<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 8, 1999
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
NEXTLINK COMMUNICATIONS, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 4813 91-1738221
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
Incorporation or Organization) No.)
</TABLE>
------------------------
500 108TH AVENUE N.E., SUITE 2200, BELLEVUE, WASHINGTON 98004, (425) 519-8900
(Address, including ZIP code, and telephone number, including area code, of
the Registrant's principal executive offices)
------------------------
R. BRUCE EASTER JR., ESQ.
500 108TH AVENUE N.E., SUITE 2200
BELLEVUE, WASHINGTON 98004
(425) 519-8900
(Name, address, including ZIP code, and telephone number, including area code,
of agent for service)
------------------------
COPY TO:
<TABLE>
<S> <C>
BRUCE R. KRAUS, ESQ. STEPHEN O. MEREDITH, ESQ.
WILLKIE FARR & GALLAGHER NICHOLAS S. HODGE, ESQ.
787 SEVENTH AVENUE EDWARDS & ANGELL, LLP
NEW YORK, NEW YORK 10019 101 FEDERAL STREET
(212) 728-8000 BOSTON, MA 02110
(617) 439-4444
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED OFFER TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO PER SHARE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED OFFERING PRICE(1) OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Class A Common Stock,
par value $.02 per share................. 6,656,600 $58.6875 $390,659,213 $115,245
</TABLE>
(1) The fee was calculated pursuant to Rule 457(c) under the Securities Act of
1933 and was based on the average of the high and low prices for the Class A
Common Stock on The Nasdaq National Market on April 6, 1999.
------------------------
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>
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>
Subject to Completion, April 8, 1999
NEXTLINK COMMUNICATIONS, INC.
SHARES OF CLASS A COMMON STOCK
On January 14, 1999, NEXTLINK agreed to acquire WNP Communications, Inc. by
means of a merger. We have the right to pay a majority of the merger
consideration due to WNP stockholders in shares of NEXTLINK Class A common
stock, and are delivering this prospectus in connection with that stock
issuance.
The merger agreement requires us to pay merger consideration in cash and
stock valued at $695,000,000, less the amount due to the FCC in connection with
the merger, subject to further adjustments based on WNP's balance sheet at
closing. The amount due to the FCC will be $157,048,884, plus interest from
March 30, 1999 through the closing date, calculated in accordance with the FCC's
rules. Subject to the balance sheet adjustments, we will pay $186,868,132 of the
merger consideration in cash, and the remainder in common stock.
We are not asking you for a proxy, since the necessary majority of WNP
stockholders has already approved the merger.
Shares of our Class A common stock are listed on The Nasdaq National Market
under the symbol "NXLK." On April 7, 1999, the last reported sale price on The
Nasdaq National Market was $61.50 per share. We have applied to list the shares
of Class A common stock being issued under this prospectus on The Nasdaq
National Market.
SEE "RISK FACTORS" ON PAGES 11 TO 16 FOR RISKS RELATING TO OUR BUSINESS THAT
YOU SHOULD BE AWARE OF.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY........................................................................ 1
SELECTED FINANCIAL DATA OF NEXTLINK COMMUNICATIONS, INC........................ 4
SELECTED FINANCIAL DATA OF WNP COMMUNICATIONS, INC............................. 5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF 6
OPERATIONS FOR WNP COMMUNICATIONS, INC.......................................
MARKET PRICES AND DIVIDENDS.................................................... 10
RISK FACTORS................................................................... 11
WHERE YOU CAN FIND MORE INFORMATION............................................ 16
THE PARTIES TO THE MERGER...................................................... 17
THE MERGER..................................................................... 21
Background and Reasons for the Merger.......................................... 21
Approval of the Merger......................................................... 21
Interests of Certain Persons in the Merger..................................... 21
Federal Income Tax Consequences................................................ 22
Regulatory Approvals........................................................... 23
Accounting Treatment........................................................... 23
Comparison of Stockholder Rights............................................... 23
Federal Securities Law Consequences............................................ 24
No Appraisal Rights............................................................ 24
THE MERGER AGREEMENT........................................................... 25
Consummation of the Merger..................................................... 25
The Merger Consideration....................................................... 25
Stockholder cash election; rights of preferred stockholders.................... 26
Registration Rights Agreement.................................................. 26
Representations and Warranties................................................. 27
Covenants...................................................................... 28
No Solicitation of Transactions................................................ 28
Conditions to the Merger....................................................... 29
Termination.................................................................... 30
Stockholder Indemnity for Breaches of the Merger Agreement..................... 30
Amendment and Waiver........................................................... 31
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF WNP 32
COMMUNICATIONS, INC..........................................................
WNP EXECUTIVE COMPENSATION..................................................... 42
LEGAL MATTERS.................................................................. 43
EXPERTS........................................................................ 43
INDEX TO FINANCIAL STATEMENTS FOR WNP COMMUNICATIONS, INC...................... F-1
</TABLE>
<PAGE>
<TABLE>
<S> <C>
FORM OF MERGER AGREEMENT....................................................... ANNEX A
FORM OF REGISTRATION RIGHTS AGREEMENT.......................................... ANNEX B
FORM OF CONSENT AND INDEMNITY AGREEMENT OF STOCKHOLDERS........................ ANNEX C
FORM OF CONSENT AND INDEMNITY AGREEMENT OF PREFERRED STOCKHOLDERS.............. ANNEX D
</TABLE>
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND MAY NOT
CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. FOR A MORE COMPLETE
DESCRIPTION OF THE TERMS OF THE MERGER, YOU SHOULD READ CAREFULLY THIS ENTIRE
DOCUMENT AND THE DOCUMENTS TO WHICH WE HAVE REFERRED YOU. SEE "WHERE YOU CAN
FIND MORE INFORMATION."
THE PARTIES
NEXTLINK provides high-quality local and long distance telecommunications
and data services to small and medium-sized businesses in 38 U.S. cities.
NEXTLINK offers its customers these services at competitive prices individually
or as an integrated package of services. NEXTLINK currently operates 23 fiber
optic networks in 14 states. NEXTLINK is developing plans to link its local
networks to one another through the use of a national long distance network
currently being constructed by Level 3 Communications. Following consummation of
the WNP merger, NEXTLINK will be the nation's largest holder of high-frequency
radio spectrum known as local multipoint distribution service, or LMDS,
spectrum, which it intends to use to expand the reach of its fiber optic cable
networks.
WNP was formed in early 1998 to raise capital and bid for licenses in the
FCC's auctions of LMDS spectrum. As a result of its successful bidding, WNP is
the owner of the largest amount of LMDS spectrum in the United States, with
licenses covering approximately 114 million people in 40 markets in the United
States. LMDS spectrum can be used for a variety of telecommunications
applications, including high-speed internet service, telephone service and video
teleconferencing.
SUMMARY OF THE TRANSACTION
NEXTLINK and WNP entered into the merger agreement on January 14, 1999. The
merger agreement provides for the merger of WNP with and into a newly formed
subsidiary of NEXTLINK. As a result of the merger, WNP will merge into
NEXTLINK's special purpose subsidiary, which will survive the merger. The merger
will convert WNP shares into the right to receive NEXTLINK Class A common stock
and cash, as described more fully below, and result in WNP becoming a
wholly-owned subsidiary of NEXTLINK.
THE MERGER AGREEMENT IS ATTACHED AS ANNEX A TO THIS PROSPECTUS. WE ENCOURAGE
YOU TO READ THE MERGER AGREEMENT AS IT IS THE LEGAL DOCUMENT THAT GOVERNS THE
MERGER.
THE MERGER CONSIDERATION
NEXTLINK will pay total merger consideration in cash and stock valued at
$695,000,000, less the amount due to the FCC in connection with the merger,
subject to further adjustments based on WNP's balance sheet at closing. The
amount due to the FCC will be $157,048,884, plus interest from March 30, 1999
through the closing date, calculated in accordance with the FCC's rules.
Subject to the balance sheet adjustments, we will pay $186,868,132 of the
merger consideration in cash, and currently intend to pay the remainder in Class
A common stock of NEXTLINK valued at its average trading price for the 20 days
preceding the closing date. The balance sheet adjustments take into account the
amount of WNP's assets and liabilities as of the closing date.
STOCKHOLDER CASH ELECTION; RIGHTS OF PREFERRED STOCKHOLDERS
WNP has three classes of capital stock outstanding: preferred stock,
nonvoting common stock and voting common stock. Preferred stockholders will have
the right to receive a total liquidation preference equal to $192,020,997, plus
accrued and unpaid dividends. WNP will try to ascertain whether each of its
stockholders would prefer to receive cash or stock in the merger and will try to
accommodate their preferences.
<PAGE>
Holders of preferred stock wishing to receive cash will receive cash to the
extent available, and any remainder in common stock. If there is cash remaining
after we have paid all of the preferred stock holders that wish to receive cash,
then a representative of the stockholders will allocate the remaining cash among
the holders of the nonvoting and voting common stock that wish to receive cash,
accommodating their expressed preferences to the greatest possible extent.
INCOME TAX
We will receive an opinion of counsel that the merger will be treated as a
tax-free reorganization under the Internal Revenue Code (unless NEXTLINK
exercises its right to pay all of the merger consideration in cash) and
therefore neither NEXTLINK, its merger subsidiary, nor WNP will recognize any
gain or loss in the merger. You will not recognize gain or loss for federal
income tax purposes as a result of the exchange of WNP stock solely for NEXTLINK
Class A common stock. You will, however, generally have to pay federal income
tax on any gain arising from receipt of cash for your WNP stock, but only to the
extent of cash received. We urge you to contact your own tax advisor to
understand fully how the merger will affect you.
CONSENT AND INDEMNITY AGREEMENTS
Holders of a majority of the outstanding WNP voting and nonvoting common
stock and preferred stock have executed consent and indemnity agreements that
included a written consent in lieu of a stockholders meeting approving the
merger. We have attached copies of each of these agreements as Annexes C and D.
These agreements also confer rights under a registration rights agreement,
attached as Annex B, and contain provisions for WNP stockholder indemnification
of NEXTLINK, and the appointment and indemnification of the WNP stockholders'
representative.
Each holder of WNP common stock and preferred stock will have the
opportunity to become a party to the Consent and Indemnity Agreement prior to
the consummation of the merger. Upon becoming a party to such agreement, each
holder of WNP common stock and preferred stock will receive its portion of the
merger consideration upon the consummation of the merger, and it will be
responsible for a pro rata share of indemnification obligations under the merger
agreement. Each holder of WNP common stock and preferred stock who becomes a
party to such an agreement will also be entitled to the benefits and subject to
the obligations of the registration rights agreement, including the right to
participate in certain underwritten offerings and the obligation, if requested
by the managing underwriter, to refrain from selling or short selling shares of
NEXTLINK stock for certain periods before and for up to 180 days after an
underwritten offering.
If any holder of WNP common stock and preferred stock does not sign the
Consent and Indemnity Agreement, such holder's entire portion of the merger
consideration will be held in escrow as security for indemnification obligations
to NEXTLINK under the merger agreement until the later of (1) the first
anniversary of the closing date and (2) the date on which there are no pending
disputes with respect to claimed losses.
NO FAIRNESS OPINION
No fairness opinion has been or will be issued in connection with the
merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Other than their ownership of WNP's nonvoting common stock, voting common
stock and Series A preferred stock, the executive officers and members of the
WNP's board of directors do not have any additional interests in the merger.
2
<PAGE>
CONDITIONS TO THE MERGER
The parties' obligations to close the merger are subject to the satisfaction
or waiver of conditions, including:
- obtaining necessary governmental approvals;
- the representations of the parties in the merger agreement being
materially accurate, and all covenants materially performed;
- no law or court order being in effect that would make completion of the
merger illegal.
The merger agreement contains other conditions as well. As of the date that
the registration statement, assuming this prospectus becomes effective, all
government approval and regulatory conditions to the merger will have been
satisfied or waived.
TERMINATION OF THE MERGER AGREEMENT
WNP and NEXTLINK can mutually agree to terminate the merger agreement at any
time before it is completed. In addition, WNP and NEXTLINK would have the right
to terminate the merger agreement before it is completed if:
- the closing has not occurred on or before January 14, 2000 or has been
permanently and finally enjoined;
- the FCC demands a payment in connection with the merger in excess of the
amount the parties anticipate, unless the party not seeking termination
agrees to bear the excess cost;
- there are uncured breaches by the other party of its obligations under the
merger agreement or there is a material adverse change in WNP's business
or financial condition; or
- at the time all government approvals for the transaction have been
obtained (including the effectiveness of the registration statement that
includes this prospectus) all other closing conditions have not been
satisfied.
NO APPRAISAL RIGHTS
WNP notified those of its stockholders who did not sign a Consent and
Indemnity Agreement of their appraisal rights under Delaware law, but none of
them elected to exercise those rights before the statutory deadline. As a
result, no WNP stockholders are entitled to appraisal rights in connection with
the merger.
SHARE MARKET PRICE INFORMATION
NEXTLINK's Class A common stock is listed on the Nasdaq National Market
under the symbol "NXLK." On January 13, 1999, the last full trading day prior to
the announcement of the signing of the merger agreement, the reported closing
sales price for a share of Class A common stock on the Nasdaq National Market
was $31.25. On April 7, 1999, the most recent practicable date prior to the
printing of this prospectus, the reported closing sales price for a share of
Class A common stock on the Nasdaq National Market was $61.50.
RISKS ASSOCIATED WITH HOLDING CLASS A COMMON SHARES
You should read the "Risk Factors" section of this prospectus as well as the
other cautionary statements throughout this prospectus to learn about the risks
associated with holding NEXTLINK common stock.
3
<PAGE>
SELECTED FINANCIAL DATA OF NEXTLINK COMMUNICATIONS, INC.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
----------- ---------- ---------- --------- ---------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.................................................. $ 139,667 $ 57,579 $ 25,686 $ 7,552 $ --
Loss from operations..................................... (206,184) (102,621) (51,015) (12,462) (352)
Net loss................................................. (278,340) (129,004) (71,101) (12,731) (349)
Net loss applicable to common shares..................... (337,113) (168,324) (71,101) (12,731) (349)
Net loss per share....................................... (6.26) (3.91) (1.81) -- --
OTHER DATA:
EBITDA(1)................................................ $ (140,937) $ (72,184) $ (30,761) $ (8,629) $ (338)
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
------------ ---------- ---------- --------- -----
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities.......... $ 1,478,062 $ 742,357 $ 124,520 $ 1,350 $ 25
Property and equipment, net............................... 594,408 253,653 97,784 29,664 134
Total assets.............................................. 2,483,106 1,219,978 390,683 53,461 690
Long-term debt............................................ 2,013,192 750,000 350,000 -- --
Redeemable preferred stock, net of issuance costs......... 556,168 313,319 -- -- --
Total shareholders' equity (deficit)...................... (246,463) 71,285 (18,654) 36,719 673
</TABLE>
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(1) EBITDA represents net loss before interest expense, interest income,
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 ability to meet future debt service, capital
expenditure and working capital requirements.
Had the merger with WNP occurred on January 1, 1998, NEXTLINK would have
reported a net loss of $295.9 million, a net loss applicable to common shares of
$354.6 million, and a net loss per share of $ , for the year ended
December 31, 1998. This information is for informational purposes only and does
not indicate what would have occurred if the merger had taken place on January
1, 1998, or the future results of the combined companies.
4
<PAGE>
SELECTED FINANCIAL DATA OF WNP COMMUNICATIONS, INC.
The selected financial data presented below as of December 31, 1998 and for
the period from January 8, 1998 to December 31, 1998, have been derived from the
financial statements of WNP. Please read this information together with the
Financial Statements and the Notes thereto and Management's Discussion and
Analysis of Financial Condition and Results of Operations for WNP
Communications, Inc. appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 8, 1998
TO
DECEMBER 31, 1998
-----------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues....................................................................................... $ --
Income from continuing operations.............................................................. --
Selling, general and administrative expenses................................................... 2,338,646
Interest income................................................................................ 2,014,360
-----------------
Net loss....................................................................................... $ (324,286)
-----------------
-----------------
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
1998
----------------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................................................. $ 4,542,828
Working capital........................................................................... 4,258,090
Licenses.................................................................................. 187,212,568
Total assets.............................................................................. 191,914,495
Redeemable capital stock.................................................................. 407,876,732
Total stockholders' deficit............................................................... $ (216,319,169)
</TABLE>
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR WNP COMMUNICATIONS, INC.
OVERVIEW
WNP was incorporated in January of 1998 with the objective of providing
communications services. A major initial element of the corporate plan was to
obtain licenses from the FCC providing local multipoint distribution service,
which would enable WNP to provide short-distance high speed digital
communications links using microwave-frequency radio equipment. These wireless
communication links would be interconnected with fiber optic cable facilities,
switching equipment, and public networks to enable WNP to offer a wide range of
communication services.
During February and March, 1998, the FCC conducted a multiple-round auction
of local multipoint distribution service licenses. WNP was the high bidder on
forty licenses, which were granted by the FCC to WNP in October, 1998 at a price
of $186,868,132, which WNP has paid in full.
WNP's business strategy is to become a provider of data voice and video
communications services, with an emphasis on high speed data communications. In
furtherance of this strategy, WNP has completed the initial steps of attracting
substantial investment, winning, receiving and paying for local multipoint
distribution service licenses and assembling a core planning team of
communications professionals. At present, WNP has not introduced any services to
the public and had not planned to initiate services until approximately January
2000. Pending the completion of the contemplated merger with NEXTLINK, WNP has
suspended planning for the deployment of its network and the planned
introduction of services. Upon completion of the contemplated merger with
NEXTLINK, WNP expects its plans to be superseded by those of NEXTLINK.
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
JANUARY 8, 1998 THROUGH DECEMBER 31, 1998
The results discussed below include the operations of WNP from January 8,
1998 (date of inception) to December 31, 1998. WNP's activities to date have
been primarily related to participation in the auction process and planning for
network deployment and introduction of services. WNP generated no service
revenues in 1998, and incurred approximately $2,338,000 in selling, general and
administrative expenses related to the above activities. Interest income of
approximately $2,014,000 partially offset selling, general and administrative
expenses, resulting in a net loss of approximately $324,000. WNP did not expect
to generate service revenues until approximately the first quarter of 2000, and
will likely not have such high levels of interest income in 1999. As a result of
these factors and to the extent that WNP resumes its planning and deployment of
its network during 1999, WNP anticipates significant operating losses and
negative cash flows from operations in 1999. See "Liquidity and Capital
Resources" for discussion of the expected source of cash to fund these
activities.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1998, the Company's principal sources of liquidity were
cash and cash equivalents of approximately $4,543,000, which were invested in
demand deposits and money market accounts. WNP completed two rounds of equity
financing in 1998, raising approximately $101,000,000 in January, 1998 and
approximately $91,000,000 in October, 1998, for total cash flows provided by
financing activities of approximately $192,000,000. WNP paid approximately
$187,213,000, including direct acquisition costs of approximately $344,000, for
licenses purchased from the FCC and invested approximately $106,000 in property
and equipment.
WNP believes that if it resumes its planning and deployment of its network
to provide communications services to customers, it would need to raise
substantial additional capital from sources such as vendor financing, private
debt and equity markets and public debt and equity markets. There is no
6
<PAGE>
guarantee that such capital would be available. WNP is expecting to incur
significant operating losses and negative cash flows from operations for the
foreseeable future.
YEAR 2000 READINESS
AN INTRODUCTION TO THE YEAR 2000 PROBLEM
WNP's planned operations will be highly dependent upon advanced computer
systems and specialized software. These systems include switching and network
operations, billing and customer care, accounting and reporting and Internet
operating systems, as well as a wide assortment of personal computer
productivity software.
In the event WNP purchases equipment before January 1, 2000, WNP will test
its switching, network and major information technologies. This testing will
address a major issue facing all users of automated information systems. The
issue is that many computer systems that process date sensitive information
based on two digits representing the year of the event may recognize a date
using "00" as the year 1900 rather than the Year 2000. The inability to
correctly recognize "00" as the Year 2000 could affect a wide variety of
automated information systems, such as mainframe applications, invoicing and
receivables tracking systems, event scheduling systems, personal computers and
telecommunication systems, in the form of software failure, errors or
miscalculations.
The discussion below describes WNP's intended efforts to address this
problem should it purchase equipment or initiate services before January 1,
2000. This Year 2000 readiness disclosure is based upon and partially repeats
information provided by WNP's outside consultants, vendors and others regarding
the Year 2000 readiness of WNP and its intended customers, vendors and other
parties. Although WNP believes this information to be accurate, it has not in
each case independently verified such information.
This Year 2000 readiness disclosure is a "forward-looking statement" within
the meaning of the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Costs, results, performance and effects of Year 2000
activities described in those forward-looking statements may differ materially
from actual costs, results, performance and effects in the future due to the
interrelationship and interdependence of WNP's computer systems and those of its
vendors, material service providers, customers and other third parties. Readers
are cautioned not to place undue reliance on the following forward-looking
statements. Furthermore, WNP undertakes no obligation to update, amend or
clarify these forward-looking statements, whether as a result of new
information, future events or otherwise.
YEAR 2000 READINESS PROGRAM
If WNP purchases equipment or otherwise initiates operations prior to
January 1, 2000, it is difficult to predict with certainty what will happen to
WNP's operations when the Year 2000 date is triggered. Given the complexity of
the specialized software to be used by WNP, there can be no assurance that
unanticipated operating problems will not occur in WNP's systems. Further, like
all telecommunications companies, WNP will rely on the continuing operations of
other telecommunications companies to provide worldwide communications services.
WNP must be concerned not only with its own internal systems, but also with the
inter-related systems of many other companies over which it exercises no
control. Given these circumstances, WNP believes that it is likely that some of
its services will be adversely affected by this problem, although the extent and
impact of these service disruptions are virtually impossible to estimate at this
time.
If WNP acquires equipment or initiates operations prior to January 1, 2000,
WNP will review its information technology and non-information technology
computer systems to determine which are not capable of recognizing the Year 2000
and to verify system readiness for the millennium date. The review will cover
all material operations and will be centrally managed.
7
<PAGE>
A component of assessing WNP's Year 2000 readiness includes an assessment
and survey of Year 2000 readiness of key business partners because WNP's network
will rely significantly on the provisioning and switching capabilities of the
other competitive local exchange carriers in those markets in which WNP will
provide services. In the event WNP initiates operations before January 1, 2000,
there can be no assurance that the systems of the carriers will become Year 2000
compliant before January 1, 2000.
YEAR 2000 READINESS COSTS
To date, WNP's primary costs for its Year 2000 compliance program are
employee costs associated with WNP's internal management information systems
employees and other personnel, which WNP expenses as part of its General and
Administrative Expense. Such costs to date have not been material. WNP currently
estimates that most of the total cost to make WNP's internal systems Year 2000
ready will be expensed by WNP as the costs are incurred. The estimated cost of
WNP's Year 2000 readiness program, based on the expected extent to which WNP
will acquire equipment and initiate operations prior to January 1, 2000, is
$25,000.
CONTINGENCY PLANS
WNP believes that the design of its proposed network and support systems
would provide WNP with several operating contingencies in the event material
external systems fail. WNP's designed network operating facilities and systems
will be backed up with auxiliary power generators that WNP believes are capable
of operating all equipment and systems for indeterminate periods should power
supplies fail. Some ancillary systems will be backed up by emergency battery
systems. Because of the inability of WNP's contingency plans to eliminate the
negative impact that disruptions in other carriers' services would create, there
can be no assurance that WNP will not experience disruptions in its services.
WNP believes that with modifications to new software, the Year 2000 issue
will not pose material, unremediable operational problems for its internal
systems. However, given the current uncertainty about the possible extent of the
Year 2000 problem, WNP cannot provide assurance that these efforts will be
successful or that the remediation costs will not be materially different from
WNP's current estimates. At worst case, failure by WNP or by its interconnected
service providers or software vendors to remediate Year 2000 readiness issues
could result in the disruption of WNP's operations, possibly affecting operation
of the network and WNP's ability to bill or collect revenues. A prolonged
network outage could have a material adverse effect on WNP's results of
operations, cash flows, and could possibly affect its ability to service its
indebtedness.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which should not be material to WNP's accounting since
WNP does not currently hold any derivative instruments or engage in hedging
activities.
This pronouncement establishes accounting and reporting standards requiring
that every derivative instrument, including derivative instruments embedded in
other contracts, be recorded in the balance sheet as either an asset or
liability measured at its fair value. This pronouncement requires that changes
in the derivative's fair value be recognized currently in earnings unless
specific hedge accounting criteria are met. Special accounting for qualifying
hedges allows a derivative's gains and losses to offset related results on the
hedged item in the income statement, and requires that a company must
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formally document, designate, and assess the effectiveness of transactions that
receive hedge accounting.
This pronouncement is effective for fiscal years beginning after June 15,
1999. A company may also implement this pronouncement as of the beginning of any
fiscal quarter after issuance for fiscal quarters beginning June 16, 1998 and
thereafter. This pronouncement cannot be applied retroactively. This
pronouncement must be applied to (a) derivative instruments, and (b) derivative
instruments embedded in hybrid contracts that were issued, acquired, or
substantively modified after December 31, 1997 and, at a company's election,
before January 1, 1998.
No other recently issued accounting pronouncements are expected to have a
significant effect on future financial statements.
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MARKET PRICES AND DIVIDENDS
NEXTLINK
NEXTLINK's Class A Common Stock began trading on the Nasdaq National Market
on September 26, 1997, under the symbol "NXLK". Prior to that date, NEXTLINK's
Class A Common Stock was not publicly traded. The following table shows, for the
periods indicated, the high and low bid prices for NEXTLINK's Class A Common
Stock as reported by the Nasdaq National Market tier of The Nasdaq Stock Market.
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
HIGH LOW HIGH LOW HIGH LOW
--------- --------- --------- --------- --------- ---------
First Quarter................................................... $ 64.63 $ 25.50 $ 36.25 $ 21.19 -- --
Second Quarter (through April 7, 1999).......................... $ 62.94 $ 57.38 $ 38.25 $ 24.89 -- --
Third Quarter (since September 26, 1997)........................ -- -- $ 40.75 $ 20.75 $ 25.50 $ 22.50
Fourth Quarter.................................................. -- -- $ 33.50 $ 11.05 $ 27.86 $ 19.62
</TABLE>
WNP
The shares of WNP's nonvoting common stock, voting common stock and Series A
preferred stock are not publicly traded.
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RISK FACTORS
The Class A common shares being acquired by you in the merger entail the
following risks:
WE HAVE SUBSTANTIAL EXISTING DEBT AND WILL INCUR SUBSTANTIAL ADDITIONAL DEBT,
WHICH COULD DEPRIVE COMMON STOCKHOLDERS OF VALUE AND CONTROL
As of December 31, 1998, NEXTLINK had outstanding five issues of senior
notes totaling $2,013.2 million in principal amount and approximately $91.9
million in miscellaneous debt obligations of its subsidiaries. Because we have
these substantial obligations, we may be unable to pay interest or principal on
any or all of these outstanding notes, which could result in a work-out or
bankruptcy that would dilute or eliminate the ownership interests of our common
stockholders.
For the year ended December 31, 1998, we had a net loss of $278.3 million
and negative cash flow from operations of $174.5 million. Consequently, we do
not currently generate positive cash flows from which we can make payments on
our outstanding notes. If we fail to pay principal and interest on our notes
when due, the noteholders could declare a default and demand that we repay the
entire amount of defaulted notes. Unless we were able to find alternative
financing to pay the entire amount, the noteholders could seek a judgment and
attempt to seize our assets to satisfy the debt to them. Any action of this type
would have a serious adverse affect on our business and on the market price of
the Class A common stock.
Our indentures permit us to incur substantial additional debt, and we fully
expect to borrow substantial additional funds during the next few 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 this indebtedness. We cannot assure you that we will ever establish an
adequate revenue base to produce an operating profit or generate adequate cash
flow to provide future capital expenditures and repayment of debt.
IF WE ARE NOT SUCCESSFUL IN RAISING ADDITIONAL CAPITAL, WE WILL NOT BE ABLE TO
BUILD AND MAINTAIN OUR NETWORKS
Because our anticipated future capital requirements will exceed the $1,478.1
million in cash and marketable securities we had on hand as of December 31,
1998, 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 generate profits for stockholders, and could even result in a
payment default on our existing debt.
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, fiber optic cables, electronics, and wireless transmitters
and receivers 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 the INTERNEXT 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 would delay implementation of our strategy of linking
our local networks to one another.
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WE MAY NOT BE ABLE TO CONNECT OUR NETWORK TO THE INCUMBENT CARRIER'S NETWORK ON
FAVORABLE TERMS
We require interconnection agreements with the incumbent carrier to connect
calls or data transmissions between our on-net customers and non-customers. We
cannot assure you that we will be able to negotiate or renegotiate
interconnection agreements in all of our markets 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.
IN LOCAL MARKETS, WE COMPETE AGAINST THE INCUMBENT CARRIER, WHO HAS A VESTED
INTEREST IN MAKING IT DIFFICULT TO 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. 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.
We cannot assure you that we will be able to overcome these advantages and
compete successfully with the incumbent carriers.
WE MAY FACE COMPETITION IN LOCAL MARKETS FROM NEW ENTRANTS, PUTTING DOWNWARD
PRESSURE ON PRICES
We also face competition from 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 makes it more difficult for
us to achieve positive operating cash flow. In addition, we expect competition
from other companies like ourselves, cable television companies, electric
utilities, microwave carriers, wireless telephone system operators and private
networks built by large end-users, as well as other new entrants such as Qwest
Communications and Level 3 Communications. 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 and makes it difficult for us to achieve positive
operating cash flow. Although the long distance market is dominated by three
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major competitors, AT&T, MCI WorldCom and Sprint, hundreds of other companies
also compete in the long distance marketplace. We cannot assure you that we will
be able to effectively compete with any of these industry participants.
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 requires
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 FCC licenses for fixed wireless radio spectrum held by our 50%-owned
affiliate, NEXTBAND, 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. On March 30, 1999,
the FCC approved our acquisition of LMDS spectrum that will result from the
merger with WNP but such approval will not become final until May 9, 1999.
THE FCC COULD RECONSIDER AND REVOKE ITS APPROVAL OF OUR ACQUISITION OF WNP'S
LMDS SPECTRUM
The FCC has approved our acquisition of LMDS spectrum from WNP, but has the
right to reconsider its decision until May 9, 1999, when the order will become
final. Since no third parties filed objections to this transaction with the FCC,
and the FCC staff indicated no concerns about it, we consider the risk of
revocation to be negligible. If we and WNP decide to close the transaction
before the FCC's order becomes final, our rights to WNP's spectrum would be at
some small risk until the finality period expires.
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 technology and equipment that we use or will use is subject to
obsolescence: fiber optic cable and wireless transmission technologies, circuit,
frame-relay and packet switching technologies and data transmission
technologies, including, the Nortel DMS 500 switches, digital subscriber line or
DSL, Asynchronous Transfer Mode, or ATM, frame-relay and Internet Protocol or 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.
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WE MAY BE REQUIRED TO PAY PATENT LICENSING FEES, WHICH COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS
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
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 face significant competition in
the attraction and retention of personnel who possess the skill sets that we
seek.
In addition, our subsidiaries must also develop and retain a large and
sophisticated sales force. If our subsidiaries do not develop and retain a large
and sophisticated sales force, there will be an adverse effect on our ability to
generate revenue and, consequently, our operating cash flow.
CRAIG O. MCCAW, WHO CONTROLS APPROXIMATELY 59% OF NEXTLINK'S VOTING POWER, MAY
HAVE INTERESTS WHICH ARE ADVERSE TO YOUR INTERESTS
Craig O. McCaw, primarily through his majority ownership and control of
Eagle River Investments, LLC, controls approximately 59% of NEXTLINK's total
voting power. Because Mr. McCaw has the ability to control the direction and
future operations of 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.
THE VALUE OF YOUR WNP SHARES AS DETERMINED IN THE MERGER AGREEMENT WILL EXCEED
NET TANGIBLE BOOK VALUE OF THE SHARES OF CLASS A COMMON STOCK YOU ARE RECEIVING
You will experience an immediate and substantial dilution of $ per
share in the net tangible book value per share of your Class A common stock,
assuming a purchase price per share of $ .
WE DO NOT PLAN ON PAYING ANY DIVIDENDS ON OUR COMMON STOCK
We have not declared or paid any dividends on our common stock and we do not
plan on paying any dividends for the foreseeable future. The indentures
governing our outstanding notes restrict our ability to pay any dividends on our
common stock while any of the notes are outstanding. As a result, the potential
return on an investment in our common stock will depend solely on its stock
market performance for the foreseeable future.
WE MAY FACE ADDITIONAL COST 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
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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 local
telephone company. 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 most recent periodic filing with the Securities and
Exchange Commission.
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 by the end of 2000, 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 by
the end of 2000;
- 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 frame-relay, IP and ATM facilities, high speed technologies such
as DSL and wireless technologies;
- our expectation regarding the development of a national network and the
implementation of a national network end-to-end strategy;
- the equipment necessary for the operation of LMDS systems has not yet been
commercially implemented;
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- our anticipated capital expenditures, funding thereof and levels of
indebtedness and our expectations regarding additional indebtedness;
- statements with respect to our Year 2000 project.
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-4 to register the common shares being issued to you in the
merger. 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 Class A common shares 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 Securities and Exchange Commission 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 Securities and Exchange Commission automatically updates and
supersedes more dated information. We have previously filed the following
documents with the Securities and Exchange Commission 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 30, 1999;
2. Our Current Reports on Form 8-K filed on January 19, 1999 and April
1, 1999; and
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 merger is completed.
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.
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THE PARTIES TO THE MERGER
NEXTLINK
NEXTLINK provides high-quality local and long distance telecommunications
and data services to small and medium-sized businesses in 38 U.S. cities. We
offer our customers these services at competitive prices individually or as an
integrated package of services. We deliver these services over networks that
consist of communications cables containing multiple glass fiber strands, known
as fiber optic cables. These cables connect our customers' telephone and data
lines to our advanced, electronic switching equipment, or switches, which route
each call or data transmission from the customer's premises to the ultimate
destination. Each of our networks can carry high volumes of voice, data, video
and Internet traffic. Whenever practicable, we build and own these networks
ourselves.
We currently operate 23 fiber optic networks in 14 states, serving large and
medium-sized cities, as well as clusters of smaller locales. Based on our recent
successes in operating and expanding our existing networks, as well as
opportunities arising in cities we do not currently serve, we intend to expand
into a number of new locations over the next several years.
In each city we serve, our principal competitor is the dominant local
telephone company, which Congress and our industry refer to as the incumbent
local exchange carrier. Until recently, each incumbent carrier held a virtual
monopoly on providing local telephone service. Our goal is for businesses
located in the cities we serve to choose to have their telephone and data lines
connected to our network, rather than that of the incumbent. In constructing
each network, we create a ring of fiber optic cables around the central business
district of each location we serve. This design allows for a high percentage of
the commercial buildings within these locations to be connected directly to our
networks. A number of our customers, however, are not directly connected to our
networks. For these customers, we lease telephone lines from the incumbent
carrier to cover the relatively short distance between the customer and our
network.
In addition to leasing telephone lines from the incumbent carrier to service
customers who are not directly connected to our network, we are also developing
an alternative method of connecting these customers to our network using LMDS
spectrum. Following the merger, we will become the largest holder of LMDS
spectrum in North America, covering 65 markets and 95% of the persons living or
working in the 30 largest markets in the United States.
We are developing plans to link our local fiber optic networks to one
another through the use of a national fiber optic network currently being
constructed by Level 3 Communications. We manage and own 50% of a joint venture
that owns exclusive interests in the Level 3 network. This network is designed
to traverse more than 16,000 miles, connecting 50 cities in the United States
and Canada. With this system of local networks linked together by long-haul
fiber optic cable, we should be able to offer our customers complete, end-to-end
voice and data communications services over facilities we control.
We also are developing plans to deploy data switching and transmission
equipment in 2000 that will enable us to provide a full range of innovative data
services. The Level 3 network is also designed to support the types of equipment
necessary to provided these data services, in addition to voice services.
Our founder and principal stockholder, Craig McCaw, also founded McCaw
Cellular (later acquired by AT&T) and has other substantial interests in other
telecommunications businesses.
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BUSINESS STRATEGY
Our goal is to become a leading provider of complete, end-to-end voice and
data communications services and to maximize penetration of our targeted
customer base of small and medium-sized businesses. The key components of our
strategy to achieve this goal are:
- Building high-capacity local networks with cables holding large bundles of
fiber optic strands in a majority of the nation's top 30 cities and
providing service in cities with a total of 27 million business lines by
the end of the year 2000.
- Extending direct customer connections to our networks using fixed wireless
radio spectrum.
- Linking our local networks to one another using our interest in a national
fiber optic network now under construction.
- Deploying data switching and transmission equipment in 2000, including
Asynchronous Transfer Mode, or ATM, Internet Protocol, or IP, and
frame-relay facilities and digital subscriber line, or DSL, services.
- Attracting and retaining experienced management and maintaining a
decentralized, local management focus at each operating subsidiary.
- Focusing sales efforts on businesses and professional groups with fewer
than 50 telephone lines, and assigning a single customer care
representative to each customer.
- Continuously improving the complex process of the changing over a new
customer from the incumbent carrier to NEXTLINK service.
WNP
OVERVIEW
WNP is a Delaware corporation organized in January, 1998. The mailing
address of WNP's principal executive office is 400 Balbion Drive, Earlysville,
Virginia, 22936-9680, and the phone number is (804) 964-1020. WNP was
incorporated with the objective of providing communications services. A major
initial element of the corporate plan was to obtain licenses from the FCC
providing local multipoint distribution service, which would enable WNP to
provide short-distance high speed digital communications links using
microwave-frequency radio equipment. These wireless communication links would be
interconnected with fiber optic cable facilities, switching equipment, and
public networks to enable WNP to offer a wide range of communication services.
WNP received its financing privately from thirty-nine investors, including
four individuals and thirty-four investment funds. WNP closed its initial
financing of approximately $101 million on January 29, 1998, and a second round
of financing for approximately $91 million on October 20, 1998.
During February and March, 1998, the FCC conducted a multiple-round auction
of local multipoint distribution service licenses. WNP was the high bidder on
forty licenses, which were granted by the FCC to WNP in October, 1998 at a price
of $186,868,132, which WNP paid in full.
Following the local multipoint distribution service auction, WNP began work
in support of its objective to implement a network to offer local and long
distance communications services, principally to small and medium businesses.
LOCAL MULTIPOINT DISTRIBUTION SERVICE
Local multipoint distribution service allows wireless services on a one-way
or two-way basis, using point-to-point or point-to-multipoint connections, with
very high communications capacity. The local multipoint distribution service
licenses are in the so-called "millimeter microwave" band located at 28
gigahertz, with part of the licenses located at 29 and 31 gigahertz. By
comparison, cellular licenses are located at about 900 megahertz, and personal
communications service is located at 1900 megahertz. As
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the word "local" in the local multipoint distribution service name implies, the
radio links provided using local multipoint distribution service frequencies are
of limited distance, typically of a few miles or less, due to the rapid
attenuation of the signal at the very high frequencies of local multipoint
distribution service.
The FCC allocated two blocks of spectrum for local multipoint distribution
service: the A-Block and the B-Block. The A-Block consists of 1150 megahertz of
spectrum as follows: 27.50 to 28.35 gigahertz, 29.10 to 29.25 gigaherz, and
31.075 to 31.225 gigahertz. The B-Block consists of 150 megahertz of spectrum as
follows: 31.000 gigahertz to 31.075 gigahertz, and 31.225 gigahertz to 31.300
gigahertz. These licenses were auctioned for each basic trading area in the
United States, of which there are 493.
The 1150 megahertz of spectrum in the A-Block license is a large block of
spectrum when compared to 30 megahertz for a personal communications service
license, 25 megahertz for a cellular license, 6 megahertz for a television
license and 100 megahertz for a 38 gigahertz license.
These A-Block and B-Block licenses will enable the provision of
high-capacity, fixed point-to-point and point-to-multipoint data, voice, and
video communications links in individual markets in the United States.
FCC LOCAL MULTIPOINT DISTRIBUTION SERVICE AUCTION
The FCC awarded local multipoint distribution service licenses to WNP and
others based on the results of competitive bidding in the local multipoint
distribution service auction, which began on February 18, 1998, and ended on
March 25, 1998. At the conclusion of the auction, WNP was the high bidder on 39
A-Block licenses and one B-Block license.
The FCC published rules for participating in the auction. Under these rules
certain bidders were entitled to a bidding discount on the amount of the winning
bid provided they met certain criteria related to revenues and ownership. WNP
qualified as a very small business and was entitled to a 45%, or $152,892,129,
bidding discount.
According to FCC rules, the recipient of a bidder discount who experiences
certain changes in control must repay the bidding discount with interest. If
such changes of control take place two years or more after the license grant,
the amount required to be repaid declines, and after five years, no repayment is
required.
At the conclusion of the auction, the FCC required each winning participant
to pay the FCC a deposit equal to twenty percent of such bidder's winning bids.
Winning bidders then submitted formal applications to the FCC for the licenses
on which they were the high bidders. In the majority of cases, the FCC granted
the licenses. The FCC required the winning bidder to pay the remaining amount of
the winning bid within ten business days after granting a license. The FCC
granted local multipoint distribution service licenses for a period of ten
years, subject to renewal.
WNP BUSINESS STRATEGY AND STATUS
WNP's business strategy has been to become a provider of data voice and
video communications services, with an emphasis on high speed data
communications. In furtherance of this strategy, WNP has completed the initial
steps of attracting substantial investment, winning, receiving and paying for
local multipoint distribution service licenses, assembling a core planning team
of communications professionals and beginning the design of the network and
supporting activities. At present, WNP has not introduced any services to the
public. Pending the completion of the contemplated merger with NEXTLINK, WNP has
suspended the planning for deployment of its network and introduction of
services. Upon completion of the contemplated merger with NEXTLINK, WNP expects
that its plans will be superseded by those of NEXTLINK.
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MARKET COVERAGE
WNP's licenses cover 11 of the 12 largest markets, and approximately 30 of
the top 50 markets in the United States. WNP's licensed markets have a
population of approximately 114 million people. In these top markets, WNP
believes its share of the total spectrum, or the megahertz of wireless capacity
that is related to the total communications carrying capacity, to be larger in
the aggregate than that of any other wireless carrier. WNP believes that its
coverage in these markets will provide significant economies of scale and
competitive advantages.
Because the FCC has granted only a few local multipoint distribution service
licenses or similar high capacity wireless licenses, which are necessary for
offering wireless services similar to those planned by WNP, WNP believes that
its licenses represent a scarce asset and may constitute a barrier to entry for
new competitors intending to offer similar services.
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THE MERGER
BACKGROUND AND REASONS FOR THE MERGER
On May 22, 1998, NEXTLINK's CEO, Wayne Perry, and other NEXTLINK
representatives met with WNP's CEO, Tom Jones, and other WNP representatives to
consider a business combination or other business relationships. Prior to the
commencement of such discussions, Mr. Perry had approached Mark Pelson about the
prospects for such discussions.
Through the summer and fall of 1998, representatives from WNP and NEXTLINK
continued to discuss various alternatives for strategic relationships.
On August 11, 1998, Mr. Perry and other NEXTLINK representatives met with
Mr. Jones and other WNP representatives in NEXTLINK's Bellevue, Washington
offices to continue discussions.
On November 3, 1998, Mr. Perry met with Mr. Jones and other WNP
representatives in New York City to continue discussions and reiterate
NEXTLINK's interest in a business combination with WNP.
On or around November 17, 1998, Mr. Perry communicated NEXTLINK's interest
in acquiring WNP to Mr. Jim Fleming, a WNP director, and Mr. Pelson. In a
conversation with Mr. Fleming on December 9, 1998, Mr. Perry offered to purchase
WNP on behalf of NEXTLINK for $695 million.
During the following weeks, representatives from NEXTLINK and WNP negotiated
the final terms of the transaction having a value of $695 million, to be paid by
NEXTLINK in cash and stock.
On December 23, 1998, WNP and NEXTLINK entered into a non-disclosure
agreement.
On January 14, 1999, the parties executed the merger agreement along with
related documentation. Later that day, NEXTLINK announced the transaction at the
Salomon Smith Barney Global Telecom Conference in Scottsdale, Arizona, while
both companies contemporaneously issued statements to the press.
On February 4, 1999, the Board of Directors of NEXTLINK approved the
proposed merger.
NEXTLINK views the merger as a unique opportunity to acquire valuable radio
frequency spectrum in major markets across the United States that it plans to
use to broaden the reach of its present and planned fiber optic telephone
networks. By combining the advantages of wireless and fiber optic cable
technologies, NEXTLINK believes it will be able to directly connect to its
networks a greater proportion of its target market of medium and small
businesses in each market that it serves more cost effectively than it could
using either strategy alone. By increasing the proportion of traffic that it
originates and terminates on its own network, NEXTLINK hopes to minimize the
costs associated with each call or data transmission.
APPROVAL OF THE MERGER
The board of directors and a majority of the stockholders of WNP have
already approved the merger. No further shareholder approval is necessary, and
all stockholder appraisal rights have expired.
The board of directors of NEXTLINK and its merger subsidiary have approved
the merger, which does not require NEXTLINK shareholder approval.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Other than the ownership of WNP Common Stock and WNP Preferred Stock, the
executive officers and members of the board of directors of WNP do not have any
additional interests in the merger.
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FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
consequences of the merger. The discussion does not address all aspects of
federal income taxation that may apply to stockholders subject to special rules,
including foreign persons, insurance companies, tax-exempt entities, retirement
plans and persons who acquired their WNP stock pursuant to the exercise of
employee stock options or otherwise as compensation. In addition, the following
discussion does not address either the effect of applicable state, local or
foreign tax laws or the effect of any federal tax laws other than those
pertaining to federal income tax.
Under the merger agreement, we can elect to pay a portion of the merger
consideration in NEXTLINK Class A common stock, but only if the merger will
qualify as a "reorganization" for United States federal income tax purposes
under Sections 368(a)(1)(A) and 368(a)(2)(D) of the Code. Assuming that we pay a
portion of the merger consideration in NEXTLINK Class A common stock, we will
receive an opinion from counsel that the merger qualifies as a "reorganization"
and, accordingly, that:
1. Neither NEXTLINK, its merger subsidiary, nor WNP will recognize any gain
or loss in the merger.
2. A WNP stockholder exchanging WNP common stock and/or WNP preferred stock
solely for shares of NEXTLINK Class A common stock (other than cash received in
lieu of fractional shares of NEXTLINK Class A common stock) will recognize
neither gain nor loss on the exchange. If cash is received in lieu of a
fractional share of NEXTLINK Class A common stock, then gain or loss will be
recognized on the WNP stock giving rise to the cash payment, as discussed in
paragraph 2 below.
3. A WNP stockholder exchanging WNP common stock and/or WNP preferred stock
for shares of NEXTLINK Class A common stock and cash will recognize gain, but
not loss, on the exchange, but only to the extent of cash received, including
any cash placed into escrow pursuant to the merger agreement. If cash is
received in lieu of a fractional share of NEXTLINK Class A common stock, then
gain or loss will be recognized on the WNP stock giving rise to the cash
payment, as discussed in paragraph 2 below.
4. The aggregate adjusted tax basis of the shares of NEXTLINK Class A common
stock received in such exchange, including a fractional share interest deemed
received, as explained in paragraph 2 below, will be equal to the aggregate
adjusted tax basis of the shares of WNP common stock and WNP preferred stock
surrendered therefor, decreased by the amount of any cash received, and
increased by the amount of any gain recognized on the exchange.
5. The holding period of the shares of NEXTLINK Class A common stock will
include the holding period of the shares of WNP common stock and WNP preferred
stock exchanged therefor.
Whether or not the merger is treated as a "reorganization:"
1. A WNP stockholder exchanging WNP common stock and WNP preferred stock who
receives only cash as consideration will recognize gain or loss on the exchange.
2. A holder of shares of WNP common stock or WNP preferred stock who
receives cash in the merger in lieu of a fractional shares of NEXTLINK Class A
common stock will be treated as having received such fractional share in such
exchange and then having received cash in redemption of such fractional share
interest by NEXTLINK. The receipt of such cash should cause the recipient to
recognize capital gain or loss equal to the difference between the amount of
cash received and the portion of such holder's adjusted tax basis in the shares
of NEXTLINK Class A common stock allocable to the fractional share interest.
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3. For any WNP stockholder described above, any gain or loss required to be
recognized will be long term capital gain or loss if the WNP shares exchanged
were held as a capital asset for more than one year as of the date of completion
of the merger, subject to limitations on the deductibility of capital losses.
4. Under the merger agreement, some WNP stockholders may have agreed to
place a portion of their merger consideration, including shares of NEXTLINK
Class A common stock and cash or both, in escrow. For federal income tax
purposes, these WNP stockholders will be treated as owning and having received
the merger consideration, so any income or gain from the escrowed merger
consideration will be taxable to the WNP stockholders without regard to the
escrow. If the escrowed shares must be paid out for the benefit of NEXTLINK
under the terms of the escrow agreement, or if the escrowed shares are sold and
the proceeds are paid out for the benefit of NEXTLINK, this will generally be
treated as a sale of the shares and the WNP stockholders will recognize gain or
loss on the disposition.
5. Cash received as merger consideration may be subject to 31% backup
withholding tax unless the relevant stockholder is an exempt recipient or
complies with taxpayer identification procedures on forms we will supply.
THE FOREGOING DISCUSSION OF MATERIAL FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION PURPOSES ONLY AND IS NOT BINDING ON THE INTERNAL REVENUE
SERVICE. BECAUSE OF THE COMPLEXITY OF THE TAX LAWS, AND BECAUSE THE TAX
CONSEQUENCES OF ANY PARTICULAR STOCKHOLDER MAY BE AFFECTED BY MATTERS NOT
DISCUSSED HEREIN, EACH WNP STOCKHOLDER IS URGED TO CONSULT HIS OWN TAX ADVISER
WITH RESPECT TO HIS OWN PARTICULAR CIRCUMSTANCES AND WITH RESPECT TO THE
SPECIFIC TAX CONSEQUENCES OF THE MERGER TO HIM, INCLUDING THE APPLICABILITY AND
EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS, ESTATE TAX LAWS AND PROPOSED
CHANGES IN APPLICABLE TAX LAWS.
REGULATORY APPROVALS
When the registration statement containing this prospectus becomes
effective, all federal and state regulatory requirements in connection with the
merger, other than the filing of a Certificate of Merger with the Secretary of
State of the State of Delaware, will have been complied with, waived or
obtained.
ACCOUNTING TREATMENT
The merger will be accounted for using the purchase method of accounting.
Under this method of accounting, NEXTLINK will allocate the purchase price on
its financial statements to the fair value of the net assets acquired, and will
allocate any excess of the purchase price over the fair value of the assets
acquired to goodwill.
COMPARISON OF STOCKHOLDER RIGHTS
Upon consummation of the merger, the stockholders of WNP will become
stockholders of NEXTLINK and their rights will be governed by NEXTLINK's
Certificate of Incorporation and Bylaws. Both WNP and NEXTLINK are incorporated
in the State of Delaware. Unlike WNP non-voting common stock, each share of
NEXTLINK Class A common stock issued in the Merger will have the right to cast
one vote on all matters presented to NEXTLINK shareholders.
NEXTLINK's certificate of incorporation provides for a class of common
stock, known as Class B common stock, that has the right to cast ten votes per
share, and holders of Class B common stock, both before and after the merger
will hold an absolute majority of the voting power of NEXTLINK's common stock.
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FEDERAL SECURITIES LAW CONSEQUENCES
All shares of NEXTLINK Class A common stock received by the stockholders of
WNP in the merger will be freely transferable, except that shares of NEXTLINK
Class A common stock received by persons who are deemed to be "affiliates" of
WNP under the Securities Act prior to the acquisition may be resold by them only
in transactions permitted by the resale provisions of Rule 145 promulgated under
the Securities Act, or Rule 144 under the Securities Act in the case of such
persons who become affiliates of NEXTLINK, or as otherwise permitted under the
Securities Act. Persons who may be deemed to be affiliates of NEXTLINK or WNP
generally include individuals or entities that control, are controlled by, or
are under common control with, such party and may include certain officers and
directors of such party as well as principal stockholders of such party.
The majority of WNP's stockholders have executed agreements limiting their
rights to resell their NEXTLINK common stock, and provide for their
participation in one or more underwritten public offerings, in which both
NEXTLINK and other parties may offer shares for sale to the public.
NO APPRAISAL RIGHTS
As required by to Delaware law, WNP mailed the required notice to its
stockholders notifying them that any stockholder that did not consent to the
merger was entitled to exercise appraisal rights. Under Delaware law, any
stockholder wishing to demand appraisal rights was required to do so in writing
within twenty days after WNP's notice was mailed to its stockholders. WNP has
advised NEXTLINK that no such demands for appraisal were received within the
prescribed time period. Therefore, as of the date of this prospectus, WNP
stockholders are no longer entitled to any appraisal rights.
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THE MERGER AGREEMENT
The following is a brief summary of the material provisions of the merger
agreement, a copy of which is attached to this prospectus as Annex A. We urge
all WNP stockholders to review the merger agreement carefully.
CONSUMMATION OF THE MERGER
The merger agreement provides that the merger will occur as soon as
practicable after the satisfaction or waiver of the conditions set forth below
under "Conditions to the Merger."
On the closing date, WNP will merge with and into NEXTLINK's merger
subsidiary. The separate corporate existence of WNP will cease and the merger
subsidiary will continue as the surviving corporation.
THE MERGER CONSIDERATION
NEXTLINK will pay total merger consideration in cash and stock valued at
$695,000,000, less the amount due to the FCC in connection with the merger,
subject to further adjustments based on WNP's balance sheet at closing. The
amount due to the FCC will be $157,048,884, plus interest from March 30, 1999
through the closing date, calculated in accordance with the FCC's rules.
Subject to the balance sheet adjustments, NEXTLINK will pay $186,868,132 of
the merger consideration in cash, and currently intends to pay the remainder in
NEXTLINK Class A common stock. The balance sheet adjustments take into account
the amount of WNP's current assets and its liabilities as of the closing.
For purposes of determining the number of shares of common stock to be
issued in the merger, each share of common stock will, except as noted below, be
valued at its Volume-Weighted Average Trading Price (defined below) for the
twenty trading days preceding, but not including the closing date. In the event
we delay the effectiveness of the registration statement that includes this
prospectus to avoid premature disclosures of sensitive information, the 20-day
period will end on the day before the closing would otherwise have occurred,
with appropriate adjustments for any stock splits, stock dividends or the like
in the interim.
"Volume-Weighted Average Trading Price" means, for any period, the average
of the daily prices for each trading day during such period, with each daily
price computed as the product of (1) the sale price times (2) the number of
shares of common stock sold at such price, divided by (3) the total number of
shares of common stock so traded during such trading day, all as reported by
Bloomberg, L.P.
On the closing date,
- each share of WNP preferred stock will be converted into the right to
receive a portion of the merger consideration equal to its liquidation
preference and
- each share of WNP voting and nonvoting common stock will be converted into
the right to receive a pro rata portion of the merger consideration less
the portion of the merger consideration attributed to the WNP preferred
stock.
Following the merger:
- each holder of a certificate representing any shares of WNP common stock
or preferred stock will no longer have any rights with respect to their
WNP stock, except the right to receive merger consideration; and
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- the stock transfer books of WNP will be closed and there will not be any
further registration of transfers of shares of any shares of capital stock
thereafter on the records of WNP.
STOCKHOLDER CASH ELECTION; RIGHTS OF PREFERRED STOCKHOLDERS
WNP has three classes of capital stock outstanding: preferred stock,
nonvoting common stock and voting common stock. Preferred stockholders will have
the right to receive a total liquidation preference equal to $192,020,997, plus
accrued and unpaid dividends. WNP will try to ascertain whether each of its
stockholders would prefer to receive cash or stock in the merger.
Holders of preferred stock wishing to receive cash will receive cash to the
extent available, and any remainder in common stock. If there is cash remaining
after we have paid all of the preferred stock holders that wish to receive cash,
then a representative of the stockholders will allocate the remaining cash among
the holders of the nonvoting and voting common stock that wish to receive cash,
accommodating their expressed preferences to the greatest possible extent.
REGISTRATION RIGHTS AGREEMENT
NEXTLINK entered into a Registration Rights Agreement, a copy of which is
attached to this prospectus as Annex B, for the benefit of the WNP stockholders
who executed, or who subsequently execute, a Consent and Indemnity Agreement of
Stockholders. Please review it carefully. The Registration Rights Agreement
provides for two demand registrations and for "piggyback" registrations as
follows:
- NEXTLINK will use its reasonable best efforts to register $175 million
worth of shares of NEXTLINK common stock issued in the merger for resale
in an underwritten offering within 30 days following the merger, and to
keep the associated registration statement effective by NEXTLINK until the
offering is completed, but in no event for more than 60 days following the
effectiveness of the initial registration statement. NEXTLINK and other
parties may include $165 million of NEXTLINK securities in this offering.
- After the 180th day following the commencement of the initial offering,
upon written request by the holders of $30 million or more of NEXTLINK
common stock issued in the merger, NEXTLINK will use its reasonable best
efforts to register such shares for resale in an underwritten offering,
and to keep the associated registration statement effective by NEXTLINK
until the offering is completed, but in no event for more than 60 days
following the effectiveness of a subsequent registration statement.
- NEXTLINK will include shares issued in the merger in registration
statements it is filing for other purposes, subject to rules of priority
in the event the underwriters advise that no more than a maximum number of
securities can be successfully included in the registration. NEXTLINK will
give holders of shares issued in the merger at least 30 days prior to the
filing of such a registration statement, with 20 days to request that
their securities be included.
The WNP stockholders who are parties to the registration rights agreement
have also agreed not to make any public sale or short sales of the NEXTLINK
stock beginning, in the case of the initial registration statement, on January
14, 1999, and in the case of each subsequent registration, beginning seven days
prior to the effective date of such registration statement, and ending 180 days
after the initial registration statement, subsequent registration statement or
any incidental registration statement shall have been declared effective. A
majority-in-interest of such holders can vote to be released from these
restrictions if the initial registration statement has not been declared
effective within 30 days of the closing, gross proceeds to those holders from
the initial offering are less than $150 million, or gross proceeds to those
holders from any subsequent demand offering are less than $30 million.
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REPRESENTATIONS AND WARRANTIES
WNP makes representations and warranties in the Merger Agreement concerning,
among other things:
- the organization, qualification and good standing of WNP,
- WNP's capital structure,
- WNP's authority to enter into the merger agreement,
- that the merger has been authorized by WNP's board of directors and has
been approved and adopted by WNP's stockholders in accordance with
Delaware law,
- that the merger agreement will not conflict with the organizational
documents of WNP, debt instruments or other contracts, and will not
violate any laws or require consents from governmental authorities, except
as provided in the merger agreement,
- that WNP's financial statements accurately reflect its financial
condition,
- that since the date of WNP's financial statements, there has not been any
event that has had or would reasonably be likely to have a material
adverse effect on WNP's business, assets, condition, results of operations
or prospects,
- that WNP has complied with applicable laws and contracts to which it is a
party,
- that all of WNP's LMDS licenses were duly obtained and are validly issued
and in full force and effect,
- the absence of litigation against WNP,
- WNP's contracts,
- WNP's employee benefit plans,
- that WNP and its subsidiaries have properly filed their tax returns and
paid their taxes,
- WNP's intellectual property, and
- that no brokerage fees, commissions or finders' fees are payable in
connection with the merger.
The merger agreement also contains representations and warranties of
NEXTLINK and the merger subsidiary regarding, among other things:
- their organization, qualification and good standing,
- NEXTLINK's capital structure,
- their authority to enter into the merger agreement,
- that the merger has been authorized by their respective boards of
directors,
- that the merger agreement will not conflict with their respective
organizational documents, debt instruments or other contracts, and will
not violate any laws or require consents from governmental authorities,
except as provided in the merger agreement,
- that none of the reports and statements filed by NEXTLINK with the SEC
contain material misstatements or omissions,
- that NEXTLINK's financial statements accurately reflect its financial
condition,
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- the Class A common stock to be issued in the merger will be validly
issued, fully paid and nonassessable and will not be subject to any
restrictions on resale under the Securities Act other than restrictions
imposed by Rule 145 under the Securities Act,
- that no brokerage fees, commissions or finders' fees are payable in
connection with the merger, and
- NEXTLINK's agreements granting registration rights with respect to any of
its equity securities.
COVENANTS
WNP has agreed that until the closing date
- it will use its reasonable best efforts to preserve its LMDS licenses
intact, free and clear of all restrictions and encumbrances and
- it will not take any action that would interfere with the transactions
contemplated by the merger agreement.
In addition, WNP has agreed that it will not enter into any agreement,
arrangement or other obligation which remains binding on NEXTLINK, the merger
subsidiary, or any of their affiliates or assets after the merger, except for
actions:
- which terminate by their terms at or after the merger at the option of
NEXTLINK without condition except for the payment of money, or
- pursuant to which the only obligations remaining in effect after the
merger are the payment of money, and in the case of each the full amount
of which payments are deducted from the merger consideration.
In each case in which a payment of money obligation is in effect after the
merger, the full amount of the obligation shall be deducted from the merger
consideration.
NO SOLICITATION OF TRANSACTIONS
WNP has agreed not to, directly or indirectly:
- solicit, initiate or encourage any inquiries or the making of any proposal
which constitutes, or may be reasonably expected to lead to any proposed
transaction inconsistent with the consummation of the merger (a
"Transaction Proposal"), or
- enter into or participate in discussions or negotiations with any person
with respect to any Transaction Proposal.
To the extent permitted by law and consistent with their fiduciary duties,
the board of directors of WNP have agreed not to
- withdraw or modify, or propose publicly to withdraw or modify, in a manner
adverse to NEXTLINK, the recommendation by such board of directors of the
merger or the merger agreement,
- approve or recommend, or propose publicly to approve or recommend, any
Transaction Proposal or
- cause WNP to enter into any letter of intent, agreement in principle,
acquisition agreement or other similar agreement related to any
Transaction Proposal inconsistent with the merger agreement.
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CONDITIONS TO THE MERGER
The merger agreement provides that the obligations of WNP, NEXTLINK and the
merger subsidiary to complete the merger are subject to the satisfaction, at or
before the closing date, of the following conditions:
- no court order prohibiting the merger may be in effect and no law may be
in effect which makes the merger illegal,
- the Registration Rights Agreement shall be in full force and effect,
- any waiting period under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 applicable to the merger shall have expired or been terminated,
- the FCC shall have granted its consent to the assignment of the LMDS
licenses contemplated hereby approving the transfer of control of the LMDS
licenses contemplated by the merger agreement, such approval shall be in
full force and effect and shall have become final, and
- the registration statement that includes this prospectus shall have become
effective and no stop order suspending its effectiveness shall have been
issued, and no proceeding for that purpose shall have been initiated or
threatened in writing by the SEC.
The obligations of WNP to complete the merger are further subject to the
satisfaction, at or before the closing date, of the following conditions:
- no event shall have occurred on any date during the period beginning at
the commencement of the twenty trading-day period for determining the
value of the common stock to be issued in the merger and ending on the day
before the closing date that has had a material adverse effect on
NEXTLINK's business, assets, condition, results of operations or
prospects,
- NEXTLINK and the merger subsidiary shall have performed in all material
respects all obligations they are required to perform under the merger
agreement prior to the closing date,
- certain representations and warranties made by NEXTLINK and the merger
subsidiary in the merger agreement were true and correct in all material
respects on the date of the merger agreement and will be true and correct
in all material respects at the closing date,
- Eagle River's waiver of its piggyback registration rights and holdback
agreement in connection with the initial underwritten offering following
the merger shall remain in full force and effect, and
- no governmental authority having jurisdiction over the approval of the
merger shall have imposed or required any condition to such approval that
materially and adversely affects WNP's stockholders or the value of the
merger consideration.
The obligations of NEXTLINK and the merger subsidiary to complete the merger
are subject to the satisfaction, at or before the closing date, of the following
conditions:
- no event shall have occurred after the date of the merger agreement that
would be reasonably likely to have a material adverse effect on WNP's
business, assets, condition, results of operations or prospects,
- WNP shall have performed in all material respects all obligations it is
required to perform under the merger agreement prior to the closing date,
- the representations and warranties made by WNP in the merger agreement
were true and correct in all material respects on the date of the merger
agreement and are true and correct in all material respects at the closing
date, and
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- no governmental authority having jurisdiction over the approval of the
merger shall have imposed or required any condition to such approval,
except for any conditions that are of an administrative or ministerial
nature, are otherwise fully compensated by the adjustment mechanisms
contemplated by certain sections of the merger agreement, or resulting
from any action taken by NEXTLINK or Eagle River Investments, L.L.C.
TERMINATION
WNP and NEXTLINK can agree to terminate the merger agreement at any time
before it is completed by mutual agreement. In addition, either WNP or NEXTLINK
would have the right to terminate the merger agreement before completion of the
merger if:
- the closing has not occurred on or before January 14, 2000 or has been
permanently and finally enjoined;
- the FCC demands a payment in connection with the merger in excess of the
amount the parties anticipate, unless the party not seeking termination
agrees to bear the excess cost;
- there are uncured breaches by the other party of its obligations under the
merger agreement; and
- at the time all government approvals for the transaction have been
obtained (including the effectiveness of the registration statement that
includes this prospectus) all other closing conditions have not been
satisfied.
NEXTLINK has the right to terminate the merger agreement before the
completion of the merger if there is a material adverse change in WNP's business
or financial conditions.
STOCKHOLDER INDEMNITY FOR BREACHES OF THE MERGER AGREEMENT
Each Holder of WNP common stock and/or preferred stock who signed, or
subsequently signs, a Consent and Indemnity Agreement has agreed to indemnify
NEXTLINK and its stockholders, directors, officers and employees and to hold
them harmless against all actual liabilities, costs, losses, damages and
expenses, whether or not arising out of third party claims, including without
limitation reasonable attorneys' fees (after giving effect to any offsetting
benefit actually received or receivable) incurred by the Indemnified Parties and
arising out of or resulting from:
- any misrepresentation or breach of warranty by WNP of any of its
representations or warranties set forth in the merger agreement, and
- any breach or nonfulfillment by WNP of any of its covenants, agreements or
other obligations set forth in the merger agreement.
In order to be entitled to indemnification, an indemnified party must submit
its claims for indemnification in writing with detailed specification showing
the basis of the claim, including the provision of the merger agreement
breached, and a reasonably detailed calculation of the amount of such claim, to
the Indemnifying Parties no later than 12 months after the closing.
No indemnifying party will be liable for more than its pro rata share of any
loss and the maximum amount of liability of any indemnifying party shall in no
event exceed the amount of the merger consideration received by such
indemnifying party.
Each holder of WNP common stock and preferred stock will have the
opportunity to become a party to the Consent and Indemnity Agreement prior to
the consummation of the merger. Upon becoming a party to such agreement, each
holder of WNP common stock and preferred stock will also be entitled to the
benefits and subject to the obligations of the registration rights agreement,
including
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the right to participate in certain underwritten offerings and the obligation,
if requested by the managing underwriter, to refrain from selling or short
selling shares of NEXTLINK stock for certain periods before and after
underwritten offering.
All merger consideration that would have been received by any WNP
stockholder who does not execute and deliver a Consent and Indemnity Agreement
will be placed into an escrow account from which a pro rata portion of losses
indemnified under the terms of the Merger Agreement will be paid. Any remaining
funds will be released on the later of (1) the first anniversary of the closing
date and (2) the date on which there are no pending disputes with respect to
claimed losses.
AMENDMENT AND WAIVER
The parties may amend, modify or supplement the Merger Agreement only by
written agreement or, following the merger, by agreement of NEXTLINK and the
Indemnifying Parties who received a majority of the aggregate merger
consideration.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF WNP COMMUNICATIONS, INC.
As of March 31, 1999, there were 1,000.308 shares of WNP voting common
stock, 1,026,987.212 shares of WNP non-voting common stock and 192,020.997
shares of WNP preferred stock issued and outstanding. Each share of WNP voting
common stock is entitled to one vote on each matter submitted for stockholder
action.
For purposes of calculating beneficial ownership, the numbers of shares
stated in the following tables are based on information furnished by each person
listed and include shares personally owned of record by that person and shares
that, under applicable regulations, are considered to be otherwise beneficially
owned by that person. Under these regulations, a beneficial owner of a security
includes any person who, directly or indirectly, through any contract,
arrangement, understanding, relationship or otherwise has or shares voting power
or dispositive power with respect to the security. Voting power includes the
power to vote or to direct the voting of the security. Dispositive power
includes the power to dispose or to direct the disposition of the security. A
person will be considered the beneficial owner of a security if the person is
legally entitled to share voting or dispositive power by reason of joint
ownership, trust or other contract or property right, or if the securities are
held by spouses and children over whom the person may have influence by reason
of relationship. A person also will be considered the beneficial owner of a
security if the person has a right to acquire beneficial ownership of the
security within 60 days.
After giving effect to the merger, no holder of NEXTLINK Class A common
stock to be received in the merger will beneficially own five percent or more of
the outstanding shares of NEXTLINK Class A common stock.
32
<PAGE>
The following table sets forth information concerning the number of shares
of WNP voting common stock held by each stockholder who is known to WNP's
management to be the beneficial owner of more than five percent of the
outstanding WNP's voting common stock as of March 31, 1999. The percentages
reflected in the column "Percent of Class" in this table were computed based on
a total of shares of 1,000.308 WNP voting common stock outstanding as of March
31, 1999 plus, where applicable, options to purchase shares of WNP common stock
that are currently exercisable or that may be exercised within 60 days.
<TABLE>
<CAPTION>
BENEFICIAL
NAME AND ADDRESS OF OWNERSHIP OF
BENEFICIAL OWNER OF WNP WNP VOTING PERCENT
VOTING COMMON STOCK COMMON STOCK OF CLASS
- ----------------------------------------------------------------------------------------- ------------- -----------
<S> <C> <C>
Thomas H. Jones (1) ..................................................................... 125.557 12.6%
400 Balbion Drive
Earlysville, VA 22936-9680
Curtis J. Wilson (2) .................................................................... 125.557 12.6%
PaineWebber
2 Logan Square, 24th Floor
Philadelphia, PA 19103
Trygve E. Myhren (3) .................................................................... 125.557 12.6%
Cherry Creek North
280 Detroit Street, Suite 200
Denver, CO 80206
Royce J. Holland (6) .................................................................... 125.557 12.6%
Allegiance Telecom
1950 Stemmons Freeway, Suite 3026
Dallas, TX 75207
Madison Dearborn Capital ................................................................ 61.302 6.1%
Partners II, L.P.
3 First National Plaza, Suite 3800
Chicago, IL 60602
Chase Venture Capital ................................................................... 61.302 6.1%
Associates, L.P.
380 Madison Avenue, 12th Floor
New York, NY 10017
</TABLE>
- ------------------------
Footnotes begin on page 40.
33
<PAGE>
The following table sets forth information concerning the number of shares
of WNP non-voting common stock held by each stockholder who is known to WNP's
management to be the beneficial owner of more than five percent of the
outstanding WNP non-voting common stock as of March 31, 1999. The percentages
reflected in the column "Percent of Class" in this table were computed based on
a total of shares of 1,026,987.212 WNP non-voting common stock outstanding as of
March 31, 1999 plus, where applicable, options to purchase shares of WNP
non-common stock that are currently exercisable or that may be exercised within
60 days.
<TABLE>
<CAPTION>
BENEFICIAL
NAME AND ADDRESS OF OWNERSHIP OF
BENEFICIAL OWNER OF WNP WNP VOTING PERCENT
VOTING COMMON STOCK COMMON STOCK OF CLASS
- ----------------------------------------------------------------------------------------- ------------- -----------
<S> <C> <C>
Providence Equity Partners, L.P. (5) .................................................... 89,373.464 8.7%
50 Kennedy Plaza
Fleet Center, 9th Floor
Providence, Rhode Island 02903
Providence Equity Partners II, L.P. (5) ................................................. 89,373.464 8.7%
50 Kennedy Plaza
Fleet Center, 9th Floor
Providence, Rhode Island 02903
Madison Dearborn Capital Partners II, L.P. .............................................. 119,164.619 11.6%
3 First National Plaza, Suite 3800
Chicago, IL 60602
Chase Venture Capital Associates, L.P. .................................................. 119,164.619 11.6%
380 Madison Avenue, 12th Floor
New York, NY 10017
HarbourVest Partners, LLC ............................................................... 59,582.31 5.8%
One Financial Center, 44th Floor
Boston, MA 02111
Norwest Venture Partners VI, LP ......................................................... 59,582.31 5.8%
40 William Street, Suite 305
Wellesley, MA 02181-3902
Formus Communications, Inc. ............................................................. 59,582.31 5.8%
720 South Colorado Blvd.
Suite 600N
Denver, CO 80246
Spectrum Equity Investors II, L.P. ...................................................... 59,582.31 5.8%
One International Place
Boston, MA 02110
Global Private Equity III L.P. (4) ...................................................... 77,457.002 7.5%
75 State Street
Boston, Massachusetts 02109
Advent PGGM Global LP. (4) .............................................................. 77,457.002 7.5%
75 State Street
Boston, Massachusetts 02109
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
BENEFICIAL
NAME AND ADDRESS OF OWNERSHIP OF
BENEFICIAL OWNER OF WNP WNP VOTING PERCENT
VOTING COMMON STOCK COMMON STOCK OF CLASS
- ----------------------------------------------------------------------------------------- ------------- -----------
<S> <C> <C>
Advent Partners GPE III L.P. (4) ........................................................ 77,457.002 7.5%
75 State Street
Boston, Massachusetts 02109
Advent Partners North America ........................................................... 77,457.002 7.5%
GPE III L.P. (4)
75 State Street
Boston, Massachusetts 02109
Advent Partners L.P. (4) ................................................................ 77,457.002 7.5%
75 State Street
Boston, Massachusetts 02109
Digital Media and Communications L.P. (4) ............................................... 77,457.002 7.5%
75 State Street
Boston, Massachusetts 02109
Adwest L.P. (4) ......................................................................... 77,457.002 7.5%
75 State Street
Boston, Massachusetts 02109
Oakstone Ventures L.P. (4) .............................................................. 77,457.002 7.5%
75 State Street
Boston, Massachusetts 02109
TelAdvent L.P. (4) ...................................................................... 77,457.002 7.5%
75 State Street
Boston, Massachusetts 02109
</TABLE>
35
<PAGE>
The following table sets forth information concerning the number of shares
of WNP preferred stock held by each stockholder who is known to WNP's management
to be the beneficial owner of more than five percent of the outstanding WNP
preferred stock as of March 31, 1999. The percentages reflected in the column
"Percent of Class" in this table were computed based on a total of 192,020.997
shares of WNP preferred stock outstanding as of March 31, 1999 plus, where
applicable, options to purchase shares of WNP preferred stock that are currently
exercisable or that may be exercised within 60 days.
<TABLE>
<CAPTION>
BENEFICIAL
NAME AND ADDRESS OF OWNERSHIP OF
BENEFICIAL OWNER OF WNP WNP VOTING PERCENT
VOTING COMMON STOCK COMMON STOCK OF CLASS
- ----------------------------------------------------------------------------------------- ------------- -----------
<S> <C> <C>
Providence Equity Partners, L.P. (5) .................................................... 17,632.67 9.2%
50 Kennedy Plaza
Fleet Center, 9th Floor
Providence, Rhode Island 02903
Providence Equity Partners II, L.P. (5) ................................................. 17,632.67 9.2%
50 Kennedy Plaza
Fleet Center, 9th Floor
Providence, Rhode Island 02903
Madison Dearborn Capital Partners II, L.P. .............................................. 23,510.228 12.2%
3 First National Plaza, Suite 3800
Chicago, IL 60602
Chase Venture Capital Associates, L.P. .................................................. 23,510.228 12.2%
380 Madison Avenue, 12th Floor
New York, NY 10017
HarbourVest Partners, LLC ............................................................... 11,755.114 6.1%
One Financial Center, 44th Floor
Boston, MA 02111
Norwest Venture Partners VI, LP ......................................................... 11,755.114 6.1%
40 William Street, Suite 305
Wellesley, MA 02181-3902
Formus Communications, Inc. ............................................................. 11,755.114 6.1%
720 South Colorado Blvd.
Suite 600N
Denver, CO 80246
Spectrum Equity Investors II, L.P. ...................................................... 11,755.114 6.1%
One International Place
Boston, MA 02110
Global Private Equity III L.P. (4) ...................................................... 15,281.65 8.0%
75 State Street
Boston, Massachusetts 02109
Advent PGGM Global LP. (4) .............................................................. 15,281.65 8.0%
75 State Street
Boston, Massachusetts 02109
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
BENEFICIAL
NAME AND ADDRESS OF OWNERSHIP OF
BENEFICIAL OWNER OF WNP WNP VOTING PERCENT
VOTING COMMON STOCK COMMON STOCK OF CLASS
- ----------------------------------------------------------------------------------------- ------------- -----------
<S> <C> <C>
Advent Partners GPE III L.P. (4) ........................................................ 15,281.65 8.0%
75 State Street
Boston, Massachusetts 02109
Advent Partners North America GPE III L.P. (4) .......................................... 15,281.65 8.0%
75 State Street
Boston, Massachusetts 02109
Advent Partners L.P. (4) ................................................................ 15,281.65 8.0%
75 State Street
Boston, Massachusetts 02109
Digital Media and Communications L.P. (4) ............................................... 15,281.65 8.0%
75 State Street
Boston, Massachusetts 02109
Adwest L.P. (4) ......................................................................... 15,281.65 8.0%
75 State Street
Boston, Massachusetts 02109
Oakstone Ventures L.P. (4) .............................................................. 15,281.65 8.0%
75 State Street
Boston, Massachusetts 02109
TelAdvent L.P. (4) ...................................................................... 15,281.65 8.0%
75 State Street
Boston, Massachusetts 02109
</TABLE>
37
<PAGE>
The following table sets forth information concerning the number of shares
of WNP voting common stock held as of March 31, 1999 by each of WNP's directors
and executive officers and all of WNP's directors and executive officers as a
group. The percentages reflected in the column "Percent of Class" in this table
were computed with reference to a total of 1,000.308 shares of WNP voting common
stock outstanding as of March 31, 1999 plus, where applicable, options to
purchase shares of WNP voting common stock that are currently exercisable or
that may be exercised within 60 days.
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP OF WNP VOTING COMMON STOCK
<TABLE>
<CAPTION>
SOLE VOTING SHARED
AND VOTING AND TOTAL PERCENT OF
NAME OF DISPOSITIVE DISPOSITIVE BENEFICIAL OWNERSHIP
BENEFICIAL OWNER POWER POWER POWER CLASS
- ----------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Thomas H. Jones (1).............................................. 125.557 0 125.557 12.6%
Curtis J. Wilson (2)............................................. 125.557 0 125.557 12.6%
Trygve E. Myhren (3)............................................. 125.557 0 125.557 12.6%
Royce J. Holland (6)............................................. 125.557 0 125.557 12.6%
Timothy L. Dibble (7)............................................ 0 24.521 24.521 2.5%
James Fleming (8)................................................ 0 21.456 21.456 2.1%
Kevin J. Maroni (9).............................................. 0 30.651 30.651 3.1%
All directors and executive officers as a group (7 persons)...... 502.228 76.628 578.856 57.9
</TABLE>
38
<PAGE>
The following table sets forth information concerning the number of shares
of WNP non-voting common stock held as of March 31, 1999 by each of WNP's
directors and executive officers and all of WNP's directors and executive
officers as a group. The percentages reflected in the column "Percent of Class"
in this table were computed with reference to a total of 1,026,987.212 shares of
WNP non-voting common stock outstanding as of March 31, 1999 plus, where
applicable, options to purchase shares of WNP non-voting common stock that are
currently exercisable or that may be exercised within 60 days.
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP OF WNP NON-VOTING COMMON STOCK
<TABLE>
<CAPTION>
SOLE VOTING SHARED VOTING
AND AND TOTAL PERCENT OF
DISPOSITIVE DISPOSITIVE BENEFICIAL OWNERSHIP
NAME OF BENEFICIAL OWNER POWER POWER POWER CLASS
- --------------------------------------------------------- ------------ ------------- ------------- -----------
<S> <C> <C> <C> <C>
Thomas H. Jones (1)...................................... 47,844.700 0 47,844.700 4.7%
Curtis J. Wilson (2)..................................... 2,249.577 0 2,249.577 *
Trygve E. Myhren (3)..................................... 2,249.577 0 2,249.577 *
Royce J. Holland (6)..................................... 2,249.577 0 2,249.577 *
Timothy L. Dibble (7).................................... 0 47,665.847 47,665.847 4.6%
James Fleming (8)........................................ 0 41,707.617 41,707.617 4.1%
Kevin J. Maroni (9)...................................... 0 59,582.310 59,582.310 5.8%
All directors and executive officers as a group (7 54,593.431 148,955.774 203,549.205 19.8%
persons)...............................................
</TABLE>
- ------------------------
* indicates less than 1%
39
<PAGE>
The following table sets forth information concerning the number of shares
of WNP preferred stock held as of March 31, 1999 by each of WNP's directors and
executive officers and all of WNP's directors and executive officers as a group.
The percentages reflected in the column "Percent of Class" in this table were
computed with reference to a total of 192,020.997 shares of WNP preferred stock
outstanding as of March 31, 1999 plus, where applicable, options to purchase
shares of WNP preferred stock that are currently exercisable or that may be
exercised within 60 days.
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP OF WNP PREFERRED STOCK
<TABLE>
<CAPTION>
SOLE VOTING SHARED
AND VOTING AND TOTAL PERCENT OF
DISPOSITIVE DISPOSITIVE BENEFICIAL OWNERSHIP
NAME OF BENEFICIAL OWNER POWER POWER POWER CLASS
- ------------------------------------------------------------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Thomas H. Jones (1).......................................... 250.404 0 250.404 *
Curtis J. Wilson (2)......................................... 249.996 0 249.996 *
Trygve E. Myhren (3)......................................... 249.996 0 249.996 *
Royce J. Holland (6)......................................... 249.996 0 249.996 *
Timothy L. Dibble (7)........................................ 0 9,404.091 9,404.091 4.9%
James Fleming (8)............................................ 0 8,228.580 8,228.58 4.3%
Kevin J. Maroni (9).......................................... 0 11,755.114 11,755.114 6.1%
All directors and executive officers as a group (7 1000.392 29,387.785 30,388.177 15.8%
persons)...................................................
</TABLE>
- ------------------------
(1) Mr. Jones is the President, Chief Executive Officer and a Director of WNP.
Mr. Jones is the owner of 39,844.700 shares of WNP non-voting common stock,
and is the sole manager of Tigris Rivanna, L.L.C., which owns 8,000 shares
of WNP non-voting common stock. Of the 47,844.700 shares of WNP non-voting
stock held by Mr. Jones as of March 31, 1999, 20,050.536 were subject to
vesting based on the attainment of certain performance criteria. None of
these performance shares is to vest until a realization event, which is
generally defined as a sale of WNP, an initial public offering, or a
liquidation of WNP. Upon the occurrence of a realization event, some or all
of the performance shares vest depending on the level of return to investors
and the remaining shares are forfeited. As of March 31, 1999, none of the
performance shares had vested. All 20,050.536 of the performance shares are
reflected as outstanding as of March 31, 1999. As of the closing of the
merger, 7,512.634 of these shares are expected to vest, and 12,537.902 of
these shares are expected to be forfeited by Mr. Jones.
(2) Mr. Wilson is a Director of WNP.
(3) Mr. Myhren is a Director of WNP.
(4) Global Private Equity III L.P., Advent PGGM Global LP., Advent Partners GPE
III L.P., Advent Partners North America GPE III L.P., Advent Partners L.P.,
Digital Media and Communications L.P., Adwest L.P., Oakstone Ventures L.P.,
and TelAdvent L.P. are affiliated entities which own 24.898, 3.831, .377,
.113, .92, 5.744, .613, 2.394 and .956 shares of WNP voting common stock
respectively, 48,398.71, 7,447.789, 732.862, 220.455, 1,787.469, 11,165.725,
1,191.646, 4,653.378 and 1,858.968 shares of WNP nonvoting common stock
respectively, and 9,548.679, 1,469.389, 144.588, 43.494, 352.654, 2,202.909,
235.102, 918.075 and 366.76 shares of WNP preferred stock respectively.
(5) Providence Equity Partners, L.P. and Providence Equity Partners II, L.P. are
affiliated entities which own 88,144.4 and 1,229.064 shares of WNP
non-voting common stock and 17,390.186 and 242.484 shares of WNP preferred
stock respectively.
(6) Mr. Holland is a Director of WNP.
(7) Mr. Dibble is a principal of Alta Communications VI, LP and Alta-Comm S by
S, LLC which own 23.975 and .546 shares of WNP voting common stock
respectively, 46,604.982 and 1,060.865 shares of WNP non-voting common stock
respectively and 9,194.791 and 209.300 shares of WNP preferred stock
respectively. Mr. Dibble disclaims beneficial ownership over all of these
shares.
40
<PAGE>
(8) Mr. Fleming is a principal of Columbia LMDS Investors, LLC which owns 21.456
shares of WNP voting common stock, 41,707.617 shares of WNP non-voting
common stock and 8,228.58 shares of WNP preferred stock. Mr. Fleming
disclaims beneficial ownership over all of these shares.
(9) Mr. Maroni is a principal of Spectrum Equity Investors II, L.P. which owns
30.651 shares of WNP voting common stock, 59,582.31 shares of WNP non-voting
common stock and 11,755.114 shares of WNP preferred stock. Mr. Maroni
disclaims beneficial ownership over all of these shares.
41
<PAGE>
WNP EXECUTIVE COMPENSATION
The following table shows information concerning the compensation paid to
Mr. Jones for services rendered to WNP during the year ended December 31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
NUMBER OF
ANNUAL SECURITIES
NAME AND COMPENSATION UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY OPTIONS COMPENSATION
- --------------------------------------------------------------- --------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Thomas H. Jones ............................................... 1998 $ 235,000(1)
President and
Chief Executive Officer
</TABLE>
- ------------------------
(1) Represents compensation paid to New Venture Directions, Inc., a corporation
wholly-owned by Mr. Jones, in connection with a Management Services
Agreement between WNP, New Venture Directions, Inc., and Mr. Jones.
42
<PAGE>
LEGAL MATTERS
Willkie Farr & Gallagher, New York, New York, counsel for NEXTLINK, will
pass upon the legality of the shares of Class A common stock being issued under
this prospectus.
EXPERTS
The audited financial statements included in the NEXTLINK's Annual Report on
Form 10-K, filed on March 30, 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 said firm as experts in giving said reports.
The audited financial statements of WNP included in this prospectus have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
43
<PAGE>
INDEX TO FINANCIAL STATEMENTS FOR WNP COMMUNICATIONS, INC.
<TABLE>
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Balance Sheet as of December 31, 1998................................................. F-3
Statement of Operations And Changes in Stockholders' Deficit For the Period from
Inception (January 8, 1998) to December 31, 1998.................................... F-4
Statement of Cash Flows for the Period from Inception (January 8, 1998) to December
31, 1998............................................................................ F-5
Notes to Financial Statements as of December 31, 1998................................. F-6
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To WNP Communications, Inc.:
We have audited the accompanying balance sheet of WNP Communications, Inc.
(a Delaware corporation in the development stage), as of December 31, 1998, and
the related statements of operations and changes in stockholders' deficit and
cash flows for the period from inception (January 8, 1998) to December 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of WNP Communications, Inc. as
of December 31, 1998, and the results of its operations and its cash flows for
the period from inception to December 31, 1998, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Washington, D.C.
February 16, 1999
F-2
<PAGE>
WNP COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
AS OF DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................................... $ 4,542,828
Other current assets........................................................ 72,194
-----------
Total current assets.................................................... 4,615,022
PROPERTY AND EQUIPMENT, net................................................... 86,905
LICENSES...................................................................... 187,212,568
-----------
Total assets............................................................ $191,914,495
-----------
-----------
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses....................................... $ 356,932
-----------
COMMITMENTS AND CONTINGENCIES (Note 6)
REDEEMABLE CAPITAL STOCK (Note 4)
Series A Preferred Stock, $0.01 par value; 300,000 shares authorized,
192,021 shares issued and outstanding as of December 31, 1998 (liquidation
preference of $203,115,532 as of December 31, 1998)....................... 203,115,532
Nonvoting Common Stock, $0.01 par value; 2,000,000 shares authorized,
1,022,806 shares issued and outstanding as of December 31, 1998........... 204,561,200
Voting Common Stock, $0.01 par value; 2,000 shares authorized, 1,000 shares
issued and outstanding as of December 31, 1998............................ 200,000
STOCKHOLDERS' DEFICIT:
Preferred Stock, $0.01 par value; 700,000 shares authorized, no shares
issued or outstanding as of December 31, 1998............................. --
Accumulated deficit during development stage................................ (216,319,169)
-----------
Total stockholders' deficit............................................. (216,319,169)
-----------
Total liabilities and stockholders' deficit............................. $191,914,495
-----------
-----------
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-3
<PAGE>
WNP COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS AND CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE PERIOD FROM INCEPTION (JANUARY 8, 1998) TO DECEMBER 31, 1998
<TABLE>
<S> <C>
Selling, general, and administrative expenses................................. $ 2,338,646
Interest income............................................................... 2,014,360
------------
Net loss...................................................................... (324,286)
Stockholders' deficit, beginning of period.................................... --
Dividends on Series A Preferred Stock......................................... (11,243,921)
Accretion of Nonvoting Common Stock........................................... (204,550,972)
Accretion of Voting Common Stock.............................................. (199,990)
------------
Stockholders' deficit, end of period.......................................... $(216,319,169)
------------
------------
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE>
WNP COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (JANUARY 8, 1998) TO DECEMBER 31, 1998
<TABLE>
<S> <C>
OPERATING ACTIVITIES:
Net loss.................................................................... $ (324,286)
Adjustments to reconcile net loss to net cash used in operating activities--
Depreciation and amortization............................................. 18,939
Changes in operating assets and liabilities:
Other current assets.................................................... (72,194)
Accounts payable and accrued expenses................................... 356,932
------------
Net cash used in operating activities................................. (20,609)
INVESTING ACTIVITIES:
Purchases of property and equipment........................................... (105,844)
Purchase of licenses.......................................................... (187,212,568)
------------
Net cash used in investing activities................................. (187,318,412)
FINANCING ACTIVITIES:
Proceeds from issuance of Series A Preferred Stock.......................... 191,871,611
Proceeds from issuance of Common Stock...................................... 10,238
------------
Net cash flows provided by financing activities....................... 191,881,849
------------
NET INCREASE IN CASH AND CASH EQUIVALENTS..................................... 4,542,828
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD................................ --
------------
CASH AND CASH EQUIVALENTS, END OF PERIOD...................................... $ 4,542,828
------------
------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid............................................................... $ --
------------
------------
Income taxes paid........................................................... $ --
------------
------------
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
WNP COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998
1. ORGANIZATION AND DESCRIPTION OF BUSINESS:
The Company was incorporated in January 1998 as WNP Communications, Inc.
(the "Company"). The Company is in the development stage. The Company is a
telecommunications company which commenced business on January 8, 1998 (date of
inception), and participated in the Federal Communications Commission's ("FCC")
auction of Local Multipoint Distribution Service ("LMDS") wireless licenses,
which began in February 1998 (the "Auction"). The Company successfully bid on a
total of 40 licenses, and the FCC issued a public notice in October 1998 that
the licenses had been granted.
The Company's plans and objectives are subject to certain risks and
uncertainties, including the successful development, implementation and
marketing of technology which employs the LMDS licenses. The Company faces
current and potential competitors with greater financial, technological, and
marketing resources, faces rapidly changing technology, and is dependent on key
management personnel.
On January 14, 1999, the Company agreed to be acquired by NEXTLINK
Communications, Inc. for approximately $695 million, subject to approval by the
FCC and other relevant regulatory agencies. Subsequently, the Company began
winding down its operations and developed a severance plan for its employees.
The Company expects to recognize a loss of approximately $65,000 on the disposal
of property and equipment and has committed to aggregate severance pay of
approximately $233,000 for its employees.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less at the time of purchase to be cash equivalents.
LICENSES
Licenses include the purchase price, plus direct acquisition costs of
approximately $344,000. The licenses will be amortized over their expected
useful lives.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes".
SFAS No. 109 requires that deferred income taxes reflect the expected tax
consequences on future years of differences between the tax bases of assets and
liabilities and their bases for financial reporting purposes. Valuation
allowances are established when necessary to reduce deferred tax assets to the
expected amount to be realized.
F-6
<PAGE>
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," and SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information." The Company adopted both of these
standards during the period from inception to December 31, 1998.
SFAS No. 130 requires "comprehensive income" and the components of "other
comprehensive income," to be reported in the financial statements and/or notes
thereto. Since the Company does not have any components of "other comprehensive
income," reported net income is the same as "total comprehensive income" for the
period presented.
SFAS No. 131 requires entities to disclose financial and descriptive
information about its reportable operating segments. It also establishes
standards for related disclosures about products and services, geographic areas,
and major customers. The Company has determined that since it has recognized no
revenue for the period presented and has no operations outside the United
States, no additional disclosures are required.
In April 1998, the American Institute of Certified Public Accountants'
Accounting Standards Executive Committee issued Statement of Position ("SOP")
98-5, "Reporting on the Costs of Start-Up Activities". SOP 98-5 requires that
costs of start-up activities, including organizational costs, be expensed as
incurred. The Company adopted SOP 98-5 during the period from inception to
December 31, 1998 and has expensed all start-up costs.
3. PROPERTY AND EQUIPMENT: PROPERTY AND EQUIPMENT CONSISTS OF THE FOLLOWING AS
OF DECEMBER 31, 1998:
<TABLE>
<S> <C>
Furniture and fixtures............................................................. $ 9,165
Computer equipment................................................................. 79,742
Office equipment................................................................... 16,937
---------
105,844
Less--Accumulated depreciation..................................................... (18,939)
---------
$ 86,905
---------
---------
</TABLE>
Property and equipment are stated at historical cost. Depreciation is
computed using the straight-line method over the estimated useful lives of the
assets, which range from five to seven years.
4. STOCK AND STOCK RIGHTS:
The Company has a total of 3,002,000 shares of authorized capital stock of
which 2,000 have been designated Voting Common Stock, 2,000,000 have been
designated Nonvoting Common Stock, 300,000 have been designated Series A
Preferred Stock, and 700,000 are undesignated preferred stock.
In January 1998, pursuant to a Securities Purchase Agreement, the Company
completed the sale of 101,021 shares of Series A Preferred Stock at $1,000 per
share, 1,000,000 shares of Nonvoting Common Stock at $0.01 per share, and 1,000
shares of Voting Common Stock at $0.01 per share. The sale raised approximately
$101 million in proceeds.
In April 1998, the Company completed the sale of an additional 20,408 shares
of Nonvoting Common Stock at $0.01 per share.
F-7
<PAGE>
In October 1998, the Company amended the Securities Purchase Agreement and
sold additional stock to existing stockholders. The Company sold 91,000 shares
of Series A Preferred Stock at $1,000 per share, and 2,398 shares of Nonvoting
Common Stock at $0.01 per share. The sale raised approximately $91 million in
proceeds.
PREFERRED STOCK
Series A Preferred Stock entitles holders to receive cumulative dividends,
in preference to the common stockholders, compounded annually in arrears at a
rate of 10 percent of the original purchase price and all accumulated and unpaid
dividends. Series A Preferred stockholders have a liquidation preference which
entitles them to receive the original purchase price, plus any accumulated and
unpaid dividends, before any assets are distributed to the common stockholders,
in the event of a liquidation, dissolution, winding-up or change in voting
control of the Company.
The Series A Preferred stockholders do not have voting rights, but the
approval of 66 2/3 percent is required in order for the Company to authorize or
issue additional equity or other stock rights, or amend the certificate of
incorporation or by-laws in a manner that would change the rights of the Series
A Preferred stockholders in an adverse manner.
After the fifth anniversary date of the completion of the Auction, Series A
Preferred stockholders may redeem their shares at any time or from time to time.
Such redemption must be approved by the majority of the Nonvoting Common
stockholders (the "Required Majority") unless the seventh anniversary of the
Auction has passed. The redemption price for the Series A Preferred Stock is the
purchase price plus accumulated and unpaid dividends. Series A Preferred
stockholders exercising these redemption rights must redeem all common stock
held by them as well.
COMMON STOCK
The majority of the Voting Common Stock is held proportionally by four
individuals (the "Controlling Principals"). The Controlling Principals' voting
rights enable them to elect four of the seven members of the Board of Directors,
with the remaining members being elected by the Required Majority. The Nonvoting
Common stockholders have certain veto powers, which may be invoked with the
approval of the Required Majority, with respect to approval of operational
budgets, amending the articles of incorporation or by-laws, payment of
dividends, redemption of securities, issuance of securities, incurrence of
indebtedness, disposition of assets, and investments.
After the fifth anniversary date of the completion of the Auction, Nonvoting
Common and Voting Common stockholders may redeem their shares at any time or
from time to time. Such redemption must be approved by the Required Majority
unless the seventh anniversary date of the completion of the Auction has passed.
The redemption price for the Nonvoting and Voting Common Stock is fair market
value, as defined. Any stockholder exercising these redemption rights must
redeem all common stock and Series A Preferred Stock held by them. The Nonvoting
and Voting Common Stock was accreted to its redemption value as of December 31,
1998 based on an independent appraisal.
Certain shares of Nonvoting Common Stock held by the Controlling Principals
are subject to vesting. As of December 31, 1998, a total of 10,855 Nonvoting
Common shares are subject to vesting based on the passage of time and continuing
service (the "Continuing Shares"), and a total of 20,051 Nonvoting Common shares
are subject to vesting based on the attainment of certain performance criteria
(the "Performance Shares"). The Continuing Shares outstanding as of December 31,
1998 will vest ratably over approximately 27 months. In the event of a sale of
the Company, an initial public offering, or death or disability, any unvested
Continuing Shares will vest. The vested and unvested Continuing Shares are
reflected as outstanding in the accompanying balance sheet.
F-8
<PAGE>
With respect to the Performance Shares, no shares will vest until a
Realization Event, as defined, occurs. A Realization Event is generally defined
as a sale of the Company, an initial public offering, or a liquidation. Upon the
occurrence of a Realization Event, some or all of the Performance Shares will
vest depending on the level of Return, as defined, to investors. The Company
expects that 7,513 of the Performance Shares will vest upon the closing of the
proposed sale of the Company and the remaining amount will be forfeited. At the
effective date of such sale, a compensation charge will be recorded. Assuming
the sale becomes effective on June 1, 1999, the compensation charge will be
approximately $1.2 million. As of December 31, 1998, none of the Performance
Shares were vested. All 20,051 of the Performance Shares are reflected as
outstanding in the accompanying balance sheet.
STOCK OPTION PLAN
In November 1998, the Company adopted the 1998 Stock Option Plan (the
"Plan"). The Plan provides for the award to eligible employees and others of
incentive stock options or nonqualified stock options covering shares of the
Company's Nonvoting Common Stock. The Plan reserves 35,000 shares of Nonvoting
Common Stock for issuance, 26,395 shares of which were available for grant as of
December 31, 1998.
During the period from inception to December 31, 1998, the Company granted
options to purchase 8,605 Nonvoting Common shares, at an exercise price of
$0.01, which was the fair market value of such shares as determined by the Board
of Directors. The options generally expire eight years from the date of grant
and the weighted-average remaining contractual life was 7.87 years as of
December 31, 1998. Options with respect to 959 Nonvoting Common shares were
vested as of December 31, 1998, with the remaining shares under option generally
vesting in sixteen equal portions on the last day of each January, April, July,
and October, beginning on January 31, 1999. The Plan provides for partial
acceleration of vesting in the event of the disposition of substantially all of
the Company's assets or a change in voting control of the Company, unless the
change is a result of an initial public offering.
The Company generally has the right of first refusal with respect to option
shares proposed for transfer, at the proposed transfer price, and has the right
to repurchase option shares at fair market value at any time after termination
of employment.
The Company has elected to account for stock and stock rights in accordance
with Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to
Employees". SFAS No. 123, "Accounting for Stock-Based Compensation," establishes
an alternative method of expense recognition for stock-based compensation awards
to employees based on fair values. The Company has elected not to adopt SFAS No.
123 for expense recognition purposes.
Pro forma information regarding net income is required by SFAS No. 123 and
has been determined as if the Company had accounted for its employee stock
options under the fair value method prescribed by SFAS No. 123. The fair value
of options granted during the period from inception to December 31, 1998 was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions: risk-free interest rate of 5.09
percent; no dividend yield; weighted-average expected lives of the options of
four years; and expected volatility of 50 percent.
The weighted-average fair value of options granted during the period from
inception to December 31, 1998 was insignificant. For purposes of pro forma
disclosures, the estimated fair value of options is amortized to expense over
the estimated service period. If the Company had used the fair value accounting
provisions of SFAS No. 123, the pro forma net loss for the period from inception
to December 31, 1998, would not have been different than the net loss reported
in the accompanying financial statements. The impact of applying SFAS No. 123
may not necessarily be indicative of future results.
F-9
<PAGE>
5. RELATED-PARTY TRANSACTION:
In January 1998, the Company entered into a management services agreement
with one of the Controlling Principals and a corporation wholly owned by the
Controlling Principal. Under the agreement, the Controlling Principal will
provide management and consulting services in connection with the Company's
organization and participation in the Auction, and the day-to-day operation and
management of the Company. The agreement provides for payment of approximately
$20,000 per month and cannot be terminated before May 31, 1999. The Company
recognized approximately $235,000 in expense related to this agreement during
the period from inception to December 31, 1998.
The agreement also provides for the Company to lease office space which is
owned by the Controlling Principal. The payment for such office space is $4,000
per quarter and may be terminated at any time by either party upon 90 days
written notice. The Company recognized approximately $10,000 in expense related
to this agreement during the period from inception to December 31, 1998.
6. COMMITMENTS AND CONTINGENCIES:
LEASES
The Company leases office space and certain equipment under operating
leases. Rent expense was approximately $30,000 for the period from inception to
December 31, 1998. The leases expire in 1999 and call for payments of
approximately $25,000 in 1999.
7. INCOME TAXES:
The Company has net operating loss ("NOLs") carryforwards for Federal income
tax purposes of approximately $1,419,000 as of December 31, 1998, which may be
applied against future taxable income and expire in 2013. The use of the NOLs is
subject to statutory and regulatory limitations regarding changes in ownership.
SFAS No. 109 requires that the tax benefit of NOLs for financial reporting
purposes be recorded as an asset to the extent that management assesses the
realization of such deferred tax assets is "more likely than not." A valuation
reserve is established for any deferred tax assets that are not expected to be
realized.
As a result of operating losses since inception and the fact that the
Company has a limited operating history, a valuation allowance equal to the
deferred tax asset was recorded as of December 31, 1998.
The tax effect of significant temporary differences, which comprise the
deferred tax assets and liabilities, are as follows as of December 31, 1998:
<TABLE>
<S> <C>
DEFERRED TAX ASSETS:
Capitalized start-up costs..................................................... $ 602,707
Net operating loss carryforwards............................................... 546,291
---------
Total deferred tax assets.................................................. 1,148,998
---------
DEFERRED TAX LIABILITIES:
Amortization of licenses....................................................... (1,026,180)
---------
Net deferred tax assets.................................................... 122,818
VALUATION ALLOWANCE.............................................................. (122,818)
---------
$ --
---------
---------
</TABLE>
The Company recorded no benefit or provision for income taxes for the period
ended December 31, 1998.
F-10
<PAGE>
ANNEX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
-------------------------------------------
-------------------------------------------
NEXTLINK COMMUNICATIONS, INC.
WNP COMMUNICATIONS, INC.
AND
PCO ACQUISITION CORP.
-------------------------------------------
-------------------------------------------
AGREEMENT AND PLAN OF MERGER
-------------------------------------------
-------------------------------------------
-------------------------------------------
-------------------------------------------
DATED AS OF JANUARY 14, 1999
-------------------------------------------
-------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
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<S> <C> <C>
ARTICLE I.
THE MERGER
1.1. The Merger....................................................................................... A-2
1.2. Effective Time................................................................................... A-2
1.3. Effect of the Merger; Conversion of Securities................................................... A-3
1.4. Certificate of Incorporation; By-Laws; Directors and Officers.................................... A-4
1.5. Merger Consideration............................................................................. A-4
1.6. Stockholders' Election........................................................................... A-7
1.7. Additional Actions............................................................................... A-7
1.8. Options; Stock Plans............................................................................. A-7
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
2.1. Organization and Good Standing................................................................... A-8
2.2. Capitalization................................................................................... A-8
2.3. Stockholders; No Subsidiaries; Limited Business.................................................. A-8
2.4. Authorization; Binding Agreement................................................................. A-9
2.5. Governmental Approvals........................................................................... A-9
2.6. No Violations; Consents.......................................................................... A-9
2.7. Company Financial Statements..................................................................... A-10
2.8. Absence of Certain Changes or Events............................................................. A-10
2.9. Compliance with Laws............................................................................. A-10
2.10. LMDS Licenses and Other Permits.................................................................. A-10
2.11. Litigation....................................................................................... A-10
2.12. Contracts........................................................................................ A-11
2.13. Employee Benefit Plans........................................................................... A-11
2.14. Taxes and Returns................................................................................ A-11
2.15. Intellectual Property............................................................................ A-12
2.16. Finders and Investment Bankers................................................................... A-12
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
3.1. Organization and Good Standing................................................................... A-12
3.2. Capitalization................................................................................... A-12
3.3. Authorization; Binding Agreement................................................................. A-13
3.4. Governmental Approvals........................................................................... A-13
3.5. No Violations.................................................................................... A-13
3.6. Securities Filings............................................................................... A-14
3.7. Purchaser Financial Statements................................................................... A-14
3.8. Registration Statement........................................................................... A-14
3.9. Valid Issuance................................................................................... A-15
3.10. Finders and Investment Bankers................................................................... A-15
3.11. Existing Registration Rights..................................................................... A-15
</TABLE>
i
<PAGE>
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<S> <C> <C>
ARTICLE IV.
CONDUCT OF BUSINESS PENDING THE MERGER
4.1. Conduct of Business of the Company............................................................... A-15
4.2. No Solicitation.................................................................................. A-17
ARTICLE V.
ADDITIONAL COVENANTS
5.1. Notification of Certain Matters.................................................................. A-18
5.2. Reasonable Best Efforts; Intended Tax Treatment.................................................. A-18
5.3. Public Announcements............................................................................. A-20
5.4. Affiliate Letters................................................................................ A-20
5.5. Appraisal Rights................................................................................. A-20
ARTICLE VI.
MERGER CONDITIONS
6.1. Conditions to Each Party's Obligations........................................................... A-20
(a) No Injunction or Action..................................................................... A-20
(b) Registration Rights Agreement............................................................... A-21
(c) H-S-R Act................................................................................... A-21
(d) FCC Approval................................................................................ A-21
(e) Registration Statement Effective............................................................ A-21
6.2. Conditions to Obligations of the Company......................................................... A-21
(a) No Material Adverse Change.................................................................. A-21
(b) Performance by Purchaser.................................................................... A-21
(c) Certificates, Legal Opinions and Other Deliveries........................................... A-22
(d) Accuracy of Representations and Warranties.................................................. A-22
(e) Eagle River Waiver of Piggyback Rights...................................................... A-22
(f) No Conditions............................................................................... A-22
6.3. Conditions to Obligations of Purchaser and Merger Sub............................................ A-23
(a) No Material Adverse Change.................................................................. A-23
(b) Performance by the Company.................................................................. A-23
(c) Certificates, Legal Opinion and Other Deliveries............................................ A-23
(d) Accuracy of Representations and Warranties.................................................. A-23
(e) No Conditions............................................................................... A-24
ARTICLE VII.
TERMINATION
7.1. Termination...................................................................................... A-24
7.2. Effect of Termination............................................................................ A-25
7.3. Fees and Expenses................................................................................ A-25
ARTICLE VIII.
INDEMNIFICATION AND REIMBURSEMENT
8.1. Indemnification by Stockholders.................................................................. A-26
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
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<S> <C> <C>
8.2. Claims for Reimbursement......................................................................... A-27
8.3. Reimbursement from Escrowed Merger Consideration................................................. A-29
8.4. Defense of Third-Party Claims.................................................................... A-29
8.5. Resolution of Disputes........................................................................... A-30
8.6. Indemnifying Parties' Decisions.................................................................. A-30
ARTICLE IX.
MISCELLANEOUS
9.1. Confidentiality.................................................................................. A-30
9.2. Amendment and Modification....................................................................... A-31
9.3. Waiver of Compliance; Consents................................................................... A-31
9.4. Survival......................................................................................... A-31
9.5. Notices.......................................................................................... A-31
9.6. Binding Effect; Assignment....................................................................... A-33
9.7. Expenses......................................................................................... A-33
9.8. Governing Law.................................................................................... A-33
9.9. Counterparts..................................................................................... A-33
9.10. Interpretation................................................................................... A-33
9.11. Entire Agreement................................................................................. A-33
9.12. Specific Performance............................................................................. A-34
9.13. Third Parties.................................................................................... A-34
9.14. Stockholders' Representative..................................................................... A-34
</TABLE>
ANNEXES:
Annex A--Capital Expenditure Budget
Annex B--Company Financial Statements
EXHIBITS:
Exhibit A--Form of Consent and Indemnity Agreement of Stockholders
Exhibit B--Form of Consent and Indemnity Agreement of Preferred Stockholders
Exhibit C--Form of Certificate of Merger
Exhibit D--Form of Escrow Agreement
Exhibit E--Form of Registration Rights Agreement
Exhibit F--Form of Opinion of Purchaser's counsel
Exhibit G--Form of Opinion of Company's counsel
SCHEDULES
Company Disclosure Schedule
Schedule 3.11--Existing Registration Rights
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "AGREEMENT") is made and entered
into as of January 14, 1999 by and among WNP Communications, Inc., a Delaware
corporation (the "COMPANY"), NEXTLINK Communications, Inc., a Delaware
corporation ("PURCHASER") and PCO Acquisition Corp., a Delaware corporation and
wholly-owned direct subsidiary of Purchaser ("Merger Sub").
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of the Company, Purchaser and
Merger Sub have approved the merger (the "Merger") of the Company with and into
Merger Sub in accordance with the laws of the State of Delaware and the
provisions of this Agreement;
WHEREAS, Purchaser, as the holder of all of the issued and outstanding
shares of Merger Sub's Common Stock, $.01 per share par value ("MERGER SUB
COMMON STOCK") has approved the Merger; and
WHEREAS, the holders of a majority of the issued and outstanding shares of
the Company's Voting Common Stock, $.01 per share par value ("COMPANY VOTING
STOCK") and the holders of a majority of its Nonvoting Common Stock, $.01 par
value per share ("COMPANY NONVOTING STOCK" and, together with the Company Voting
Stock, "COMPANY COMMON STOCK") have each consented in writing to the Merger
pursuant to Section 228 of the Delaware General Corporation Law (the "DGCL")
through their respective execution and delivery of a Consent and Indemnity
Agreement of Stockholders in the form attached hereto as EXHIBIT A; and
WHEREAS, the holders of 66 2/3% of the outstanding shares of the Company's
Series A Preferred Stock ("COMPANY PREFERRED STOCK"), have each consented in
writing to the Merger through their respective execution and delivery of a
Consent and Indemnity Agreement of Preferred Stockholders in the form attached
hereto as EXHIBIT B; and
WHEREAS, the Consent and Indemnity Agreement of Stockholders and the Consent
and Indemnity Agreement of Preferred Stockholders each constitute (i) an
agreement to indemnify the Indemnified Parties pursuant to Article VIII of this
Agreement and (ii) an irrevocable power of attorney designating Thomas H. Jones
as the Stockholders' Representative hereunder, with full power and authority
(and exculpated from personal liability for all actions taken in good faith) to
take certain actions hereunder from and after the Closing on behalf of such
stockholders, including, without limitation, the authority to execute the
Registration Rights Agreement in the name and on behalf of such stockholders and
take other ministerial actions contemplated by this Agreement and the
Registration Rights Agreement on their behalf; and
WHEREAS, the Merger Consideration will consist of cash, and, as Purchaser
shall determine (the "PURCHASER SHARE ELECTION"), as provided below, of shares
of Purchaser's Class A Common Stock, $.02 par value ("PURCHASER COMMON STOCK"),
it being the intention of the parties, in the event that Purchaser Common Stock
forms part of the Merger Consideration, that the Merger qualify for federal
income tax purposes as a reorganization under the provisions of Section
368(a)(2)(D) of the United States Internal Revenue Code of 1986 (the "CODE");
and
WHEREAS, substantially all of the Company's assets consist of cash and
licenses granted by the United States Federal Communications Commission (the
"FCC") to use electromagnetic spectrum in the 28-31 GHz range ("LOCAL MULTIPOINT
DISTRIBUTION SERVICE" or "LMDS") purchased at a spectrum auction (the "LMDS
AUCTION") conducted by the FCC pursuant to its Second Report and Order dated
March 13, 1997 and its Orders on Reconsideration released on May 6, 1997,
September 12, 1997 and February 11, 1998 (such orders, together with other
applicable FCC rules, orders and policies, the "LMDS RULES"); AND
WHEREAS, the Company, Purchaser and Merger Sub desire to make certain
agreements in connection with the transactions contemplated hereby.
<PAGE>
NOW, THEREFORE, in consideration of the premises and of the representations,
warranties, covenants and agreements hereinafter set forth, the parties hereto
agree as follows:
ARTICLE I. THE MERGER
1.1. THE MERGER. (a) At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the DGCL, the
Company shall be merged with and into Merger Sub (the "Merger"), the separate
corporate existence of the Company shall cease, and Merger Sub shall continue as
the surviving corporation (the "Surviving Corporation").
(b) The parties to the Merger shall file with the Secretary of State of
Delaware a certificate of merger substantially in the form attached hereto as
EXHIBIT C (the "CERTIFICATE OF MERGER") in order to comply in all respects with
the requirements of the DGCL and with the provisions of this Agreement.
1.2. EFFECTIVE TIME. The Merger shall become effective at the time of the
filing of the Certificate of Merger with the Secretary of State of Delaware in
accordance with the applicable provisions of the DGCL. As soon as practicable
after all of the conditions set forth in ARTICLE VI of this Agreement have been
satisfied or waived by the party or parties entitled to the benefit of the same,
the parties hereto shall cause the Merger to simultaneously become effective by
making such filings at the closing of the Merger to be held at the offices of
Purchaser's counsel in New York, New York (the "CLOSING"). Unless delayed by a
Purchaser Blackout pursuant to Section 5.2(c), the Closing will occur on a date
no later than the fifth Business Day following the date on which all the
conditions contained in Sections 6.1 (a), (c) and (d) shall have been satisfied
and Purchaser shall have been notified that the condition contained in Section
6.1(e) will be satisfied upon its written acceleration request (the "SCHEDULED
CLOSING DATE"). The time when the Merger shall become effective is herein
referred to as the "EFFECTIVE TIME", and the date on which the Effective Time
occurs is herein referred to as the "Closing Date."
1.3. EFFECT OF THE MERGER; CONVERSION OF SECURITIES. (a) At the Effective
Time, the effect of the Merger shall be as provided in the Certificate of Merger
and the applicable provisions of the DGCL. Without limiting the generality of
the foregoing, and subject thereto, at the Effective Time (i) all the property,
tangible and intangible, rights, privileges, powers and franchises of the
Company and Merger Sub shall vest in the Surviving Corporation and (ii) all
debts, liabilities and duties of the Company and Merger Sub (including, without
limitation, the FCC Liability, as hereinafter defined) shall become the debts,
liabilities and duties of the Surviving Corporation.
(b) At the Effective Time, by virtue of the Merger and without any action on
the part of any holder of securities:
(i) each share of Company Preferred Stock shall be converted in
accordance with its terms into the right to receive a portion of the Merger
Consideration (defined below) equal to its Preferred Liquidation Preference,
PROVIDED that, in the event of a Purchaser Share Election, subject to the
Stockholders' Election contemplated by Section 1.6, if the amount of the
aggregate Liquidation Preference exceeds the aggregate cash portion of the
Merger Consideration, such excess shall be payable in shares of Purchaser
Common Stock, valued as provided below;
(ii) each share of Company Common Stock (other than shares as to which
appraisal rights shall have been perfected under Section 262 of the DGCL
("Dissenting Shares")) shall be converted into the right to receive
(subject, in the event of a Purchaser Share Election, to the Stockholders'
Election contemplated by Section 1.6) a pro rata portion of the Merger
Consideration (other than the portion thereof attributed to the Preferred
Stock, as provided in clause (i) above and other than the Escrowed Merger
Consideration defined below), share for share, without any distinction
between the two classes thereof; PROVIDED, HOWEVER, that (A) the Merger
Consideration attributable to the Company Common Stock or Company Preferred
Stock of any stockholder of the Company who does not execute and deliver the
Consent and Indemnity Agreement of Stockholders and/or the Consent and
Indemnity Agreement of Preferred Stockholders shall be placed
A-2
<PAGE>
into escrow (the "ESCROWED MERGER CONSIDERATION") pursuant to an Escrow
Agreement in the form attached hereto as EXHIBIT D and (B) an amount in cash
representing the amount of Merger Consideration into which the Dissenting
Shares would have been converted had they not been Dissenting Shares shall
be placed into the Dissenting Stockholder Escrow Account.
(iii) each share of Merger Sub Common Stock shall thereafter remain
outstanding as one validly issued, fully paid and nonassessable share of
common stock, $.01 par value, of the Surviving Corporation;
(iv) each holder of a certificate representing any shares of Company
Common Stock or Company Preferred Stock shall thereupon cease to have any
rights with respect thereto, except the right to receive Merger
Consideration (whether upon consummation of the Merger or upon release of
the Escrowed Merger Consideration); and
(v) the stock transfer books of the Company shall be closed and there
shall not be any further registration of transfers of shares of any shares
of capital stock thereafter on the records of the Company.
1.4. CERTIFICATE OF INCORPORATION; BY-LAWS; DIRECTORS AND OFFICERS. (a)
Unless otherwise determined by Purchaser before the Effective Time, at the
Effective Time the Certificate of Incorporation of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended as provided
by law and such Certificate of Incorporation.
(b) The By-Laws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the By-Laws of the Surviving Corporation until
thereafter amended as provided by law, the Certificate of Incorporation of the
Surviving Corporation and such By-Laws.
(c) The directors of Merger Sub immediately prior to the Effective Time will
be the initial directors of the Surviving Corporation, and the officers of
Merger Sub immediately prior to the Effective Time will be the initial officers
of the Surviving Corporation. If, at the Effective Time, a vacancy shall exist
on the Board of Directors or in any office of the Surviving Corporation, such
vacancy may thereafter be filled in any manner provided by law.
1.5. MERGER CONSIDERATION. (a) The merger consideration (the "MERGER
CONSIDERATION") will be equal to the excess of the sum of (w) $695,000,000 and
(x) any Positive Adjustments (as defined below) over the sum of (y) the FCC
Liability and (z) any Negative Adjustments (as defined below). The cash portion
of the Merger Consideration will be no less than $186,868,132 (inclusive of the
amount of cash placed in the Dissenting Stockholders Escrow Account pursuant to
Section 5.5(b)), as adjusted by the net amount of the Positive Adjustments and
Negative Adjustments hereinafter defined. The Purchaser may elect in its sole
discretion, to pay all or any part of the remainder of the Merger Consideration
in shares of Purchaser Common Stock(a "PURCHASER SHARE ELECTION") or in cash or,
PROVIDED that Purchaser shall not make a Purchaser Share Election unless (i) the
value of shares of Purchaser Common Stock received as Merger Consideration will
constitute no less than 50% of the total value of the Merger Consideration at
the Effective Time and (ii) the Merger will thereafter qualify for federal
income tax purposes as a reorganization under the provisions of Section
368(a)(2)(D) of the Code. For purposes of determining the number of shares of
Purchaser Common Stock to be issued in the Merger, each share of Purchaser
Common Stock will be deemed to have a value equal to its Volume-Weighted Average
Trading Price (as defined below) for the twenty trading days preceding (but not
including) (i) the Closing Date (the "Closing Date Average Price") or (ii) in
the event of a Purchaser Blackout (as defined in Section 5.2(c)), the Scheduled
Closing Date (with appropriate adjustments for any stock splits, stock dividends
or the like that may occur during such period). "Volume-Weighted Average Trading
Price" means, for any period, (i) the average of the daily prices for each
trading day during such period, with each daily price computed as the product of
(x) the sale price times (y) the number of Purchaser Shares sold at such price,
divided by (ii) the total number of Purchaser shares so traded during such
trading day, all as reported by Bloomberg, L.P.
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(b) The "FCC LIABILITY" will be equal to the sum of (x) $152,892,129
(representing the amount of the bidding credits claimed and utilized by the
Company in the LMDS Auction) plus (y) interest thereon owed to the U.S.
Government through and including the Closing Date or the date on which the FCC
Liability is paid, whichever is earlier, at the rate of interest specified in
the LMDS Rules.
(c) (i) The "POSITIVE ADJUSTMENTS" shall be the amount of cash, accounts
receivable and current assets shown on the Final Closing Balance Sheet (as
defined below) plus the amount of the Company's capital expenditures made
through (but not including) the Closing Date to the extent contemplated by the
Capital Expenditure Budget attached hereto as Annex A or otherwise approved in
writing by Purchaser.
(ii) The "NEGATIVE ADJUSTMENTS" shall be the sum, without duplication,
of (w) the amount of total liabilities (other than the FCC Liability) of the
Company as of the Closing Date, whether matured, unmatured, contingent or
otherwise, with all contractual liabilities of the Company determined as
though all such contracts were terminated immediately prior to the Closing,
with all costs or expenses that would be incurred in connection with any
such termination were treated as liabilities of the Company as of the
Closing Date, PROVIDED that any unmatured or contingent liability shall be
valued net of the value of any current asset, not otherwise accounted for as
a Positive Adjustment, that would become an asset of the Company upon the
maturation of such liability or the occurrence of such contingency, as the
case may be, (x) the amount required to retire all of the Company's
outstanding stock options pursuant to Section 1.8, and (y) any Loss
occurring prior to the Closing to the extent indemnified pursuant to Article
VIII.
(iii) Commencing promptly after the date hereof, and updated at regular
intervals thereafter (and on a daily basis during the week prior to the
anticipated Closing Date), the Company shall prepare and deliver to
Purchaser a detailed estimated balance sheet of the Company as of the
Closing Date immediately prior to the Effective Time prepared in accordance
with generally accepted accounting principles (the "INITIAL CLOSING BALANCE
SHEET") and including, in addition, as footnotes, any additional liabilities
of the Company as of the Closing Date determined in accordance with clause
(ii)(w) above. Upon Purchaser's request, the Company shall make available to
Purchaser and its accountants and other representatives the work papers and
back-up materials used in preparing the Initial Closing Balance Sheet and
such other documents as Purchaser may reasonably request in connection with
its review of the Initial Closing Balance Sheet. In the event Purchaser
states any objections to the Initial Closing Balance Sheet or asserts any
Loss indemnified pursuant to Article VIII, Purchaser and the Company shall
cooperate fully with each other in making such adjustments to the Initial
Closing Balance Sheet as the parties may agree, and the Initial Closing
Balance Sheet, as so adjusted shall be the "FINAL CLOSING BALANCE SHEET,"
which shall be determinative of all Positive Adjustments and Negative
Adjustments for purposes of proceeding with the Closing. Any objections or
Claims that remain unresolved on the Closing Date will be resolved following
the Closing in accordance with Section 8.5 as if the dispute were a claim
for reimbursement under Article VIII.
(d) At any time prior to the Closing, Purchaser will inform the Company as
to whether and to what extent it will make a Purchaser Share Election. At the
Closing (i) Purchaser will deliver to the Stockholders' Representative or as the
Stockholders' Representative shall direct an amount of cash and/or shares of
Purchaser Common Stock having a value equal to the Merger Consideration and (ii)
the Stockholders' Representative will deliver, on behalf of the Company's
stockholders, certificates, representing all outstanding shares of Company
Common Stock and Company Preferred Stock together with duly executed letters of
transmittal or affidavits of loss with full indemnification from a financially
responsible entity (to the extent such items have been received by the
Stockholders' Representative).
1.6. STOCKHOLDERS' ELECTION. The Company will use reasonable efforts to
ascertain the preferences, if any, of the holders of Company Common Stock and
Company Preferred Stock to receive Merger Consideration in the form of cash or
stock in the event Purchaser makes a Purchaser Share
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Election. On the Closing Date, the Stockholder's Representative (with the
consent of those holders of Company Common Stock and Company Preferred Stock
entitled to receive a majority of the Merger Consideration) will allocate the
cash and stock portions of the Merger Consideration among the holders of Company
Common Stock and Company Preferred Stock, accommodating their expressed
preferences to the greatest practicable extent (and subject to the right of the
holders of Company Preferred Stock to receive cash to the maximum extent
available), such allocation to be without liability to the Stockholders'
Representative and, absent manifest error, conclusive.
1.7. ADDITIONAL ACTIONS. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of Merger Sub or the Company or otherwise to carry out this
Agreement, the officers and directors of the Surviving Corporation shall be
authorized to execute and deliver, in the name and on behalf of Merger Sub or
the Company, all such deeds, bills of sale, assignments and assurances and to
take and do, in the name and on behalf of Merger Sub or the Company, all such
other actions and things as may be necessary or desirable to vest, perfect or
confirm any and all right, title and interest in, to and under such rights,
properties or assets in the Surviving Corporation or otherwise to carry out this
Agreement, provided that no such additional actions shall create or increase
recourse of any kind to former officers, directors or stockholders of the
Company, except as otherwise provided in this Agreement.
1.8. OPTIONS; STOCK PLANS. Each option to acquire shares held by an
employee of the Company that is outstanding immediately prior to the Merger,
whether or not then vested or exercisable, shall, simultaneously with the
Merger, be canceled in exchange for a prompt payment of a single lump sum cash
payment equal to the product of (1) the number of Shares subject to such Company
Stock Option and (2) the excess, if any, of the Merger Consideration per share
over the exercise price per share of such Company Stock Option. The Company will
use its reasonable best efforts to obtain any agreement of optionholders
necessary to effectuate the foregoing, it being understood and agreed that the
cost to liquidate any such agreements with nonconsenting optionholders will be
accounted for as a Negative Adjustment.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Purchaser and Merger Sub as follows,
subject in each case to the exceptions and qualifications set forth on the
Company Disclosure Schedule delivered herewith (the "Disclosure Schedule"):
2.1. ORGANIZATION AND GOOD STANDING. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as now being conducted. The
Company is duly qualified or licensed and in good standing to do business in
each jurisdiction in which the character of the property owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification or licensing necessary except where the failure to be so qualified
or licensed would not be reasonably likely to have a Company Material Adverse
Effect. The Company has heretofore made available to Purchaser accurate and
complete copies of its Certificate of Incorporation and Bylaws, as currently in
effect. In this Agreement, any adverse effect on the business, assets, condition
(financial or other), results of operations or prospects of the Company is
referred to as a "COMPANY ADVERSE EFFECT", and a Company Adverse Effect that is
material to the business, assets, condition (financial or other), results of
operations or prospects of the Company and its subsidiaries (if any) taken as a
whole is referred to as a "Company Material Adverse Effect."
2.2. CAPITALIZATION. As of the date hereof, the authorized capital stock
of the Company consists of (i) 2,000 shares of Voting Common Stock, of which
1,000.308 shares are issued and outstanding,
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(ii) 2,000,000 shares of Non-Voting Common Stock, of which 1,022,805.962 shares
are issued and out-
standing and (iii) 1,000,000 shares of preferred stock, of which 300,000 are
designated Series A Preferred Stock, and of which 192,020.997 shares are issued
and outstanding (collectively, the "SHARES"), and as of the Closing Date, the
Company will have outstanding no shares of capital stock of any class other than
the classes to which the Shares belong. As of the date hereof, no other capital
stock of the Company is authorized or issued, including without limitation any
treasury shares. All issued and outstanding Shares are duly authorized, validly
issued, fully paid and non-assessable. As of the date hereof, except set forth
in Section 2.2 of the Disclosure Schedule, there are no outstanding rights,
subscriptions, warrants, puts, calls, preemptive rights, options or other
agreements of any similar kind relating to any of the outstanding, authorized
but unissued, unauthorized or treasury shares of the Company or any other
security of the Company, and there is no authorized or outstanding security of
any kind convertible into or exchangeable for any such stock or other security.
2.3. STOCKHOLDERS; NO SUBSIDIARIES; LIMITED BUSINESS. (a) Section 2.3 of
the Disclosure Schedule lists all of the issued and outstanding Shares of the
Company's capital stock and the record ownership thereof as of the date hereof.
To the knowledge of the Company, except as set forth on such Schedule, no other
Person has any right to or interest of record in any of such shares.
(b) The Company has no Subsidiaries or ownership interests of any kind in
any Person (other than short-term investment vehicles).
(c) From the date of its formation through the date hereof, the Company has
engaged in no business other than bidding for and obtaining its LMDS licenses,
obtaining the requisite financing therefor, engaging in RF design and evaluation
of equipment (through equipment trials and otherwise), engaging in strategic
discussions regarding business relationships, marketing studies and similar
development stage activities and implementing its business plan for LMDS and
related telecommunications services.
2.4. AUTHORIZATION; BINDING AGREEMENT. The Company has all requisite
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby,
including, but not limited to, the Merger, have been duly and validly authorized
by the Board of Directors of the Company and have been approved and adopted by
the stockholders of the Company in accordance with the DGCL. No other corporate
proceedings on the part of the Company are necessary to authorize the execution
and delivery of this Agreement or the consummation of the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by the Company and constitutes the legal, valid and binding agreement
of the Company, enforceable against the Company in accordance with its terms,
except to the extent that enforceability thereof may be limited by applicable
bankruptcy, insolvency, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and by principles of equity regarding
the availability of remedies ("ENFORCEABILITY EXCEPTIONS").
2.5. GOVERNMENTAL APPROVALS. No consent, approval, waiver or authorization
of, or notice to or declaration or filing with ("CONSENT"), any government, any
political subdivision, any governmental or regulatory authority, agency,
department, board, commission, administration or instrumentality or any court,
tribunal, arbitrator or self-regulatory organization ("GOVERNMENTAL AUTHORITY")
on the part of the Company is required in connection with the execution or
delivery by the Company of this Agreement or the consummation by the Company of
the transactions contemplated hereby other than (i) the filing of the
Certificate of Merger with the Secretary of State of Delaware in accordance with
the DGCL, (ii) FCC approval of the LMDS license assignment application
contemplated hereby and (iii) expiration or early termination of the waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
"H-S-R ACT").
2.6. NO VIOLATIONS; CONSENTS. The execution and delivery of this
Agreement, the consummation of the transactions contemplated hereby and
compliance by each of the Company and the stockholders
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of the Company with the provisions hereof do not and will not (i) conflict with
or result in any breach of any provision of the Certificate of Incorporation or
Bylaws of the Company, (ii) require any consent, approval or action of, or
notice to be given to, any corporation, person or firm, or result in a violation
or breach of, or constitute (with or without notice or lapse of time or both) a
default (or give rise to any right of termination, cancellation or acceleration)
under any of the terms, conditions or provisions of any contract or agreement to
which the Company is a party, (iii) result in the creation or imposition of any
lien or encumbrance of any kind upon any of the assets of the Company or (iv)
subject to obtaining the Consents referred to in Section 2.5, contravene any
applicable provision of any statute, law, rule or regulation or any order,
decision, injunction, judgment, award or decree ("LAW") to which the Company or
its assets or properties are subject.
2.7. COMPANY FINANCIAL STATEMENTS. The unaudited financial statements of
the Company (the "COMPANY FINANCIAL STATEMENTS"), as of November 30, 1998 (the
"BALANCE SHEET DATE") in the form attached hereto as ANNEX B, have been prepared
in good faith from, and are consistent with, the books and records of the
Company. The Company has not yet finalized its accounting principles, and
believes that certain adjustments to the Company Financial Statements will be
required to bring them into accord with generally accepted accounting
principles. Such adjustments may include, without limitation, adjustments to
reflect capitalization and depreciation policies, provisions for income taxes
and normal recurring accrual adjustments, but such adjustments will not, in the
aggregate, be material.
2.8. ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the Balance Sheet Date
through the date of this Agreement, there has not been (i) any event that has
had or would reasonably be expected to have a Company Material Adverse Effect
(ii) any declaration, payment or setting aside for payment of any dividend or
other distribution or any redemption or other acquisition by the Company of any
shares of capital stock or securities of the Company, other than accrual of
dividends pursuant to the terms of the Company Preferred Stock and other than
redemption of incentive stock options outstanding on the date hereof, or (iii)
any damage or loss to any asset or property, whether or not covered by
insurance.
2.9. COMPLIANCE WITH LAWS; NO LIABILITIES. The business of the Company has
been operated in compliance with all Laws applicable thereto. As of the date
hereof, the Company has no liabilities, contingent or otherwise, except as set
forth (i) on the Company Financial Statements, (ii) under the Company Contracts
(as defined hereinafter) and (iii) liabilities incurred in the ordinary course
of business since the Balance Sheet Date.
2.10. LMDS LICENSES AND OTHER PERMITS. The Company's LMDS licenses (the
"LMDS Licenses") are listed on Schedule 2.10. All such licenses were duly
obtained and are validly issued and in full force and effect, and not subject to
appeal or reconsideration, or any outstanding adverse comments or petitions. The
Company otherwise has all permits, certificates, licenses, approvals and other
authorizations required in connection with the operation of its businesses as
they are presently being, and have formerly been, operated (collectively
"COMPANY PERMITS"). The Company is the sole legal and beneficial owner and
holder of the LMDS Licenses, and subject to obtaining the FCC Order (as defined
below) has the right under applicable law and FCC regulations to effect the
transactions contemplated hereby. No person or entity other than the Company has
or will have the right to use all or any portion of the LMDS Licenses. The
Company is in compliance in all respects with the Communications Act of 1934, as
amended, and the rules, regulations and policies of the FCC. There are no
pending complaints, challenges, petitions, or appeals pending or, to the best of
the Company's knowledge, threatened, against the Company.
2.11. LITIGATION. There is no suit, action or proceeding ("LITIGATION")
pending or, to the Company's knowledge, threatened against the Company, nor is
there any judgment, decree, injunction, rule or order of any Governmental
Authority outstanding against the Company.
2.12. CONTRACTS. As of the date hereof, the Company is not a party to or
subject to any written note, bond, mortgage, indenture, contract, purchase
order, lease, license, agreement or instrument that is not described in SCHEDULE
2.12 hereto ("COMPANY CONTRACTS"). All Company Contracts are valid and
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binding against the Company and are in full force and effect and enforceable
against the Company in accordance with their respective terms and, to the best
of the Company's knowledge, are valid and binding against the other party or
parties thereto, in each case subject to the Enforceability Exceptions. The
Company is not in violation or breach of or default under any Company Contract.
2.13. EMPLOYEE BENEFIT PLANS. Except as set forth in Section 2.13 of the
Disclosure Schedule, the Company does not maintain or contribute to, nor has it
ever maintained or contributed to, any pension, profit-sharing, stock bonus,
deferred or supplemental compensation, retirement, thrift, stock purchase or
stock option plan or any other compensation, welfare, fringe benefit or
retirement plan, program, policy or arrangement providing for benefits for or
the welfare of any or all of the current or former employees of the Company or
any of their beneficiaries or dependents.
2.14. TAXES AND RETURNS. (a) The Company has timely filed, or caused to be
timely filed, all Tax Returns (as hereinafter defined) required to be filed by
it, and has paid, collected or withheld, or caused to be paid, collected or
withheld, all amounts of Taxes (as hereinafter defined) required to be paid,
collected or withheld. There are no claims or assessments pending against the
Company for any alleged deficiency in any Tax, and the Company has not been
notified of any proposed Tax claims or assessments against the Company. The
Company does not have any waivers or extensions of any applicable statute of
limitations to assess any amount of Taxes. There are no outstanding requests by
the Company for any extension of time within which to file any Tax Return or
within which to pay any amounts of Taxes shown to be due on any return. There
are no liens for amounts of Taxes on the assets of the Company except for
statutory liens for current Taxes not yet due and payable.
(b) For purposes of this Agreement, the term "TAX" shall mean any federal,
state, local, foreign or provincial income, gross receipts, property, sales,
use, license, excise, franchise, employment, payroll, alternative or added
minimum, ad valorem, transfer or excise tax, or any other tax, custom, duty,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest or penalty imposed by any Governmental Authority
other than the FCC. The term "TAX RETURN" shall mean a report, return, extension
or other information (including any attached schedules or any amendments to such
report, return, extension or other information) required to be supplied to or
filed with a Governmental Authority other than the FCC with respect to any Tax
(including any estimated tax), including an information return, claim for refund
or an amended return.
2.15. INTELLECTUAL PROPERTY. The Company has not received any notice, and
its officers have no actual knowledge, of any infringement of or conflict with
asserted rights of others with respect to any of the patents, trademarks, trade
names, service marks, copyrights and any applications therefor, technology,
know-how, trade secrets, computer software programs or applications, domain
names and tangible or intangible proprietary information, equipment or materials
that are used in the business of the Company conducted.
2.16. FINDERS AND INVESTMENT BANKERS. Neither the Company nor any of its
officers or directors has employed any broker or finder or otherwise incurred
any liability for any brokerage fees, commissions or finders' fees in connection
with the transactions contemplated hereby.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to the Company that:
3.1. ORGANIZATION AND GOOD STANDING. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as now being conducted.
Merger Sub is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all requisite corporate
power and authority to own, lease and operate its properties and to carry on its
business as now being conducted. Each of Purchaser and Merger Sub is duly
qualified or licensed and in good standing to do business in each jurisdiction
in which the character of the property owned, leased or operated by it or the
nature of the business conducted by it makes such qualification or licensing
necessary, except where the failure so to be duly qualified or licensed and in
good standing would not be reasonably likely to have a material adverse effect
on the business, assets, condition (financial or other), prospects or results of
operations of Purchaser and its subsidiaries taken as a whole (a "PURCHASER
MATERIAL ADVERSE EFFECT"). Purchaser has heretofore made available to the
Stockholders and the Company accurate and complete copies of the Certificate of
Incorporation and Bylaws, as currently in effect, of Purchaser and Merger Sub.
3.2. CAPITALIZATION. As of the date hereof, the authorized capital stock
of Purchaser consists of 110,334,000 shares of Purchaser Common Stock,
44,133,600 shares of Class B Common Stock, par value $.02 per share and
25,000,000 shares of preferred stock, par value $.01 per share ("PURCHASER
PREFERRED STOCK"). As of December 31, 1998, (a) 24,154,938 shares of Purchaser
Common Stock were issued and outstanding, (b) 30,523,242 shares of Class B
Common Stock were issued and outstanding, (c) 11,254,623 shares of Purchaser
Preferred Stock were issued and outstanding and (d) no shares of Purchaser
Common Stock were issued and held in the treasury of Purchaser. As of the date
hereof, no other capital stock of Purchaser is authorized or issued. All issued
and outstanding shares of Purchaser Common Stock are duly authorized, validly
issued, fully paid and non-assessable. As of the date hereof, Purchaser is, and
as of the Effective Time, will be, the record and beneficial owner of 100% of
the issued and outstanding capital stock of Merger Sub.
3.3. AUTHORIZATION; BINDING AGREEMENT. Each of Purchaser and Merger Sub
has all requisite corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby, including,
without limitation, the due authorization and approval for issuance of the
Purchaser Common Stock issuable in the Merger. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby,
including, but not limited to, the Merger, have been duly and validly authorized
by each of the respective Boards of Directors of Purchaser and Merger Sub, as
appropriate, and no other corporate proceedings on the part of Purchaser or
Merger Sub are necessary to authorize the execution and delivery of this
Agreement or to consummate the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by each of Purchaser and Merger
Sub and constitutes the legal, valid and binding agreements of each of Purchaser
and Merger Sub, enforceable against each of Purchaser and Merger Sub in
accordance with its terms, subject to the Enforceability Exceptions.
3.4. GOVERNMENTAL APPROVALS. No Consent from or with any Governmental
Authority on the part of either Purchaser or Merger Sub is required in
connection with the execution or delivery by either Purchaser or Merger Sub of
this Agreement or the consummation by either Purchaser or Merger Sub of the
transactions contemplated hereby other than (i) filings with the Securities and
Exchange Commission (the "SEC"), state securities laws administrators and the
National Association of Securities Dealers, Inc. (the "NASD"), (ii) the filing
of the Certificate of Merger with the Secretary of State of the State of
Delaware in accordance with the DGCL, (iii) such filings as may be required in
any jurisdiction where Merger Sub is qualified or authorized to do business as a
foreign corporation in
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order to maintain such qualification or authorization, (iv) FCC approval of the
LMDS license assignment applications contemplated hereby, (v) expiration or
early termination of the waiting period under the H-S-R Act, and (vi) those
Consents that, if they were not obtained or made, would not be reasonably likely
to prevent or delay the consummation of the transactions contemplated hereby.
Purchaser holds a 50% interest in a limited liability company that holds LMDS
licenses, and has no reason to believe that Purchaser is not qualified to hold
such licenses. Purchaser (i) is not a foreign person or under the control of a
foreign person, (ii) is not, is not controlled by and does not control any
incumbent local exchange carrier, and (iii) is not, is not controlled by and
does not control any CATV system (as all such terms are used in the
Communications Act of 1996 and the LMDS Rules) and as of the date here of is not
aware of any reason why it and Merger Sub are not qualified to hold the LMDS
Licenses under the LMDS Rules.
3.5. NO VIOLATIONS. The execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby and compliance by Purchaser
and Merger Sub with any of the provisions hereof will not (i) conflict with or
result in any breach of any provision of the Certificate or Articles of
Incorporation or Bylaws or other governing instruments of Purchaser or Merger
Sub, (ii) require any Consent under or result in a violation or breach of, or
constitute (with or without notice or lapse of time or both) a default (or give
rise to any right of termination, cancellation or acceleration) under any of the
terms, conditions or provisions of any Purchaser Material Contract (as
hereinafter defined), (iii) result in the creation or imposition of any lien or
encumbrance of any kind upon any of the assets of Purchaser or Merger Sub or
(iv) subject to obtaining the Consents from Governmental Authorities referred to
in SECTION 3.4 hereof, contravene any Law to which Purchaser or Merger Sub or
its or any of their respective assets or properties are subject, except, in the
case of clauses (ii), (iii) and (iv) above, for any deviations from the
foregoing which would not be reasonably likely to have a Purchaser Material
Adverse Effect.
3.6. SECURITIES FILINGS. Purchaser has made available to the Company true
and complete copies of (i) its Annual Report on Form 10-K for the year ended
December 30, 1997, as filed with the SEC, (ii) its proxy statement relating to
the meeting of its stockholders held on May 20, 1998, as filed with the SEC, and
(iii) all other reports, statements and registration statements and amendments
thereto (including, without limitation, Quarterly Reports on Form 10-Q and
Current Reports on Form 8-K, as amended) filed by Purchaser with the SEC since
January 1, 1997. The reports and statements specified in clauses (i) through
(iii) above are referred to collectively herein as the "PURCHASER SECURITIES
FILINGS." As of their respective dates, or as of the date of the last amendment
thereof, if amended after filing, none of the Purchaser Securities Filings
contained any 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,
in light of the circumstances under which they were made, not misleading.
3.7. PURCHASER FINANCIAL STATEMENTS. The audited consolidated financial
statements and unaudited interim financial statements of Purchaser included in
the Purchaser Securities Filings (the "PURCHASER FINANCIAL STATEMENTS") have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis (except as may be indicated therein or in the
notes thereto) and present fairly, in all material respects, the financial
position of Purchaser and its subsidiaries as at the dates thereof and the
results of their operations and cash flows for the periods then ended subject,
in the case of the unaudited interim financial statements, to normal year-end
audit adjustments, any other adjustments described therein and the fact that
certain information and notes have been condensed or omitted in accordance with
the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT").
3.8. REGISTRATION STATEMENT. The information supplied by Purchaser for
inclusion in the Registration Statement (as defined in Section 5.2(c) shall not
at the time the Registration Statement is filed with the SEC and at the time it
becomes effective under the Securities Act of 1933, as amended (the "SECURITIES
ACT"), contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the
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circumstances under which they are made, not misleading. If at any time prior to
the Effective Time, any event relating to Purchaser or any of its affiliates,
officers or directors should be discovered by Purchaser which is required to be
set forth in an amendment to the Registration Statement or a supplement to the
Prospectus, Purchaser shall promptly so inform the Company and shall promptly so
amend the Registration Statement or supplement the Prospectus. Notwithstanding
the foregoing, Purchaser makes no representation or warranty with respect to any
information supplied by the Company which is contained in the Registration
Statement.
3.9. VALID ISSUANCE. Purchaser Common Stock to be issued in the Merger,
when issued in accordance with the provisions of this Agreement: (a) will be
validly issued, fully paid and nonassessable and (b) will not be subject to any
restrictions on resale under the Securities Act other than restrictions imposed
by Rule 145 promulgated under the Securities Act.
3.10. FINDERS AND INVESTMENT BANKERS. None of Purchaser, Merger Sub or any
subsidiary of Purchaser or any of their respective officers or directors has
employed any broker or finder or otherwise incurred any liability for any
brokerage fees, commissions or finders' fees in connection with the transactions
contemplated hereby to which the Company or any of its stockholders would be
liable.
3.11. EXISTING REGISTRATION RIGHTS. Schedule 3.11 attached hereto sets
forth a list of all agreements in effect on the date hereof pursuant to which
the Purchaser has granted registration rights with respect to any of its equity
securities, together with a designation of the number and type of securities
covered thereby. Purchaser has delivered to the Company true and correct copies
of all provisions of such agreements relating to such rights.
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER
4.1. CONDUCT OF BUSINESS OF THE COMPANY. (a) Nothing contained in this
Agreement shall be construed as conferring upon Purchaser or Merger Sub the
right to oversee, interfere with or control the Company in any way that would
constitute de facto control of the Company prior to issuance of the FCC Order.
During the period from the date of this Agreement to the Effective Time, the
Company will use its reasonable best efforts to preserve its LMDS Licenses
intact, free and clear of all restrictions and encumbrances, except as permitted
under subparagraph (C) below. In addition, during the period from the date of
this Agreement to the Effective Time, the Company will not take any action that
would interfere with the transactions contemplated hereby. Neither the Company
nor any of its subsidiaries will enter into or otherwise voluntarily become
subject to, any agreement, arrangement or other obligation which remains binding
on the Company, the Purchaser, or any of their Affiliates or assets after the
Closing, except for any of the foregoing (i) which terminate by their terms at
or after the Closing at the option of the Surviving Corporation without
condition except for the payment of money, or (ii) pursuant to which the only
obligations remaining in effect after the Closing are the payment of money, and
in the case of each of clauses (i) and (ii), the full amount of which payments
are treated as Negative Adjustments. Consistent with the foregoing, the Company
will not take any of the following actions without the written consent of
Purchaser:
(A) adopt or amend any bonus, profit sharing, compensation, severance,
termination, stock option, stock appreciation right, pension, retirement,
employment or other employee benefit agreement, trust, plan or other arrangement
for the benefit or welfare of any director, officer or employee of the Company
or any of its subsidiaries or increase in any manner the compensation or fringe
benefits of any director, officer or employee of the Company or any of its
subsidiaries or pay any benefit not required by any existing agreement or place
any assets in any trust for the benefit of any director, officer or employee of
the Company or any of its subsidiaries (except for any of the foregoing that by
their terms (together with all options, warrants and agreements with respect
thereto issued thereunder) terminate in full on or before the Closing Date);
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(B) sell, dispose of or surrender or disaggregate any LMDS License or any
portion thereof or take any other action with respect to the LMDS Licenses
inconsistent with Section 2.10;
(C) sell, lease, license, mortgage or otherwise encumber or subject to any
lien any of its LMDS Licenses in a manner that is not terminable at will from
and after the Closing;
(D) acquire or dispose of (including, without limitation, by merger,
consolidation, or acquisition or disposition of stock or assets) any interest in
any corporation, partnership, other business organization or any division
thereof;
(E) make any tax election or settle or compromise any federal, state, local
or foreign income tax that would reasonably be likely to adversely affect the
tax position of Purchaser or any member of its consolidated return group;
(F) settle or compromise any stockholder derivative suits arising out of the
transactions contemplated hereby or any other litigation (whether or not
commenced prior to the date of this Agreement) or settle, pay or compromise any
claims not required to be paid, individually in an amount in excess of $50,000,
or in the aggregate in excess of $250,000, other than in consultation and
cooperation with Purchaser, and, with respect to any such settlement, with the
prior written consent of Purchaser;
(G) take any action that would result in any of the conditions to the merger
set forth in Article VI not being satisfied; or
(H) authorize or enter into any agreement to take any actions contemplated
by Section 4.1(a)(ii)(A) through (G).
(b) The Company shall use reasonable best efforts to comply in all respects
with all Laws applicable to it or any of its properties, assets or business and
maintain in full force and effect the LMDS Licenses and all other Company
Permits necessary for such business.
4.2. NO SOLICITATION. (a) The Company shall, and the Company shall direct
and shall cause the officers, directors, employees, representatives, agents and
affiliates of the Company to, immediately cease any discussions or negotiations
with any parties that may be ongoing with respect to any proposed transaction
inconsistent with the consummation of the transactions contemplated hereby (a
"Transaction Proposal"). The Company shall not, nor shall it authorize or permit
any of its officers, directors, or employees or any investment banker, financial
advisor, attorney, accountant or other representative retained by it to,
directly or indirectly:
(i) solicit, initiate or encourage (including by way of furnishing
information or assistance) any inquiries or the making of any proposal which
constitutes, or may be reasonably expected to lead to, any Transaction
Proposal; or
(ii) enter into or participate in any discussions or negotiations
regarding any Transaction Proposal.
(b) To the extent permitted by law and consistent with their fiduciary
duties, the Board of Directors of the Company shall not (i) withdraw or modify,
or propose publicly to withdraw or modify, in a manner adverse to the Purchaser,
the recommendation by such Board of Directors of the Merger or this Agreement,
(ii) approve or recommend, or propose publicly to approve or recommend, any
Transaction Proposal or (iii) cause the Company to enter into any letter of
intent, agreement in principle, acquisition agreement or other similar agreement
related to any Transaction Proposal inconsistent with this Agreement.
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ARTICLE V
ADDITIONAL COVENANTS
5.1 NOTIFICATION OF CERTAIN MATTERS. Each party shall give prompt notice
to the other if any of the following occur after the date of this Agreement: (i)
receipt of any notice or other communication in writing from any third party
alleging that the Consent of such third party is or may be required in
connection with the transactions contemplated by this Agreement, provided that
such Consent would have been required to have been disclosed in this Agreement;
(ii) receipt of any material notice or other communication from any Governmental
Authority in connection with the transactions contemplated by this Agreement; or
(iii) the commencement of any Litigation involving or affecting the notifying
party or any of its subsidiaries, or any of its properties or assets, or, to its
knowledge, any employee, agent, director or officer, in his or her capacity as
such, of such notifying party or any of its subsidiaries which, if pending on
the date hereof, would have been required to have been disclosed in this
Agreement or which relates to the consummation of the Merger. In addition,
Purchaser shall give prompt written notice to the Company of the occurrence of
any event which would be reasonably likely to have a Purchaser Material Adverse
Effect and the Company shall give prompt written notice to Purchaser of the
occurrence of any event which would be reasonably likely to have a Company
Material Adverse Effect.
5.2. REASONABLE BEST EFFORTS; INTENDED TAX TREATMENT. Subject to the terms
and conditions herein provided, Purchaser and the Company agree to use all
reasonable best efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary, proper or advisable to consummate and
make effective as promptly as practicable the transactions contemplated by this
Agreement, including, but not limited to:
(a) making all necessary applications and/or filings with the FCC as soon as
practicable but in no event later than 7 days from the date hereof, and
thereafter obtaining FCC approval of the license assignment contemplated hereby
and any other Consents from Governmental Authorities and other third parties
required for the consummation of the Merger and the transactions contemplated
thereby;
(b) making all necessary filings under the H-S-R Act within 30 days of the
date hereof;
(c) Purchaser will comply with the terms of the Registration Rights
Agreement, and as promptly as practicable after the execution of this Agreement,
will also prepare, and file with the SEC, a Registration Statement on Form S-4
(or any similar successor form thereto) (the "Registration Statement") and each
of Purchaser and the Company will respond to any comments of the SEC and will
use its respective reasonable best efforts to have the Registration Statement
cleared by the SEC staff as promptly as practicable after such filing so that it
may be made effective on the Scheduled Closing Date, PROVIDED, HOWEVER, that the
Purchaser shall have the right to delay the effectiveness of the Registration
Statement for up to 30 days following the Scheduled Closing Date if such
registration or sale, as applicable, would, in the judgment of the Purchaser as
reflected in an officer's certificate delivered to the Company, require
disclosures that would not be in the Purchaser's best interest to make at such
time (a "Purchaser Blackout"); and
(d) in the event of a Purchaser Share Election, causing the Merger to
qualify as a reorganization under the provisions of Section 368(a)(2)(D) of the
Code.
Upon the terms and subject to the conditions hereof, Purchaser and the
Company agree to use its reasonable best efforts to take, or cause to be taken,
all actions and to do, or cause to be done, all things necessary to satisfy the
other conditions of the Closing set forth herein, PROVIDED that nothing
contained in this Agreement shall be construed to require Purchaser to accept
any term or condition or restriction required or imposed by any Government
Authority in connection with the governmental approvals being sought for the
transactions contemplated hereby (other than the FCC Liability), except for any
terms, conditions or restrictions that are of an administrative or ministerial
nature or otherwise
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fully compensated by the adjustment mechanisms contemplated by Sections 1.5 and
7.1(e). In addition, each of Purchaser and the Company will notify the other
promptly upon the receipt of any comments from the SEC or its staff or any other
government officials and of any request by the SEC or its staff or any other
government officials for amendments or supplements to the Registration Statement
or any other regulatory filing or for additional information and will promptly
supply the other with copies of all correspondence between such party or any of
its representatives, on the one hand, and the SEC, or its staff or any other
government officials, on the other hand, with respect to the Registration
Statement or any other regulatory filing. Purchaser will not take any action
that would cause the last sentence of Section 3.4 to be untrue at any time prior
to the Closing, unless such action would not (i) result in an adverse effect on
Purchaser's qualifications to be a holder of the LMDS Licenses or (ii) otherwise
adversely affect the consummation of the transactions contemplated hereby.
Without limitation, Purchaser will promptly notify the Company upon its receipt
of Purchaser any notification from the SEC that the condition contained in
Section 6.1(e) will be satisfied upon its written acceleration request.
5.3. PUBLIC ANNOUNCEMENTS. So long as this Agreement is in effect, the
Company shall not issue or cause the publication of any press release or of any
other announcement with respect to the Merger or the transactions contemplated
in this Agreement without the consent of Purchaser except when such release or
announcement is required by applicable law. In any event, each party will use
its best efforts to consult with the other party prior to making any such
release or announcement.
5.4. AFFILIATE LETTERS. Prior to the Closing Date, the Company shall
deliver to Purchaser and Merger Sub a letter identifying all persons who are, as
of the date of this Agreement, "affiliates" of the Company for purposes of Rule
145 under the Securities Act. The Company shall use its reasonable best efforts
to cause each such person who receives Purchaser Stock to deliver to Purchaser
on or prior to the Closing Date a Consent and Indemnity Agreement of
Stockholders.
5.5. APPRAISAL RIGHTS. (a) As promptly as practicable and in no event
later than the date required by applicable law, the Company shall mail the
required notice to its stockholders pursuant to Section 262(d)(2) of the DGCL,
and shall thereafter notify Purchaser of any stockholders exercising appraisal
rights pursuant to Section 262 of the DGCL (each a "DISSENTING STOCKHOLDER").
(b) In the event that there are Dissenting Stockholders, Purchaser agrees to
create an escrow account on terms reasonably satisfactory to the Company to be
funded on the Closing Date with the value of the Merger Consideration
attributable to any Dissenting Stockholders (the "DISSENTING STOCKHOLDERS ESCROW
ACCOUNT"). The Company agrees to release funds from such escrow account to
satisfy any amounts owed to Dissenting Stockholders pursuant to the DGCL. Upon
final adjudication and satisfaction of all claims of Dissenting Stockholders
under Section 262 of the DGCL, all amounts remaining in the Dissenting
Stockholders Escrow Account shall be released to the Stockholders'
Representative for distribution to former holders of Company Common Stock.
ARTICLE VI
MERGER CONDITIONS
6.1. CONDITIONS TO EACH PARTY'S OBLIGATIONS. The respective obligations of
each party to effect the Merger, or to cause the Merger to be effected, shall be
subject to the or waiver at or prior to the Effective Time of the following
conditions:
(a) NO INJUNCTION OR ACTION. No order, statute, rule, regulation, stay,
decree, judgment or injunction shall have been enacted, entered, promulgated or
by any court or other Governmental Authority which prohibits or prevents the
consummation of the Merger which has not been vacated, dismissed or withdrawn.
Purchaser and the Company shall use their reasonable best efforts to have any of
the foregoing vacated, dismissed or withdrawn by the Effective Time.
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(b) REGISTRATION RIGHTS AGREEMENT. If Purchaser shall have made a Purchaser
Share Election, the Registration Rights Agreement in the form attached hereto as
Exhibit D shall have been executed and delivered and be in full force and
effect.
(c) H-S-R ACT. Any waiting period (and any extension thereof) under the
H-S-R Act applicable to the Merger and the transactions contemplated hereunder
shall have expired or been.
(d) FCC APPROVAL. The FCC shall have granted its consent to the assignment
of the LMDS licenses contemplated hereby (the "FCC Order") approving the
transfer of control of the LMDS Licenses contemplated hereby, such approval
shall be in full force and effect and shall have become Final (as hereinafter
defined). The FCC Order shall have become Final when it has been issued by the
FCC, when the time for filing any protest, request for stay, petition or request
for reconsideration, petition for rehearing or appeal or review thereof (or of
any subsequent decision by any court or governmental entity) by or to the FCC or
any court or governmental entity having jurisdiction thereof or the over the
premises, or for the FCC to review or reconsider such Order on its own motion,
shall have expired, and when no protest, request for stay, petition or request
for reconsideration, petition for rehearing or appeal or review of such Order is
pending.
(e) REGISTRATION STATEMENT EFFECTIVE. The SEC shall have declared the
Registration Statement effective. No stop order suspending the effectiveness of
the Registration Statement or any part thereof shall have been, and no
proceeding for that purpose shall have been initiated or threatened in writing
by the SEC.
6.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations of the
Company to effect the Merger shall be subject to the fulfillment at or prior to
the Effective Time of the following additional conditions, any one or more of
which may be waived by the Company:
(a) NO MATERIAL ADVERSE CHANGE. If Purchaser shall have made a Purchaser
Share Election, no event shall have occurred on any date during the period
beginning at the commencement of the twenty trading day period referred to in
Section 1.5(a) and ending on the day before the Closing Date (or not a Purchaser
Blackout has occurred) that has had a Purchaser Material Adverse Effect.
(b) PERFORMANCE BY PURCHASER. Purchaser and Merger Sub shall have performed
and complied with all the and agreements in all material respects and satisfied
in all material respects all the conditions required by this Agreement, the
Registration Rights Agreement and the other agreements contemplated hereby to be
performed or complied with or satisfied by Purchaser and Merger Sub at or prior
to the Effective Time, except for such failures to perform as have not had or
would not, individually or in the aggregate, have a material adverse effect on
the Purchaser and Merger Sub or materially adversely effect the ability of the
Purchaser and Merger Sub to consummate the transactions contemplated hereby.
(c) CERTIFICATES, LEGAL OPINIONS AND OTHER DELIVERIES. Purchaser shall have
delivered, or caused to be delivered, to the Company (i) a certificate executed
on its behalf by its Chief Executive Officer, its, its Chief Operating Officer
or Chief Financial Officer to the effect that the conditions set forth in
SECTIONS 6.2(A), if applicable, and (b) hereof have been satisfied; (ii) duly
adopted resolutions of the Board of Directors of Purchaser and the Board of
Directors and the stockholder of the Merger Sub approving the execution,
delivery and performance of this Agreement and the instruments contemplated
hereby, each certified by its respective Secretary and (iii) an opinion of
counsel to the Purchaser, dated the Closing Date, substantially in the form of
EXHIBIT F.
(d) ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Purchaser and Merger Sub contained in Sections 3.1 through 3.5 and
in Section 3.10 and, if, but only if, Purchaser shall have made a Purchaser
Share Election, in the remaining Sections of Article III (without giving effect
to any materiality or knowledge qualifications contained therein) shall be true
and correct when made and shall be true and correct as of the Closing Date as
though made on and as of the Closing
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Date (except to the extent that any such representation and warranty had by its
terms been made as of the date hereof or another specific date, in which case
such representation and warranty shall have been true and correct as of the date
hereof or such specific date, as the case may be, except, in all instances other
than Section 3.9, where the failure to be so true and correct shall not result,
individually or in the aggregate, in a Purchaser Material Adverse Effect; and
the Company shall have received a certificate signed on behalf of Purchaser by
the chief executive officer and the chief financial officers of Purchaser to
such effect.
(e) EAGLE RIVER WAIVER OF PIGGYBACK RIGHTS. Eagle River Investments L.L.C.'s
waiver of its piggyback registration rights and holdback agreement in connection
with the Initial Offering (as such term is defined in the Rights Agreement)
shall remain in full force and effect.
(f) NO CONDITIONS. No Governmental Authority having jurisdiction over the
approval of the transactions contemplated hereby shall have imposed or required
any condition to such approval that materially and adversely affects the
Stockholders or the value of the Merger Consideration, except for any that are
of an administrative or ministerial nature or are fully compensated by either by
the adjustment mechanism contemplated by Section 7.1(e) or another assumption of
cost by Purchaser that leaves the Merger Consideration unaffected, and except
for conditions resulting from any action taken by the Company or any of its
stockholders.
6.3. CONDITIONS TO OBLIGATIONS OF PURCHASER AND MERGER SUB. The
obligations of Purchaser and the Merger Sub to effect the Merger shall be
subject to the at or prior to the Effective Time of the following additional
conditions, any one or more of which may be waived by Purchaser:
(a) NO MATERIAL ADVERSE CHANGE. There shall not have occurred after the date
hereof and on or prior to the Date (or, in the event of a Purchaser Blackout, on
or prior to the Scheduled Closing Date) any event that would be reasonably
likely to have a Company Material Adverse Effect, PROVIDED that in the event
that the Company shall have given a notice as contemplated by section 7.1(g), in
determining whether a Company Material Adverse Effect shall have occurred,
Purchaser shall not be entitled to rely on any fact which both (i) was described
in detail in such notice and (ii) had already occurred as of the date of such
notice.
(b) PERFORMANCE BY THE COMPANY. The Company shall have performed and
complied with all the covenants and agreements in all material respects and
satisfied in all material respects all the conditions required by this Agreement
to be or complied with or satisfied by it at or prior to the Effective Time.
(c) CERTIFICATES, LEGAL OPINION AND OTHER DELIVERIES. The Company shall have
delivered to Purchaser (i) certificates executed by the Company by Chief
Executive Officer, President or Chief Financial Officer to the effect that the
conditions set forth in SECTIONS 6.3(A) and (B) hereof have been satisfied; (ii)
duly adopted resolutions of the Board of Directors of the Company and the
consents of its stockholders, in each case approving the execution, delivery and
performance of this Agreement and the instruments contemplated hereby, (iii) a
legal opinion of counsel to the Company, dated the Closing Date, substantially
in the form attached hereto as EXHIBIT G.
(d) ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained herein shall be true and correct when made
and shall be true and correct as of the Closing Date as though made on and as of
the Closing Date (or, in the case of the contained in Section 2.8(i), on and as
of the Scheduled Closing Date if a Purchaser Blackout has occurred and provided,
that in the event that the Company shall have given a notice as contemplated by
Section 7.1(g), such representation shall not be deemed breached as a result of
any fact which both (i) was described in detail in such notice and (ii) had
already occurred as of the date of such notice) except to the extent that any
such representation and warranty had by its terms been made as of the date
hereof or another specific date, in which case such representation and warranty
shall have been true and correct as of the date
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hereof or such specific date, as the case may be), except, in all instances,
where the failure to be so true and correct shall not result, individually or in
the aggregate, in a Company Material Adverse Effect; and Purchaser shall have
received a certificate signed on behalf of the Company by the chief executive
officer and the chief financial officer of the Company to that effect.
(e) NO CONDITIONS. No Governmental Authority having jurisdiction over the
approval of the transactions contemplated hereby shall have imposed or required
any condition to such approval, except for any conditions that are of an
administrative or ministerial nature or otherwise fully compensated by the
adjustment mechanisms contemplated by Sections 1.5 or 7.1(e), and except for
conditions resulting from any action taken by Purchaser or Eagle River
Investments L.L.C.
ARTICLE VII
TERMINATION
7.1. TERMINATION. This Agreement may be terminated and the Merger
contemplated hereby may be abandoned at any time prior to the Effective Time,
notwithstanding approval thereof by the stockholders of the Company:
(a) by the mutual written consent of Purchaser and the Company, by action of
their respective Boards of Directors; or
(b) by Purchaser or the Company if on the Scheduled Closing Date (or within
30 days thereafter, in the event of a Purchaser Blackout) any condition to the
Merger has not been satisfied or waived by the party or parties entitled to the
benefit of the same; provided, however, that the right to terminate this
Agreement pursuant to this Section 7.1(b) shall not be available to any party
whose failure to perform any of its obligations under this Agreement results in
the failure of any such other condition to be satisfied; or
(c) by Purchaser or the Company if the Closing shall not have occurred on or
before January 14, 2000; PROVIDED, HOWEVER, that the right to terminate this
Agreement pursuant to this Section 7.1(c) shall not be available to any party
whose failure to perform any of its obligations under this Agreement results in
the failure of the Closing to occur by such date; or
(d) by Purchaser or the Company if any court of competent jurisdiction or
other Governmental Authority has issued an order, decree or ruling or taken any
other action restraining, enjoining or otherwise prohibiting the Merger and such
order, decree, ruling or other action shall have become final and nonappealable;
or
(e) by Purchaser or the Company if the FCC shall have imposed any payment in
excess of the FCC Liability in connection with the transactions contemplated
hereby, unless the party to this Agreement not seeking termination pursuant to
this Section 7.1(e) agrees in writing to bear such excess expense, in which
event the adjustment provisions of Section 1.5 shall be construed to so provide;
or
(f) by either Purchaser or the Company upon written notice to the other if
the terminating party is not in material breach of its obligations under this
Agreement and if the other party or its subsidiary shall have materially
breached this Agreement and such breach shall not have been cured in all
material respects or waived prior to the earlier to occur of the Closing Date or
thirty (30) days following the date the terminating party shall have given the
other party written notice of such breach setting forth the nature thereof in
reasonable detail; or
(g) by Purchaser, within 20 days of its receipt of written notice from the
Company acknowledging the occurrence of an event that would be reasonably likely
to have a Company Material Adverse Effect and describing in detail the facts
giving rise to such occurrence.
7.2. EFFECT OF TERMINATION. In the event of the termination of this
Agreement pursuant to Section 7.1, this Agreement shall forthwith become void
and have no effect, without any liability on the
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part of any party or its directors, officers or stockholders, except for the
provisions of this Section 7.2 and Section 7.3, which shall survive any such
termination. Nothing contained in this Section 7.2 shall relieve any party from
liability for any breach of this Agreement.
7.3. FEES AND EXPENSES. (a) The parties to this Agreement shall, except as
otherwise specifically provided herein, bear their respective expenses incurred
in connection with the preparation, execution and performance of this Agreement
and the transactions contemplated hereby, whether or not the Merger is
consummated, including, without limitation, all fees and expenses of their
respective agents.
(b) The prevailing party in any legal action undertaken to enforce this
Agreement or any provision hereof shall be entitled to recover from the other
party the costs and expenses (including attorneys' and expert witness fees)
incurred in connection with such action.
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ARTICLE VIII
INDEMNIFICATION AND REIMBURSEMENT
8.1. INDEMNIFICATION BY STOCKHOLDERS. (a) In order to induce Purchaser to
enter into this Agreement and to consummate the transactions contemplated
hereby, each holder of Company Common Stock and/or Company Preferred Stock, by
virtue of its execution of the Consent and Indemnity Agreement of Stockholders
and/or the Consent and Indemnity Agreement of Preferred Stockholders (an
"Indemnifying Party"), agrees, subject to the further provisions of this Article
VIII, severally to indemnify Purchaser and, without duplication, its
stockholders, directors, officers and employees (collectively, the "Indemnified
Parties") and shall hold the Indemnified Parties harmless against and with
respect to any "Loss" which for purposes of this Agreement shall include any and
all actual liabilities, costs, losses, damages and expenses (whether or not
arising out of third party claims), including without limitation reasonable
attorneys' fees (after giving effect to any offsetting benefit actually received
or receivable), incurred by the Indemnified Parties and arising out of or
resulting from:
(i) any misrepresentation or breach of warranty by the Company of any of
its representations or warranties set forth in this Agreement or any Annex,
Schedule or Exhibit hereto;
(ii) any breach or nonfulfillment by the Company of any of its
covenants, agreements or other obligations set forth in this Agreement or
any Annex, Schedule or Exhibit hereto; and
(iii) any amounts owed to Dissenting Stockholders in excess of the
amount of cash held in the Dissenting Stockholders Escrow Account.
(b) Entitlement to indemnification pursuant to this Section 8.1 shall be
conditioned upon claims in respect thereof being submitted in writing with
detailed specification showing the basis of such claim, including the provision
of this Agreement breached, and a reasonably detailed calculation of the amount
of such claim, if at all, by Purchaser to the Indemnifying Parties no later than
twelve (12) months after the Effective Time.
(c) Notwithstanding anything to the contrary in this Section 8.1, the right
to indemnity in respect of matters provided for in paragraphs (a)(i) and (ii) of
this Section 8.1 shall not be barred on the basis that the amount of the claim
has not been ascertained, liquidated or reduced to final judgment on or before
the expiration of the aforesaid period, provided that such claim is identified
in writing with detailed specification showing the basis of such claim,
including the provision of this Agreement breached, and a reasonable estimate of
the amount of such claim.
(d) Notwithstanding anything in this Agreement to the contrary, with respect
to any amounts payable under this Agreement, (i) no Indemnifying Party shall be
liable for more than its Pro Rata Share of any Loss and (ii) the maximum amount
of liability of any Indemnifying Party shall in no event exceed the amount of
the Merger Consideration received by such Indemnifying Party. For purposes of
this Agreement, "Pro Rata Share" shall mean a fraction the numerator of which is
the amount of the Merger Consideration received by such Indemnifying Party and
the denominator of which is the aggregate Merger Consideration. The remedies
provided in this Article VIII and in Section 9.12 shall be Purchaser's sole
remedies hereunder for breach of this Agreement, except in the case of fraud.
8.2. CLAIMS FOR REIMBURSEMENT. In the event that any Indemnified Party
suffers any Loss (as hereinabove defined) with respect to any liability or claim
to which the foregoing indemnities relate, such Person shall give the
Indemnifying Parties prompt written notice of the nature and amount of such Loss
and the Indemnified Party's claim for reimbursement therefor and if such Loss is
with respect to a third party claim, accompanied by a copy of the written notice
from the third party claimant. The Indemnifying Parties shall have 30 days from
the date of said notice to investigate and dispute the nature, validity or
amount of any such claim. During said 30-day period, representatives of one law
firm and one accounting firm designated by a majority in interest (as measured
by aggregate
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potential liability) of the Indemnifying Parties shall have reasonable access,
during normal business hours, to the books and records of the Indemnified Party
for the purpose of such investigation. In the event that any Indemnifying Party
disputes the nature, validity or amount of said claim, such Indemnifying Party
shall give the Indemnified Party written notice of such dispute within said
30-day period, and the parties shall attempt in good faith to resolve such
dispute. If such dispute is not resolved within 10 days following receipt of
said notice of dispute by the Indemnified Party, the provisions of Section 8.5
hereof shall apply to such dispute.
In the absence of a dispute, each Indemnifying Party shall promptly (but not
later than the expiration of said 30-day period) reimburse the Indemnified Party
for its Pro Rata Share of any such Loss. In the event that the Stockholders'
Representative disputes only the amount of the claim, each Indemnifying Party
shall, concurrently with the delivery of the Stockholders' Representative's
notice of dispute, pay to the Indemnified Party its Pro Rata Share of the
undisputed portion of such claim and the provisions of Section 8.5 hereof shall
apply to the disputed portion of such claim.
All payments by an Indemnifying Party hereunder shall be in cash to the
extent of the cash received (on an after-tax basis) by such Indemnifying Party
as Merger Consideration or upon sale of shares of Purchaser Common Stock
received as Merger Consideration. Any additional payments required of an
Indemnifying Party may be paid in cash, if the Indemnifying Party so elects, and
may, under the circumstances described below, be paid in shares of Purchaser
Common Stock. Any Indemnifying Party wishing to satisfy an acknowledged
liability hereunder in shares of Purchaser Common Stock shall so notify
Purchaser at the time such payment is due, such notice to be accompanied by such
Indemnifying Party's agreement to permit Purchaser to elect whether to accept
such payment directly (with the shares valued at their Volume-Weighted Average
Trading Price for the twenty trading day period ending on the date prior to the
delivery of such shares to Purchaser) or to arrange for an underwritten offering
of such shares and other shares of Purchaser Common Stock, in which case the
shares will be valued at the net proceeds received therefor in such offering.
The terms of the Registration Rights Agreement applicable to incidental
registrations will apply, mutatis mutandis, to any such offering.
8.3. REIMBURSEMENT FROM ESCROWED MERGER CONSIDERATION. In the event that
one or more holders of Company Common Stock and/or Company Preferred Stock does
not become an Indemnifying Party, and there is, therefore, Escrowed Merger
Consideration, then in the event that the Indemnifying Parties are required to
make an indemnification payment pursuant to Section 8.2, the Escrow Agent shall
promptly release Escrowed Merger Consideration to the Indemnified Party in an
amount equal to the product of (a) any such Loss (or undisputed portion thereof)
multiplied by (b) a fraction the numerator of which is the amount of the
Escrowed Merger Consideration and the denominator of which is the aggregate
Merger Consideration (an "ESCROW LOSS REIMBURSEMENT"). Escrow Loss
Reimbursements shall be made only in cash, provided that in the event that the
cash portion of the Escrowed Merger Consideration is less than the amount of the
Escrow Loss Reimbursement, the Escrow Agent shall sell, to the extent permitted
by applicable law, an amount of Purchaser Common Stock in brokers transactions
on the Nasdaq National Market equal in value to such cash deficiency. In the
event that the Escrow Agent is not permitted by applicable to sell shares of
Purchaser Common Stock, such cash deficiency shall be satisfied with shares of
Purchaser Common Stock valued at their Volume-Weighted Average Trading Price for
the twenty trading day period prior to the date on which the Indemnifying
Parties are required to make an indemnification payment pursuant to Section 8.2.
8.4. DEFENSE OF THIRD-PARTY CLAIMS. If any lawsuit or enforcement action
is filed, or claim asserted against an Indemnified Party by a third party and
the Indemnified Party is entitled to indemnification pursuant to this Agreement,
written notice thereof shall be given to the Indemnifying Party as promptly as
practicable (and in any event no later than 30 days after the service of the
citation or summons or receipt of other written notice of such claim); the
failure of any Indemnified Party to give timely notice shall limit the rights to
indemnification hereunder only if and to the extent that (i) such
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failure to give timely notice materially affects the ability or right of the
Indemnifying Party to participate in the defense of such lawsuit or enforcement
action or claim, (ii) actual notice is not given to the Indemnifying Party
within a reasonable time, or (iii) to the extent that such failure to give
timely notice causes the Indemnifying Party to incur additional expense with
respect to such lawsuit or enforcement action, the Indemnified Party fails to
promptly reimburse the Indemnifying Party for such additional expense.
The Indemnifying Party shall be entitled, if it so elects, to take control
of the defense and investigation of such lawsuit, action or claim, and to employ
and engage attorneys of its own choice to handle and defend the same, at the
Indemnifying Party's cost, risk and expense; and such Indemnified Party shall
cooperate in all reasonable respects, at its cost, risk and expense, with the
Indemnifying Party and such attorneys in the investigation, trial and defense of
such lawsuit or action and any appeal arising therefrom; PROVIDED, HOWEVER, that
the Indemnified Party may, at its own cost, participate in (but not control)
such investigation, trial and defense of such lawsuit or action and any appeal
arising therefrom.
If the Indemnifying Party does not elect to take control of the defense and
investigation of said lawsuit or action, then the Indemnified Party shall remain
in control thereof in such manner as it deems appropriate.
Neither party shall enter into any settlement, adjustment or compromise of
any lawsuit or action without the prior written consent of the other party which
consent will not be unreasonably withheld.
8.5. RESOLUTION OF DISPUTES. (a) In the event of any dispute between
Purchaser and the Indemnifying Parties over any claim for reimbursement with
respect to any matter to which the foregoing indemnities relate, such dispute
will be finally determined by the Accounting Firm (as defined below) in the
manner set forth in Section 8.5(b), and any Loss so determined will be promptly
reimbursed to Purchaser by the Indemnifying Parties.
(b) Any dispute pursuant to Section 8.5(a) will be resolved by a member of
the Washington, D.C. office of PricewaterhouseCoopers LLP (the "ACCOUNTING
FIRM"). The Accounting Firm shall be instructed to use all reasonable efforts to
resolve such disputes within thirty (30) days. The resolution of disputes by the
Accounting Firm so selected will be set forth in writing and will be conclusive
and binding upon all parties to such dispute and the amount of the reimbursement
payable as so resolved will become final and binding upon the date of such
resolution. The fees and expenses of the Accounting Firm shall be paid by the
unsuccessful party, if all the disputes are resolved against such party, and in
other cases shall be pro rated among the parties as the Accounting Firm sees fit
based on the relative success of the parties in indicating their respective
positions.
8.6. INDEMNIFYING PARTIES' DECISIONS. Any decision with respect to any
matter under this Article VIII (including, without limitation, the settlement,
resolution or defense of claims) shall be binding upon all Indemnifying Parties
if consented to by the Indemnifying Parties who received a majority of the
aggregate Merger Consideration (a "Majority of Indemnifying Parties").
ARTICLE IX
MISCELLANEOUS
9.1. CONFIDENTIALITY. In the event the transactions contemplated by this
Agreement are not consummated, each party shall return to the other any
documents furnished by the other and all copies thereof any of them may have
made and will hold in absolute confidence any information obtained from the
other party except to the extent (i) such party is required to disclose such
information by Law or such disclosure is necessary or desirable in connection
with the pursuit or defense of a claim, (ii) such information was known by such
party prior to such disclosure or was thereafter developed or obtained by such
party independent of such disclosure or (iii) such information becomes generally
available to the public other than by breach of this SECTION 9.1.
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9.2. AMENDMENT AND MODIFICATION. This Agreement may be amended, modified
or supplemented only by a written agreement among each of the parties hereto or,
following the Closing, by agreement of Purchaser and a Majority of Indemnifying
Parties.
9.3. WAIVER; CONSENTS. Any failure of the Stockholders or the Company on
the one hand, or Purchaser or the Merger Sub on the other hand, to comply with
any obligation, covenant, agreement or condition herein may be waived by
Purchaser, on the one hand, or the Company (or, following the Closing, by a
Majority of Indemnifying Parties), on the other hand, only by a written
instrument signed by the party granting such waiver, but such waiver or failure
to insist upon strict compliance with such obligation, covenant, agreement or
condition shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure. Whenever this Agreement requires or permits consent
by or on behalf of any party hereto, such consent shall be given in writing in a
manner consistent with the requirements for a waiver of compliance as set forth
in this SECTION 9.3. The Closing shall not be deemed to be a waiver of any claim
in respect of any Loss, known or unknown, occurring prior to the Closing Date,
resulting from breach, whether material or not, of any representation, warranty
of covenant contained in this Agreement.
9.4. SURVIVAL. No representations, warranties, covenants and agreements of
the parties hereto contained herein or in any schedule or exhibit hereto shall
survive the execution and delivery of this Agreement and the consummation of the
transactions provided for herein except to the extent provided in Article VIII
hereof.
9.5. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given when delivered in person, by
facsimile, receipt confirmed, or on the next business day when sent by overnight
courier or on the second succeeding business day when sent by registered or
certified mail (postage prepaid, return receipt requested) to the respective
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(i) if to Purchaser or Merger Sub, to:
NEXTLINK Communications, Inc.
500 108th Avenue, Suite 2200
Bellevue, Washington 98004
Attention: General Counsel
Fax: 425-519-8997
and
NEXTLINK Communications, Inc.
1730 Rhode Island Avenue, N.W.
Washington, D.C. 20036
Attention: Corporate Counsel
Fax: 202-721-0995
with a copy to:
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019
Attention: Bruce R. Kraus, Esq.
Fax: (212) 728-8111
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and
(ii) if to the Stockholders' Representative or the Company, to:
Thomas H. Jones
WNP Communications, Inc.
400 Balbion Drive
Earlysville, Virginia 22936-9680
Fax: 804-964-1021
with a copy to:
Edwards & Angell, LLP
101 Federal Street
Boston, Massachusetts 02110
Attention: Stephen Meredith, Esq.
Fax: (617) 439-4170
9.6. BINDING EFFECT; ASSIGNMENT. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns. Neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned by any
of the parties hereto prior to the Effective Time without the prior written
consent of the other parties hereto.
9.7. EXPENSES. All costs and expenses incurred in connection with this
Agreement, the Merger, and all of the transactions contemplated hereby shall be
paid by the party incurring such costs or expenses, except as otherwise provided
herein, provided that all stamp, documentary, registration or other similar
taxes incurred specifically in connection with any issuance of the Purchaser
Common Stock shall be paid by Purchaser when due, and Purchaser or the Company
shall, at its own expense, file all necessary tax returns and other
documentation with respect to all such taxes and fees.
9.8. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to contracts made
and to be performed entirely within such State.
9.9. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.10. INTERPRETATION. The article and section headings contained in this
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and shall not in any way affect the meaning or interpretation of
this Agreement. As used in this Agreement, (i) the term "Person" shall mean and
include an individual, a partnership, a joint venture, a corporation, a limited
liability company, a trust, an association, an unincorporated organization, a
Governmental Authority and any other entity, (ii) unless otherwise specified
herein, the term "AFFILIATE," with respect to any person, shall mean and include
any person controlling, controlled by or under common control with such person
and (iii) the term "SUBSIDIARY" of any specified person shall mean any
corporation 50 percent or more of the outstanding voting power of which, or any
partnership, joint venture, limited liability company or other entity 50 percent
or more of the total equity interest of which, is directly or indirectly owned
by such specified person.
9.11. ENTIRE AGREEMENT. This Agreement and the documents or instruments
referred to herein including, but not limited to, the Annex(es), Schedules and
Exhibits attached hereto, which Annex(es) are incorporated herein by reference,
embody the entire agreement and understanding of the parties hereto in respect
of the subject matter contained herein, provided that the forms of agreements
attached hereto as Exhibits shall be superseded by the agreements executed and
delivered by the respective parties thereto, the execution and delivery of such
documents by the parties thereto to be
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conclusive evidence of such parties' approval of any change or modification
therein. There are no restrictions, promises, representations, warranties,
covenants, or undertakings, other than those expressly set forth or referred to
herein. This Agreement supersedes all prior agreements and the understandings
between the parties with respect to such subject matter.
9.12. SPECIFIC PERFORMANCE. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. Accordingly, the parties further agree that each party shall be
entitled to an injunction or restraining order to prevent breaches of this
Agreement and to enforce specifically the terms and provisions hereof in any
court of the United States or any state having jurisdiction, this being in
addition to any other right or remedy to which such party may be entitled under
this Agreement, at law or in equity.
9.13. THIRD PARTIES. Nothing contained in this Agreement or in any
instrument or document executed by any party in connection with the transactions
contemplated hereby shall create any rights in, or be deemed to have been
executed for the benefit of, any person that is not a party hereto or thereto or
a successor or permitted assign of such a party, except to the extent that the
Stockholders become third party beneficiaries hereof through their execution and
delivery of the ancillary agreements contemplated hereby.
9.14. STOCKHOLDERS' REPRESENTATIVE. (a) Following the Closing, the
Stockholders' Representative shall have the right of reasonable access to the
Company's and Merger Sub's books and records to the extent reasonably requested
for purposes of tax matters, claims and any other proper purpose.
(b) The Stockholders' Representative agrees to act as such in accordance
with the terms and provisions of this Agreement, but may resign from such duties
at any time by written notice to the Company and each of the Stockholders. A
Majority of Indemnifying Parties (as such term is defined in Section 8.6) may
relieve the Stockholders' Representative of such duties at any time by written
notice to the Stockholders' Representative and the Company. Any successor
Stockholders' Representative shall execute and deliver an instrument accepting
such appointment and he shall, without further acts, be vested with all the
rights, powers and duties of the predecessor Stockholders' Representative as if
originally named as Stockholders' Representative. The Stockholders'
Representative will have no liability for any action taken in good faith or with
the consent of a Majority of Indemnifying Parties. The Stockholders'
Representative may consult with, and obtain advice from, legal counsel in the
event of any question as to any of the provisions hereof or the duties
hereunder, and he shall incur no liability and shall be fully protected in
acting in good faith in accordance with the opinion and instructions of such
counsel. Each of the Stockholders, by virtue of its execution and delivery of
the Consent and Indemnity Agreement of Stockholders, or the Consent and
Indemnity Agreement of Preferred Stockholders, as the case may be, will be
deemed to have agreed, severally and not jointly, to indemnify and hold the
Stockholders' Representative harmless from and against such Stockholder's Pro
Rata Share of any Loss incurred in connection with his duties as such, except
with respect to actions not taken in good faith. Purchaser and the Company agree
that the Stockholders' Representative does not assume any responsibility for the
failure of any other party to perform in accordance with the Merger Agreement or
this Agreement. The acceptance by the Stockholders' Representative of his
responsibilities hereunder is subject to the following terms and conditions,
which the other parties hereto agree shall govern and control with respect to
the Stockholders' Representative's rights, duties, liabilities and immunities:
(c) The Stockholders' Representative may conclusively rely, and shall be
protected in acting or refraining from acting upon, any written notice,
certification, request, waiver, consent, receipt or other paper or document
furnished to him not only as to its due execution and validity and effectiveness
of its provisions but also as to the truth and accuracy of any information
therein contained which the Stockholders' Representative reasonably believes to
be genuine and to have been signed and presented
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by the proper party or parties. Should it be necessary for the Stockholders'
Representative to act upon any instructions, directions, documents or
instruments issued or signed by or on behalf of any corporation, fiduciary, or
individual acting on behalf of another party hereto, it shall not be necessary
for the Stockholders' Representative to inquire into such corporation's,
fiduciary's or individual's authority, capacity, existence or identity. The
Stockholders' Representative is also relieved from the necessity of satisfying
himself as to the authority of the persons executing this Agreement in a
representative capacity.
(d) The Stockholders' Representative shall have no duties except those which
are expressly set forth in this Agreement and in the Registration Rights
Agreement.
(e) Upon termination of all indemnification obligations under this Agreement
and all registration obligations under the Registration Rights Agreement, the
Stockholders' Representative shall thereafter be discharged from any further
obligations hereunder. The Stockholders' Representative is hereby authorized, in
any and all events, to comply with and obey any and all final judgments, orders
and decrees (not subject to appeal) of any court of competent jurisdiction which
may be filed, entered or issued, and, if it shall so comply or obey, it shall
not be liable to any other person by reason of such compliance or obedience.
(f) The Stockholders' Representative shall not have any responsibility or
liability for the completeness, correctness or accuracy of any transactions
between Purchaser, on the one hand, and the Company or its stockholders, on the
other hand.
In the event that the Stockholders' Representative shall be uncertain as to
his duties or rights hereunder or shall receive instructions with respect to
such duties which, in his sole opinion, are in conflict with either other
instructions received by him or any provision of this Agreement, he shall
without liability of any kind, be entitled to take no action pending the
resolution of such uncertainty to the Stockholders' Representative's sole
satisfaction, by final judgment of a court or courts of competent jurisdiction
or otherwise.
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IN WITNESS WHEREOF, Purchaser, the Merger Sub and Company have caused this
Merger Agreement to be signed and delivered by their respective duly authorized
officers, as applicable, as of the date first above written.
NEXTLINK COMMUNICATIONS, INC.
By:
Name:
Title:
PCO ACQUISITION CORP.
By:
Name:
Title:
WNP COMMUNICATIONS, INC.
By:
Name:
Title:
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<PAGE>
ANNEX B
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and entered
into as of January 14, 1999, between NEXTLINK Communications, Inc., a Delaware
corporation (the "Company"), and the persons and entities that have executed and
delivered the Consent and Indemnity Agreement of Stockholders in the form
attached to the Merger Agreement (as defined) (the "Holders") by and through the
execution of this Agreement by Thomas H. Jones (the "Stockholders'
Representative") as their attorney-in-fact.
This Agreement is made in connection with the Agreement and Plan of Merger,
dated the date hereof (the "Merger Agreement") among the Company, PCO
Acquisition Corp., a Delaware corporation wholly owned by the Company, and WNP
Communications, Inc., a Delaware corporation ("WNP"), pursuant to which the
Holders may acquire Class A Common Stock of the Company. The execution of and
delivery of this Agreement is a condition precedent to the issuance of the
Company's Class A Common Stock pursuant to the Merger Agreement.
Capitalized terms used herein without definition are used as defined in the
Merger Agreement.
The parties hereby agree as follows:
I. Certain Definitions
As used in this Agreement, the following terms shall have the following
respective meanings:
A. "AFFILIATE OF THE COMPANY" means any officer, director, or holder of
10% or more of any class of security issued by the Company, other than a
Holder.
B. "BUSINESS DAY" means any day, other than a Saturday, Sunday or legal
holiday, on which banks in the State of New York are open for business.
C. "COMMISSION" means the Securities and Exchange Commission.
D. "COMMON STOCK" means the Class A Common Stock, par value $.02 per
share, of the Company, as constituted on the date hereof, any shares into
which such Common Stock shall have been changed, or any shares resulting
from any reclassification of such Common Stock.
E. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
or any successor statute thereto, and the rules and regulations of the
Commission promulgated thereunder, all as the same shall be in effect at the
time.
F. "HOLDERS" means the Holders referred to in the Preamble, any person
holding Registrable Securities as a result of a distribution of such
securities by a Holder to its equity owners, and any other person holding
Registrable Securities to whom these registration rights have been assigned
pursuant to Section 9(f) of this Agreement.
G. "PERSON" shall mean an individual, partnership, corporation, limited
liability company, association, trust, joint venture, unincorporated
organization and any government, governmental department or agency or
political subdivision thereof.
H. "REGISTRABLE SECURITIES" means (i) the Common Stock held by any
Holder; (ii) any Common Stock or other securities issued or issuable
pursuant to the conversion of, or with respect to, the Common Stock held by
any Holder upon any stock split, stock dividend, recapitalization, or
similar event; and (iii) securities issued in replacement or exchange of any
of the securities issued in clauses (i) or (ii) above. A security shall
cease to be a Registrable Security when (A) such security has been disposed
of by a Holder pursuant to and in the manner described in an effective
registration statement under the Securities Act or (B) such security has
been sold or distributed by a Holder pursuant to Rule 144 or 145 under the
Securities Act.
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I. "REGISTRATION EXPENSES" means all expenses incident to the Company's
performance of or compliance with this Agreement, including, without
limitation, all registration, filing, listing and National Association of
Securities Dealers, Inc. ("NASD") fees, all fees and expenses of complying
with securities or blue sky laws, all word processing, duplicating and
printing expenses, all messenger and delivery expenses, any transfer taxes,
the fees and expenses of the Company's legal counsel and independent public
accountants, including the expenses of any special audits or "cold comfort"
letters required by or incident to such performance and compliance, fees and
disbursements of one counsel for all or a majority of the Holders, and any
fees and disbursements of underwriters customarily paid by issuers or
sellers of securities; provided, however, that Registration Expenses shall
not include underwriting discounts and commissions.
J. "REQUISITE HOLDERS" means Holders holding Registrable Securities
having a fair market value at the time of no less than $30,000,000.
K. "SECURITIES ACT" means the Securities Act of 1933, as amended, or any
successor statute thereto, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect at the time.
II. Registration.
A. RESALE AT CLOSING. The Company will use reasonable best efforts to
have shares of Common Stock issued to the Holders at the Closing having an
aggregate market value of approximately $175 million registered under the
Securities Act for resale by the Holders in an underwritten offering (the
"Initial Offering") pursuant to a registration statement (the "Initial
Registration Statement") that has been declared effective by the Commission
within 30 days following the Closing, which registration statement shall be
kept effective by the Company until the earlier of such time as the Initial
Offering is completed or the expiration of 60 days following the
effectiveness of the Initial Registration Statement. Each Holder shall be
entitled to sell its pro rata share of the shares of Common Stock it
receives in the Merger in the Initial Offering; PROVIDED, HOWEVER, that any
Holder not wishing to sell some or all of its pro rata portion of shares may
elect not to participate in the Initial Offering or may elect to sell in
such offering less than its PRO RATA portion of shares by written notice
delivered to the Company at least two business days prior to the Closing, in
which case the aggregate number of shares permitted to be sold by all other
participating Holders will be increased pro rata by the number of shares
that would otherwise have been allotted to non-participating or partially
participating Holders. Each Holder acknowledges and agrees that the Company
may elect to include additional shares of Common Stock having an aggregate
market value of approximately $165 million ($115 million for the Company's
account and $50 million for the account of a third party) in the Initial
Registration Statement and the Initial Offering, and may be required to
include additional shares pursuant to registration rights agreements
heretofore furnished to WNP. All shares offered in the Initial Offering
shall be subject to the provisions of subdivision (g) below.
B. DEMAND REGISTRATION. At any time and from time to time after 180 days
following the commencement of the Initial Offering, upon written request by
the Requisite Holders that the Company effect the registration under the
Securities Act of all or part of the Registrable Securities (a "Demand
Request"), the Company will use reasonable best efforts to register the
Registrable Securities which the Company has been so requested to register
by the Holders under the Securities Act for resale by the Holders in an
underwritten offering (a "Subsequent Offering") pursuant to a registration
statement (the "Subsequent Registration Statement") that has been declared
effective by the Commission, which registration statement shall be kept
effective by the Company until the earlier of such time as the Subsequent
Offering is completed or the expiration of 60 days following the
effectiveness of the Subsequent Registration Statement. The Company will use
reasonable best efforts to have each Subsequent Registration Statement
declared effective by the
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Commission within ninety (90) days after receipt of such request or within
sixty (60) days after receipt of such request if the Company is qualified to
file a registration statement on Commission Form S-3, S-2 or any successor
or similar short-form registration statement (collectively, "Commission Form
S-3"). Subject to subdivision (g), the Company may include in such
Subsequent Registration Statement and Subsequent Offering other securities
of the Company for sale, for the Company's account or for the account of any
other person. Upon receipt of a Demand Request, the Company shall promptly
give written notice of such request to all Holders, and all Holders shall be
afforded the opportunity to participate in such request as follows: subject
to subdivision (g), the Company will include in each Subsequent Registration
Statement and Subsequent Offering such number of Registrable Securities of
any Holder joining in such request as are specified in a written request by
the Holder received by the Company within 20 days after receipt of such
written notice from the Company.
C. INCIDENTAL REGISTRATION. For so long as Registrable Securities are
outstanding, if the Company for itself or any of its security holders shall
at any time or times after the date hereof determine to register under the
Securities Act any shares of its capital stock or other securities (other
than: (i) the registration of an offer, sale or other disposition of
securities solely to employees of, or other persons providing services to,
the Company, or any subsidiary pursuant to an employee or similar benefit
plan; or (ii) the issuance of securities in a merger, acquisition or other
transaction of the type described in Rule 145 under the Securities Act or a
comparable or successor rule, registered on Form S-4 or similar or successor
forms), on each such occasion the Company will notify each Holder of
Registrable Securities of such determination at least thirty (30) days prior
to the filing of such registration statement, and upon the request of any
Holder given in writing within twenty (20) days after the receipt of such
notice, the Company will cause any of the Registrable Securities specified
by any such Holder to be included in such registration statement to the
extent such registration is permissible under the Securities Act and subject
to the conditions of the Securities Act and subdivision (g) (an "Incidental
Registration").
D. REGISTRATION STATEMENT FORM. The Company shall, if permitted by law,
effect any registration requested under Section 2 by the filing of a
registration statement on Commission Form S-3.
E. EXPENSES. The Company shall pay all Registration Expenses incurred in
connection with the Initial Registration Statement, any Subsequent
Registration Statement and any Incidental Registration Statement. Those
Holders of Registrable Securities participating in the Initial Offering, any
Subsequent Offering and any Incidental Registration shall bear their
respective PRO RATA share of any applicable underwriting discounts and
commissions; such participating Holders agree that the proceeds received by
them upon consummation of any such offering shall be net of any and all such
discounts and commissions.
F. EFFECTIVE REGISTRATION STATEMENT. Neither the Initial Registration
Statement, a Subsequent Registration Statement, nor an Incidental
Registration requested pursuant to this Section 2 shall be deemed to have
been effected until it has become effective with the Commission.
Notwithstanding the foregoing, a registration statement will not be deemed
to have been effected if: (i) after it has become effective with the
Commission, such registration is interfered with by any stop order,
injunction, or other order or requirement of the Commission or other
governmental agency or any court proceeding for any reason other than a
misrepresentation or omission by any Holder; or (ii) the conditions to
consummation of the Initial Offering or any Subsequent Offering contained in
the underwriting agreement entered into in connection with such registration
are not satisfied, other than solely by reason of some act or omission by
any Holder.
G. PRIORITY IN UNDERWRITTEN REGISTRATIONS. If a registration is an
underwritten registration and the managing underwriters shall give written
advice to the Company and the Persons requesting such
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<PAGE>
registration that, in their opinion, market conditions dictate that no more
than a specified maximum number of securities could successfully be included
in such registration, then the maximum number of securities included in such
registration statement shall be limited to such specified number, and the
rights of the Holders to participate in such registration shall be subject
to the following cutback provisions:
(i) In the case of the Initial Offering, the securities sought to be
included in such offering by the Holders shall be excluded on a pro rata
basis with the securities sought to be included in the Initial Offering
by the Company and all other Persons seeking inclusion of securities in
such offering (including pursuant to so-called piggyback registration
rights), based upon the Holder's, the Company's and the other Persons'
relative number of securities sought to be so included until the
aggregate market value of the securities sought to be included in such
offering by the Holders has been reduced to approximately $125 million,
after which any additional securities required to be excluded from such
offering in order to comply with the advice of the managing underwriter
shall be securities that were to have been offered for the Company's
account until the offering includes no such securities, after which the
securities sought to be included in such offering by the Holders shall be
excluded on a pro rata basis with the securities sought to be included in
the Initial Offering by all other Persons seeking inclusion of securities
in such offering (including pursuant to so-called piggyback registration
rights), based upon the Holder's and the other Persons' relative number
of securities sought to be so included;
(ii) In the case of any Subsequent Offering, (a) the securities
sought to be included in such offering by the Company for its own account
shall have priority for inclusion over any Registrable Securities held by
the Holders and (b) Registrable Securities held by the Holders may be
excluded on a pro rata basis with all other Persons seeking inclusion of
securities in such offering pursuant to the exercise of so-called
piggyback registration rights, based upon such Holder's and other
Persons' relative number of securities sought to be so included; and
(iii) If the registration is an Incidental Registration, (a) the
securities sought to be registered by the Company for its own account
shall have priority for inclusion, (b) the securities sought to be
registered for the account of other Persons exercising demand
registration rights shall have priority for inclusion to the extent such
rights require such priority and (c) Registrable Securities held by the
Holders may be excluded on a pro rata basis with all other Persons
seeking inclusion of securities in such registration pursuant to the
exercise of so-called piggyback registration rights, based upon such
Holder's and other Persons' relative number of securities sought to be so
included.
H. BLACKOUT AND POSTPONEMENT. Notwithstanding anything in paragraphs
(a), (b), and (c) of this Section 2, the Company shall have the right (i) to
delay any registration of Registrable Securities requested pursuant to
paragraph (a), (b) or (c) of this Section 2 or (ii) upon written notice to
the Holders, to prohibit the Holders from selling Registrable Securities
under the Initial Registration Statement, any Subsequent Registration
Statement, or any Incidental Registration, in any case for up to 120 days if
such registration or sale, as applicable, would, in the judgment of the
Company as reflected in an officer's certificate delivered to the Holders,
require disclosures that would not be in the Company's best interest to make
at such time, as applicable; PROVIDED, HOWEVER, that (i) the Initial
Registration Statement and the Initial Offering shall not be delayed or
blacked-out for more than 120 days in the aggregate and (ii) registrations
other than the Initial Registration Statement shall not be delayed and/or
sale prohibitions relating to offerings other than the Initial Offering
shall not be in effect pursuant to the provisions of this paragraph (h) for
more than 270 days during any period of 365 days. The time period during
which any sale prohibition relating to the Initial Registration Statement or
a Subsequent Registration Statement is in effect under this Section 2(h)
shall be added to the time period for which the Initial Registration
Statement or a
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Subsequent Registration Statement, as the case may be, is otherwise required
to remain effective under this Agreement.
III. Registration Procedures.
A. If and whenever the Company is required to effect the registration of any
Registrable Securities under the Securities Act as provided in Section 2, the
Company, as expeditiously as possible and subject to the terms and conditions of
Section 2, will:
1. prepare and file with the Commission the requisite registration
statement to effect such registration and use its best efforts to cause such
registration to become and remain effective;
2. permit any Holder which, in the reasonable judgment of the Holder,
might be deemed to be an underwriter or a controlling person of the Company,
to participate in the preparation of such registration statement and to
require the insertion therein of material, furnished to the Company in
writing, which in the reasonable judgment of such Holder and its counsel
should be included and which is not reasonably objected to by the Company
and its counsel;
3. prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective
and to comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement until
the earlier of such time as all of such securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof set forth in such registration statement or the expiration of 60
days after such registration statement becomes effective (in the case of the
Initial Registration Statement or a Subsequent Registration Statement);
4. furnish to the Holders such number of conformed copies of such
registration statement and of each such amendment and supplement thereto (in
each case including all exhibits), such number of copies of the prospectus
contained in such registration statement (including each preliminary
prospectus and any summary prospectus) and any other prospectus filed under
Rule 424 under the Securities Act, in conformity with the requirements of
the Securities Act, and such other documents, as the purchaser or any Holder
of Registrable Securities to be sold under such registration statement may
reasonably request in order to facilitate the distribution of such
Registrable Securities;
5. use its best efforts to register or qualify all Registrable
Securities covered by such registration statement under such other United
States state securities or blue sky laws of such jurisdictions as any Holder
of Registrable Securities to be sold under registration statement shall
reasonably request, to keep such registration or qualification in effect for
so long as such registration remains in effect, and take any other action
which may be customary in similar offerings to enable the Holder of
Registrable Securities to be sold under such registration statement to
consummate the disposition in such jurisdictions of the securities owned by
such Holder, except that the Company shall not for any such purpose be
required to (a) qualify generally to do business as a foreign corporation in
any jurisdiction wherein it would not but for the requirements of this
subdivision (v) be obligated to be so qualified, or (b) subject itself to
taxation in any such jurisdiction.
6. use its best efforts to cause all Registrable Securities covered by
such registration statement to be registered with or approved by such other
United States state governmental agencies or authorities as may be necessary
to enable the Holder of Registrable Securities to be sold under such
registration statement to consummate the intended disposition of such
Registrable Securities;
7. in the event of the issuance of any stop order suspending the
effectiveness of the registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification
of any Registrable Securities included in such registration statement
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<PAGE>
for sale in any jurisdiction, the Company shall use its best efforts
promptly to obtain the withdrawal of such order;
8. furnish to the Holders of Registrable Securities to be sold under
such registration statement an opinion, dated the effective date of the
registration statement, of the independent counsel representing the Company
for the purposes of such registration, addressed to the underwriters, if
any, and to the Holders making such request, stating that such registration
statement has become effective under the Securities Act and that (i) to the
best knowledge of such counsel, no stop order suspending the effectiveness
thereof has been issued and no proceedings for that purpose have been
instituted or are pending or contemplated under the Securities Act; (ii) the
registration statement, the related prospectus, and each amendment or
supplement thereto, comply as to form in all material respects with the
requirements of the Securities Act and the applicable rules and regulations
of the Commission thereunder (except that such counsel need express no
opinion as to financial statements and related schedules and other projected
financial or statistical data contained therein); (iii) the descriptions in
the registration statement or the prospectus, or any amendment or supplement
thereto, of all legal and governmental matters and contracts and other legal
documents or instruments are accurate and fairly present the information
required to be shown; and (v) such counsel does not know of any legal or
governmental proceedings, pending or contemplated, required to be described
in the registration statement or prospectus, or any amendment or supplement
thereto, which are not described as required nor of any contracts or
documents or instruments of a character required to be described in the
registration statement or prospectus, or any amendment or supplement thereto
or to be filed as exhibits to the registration statement which are not
described and filed as required. Such counsel shall also opine that, in the
course of assisting the Company in preparing the Registration Statement,
nothing has come to their attention that would cause them to believe that
the Registration Statement (excluding the financial and statistical
information contained therein) contains any untrue statement of a material
fact or omits a material fact necessary to make the statements therein, in
light of the circumstances under which they were made not misleading.
9. furnish to the Holders of Registrable Securities to be sold under the
Registration Statement a letter, dated the effective date of the
registration statement, from the independent certified public accountants of
the Company, addressed to the underwriters, if any, and to the Holders
making such request, stating that they are independent certified public
accountants within the meaning of the Securities Act and that in the opinion
of such accountants, the financial statements and other financial data of
the Company included in the registration statement or the prospectus, or any
amendment or supplement thereto, comply as to form in all material respects
with the applicable accounting requirements of the Securities Act. Such
letter from the independent certified public accountants shall additionally
cover such other financial matters (including information as to the period
ending not more than five business days prior to the date of such letter)
with respect to the registration in respect of which such letter is being
given as the Holders may reasonably request.
10. immediately notify the Holders of Registrable Securities included in
such registration statement at any time when a prospectus relating thereto
is required to be delivered under the Securities Act, of the happening of
any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of material fact
or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made, and at the request of the Holders
promptly prepare and furnish to the Holders a reasonable number of copies of
a supplement to or an amendment of such prospectus as may be necessary so
that, as thereafter delivered to the purchasers of such securities, such
prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary
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<PAGE>
to make the statements therein not misleading in the light of the
circumstances under which they were made;
11. otherwise use all reasonable best efforts to comply with all
applicable rules and regulations of the Commission, and make available to
its security holders, as soon as reasonably practicable, an earnings
statement covering the period of at least twelve months, but not more than
eighteen months, beginning with the first full calendar month after the
effective date of such registration statement, which earnings statement
shall satisfy the provisions of Section 11(a) of the Securities Act and Rule
158 thereunder, and not file any amendment or supplement to such
registration statement or prospectus to which any Holder shall have
reasonably objected in writing on the grounds that such amendment or
supplement does not comply in all material respects with the requirements of
the Securities Act or of the rules or regulations thereunder, having been
furnished with a copy thereof at least two business days prior to the filing
thereof to the extent reasonably possible;
12. provide a transfer agent for all Registrable Securities covered by
such registration statement not later than the effective date of such
registration statement;
13. use all reasonable best efforts to cause to be quoted or listed all
Registrable Securities covered by such registration statement on NASDAQ and
any securities exchange on which any of the Registrable Securities are then
quoted or listed;
14. confer with the Stockholders' Representative as to mutually
beneficial and appropriate time to schedule the Initial Offering and the
first Subsequent Offering and make available the Company's management to
participate in roadshow presentations and conference calls with respect to
such offerings; and
15. confer with the Stockholders' Representative as to mutually
beneficial and appropriate time to schedule any other underwritten offerings
of Company Common Stock that will include Registrable Securities and use all
reasonable best efforts to work with the Stockholders' Representative to
schedule such offerings so that the Company's management will be able to
participate in roadshow presentations and conference calls with respect to
any additional Subsequent Offerings in excess of $100 million, the
availability of its senior management, however, being subject to conflicting
business necessities.
B. As a condition to the Company's obligation under this Section with
respect to any Holder, the Company may require such Holder of Registrable
Securities to be sold under such registration statement, at the Company's
expense, to furnish the Company with such information and undertakings as it may
reasonably request regarding such Holder and the distribution of such securities
as the Company may from time to time reasonably request in writing.
C. Each Holder, by execution of this Agreement, agrees (A) that upon receipt
of any notice of the Company of the happening of any event of the kind described
in subdivision (a)(x) of this Section 3, such Holder will forthwith discontinue
its disposition of Registrable Securities pursuant to the registration statement
relating to such Registrable Securities until the receipt by such Holder of the
copies of the supplemented or amended prospectus contemplated by subdivision
(a)(x) of this Section 3 and, if so directed by the Company, will deliver to the
Company all copies (other than permanent file copies), then in possession of the
Holders of the prospectus relating to such Registrable Securities current at the
time of receipt of such notice and (B) that it will immediately notify the
Company, at any time when a prospectus relating to the registration of such
Registrable Securities is required to be delivered under the Securities Act, of
the happening of any event as a result of which information previously furnished
in writing by such Holder to the Company for inclusion in such prospectus
contains an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances under which
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<PAGE>
they were made. In the event the Company or any such Holder shall give any such
notice, the period referred to in subdivision (a)(iii) of this Section 3 shall
be extended by a number of days equal to the number of days during the period
from and including the giving of notice pursuant to subdivision (a)(x) of this
Section 3 to and including the date when such Holder shall have received the
copies of the supplemented or amended prospectus contemplated by subdivision
(a)(x) of this Section 3.
IV. Underwritten Offerings.
A. UNDERWRITTEN OFFERING. In connection with any underwritten offering
pursuant to a registration under Section 2, the Company will enter into an
underwriting agreement with the underwriters for such offering, such agreement
to be in form and substance reasonably satisfactory to all Holders requesting
such registration and such underwriters in their reasonable judgment and to
contain such representations and warranties by the Company and such other terms
as are customarily contained in agreements of that type, including, without
limitation, indemnities to the effect and to the extent provided in Section 6.
Each such Holder shall be a party to such underwriting agreement and may, at its
option, require that any or all of the representations and warranties by, and
the other agreements on the part of, the Company to and for the benefit of such
underwriters shall also be made to and for the benefit of each such Holder and
that any or all of the conditions precedent to the obligations of such
underwriters under such underwriting agreement be conditions precedent to the
obligations of each such Holder. No Holder shall be required to make any
representations or warranties to or agreements with the Company or the
underwriters other than representations, warranties or agreements regarding such
Holder and its intended method of distribution and any other representation
required by law.
B. SELECTION OF UNDERWRITERS. The Company shall select its customary
underwriter or, alternatively, an underwriting firm of national reputation, with
expertise in comparable offerings by companies engaged in businesses similar to
that of the Company that is reasonably satisfactory to the Stockholders'
Representative, for the Initial Offering, any Subsequent Offering and any
underwritten offering pursuant to an Incidental Registration.
C. HOLDBACK AGREEMENTS. Each Holder agrees, if required by the managing
underwriter in any offering, not to effect any public sale or distribution of
Registrable Securities (other than sales pursuant to the Initial Registration
Statement), any sale or distribution thereof pursuant to Rule 144 or 145 under
the Securities Act, or any short sale thereof or any transaction or series of
transactions having a substantially similar economic effect during the period
beginning, in the case of the Initial Registration Statement, on the date hereof
and,in the case of each Subsequent and Incidental Registration, beginning seven
days prior to the effective date of such registration statement, and ending on
the date 180 days after the Initial Registration Statement, any Subsequent
Registration Statement or any Incidental Registration Statement shall have been
declared effective, provided that in the event the Initial Registration
Statement shall not have been declared effective within 30 days following the
Closing Date and a majority-in-interest of the Holders participating in the
Initial Offering shall have voted to be released, in whole or in part, from such
restrictions, all of the Holders shall be released, in whole or in part, as so
determined, from such restrictions with respect to the Initial Offering. In
addition, if (i) the gross proceeds to the Holders in the Initial Offering are
less than $150 million and a majority-in-interest of the Holders participating
in such offering vote to be released, in whole or in part, from the restrictions
contained in the preceding sentence or (ii) the gross proceeds to the Holders in
any Subsequent Offering are less than $30 million and a majority-in-interest of
all Holders of Registrable Securities vote to be released, in whole or in part,
from the restrictions contained in the preceding sentence then all Holders shall
be released from the restrictions contained in the preceding sentence with
respect to such offering, in whole or in part, as so determined.
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V. Preparation, Reasonable Investigation.
In connection with the preparation and filing of each registration statement
under the Securities Act, the Company will give the Stockholders'
Representative, the underwriters, if any, and their respective counsel and
accountants, drafts and final copies of such registration statement, each
prospectus included therein or filed with the Commission and each amendment
thereof or supplement thereto, at least 5 business days prior to the filing
thereof with the Commission, and will give each of them such access to its books
and records and such opportunities to discuss the business of the Company with
its officers and the independent public accountants who have certified its
financial statements as shall be necessary, in the opinion of such Holders' and
such underwriters' respective counsel, to conduct a reasonable investigation
within the meaning of the Securities Act.
VI. Indemnification and Contribution.
A. INDEMNIFICATION BY THE COMPANY. In the event of any registration under
the Securities Act pursuant to Section 2 of any Registrable Securities covered
by such registration, the Company will, and hereby does, indemnify and hold
harmless each Holder of Registrable Securities to be sold under such
registration statement, each such Holder's legal counsel, each other person who
participates as an underwriter in the offering or sale of such securities (if so
required by such underwriter as a condition to including the Registrable
Securities of the Holders in such registration) and each other person, if any,
who controls any such Holder or any such underwriter within the meaning of the
Securities Act (collectively, the "Indemnified Parties"), against any losses,
claims, damages or liabilities, joint or several, to which the Holders or
underwriter or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any registration statement under which such
securities were registered under the Securities Act, any preliminary prospectus,
final prospectus or summary prospectus contained therein or any document
incorporated therein by reference, or any amendment or supplement thereto, or
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
arise out of any violation by the Company of any rule or regulation promulgated
under the Securities Act or state securities law applicable to the Company and
relating to action or inaction required of the Company in connection with any
such registration, and the Company will reimburse the Indemnified Parties for
any legal or any other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, liability, action or
proceeding; PROVIDED, HOWEVER, that the Company shall not be liable to any
Indemnified Party in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense arises
out of or is based upon any untrue statement or alleged untrue statement or
omission or alleged omission made in such registration statement, any such
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement in reliance upon and in conformity with written information furnished
to the Company by such Indemnified Party specifically for use therein.
B. INDEMNIFICATION BY THE HOLDERS. The Company may require, as a condition
to including any Registrable Securities of any Holder in any registration
statement filed pursuant to Section 2, that the Company shall have received an
undertaking reasonably satisfactory to it from such Holder to indemnify and hold
harmless (in the same manner and to the same extent as set forth in subdivision
(a) of this Section 6) the Company, each director of the Company, each officer
of the Company and each other person, if any, who controls the Company within
the meaning of the Securities Act, with respect to any statement or alleged
statement in or omission or alleged omission from such registration statement,
any preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, if, and only if, and only to
the extent that, such statement or alleged statement or omission or alleged
omission was made in reliance upon and in conformity with information furnished
in writing to the Company directly by such Holder specifically for use therein;
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<PAGE>
provided, however, that the obligation of any Holder hereunder shall be limited
to an amount equal to the net proceeds received by such Holder upon the sale of
Registrable Securities sold in the offering covered by such registration.
C. NOTICES OF CLAIMS, ETC. Promptly after receipt by an Indemnified Party
of notice of the commencement of any action or proceeding involving a claim
referred to in the preceding subdivisions of this Section 6, such Indemnified
Party will, if a claim in respect thereof is to be made against a party required
to provide indemnification (an "Indemnifying Party"), give written notice to the
latter of the commencement of such action, PROVIDED, HOWEVER, that the failure
of any Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligation under the preceding subdivisions of this
Section 6, except to the extent that the Indemnifying Party is actually
prejudiced by such failure to give notice. In case any such action is brought
against an Indemnified Party, unless in such Indemnified Party's reasonable
judgment a conflict of interest between such Indemnified and indemnifying
parties may exist in respect of such claim, the Indemnifying Party shall be
entitled to participate in and to assume the defense thereof, jointly with any
other Indemnifying Party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such Indemnified Party, and after notice from
the Indemnifying Party to such Indemnified Party of its election so to assume
the defense thereof, the Indemnifying Party shall not be liable to such
Indemnified Party for any legal or other expenses subsequently incurred by the
latter in connection with the defense thereof other than reasonable costs of
investigation. No Indemnifying Party shall consent to entry of any judgment or
enter into any settlement without the consent of the Indemnified Party which
does not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
to such claim or litigation.
D. OTHER INDEMNIFICATION. Indemnification substantially equivalent to that
specified in the preceding subdivisions of this Section 6 (with appropriate
modifications) shall be given by the Company and each Holder of Registrable
Securities included in any registration statement with respect to any required
registration or other qualification of securities under any Federal or state law
or regulation of any governmental authority, other than the Securities Act.
E. INDEMNIFICATION PAYMENT. The indemnification required by this Section 6
shall be made by periodic payments of the amount thereof during the course of
the investigation or defense, as and when bills are received or expense, loss,
damage or liability is incurred.
F. SURVIVAL OF OBLIGATIONS. The obligations of the Company and of the
Holders under this Section 6 shall survive the completion of any offering of
Registrable Securities under this Agreement.
G. CONTRIBUTION. If the indemnification provided for in this Section 6 is
unavailable or insufficient to hold harmless an Indemnified Party, then each
Indemnifying Party shall contribute to the amount paid or payable to such
Indemnified Party as a result of the losses, claims, damages or liabilities
referred to in this Section 6 an amount or additional amount, as the case may
be, in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party or parties on the one hand and the Indemnified Party on the
other in connection with the statements or omissions which resulted in such
losses, claims, demands or liabilities as well as any other relevant equitable
considerations. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Indemnifying Party or parties on the one hand or the
Indemnified Party on the other and the parties' relative, intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission. The amount paid to an Indemnified Party as a result of
the losses, claims, damages or liabilities referred to in the first sentence of
this Section 6(g) shall be deemed to include any legal or other expenses
reasonably incurred by such Indemnified Party in connection with investigating
or defending any action or claim which is the subject of this Section 6. No
person guilty of fraudulent misrepresentation within the meaning of Section
11(f) of the
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Securities Act shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation.
VII. Covenants Relating to Rule 145.
With a view to making available the benefits of certain rules and
regulations of the Commission which may at any time permit the sale of
securities of the Company to the public without registration after such time as
a public market exists for the Common Stock of the Company, the Company agrees:
A. to make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times
after the date of the Closing;
B. to use all reasonable best efforts to then file with the Commission
in a timely manner all reports and other documents required of the Company
under the Securities Act and the Exchange Act, as amended; and
C. so long as a Holder owns any Registrable Securities, to furnish to
the Holder forthwith upon request a written statement by the Company as to
its compliance with the reporting requirements of said Rule 144 and of the
Securities Act and the Exchange Act, a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents of the
Company as a Holder may reasonably request in availing itself of any rule or
regulation of the Commission allowing a Holder to sell any such securities
without registration.
VIII. Other Registration Rights.
The Company represents and warrants that it has not granted any registration
rights to any Person other than as described pursuant to the Merger Agreement.
The Company shall not grant to any Person any registration rights inconsistent
with any of those contained herein, so long as any of the registration rights
under this Agreement remain in effect.
IX. Miscellaneous.
A. SPECIFIC PERFORMANCE. The parties hereto acknowledge that there may
be no adequate remedy at law if any party fails to perform any of its
obligations hereunder and that each party may be irreparably harmed by any
such failure, and accordingly agree that each party, in addition to any
other remedy to which it may be entitled at law or in equity, shall be
entitled to compel specific performance of the obligations of any other
party under this Agreement in accordance with the terms and conditions of
this Agreement.
B. NOTICES. All demands, requests, notices and other communications
required or permitted to be given under this Agreement shall be in writing
and shall be deemed to have been duly given if delivered personally or sent
by United States first class mail, postage prepaid, and to the parties
hereto at the following address or at such other address as any party hereto
shall hereafter specify by notice to the other party hereto:
1. if to the Company, addressed to:
NEXTLINK Communications, Inc.
500 108th Avenue, NE, Suite 2200
Bellevue, WA 98004
Attention: General Counsel
Facsimile No.: 425-519-8997
and
NEXTLINK Communications, Inc.
1730 Rhode Island Avenue, N.W.
Washington, D.C. 20036
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Attention: Corporate Counsel
Facsimile No.: 202-721-0995
with a copy to:
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019-6099
Attention: Bruce R. Kraus, Esq.
Facsimile No.: 212-728-8111
(ii) if to the Stockholders' Representative, addressed to:
Thomas H. Jones
WNP Communications, Inc.
400 Balbion Drive
Earlysville, Virginia 22936-9680
Facsimile No.: 804-964-1021
(iii) if to the Holders, addressed to them at the addresses they have
provided to the Company.
with a copy to:
Edwards & Angell, LLP
101 Federal Street
Boston, MA 02110
Attention: Stephen O. Meredith, Esq.
Facsimile No.: 617-439-4170
Except as otherwise provided herein, all such demands, requests, notices and
other communications shall be deemed to have been received on the date of
personal delivery thereof or on the third business day after the mailing
thereof.
(c) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York, without regard
to conflicts of law principles thereof.
(d) HEADINGS. The descriptive headings of the several sections and
paragraphs of this Agreement are inserted for convenience only, and do not
constitute a part of this Agreement and shall not affect in any way the
meaning or interpretation of this Agreement.
(e) ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the other writings
referred to herein or delivered pursuant hereto which form a part hereof
contain the entire understanding of the parties with respect to its subject
matter. This Agreement supersedes all prior agreements and understandings
between the parties with respect to its subject matter. Each Holder and the
Stockholders' Representative agree that Section 9.14 of the Merger Agreement
is hereby incorporated by reference into this Agreement, with the effect
that all rights, duties and obligations of the Stockholders' Representative
under said section are rights, duties and obligations of the Stockholders'
Representative hereunder. This Agreement may be amended and the observance
of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively) only by a
written instrument duly executed by the Company and the Stockholders'
Representative on behalf of the Holders. Each Holder of any Registrable
Securities at the time or thereafter outstanding shall be bound by an
amendment or waiver authorized by this Section 9(e), whether or not any such
Registrable Securities shall have been marked to indicate such consent.
(f) ASSIGNABILITY. This Agreement and all of the provisions hereof will
be assigned, without the consent of the Company, by any Holder to, and shall
inure to the benefit of, any purchaser,
B-12
<PAGE>
transferee or assignee of any Registrable Security to the extent of the
securities so transferred or assigned, provided that the seller, transferor
or assignor does not affirmatively restrict in writing the transfer or
assignment of rights hereunder with respect to such securities. However, the
Company shall not be required to recognize any such purchaser, transferee or
assignee as a Holder under this Agreement unless and until either (i) such
person becomes the holder of record of Series A Common Stock or (ii) the
Company receives written notice of such purchase, transfer or assignment and
a written agreement by the purchaser, assignee or transferee to be bound by
the provisions of this Agreement.
(g) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(h) STOCK SPLITS, ETC. If the Company at any time subdivides (by any
stock split, stock dividend, recapitalization or otherwise) its outstanding
shares of Common Stock into a greater number of shares or if the outstanding
shares of Common Stock shall be combined (by reverse stock split or
otherwise) into a smaller number of shares, all numbers, percentages,
computations and the like in this Agreement shall be deemed modified as
necessary to give appropriate effect to such subdivision or combination.
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
<TABLE>
<S> <C> <C>
NEXTLINK COMMUNICATIONS, INC.
By: /s/ THOMAS H. JONES,
-----------------------------------------
Name: Thomas H. Jones,
Title: as Stockholders' Representative
</TABLE>
B-13
<PAGE>
ANNEX C
CONSENT AND INDEMNITY AGREEMENT OF STOCKHOLDERS
This Consent and Indemnity Agreement of Stockholders (this "AGREEMENT") is
made and entered into as of January 14, 1999, by and among NEXTLINK
Communications, Inc., a Delaware corporation ("NEXTLINK"), WNP Communications,
Inc., a Delaware corporation (the "COMPANY"), and the holders (each a "HOLDER"
and together the "HOLDERS") of the Company's Voting Common Stock, par value $.01
per share ("COMPANY VOTING STOCK"), and Nonvoting Common Stock, par value $.01
per share ("COMPANY NONVOTING STOCK" and, together with the Company Voting
Stock, "COMPANY COMMON STOCK") whose signatures appear below. Capitalized terms
used herein without definition as used as defined in the Merger Agreement (as
defined below).
W I T N E S S E T H
WHEREAS, pursuant to an Agreement and Plan of Merger in the form attached
hereto as Exhibit A (the "MERGER AGREEMENT"), to be executed by the Company,
NEXTLINK and PCO Acquisition Corp., a Delaware corporation and wholly-owned
subsidiary of NEXTLINK ("MERGER SUB"), the Company will merge (the "MERGER")
with and into Merger Sub; and
WHEREAS, pursuant to the Merger Agreement, a portion of the Merger
Consideration may be comprised of shares of Class A Common Stock, par value $.02
per share ("PURCHASER COMMON STOCK"), of NEXTLINK; and
WHEREAS, each Holder is the record holder of such number of shares of
Company Voting Stock or Company Nonvoting Stock as is indicated next to its
signature below; and
WHEREAS, pursuant to that certain Securities Purchase Agreement (the
"Securities Purchase Agreement"), dated as of January 29, 1998, among the
Company and the several purchasers named therein (individually a "WNP Stock
Purchaser" and collectively the "WNP Stock Purchasers"), certain WNP Stock
Purchasers have the right (the "Put Right") under certain circumstances to sell
to the Company, and the Company has the obligation to buy, any and all Company
Common Stock or Company Preferred Stock then held by such WNP Stock Purchaser.
NOW, THEREFORE, in consideration of the premises, the parties hereto agree
as follows:
ARTICLE I.
REPRESENTATIONS AND WARRANTIES OF HOLDER
Each Holder hereby represents, warrants and covenants to NEXTLINK with
respect to itself only:
1.1. BENEFICIAL OWNERSHIP. Holder is the beneficial owner of the number of
shares of Company Common Stock indicated next to its signature below.
1.2. AUTHORIZATION; BINDING AGREEMENT. Holder is (i) an individual with
full legal capacity to execute and deliver this Agreement or (ii) has all
requisite corporate or partnership power and authority to execute and deliver
this Agreement. The execution and delivery of this Agreement has been duly and
validly authorized by the Board of Directors or other governing body of Holder,
if applicable. No other corporate or partnership proceedings on the part of the
Holder are necessary to authorize the execution and delivery of this Agreement.
This Agreement has been duly and validly executed and delivered by Holder and
constitutes the legal, valid and binding agreement of Holder, enforceable
against Holder and in accordance with its terms.
C-1
<PAGE>
ARTICLE II.
IRREVOCABLE CONSENT, POWER OF ATTORNEY AND WAIVER OF PUT RIGHT
2.1. CONSENT TO MERGER. Each Holder, pursuant to Section 228 of the
Delaware General Corporation Law, hereby irrevocably consents, without a
meeting, to and votes in favor of the Merger, the execution of the Merger
Agreement by the Company and all transactions contemplated by the Merger
Agreement. Any Holder who executes this Agreement after the date hereof shall
not be deemed to have consented to and voted in favor of the Merger, nor the
execution of the Merger Agreement by the Company, nor the transactions
contemplated by the Merger Agreement.
2.2. POWER OF ATTORNEY. Each Holder hereby irrevocably appoints Thomas H.
Jones (the "STOCKHOLDERS' REPRESENTATIVE") as attorney-in-fact and agent for and
on behalf of such Holder, with full power and authority (and exculpated from all
actions taken in good faith):
(a) to execute that certain Registration Rights Agreement between NEXTLINK
and the Stockholders' Representative (the "REGISTRATION RIGHTS AGREEMENT"), in
the form attached hereto as Exhibit B; and
(b) to take certain actions, including, without limitation, to execute
agreements, and to take any and all actions required or permitted to be taken by
Stockholders' Representative on behalf of such Holder pursuant to the Merger
Agreement, and all as more fully described in the Merger Agreement, and to take
other ministerial actions on such Holder's behalf incidental to the transactions
contemplated by the Merger Agreement and the Registration Rights Agreement.
(c) Holder and Stockholders' Representative agree that the terms of this
appointment are as set forth in this Agreement, the Registration Rights
Agreement and the Merger Agreement, including, without limitation, Section 9.14
of the Merger Agreement.
2.3. WAIVER OF PUT RIGHT. Each Holder who has the benefit of the Put Right
granted to certain WNP Stock Purchasers pursuant to the Securities Purchase
Agreement hereby waives such Put Right until the Merger Agreement, including the
indemnification provisions thereunder, is no longer in effect.
ARTICLE III.
AGREEMENT TO INDEMNIFY
3.1. INDEMNITY. Each Holder agrees to severally indemnify and hold
harmless NEXTLINK and its shareholders, directors, officers and employees
(collectively, the "INDEMNIFIED PARTIES") by, without limitation, becoming an
Indemnifying Party as defined in the Merger Agreement and by indemnifying the
Indemnified Parties for its Pro Rata Share (as defined in the Merger Agreement)
of any Loss incurred by the Indemnified Parties arising out of or resulting from
(i) any misrepresentation or breach of warranty by the Company of any of its
representations or warranties set forth in the Merger Agreement or any Annex,
Schedule or Exhibit thereto, (ii) any breach or nonfulfillment by the Company of
any of its covenants, agreements or other obligations set forth in the Merger
Agreement or any Annex, Schedule or Exhibit thereto, or (iii) any amounts owed
to Dissenting Stockholders in excess of the amount of cash held in the
Dissenting Stockholders Escrow Account, all as more fully described, and subject
to the limitations contained in, the Merger Agreement.
ARTICLE IV.
TRANSFER RESTRICTIONS
4.1. NO VIOLATION OF SECURITIES ACT. If Holder is an "affiliate" of the
Company within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"), Holder agrees to make no sale or transfer or other
disposition of Purchaser Common Stock in violation of the Securities Act or Rule
145 of the rules and regulations of the Securities Act.
C-2
<PAGE>
4.2. STOP TRANSFER INSTRUCTIONS; LEGEND.
(a) Each Holder understands and agrees that stop transfer instructions may
be given to NEXTLINK's transfer agent with respect to certificates evidencing
Purchaser Common Stock to enforce compliance with any transfer restrictions on
Purchaser Common Stock held by such Holder pursuant to the Merger Agreement or
any agreement or transaction contemplated thereby.
(b) If a Holder is an "affiliate" of the Company, as such term is defined in
Rule 405 of the Securities Act of 1933, as amended, such Holder agrees and
understands that there will be placed on the certificate evidencing Purchaser
Common Stock legends stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, APPLIES. THE SHARES REPRESENTED BY THIS CERTIFICATE
MAY NOT BE OFFERED, SOLD, PLEDGED, EXCHANGED, TRANSFERRED OR OTHERWISE
DISPOSED OF EXCEPT IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES
ACT OF 1933, AS AMENDED.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AS CONTAINED IN THAT CERTAIN REGISTRATION
RIGHTS AGREEMENT, DATED AS OF JANUARY 14, 1999, BY AND AMONG NEXTLINK
COMMUNICATIONS, INC. AND STOCKHOLDERS' REPRESENTATIVE."
(c) If a Holder is not an "affiliate" of the Company, such Holder agrees and
understands that there will be placed on the certificate evidencing Purchaser
Common Stock legends stating in substance:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AS CONTAINED IN THAT CERTAIN REGISTRATION
RIGHTS AGREEMENT, DATED AS OF JANUARY 14, 1999, BY AND AMONG NEXTLINK
COMMUNICATIONS, INC. AND STOCKHOLDERS' REPRESENTATIVE."
ARTICLE V.
MISCELLANEOUS
5.1. ADDITIONAL DOCUMENTS. Each Holder hereby covenants and agrees to
execute and deliver any additional documents necessary or desirable, in the
reasonable opinion of NEXTLINK, to carry out the purpose and intent of this
Agreement.
5.2. CONSENT AND WAIVER. Each Holder hereby gives any consents or waivers
that are reasonably required for the consummation of the Merger under the terms
of any agreement to which Holder is a party or pursuant to any rights such
Holder may have.
5.3. TERMINATION. This Agreement shall terminate and shall have no further
force or effect with respect to any Holder on the date such Holder no longer
owns any shares of Purchaser Common Stock received by it in the Merger.
5.4. AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended or
waived only with the written consent of each party hereto. Each Holder further
agrees that the consent granted by it pursuant to Section 2.1 and the waiver
granted by it of the Put Right pursuant to Section 2.3 are irrevocable and may
not be withdrawn or amended without the written consent of NEXTLINK. Any
amendment or waiver effected in accordance with this Section 5.4 shall be
binding upon the parties and their respective successors and assigns.
C-3
<PAGE>
5.5. GOVERNING LAW. This Agreement and all acts and transactions pursuant
hereto and the rights and obligations of the parties hereto shall be governed,
construed and interpreted in accordance with the laws of the State of Delaware,
without giving effect to principles of conflicts of law.
5.6. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
5.7. TITLES AND SUBTITLES. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
5.8. NOTICES. Any notice required or permitted by this Agreement shall be
in writing and shall be deemed sufficient upon receipt, when delivered
personally or by courier, overnight delivery service or confirmed facsimile, or
forty-eight (48) hours after being deposited in the regular mail as certified or
registered mail (airmail if sent internationally) with postage prepaid, if such
notice is addressed to the party to be notified at such party's address or
facsimile number as set forth on the final page of this Agreement, or as
subsequently modified by written notice.
5.9. SEVERABILITY. If one or more provisions of this Agreement are held to
be unenforceable under applicable law, the parties agree to renegotiate such
provision in good faith, in order to maintain the economic position enjoyed by
each party as close as possible to that under the provision rendered
unenforceable. In the event that the parties cannot reach a mutually agreeable
and enforceable replacement for such provision, then (i) such provision shall be
excluded from this Agreement, (ii) the balance of this Agreement shall be
interpreted as if such provision were so excluded and (iii) the balance of this
Agreement shall be enforceable in accordance with its terms.
5.10. ATTORNEYS' FEES. Should suit be brought to enforce or interpret any
part of this Agreement, the prevailing party will be entitled to recover, as an
element of the costs of suit and not as damages, reasonable attorneys' fees to
be fixed by the court (including without limitation, costs, expenses and fees on
any appeal). The prevailing party will be entitled to recover its costs of suit
proceeds to final judgment.
5.11. SPECIFIC PERFORMANCE; INJUNCTIVE RELIEF. The parties hereto
acknowledge and agree that NEXTLINK will be irreparably harmed and that there
will be no adequate remedy at law for a violation of any of the covenants or
agreements of Holder set forth herein. Therefore, the parties acknowledge and
agree that, in addition to any other remedies that may be available to NEXTLINK
upon any such violation, NEXTLINK shall have the right to enforce such covenants
and agreements by specific performance, injunctive relief or by any other means
available to NEXTLINK at law or in equity.
IN WITNESS WHEREOF, the parties have caused this Consent and Indemnity
Agreement of Stockholders to be duly executed on the date first above written.
NEXTLINK COMMUNICATIONS, INC.
By:
Name:
Title:
Address: 155 108th Avenue, NE Suite 810
Bellevue, WA 98004
Attention: General Counsel
Facsimile: (425) 519-8997
and
C-4
<PAGE>
Address: 1730 Rhode Island Ave., N.W.
Washington, D.C. 20036
Attention: Corporate Counsel
Facsimile: (202) 721-0995
WNP COMMUNICATIONS, INC.
By:
Name:
Title:
Address:
Facsimile:
[HOLDERS]
, as holder of shares of Company Common Stock
By:
Name:
Title:
Address:
Facsimile:
Accepted and Agreed:
, as Stockholders' Representative
By:
Name:
Title:
Address for Notice:
C-5
<PAGE>
ANNEX D
CONSENT AND INDEMNITY AGREEMENT OF PREFERRED STOCKHOLDERS
This Consent and Indemnity Agreement of Preferred Stockholders (this
"AGREEMENT") is made and entered into as of January 14, 1999, by and among
NEXTLINK Communications, Inc., a Delaware corporation ("NEXTLINK"), WNP
Communications, Inc., a Delaware corporation (the "COMPANY"), and the holders
(each a "HOLDER" AND TOGETHER THE "HOLDERS") of the Company's Preferred Stock,
par value $.01 per share ("COMPANY PREFERRED STOCK") whose signatures appear
below. Capitalized terms used herein without definition are used as defined in
the Merger Agreement (as defined below).
W I T N E S S E T H
WHEREAS, pursuant to an Agreement and Plan of Merger in the form attached
hereto as Exhibit A (the "MERGER AGREEMENT"), to be executed by the Company,
NEXTLINK and PCO Acquisition Corp., a Delaware corporation and wholly-owned
subsidiary of NEXTLINK ("MERGER SUB"), the Company will merge (the "MERGER")
with and into Merger Sub; and
WHEREAS, pursuant to the Merger Agreement, a portion of the Merger
Consideration may be comprised of shares of Class A Common Stock, par value $.02
per share ("PURCHASER COMMON STOCK"), of NEXTLINK; and
WHEREAS, each Holder is the record owner of such number of shares of Company
Preferred Stock as is indicated next to its signature below; and
WHEREAS, pursuant to that certain Securities Purchase Agreement (the
"Securities Purchase Agreement"), dated as of January 29, 1998, among the
Company and the several purchasers named therein (individually, a "WNP Stock
Purchaser" and collectively, the "WNP Stock Purchasers"), certain WNP Stock
Purchasers have the right (the "Put Right") under certain circumstances to sell
to the Company, and the Company has the obligation to buy, any and all Company
Common Stock or Company Preferred Stock then held by such WNP Stock Purchaser.
NOW, THEREFORE, in consideration of the premises, the parties hereto agree
as follows:
ARTICLE I.
REPRESENTATIONS AND WARRANTIES OF HOLDER
Each Holder hereby represents, warrants and covenants to NEXTLINK with
respect to itself only:
1.1. BENEFICIAL OWNERSHIP. Holder is the record and beneficial owner of
the number of shares of Company Preferred Stock indicated next to its signature
below.
1.2. AUTHORIZATION; BINDING AGREEMENT. Holder is (i) an individual with
full legal capacity to execute and deliver this Agreement or (ii) has all
requisite corporate or partnership power and authority to execute and deliver
this Agreement. The execution and delivery of this Agreement has been duly and
validly authorized by the Board of Directors or other governing body of Holder,
if applicable. No other corporate or partnership proceedings on the part of the
Holder are necessary to authorize the execution and delivery of this Agreement.
This Agreement has been duly and validly executed and delivered by Holder and
constitutes the legal, valid and binding agreement of Holder, enforceable
against Holder and in accordance with its terms.
ARTICLE II.
IRREVOCABLE CONSENT, WAIVER OF LIQUIDATION PREFERENCE, POWER OF
ATTORNEY AND WAIVER OF PUT RIGHT
2.1 CONSENT TO MERGER; WAIVER OF LIQUIDATION PREFERENCE. Each Holder,
pursuant to Section 3(b) of the Restated Certificate of Incorporation of WNP
Communications, Inc. (the "CERTIFICATE"), hereby
D-1
<PAGE>
(i) irrevocably consents to and votes in favor of the Merger, the execution of
the Merger Agreement by the Company and all transactions contemplated by the
Merger Agreement, including the payment in connection with the Merger of the
liquidation preference to which it would otherwise be entitled pursuant to
section 3(a) of the Certificate (the "Liquidation Preference") in part in the
form of Company Common Stock, as provided in the Merger Agreement. Any Holder
who executes this Agreement after the date hereof shall not be deemed to have
consented to and voted in favor of the Merger, nor the execution of the Merger
Agreement by the Company, nor the transactions contemplated by the Merger
Agreement.
2.2 EFFECT OF CONSENT. Upon execution and delivery of this Agreement by
holders of a two-thirds of Company Preferred Stock outstanding, the terms
thereof shall be deemed to be amended to the extent necessary to effectuate the
foregoing, and such amendment shall, if required by applicable law, be evidenced
by the filing with the Secretary of State of the State of Delaware of an
amendment to the Certificate.
2.3. POWER OF ATTORNEY. Each Holder hereby irrevocably appoints Thomas H.
Jones (the "Stockholders' Representative") as attorney-in-fact and agent for and
on behalf of such Holder, with full power and authority (and exculpated from all
actions taken in good faith):
(a) to execute that certain Registration Rights Agreement, between
NEXTLINK and the Stockholders' Representative (the "Registration Rights
Agreement"), in the form attached hereto as Exhibit B; and
(b) to take certain actions, including, without limitation, to execute
agreements, and to take any and all actions required or permitted to be
taken by Stockholders' Representative on behalf of such Holder pursuant to
the Merger Agreement, and all as more fully described in the Merger
Agreement, and to take other ministerial actions on such Holder's behalf
incidental to the transactions contemplated by the Merger Agreement and the
Registration Rights Agreement.
(c) Holder and Stockholders' Representative agree that the terms of this
appointment are as set forth in this Agreement, the Registration Rights
Agreement and the Merger Agreement, including, without limitation, Section
9.14 of the Merger Agreement.
2.4. WAIVER OF PUT RIGHT. Each Holder who has the benefit of the Put Right
granted to certain WNP Stock Purchasers pursuant to the Securities Purchase
Agreement hereby waives such Put Right until the Merger Agreement, including the
indemnification provisions thereunder, is no longer in effect.
ARTICLE III.
AGREEMENT TO INDEMNIFY
3.1. INDEMNITY. Each Holder agrees to severally indemnify and hold
harmless NEXTLINK and its shareholders, directors, officers and employees
(collectively, the "INDEMNIFIED PARTIES") by, without limitation, becoming an
Indemnifying Party as defined in the Merger Agreement and by indemnifying the
Indemnified Parties for its Pro Rata Share (as defined in the Merger Agreement)
of any Loss incurred by the Indemnified Parties arising out of or resulting from
(i) any misrepresentation or breach of warranty by the Company of any of its
representations or warranties set forth in the Merger Agreement or any Annex,
Schedule or Exhibit thereto, (ii) any breach or nonfulfillment by the Company of
any of its covenants, agreements or other obligations set forth in the Merger
Agreement or any Annex, Schedule or Exhibit thereto, or (iii) any amounts owed
to Dissenting Stockholders in excess of the amount of cash held in the
Dissenting Stockholders Escrow Account all as more fully described, and subject
to the limitations contained in, the Merger Agreement.
D-2
<PAGE>
ARTICLE IV.
TRANSFER RESTRICTIONS
4.1. NO VIOLATION OF SECURITIES ACT. If Holder is an "affiliate" of the
Company within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"), Holder agrees to make no sale or transfer or other
disposition of Purchaser Common Stock in violation of the Securities Act or Rule
145 of the rules and regulations of the Securities Act.
4.2. STOP TRANSFER INSTRUCTIONS; LEGEND.
(a) Each Holder understands and agrees that stop transfer instructions may
be given to NEXTLINK's transfer agent with respect to certificates evidencing
Purchaser Common Stock to enforce compliance with any transfer restrictions on
Purchaser Common Stock held by such Holder pursuant to the Merger Agreement or
any agreement or transaction contemplated thereby.
(b) If a Holder is an "affiliate" of the Company, as such term is defined in
Rule 405 of the Securities Act of 1933, as amended, such Holder agrees and
understands that there will be placed on the certificate evidencing Purchaser
Common Stock legends stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION TO
WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
APPLIES. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED, SOLD,
PLEDGED, EXCHANGED, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE
WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AS CONTAINED IN THAT CERTAIN REGISTRATION RIGHTS
AGREEMENT, DATED AS OF JANUARY 13, 1999, BY AND AMONG NEXTLINK COMMUNICATIONS,
INC. AND STOCKHOLDERS' REPRESENTATIVE."
(c) If a Holder is not an "affiliate" of the Company, such Holder agrees and
understands that there will be placed on the certificate evidencing Purchaser
Common Stock legends stating in substance:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AS CONTAINED IN THAT CERTAIN REGISTRATION RIGHTS
AGREEMENT, DATED AS OF JANUARY 13, 1999, BY AND AMONG NEXTLINK COMMUNICATIONS,
INC. AND STOCKHOLDERS' REPRESENTATIVE."
ARTICLE V.
MISCELLANEOUS
5.1. ADDITIONAL DOCUMENTS. Each Holder hereby covenants and agrees to
execute and deliver any additional documents necessary or desirable, in the
reasonable opinion of NEXTLINK, to carry out the purpose and intent of this
Agreement.
5.2. CONSENT AND WAIVER. Each Holder hereby gives any consents or waivers
that are reasonably required for the consummation of the Merger under the terms
of any agreement to which such Holder is a party or pursuant to any rights such
Holder may have.
5.3. TERMINATION. This Agreement shall terminate and shall have no further
force or effect with respect to any Holder on the date such Holder no longer
owns any shares of Purchaser Common Stock received by it in the Merger.
D-3
<PAGE>
5.4. AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended or
waived only with the written consent of each party hereto. Each Holder further
agrees that the consent granted by it pursuant to Section 2.1 and the waiver
granted by it of the Put Right pursuant to Section 2.3 are irrevocable and may
not be withdrawn or amended without the written consent of NEXTLINK. Any
amendment or waiver effected in accordance with this Section 5.4 shall be
binding upon the parties and their respective successors and assigns.
5.5. GOVERNING LAW. This Agreement and all acts and transactions pursuant
hereto and the rights and obligations of the parties hereto shall be governed,
construed and interpreted in accordance with the laws of the State of Delaware,
without giving effect to principles of conflicts of law.
5.6. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
5.7. TITLES AND SUBTITLES. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
5.8. NOTICES. Any notice required or permitted by this Agreement shall be
in writing and shall be deemed sufficient upon receipt, when delivered
personally or by courier, overnight delivery service or confirmed facsimile, or
forty-eight (48) hours after being deposited in the regular mail as certified or
registered mail (airmail if sent internationally) with postage prepaid, if such
notice is addressed to the party to be notified at such party's address or
facsimile number as set forth on the final page of this Agreement, or as
subsequently modified by written notice.
5.9 SEVERABILITY. If one or more provisions of this Agreement are held to
be unenforceable under applicable law, the parties agree to renegotiate such
provision in good faith, in order to maintain the economic position enjoyed by
each party as close as possible to that under the provision rendered
unenforceable. In the event that the parties cannot reach a mutually agreeable
and enforceable replacement for such provision, then (i) such provision shall be
excluded from this Agreement, (ii) the balance of this Agreement shall be
interpreted as if such provision were so excluded and (iii) the balance of this
Agreement shall be enforceable in accordance with its terms.
5.10. ATTORNEYS' FEES. Should suit be brought to enforce or interpret any
part of this Agreement, the prevailing party will be entitled to recover, as an
element of the costs of suit and not as damages, reasonable attorneys' fees to
be fixed by the court (including without limitation, costs, expenses and fees on
any appeal). The prevailing party will be entitled to recover its costs of suit
proceeds to final judgment.
5.11. SPECIFIC PERFORMANCE; INJUNCTIVE RELIEF. The parties hereto
acknowledge and agree that NEXTLINK will be irreparably harmed and that there
will be no adequate remedy at law for a violation of any of the covenants or
agreements of Holder set forth herein. Therefore, the parties acknowledge and
agree that, in addition to any other remedies that may be available to NEXTLINK
upon any such violation, NEXTLINK shall have the right to enforce such covenants
and agreements by specific performance, injunctive relief or by any other means
available to NEXTLINK at law or in equity.
D-4
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Consent and Indemnity
Agreement of Preferred Stockholders to be duly executed on the date first above
written.
NEXTLINK COMMUNICATIONS, INC.
By:
Name:
Title:
Address: 155 108th Avenue, NE
Suite 810
Bellevue, WA 98004
Attention: General Counsel
Facsimile: (425) 519-8997
Address: 1730 Rhode Island Ave.,
N.W.
Washington, D.C. 20036
Attention: Corporate Counsel
Facsimile: (202) 721-0995
WNP COMMUNICATIONS, INC.
By:
Name:
Title:
Address:
Facsimile:
[HOLDERS]
,
as holder of shares of
Company Preferred Stock
By:
Name:
Title:
Address:
Facsimile:
Accepted and Agreed:
,
as Stockholders' Representative
By:
Name:
Title:
Address for Notice:
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SHARES
CLASS A COMMON STOCK
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PROSPECTUS
DATED , 1999
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NEXTLINK
COMMUNICATIONS, INC.
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PART II
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
NEXTLINK is a Delaware corporation. In its Certificate of Incorporation,
NEXTLINK 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.
NEXTLINK 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.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A)
Exhibits:
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3.1 Certificate of Incorporation of NEXTLINK.(1)
3.2 By-laws of NEXTLINK.(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 103'>'(4)%
Senior Notes due 2008.(8)
4.3 Certificate of Designation of the Powers, Preferences and Relative, Participating,
Optional and Other Special Rights of 14% Senior Exchangeable Redeemable Preferred
Shares and Qualifications, Limitations and Restrictions Thereof.(1)
4.4 Form of stock certificate of 14% Senior Exchangeable Redeemable Preferred Shares.(3)
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4.5 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)
4.6 First Supplemental Indenture, dated as of January 31, 1997, by and among NEXTLINK,
NEXTLINK Communications, L.L.C., NEXTLINK Capital, Inc. and United States Trust
Company of New York, as Trustee.(3)
4.7 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.*
4.8 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)
4.9 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)
4.10 Form of stock certificate of 6(1)'(2)% Cumulative Convertible Preferred Shares*
4.11 Form of stock certificate of Class A common stock(9)
4.12 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)
4.13 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)
4.14 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)
4.15 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)
4.16 First Supplemental Indenture, dated June 3, 1998, amending Indenture dated April 1,
1998, by and between NEXTLINK Communications, Inc. and United States Trust Company of
New York, as Trustee.(1)
5.1 Opinion of Willkie Farr & Gallagher.*
8.1 Tax Opinion of Willkie Farr & Gallagher.*
10.1 Stock Option Plan of NEXTLINK, as amended.(1)
10.2 Employee Stock Purchase Plan of NEXTLINK.(1)
10.3 Registration Rights Agreement dated as of January 15, 1997, between NEXTLINK and the
signatories listed therein(3).
10.4 Preferred Exchange and Registration Rights Agreement, dated as of January 31, 1997,
by and among NEXTLINK and the Initial Purchasers(3).
10.5 Fiber Lease and Innerduct Use Agreement, dated February 23, 1998, by and between
NEXTLINK and Metromedia Fiber Network, Inc. (5)
10.6 Amendment No. 1 to Fiber Lease and Innerduct Use Agreement, dated March 4, 1998, by
and between NEXTLINK and Metromedia Fiber Network, Inc. (5)
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10.7 Agreement and Plan of Merger, dated as of January 14, 1999, among NEXTLINK, WNP
Communications, Inc. and PCO Acquisition Corp. (7)
10.8 Registration Rights Agreement, dated January 14, 1999, between NEXTLINK and the
Holders referred to therein. (7)
10.9 Consent and Indemnity Agreement of Stockholders, dated January 14, 1999, by and among
NEXTLINK Communications, Inc., WNP Communications, Inc. and certain holders of non-
voting and voting common stock of WNP Communications, Inc.(7)
10.10 Consent and Indemnity Agreement of Preferred Stockholders, dated January 14, 1999, by
and among NEXTLINK Communications, Inc., WNP Communications, Inc. and certain holders
of Series A preferred stock of WNP Communications, Inc.(7)
21 Subsidiaries of the Registrant.(5)
23.1 Consent of Arthur Andersen LLP, independent public accountants of NEXTLINK
Communications, Inc
23.2 Consent of Arthur Andersen LLP, independent public accountants of WNP Communications,
Inc.
23.3 Consent of Willkie Farr & Gallagher (included in their opinion filed as Exhibit 5.1
and Exhibit 8.1).*
24 Power of Attorney (included on signature pages)
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* To be filed by amendment.
(1) Incorporated herein by reference to the exhibit filed with the Registration
Statement on Form S-4 of NEXTLINK Communications, Inc. (Commission File No.
333-53975).
(2) Incorporated herein by reference to the exhibit filed with the Registration
Statement on Form S-4 of NEXTLINK Communications, L.L.C. (the predecessor of
NEXTLINK Communications, Inc.) and NEXTLINK Capital, Inc. (Commission File
No. 333-4603).
(3) Incorporated herein by reference to the exhibit filed with the Annual Report
on Form 10-KSB for the year ended December 31, 1996 of NEXTLINK
Communications, Inc. and NEXTLINK Capital, Inc. (Commission File Nos.
33-04603 and 333-04603-01).
(4) Incorporated here by reference to the exhibit filed with the Registration
Statement on Form S-1 of NEXTLINK Communications, Inc. (Commission File No.
333-32003).
(5) Incorporated herein by reference to the exhibit filed with the Annual Report
on Form 10-KSB for the year ended December 31, 1997 of NEXTLINK
Communications, Inc. and NEXTLINK Capital, Inc. (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).
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(9) Incorporated here by reference to the exhibit filed with the Registration
Statement on Form S-1 of NEXTLINK Communications, Inc. (Commission File No.
333-32001).
(A)
(b) Financial Statement Schedules: None.
ITEM 22. 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 as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
The registrant undertakes that every prospectus (i) that is filed pursuant
to the immediately preceding paragraph, or (ii) that purports to meet the
requirements of section 10(a)(3) of the Securities Act of 1933 and is used in
connection with an offering of securities subject to Rule 415 under the
Securities Act will be filed as part of an amendment to the registration
statement and will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
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.
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SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant certifies
that it has reasonable grounds to believe that it meets all of the requirements
for filing a Form S-4 and has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Bellevue, State of Washington, on the 31st day of March, 1999.
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NEXTLINK COMMUNICATIONS, INC.
BY: /S/ R. BRUCE EASTER, JR.
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R. Bruce Easter, Jr.
VICE PRESIDENT, GENERAL COUNSEL AND
SECRETARY
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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.
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SIGNATURE TITLE DATE
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Chairman of the Board and
/s/ STEVEN W. HOOPER Chief Executive Officer
- ------------------------------ (Principal Executive March 31, 1999
Steven W. Hooper Officer) and Director
/s/ WAYNE M. PERRY Vice Chairman and Director
- ------------------------------ March 31, 1999
Wayne M. Perry
Vice President, Chief
Financial Officer and
/s/ KATHLEEN H. ISKRA Treasurer (Principal
- ------------------------------ Financial Officer and March 31, 1999
Kathleen H. Iskra Principal Accounting
Officer)
/s/ CRAIG O. MCCAW Director
- ------------------------------ March 31, 1999
Craig O. Mccaw
/s/ DENNIS WEIBLING Director
- ------------------------------ March 31, 1999
Dennis Weibling
/s/ WILLIAM A. HOGLUND Director
- ------------------------------ March 31, 1999
William A. Hoglund
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SIGNATURE TITLE DATE
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/s/ SHARON L. NELSON Director
- ------------------------------ March 31, 1999
Sharon L. Nelson
/s/ JEFFREY S. RAIKES Director
- ------------------------------ March 31, 1999
Jeffrey S. Raikes
/s/ GREGORY J. PARKER Director
- ------------------------------ March 31, 1999
Gregory J. Parker
/s/ NICOLAS KAUSER Director
- ------------------------------ March 31, 1999
Nicolas Kauser
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EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement on Form S-4, filed by NEXTLINK
Communications, Inc. (the "Company") of our report dated February 22, 1999
included in the Company's annual Report on Form 10-K for the fiscal year ended
December 31, 1998 and to all references to our Firm included in this
registration statement.
/s/ ARTHUR ANDERSEN LLP
Seattle, Washington
April 6, 1999
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EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated February 16, 1999 on the financial statements of WNP
Communications, Inc., and to all references to our Firm, included in or made a
part of this Registration Statement on Form S-4 filed by NEXTLINK
Communications, Inc.
/s/ ARTHUR ANDERSEN LLP
Washington, D.C.
April 5, 1999
