1221 of the Code.
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DESCRIPTION OF OTHER MATERIAL INDEBTEDNESS
DESCRIPTION OF THE 12 1/2% NOTES
GENERAL. NEXTLINK and NEXTLINK Capital, Inc., (a wholly owned subsidiary of
NEXTLINK) together issued $350 million of 12 1/2% Senior Notes Due April 15,
2006 pursuant to an indenture among NEXTLINK, NEXTLINK Capital and United States
Trust Company of New York, as trustee. On September 6, 1996, NEXTLINK
consummated an offer to exchange these 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. NEXTLINK used
$117.7 million of the net proceeds of the offering of the 12 1/2% notes to
purchase a portfolio of U.S. government 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 NEXTLINK 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 equally in right of payment with all existing and future senior
obligations of the issuers and will rank senior in right of payment to all
future subordinated obligations of the issuers.
REDEMPTION. The 12 1/2% Notes are redeemable at on or after April 15, 2001,
at NEXTLINK's option, in whole or in part, at the following redemption prices
(expressed as percentages of principal amount) plus accrued interest, 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>
Except in connection with a Change of Control or an Asset Disposition (as
defined in the indenture relating to the 12 1/2% Notes) of NEXTLINK, 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, NEXTLINK's ability to incur additional indebtedness, pay dividends
or make certain other restricted payments, incur certain liens to secure debt
which is subordinated to or ranks equally with the 12 1/2% Notes, engage in any
sale and leaseback transaction, sell assign, transfer, lease, convey or
otherwise dispose of substantially all of the assets of NEXTLINK, enter into
certain transactions with affiliates, or incur indebtedness that is subordinate
in right of payment to any senior indebtedness and senior in right of payment to
the 12 1/2% Notes. The indenture relating to the 12 1/2% Notes permits, under
certain circumstances, NEXTLINK's subsidiaries to be deemed unrestricted
subsidiaries and thus not subject to the restrictions of the indenture.
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<PAGE>
Events of Default. The indenture relating to the 12 1/2% Notes contains
standard events of default, including:
- defaults in the payment of principal, premium or interest;
- defaults in the compliance with covenants contained in the indenture;
- cross defaults on more than $10 million of other indebtedness;
- failure to pay more than $10 million of judgments; and
- certain events of its subsidiaries.
DESCRIPTION OF THE 9 5/8% NOTES
GENERAL. NEXTLINK issued $400 million of 9 5/8% Senior Notes Due 2007
pursuant to an indenture between NEXTLINK and United States Trust Company of New
York, as 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.
RANKING. The 9 5/8% Notes are unsecured senior obligations of NEXTLINK,
will rank equally in right of payment with all existing and future senior
obligations of NEXTLINK and will rank senior in right of payment to all future
subordinated obligations of NEXTLINK.
REDEMPTION. The 9 5/8% Notes are redeemable on or after October 1, 2002, at
NEXTLINK's option, in whole or in part, at the following redemption prices
(expressed as percentages of principal amount) plus accrued interest, 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>
In addition, at any time on or before October 1, 2000, NEXTLINK may redeem
up to 33 1/3% of the original aggregate principal amount of the 9 5/8% Notes
with the net proceeds of a sale of common equity at a redemption price equal to
109.625% of the principal amount, plus accrued interest, provided that at least
$266.7 million in aggregate principal amount of 9 5/8% Notes remains outstanding
after such redemption. Except in connection with a Change of Control or an Asset
Disposition (as defined in the indenture relating to the 9 5/8% Notes) of
NEXTLINK, NEXTLINK is 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, NEXTLINK's ability to incur additional indebtedness, pay dividends
or make certain other restricted payments, incur certain liens to secure debt
which is subordinated to or ranks equally with the 9 5/8% Notes, engage in any
sale and leaseback transaction, sell assign, transfer, lease, convey or
otherwise dispose of substantially all of the assets of NEXTLINK,
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<PAGE>
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, NEXTLINK'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:
- defaults in the payment of principal, premium or interest;
- defaults in the compliance with covenants contained in the indenture;
- cross defaults on more than $10 million of other indebtedness;
- failure to pay more than $10 million of judgments; and
- certain events of its subsidiaries.
DESCRIPTION OF THE 9% NOTES
GENERAL. NEXTLINK issued $335 million of 9% Senior Notes Due 2008 pursuant
to an indenture between NEXTLINK and United States Trust Company of New York, as
trustee. On July 15, 1998, NEXTLINK consummated an offer to exchange such notes
for $335 million of 9% Senior Notes Due 2008 that had been 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.
RANKING. The 9% Notes are unsecured senior obligations of NEXTLINK, will
rank equally in right of payment with all existing and future senior obligations
of NEXTLINK and will rank senior in right of payment to all future subordinated
obligations of NEXTLINK.
REDEMPTION. The 9% Notes are redeemable on or after March 15, 2003, at
NEXTLINK's option, in whole or in part, at the following redemption prices
(expressed as percentages of principal amount) described below plus accrued
interest, 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, 2001, NEXTLINK 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 interest, provided that at least 66 2/3%
of the original aggregate principal amount of 109.00% Notes remains outstanding
after such redemption. Except in connection with a Change of Control or an Asset
Disposition (as defined in the indenture relating to the 9%
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<PAGE>
Notes) of NEXTLINK, NEXTLINK is not required to make mandatory redemption or
sinking fund payments with respect to the 9% Notes.
COVENANTS. The indenture relating to the 9% Notes restricts, among other
things, NEXTLINK's ability to incur additional indebtedness, pay dividends or
make certain other restricted payments, incur certain liens to secure debt which
is subordinated to or ranks equally with the 9% Notes, engage in any sale and
leaseback transaction, sell assign, transfer, lease, convey or otherwise dispose
of substantially all of the assets of NEXTLINK, 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,
NEXTLINK'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:
- defaults in the payment of principal, premium or interest;
- defaults in the compliance with covenants contained in the indenture;
- cross defaults on more than $10 million of other indebtedness;
- failure to pay more than $10 million of judgments; and
- certain events of its subsidiaries.
DESCRIPTION OF THE 9.45% NOTES
GENERAL. NEXTLINK issued $636,974,000 aggregate principal amount at stated
maturity of 9.45% Senior Discount Notes Due 2008 under an indenture between
NEXTLINK and United States Trust Company of New York, as trustee. On August 24,
1998, NEXTLINK consummated an offer to exchange such notes for $636,974,000 in
aggregate principal amount at stated maturity of 9.45% Senior Discount Notes due
2008 that have been registered under the Securities Act.
PRINCIPAL, MATURITY AND INTEREST. The 9.45% Notes are limited to
$636,974,000 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 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 NEXTLINK, rank
equally in right of payment with all existing and future senior obligations of
NEXTLINK and will rank senior in right of payment to all future subordinated
obligations of NEXTLINK.
REDEMPTION. The 9.45% Notes are redeemable on or after April 15, 2003, at
NEXTLINK's option, in whole or in part, and prior to maturity in amounts of
$1,000
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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, if redeemed during the 12 month period beginning April 15 of
the years indicated:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---------------------------------------------------------------------------------- -----------
<S> <C>
2003.............................................................................. 104.725%
2004.............................................................................. 103.150%
2005.............................................................................. 101.575%
2006 and thereafter............................................................... 100.000%
</TABLE>
In addition, at any time on or before April 15, 2001, NEXTLINK may redeem up
to 33 1/3% of the original aggregate principal amount of the 9.45% Notes with
the net proceeds of a sale of common equity, at a redemption price 109.45% of
the principal amount thereof, plus accrued interest, provided that at least
66 2/3% of the original aggregate principal amount of the 9.45% Notes remains
outstanding after such redemption. Except in connection with a Change of Control
or an Asset Disposition (as defined in the indenture relating to the 9.45%
Notes) of NEXTLINK, NEXTLINK is not required to make mandatory redemption or
sinking fund payments with respect to the 9.45% Notes.
COVENANTS. The indenture relating to the 9.45% Notes restricts, among other
things, NEXTLINK's ability to incur additional indebtedness, pay dividends or
make certain other restricted payments, incur certain liens to secure debt which
is subordinated to or ranks equally with the 9.45% Notes, engage in any sale and
leaseback transaction, sell, assign, transfer, lease, convey or otherwise
dispose of substantially all of the assets of NEXTLINK, 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, NEXTLINK's subsidiaries to be deemed unrestricted subsidiaries
and thus not subject to the restrictions of such indenture.
EVENTS OF DEFAULT. The indenture relating to the 9.45% Notes contains
standard events of default, including:
- defaults in the payment of principal, premium or interest;
- defaults in the compliance with covenants contained in the indenture;
- cross defaults on more than $10 million of other indebtedness;
- failure to pay more than $10 million of judgments; and
- certain events of its subsidiaries.
DESCRIPTION OF THE 10 3/4% NOTES
GENERAL. NEXTLINK issued $500 million principal amount of 10 3/4% Senior
Notes Due 2008 under an indenture between NEXTLINK and United States Trust
Company of New York, as trustee.
PRINCIPAL, MATURITY AND INTEREST. The 10 3/4% Notes are limited in
aggregate principal amount to $500 million and will mature on November 15, 2008.
Interest on the 10 3/4% Notes
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accrues at 10 3/4% per annum and is payable semiannually in arrears on May 15
and November 15 of each year.
RANKING. The 10 3/4% Notes are unsecured senior obligations of NEXTLINK,
will rank equally in right of payment with all existing and future senior
obligations of NEXTLINK and will rank senior in right of payment to all future
subordinated obligations of NEXTLINK.
REDEMPTION. The 10 3/4% Notes are redeemable on or after November 15, 2003,
at NEXTLINK's option, in whole or in part, at the following redemption prices
(expressed as percentages of principal amount) described below plus accrued
interest, if redeemed during the twelve-month period beginning on November 15 of
the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---------------------------------------------------------------------------------- -----------
<S> <C>
2003.............................................................................. 105.375%
2004.............................................................................. 103.583%
2005.............................................................................. 101.792%
2006 and thereafter............................................................... 100.000%
</TABLE>
In addition, at any time on or before November 15, 2001, NEXTLINK may redeem
up to 33 1/3% of the original aggregate principal amount of the 10 3/4% Notes
with the net proceeds of a sale of common equity at a redemption price equal to
112.75% of the principal amount thereof, plus accrued interest, provided that at
least 66 2/3% of the original aggregate principal amount of 10 3/4% Notes
remains outstanding after such redemption. Except in connection with a Change of
Control or an Asset Disposition (as defined in the indenture relating to the
10 3/4% Notes) of NEXTLINK, NEXTLINK is not required to make mandatory
redemption or sinking fund payments with respect to the 10 3/4% Notes.
COVENANTS. The indenture relating to the 10 3/4% Notes restricts, among
other things, NEXTLINK's ability to incur additional indebtedness, pay dividends
or make certain other restricted payments, incur certain liens to secure debt
which is subordinated to or ranks equally with the 10 3/4% Notes, engage in any
sale and leaseback transaction, sell assign, transfer, lease, convey or
otherwise dispose of substantially all of the assets of NEXTLINK, 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 10 3/4% Notes. The indenture relating to the 10 3/4% Notes permits, under
certain circumstances, NEXTLINK'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 10 3/4% Notes contains
standard events of default, including:
- defaults in the payment of principal, premium or interest;
- defaults in the compliance with covenants contained in the indenture;
- cross defaults on more than $10 million of other indebtedness;
- failure to pay more than $10 million of judgments; and
- certain events of its subsidiaries.
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UNDERWRITING
Subject to the terms and conditions contained in the underwriting agreement
by and among NEXTLINK and the underwriters named below, NEXTLINK has agreed to
sell to each of the underwriters, and each of the underwriters has agreed to
purchase, the aggregate principal amount of notes noted opposite its name below:
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL
AMOUNT AMOUNT OF
OF SENIOR SENIOR DISCOUNT
UNDERWRITERS NOTES NOTES
- --------------------------------------------------------------------------------- -------------- ---------------
<S> <C> <C>
Salomon Smith Barney Inc.........................................................
Goldman, Sachs & Co. ............................................................
Bear, Stearns & Co. Inc..........................................................
Credit Suisse First Boston Corporation...........................................
Chase Securities Inc.............................................................
Total......................................................................
</TABLE>
Under the terms and conditions of the underwriting agreement, the
underwriters are committed to take and pay for all notes to be offered by the
underwriters, if any are taken.
The underwriters propose to offer the notes at the offering prices set forth
on the cover page of this prospectus and some of the notes to certain dealers at
the public offering price less a concession not in excess of % of the
aggregate principal amount of the notes. The underwriters may allow, and such
dealers may reallow, a concession not in excess of % of the aggregate
principal amount to certain other dealers. After the notes are released for
sale, the offering price and other selling terms of the notes may from time to
time be varied by the underwriters.
NEXTLINK has granted to the underwriters an option, exercisable for 30 days
from the date of this prospectus, to purchase up to an aggregate of $
additional principal amount of senior notes and an aggregate of
$ principal amount at stated maturity of senior discount notes at the
public offering price less the underwriting discount. The underwriters may
exercise such option solely for the purpose of covering over-allotments, if any,
in connection with this offering. To the extent such option is exercised, each
underwriter will be obligated, subject to certain conditions, to purchase senior
notes and senior discount notes with aggregate principal amount approximately
proportionate to such underwriter's initial purchase commitment.
NEXTLINK has agreed to indemnify the underwriters against certain
liabilities, including certain liabilities under the Securities Act, or
contribute to payments the underwriters may be required to make in respect
thereto.
The notes are new securities for which there currently is no market.
NEXTLINK does not intend to apply for listing of the notes on any securities
exchange or for inclusion of the notes in any automated quotation system. Each
underwriter has advised NEXTLINK that such underwriter presently intends to make
a market in the notes and any such market-making may be discontinued at any time
at the sole discretion of such underwriter. Accordingly, NEXTLINK can not assure
you as to the development or liquidity of any market in the notes.
The underwriters and their affiliates have provided in the past and may
provide in the future investment banking, commercial lending and financial
advisory services to NEXTLINK
85
<PAGE>
and its affiliates. An affiliate of Chase Securities Inc. is an investor in
NEXTLINK Class A common stock and is a selling stockholder in the concurrent
equity offering.
In order to facilitate this offering, certain persons participating in the
offering may engage in transactions that stabilize, maintain or otherwise affect
the price of the notes during and after the offering. Specifically, the
underwriters may over-allot or otherwise create a short position in the notes
for their own account by selling more notes than have been sold to them by
NEXTLINK. The underwriters may elect to cover any such short position by
purchasing notes in the open market. In addition, the underwriters may stabilize
or maintain the price of the notes by bidding for or purchasing notes in the
open market and may impose penalty bids, under which selling concessions allowed
to syndicate members or other broker-dealers participating in the offering are
reclaimed if notes previously distributed in the offering are repurchased in
connection with stabilization transactions or otherwise. The effect of these
transactions may be to stabilize or maintain the market price of the notes at a
level above that which might otherwise prevail in the open market. The
imposition of a penalty bid may also affect the price of the notes to the extent
that it discourages resales thereof. No representation is made as to the
magnitude or effect of any such stabilization or other transactions. Such
transactions, if commenced, may be discontinued at any time.
86
<PAGE>
VALIDITY OF THE NOTES
The validity of the notes will be passed upon for NEXTLINK by Willkie Farr &
Gallagher, New York, New York and for the underwriters by Sullivan & Cromwell,
New York, New York.
EXPERTS
The consolidated financial statements included in NEXTLINK's Annual Report
on Form 10-K filed on March 29, 1999, 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 that firm as experts in giving such reports.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. We have also filed with the SEC a registration
statement on Form S-3 to register the senior and senior discount notes offered
by this prospectus. This prospectus, which forms part of the registration
statement, does not contain all of the information included in that registration
statement. For further information about NEXTLINK and the senior and senior
discount notes being registered under this prospectus, you should refer to the
registration statement and its exhibits.
We file our SEC materials electronically with the SEC, so you can also
review our filings by accessing the web site maintained by the SEC at
http://www.sec.gov. This site contains reports, proxy and information statements
and other information regarding issuers that file electronically with the SEC.
You may also read and copy any document we file with the SEC at the SEC's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call
the SEC at 1-800-SEC-0330 for further information about the Public Reference
Room.
The SEC allows us to "incorporate by reference" the information we file with
them, which means we can disclose important information to you by referring you
to those documents. The information included in the following documents is
incorporated by reference and is considered to be a part of this prospectus. The
most recent information that we file with the SEC automatically updates and
supersedes more dated information. We have previously filed the following
documents with the SEC and are incorporating them by reference into this
prospectus:
1. Our Annual Report on Form 10-K for the fiscal year ended December
31, 1998, filed on March 29, 1999;
2. Our Current Reports on Form 8-K filed on January 19, 1999 and April
1, 1999.
3. Item 1 ("Description of Registrant's Securities to be Registered")
contained in our Registration Statement on Form 8-A, filed on August 4, 1997
to register shares of our Class A common stock under the Securities and
Exchange Act of 1934, as amended.
We also incorporate by reference all documents subsequently filed by us
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities and Exchange Act
of 1934, as amended, until the offering is completed.
87
<PAGE>
We will provide without charge to each person, including any person having a
control relationship with that person, to whom a prospectus is delivered, a copy
of any or all of the information that has been incorporated by reference in this
prospectus but not delivered with this prospectus. If you would like to obtain
this information from us, please direct your request, either in writing or by
telephone to R. Bruce Easter, Jr., General Counsel and Secretary, NEXTLINK
Communications, Inc., 500 108th Avenue N.E., Suite 2200, Bellevue, Washington
98004.
88
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$750,000,000 GROSS PROCEEDS
NEXTLINK
COMMUNICATIONS, INC.
% SENIOR NOTES DUE 2009
% SENIOR DISCOUNT NOTES DUE 2009
[LOGO]
------
P R O S P E C T U S
, 1999
---------
SALOMON SMITH BARNEY
GOLDMAN, SACHS & CO.
BEAR, STEARNS & CO. INC.
CREDIT SUISSE FIRST BOSTON
CHASE SECURITIES INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the fees and expenses payable by the
Registrant in connection with this offering, other than underwriting discounts
and commissions. All the amounts shown are estimates, except the SEC
registration fee:
<TABLE>
<S> <C>
SEC registration fee.............................................. $ 208,500
NASD fee.......................................................... 30,500
Printing fees..................................................... 125,000
Legal fees and expenses........................................... 125,000
Accounting fees and expenses...................................... 20,000
Miscellaneous fees and expenses................................... 41,000
---------
Total....................................................... $ 550,000
---------
---------
</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 or
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.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS:
<TABLE>
<C> <S>
1 Form of Underwriting Agreement.*
3.1 Certificate of Incorporation of the Company.(1)
3.2 By-laws of the Company.(1)
4.1 Indenture, dated November 12, 1998, by and among NEXTLINK Communications, Inc. and
United States Trust Company of New York, as trustee, relating to the 10 3/4% Senior
Notes due 2009.(2)
4.2 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)
4.3 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)
4.4 Indenture, dated September 25, 1997, between United States Trust Company, as Trustee
and NEXTLINK Communications, Inc., relating to the 9 5/8% Senior Notes due 2007.(12)
4.5 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)
4.6 Indenture, dated November 12, 1998, by and among NEXTLINK Communications, Inc. and
United States Trust Company of New York, as trustee, relating to the 10 3/4% Notes
due 2008.(10)
4.7 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 Form of stock certificate of Class A common stock(9)
4.10 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)
4.11 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)
4.12 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)
4.13 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)
4.14 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)
4.15 Form of Indenture, by and among NEXTLINK Communications, Inc. and United States
Trust Company of New York, as trustee, relating to the Company's % Senior Notes
due 2009.
4.16 Form of Indenture, by and among NEXTLINK Communications, Inc. and United States
Trust Company of Texas, as trustee, relating to the Company's % Senior Discount
Notes due 2009.
5.1 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 Fiber Lease and Innerduct Use Agreement, dated February 23, 1998, by and between the
Company and Metromedia Fiber Network, Inc. (5)
10.4 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)
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.5 Agreement and Plan of Merger, dated as of January 14, 1999, among the Company, WNP
Communications, Inc. and PCO Acquisition Corp. (7)
10.6 NEXTBAND Interests Purchase Agreement, dated March 31, 1999, between Nextel Spectrum
Acquisition Corp. and NEXTLINK Communications, Inc.(11)
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).*
24 Power of Attorney (included on signature pages).
25.1 Statement of Eligibility of the Trustee on Form T-1, relating to the % Senior
Notes due 2009.
25.2 Statement of Eligibility of the Trustee on Form T-1, relating to the % Senior
Discount Notes due 2009.
</TABLE>
- ------------------------
* Filed herewith.
(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. (Commission 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).
(7) Incorporated herein by reference to the exhibits filed with the current
report on Form 8-K filed on January 19, 1999 (Commission File No.
000-22939).
(8) Incorporated herein by reference to the exhibits filed with the Registration
Statement on Form S-4 of NEXTLINK Communications, Inc. (Commission File No.
333-71749).
(9) Incorporated herein by reference to the exhibit filed with the Registration
Statement on Form S-1 of NEXTLINK Communications, Inc. (Commission File No.
333-32001).
(10) Incorporated herein by reference to the exhibits filed with the
Registration Statement on Form S-4 of NEXTLINK Communications, Inc.
(Commission File No. 333-71749).
(11) Incorporated herein by reference to the exhibits filed with the current
report on Form 8-K filed on March 31, 1999 (Commission File No. 000-22939).
(12) Incorporated herein by reference to the exhibits filed with the
Registration Statement on Form S-3 of NEXTLINK Communications, Inc.
(Commission File No. 333-77577).
* Filed herewith.
(B) FINANCIAL STATEMENT SCHEDULES: NONE.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 20 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the option of their counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of this Registration Statement through the date
of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this Registration Statement when it became effective.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
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 21st day of May, 1999.
<TABLE>
<S> <C> <C>
NEXTLINK COMMUNICATIONS, INC.
By: /s/ R. BRUCE EASTER, JR.
-----------------------------------------
R. Bruce Easter, Jr.
VICE PRESIDENT, GENERAL COUNSEL AND
SECRETARY
</TABLE>
POWER OF ATTORNEY
We, the undersigned officers and directors of NEXTLINK Communications, Inc.,
hereby severally and individually constitute and appoint Kathleen H. Iskra 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 attorney-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 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Chairman of the Board and
/s/ STEVEN W. HOOPER Chief Executive Officer
- ------------------------------ (Principal Executive May 21, 1999
Steven W. Hooper Officer)
/s/ WAYNE M. PERRY
- ------------------------------ Vice Chairman and Director May 21, 1999
Wayne M. Perry
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Vice President, Chief
Financial Officer and
/s/ KATHLEEN H. ISKRA Treasurer (Principal
- ------------------------------ Financial Officer and May 21, 1999
Kathleen H. Iskra Principal Accounting
Officer)
- ------------------------------ Director
Craig O. McCaw
- ------------------------------ Director
Dennis Weibling
/s/ WILLIAM A. HOGLUND
- ------------------------------ Director May 21, 1999
William A. Hoglund
/s/ SHARON L. NELSON
- ------------------------------ Director May 21, 1999
Sharon L. Nelson
/s/ JEFFREY S. RAIKES
- ------------------------------ Director May 21, 1999
Jeffrey S. Raikes
/s/ GREGORY J. PARKER
- ------------------------------ Director May 21, 1999
Gregory J. Parker
- ------------------------------ Director
Nicolas Kauser
</TABLE>
II-6
<PAGE>
Exhibit 1
NEXTLINK Communications, Inc.
___% Senior Notes Due 2009
___% Senior Discount Notes Due 2009
UNDERWRITING AGREEMENT
----------------------
New York, New York, USA
________________ ___,1999
Salomon Smith Barney Inc.
Goldman, Sachs & Co.
Bear, Stearns & Co. Inc.
Credit Suisse First Boston Corporation
Chase Securities Inc.
c/o Salomon Smith Barney Inc.
Seven World Trade Center
New York, New York 10048
United States of America
Ladies and Gentlemen:
NEXTLINK Communications, Inc., a corporation organized under the laws
of the State of Delaware (the "Company"), confirms its agreement with the
underwriters named in Schedule A hereto (the "Underwriters") with respect to
the issue and sale by the Company and the purchase by the Underwriters,
acting severally and not jointly, of an aggregate of $__________ principal
amount of the senior notes due 2009 (the "Senior Notes") and $_________
aggregate principal amount at stated maturity of senior discount notes due
2009 (the "Senior Discount Notes"). At the election of the Underwriters, the
Company proposes, subject to the terms and conditions stated herein, to issue
an aggregate of up to $_________ additional principal amount of Senior Notes
and up to $_________ aggregate principal amount at stated maturity of Senior
Discount Notes. The aggregate of $_________ of principal amount of Senior
Notes (the "Firm Senior Notes") to be issued and $_________ of aggregate
principal amount at stated maturity of Senior Discount Notes (the "Firm
Senior Discount Notes") are herein collectively called the "Firm Securities"
and the aggregate of up to $_________ of principal amount of Senior Notes
(the "Optional Senior Notes") and $_________ aggregate principal amount at
stated maturity of Senior Discount Notes (the "Optional Senior Discount
Notes") to be issued by the Company are herein collectively called the
"Optional Securities" (the Firm Securities and the Optional Securities that
the Underwriters elect to purchase pursuant to Section 2 hereof collectively
called the "Securities").
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Company. The Company represents
and warrants to each of the Underwriters as of the date hereof and as of the
Closing Time referred to in Section 2(c) hereof, and agrees with each of the
Underwriters as follows:
(i) Effectiveness of Registration Statement. A registration
statement on Form S-3 (File No. 333-77819) (the "Initial Registration
Statement") in respect of the Securities has been filed
<PAGE>
with the Securities and Exchange Commission (the "Commission"); the
Initial Registration Statement and any post-effective amendment thereto,
each in the form heretofore delivered to the Underwriters have been
declared effective by the Commission in such form; other than a
registration statement, if any, increasing the size of the offering (a
"Rule 462(b) Registration Statement") filed pursuant to Rule 462(b) under
the Securities Act of 1933, as amended (the "1933 Act") which became
effective upon filing, no other document with respect to the Initial
Registration Statement has heretofore been filed with the Commission; and
no stop order suspending the effectiveness of the Initial Registration
Statement, any post-effective amendment thereto or the Rule 462(b)
Registration Statement, if any, has been issued and no proceeding for that
purpose has been initiated or threatened by the Commission (any
preliminary prospectus included in the Initial Registration Statement or
filed with the Commission pursuant to Rule 424(a) of the rules and
regulations of the Commission under the 1933 Act, is hereinafter called a
"Preliminary Prospectus"; the various parts of the Initial Registration
Statement and the Rule 462(b) Registration Statement, if any, including
all exhibits thereto but excluding Form T-1 and including the information
contained in the form of final Prospectus filed with the Commission
pursuant to Rule 424(b) under the 1933 Act in accordance with Section 3(a)
hereof and deemed by virtue of Rule 430A under the 1933 Act to be part of
the Initial Registration Statement at the time it was declared effective,
or such part of the Rule 462(b) Registration Statement, if any, at the
time it became effective (each such part of a registration statement as
amended at the time such part became effective), are hereinafter
collectively called the "Registration Statement"; and such final
Prospectus, in the form first filed pursuant to Rule 424(b) under the 1933
Act, is hereinafter called the "Prospectus").
(ii) Compliance of Preliminary Prospectus with the
Requirements of the 1933 Act. No order preventing or suspending the use of
any Preliminary Prospectus has been issued by the Commission, and each
Preliminary Prospectus, at the time of filing thereof, conformed in all
material respects to the requirements of the 1933 Act and the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"), and the
rules and regulations of the Commission thereunder, and did not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading; provided, however, that this representation and warranty shall
not apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by an
Underwriter through Salomon Smith Barney expressly for use therein.
(iii) Compliance of Registration Statement and Prospectus with
the Requirements of the 1933 Act. The Registration Statement conforms, and
the Prospectus and any further amendments or supplements to the
Registration Statement or the Prospectus will conform, in all material
respects to the requirements of the 1933 Act and the Trust Indenture Act
and the rules and regulations of the Commission thereunder and do not and
will not, as of the applicable effective date as to the Registration
Statement and any amendment thereto, and as of the applicable filing date
as to the Prospectus and any amendment or supplement thereto, contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading; provided, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon and
in conformity with information furnished in writing to the Company by an
Underwriter through Salomon Smith Barney expressly for use therein.
-2-
<PAGE>
(iv) Independent Accountants. The accountants who certified
the financial statements included in the Prospectus are independent
certified public accountants with respect to the Company and its
subsidiaries within the meaning of Regulation S-X under the 1933 Act.
(v) Financial Statements. The financial statements, together
with the related notes, included in the Prospectus present fairly the
financial position of the Company and its consolidated subsidiaries at the
dates indicated and the statement of operations, stockholders' 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 included in the Prospectus present fairly the information
shown therein and have been compiled on a basis consistent with that of
the audited financial statements included in the Prospectus.
(vi) No Material Adverse Change in Business. Since the
respective dates as of which information is given in the Prospectus,
except as otherwise stated therein, (1) there has been no material adverse
change in the condition, financial or otherwise, or in the earnings,
business affairs or business prospects of the Company and its subsidiaries
considered as one enterprise (a "Material Adverse Effect"), whether or not
arising in the ordinary course of business, (2) there have been no
transactions entered into by the Company or any of its subsidiaries, other
than those in the ordinary course of business, which are material with
respect to the Company and its subsidiaries considered as one enterprise
and (3) there has been no dividend or distribution of any kind declared,
paid or made by the Company on any class of its capital stock, except for
those declared, paid or made on the Company's 6 1/2% Cumulative
Convertible Preferred Stock, including any interest and associated penalty
payments thereon, and the Company's 14% Senior Exchangeable Redeemable
Preferred Stock.
(vii) Good Standing of the Company. The Company has been duly
organized and is validly existing as a corporation under the laws of the
State of Delaware and has power and authority to own, lease and operate
its properties and to conduct its business as described in the Prospectus
and to enter into and perform its obligations under this Agreement; and
the Company is duly qualified as a foreign corporation to transact
business and is in good standing in each other jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing
of property or the conduct of business, except where the failure so to
qualify or to be in good standing would not result in a Material Adverse
Effect.
(viii) Good Standing of Designated Subsidiaries. Each
"significant subsidiary" of the Company (as such term is defined in Rule
1-02 of Regulation S-X) (each a "Designated Subsidiary" and, collectively,
the "Designated Subsidiaries") has been duly organized and is validly
existing and in good standing, where applicable, as a corporation, limited
liability company or limited partnership, as the case may be, under the
laws of the jurisdiction of its formation, has power and authority to own,
lease and operate its properties and to conduct its business as described
in the Prospectus and is duly qualified as a foreign corporation, limited
liability company or limited partnership, as the case may be, to transact
business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing
of property or the conduct of business, except where the failure so to
qualify or to be in good standing would not result in a Material Adverse
Effect; except as otherwise disclosed in the Prospectus, all of the issued
and outstanding capital stock or other equity interest of each Designated
Subsidiary has been duly
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authorized and validly issued, is fully paid and non-assessable and at
least 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.
(ix) Capitalization. The authorized, issued and outstanding
capital stock of the Company is as set forth in the Prospectus as of the
dates indicated therein. The shares of issued and outstanding capital
stock of the Company have been duly authorized and validly issued and are
fully paid and non-assessable; and none of the outstanding shares of
capital stock of the Company was issued in violation of the preemptive or
other similar rights of any securityholder of the Company, as applicable.
(x) Authorization of Underwriting Agreements. This Agreement
has been duly authorized, executed and delivered by the Company.
(xi) Authorization and Description of the Securities and the
Indentures. The Securities have been duly authorized for issuance and sale
to the Underwriters pursuant to this Agreement and, when issued and
delivered by the Company pursuant to this Agreement against payment of the
consideration set forth herein, will have been duly executed,
authenticated, issued and delivered and will constitute valid and legally
binding obligations of the Company entitled to the benefits provided by
the indenture relating to the senior notes to be dated as of _________,
1999 and by the indenture relating to the senior discount notes to be
dated as of __________, 1999 (collectively, the "Indentures") between the
Company and United States Trust Company of New York, as Trustee (the
"Trustee"), under which they are to be issued, which will be substantially
in the form filed as an exhibit to the Registration Statement; the
Indentures have been duly authorized and duly qualified under the Trust
Indenture Act and, when executed and delivered by the Company and the
Trustee, will constitute a valid and legally binding instrument,
enforceable in accordance with its terms, subject, as to enforcement, to
bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and to general
equity principles; and the Securities and the Indentures will conform in
all material respects to the descriptions thereof in the Prospectus and
will be in substantially the form previously delivered to the
Underwriters.
(xii) Absence of Defaults and Conflicts. Neither the Company
nor any of its subsidiaries is in violation of its constituting or
operative document or agreement or in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, deed of trust, loan or
credit agreement, note, lease or other agreement or instrument to which
the Company or any of its subsidiaries is a party, or by which or any of
them may be bound, or to which any of the property or assets of the
Company or any of its subsidiaries is subject (collectively, "Agreements
and Instruments") except for such defaults that would not result in a
Material Adverse Effect; the issue and sale of the Securities, the
execution, delivery and performance of this Agreement, the Indentures, the
Securities and any other agreement or instrument entered into or issued or
to be entered into or issued by the Company in connection with the
transactions contemplated hereby, thereby or in the Prospectus and the
consummation of the transactions contemplated herein, therein and in the
Prospectus (including the issuance and sale
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of the Securities by the Company hereunder), the compliance by the Company
with its obligations hereunder and under the Indentures and the Securities
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 to repurchase, redemption or repayment of all or a
portion of such indebtedness by the Company or any of its subsidiaries.
(xiii) Absence of Further Requirements. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or agency
is necessary or required for the performance by the Company of its
obligations hereunder, in connection with the offering, issuance or sale
of the Securities hereunder or the consummation of the actions
contemplated by this Agreement or the Indentures, except the registration
under the 1933 Act of the Securities, such as have been obtained under the
Trust Indenture Act and such consents, approvals, authorizations,
registrations or qualifications as may be required under state securities
or Blue Sky laws in connection with the purchase and distribution of the
Securities by the Underwriters.
(xiv) Possession of Licenses and Permits. Except as set forth
in or contemplated by the Prospectus with respect to systems under
development and the offering of dial tone service, each of the Company and
its Designated Subsidiaries has all material certificates, consents,
exemptions, orders, permits, licenses, authorizations, franchises or other
material approvals (each, an "Authorization") of and from, and has made
all material declarations and filings with, all Federal, state, local and
other governmental authorities, all self-regulatory organizations and all
courts and other tribunals, necessary or appropriate for the Company and
its Designated Subsidiaries to own, lease, license, use and construct its
properties and assets and to conduct its business in the manner described
in the Prospectus, except to the extent that the failure to obtain any
such Authorizations or make any such declaration or filing would not,
singly or in the aggregate, result in a Material Adverse Effect. Except as
set forth in or contemplated by the Prospectus, all such Authorizations
are in full force and effect with respect to the Company and its
Designated Subsidiaries; to the best knowledge of the Company, no event
has occurred that permits, or after notice or lapse of time could permit,
the revocation, termination or modification of any such Authorization; the
Company and its Designated Subsidiaries are in compliance in all material
respects with the terms and conditions of all such Authorizations and with
the rules and regulations of the regulatory authorities and governing
bodies having jurisdiction with respect thereto; and, except as set forth
in the Prospectus, the Company has no knowledge that any person is
contesting or intends to contest the granting of any material
Authorization; and neither the execution and delivery of this Agreement,
the Indentures or the Securities, nor the consummation of the transactions
contemplated hereby and thereby nor
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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.
(xv) Absence of Labor Dispute. No labor dispute with the
employees of the Company or any of its subsidiaries exists or, to the
knowledge of the Company, is imminent, and the Company is not aware of any
existing labor disturbance by the employees of any of its or any of its
subsidiaries' principal suppliers, manufacturers, customers or
contractors, which, in either case, would reasonably be expected to result
in a Material Adverse Effect.
(xvi) Absence of Proceedings. Except as disclosed in the
Prospectus, there is no action, suit, proceeding, inquiry or investigation
before or by any court or governmental agency or body, domestic or
foreign, now pending or, to the knowledge of the Company, threatened
against or affecting the Company or any of its subsidiaries which could
reasonably be expected to result in a Material Adverse Effect, or which
might reasonably be expected to materially and adversely affect the
properties or assets of the Company or any of its subsidiaries or the
consummation of this Agreement or the performance by the Company of its
obligations hereunder. The aggregate of all pending legal or governmental
proceedings to which the Company or any subsidiary thereof is a party or
of which any of their respective property or assets is the subject which
are not described in the Prospectus, including ordinary routine litigation
incidental to the business, could not reasonably be expected to result in
a Material Adverse Effect.
(xvii) Possession of Intellectual Property. The Company and
its subsidiaries own or possess, or can acquire on reasonable terms,
adequate patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures),
trademarks, service marks, trade names or other intellectual property
(collectively, "Intellectual Property") necessary to carry on the business
now operated by them, and except as otherwise described in the Prospectus
neither the Company nor any of its subsidiaries has received any notice or
is otherwise aware of any infringement of or conflict with asserted rights
of others with respect to any Intellectual Property or of any facts or
circumstances which would render any Intellectual Property invalid or
inadequate to protect the interest of the Company or any of its
subsidiaries therein, and which infringement or conflict (if the subject
of any unfavorable decision, ruling or finding) or invalidity or
inadequacy, singly or in the aggregate, would result in a Material Adverse
Effect.
(xviii) Title to Property. The Company and its subsidiaries
have good and marketable title to all real property owned by them and good
title to all other properties owned by them, in each case, free and clear
of all mortgages, pledges, liens, security interests, claims, restrictions
or encumbrances of any kind except such as (a) are described in the
Prospectus or (b) do not, singly or in the aggregate, materially affect
the value of such property and do not interfere with the use made and
proposed to be made of such property by the Company or any of its
subsidiaries; and all of the leases and subleases material to the business
of the Company and its subsidiaries, considered as one enterprise, and
under which the Company or any of its subsidiaries holds properties
described in the Prospectus, are in full force and effect, and neither the
Company nor any of its subsidiaries has any notice of any material claim
of any sort that has been asserted by anyone adverse to the rights of the
Company or any of its subsidiaries under any of the leases or subleases
mentioned above, or
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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.
(xix) Tax Returns. The Company and its subsidiaries have filed
all federal, state, foreign and, to the extent material, local tax returns
that are required to be filed or have duly requested extensions thereof
and have paid all taxes required to be paid by any of them and any related
assessments, fines or penalties, except for any such tax, assessment, fine
or penalty that is being contested in good faith and by appropriate
proceedings; and adequate charges, accruals and reserves have been
provided for in the financial statements referred to in Section 1(a)(v)
above in respect of all federal, state, local and foreign taxes for all
periods as to which the tax liability of the Company or any of its
subsidiaries has not been finally determined or remains open to
examination by applicable taxing authorities.
(xx) Environmental Laws. Except as described in the Prospectus
and except such matters as would not, singly or in the aggregate, result
in a Material Adverse Effect, (A) neither the Company nor any of its
subsidiaries is in violation of any federal, state, local or foreign
statute, law, rule, regulation, ordinance, code, policy or rule of common
law or any judicial or administrative interpretation thereof, including
any judicial or administrative order, consent, decree or judgment,
relating to pollution or protection of human health, the environment
(including, without limitation, ambient air, surface water, groundwater,
land surface or subsurface strata) or wildlife, including, without
limitation, laws and regulations relating to the release or threatened
release of chemicals, pollutants, contaminants, wastes, toxic substances,
hazardous substances, petroleum or petroleum products (collectively,
"Hazardous Materials") or to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous
Materials (collectively, "Environmental Laws"), (B) the Company and its
subsidiaries have all permits, authorizations and approvals required under
any applicable Environmental Laws and are each in compliance with their
requirements, (C) there are no pending or, to the Company's knowledge,
threatened administrative, regulatory or judicial actions, suits, demands,
demand letters, claims, liens, notices of noncompliance or violation,
investigation or proceedings relating to any Environmental Law against the
Company or any of its subsidiaries and (D) there are no events or
circumstances that would reasonably be expected to form the basis of an
order for clean-up or remediation, or an action, suit or proceeding by any
private party or governmental body or agency, against or affecting the
Company or any of its subsidiaries relating to Hazardous Materials or
Environmental Laws.
(xxi) Investment Company Act. The Company is not, and upon the
issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the Prospectus
will not be, an "investment company" or an entity "controlled" by an
"investment company" as such terms are defined in the Investment Company
Act of 1940, as amended (the "1940 Act").
(xxii) Certain Disclosures in Prospectus. The statements set
forth in the Prospectus under the caption "Description of the Notes",
insofar as they purport to constitute a summary of the terms of the
Securities, and under the captions "Regulation" when considered together
with the statements under the caption "Business-Regulatory Overview" in
the Company's Annual Report on Form 10-K, filed on March 29, 1999, which
is incorporated in the Prospectus by reference and "Underwriting", insofar
as they purport to describe the provisions of the laws and documents
referred to therein, are accurate and complete in all material respects;
and the statements set forth
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in the Prospectus under the caption "Material 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 (as such terms
are defined in the Prospectus) of the Securities, provide a fair summary
of such consequences under current law.
(xxiii) Cuba. Neither the Company nor any of its affiliates
does business with the government of Cuba or with any person or affiliate
located in Cuba within the meaning of Section 517.075, Florida Statutes.
(xxiv) No Manipulation or Stabilization. Neither the Company
nor, to its knowledge, any of its officers, directors or affiliates has
taken and will take, directly or indirectly, any action which is designed
to or which has constituted or which might reasonably be expected to cause
or result in stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of the Securities.
(b) Officer's Certificates. Any certificate signed by any officer of the
Company or any of its subsidiaries delivered to the Underwriters or to counsel
for the Underwriters shall be deemed a representation and warranty by the
Company to each Underwriter as to the matters covered thereby.
SECTION 2. Sale and Delivery to Underwriters; Closing.
(a) Securities. On the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth,
(a) the Company agrees to issue and sell to each Underwriter, severally and
not jointly, and each Underwriter, severally and not jointly, agrees to
purchase from the Company, the Firm Senior Notes at a purchase price of ___%
of the principal amount thereof, plus accrued interest, if any, from
__________, 1999, and agrees to purchase from the Company, the Firm Senior
Discount Notes, at a purchase price of ___% of the principal amount thereof
at stated maturity, plus accrued interest, if any, from ____, 1999 the
principal amount of Firm Securities set forth in Schedules A and B opposite
the name of such Underwriter and (b) in the event and to the extent that the
Underwriters shall exercise the election to purchase Optional Securities as
provided below, the Company agrees to issue and sell to each of the
Underwriters, and each of the Underwriters agrees, severally and not jointly,
to purchase from the Company at the purchase price set forth in clause (a) of
this Section 2, the aggregate principal amount of Optional Securities as to
which such election shall have been exercised determined by multiplying such
aggregate principal amount of Optional Senior Notes or Optional Senior
Discount Notes, as the case may be, by a fraction, the numerator of which is
the maximum aggregate principal amount of Optional Senior Notes or Optional
Senior Discount Notes which such Underwriter is entitled to purchase as set
forth opposite the name of such Underwriter in Schedule A or B hereto and the
denominator of which is the maximum aggregate principal amount of Optional
Senior Notes or Optional Senior Discount Notes, as the case may be, that all
of the Underwriters are entitled to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to $_________ aggregate principal amount of Optional Senior
Notes and up to $_________ aggregate principal amount at stated maturity of
Optional Senior Discount Notes, at the purchase price 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 Salomon Smith Barney to the Company,
given within a period of 30 calendar days after the date of this Agreement,
setting 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 Salomon Smith Barney but in no event earlier than the First Closing Time
(as defined in Section 2(c) hereof) or, unless Salomon Smith Barney 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 Salomon Smith
Barney on behalf of the Underwriters of the release of the Securities, the
several Underwriters propose to offer the Securities for sale upon the terms and
conditions set forth in the Prospectus.
(c) Closing and Payment. (i) The Securities to be purchased by each
Underwriter hereunder, in definitive form, and in such authorized
denominations and registered in such names as Salomon Smith Barney may
request upon at least forty-eight hours' prior notice to the Company shall be
delivered by or on behalf of the Company to the Underwriters, through the
facilities of the Depository Trust Company ("DTC") (unless the Underwriters
shall otherwise instruct) for the account of such Underwriter, against
payment by or on behalf of such Underwriter of the purchase price therefor by
wire transfer or certified or official bank check or checks, payable to the
order of the Company in immediately available (same day) funds. The Company
will cause the certificates representing the Securities to be made available
for checking and packaging at least twenty-four hours prior to the Closing
Time (as defined below) with respect thereto at the offices of DTC or its
designated custodian (the "Designated Office"). The time and date of such
delivery and payment shall be, with respect to the Firm Securities, 10:00
a.m. on ________, 1999 or such other time and date as Salomon Smith Barney
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and the Company may agree upon in writing, and, with respect to the Optional
Securities, 10:00 a.m. on the date specified by Salomon Smith Barney in the
written notice given by Salomon Smith Barney of the Underwriters' election to
purchase such Optional Securities, or such other time and date as Salomon
Smith Barney 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 time
and date for delivery is herein called a "Closing Time".
(ii) The documents to be delivered at the Closing Time by or on behalf of
the parties hereto pursuant to Section 5 hereof, including the cross receipt for
the Securities and any additional documents requested by the Underwriters
pursuant to Section 5(k) hereof, will be delivered at the offices of Sullivan &
Cromwell, 125 Broad Street, New York, New York 10004 (the "Closing Location"),
and the Securities will be delivered at the Designated Office, all at the
Closing Time. A meeting will be held at the Closing Location at 2:00 p.m. on the
New York Business Day next preceding the Closing Time, at which meeting the
final drafts of the documents to be delivered pursuant to the preceding sentence
will be available for review by the parties hereto. For the purposes of this
Section 2 and Section 3(a)(iii) below, "New York Business Day" shall mean each
Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which
banking institutions in New York are generally authorized or obligated by law or
executive order to close.
SECTION 3. Covenants.
(a) Covenants of the Company. The Company covenants with each Underwriter
as follows:
(i) Preparation of Prospectus; Notices. To prepare the Prospectus in a
form approved by the Underwriters and to file such Prospectus, properly
completed, and any supplement thereto, pursuant to Rule 424(b) under the 1933
Act not later than the Commission's close of business on the second business day
following the execution and delivery of this Agreement, or, if applicable, such
earlier time as may be required by Rule 430A(a)(3) under the 1933 Act, and to
provide evidence satisfactory to the Underwriters of such timely filing; to use
its best efforts to cause the Registration Statement, if not effective at the
time of execution of this Agreement, to become effective; prior to termination
of the offering of the Securities, to make or file no further amendment or any
supplement to the Registration Statement or Prospectus which shall be
disapproved by the Underwriters promptly after reasonable notice thereof; to
advise the Underwriters, promptly after it receives notice thereof, of the time
when the Registration Statement or any amendment thereto has been filed or
becomes effective or the Prospectus or any supplement thereto or any amended
Prospectus has been filed and to furnish the Underwriters with copies thereof;
to advise the Underwriters, promptly after it receives notice thereof, of the
issuance by the Commission of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or Prospectus, of the
suspension of the qualification of the Securities for offering or sale in any
jurisdiction, of the initiation or threatening of any proceeding for any such
purpose, or of any request by the Commission for the amending or supplementing
of the Registration Statement or Prospectus or for additional information; and,
in the event of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or Prospectus or suspending any
such qualification, promptly to use its best efforts to obtain the withdrawal of
such order.
(ii) Qualifications of the Securities under State Securities Laws.
Promptly from time to time to take such action as the Underwriters may
reasonably request to qualify the Securities for offering and sale under the
securities laws of such jurisdictions as they may request and to comply with
such laws so as to permit the continuance of sales and dealings therein in such
jurisdictions for as long as may be necessary to complete the distribution of
the Securities, provided that in connection therewith the Company shall not be
required to qualify as a foreign corporation or to file a general consent to
service of process in any jurisdiction.
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(iii) Copies of and Amendments to Prospectus and Supplements. Prior to
12:00 noon on the New York Business Day next succeeding the date of this
Agreement and from time to time, to furnish the Underwriters with copies of the
Prospectus in New York City in such quantities as the Underwriters may
reasonably request, and, if the delivery of a Prospectus is required at any time
prior to the expiration of nine months after the time of issue of the Prospectus
in connection with the offering or sale of the Securities and if at such time
any event shall have occurred as a result of which the Prospectus as then
amended or supplemented would include an untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made when such
Prospectus is delivered, not misleading, or, if for any other reason it shall be
necessary during such period to amend or supplement the Prospectus in order to
comply with the 1933 Act, to notify the Underwriters and upon their request to
prepare and furnish without charge to each Underwriter and to any dealer in
securities as many copies as the Underwriters may from time to time reasonably
request of an amended Prospectus or a supplement to the Prospectus which will
correct such statement or omission or effect such compliance, and in case any
Underwriter is required to deliver a Prospectus in connection with sales of any
of the Securities at any time nine months or more after the time of issue of the
Prospectus, upon the Underwriters' request but at the expense of such
Underwriter, to prepare and deliver to such Underwriter as many copies as the
Underwriters may request of an amended or supplemented Prospectus complying with
Section 10(a)(3) of the 1933 Act. The Company will advise the Underwriters
promptly of any proposal to amend or supplement the Prospectus and will not
effect such amendment or supplement without the consent of the Underwriters.
Neither the consent of the Underwriters, nor the Underwriter's delivery of any
such amendment or supplement, shall constitute a waiver of any of the conditions
set forth in Section 5 hereof.
(iv) Earning Statement. To make generally available to its securityholders
as soon as practicable, but in any event not later than the 30th day following
the end of the fiscal quarter first occurring after the first anniversary of the
effective date of the Registration Statement (as defined in Rule 158(c) under
the 1933 Act), an earning statement of the Company and its subsidiaries (which
need not be audited) complying with Section 11(a) of the 1933 Act and the rules
and regulations thereunder (including, at the option of the Company, Rule 158).
(v) Lock-Up. During the period beginning from the date hereof and
continuing to and including the date 90 days after the date of the Prospectus,
not to offer, sell, contract to sell or otherwise dispose of, directly or
indirectly, or announce an offering of, except as provided hereunder any debt
securities of the Company in an offering to the public (or in a private offering
where holders of the debt securities are granted rights to have such debt
securities registered under the Securities Act, or to exchange such debt
securities for other debt securities that are so registered) without the prior
written consent of Salomon Smith Barney.
(vi) Investment Company. Not to be or become, at any time prior to the
expiration of three years after the Closing Time, an open-end investment
company, unit investment trust, closed-end investment company or face-amount
certificate company that is or is required to be registered under Section 8 of
the 1940 Act.
(vii) Information to the Underwriters. During a period of five years from
the effective date of the Registration Statement, to furnish to the Underwriters
copies of all reports or other communications (financial or other) furnished to
shareholders, and to deliver to the Underwriters such additional information
concerning the business and financial condition of the Company as the
Underwriters may from time to time reasonably request (such financial statements
to be on a consolidated basis to the extent the accounts of the
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Company and its subsidiaries are consolidated in reports furnished to its
stockholders generally or to the Commission).
(viii) Use of Proceeds. To use the net proceeds received by it from the
sale of the Securities pursuant to this Agreement in the manner specified in the
Prospectus under "Use of Proceeds".
(ix) Rule 462(b) Registration Statement. If the Company elects to rely
upon Rule 462(b), to file a Rule 462(b) Registration Statement with the
Commission in compliance with Rule 462(b) by 10:00 P.M., Washington, D.C. time,
on the date of this Agreement, and at the time of filing to either pay to the
Commission the filing fee for the Rule 462(b) Registration Statement or give
irrevocable instructions for the payment of such fee pursuant to Rule 111(b)
under the 1933 Act.
SECTION 4. Payment of Expenses.
(a) Expenses. The Company covenants and agrees with the several
Underwriters that the Company will pay or cause to be paid the following: (i)
the fees, disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Securities under the 1933 Act and all
other expenses in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (ii) the cost of printing or
reproducing any Agreement among Underwriters, this Agreement, the Selling
Agreement, the Indentures, the Blue Sky Memorandum, closing documents (including
any compilations thereof) and any other documents in connection with the
offering, purchase, sale and delivery of the Securities; (iii) all expenses in
connection with the qualification of the Securities for offering and sale under
state securities laws as provided in Section 3(b) hereof, including the fees and
disbursements of counsel for the Underwriters in connection with such
qualification and in connection with the Blue Sky survey, (iv) any fees charged
by securities rating services for rating the Securities, (v) the filing fees
incident to, and the fees and disbursements of counsel for the Underwriters in
connection with, securing any required review by the National Association of
Securities Dealers, Inc. of the terms of the sale of the Securities; (vi) the
cost of preparing the Securities; (vii) the cost and charges of any transfer
agent or registrar and of DTC; (viii) the fees and expenses of the Trustee and
any agent of the Trustee and the fees and disbursements of counsel for the
Trustee in connection with the Indentures and the Securities, and (ix) all other
costs and expenses incident to the performance of its obligations hereunder
which are not otherwise specifically provided for in this Section. It is
understood, however, that, except as provided in this Section, and Sections 6, 7
and 10(d) hereof, the Underwriters will pay all of their own costs and expenses,
including the fees of their counsel, transfer taxes on resale of any of the
Securities by them, and any advertising expenses connected with any offers they
may make.
(b) Termination of Agreement. If this Agreement is terminated by the
Underwriters in accordance with the provisions of Section 5 or Section 9(a)(i)
hereof, the Company shall reimburse the Underwriters for all of their
out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the Underwriters.
SECTION 5. Conditions of Underwriters' Obligations. The obligations of the
several Underwriters hereunder, as to the Securities to be delivered at the
Closing Time, are subject to the accuracy, at and as of the Closing Time, of the
representations and warranties of the Company contained in Section 1 hereof or
in certificates of any officer of the Company or any of its subsidiaries
delivered pursuant to the
-11-
<PAGE>
provisions hereof, to the performance by each of the Company of its covenants
and other obligations hereunder, and to the following further conditions:
(a) Filing of Prospectus and Effectiveness of Registration Statement. If
the Registration Statement has not become effective prior to execution of this
Agreement, unless the Underwriters agree in writing to a later time, the
Registration Statement shall have become effective not later than (i) 6:00 p.m.
on the date of determination of the public offering price, if such determination
occurred at or prior to 3:00 p.m. on such date or (ii) 9:30 a.m. on the business
day following the day on which the public offering price was determined, if such
determination occurred after 3:00 p.m. on such date; if filing is required
pursuant to Rule 424(b), the Prospectus shall have been filed with the
Commission pursuant to such Rule within the applicable time period prescribed
for such filing by the rules and regulations under the 1933 Act and in
accordance with Section 3(a) hereof; no stop order suspending the effectiveness
of the Registration Statement or any part thereof shall have been issued and no
proceeding for that purpose shall have been initiated or threatened by the
Commission; and all requests for additional information on the part of the
Commission shall have been complied with to the Underwriters' reasonable
satisfaction.
(b) Opinion of Counsel for Company. At the Closing Time, the Underwriters
shall have received the favorable opinions, dated as of the Closing Time, of
Willkie Farr & Gallagher, counsel for the Company and of R. Bruce Easter, Esq.,
Vice President, General Counsel and Secretary of the Company in form and
substance satisfactory to counsel for the Underwriters, to the effect set forth
in Exhibits A-1 and 2 hereto, respectively, and to such further effect as
counsel to the Underwriters may reasonably request.
(c) Opinion of Counsel for Underwriters. At the Closing Time, the
Underwriters shall have received the favorable opinion, dated as of the Closing
Time, of Sullivan & Cromwell, counsel for the Underwriters, with respect to the
incorporation of the Company, the Indentures, the validity of the Securities
being delivered at the Closing Time, the Registration Statement, the Prospectus
and such other related matters as the Underwriters may reasonably request. In
giving such opinion such counsel may rely, as to all matters governed by the
laws of jurisdictions other than the law of the State of New York and the
federal law of the United States, upon the opinions of counsel satisfactory to
the Underwriters. Such counsel may also state that, insofar as such opinion
involves factual matters, they have relied, to the extent they deem proper, upon
certificates of officers of the Company and its subsidiaries and certificates of
public officials.
(d) Officers' Certificate. At such Closing Time, there shall not have
been, since the date hereof or since the date of the most recent financial
statements included in the Prospectus (exclusive of any supplement thereto), any
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, whether or not arising from
transactions in the ordinary course of business except as set forth in the
Prospectus (exclusive of any supplement thereto), and the Underwriters shall
have received certificates of the Chairman of the Board, the President or a Vice
President of the Company and of the chief financial or chief accounting officer
of the Company, satisfactory to the Underwriters, to the effect that, at and as
of such Closing Time, (i) they have carefully examined the Registration
Statement, the Preliminary Prospectus, the Prospectus and any supplements
thereto and this Agreement, (ii) there has been no such material adverse change,
(iii) the representations and warranties of the Company in Section 1 hereof are
true and correct in all material respects on and as of the Closing Time with the
same force and effect as though expressly made at and as of such Closing Time,
(iv) the Company has complied with all agreements and satisfied all conditions
on its part to be performed or satisfied at or prior to such Closing Time, and
(v) no stop order
-12-
<PAGE>
suspending the effectiveness of the Registration Statement has been issued and
no proceedings for that purpose have been instituted or, to the Company's
knowledge, threatened.
(e) Accountant's Comfort Letter. On the date of the Prospectus at a time
prior to the execution of this Agreement, and at 10:00 a.m. on the effective
date of any post-effective amendment to the Registration Statement filed
subsequent to the date of this Agreement, the Underwriters shall have received
from Arthur Andersen LLP a letter or letters dated the respective dates of
delivery thereof, in form and substance satisfactory to the Underwriters,
containing statements and information of the type ordinarily included in
accountants' "comfort letters" to the Underwriters with respect to the financial
statements and certain financial information contained in the Prospectus.
(f) Bring-down Comfort Letter. At the Closing Time, the Underwriters shall
have received from Arthur Andersen LLP a letter, dated as of the Closing Time,
to the effect that they reaffirm the statements made in the letter furnished
pursuant to subsection (e) of this Section 5, except that the specified date
referred to shall be a date not more than three business days prior to such
Closing Time.
(g) No Material Adverse Change in Business. Since the respective dates as
of which information is given in the Prospectus, 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, except for the 6 1/2% Cumulative Convertible Preferred Stock
and the 14% Senior Exchangeable Redeemable Preferred Stock, which dividend shall
be the customary dividend on such stock, and (4) there has been no change or
decrease specified in the letters referred to in Section 5(e) and 5(f) above,
the effect of which, in any case referred to in clauses (1) through (4) above,
is, in the sole judgment of the Underwriters, so material and adverse as to make
it impractical or inadvisable to proceed with the offering or delivery of the
Securities as contemplated by the Registration Statement (exclusive of any
amendment thereof) and the Prospectus (exclusive of any supplement thereto).
(h) Maintenance of Rating. On or after the date of this Agreement, there
shall not have occurred a downgrading in the rating assigned to the Company's
debt securities or preferred stock by any nationally recognized securities
rating agency, and no such securities rating agency shall have publicly
announced that it has under surveillance or review, with possible negative
implications, its rating of any of the Company's debt securities or preferred
stock.
(i) Delivery of Prospectuses. The Company shall have complied with the
provisions of Section 3(a)(iii) hereof with respect to the furnishing of
Prospectuses on the New York Business Day next succeeding the date of this
Agreement.
(j) Adequate Disclosure of Litigation. There is no litigation or
governmental or other action, suit, claim, proceeding or investigation before
any court or any public, regulatory or governmental agency or body, pending or,
to the best of the Company's knowledge, threatened against the Company or any of
its subsidiaries or any of their respective officers (in their capacity as
officers of the Company or such subsidiaries) or any of the properties, assets,
business or rights of the Company or such subsidiaries which is of a character
required to be disclosed in the Registration Statement and Prospectus which is
not disclosed therein.
-13-
<PAGE>
(k) Additional Documents. At the Closing Time: (i) the Company shall have
furnished to the Underwriters such further information, certificates and
documents as the Underwriters may reasonably request; (ii) counsel for the
Underwriters shall have been furnished with such documents and opinions as they
may require for the purpose of enabling them to pass upon the issuance and sale
of the Securities as herein contemplated, or in order to evidence the accuracy
of any of the representations or warranties, or the fulfillment of any of the
conditions, herein contained; and (iii) all proceedings taken by the Company in
connection with the issuance and sale of the Securities as herein contemplated
shall be satisfactory in form and substance to the Underwriters and counsel for
the Underwriters.
(l) Termination of Agreement. If any condition specified in this Section
shall not have been fulfilled when and as required to be fulfilled, this
Agreement may be terminated by the Underwriters by notice to the Company at any
time at or prior to the Closing Time, and such termination shall be without
liability of any party to any other party except as provided in Section 4 and
except that Sections 1, 6 and 7 shall survive any such termination and remain in
full force and effect.
SECTION 6. Indemnification.
(a) Indemnification of Underwriters. The Company agrees to indemnify and
hold harmless each Underwriter, the directors, officers, employees and agents of
each Underwriter and each person, if any, who controls any Underwriter within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act against
any and all losses, liabilities (joint or several), claims, damages and expenses
whatsoever, to which they or any of them may become subject under the 1933 Act,
the 1934 Act or other Federal or state statutory law or regulation, at common
law or otherwise, insofar as such losses, claims, damages or liabilities (or
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 registration
statement for the registration of the Securities as originally filed or in any
amendment thereof, or in any Preliminary Prospectus or Prospectus (or any
amendment or supplement thereto), or arise out of or are based upon the omission
or alleged omission therefrom of a material fact required to be stated therein
or necessary in order to make the statements therein not misleading, and agrees
to reimburse each such indemnified party, as incurred, for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information furnished to
the Company by or on behalf of any Underwriter through the Underwriters
specifically for inclusion therein. This indemnity agreement will be in addition
to any liability which the Company may otherwise have.
(b) Indemnification of Company, Directors and Officers. Each Underwriter
severally agrees to indemnify and hold harmless the Company, each of its
directors, each of its officers who sign the Registration Statement (including
any person who, with his or her consent, is named in the Registration Statement
as about to become a director of the Company) and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act or Section
20 of the 1934 Act against any and all losses, liabilities (joint or several),
claims, damages and expenses described in the indemnity contained in subsection
(a) of this Section, as incurred, but only with respect to written information
furnished to the Company by such Underwriter through Salomon Smith Barney
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
-14-
<PAGE>
reverse of the cover page and, under the heading "Underwriting", (i) the
sentences related to concessions and reallowances and (ii) the paragraph related
to stabilization in the Preliminary Prospectus, the Registration Statement or
the Prospectus constitute the only information furnished in writing by or on
behalf of the several Underwriters for inclusion in such Preliminary Prospectus,
Registration Statement or Prospectus.
(c) Actions against Parties; Notification. Each indemnified party shall
give written notice as promptly as reasonably practicable to each indemnifying
party of any action commenced against it in respect of which indemnity may be
sought hereunder, but failure to so notify an indemnifying party (i) will not
relieve it from liability under paragraph (a) or (b) above unless and to the
extent it did not otherwise learn of such action and such failure results in the
forfeiture by the indemnifying party of substantial rights and defenses and (ii)
will not, in any event, relieve the indemnifying party from any obligations to
any indemnified party other than the indemnification obligation provided in
paragraph (a) or (b) above. The indemnifying party shall be entitled to appoint
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 6 or Section 7 hereof (whether or not the indemnified parties are actual
or potential parties thereto), unless such settlement, compromise or consent (i)
includes an unconditional release of each indemnified party from all liability
arising out of such litigation, investigation, proceeding or claim and (ii) does
not include a statement as to or an admission of fault, culpability or a failure
to act by or on behalf of any indemnified party.
SECTION 7. Contribution. If the indemnification provided for in Section 6
hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
(including legal or other expenses reasonably incurred in connection with
investigating or defending same) incurred by such indemnified party, as
incurred, (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and the Underwriters on the
other hand from the offering of the Securities pursuant to this Agreement
(provided that in no case shall any Underwriter (except as may be provided in
any agreement among underwriters relating to the offering of the Securities) be
responsible for any amount in excess of the underwriting discount or commission
applicable to the Securities purchased by such Underwriter hereunder)
-15-
<PAGE>
or (ii) if the allocation provided by clause (i) is unavailable for any reason,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company on
the one hand and of the Underwriters on the other hand in connection with the
statements or omissions which resulted in such losses, liabilities, claims,
damages or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
Underwriters on the other hand in connection with the offering of the Securities
pursuant to this Agreement shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the Securities
pursuant to this Agreement (before deducting expenses) received by the Company
and the total underwriting discount received by the Underwriters, in each case
as set forth on the cover page of the Prospectus, bear to the aggregate initial
offering price of the Securities.
The relative fault of the Company on the one hand and the Underwriters on
the other hand shall be determined by reference to, among other things, whether
any such untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by the
Company or by the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 7.
Notwithstanding the provisions of this Section 7, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such Underwriter,
and each person, if any, who controls the Company within the meaning of
Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same
rights to contribution as the Company. The Underwriters' respective
obligations to contribute pursuant to this Section 7 are several in
proportion to the number of Securities set forth opposite their respective
names in Schedules A and B hereto and not joint.
SECTION 8. Representations, Warranties and Agreements to Survive Delivery.
All representations, warranties and agreements contained in this Agreement, or
in certificates of officers of the Company submitted pursuant hereto, shall
remain operative and in full force and effect, regardless of any investigation
made by or on behalf of any Underwriter or controlling person, or by or on
behalf of the Company, and shall survive delivery of the Securities to the
Underwriters.
-16-
<PAGE>
SECTION 9. Termination of Agreement.
(a) Termination; General. This Agreement shall be subject to termination
in the absolute discretion of the Underwriters, by notice given to the Company
prior to delivery of and payment for the Securities, if at any time prior to
such time (i) trading in the Company's Common Stock shall have been suspended by
the Commission or the NASDAQ or trading in securities generally on the New York
Stock Exchange or the NASDAQ shall have been suspended or limited or minimum
prices shall have been established on such Exchange or NASDAQ, (ii) a banking
moratorium shall have been declared either by Federal or New York State
authorities or (iii) there shall have occurred, subsequent to the signing
hereof, any outbreak or escalation of hostilities, declaration by the United
States of a national emergency or war or other calamity or crisis the effect of
which on financial markets is such as to make it, in the sole judgment of the
Underwriters, impractical or inadvisable to proceed with the offering or
delivery of the Securities as contemplated by the Prospectus (exclusive of any
supplement thereto).
(b) Liabilities. If this Agreement is terminated pursuant to this Section,
such termination shall be without liability of any party to any other party
except as provided in Section 4 hereof, and provided further that Sections 1, 6
and 7 shall survive such termination and remain in full force and effect.
SECTION 10. Default by One or More of the Underwriters. If any one or
more of the Underwriters shall fail to purchase and pay for any of the
Securities agreed to be purchased by such Underwriter or Underwriters
hereunder and such failure to purchase shall constitute a default in the
performance of its or their obligations under this Agreement, the remaining
Underwriters shall be obligated severally to take up and pay for (in the
respective proportions which the amount of Securities set forth opposite
their names in Schedules A and B hereto bears to the aggregate amount of
Securities set forth opposite the names of all the remaining Underwriters)
the Securities which the defaulting Underwriter or Underwriters agreed but
failed to purchase; provided, however, that in the event that the aggregate
amount of Securities which the defaulting Underwriter or Underwriters agreed
but failed to purchase shall exceed 10% of the aggregate amount of Securities
set forth in Schedules A and B hereto, the remaining Underwriters shall have
the right to purchase all, but shall not be under any obligation to purchase
any, of the Securities, and if such nondefaulting Underwriters do not
purchase all of the Securities, this Agreement will terminate without
liability to any nondefaulting Underwriter or the Company. In the event of a
default by any Underwriter as set forth in this Section 10, the Closing Time
shall be postponed for such period, not exceeding five Business Days, as the
Underwriters shall determine in order that the required changes in the
Registration Statement and the Prospectus or in any other documents or
arrangements may be effected. Nothing contained in this Agreement shall
relieve any defaulting Underwriter of its liability, if any, to the Company
and any nondefaulting Underwriter for damages occasioned by its default
hereunder.
SECTION 11. Reliance; Notices. In all dealings hereunder, the Underwriters
shall act on behalf of each of the Underwriters, and the parties hereto shall be
entitled to act and rely upon any statement, request, notice or agreement on
behalf of any Underwriter made or given by the Underwriters jointly or by
Salomon Brothers on their behalf.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to the Underwriters in care of Salomon Smith Barney
General Counsel (fax no. (212) 816-7071) and confirmed to Salomon Smith Barney,
388 Greenwich Street, 19th Floor, New York, New York 10013, Attention: General
Counsel; and if to the Company shall be delivered or sent by mail, telex or
facsimile transmission to the address of the
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<PAGE>
Company set forth in the Prospectus, Attention: General Counsel; provided,
however, that any notice to an Underwriter pursuant to Section 6(c) hereof shall
be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its Underwriters' Questionnaire, or
telex constituting such Questionnaire, which address will be supplied to the
Company by the Underwriters upon request. Any such statements, requests, notices
or agreements shall take effect upon receipt thereof.
SECTION 12. Parties. This Agreement shall inure to the benefit of and be
binding upon the Underwriters, the Company and their respective successors.
Nothing expressed or mentioned in this Agreement is intended or shall be
construed to give any person, firm or corporation, other than the Underwriters,
the Company and their respective successors and the controlling persons and
officers and directors referred to in Sections 6 and 7 and their heirs and legal
Underwriters, any legal or equitable right, remedy or claim under or in respect
of this Agreement or any provision herein contained. This Agreement and all
conditions and provisions hereof are intended to be for the sole and exclusive
benefit of the Underwriters, the Company and their respective successors, and
said controlling persons and officers and directors and their heirs and legal
Underwriters, and for the benefit of no other person, firm or corporation. No
purchaser of Securities from any Underwriter shall be deemed to be a successor
by reason merely of such purchase.
SECTION 13. Time of the Essence. Time shall be of the essence of this
Agreement. As used herein, the term "business day" shall mean any day when the
Commission's office in Washington, D.C. is open for business.
SECTION 14. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SPECIFIED
TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 15. Effect of Headings. The Section headings herein are for
convenience only and shall not affect the construction hereof.
SECTION 16. Counterparts. This Agreement may be executed by any one of
more of the parties hereto in any number of counterparts, each of which shall be
deemed to be an original, but all such counterparts shall together constitute
one and the same instrument.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, and upon
the acceptance hereof by Salomon Smith Barney, on behalf of each of the
Underwriters, this letter and such acceptance hereof shall constitute a binding
agreement between each of the Underwriters and the Company. It is understood
that your acceptance of this letter on behalf of each of the Underwriters is
pursuant to the authority set forth in a form of Agreement among
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<PAGE>
Underwriters, the form of which shall be submitted to the Company for
examination upon request, but without warranty on your part as to the authority
of the signers thereof.
Very truly yours,
NEXTLINK Communications, Inc.
By
-------------------------------------
Name: R. Bruce Easter, Jr.
Title: Vice President
CONFIRMED AND ACCEPTED,
as of the date first above written:
Salomon Smith Barney Inc.
Goldman, Sachs & Co.
Bear, Stearns & Co. Inc.
Credit Suisse First Boston Corporation
Chase Securities Inc.
By: Salomon Smith Barney Inc.
By
-----------------------------------------
Name:
Title:
For themselves and on behalf of the
other Underwriters named in Schedule A hereto.
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Aggregate
Aggregate Principal Amount
Principal Amount of Senior
of Senior Notes to be
Notes to be Purchased if Maximum
Underwriter Purchased Option Exercised
----------- ---------------- --------------------
<S> <C> <C>
Salomon Smith Barney Inc. ........................
Goldman, Sachs & Co. .............................
Bear, Stearns & Co. Inc. .........................
Credit Suisse First Boston Corporation ...........
Chase Securities Inc. ............................
Total ....................................
</TABLE>
Sch A - 1
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
Aggregate
Principal Amount
Aggregate of Senior Discount
Principal Amount Notes to be
of Senior Discount Purchased if
Notes to be Maximum Option
Underwriter Purchased Exercised
----------- ------------------ ------------------
<S> <C> <C>
Salomon Smith Barney Inc. ........................
Goldman, Sachs & Co. .............................
Bear, Stearns & Co. Inc. .........................
Credit Suisse First Boston Corporation ...........
Chase Securities Inc. ............................
Total ....................................
</TABLE>
Sch B - 1
<PAGE>
Exhibit A-1
FORM OF OPINION OF WILKIE FARR & GALLAGHER
TO BE DELIVERED PURSUANT TO SECTION 5(b)
(i) The Company has been duly incorporated and is validly existing as a
corporation under the laws of the State of Delaware.
(ii) The Company has power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectus and to
enter into and perform its obligations under the Underwriting Agreement.
(iii) The Company is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify or
to be in good standing would not result in a Material Adverse Effect.
(iv) The authorized, issued and outstanding capital stock of the Company
is as set forth in the Prospectus as of the dates indicated therein; the shares
of issued and outstanding capital stock of the Company have been duly authorized
and validly issued and are fully paid and non-assessable; and none of the
outstanding shares of capital stock of the Company was issued in violation of
the preemptive or other similar rights of any securityholder of the Company.
(v) Each Designated Subsidiary has been duly formed and is validly
existing as a corporation, limited liability company or limited partnership in
good standing, as applicable, under the laws of the jurisdiction of its
formation, and has power and authority to own, lease and operate its properties
and to conduct its business as described in the Prospectus; all of the issued
and outstanding shares, membership interests or partnership interests of each
Designated Subsidiary has been duly authorized and validly issued, is fully paid
and non-assessable and, except as otherwise set forth in the Prospectus in
respect of the minority interests described therein, is owned by the Company,
directly or through subsidiaries, free and clear of any security interest,
mortgage, pledge, lien, encumbrance, claim or equity.
(vi) The Underwriting Agreement has been duly authorized, executed and
delivered by the Company.
(vii) The Indentures have been duly authorized, executed and delivered;
and, assuming due execution by the Trustee, the Indentures constitute a valid
and legally binding obligation of the Company enforceable in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles.
(viii) The Securities have been duly authorized and executed by the
Company and authenticated, issued and delivered in accordance with the
Indentures and constitute valid and legally binding obligations of the Company
entitled to the benefits provided by the Indentures, subject, as to enforcement,
to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles. In rendering the opinion set forth in this
paragraph (viii), as to authentication we have relied solely on a certificate of
the Trustee as to the
A-1-1
<PAGE>
authentication of the Securities by a duly authorized representative of the
Trustee and have assumed that the Securities so authenticated have been
delivered to you and paid for by you in accordance with the Underwriting
Agreement. The Securities and the Indentures conform in all material respects to
the descriptions thereof in the Prospectus;
(ix) The information in the Prospectus under the caption "Description of
the Notes", to the extent that it constitutes a summary of the terms of the
Securities, and under the captions "Regulation" and "Underwriting", to the
extent that it constitutes matters of law, summaries of legal matters, or legal
conclusions, has been reviewed by us and is correct in all material respects.
(x) The statements set forth in the Prospectus under the caption "Certain
United States Federal Income Tax Consequences", insofar as such statements
purport to summarize certain United States federal income and estate tax
consequences of the ownership and dispensation of the Securities by certain U.S.
Holders and non-U.S. Holders (as such terms are defined therein) of the
Securities, provide a fair summary of such consequences under current law.
(xi) All descriptions in the Prospectus of contracts and other documents
to which the Company or any of its subsidiaries are a party are accurate in all
material respects; to the best of our knowledge, there are no franchises,
contracts, indentures, mortgages, loan agreements, notes, leases or other
instruments that would be required to be described in the Prospectus that are
not described or referred to in the Prospectus other than those described or
referred to therein and the descriptions thereof or references thereto are
correct in all material respects.
(xii) Neither the Company nor any of its subsidiaries is in violation of
its charter or by-laws or other constituting or operative document or agreement
and, to the best of our knowledge, no default by the Company or any of its
subsidiaries exists in the due performance or observance of any material
obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease or other agreement or
instrument that is described or referred to in the Prospectus.
(xiii) No filing with, or authorization, approval, consent, license,
order, registration, qualification or decree of, any court or governmental
authority or agency is necessary or required for the performance by the Company
of its obligations under the Underwriting Agreement or the Indentures, in
connection with the offering, issuance or sale of the Securities hereunder or
thereunder or the consummation of the actions contemplated by the Underwriting
Agreement or the Indentures, except such as have been obtained under the 1933
Act and the Trust Indenture Act, and such consents, approvals, authorizations,
registrations or qualifications as may be required under state securities or
Blue Sky laws in connection with the purchase and distribution of the Securities
by the Underwriters.
(xiv) The issue and sale of the Securities, the execution, delivery and
performance of the Underwriting Agreement, the Indentures and the Securities and
any other agreement or instrument entered into or issued or to be entered into
or issued by the Company in connection with the transactions contemplated
hereby, thereby or in the Prospectus, and the consummation of the transactions
contemplated herein, therein and in the Prospectus (including the issuance and
sale of the Securities by the Company hereunder), the compliance by the Company
with its obligations hereunder and thereunder have been duly authorized by all
necessary 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
A-1-2
<PAGE>
encumbrance upon any property or assets of the Company or any of its
subsidiaries, pursuant to any contract, indenture, mortgage, deed of trust, loan
or credit agreement, note, lease, or any other agreement or instrument known to
such counsel to which the Company or any of its subsidiaries is a party or by
which it or any of them may be bound, or to which any of the property or assets
of the Company or any subsidiaries thereof is subject, except for such
conflicts, breaches or defaults or liens, charges or encumbrances that, singly
or in the aggregate, would not result in a Material Adverse Effect, nor will
such action result in any violation of the provisions of the constituting or
operative document or agreement of the Company or any of its subsidiaries or any
applicable law, statute, rule, regulation, judgment, order, writ or decree of
any government, government instrumentality or court, domestic or foreign, having
jurisdiction over the Company or any of its subsidiaries or any of their assets
or properties.
(xv) The Company is not, and upon the issuance and sale of the Securities
and the application of the net proceeds therefrom will not be, an "investment
company" or an entity "controlled" by an "investment company," as such terms are
defined in the 1940 Act.
(xvi) The Registration Statement and the Prospectus and any further
amendments and supplements thereto made by the Company prior to each Closing
Time (other than the financial statements and related schedules therein, as to
which such counsel need express no opinion) comply as to form in all material
respects with the requirements of the 1933 Act and the rules and regulations
thereunder; although they do not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement or the Prospectus, except for those referred to in subsection (ix) of
this opinion, they have no reason to believe that, as of its effective date, the
Registration Statement or any further amendment thereto made by the Company
prior to such Closing Time (other than the financial statements and related
schedules therein, as to which such counsel need express no opinion) contained
an untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading or that, as if its date, the Prospectus or any further amendment or
supplement thereto made by the Company prior to such Closing Time (other than
the financial statements and related schedules therein, as to which such counsel
need express no opinion) contained an untrue statement of a material fact or
omitted to state a material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading or that,
as of such Closing Time, either the Registration Statement or the Prospectus or
any further amendment or supplement thereto made by the Company prior to such
Closing Time (other than the financial statements and related schedules therein,
as to which such counsel need express no opinion) contains an untrue statement
of a material fact or omits to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; and they do not know of any amendment to the Registration
Statement required to be filed or of any contracts or other documents of a
character required to be filed as an exhibit to the Registration Statement or
required to be described in the Registration Statement or the Prospectus which
are not filed or described as required.
In rendering such opinion, such counsel (A) may rely 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-1-3
<PAGE>
Exhibit A-2
FORM OF OPINION OF R. BRUCE EASTER, ESQ.
TO BE DELIVERED PURSUANT TO SECTION 5(b)
(i) There is not pending or, to the best of my knowledge, threatened any
action, suit, proceeding, inquiry or investigation, to which the Company or any
subsidiary thereof is a party, or to which the property of the Company or any
subsidiary thereof is subject, before or brought by any court or governmental
agency or body, which could reasonably be expected to result in a Material
Adverse Effect, or which might reasonably be expected to materially and
adversely affect the properties or assets thereof or the consummation of the
transactions contemplated in the Underwriting Agreement, the Indentures or the
Securities or the performance by the Company of its obligations thereunder or
the transactions contemplated by the Prospectus.
(ii) To the best of my knowledge and except as set forth in or
contemplated by the Prospectus with respect to systems under development, (a)
each of the Company and its Designated Subsidiaries has all Authorizations of
and from, and has made all declarations and filings with, all Federal, state,
local and other governmental authorities, all self-regulatory organizations and
all courts and other tribunals, which are necessary or appropriate for the
Company and its Designated Subsidiaries to own, lease, license, use and
construct its properties and assets and to conduct its business in the manner
described in the Prospectus, except to the extent that the failure to obtain any
such Authorizations or make any such declaration or filing would not, singly or
in the aggregate, reasonably be expected to result in a Material Adverse Effect,
(b) all such Authorizations are in full force and effect with respect to the
Company and its Designated Subsidiaries, (c) no event has occurred that permits,
or after notice or lapse of time could permit, the revocation, termination or
modification of any such Authorization and (d) the Company and its Designated
Subsidiaries are in compliance in all material respects with the terms and
conditions of all such Authorizations and with the rules and regulations of the
regulatory authorities and governing bodies having jurisdiction with respect
thereto.
(iii) To the best of my knowledge, neither the execution and delivery of
the Underwriting Agreement, the Indentures 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 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 5.1
Willkie Farr & Gallagher
787 Seventh Avenue
New York, NY 10019
May 21, 1999
NEXTLINK Communications, Inc.
500 108th Avenue N.E., Suite 2200
Bellvue, WA 98004
Re: NEXTLINK Communications, Inc.
Senior Notes due 2009 and
Senior Discount Notes due 2009
------------------------------
Ladies and Gentlemen:
We have acted as counsel for NEXTLINK Communications, Inc., a
Delaware corporation (the "Company"), in connection with the filing by the
Company with the Securities and Exchange Commission (the "Commission") of a
registration statement (as amended by Amendment No. 2 on May 25, 1999, the
"Registration Statement") on Form S-3 under the Securities Act of 1933, as
amended, relating to the proposed issuance by the Company of its Senior Notes
due 2009 (the "Senior Notes") and its Senior Discount Notes due 2009 (the
"Senior Discount Notes" and together with the Senior Notes, the "Securities").
The Senior Notes and the Senior Discount Notes will be issued pursuant
to two indentures between the Company and the United States Trust Company, as
trustee (respectively, the "Senior Notes Indenture" and the "Senior Discount
Notes Indenture"), each of which will be filed as an exhibit to the Registration
Statement. Capitalized terms used herein and not otherwise defined herein have
the meanings ascribed thereto in the Senior Notes Indenture and the Senior
Discount Notes Indenture.
In connection with this opinion, we have examined and relied upon such
records, documents, certificates and other instruments as in our judgment are
necessary or appropriate to form the basis for the opinions set forth herein. In
our examinations, we have assumed the genuineness of all signatures, the legal
capacity of natural persons signing or delivering any instrument, the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as certified or photostatic
copies and the authenticity of the originals of such latter documents.
<PAGE>
Based on the foregoing, we are of the opinion that the Senior Notes and
the Senior Discount Notes, when duly issued, authenticated and delivered in
accordance with the provisions of the Senior Notes Indenture and the Senior
Discount Notes Indenture, respectively, will constitute valid and binding
obligations of the Company.
We do not express any opinion with respect to matters governed by any
laws other than the laws of the State of New York and the federal laws of the
United States of America.
We know that we may be referred to as counsel who has passed upon the
validity of the issuance of the Securities on behalf of the Company in the
Registration Statement filed with the Commission, and we hereby consent to such
use of our name in said Registration Statement and to the filing of this opinion
with said Registration Statement as Exhibit 5.1 thereto.
Very truly yours,
/s/ Willkie Farr & Gallagher
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement on Form S-3 filed by NEXTLINK Communications, Inc.
/s/ Arthur Andersen LLP
Seattle, Washington,
May 24, 1999,
