<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
Commission file number: 000-22939
NEXTLINK Communications, Inc.
NEXTLINK CAPITAL, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 91-1738221
Washington 91-1716062
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 108th Avenue NE, Suite 2200, Bellevue, WA 98004
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(Address of principal executive offices) (Zip Code)
(425) 519-8900
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---
As of August 5, 1999, the number of shares of Class A and Class B common
stock of NEXTLINK Communications, Inc. issued and outstanding was 36,592,657
and 29,453,275 , respectively, and there were 1,000 shares of common stock of
NEXTLINK Capital, Inc., all of which 1,000 shares were held by NEXTLINK
Communications, Inc.
NEXTLINK Capital, Inc. meets the conditions set forth in General Instruction
H(1)(a) and (b) of Form 10-Q and is therefore filing this Form with the
reduced disclosure format.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1(a). FINANCIAL STATEMENTS
NEXTLINK COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(AMOUNTS AS OF JUNE 30, 1999 ARE UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
---------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 611,534 $ 319,496
Marketable securities......................................... 1,231,421 1,158,566
Accounts receivable, net...................................... 49,635 36,115
Other current assets.......................................... 21,467 16,480
Pledged securities............................................ -- 21,500
------------- -------------
Total current assets...................................... 1,914,057 1,552,157
Property and equipment, net........................................ 823,190 594,408
Investment in fixed wireless licenses.............................. 900,627 67,352
Other assets, net.................................................. 452,187 269,189
------------- -------------
Total assets.............................................. $ 4,090,061 $ 2,483,106
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.............................................. $ 46,540 $ 61,175
Accrued expenses.............................................. 46,464 45,056
Accrued interest payable...................................... 40,391 34,670
Current portion of long-term obligations...................... 2,673 2,755
------------- -------------
Total current liabilities................................. 136,068 143,656
Long-term debt..................................................... 3,036,639 2,013,192
Other long-term liabilities........................................ 15,019 16,553
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Total liabilities......................................... 3,187,726 2,173,401
Commitments and contingencies
Redeemable preferred stock, par value $0.01 per share, 25,000,000
shares authorized; 14% Preferred, aggregate liquidation preference
$397,638, 7,771,388 and 7,254,675 shares issued and outstanding in
1999 and 1998, respectively; 6 1/2% Convertible Preferred, aggregate
liquidation preference $200,000; 4,000,000 shares issued and
outstanding in 1999 and 1998, respectively...................... 583,322 556,168
Shareholders' equity (deficit):
Common Stock, par value $0.02 per share, stated at amounts paid
in; Class A, 110,334,000 shares authorized, 36,484,600 and
24,170,117 shares issued and outstanding in 1999 and 1998,
respectively; Class B, 44,133,600 shares authorized, 29,453,275
and 30,297,902 shares issued and outstanding in 1999 and 1998,
respectively................................................ 1,029,219 354,525
Deferred compensation......................................... (10,181) (11,370)
Accumulated other comprehensive income........................ 148,298 --
Accumulated deficit........................................... (848,323) (589,618)
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Total shareholders' equity (deficit)...................... 319,013 (246,463)
------------- -------------
Total liabilities and shareholders' equity (deficit)...... $ 4,090,061 $ 2,483,106
============= =============
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
<PAGE>
NEXTLINK COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------- ----------------------------
1999 1998 1999 1998
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue.................................. $ 60,657 $ 32,030 $ 109,243 $ 58,575
Costs and expenses:
Operating........................... 53,368 28,070 97,067 52,620
Selling, general and administrative. 59,099 36,077 111,433 68,034
Deferred compensation............... 1,117 760 2,176 1,384
Depreciation........................ 23,102 8,415 42,139 14,909
Amortization........................ 4,195 3,765 8,011 7,454
----------- ---------- ----------- -----------
Total costs and expenses........ 140,881 77,087 260,826 144,401
----------- ---------- ----------- -----------
Loss from operations..................... (80,224) (45,057) (151,583) (85,826)
Interest income.......................... 17,522 22,822 37,285 34,557
Interest expense......................... (60,063) (38,338) (110,753) (61,616)
----------- ---------- ----------- -----------
Net loss................................. $ (122,765) $ (60,573) $ (225,051) $ (112,885)
=========== ========== =========== ===========
Preferred stock dividends and accretion of
preferred stock redemption obligation,
including issue costs............... (17,054) (15,328) (33,654) (26,879)
----------- ---------- ----------- -----------
Net loss applicable to common shares..... $ (139,819) $ (75,901) $ (258,705) $ (139,764)
=========== ========== =========== ===========
Net loss per share (basic and diluted)... $ (2.24) $ (1.42) $ (4.41) $ (2.61)
=========== ========== =========== ===========
Shares used in computation of net loss per
share............................... 62,440,898 53,609,120 58,671,982 53,545,671
=========== ========== =========== ===========
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
<PAGE>
NEXTLINK COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------------------------
1999 1998
----------------- ------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss............................................................ $ (225,051) $ (112,885)
Adjustments to reconcile net loss to net cash used in operating
activities:
Deferred compensation expense.................................. 2,176 1,384
Equity in loss of affiliate.................................... 1,049 1,643
Depreciation and amortization.................................. 50,150 22,363
Accretion of interest on senior notes.......................... 23,447 9,578
Changes in assets and liabilities:
Accounts receivable............................................ (13,520) (4,253)
Other assets................................................... (5,796) (3,541)
Accounts payable............................................... (19,325) (13,539)
Accrued expenses and other liabilities......................... (4,873) 12,676
Accrued interest payable....................................... 5,721 9,672
------------ ------------
Net cash used in operating activities............................... (186,022) (76,902)
INVESTING ACTIVITIES:
Purchase of property and equipment.................................. (261,174) (126,652)
Assets acquired in network lease agreement.......................... -- (92,000)
Investment in fixed wireless licenses (net of cash received)........ (482,905) (67,354)
Maturity of pledged securities...................................... 21,135 19,636
Purchase of marketable securities................................... (3,497,315) (2,505,500)
Maturity of marketable securities................................... 3,402,711 1,860,567
------------ ------------
Net cash used in investing activities............................... (817,548) (911,303)
</TABLE>
-- Continued --
<PAGE>
NEXTLINK COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT'D)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------------------------
1999 1998
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<S> <C> <C>
FINANCING ACTIVITIES:
Net proceeds from issuance of redeemable preferred stock............ $ -- $ 193,824
Repayment of note payable and other obligations..................... (1,534) (8,734)
Proceeds from issuance of common stock upon exercise of stock
options........................................................... 12,459 555
Dividends paid on convertible preferred stock....................... (6,500) (3,250)
Proceeds from issuance of senior notes (net of discount)............ 1,000,000 734,323
Proceeds from sale of common stock.................................. 311,183 --
Costs incurred in connection with financing......................... (20,000) (17,157)
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Net cash provided by financing activities........................... 1,295,608 899,561
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Net increase (decrease) in cash and cash equivalents................ 292,038 (88,644)
Cash and cash equivalents, beginning of period...................... 319,496 389,074
------------- -------------
Cash and cash equivalents, end of period............................ $ 611,534 $ 300,430
============= ============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Noncash financing and investing activities:
Redeemable preferred stock dividends, paid in redeemable
preferred shares............................................. $ 25,836 $ 22,515
============ ============
Accrued redeemable preferred stock dividends, payable in
redeemable preferred shares, and accretion of preferred stock
redemption obligation and issue costs........................ $ 1,318 $ 1,114
============ ============
Common stock issued in acquisitions............................ $ 350,648 $ 5,727
============ ============
Cash paid for interest.............................................. $ 85,211 $ 42,121
============ ============
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
<PAGE>
NEXTLINK COMMUNICATIONS, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of NEXTLINK
Communications, Inc., a Delaware corporation, and its majority-owned
subsidiaries (collectively referred to as the Company). The Company, through
predecessor entities, was formed on September 16, 1994 and, through its
subsidiaries, provides high-quality telecommunications services in selected
markets in the United States. The Company is a majority-owned subsidiary of
Eagle River Investments, L.L.C.
The Company's financial statements include 100% of the assets, liabilities
and results of operations of subsidiaries in which the Company has a controlling
interest of greater than 50%. The Company's investments in unconsolidated
companies in which the Company has a 20% interest or more are accounted for on
the equity method. Investments in entities in which the Company has voting
interests of not more than 20% are accounted for on the cost method. All
significant intercompany accounts and transactions have been eliminated.
The interim financial statements are unaudited and have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. These
condensed consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto included in the
Company's 1998 Form 10-K as filed with the Securities and Exchange Commission on
March 29, 1999.
The financial information included herein reflects all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the results for interim
periods. The results of operations for the three and six-month periods ended
June 30, 1999 are not necessarily indicative of the results to be expected for
the full year.
2. STRATEGIC AGREEMENT
In January 1999, the Company entered into a strategic agreement with Covad
Communications Group, Inc. Pursuant to this agreement, the Company will become a
preferred provider to Covad for local transport and colocation services for
Covad's regional data centers. The Company has also invested $20.0 million in
Covad under this agreement, and Covad will become the Company's preferred
provider of Digital Subscriber Line, or DSL, services where the Company elects
not to provide its own such services. Covad is a leading provider of high-speed
digital communications services using DSL technology.
For the six months ended June 30, 1999, the Company's unrealized gain on
its $20.0 million equity investment in Covad was $150.0 million. This unrealized
gain was reported as "other comprehensive income" in accordance with SFAS No.
130,"Reporting Comprehensive Income".
3. ACQUISITIONS
In April 1999, NEXTLINK acquired WNP Communications, Inc. for $698.2
million. Of this amount, $157.7 million was paid in cash to the FCC for license
fees, including interest. The remainder was paid to stockholders of WNP, and
consisted of $190.1 million in cash and 5,715,831 shares of Class A common
stock. In this transaction, the Company acquired 39 A block LMDS wireless
licenses covering an area where approximately 98 million people live or work and
one B block LMDS wireless license covering an area where approximately 16
million people live or work. The Company plans to use the fixed wireless
licenses acquired in the WNP transaction to extend the reach of its fiber
networks and to connect additional customers directly to its fiber networks.
<PAGE>
In June 1999, the Company acquired Nextel Communications, Inc.'s 50%
interest in NEXTBAND Communications L.L.C. for $137.7 million in cash. The
Company had already held a 50% interest in NEXTBAND and, as a result of this
acquisition, the Company now wholly owns NEXTBAND. NEXTBAND owns 13 A block
LMDS licenses and 29 B block licenses.
4. FINANCINGS
DEBT
On June 1, 1999, the Company completed the sale of 10 3/4% Senior Notes
and 12 1/4% Senior Discount Notes, both due June 1, 2009. Proceeds from the
sale of the 10 3/4% Notes and the 12 1/4% Notes, net of discounts,
underwriting commissions, advisory fees and expenses totaled approximately
$979.5 million. Interest payments on the 10 3/4% Notes are due semi-annually.
The 10 3/4% Notes are redeemable at the option of the Company, in whole or in
part after June 1, 2004. The 12 1/4% Notes were issued at a discount from
their principal amount to generate gross proceeds to the Company of
approximately $325.0 million. The 12 1/4% Notes accrete at a rate of 12 1/4%
compounded semi-annually, to an aggregate principal amount of approximately
$588.9 million by June 1, 2004. No cash interest will accrue on the 12 1/4%
Notes until June 1, 2004. Interest will become payable in cash semi-annually
beginning December 1, 2004. The 12 1/4% Notes are redeemable at the option of
the Company, in whole or in part, at any time after June 1, 2004.
The indentures pursuant to which the 10 3/4% Notes and the 12 1/4% Notes
are issued contain certain covenants that, among other things, limit the ability
of the Company and its subsidiaries to incur additional indebtedness, issue
stock in subsidiaries, pay dividends or make other distributions, repurchase
equity interests or subordinated indebtedness, engage in sale and leaseback
transactions, create certain liens, enter into certain transactions with
affiliates, sell assets of the Company and its subsidiaries, and enter into
certain mergers and consolidations.
In the event of a change in control or asset disposition of the Company as
defined in the indentures, holders of the Notes will have the right to require
the Company to purchase their Notes, in whole or in part, at a price equal to
101% of the principal amount thereof, plus accrued and unpaid interest, if any,
thereon to the date of purchase. The Notes are senior unsecured obligations of
the Company, and are subordinated to all current and future indebtedness of the
Company's subsidiaries, including trade payables.
COMMON STOCK
On June 1, 1999, the Company completed the sale of 7,600,000 shares of
Class A common stock at $76.00 per share. Of the total shares sold, 4,232,050
were offered by the Company and 3,367,950 were offered by certain shareholders
who previously owned interests in WNP. Gross proceeds to the Company from the
offering totaled $321.6 million, and proceeds net of underwriting discounts,
advisory fees and estimated expenses aggregated approximately $310.5 million.
5. RELATED PARTY TRANSACTIONS
In June 1999, the Company acquired the assets of NEXTLINK, Inc., a
company owned by Craig O. McCaw, the Company's largest and controlling
shareholder, through a merger transaction. NEXTLINK, Inc. owned approximately
1% minority interests in each of the following subsidiaries of the Company:
NEXTLINK California, Inc., NEXTLINK Ohio, Inc., NEXTLINK Pennsylvania,
Inc., NEXTLINK Tennessee, Inc., NEXTLINK Washington, Inc., NEXTLINK Solutions,
Inc., NEXTLINK Interactive, Inc., NEXTLINK Utah, Inc., Mindshare, LLC, and
NEXTLINK New York, Inc. The Company issued 268,903 shares of Class B common
stock in exchange for the minority interests. As part of this transaction, Mr.
McCaw also received 266,466 shares of the Company's Class B common stock, the
number of shares of Class B common stock previously owned by NEXTLINK, Inc.
The transaction was accounted for as a purchase of minority interests between
entities under common control and, as such, the minority interests were
recorded at NEXTLINK, Inc.'s historical cost.
6. RECLASSIFICATIONS
Certain reclassifications have been made to prior period amounts in order
to conform to the current presentation.
<PAGE>
7. REPORTABLE SEGMENTS
The Company's interactive voice response segment contributed the
following percentages to the Company's total:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue......................................................... 7.1% 14.8% 8.3% 16.1%
Net loss (excluding corporate overhead)......................... 1.4% 0.8% 1.9% 1.0%
</TABLE>
8. SUBSEQUENT EVENTS
STRATEGIC AGREEMENT
In July 1999, the Company entered into a strategic agreement with
SPEEDUS.com, Inc., a facilities based high-speed Internet service provider.
Pursuant to this agreement, the Company purchased 150 MHz of broadband fixed
wireless spectrum in New York, New York for $20.0 million, and invested an
additional $20.0 million in exchange for 2,000,000 shares of SPEEDUS.com's
common stock. As part of this strategic alliance, NEXTLINK will provide
colocation, transport and access services to SPEEDUS.com. Additionally,
SPEEDUS.com will have access to the Company's network testing facilities.
STOCK SPLIT
On July 15, 1999, the Company announced that its board of directors had
approved a two-for-one stock split of the Company's Class A and Class B common
stock, to be effected in the form of a stock dividend. The split is subject to
shareholder approval of an increase in the Company's authorized number of
shares. The split is effective for shareholders of record at the close of
business on August 18, 1999.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1(b). FINANCIAL STATEMENTS
NEXTLINK CAPITAL, INC.
BALANCE SHEETS
(AMOUNTS AS OF JUNE 30, 1999 ARE UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------------- -----------------
<S> <C> <C>
ASSETS
Cash in bank........................................................... $ 100 $ 100
============= ===========
SHAREHOLDER'S EQUITY
Common stock, no par value,
1,000 shares authorized, issued and outstanding................... $ 100 $ 100
============= ===========
</TABLE>
NOTES TO BALANCE SHEETS
1. DESCRIPTION
NEXTLINK Capital, Inc. (NEXTLINK Capital) is a Washington corporation and a
wholly owned subsidiary of NEXTLINK Communications, Inc. (NEXTLINK). NEXTLINK
Capital was formed for the sole purpose of obtaining financing from external
sources and is a joint obligor on the 12 1/2% Senior Notes due April 15, 2006 of
NEXTLINK. NEXTLINK Capital was initially funded with a $100 contribution from
NEXTLINK and has had no operations to date.
2. BASIS OF PRESENTATION
The interim financial statements have been prepared without an audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
These consolidated financial statements should be read in conjunction with the
audited consolidated financial statements and notes thereto included in the
Company's 1998 Form 10-K as filed with the Securities and Exchange Commission on
March 29, 1999.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Since 1996, we have provided high-quality telecommunications services to
the rapidly growing business market. To serve our customers' broad and expanding
telecommunications needs, we have assembled a unique collection of
high-bandwidth, local and national network assets. We intend to integrate these
assets into a seamless network that will support the most advanced
communications technologies available, and make us the provider best positioned
to deliver the broad variety of data and voice applications our customers
require.
To accomplish this:
- we have built 26 high bandwidth, or broadband, local networks in 15
states, generally located in the central business districts of the
cities we serve, and we are continuing to build additional networks;
- we have become the nation's largest holder of broadband fixed wireless
spectrum with FCC licenses covering 95% of the population of the 30
largest U.S. cities, which we will use to extend the reach of our
networks to additional customers; and
- through INTERNEXT, we have acquired exclusive interests in a national
broadband network now being built to traverse over 16,000 miles and
to connect more than 50 cities, including all of the largest cities
that our current and planned local networks serve.
We currently operate local networks in 41 cities. We serve larger cities,
such as New York, Los Angeles, Chicago, Atlanta, the San Francisco Bay Area,
Denver, Dallas and Miami, medium-sized markets, such as Salt Lake City and
Nashville, and clusters of smaller markets in Orange County, California and
central Pennsylvania. We are currently building additional local networks, and
plan to have operational networks in most of the 30 largest U.S. cities by the
end of 2000. We launched service in San Diego during the first quarter of 1999,
Washington DC and Seattle during the second quarter of 1999, and Newark, New
Jersey in July 1999. The next phase of our expansion plan includes the launch of
service in Detroit, Boston, Phoenix and Houston by the end of 1999.
Our networks typically encircle a city's central business district and
connect to our central offices. We build our own networks wherever possible,
which enables us to deliver higher quality services and will enable us to
deliver new services, which we expect will increase our operating margins.
Our goal is to provide our customers with complete voice and data network
solutions for all of their communications needs, using our own fiber, switches
and other facilities to the greatest extent possible. To reduce our reliance on
the physical connection for the short distance--referred to as the "first
mile"--between our customers and our fiber optic networks, which is currently
often leased from the dominant carrier, we intend to increase the number of
customers connected directly to our networks. In some cases, we will
construct a new fiber optic extension from our network to the customer's
premises. In other cases, we will deploy a high-bandwidth wireless connection
between an antenna on the roof of the customer's premises and an antenna
attached to our fiber rings. These wireless connections offer high-quality
broadband capacity and often cost less than fiber to install. We expect to
deploy wireless first mile extensions in 25 markets by the end of 2000.
Our networks support a variety of communications technologies, which
permits us to offer our customers a set of technology options to meet our
customers' changing needs, and introduce new technologies as they become
available. For example, we have begun to add new technologies to our networks
including Internet Protocol, or IP, routers and switches, and Asynchronous
Transfer Mode, or ATM, switches. ATM switches will enable us to meet the demands
of large, high-volume customers, while IP routers and switches will enable us to
carry Internet traffic more efficiently and to provide more services. However,
we intend to remain flexible in our technology choices, to serve our customers'
present needs and to take advantage of the future opportunities that
technological advances may bring.
The table below provides selected key financial and operating data (dollars
are in thousands):
<PAGE>
<TABLE>
<CAPTION>
AS OF AND
FOR THE THREE MONTHS ENDED
JUNE 30,
1999 1998
--------------- --------------
<S> <C> <C>
FINANCIAL DATA:
Gross property and equipment.............................. $ 946,458 $ 424,007
EBITDA (1) ............................................... $ (51,810) $ (32,117)
OPERATING DATA (2):
Route miles (3)........................................... 3,228 2,099
Fiber miles (4)........................................... 263,559 152,225
On-net buildings connected (5)............................ 986 658
Off-net buildings connected (6)........................... 16,850 8,448
Switches installed........................................ 25 17
Access lines in service (7)............................... 284,021 102,887
Employees................................................. 2,952 1,765
</TABLE>
(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.
(2) The operating data includes 100% of the statistics of the Las Vegas
network, which we manage and in which we have a 40% membership
interest.
(3) Route miles refers to the number of miles of the telecommunications
path in which our owned or leased fiber optic cables are installed.
(4) Fiber miles refers to the number of route miles installed along a
telecommunications path, multiplied by our estimate of the number of
fibers along that path.
(5) Represents buildings physically connected to our networks, excluding
those connected by unbundled incumbent local exchange carrier (ILEC)
facilities.
(6) Represents buildings connected to our networks through leased or
unbundled ILEC facilities.
(7) Represents the number of access lines in service, including those
lines that are provided through resale of services. We serviced 2,673
resold access lines as of June 30, 1999. We define an access line as
a telephone connection between a customer purchasing local telephone
services and us. This connection does not include the concept of
access line equivalents (ALEs), and is a one-for-one relationship
with no multipliers used for trunk ratios, except for those trunks
over which primary rate interface (PRI) service is provided, which
are counted as 23 access lines.
<PAGE>
RESULTS OF OPERATIONS
Revenue increased 89% to $60.7 million during the second quarter of 1999,
from $32.0 million in the same period in 1998. Year to date revenue of $109.2
million represented an 87% increase from the $58.6 million reported for the
comparable period in 1998. Revenue reported consisted of the following
components (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Bundled local and long distance, and
dedicated services......................... $ 47,810 $ 16,682 $ 82,679 $ 27,670
Shared tenant services..................... 3,148 3,199 6,161 6,486
Long distance telephone services........... 5,405 6,950 11,344 13,972
Enhanced services.......................... 4,294 5,199 9,059 10,447
----------- ----------- ---------- -----------
Total revenue.............................. $ 60,657 $ 32,030 $ 109,243 $ 58,575
=========== =========== ========== ===========
</TABLE>
The increase in total year to date revenue was driven by 199% growth in
revenues from bundled local and long distance services and dedicated services,
which resulted from an increase in customer access lines installed. Our
quarterly installation rate of customer access lines increased from 30,053 in
the second quarter of 1998 to 59,308 during the second quarter of 1999. As of
June 30, 1999, we had 284,021 access lines in service, compared to 102,887 as of
June 30, 1998. Enhanced revenue consists primarily of interactive voice response
(IVR) services.
We began offering switched local and long distance services in our first
seven markets in July 1996, 18 markets during 1997 and 12 additional markets
during 1998. Most recently, we launched services in San Diego during the
first quarter of 1999, Washington DC and Seattle during the second quarter of
1999, and in Newark, N.J. in July 1999. In addition, since January 1995,
NEXTLINK has offered private leased line, or dedicated services.
Operating expenses consist of costs directly related to providing
facilities-based network and enhanced communications services and also include
salaries and benefits and related costs of operations and engineering personnel.
Operating expenses increased 90% during the second quarter of 1999 to $53.4
million, an increase of $25.3 million over the same period in 1998. For the six
months ended June 30, 1999, operating expense rose $44.4 million or 84% over the
same period in 1998. These increases primarily resulted from:
- increased network costs related to provisioning higher volumes of
local, long distance and enhanced services;
- an increase in the number of our employees; and
- an increase in other related costs primarily to expand our local and
long distance service businesses in our existing and planned markets.
Selling, general and administrative expenses include salaries and related
personnel costs, facilities expenses, sales and marketing, information systems
costs, consulting and legal fees and equity in loss of affiliates. Selling,
general and administrative expenses increased 64% for both the three and
six-month periods ended June 30, 1999 as compared to the corresponding periods
in 1998. The increase was primarily due to an increase in the number of our
employees, as well as other costs associated with the expansion of our local and
long distance service businesses in our existing and planned markets.
We record deferred compensation expense for compensatory stock options
issued under our Stock Option Plan over their vesting periods, based on the
excess of the fair value at the date of grant over their exercise prices.
<PAGE>
Depreciation expense increased primarily due to placement in service of
additional telecommunications network assets, including switches, fiber optic
cable, network electronics and related equipment. We expect depreciation expense
to continue to increase as we expand our networks and install additional
equipment associated with voice and data technologies.
Interest expense increased 57% in the second quarter of 1999 over the same
period in the prior year due to an increase in our average outstanding
indebtedness over the respective periods. For more information, see "Liquidity
and Capital Resources." Pursuant to Statement of Financial Accounting Standards
No. 34, we capitalize a portion of our interest costs as part of the
construction cost of our communications networks. Capitalized interest during
the second quarter of 1999 totaled $3.5 million. Interest income results from
investment of excess cash and securities.
LIQUIDITY AND CAPITAL RESOURCES
Our business is capital intensive and, as such, has required and will
continue to require substantial capital investment. We build high capacity
networks with broad market coverage, a strategy that initially increases our
level of capital expenditures and operating losses and requires us to make a
substantial portion of our capital investments before we realize any revenue
from them. These capital expenditures, together with the associated early
operating expenses, will continue to result in negative cash flow unless and
until we are able to establish an adequate customer base. We believe, however,
that over the long term this strategy will enhance our financial performance by
increasing the traffic flow over our networks.
During the first six months of 1999, we used $186.0 million in cash for
operating activities, compared to $76.9 million for the same period in the prior
year. The increase was primarily due to a substantial increase in our activities
associated with the continued development and expansion of local and long
distance service operations. In addition, during the first six months of 1999,
we invested $261.2 million in property and equipment and $502.9 in acquisitions
of telecommunications assets and investments in telecommunications businesses.
During the same period in 1998, we invested $126.7 million in property and
equipment, and $159.4 million in acquisitions of telecommunications assets and
investments in telecommunications businesses.
We expect to make substantial capital expenditures in 1999 and beyond
relating to our existing and planned network development and operations. These
expenditures include:
- the purchase and installation of switches, routers, servers and other
data-related equipment and related electronics in existing networks and
in networks to be constructed or acquired in new or adjacent markets;
- the purchase and installation of fiber optic cable and electronics to
expand existing networks and develop new networks, including the
connection of new buildings;
- the development of our comprehensive information technology platform;
- the purchase and installation of equipment associated with the
deployment of LMDS using our LMDS spectrum;
- funding of the INTERNEXT venture described below, and related
expenses we expect to incur in building our national network;
- the purchase and installation of equipment associated with
deployment of Digital Subscriber Line, or DSL services; and
- the funding of operating losses and working capital.
Our strategic plan calls also for expansion into additional market areas.
This expansion will require significant additional capital for:
<PAGE>
- potential acquisitions of businesses or assets;
- design, development and construction of new networks; and
- the funding of operating losses and working capital during the
start-up phase of each market.
As of June 30, 1999, we had unrestricted cash and investments of
approximately $1,843.0 million.
In July 1999, we entered into a strategic agreement with SPEEDUS.com Inc.,
a facilities based high-speed Internet service provider. Pursuant to this
agreement, we purchased 150 MHz of broadband fixed wireless spectrum in New
York, New York for $20.0 million, and invested an additional $20.0 million in
exchange for 2,000,000 shares of SPEEDUS.com's common stock. The $40.0 million
total consideration for the transaction was paid in cash in July 1999. As part
of this strategic alliance, we will provide co-location, transport and access
services to SPEEDUS.com. Additionally, SPEEDUS.com will have access to our
network testing facility.
In April 1999, we acquired WNP Communications, Inc. for $698.2 million. Of
this amount, $157.7 million was paid in cash to the FCC for license fees,
including interest. The remainder was paid to stockholders of WNP, and consisted
of $190.1 million in cash and 5,715,831 shares of Class A common stock. In this
transaction, we acquired 39 A block local multipoint distribution services, or
LMDS, wireless licenses covering an area where approximately 98 million people
live or work and one B block LMDS wireless license covering an area where
approximately 16 million people live or work.
In June 1999, we acquired Nextel Communications, Inc.'s 50% interest in
NEXTBAND, a joint venture formed in January 1998 by us and Nextel, for $137.7
million in cash. NEXTBAND owns LMDS licenses in 42 markets throughout the U.S.
The purchase price was determined based on a formula derived from the purchase
price paid in the WNP merger. We plan to use our fixed wireless licenses to
extend the reach of our fiber networks and to connect additional customers
directly to our fiber networks. Deploying the technologies associated with our
LMDS strategy will require additional capital expenditures.
In January 1999, we entered into a strategic agreement with Covad
Communications Group, Inc., a leading provider of high-speed digital
communications services using DSL technology. Pursuant to this agreement, we
will become a preferred provider to Covad for local transport and colocation
services for Covad's regional data centers. We also invested $20.0 million in
Covad under this agreement, and Covad will become a preferred provider to us of
DSL services, where we elect not to provide such services ourselves.
In July 1998, we formed INTERNEXT L.L.C., which is beneficially owned 50%
each by us and Eagle River Investments L.L.C., and is managed by us. INTERNEXT
entered into an agreement with Level 3 Communications, Inc. Level 3 is
constructing a national fiber optic network that is expected to cover more
than 16,000 route miles with six or more conduits and connect 50 cities in the
United States and Canada. Pursuant to this agreement, INTERNEXT will receive
an exclusive interest in 24 fibers in a shared, filled conduit, one entire
empty conduit and the right to 25% of the fibers pulled through the sixth and
any additional conduits in the network. INTERNEXT will pay $700.0 million in
exchange for these rights, the majority of which will be payable as segments
of the network are completed and accepted by INTERNEXT, which is expected to
occur substantially during 2000 and 2001. NEXTLINK has guaranteed 50% of the
financial obligations of INTERNEXT under this agreement and, together with
Eagle River, has also guaranteed the performance of certain other obligations
of INTERNEXT.
On June 1, 1999, we completed the sale of 10 3/4% Senior Notes and 12 1/4%
Senior Discount Notes, both due June 1, 2009. We received proceeds from the sale
of the 10 3/4% Notes and the 12 1/4% Notes, net of discounts, underwriting
commissions, advisory fees and expenses totaling approximately $979.5 million.
Interest payments on the 10 3/4% Notes are due semi-annually. We have the option
to redeem the 10 3/4% Notes at any time after June 1, 2004. The 12 1/4% Notes
were issued at a discount from their principal amount to generate aggregate
gross proceeds of approximately $325.0 million. The 12 1/4% Notes accrete at a
rate of 12 1/4% compounded semi-annually, to an aggregate principal amount of
approximately $588.9 million by June 1, 2004. No cash interest will accrue on
the
<PAGE>
12 1/4% Notes until June 1, 2004. Interest will become payable in cash
semi-annually beginning December 1, 2004. We have the option to redeem the
12 1/4% Notes at any time after June 1, 2004.
On June 1, 1999, we completed the sale of 7,600,000 shares of Class A
common stock at $76.00 per share. Of the total shares sold, 4,232,050 were
offered by us and 3,367,950 were offered by certain shareholders who
previously owned interests in WNP. Gross proceeds from the offering totaled
$321.6 million, and our proceeds net of underwriting discounts, advisory fees
and estimated expenses aggregated approximately $310.5 million.
In addition, our operating flexibility with respect to certain business
matters is, and will continue to be, limited by covenants associated with our
outstanding senior notes. Among other things, these covenants limit the
ability of us and our subsidiaries to incur additional indebtedness, create
liens upon assets, apply the proceeds from the disposal of assets, make
dividend payments and other distributions on capital stock and redeem capital
stock. We are required to use the proceeds from the sale of our 10 3/4%
Senior Notes due 2008, 10 3/4% Senior Notes due 2009 and 12 1/4% Senior
Discount Notes due 2009 to fund 80% of the expenditures for the construction,
improvement and acquisition of new and existing networks and services and
direct and indirect investments in certain joint ventures, including
INTERNEXT, by covenants in the indentures under which these and other of our
notes were issued. Pending application of these proceeds, we are permitted to
invest them in marketable securities. We expect to fund the remainder of
these costs with the proceeds of other offerings.
In addition, the terms of our 14% Senior Exchangeable Redeemable Preferred
Stock contain covenants that may limit our flexibility in incurring additional
indebtedness and issuing additional preferred shares. We were in compliance with
all covenants associated with our notes and the 14% preferred stock as of June
30, 1999.
IMPACT OF YEAR 2000
Certain of our older computer systems and applications were written to
define a given year with abbreviated dates using the last two digits in a year
rather than the entire four digits. As a result, when computer systems attempt
to process dates both before and after January 1, 2000, two digit year fields
may create processing ambiguities that can cause errors and system failures.
For example, systems and applications may have time-sensitive software that
recognize an abbreviated year "00" as the year 1900 rather than the year 2000.
These errors or failures may have limited effects, or the effects may be
widespread, depending on the computer chip, system, or software, and its
location and function.
STATE OF READINESS
NEXTLINK is currently assessing the impact of the Year 2000, and has
adopted a formal Year 2000 plan, or the Plan. The purpose of the Plan will be
to develop and perform reasonable steps intended to prevent our critical
operational functions from being impaired due to the Year 2000 problem.
Our definition of Year 2000 compliance is the ability of all computer
systems and hardware to perform as intended regardless of date, and that all
data, including date fields, can and will be accessed, processed, maintained,
and updated without interruption and with expected results.
The Plan is divided into four major project areas: the external Public
Service Telephone Network, or PSTN; Embedded Systems, which includes our
internal network as well as our telecommunications hardware and software;
Enterprise Applications, which includes our business operations programs, such
as billing and provisioning; and Facilities, which includes our buildings,
utilities, security, and other similar functions and systems. Implementation
of the Plan is coordinated throughout the Company by a Program Management Team,
which is comprised of cross-functional members and includes a business
continuity/contingency manager. This team meets regularly with executive
management, and periodically advises the Audit Committee and the Board of
Directors on the status of the Plan. We have also engaged a third party
consulting firm to assist in the completion of certain phases of the Plan.
Our Plan is comprised of three phases:
PHASE I
In the first phase, inventory and enterprise assessment, which we
completed in December 1998, we:
<PAGE>
- produced an inventory of priority systems and equipment to
determine the extent of testing required for Year 2000 readiness
(generally defined as the ability of information systems to
accurately process data from, into and between the twentieth and
twenty-first centuries, including leap year calculations),
- designed a Company-wide Year 2000 communications plan,
- created a risk assessment and impact analysis from which Phase I and
Phase II of the Plan were developed,
- sent written requests for Year 2000 certification statements to our
vendors and suppliers, and
- began an ongoing program to provide Y2K information and
documentation to our customers, PUCs, regulatory agencies, and other
service providers through our company website and other means of
communications.
PHASE II
In the second phase, strategy development and confirmation, which we
completed in April 1999, we:
- conducted a mission critical assessment of date sensitive devices
and applications,
- developed detailed and comprehensive correction and remediation
plans for achieving Year 2000 compliance,
- identified and began installing upgrades for software applications
that we identified as not being Year 2000 compliant,
- substantially completed the inventory of our information technology,
networks, and embedded systems, and
- received responses to our certification statements from
approximately 95% of our vendors and suppliers who provide
components of our information technology, networks and embedded
systems.
We will continue to inventory systems and contact vendors and suppliers as
needed.
<PAGE>
PHASE III
The third phase, which is the remediation phase, is scheduled to be
completed by September 30, 1999. This phase focuses on the remediation of
issues and execution of plans identified in Phase II. Based on our estimates
of remediation to be completed, the following is a summary of the estimated
percentage of remediation completed to date for each of the four major Plan
project areas:
<TABLE>
<CAPTION>
REMEDIATION PLAN
PROJECT PERCENT COMPLETED
------- -----------------
<S> <C>
PSTN 75%
Embedded Systems 80%
Enterprise Applications 85%
Facilities 25%
</TABLE>
One of our subsidiaries, NEXTLINK Interactive, Inc., operates over
systems and operating platforms that are independent of those related to our
local and long distance services. As such, NEXTLINK Interactive has developed
its own Year 2000 Plan, or the Interactive Plan. Based on our estimates,
Interactive is 60% complete with the hardware portion of the Interactive Plan
and 20% complete with the applications portion of the Interactive Plan.
Interactive expects to be Year 2000 ready by December 31, 1999.
The objective of this phase is to confirm that all mission critical
systems and applications will operate with minimal impact from the Year 2000
problem.
COSTS TO ADDRESS YEAR 2000 ISSUES
We have not incurred material historical costs for Year 2000 awareness,
inventory, assessment, analysis, conversion, or contingency planning.
Further, we anticipate that our future costs for these purposes will not be
material.
Year 2000 costs are difficult to estimate accurately because of
unanticipated vendor delays, technical difficulties, and similar events.
Although management believes that its estimates are reasonable, we cannot
assure you that the actual costs of implementing the Plan will not differ
materially from the estimated costs or that we will not be materially
adversely affected by Year 2000 issues. Furthermore, the estimated costs of
implementing the Plan do not consider the costs, if any, that might be
incurred as a result of Year 2000-related failures that occur despite our
implementation of the Plan.
YEAR 2000 RISK FACTORS
Between now and the year 2000 there will be increased competition for
people with the technical and managerial skills necessary to deal with the
Year 2000 problem. We believe that we employ an adequate number of personnel
skilled in dealing with the Year 2000 problem and have retained outside
consultants who bring additional skilled people to deal with the Year 2000
problem as it affects us. Nevertheless, we could face shortages of skilled
personnel or other resources, such as Year 2000 compliant computer chips.
These shortages might delay or otherwise impair our ability to assure that
our critical systems are Year 2000 compliant. Outside entities could face
similar problems that could materially affect us. We believe
<PAGE>
that the possible impact of the shortage of skilled people and resources is
not, and will not be, unique to us.
We believe that our critical systems will be Year 2000 ready before
January 1, 2000. However, there is no assurance that the Plan will succeed in
accomplishing its purposes and unforeseen circumstances may arise during
implementation of the Plan that would materially and adversely affect us.
We are taking reasonable steps to identify, assess, and, where
appropriate, replace devices that contain embedded chips. Despite these
reasonable efforts, we may not be able to find and remediate all embedded
chips in all of our systems. Further, outside entities on which we depend
also may not be able to find and remediate all embedded chips in their
systems. Some chips that are not Year 2000 compliant may create system
disruptions or failures, which may, in turn, cause disruptions or failures in
other systems. These cascading problems could impair our ability to serve our
customers and otherwise fulfill contractual and legal obligations. We believe
that the possible adverse impact of the embedded chip problem is not, and will
not be, unique to us.
We cannot ensure that suppliers upon which we depend for essential
supplies and services will convert and test their critical systems and
processes in a timely manner. Failure or delay by all or some of these
entities, including federal, state, or local governments and other exchange
carriers, to make their systems and processes Year 2000 compliant could create
substantial disruptions having a material adverse effect on our operations.
In a recent Securities and Exchange Commission release regarding Year
2000 disclosure, the Securities and Exchange Commission stated that public
companies must disclose the most reasonably likely worst case Year 2000
scenario. Although it is not possible to assess the likelihood of any of the
following events, each must be included in a consideration of worst case
scenarios: widespread failure of electrical, gas, and similar supplies serving
us; widespread disruption of the services provided by common communications
carriers; similar disruption to the means and modes of transportation for us
and our employees, contractors, suppliers, and customers; significant
disruption to our ability to gain access to, and remain working in, office
buildings and other facilities; the failure of substantial numbers of our
critical computer hardware and software systems, including both internal
business systems and systems controlling operational facilities such as
electrical generation, transmission, and distribution systems; and the failure
of outside entities' systems, including systems related to banking and finance.
Among other things, we could face substantial claims by customers or loss of
revenue due to service interruptions, inability to fulfill contractual
obligations or to bill customers accurately and on a timely basis, and
increased expenses associated with litigation, stabilization of operations
following critical system failures, and the execution of contingency plans. We
could also experience an inability by customers and others to pay, on a timely
basis or at all, obligations owed to us. Under these circumstances, the
adverse effects on us would be material, although not quantifiable at this
time. Further, the cumulative effect of these failures could have a
substantial adverse effect on the economy, domestically and internationally.
The adverse effect on us from a domestic or global recession or depression
also could be material, although not quantifiable at this time.
We will continue to monitor business conditions to assess and quantify
material adverse effects, if any, that may result from the Year 2000 problem.
CONTINGENCY PLANS
As part of the Plan, NEXTLINK is developing contingency plans that deal
with internal aspects of the Year 2000 problem. The Company's contingency plans
will contemplate an assessment of all its critical internal information
technology systems and its internal operational systems that use
computer-based controls. In addition, the Company will assess any critical
disruptions due to Year 2000-related failures that are external to the
Company. These processes will begin January 1, 2000, and will continue as long
as circumstances require.
The Company's contingency plans will include the creation of teams that
will be prepared to respond immediately and as necessary to critical Year 2000
problems as soon as they become known. The
<PAGE>
composition of teams that are assigned to deal with such problems will vary
according to the nature, significance, and location of the problem.
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
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 under "Outlook: Issues and Uncertainties" in our Form 10-K filed with
the SEC on March 29, 1999. These forward-looking statements can be identified by
the use of forward-looking terminology such as "believes", "expects", "plans",
"may", "will", "would," "could," "should", or "anticipates" or the negative of
these words or other variations of these words or other comparable words, or by
discussions of strategy that involve risks and uncertainties. Such
forward-looking statements include, but are not limited to:
- the number of markets we expect to serve, the expected number of
addressable business lines in markets in which we currently provide
service and the markets in which we expect to provide service;
- our expectations regarding our ability to attract and retain customers;
- our beliefs regarding certain competitive advantages, including that of
our national end-to-end network, the introduction of IP and ATM
technologies, our management structure and provisioning processes and
systems;
- our belief regarding financial performance due to increased traffic
flow over our networks;
- our plans to install additional switches, data networking capabilities
such as IP and ATM facilities and high speed technologies such as DSL;
- our plans to implement and deploy wireless first mile connections;
- our ability to maintain technological flexibility;
- our expectation regarding the development of a national network and
the implementation of a national network end-to-end strategy;
- our anticipated capital expenditures, funding thereof and levels of
indebtedness and our expectations regarding additional indebtedness;
and
- statements with respect to our Year 2000 project.
NEW ACCOUNTING STANDARD
In April 1998, the AICPA released Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities" (SOP 98-5). The new standard requires that all
entities expense costs of start-up activities as those costs are incurred. SOP
98-5 defines "start-up costs" as those costs directly related to pre-operating,
pre-opening, and organization activities. This standard must be adopted in
fiscal years beginning after December 15, 1998. The adoption of SOP 98-5 did not
have a material impact on the Company's financial position.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
NEXTLINK currently has instruments sensitive to market risk relating to
exposure to changing interest rates and market prices. There have been no
material changes in market risk since December 31, 1998.
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is not currently a party to any legal proceedings,
other than regulatory and other proceedings that are in the
normal course of its business.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
NEXTLINK filed a registration statement on Form S-1 (File No.
333-32001) which became effective on September 26, 1997, whereby
15,200,000 shares of Class A Common Stock, $0.02 par value per
share, were sold in an initial public offering at a price of $17
per share. Of the 15,200,000 shares of Class A Common Stock
sold, 12,000,000 shares were sold by NEXTLINK and 3,200,000
shares were sold by a selling shareholder. NEXTLINK did not
receive any of the proceeds from the sale of shares by the
selling shareholder. In addition, the underwriters of the IPO,
led by Salomon Brothers Inc., exercised an option to purchase
2,280,000 additional shares of Class A Common Stock at the same
price per share. Net proceeds to NEXTLINK from the IPO totaled
approximately $226.8 million, after deducting underwriting
discounts, advisory fees and expenses aggregating approximately
$16.0 million. NEXTLINK intends to use substantially all of the
net proceeds from the IPO for expenditures relating to the
expansion of existing networks and services, the development and
acquisition of new networks and services and the funding of
operating losses and working capital. None of the net proceeds
from the IPO had been used by NEXTLINK as of June, 30 1999.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Our Board of Directors has approved amendments to the
NEXTLINK Communications, Inc. Stock Option Plan to authorize
an additional 8,145,304 shares of our Class A common stock
to be issued under the plan. These amendments also have been
approved by one of our stockholders, Eagle River Investments,
L.L.C. Eagle River holds 18,871,787 shares of our Class B
common stock, which represents shares with a majority of the
total number of votes attributable to all shares of
outstanding common stock. Our common stock is the only
outstanding class of capital stock of NEXTLINK entitled to
vote on this matter. Eagle River approved the Board's action
by written consents in lieu of stockholder meetings dated
February 22, 1999 and May 3, 1999, pursuant to Section 228(a)
of the Delaware General Corporation Law. Because we are a
corporation organized under the laws of the State of
Delaware, our stockholders may take action by written consent
without a meeting. The Board has not solicited any proxies or
consents from any other stockholders in connection with this
action. On May 26, 1999, we mailed an information statement
regarding this action to stockholders of record on that date
in accordance with rules of the Securities and Exchange
Commission. The increase in number of authorized shares
available under the Stock Option Plan became effective 20
days after the date on which the information statement was
mailed to stockholders of NEXTLINK.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<C> <S>
3.1 Certificate of Incorporation of NEXTLINK
Communications, Inc. (1)
</TABLE>
<PAGE>
<TABLE>
<C> <S>
3.2 By-laws of NEXTLINK Communications, Inc. (1)
3.3 Articles of Incorporation of NEXTLINK
Capital, Inc. (2)
3.4 By-laws of NEXTLINK Capital, Inc. (2)
4.1 Certificate of Designations of the Powers,
Preferences and Relative, Participating,
Optional and Other Special Rights of 14%
Senior Exchangeable Redeemable Preferred
Shares and Qualifications, Limitations and
Restrictions Thereof. (1)
4.2 Form of stock certificate of 14% Senior
Exchangeable Redeemable Preferred Shares.
(3)
4.3 Certificate of Designations 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)
4.4 Form of Stock Certificate of 6 1/2% Cumulative
Convertible Preferred Stock. (12)
4.5 Form of Stock Certificate of Class A common
stock. (9)
4.6 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)
4.7 First Supplemental Indenture, dated as of
January 31, 1997, by and among NEXTLINK
Communications, Inc., NEXTLINK
Communications, L.L.C., NEXTLINK Capital
and United States Trust Company of New
York, as Trustee. (3)
4.8 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)
4.9 Indenture dated September 25, 1997, between
United States Trust Company, as Trustee and
NEXTLINK Communications, Inc., relating to
the 9 5/8% Senior Notes due 2007. (12)
4.10 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)
4.11 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)
4.12 First Supplemental Indenture, dated June 3,
1998, amending Indenture dated March 3,
1998, by and between NEXTLINK
Communications, Inc. and United States
Trust Company of New York as Trustee. (1)
</TABLE>
<PAGE>
<TABLE>
<C> <S>
4.13 Indenture dated April 1, 1998 between
United Trust Company, as Trustee and
NEXTLINK Communications, Inc. relating to
the 9.45% Senior Discount Notes due 2008. (5)
4.14 First Supplemental Indenture, dated June 3,
1998, amending Indenture dated April 1,
1998, by and between NEXTLINK
Communications, Inc. and United States
Trust Company of New York, as Trustee. (1)
4.15 Indenture, dated November 12, 1998, by and
among NEXTLINK Communications, Inc. and
United States Trust Company of New York, as
Trustee, relating to the 10 3/4% Senior Notes
due 2008. (8)
4.16 Form of Indenture between NEXTLINK
Communications, Inc. and United States Trust
Company of New York, as Trustee, relating to
the 10 3/4% Senior Notes due 2009. (13)
4.17 Form of Indenture between NEXTLINK
Communications, Inc. and United States Trust
Company of Texas, as Trustee, relating to
the 12 1/4% Senior Discount Notes, Due 2009. (13)
10.1 Stock Option Plan of NEXTLINK
Communications, Inc., as amended.
10.2 Employee Stock Purchase Plan of NEXTLINK
Communications, Inc. (1)
10.3 Fiber Lease and Innerduct Use Agreement,
dated as of February 23, 1998, by and
between NEXTLINK Communications, Inc. and
Metromedia Fiber Network. (5)
10.4 Amendment No. 1 to Fiber Lease and
Innerduct Use Agreement, dated as of March
4, 1998, by and between NEXTLINK
Communications, Inc. and Metromedia Fiber
Network, Inc. (5)
10.5 Cost Sharing and IRU Agreement, dated July 18,
1998, between Level 3 Communications, LLC and
INTERNEXT LLC. (14)
10.6 Guaranty Agreement, dated July 18, 1998,
between NEXTLINK Communications, Inc. and Level
3 Communications LLC. (14)
10.7 Registration Rights Agreement dated as of
January 15, 1997, between the predecessor
of NEXTLINK Communications, Inc. and the
signatories listed therein. (3)
10.8 Registration Rights Agreement dated January
14, 1999, between NEXTLINK Communications,
Inc. 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. (10)
</TABLE>
<PAGE>
<TABLE>
<C> <S>
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. (11)
27 Financial Data Schedule
</TABLE>
---------
(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. 333-04603 and
333-04603-01).
(4) Incorporated herein 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. and
NEXTLINK Capital, Inc. (Commission File No. 000-22939).
(7) Incorporated herein by reference to the exhibits filed with
the current report on form 8-K filed on January 19, 1999
(Commission File No. 000-22939).
(8) Incorporated herein by reference to the exhibits filed with
the Registration Statement on Form S-4 of NEXTLINK
Communications, Inc. (Commission File No. 333-71749).
(9) Incorporated herein by reference to the exhibit filed with
the Registration Statement on Form S-1 of NEXTLINK
Communications, Inc. (Commission File No. 333-32001).
(10) Incorporated herein by reference to the exhibits filed the
Registration Statement on Form S-4 of NEXTLINK
Communications, Inc. (Commission File No. 333-75923)
(11) Incorporated herein by reference to the exhibits filed with
the current report on Form 8-K filed on April 1, 1999
(Commission File No. 000-22939).
(12) Incorporated herein by reference to the exhibits filed with
the Registration Statement on Form S-3 of NEXTLINK
Communications, Inc. (Commission File No. 333-77577).
(13) Incorporated herein by reference to the exhibit filed with
the Registration Statement on Form S-3 of NEXTLINK
Communications, Inc. (Commission File No. 333-77819)
(14) Incorporated herein by reference to the exhibit filed with
the quarterly report on form 10-Q for the quarterly period
ended September 30, 1998 of NEXTLINK Communications, Inc. and
NEXTLINK Capital, Inc. (Commission File No. 000-22939).
(b) Reports on Form 8-K
Current report on Form 8-K, filed April 1, 1999, regarding the
definitive agreement with a subsidiary of Nextel
Communications, Inc. to acquire the 50% interest in NEXTBAND
Communications that NEXTLINK does not currently own.
Current report on Form 8-K, filed May 11, 1999, regarding the
closing of the acquisition of WNP Communications, Inc.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
NEXTLINK Communications, Inc.
Date: August 16, 1999 By: /s/ Kathleen H. Iskra
-----------------------------
Kathleen H. Iskra
Vice President, Chief Financial Officer
and Treasurer
(Principal financial and accounting officer)
NEXTLINK Capital, Inc.
Date: August 16, 1999 By: /s/ Kathleen H. Iskra
-----------------------------
Kathleen H. Iskra
Vice President, Chief Financial Officer
and Treasurer
(Principal financial and accounting officer)
<PAGE>
NEXTLINK COMMUNICATIONS, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
3.1 Certificate of Incorporation of NEXTLINK Communications, Inc. (1)
3.2 By-laws of NEXTLINK Communications, Inc. (1)
3.3 Articles of Incorporation of NEXTLINK Capital, Inc. (2)
3.4 By-laws of NEXTLINK Capital, Inc. (2)
4.1 Certificate of Designations of the Powers, Preferences and Relative,
Participating, Optional and Other Special Rights of 14% Senior
Exchangeable Redeemable Preferred Shares and Qualifications,
Limitations and Restrictions Thereof. (1)
4.2 Form of stock certificate of 14% Senior Exchangeable Redeemable
Preferred Shares. (3)
4.3 Certificate of Designations 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)
4.4 Form of Stock Certificate of 6 1/2% Cumulative Convertible Preferred
Stock. (12)
4.5 Form of Stock Certificate of Class A common stock. (9)
4.6 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)
4.7 First Supplemental Indenture, dated as of January 31, 1997, by and
among NEXTLINK Communications, Inc., NEXTLINK Communications,
L.L.C., NEXTLINK Capital and United States Trust Company of New
York, as Trustee. (3)
4.8 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)
4.9 Indenture dated September 25, 1997, between United States Trust
Company, as Trustee and NEXTLINK Communications, Inc., relating to
the 9 5/8% Senior Notes due 2007. (12)
4.10 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)
4.11 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)
4.12 First Supplemental Indenture, dated June 3, 1998, amending Indenture
dated March 3, 1998, by and between NEXTLINK Communications, Inc.
and United States Trust Company of New York as Trustee. (1)
</TABLE>
<PAGE>
<TABLE>
<C> <S>
4.13 Indenture dated April 1, 1998 between United Trust Company, as
Trustee and NEXTLINK Communications, Inc. relating to the 9.45%
Senior Discount Notes due 2008. (5)
4.14 First Supplemental Indenture, dated June 3, 1998, amending Indenture
dated April 1, 1998, by and between NEXTLINK Communications, Inc.
and United States Trust Company of New York, as Trustee. (1)
4.15 Indenture, dated November 12, 1998, by and among NEXTLINK
Communications, Inc. and United States Trust Company of New York, as
Trustee, relating to the 10 3/4% Senior Notes due 2008. (8)
4.16 Form of Indenture between NEXTLINK Communications, Inc. and United
States Trust Company of New York, as Trustee, relating to the
10 3/4% Senior Notes due 2009. (13)
4.17 Form of Indenture between NEXTLINK Communications, Inc. and United
States Trust Company of Texas, as Trustee, relating to the
12 1/4% Senior Discount Notes, Due 2009. (13)
10.1 Stock Option Plan of NEXTLINK Communications, Inc., as amended.
10.2 Employee Stock Purchase Plan of NEXTLINK Communications, Inc. (1)
10.3 Fiber Lease and Innerduct Use Agreement, dated as of February 23,
1998, by and between NEXTLINK Communications, Inc. and Metromedia
Fiber Network. (5)
10.4 Amendment No. 1 to Fiber Lease and Innerduct Use Agreement, dated as
of March 4, 1998, by and between NEXTLINK Communications, Inc. and
Metromedia Fiber Network, Inc. (5)
10.5 Cost Sharing and IRU Agreement, dated July 18, 1998, between Level 3
Communications, LLC and INTERNEXT LLC. (14)
10.6 Guaranty Agreement, dated July 18, 1998, between NEXTLINK
Communications, Inc. and Level 3 Communications LLC. (14)
10.7 Registration Rights Agreement dated as of January 15, 1997, between
the predecessor of NEXTLINK Communications, Inc. and the signatories
listed therein. (3)
10.8 Registration Rights Agreement dated January 14, 1999, between
NEXTLINK Communications, Inc. 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. (10)
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. (11)
27 Financial Data Schedule
</TABLE>
- ---------
(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. 333-04603 and 333-04603-01).
(4) Incorporated herein by reference to the exhibit filed with the
Registration Statement on Form S-1 of NEXTLINK Communications, Inc.
(Commission File No. 333-32003).
<PAGE>
(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. and NEXTLINK Capital, Inc.
(Commission File No. 000-22939).
(7) Incorporated herein by reference to the exhibits filed with the
current report on form 8-K filed on January 19, 1999 (Commission
File No. 000-22939).
(8) Incorporated herein by reference to the exhibits filed with the
Registration Statement on Form S-4 of NEXTLINK Communications, Inc.
(Commission File No. 333-71749).
(9) Incorporated herein by reference to the exhibit filed with the
Registration Statement on Form S-1 of NEXTLINK Communications, Inc.
(Commission File No. 333-32001).
(10) Incorporated herein by reference to the exhibits filed the
Registration Statement on Form S-4 of NEXTLINK Communications, Inc.
(Commission File No. 333-75923)
(11) Incorporated herein by reference to the exhibits filed with the
current report on Form 8-K filed on April 1, 1999 (Commission File
No. 000-22939).
(12) Incorporated herein by reference to the exhibits filed with the
Registration Statement on Form S-3 of NEXTLINK Communications, Inc.
(Commission File No. 333-77577).
(13) Incorporated herein by reference to the exhibit filed with the
Registration Statement on Form S-3 of NEXTLINK Communications, Inc.
(Commission File No. 333-77819)
(14) Incorporated herein by reference to the exhibit filed with the
quarterly report on form 10-Q for the quarterly period ended
September 30, 1998 of NEXTLINK Communications, Inc. and NEXTLINK
Capital, Inc. (Commission File No. 000-22939).
<PAGE>
NEXTLINK COMMUNICATIONS, INC.
STOCK OPTION PLAN
(as amended on September 30, 1997, December 31, 1997, February 5, 1998,
February 4, 1999 and May 3, 1999)
SECTION 1. PURPOSE. The purpose of this Stock Option Plan (this "Plan")
is to provide a means whereby Nextlink Communications, Inc. (the "Company")
or any parent or subsidiary of the Company, as defined in Subsection 5.9 (the
"related entities"), may continue to attract, motivate and retain selected
employees, officers and independent contractors who can materially contribute
to the Company's growth and success, and to encourage stock ownership in the
Company through granting incentive stock options or nonqualified stock
options, or both, to purchase the Class A Common Stock of the Company (as
defined in Section 3), so that such key employees and other persons and
entities will more closely identify their interests with those of the Company
and its shareholders. In addition, options under this Plan may serve as
replacement options for options issued under the Equity Option Plan sponsored
by the Company's predecessor.
SECTION 2. ADMINISTRATION. This Plan shall be administered by the Board
of Directors of the Company (the "Board") or, in the event the Board shall
appoint or authorize a committee to administer this Plan, by such committee.
The administrator of this Plan shall hereinafter be referred to as the "Plan
Administrator."
2.1 PROCEDURES. The Board may designate one of the members of
the Plan Administrator as chairperson. The Plan Administrator may hold
meetings at such times and places as it shall determine. The acts of a
majority of the members of the Plan Administrator present at meetings at
which a quorum exists, or acts reduced to or approved in writing by all Plan
Administrator members, shall be valid acts of the Plan Administrator.
2.2 RESPONSIBILITIES. Except for the terms and conditions
explicitly required in this Plan, the Plan Administrator shall have the
authority, in its discretion, to determine all matters relating to the
options to be granted under this Plan, including selection of the individuals
to be granted options, the number of shares to be subject to each option, the
exercise price, and all other terms and conditions of the options. Grants
under this Plan need not be identical in any respect, even when made
simultaneously. The interpretation and construction by the Plan Administrator
of any terms or provisions of this Plan or any option issued under this Plan,
or of any rule or regulation promulgated in connection with this Plan, shall
be conclusive and binding on all interested parties, so long as such
interpretation and construction with respect to incentive stock options
correspond to the requirements of Section 422 of the Internal Revenue Code
(the "Code"), as amended, and the regulations thereunder.
2.3 SECTION 16(b) COMPLIANCE AND BIFURCATION OF PLAN. In the
event the Company registers any of its equity securities pursuant to Section
12(b) or 12(g) of the Exchange Act, it is the intention of the Company that
this Plan, and options granted under this Plan, comply in all respects with
Rule 16b-3 under the Exchange Act and, if any Plan provision is later found
not to be in compliance with such Section, the provision shall be deemed null
and void, and in all events this Plan shall be construed in favor of its
meeting the requirements of Rule 16b-3.
Page 1 - STOCK OPTION PLAN
<PAGE>
Notwithstanding anything in this Plan to the contrary, the Board, in its
absolute discretion, may bifurcate this Plan so as to restrict, limit or
condition the use of any provision of this Plan to participants who are
officers and directors subject to Section 16(b) of the Exchange Act without
so restricting, limiting or conditioning other Plan participants.
SECTION 3. STOCK SUBJECT TO THIS PLAN. The stock subject to this Plan
shall be the Company's Class A Common Stock (the "Class A Common Stock"),
presently authorized but unissued or now held or subsequently acquired by the
Company as treasury shares. Subject to adjustment as provided in Section 7 of
this Plan, the aggregate amount of Class A Common Stock to be delivered upon
the exercise of all options granted under this Plan shall not exceed
18,000,000 shares as such Class A Common Stock was constituted on the
effective date of this Plan. If any option granted under this Plan expires or
is surrendered, canceled, terminated or exchanged for another option for any
reason without having been exercised in full, the unpurchased shares subject
to such option shall again be available for purposes of this Plan, including
use as replacement options that may be granted in exchange for such
surrendered, canceled or terminated options.
SECTION 4. ELIGIBILITY. An incentive stock option may be granted only
to an individual who, at the time the option is granted, is an employee of
the Company (or a corporate related entity, as described in Section 5.9) and
who the Board may from time to time select for participation in this Plan.
Members of the Board shall not be eligible for grants of incentive stock
options unless they are also employees of the Company. At the discretion of
the Plan Administrator, employees and independent contractors of the Company
(including nonemployee directors) or any related entity may receive
nonqualified stock options. Any party to whom an option is granted under this
Plan shall be referred to in this Plan as an "Optionee."
SECTION 5. TERMS AND CONDITIONS OF OPTIONS. Options granted under this
Plan shall be evidenced by written agreements that contain such terms,
conditions, limitations and restrictions as the Plan Administrator shall deem
advisable and which are not inconsistent with this Plan. Notwithstanding the
foregoing, options shall include or incorporate by reference the following
terms and conditions:
5.1 NUMBER OF SHARES. The maximum number of shares that may be
purchased pursuant to the exercise of each option, which number shall be as
established by the Plan Administrator.
5.2 PRICE OF SHARES. The price per share at which each option is
exercisable (the "exercise price") shall be as established by the Plan
Administrator, provided that the Plan Administrator shall act in good faith
to establish the exercise price as follows:
5.2.1 INCENTIVE STOCK OPTIONS AND NONQUALIFIED STOCK
OPTIONS. With respect to incentive stock options intended to qualify under
Section 422 of the Code, and subject to Subsection 5.2.2 below, the exercise
price shall be not less than the fair market value per share of the Class A
Common Stock at the time the option is granted, except with respect to the
substitution of a new option for an old option, or an assumption of an old
option, in accordance
Page 2 - STOCK OPTION PLAN
<PAGE>
with Code Section 424(a). With respect to nonqualified stock options, the
exercise price shall be the amount set by the Plan Administrator.
5.2.2 INCENTIVE STOCK OPTIONS TO GREATER THAN 10%
SHAREHOLDERS. With respect to incentive stock options granted to greater than
10% shareholders of the Company, the exercise price shall be as required by
Section 6.
5.2.3 FAIR MARKET VALUE. The fair market value per share
of the Class A Common Stock for the purpose of determining the exercise price
under this Section 5.2 shall be determined as follows:
(a) if the Common Stock is listed on any established
stock exchange or a national market system including without limitation the
National Market System of the National Association of Securities Dealers,
Inc. Automated Quotation ("NASDAQ") System, the fair market value shall be
the closing sales price for such stock (or the closing bid, if no sales were
reported), as quoted on such system or exchange for the last market trading
date prior to the time of determination as reported in The Wall Street
Journal or such other source as the Plan Administrator deems reliable;
(b) if the Common Stock is quoted on the NASDAQ System
(but not on the National Market System thereof) or regularly quoted by a
recognized securities dealer but selling prices are not reported, the fair
market value shall be the mean between the high and low asked prices for the
Common Stock on the last market trading date prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Plan Administrator deems reliable; or
(c) In the absence of an established market for the
Common Stock, fair market value shall be determined by the Plan Administrator
in good faith at the time the option is granted.
5.3 TERM AND MATURITY. Subject to the restrictions contained in
Section 6 with respect to granting incentive stock options to greater than
10% shareholders of the Company, the term of each incentive stock option
shall be 10 years from the date it is granted unless a shorter period of time
is established by the Plan Administrator, but in no event shall the term of
any incentive stock option exceed 10 years. The term of each nonqualified
stock option shall be 15 years from the date it is granted, unless a shorter
period of time is established by the Plan Administrator in the individual
option agreement. To ensure that the Company or related entities will achieve
the purpose and receive the benefits contemplated in this Plan, any option
granted under this Plan shall, unless this condition is waived or modified by
the Plan Administrator in the agreement evidencing the option, or by
subsequent resolution of the Plan Administrator, be exercisable according to
the following schedule:
Page 3 - STOCK OPTION PLAN
<PAGE>
<TABLE>
<CAPTION>
Period of Optionee's Continuous Relationship Portion of Total Option
With the Company or Related Entity Which is Exercisable
from the Date the Option is Granted
<S> <C>
After one year 25%
After two years 50%
After three years 75%
After four years 100%
</TABLE>
5.4 EXERCISE. Subject to the vesting schedule described in
subsection 5.3 above, if any, and to any additional holding period required
by applicable law, each option may be exercised in whole or in part;
provided, however, that only whole shares will be issued pursuant to the
exercise of any option and that the exercise price shall not be less than the
par value per share of the Class A Common Stock at the time the option is
exercised. During an Optionee's lifetime, any stock options granted under
this Plan are personal to him or her and are exercisable solely by such
Optionee, except as provided in Section 5.8. Options shall be exercised by
delivery to the Company of notice of the number of shares with respect to
which the option is exercised, together with payment of the exercise price.
5.5 PAYMENT OF EXERCISE PRICE. Payment of the option exercise
price shall be made in full at the time the notice of exercise of the option
is delivered to the Company and shall be in cash, bank certified or cashier's
check or personal check (unless at the time of exercise the Plan
Administrator in a particular case determines not to accept a personal check)
for the Class A Common Stock being purchased.
The Plan Administrator can determine at the time the option is
granted for incentive stock options, or at any time before exercise for
nonqualified stock options, that additional forms of payment will be
permitted, including installment payments on such terms and over such period
as the Plan Administrator may determine in its discretion. To the extent
permitted by the Plan Administrator and applicable laws and regulations
(including, but not limited to, federal tax and securities laws and
regulations and state corporate law), an option may be exercised by:
(a) delivery of shares of stock of the Company held by an
Optionee having a fair market value equal to the exercise price, such fair
market value to be determined in good faith by the Plan Administrator;
(b) delivery of a full-recourse promissory note executed by the
Optionee, provided that (i) such note delivered in connection with an
incentive stock option shall, and such note delivered in connection with a
nonqualified stock option may, in the sole discretion of the Plan
Administrator, bear interest at a rate specified by the Plan Administrator
but in no case less than the rate required to avoid imputation of interest
(taking into account any exceptions to the imputed interest rules) for
federal income tax purposes; (ii) the Plan Administrator in its sole
discretion shall specify the term and other provisions of such note at the
time an incentive stock
Page 4 - STOCK OPTION PLAN
<PAGE>
option is granted or at any time prior to exercise of a nonqualified stock
option; (iii) the Plan Administrator may require that the Optionee pledge the
Optionee's shares to the Company for the purpose of securing the payment of
such note and may require that the certificate representing such shares be
held in escrow in order to perfect the Company's se curity interest; (iv) the
note provides that 90 days following the Optionee's termination of employment
with the Company or a related entity, the entire outstanding balance under
the note shall become due and payable, if not previously due and payable; and
(v) the Plan Administrator in its sole discretion may at any time restrict or
rescind this right upon notification to the Optionee;
(c) delivery of a properly executed exercise notice, together
with irrevocable instructions to a broker, all in accordance with the
regulations of the Federal Reserve Board, to promptly deliver to the Company
the amount of sale or loan proceeds to pay the exercise price and any
federal, state or local withholding tax obligations that may arise in
connection with the exercise; provided, that the Plan Administrator, in its
sole discretion, may at any time determine that this Subparagraph (c), to the
extent the instructions to the broker call for an immediate sale of the
shares, shall not be applicable to any Optionee who is subject to Section
16(b) of the Exchange Act if such transaction would result in a violation of
Section 16(b), or is not an employee at the time of exercise;
(d) delivery of a properly executed exercise notice, together
with a request by the Optionee for the Company to pay the exercise price by
withholding from the shares that would otherwise be issued that number of
shares having a fair market value equal to the option exercise price;
provided, the Plan Administrator retains complete discretion to honor or deny
the Optionee's request for such a method of exercise.
5.6 SHAREHOLDERS' AGREEMENT. To the extent required by the Plan
Administrator upon exercise of an option the Optionee shall agree to enter
into and be bound by the agreement then in effect, if any, between the
Company and its shareholders relating to the repurchase by the Company of its
outstanding Class A Common Stock.
5.7 WITHHOLDING TAX REQUIREMENT. The Company or any related
entity shall have the right to retain and withhold from any payment of cash
or Class A Common Stock under this Plan the amount of taxes required by any
government to be withheld or otherwise deducted and paid with respect to such
payment. At its discretion, the Company may require an Optionee receiving
shares of Class A Common Stock to reimburse the Company or a related entity
for any such taxes required to be withheld and may withhold any distribution
in whole or in part until the Company, or related entity, is so reimbursed.
In lieu of such withholding or reimbursement, the Company (or related entity)
shall have the right to withhold from any other cash amounts due or to become
due from the Company (or related entity) to the Optionee an amount equal to
such taxes or to retain and withhold a number of shares having a market value
not less than the amount of such taxes required to be withheld as
reimbursement for any such taxes and cancel (in whole or in part) any such
shares so withheld.
5.8 NONTRANSFERABILITY OF OPTION. Options granted under this
Plan and the rights and privileges conferred by this Plan may not be
transferred, assigned, pledged or hypothecated in any manner (whether by
operation of law or otherwise) other than by will or by the applicable
Page 5 - STOCK OPTION PLAN
<PAGE>
laws of descent and distribution; provided, with respect to a non-qualified
stock option, an Optionee may transfer the option to a revocable trust
created by the Optionee for the benefit of his or her descendants, to an
immediate family member or to a partnership in which only immediate family
members or such trusts are partners. Options under this Plan shall not be
subject to execution, attachment or similar process. Any attempt to transfer,
assign, pledge, hypothecate or otherwise dispose of any option under this
Plan or of any right or privilege conferred by this Plan, contrary to the
Code or to the provisions of this Plan, or the sale or levy or any attachment
or similar process upon the rights and privileges conferred by this Plan sha
ll be null and void. Notwithstanding the foregoing, an Optionee may during
the Optionee's lifetime, designate a person who may exercise the option after
the Optionee's death by giving written notice of such designation to the Plan
Administrator. Such designation may be changed from time to time by the
Optionee by giving written notice to the Plan Administrator revoking any
earlier designation and making a new designation.
5.9 TERMINATION OF RELATIONSHIP. If the Optionee's employment
relationship with the Company or any related entity ceases for any reason
other than termination for cause, death or permanent and total disability,
and unless by its terms the option sooner terminates or expires, then the
Optionee may exercise, for a period of three months after such cessation,
that portion of the Optionee's option which is exercisable at the time of
such cessation. The Optionee's option, however, shall terminate at the end of
the three month period following such cessation as to all Shares for which it
has not been exercised, unless such provision is waived in the agreement
evidencing the option or by resolution adopted by the Plan Administrator. If,
in the case of an incentive stock option, an Optionee's relationship with the
Company or related entity changes (i.e., from employee to nonemployee, such
as a consultant), such change shall constitute a termination of an Optionee's
employment with the Company or related entity and t he Optionee's incentive
stock option shall terminate in accordance with this subsection. Upon the
expiration of the three month period following cessation of employment, the
Plan Administrator shall have sole discretion in a particular circumstance to
extend the exercise period following such cessation beyond that specified
above. If, however, in the case of an incentive stock option, the Optionee
does not exercise the Optionee's option within three months after cessation
of employment, the option will no longer qualify as an incentive stock option
under the Code.
Upon an Optionee's termination of employment for cause, all of the
optionee's outstanding (i.e., unexercised) options issued under this Plan
shall immediately expire and no longer be available for exercise. For
purposes of this Plan, a termination shall be considered for "cause" if the
termination is attributable to the Optionee's: (a) Embezzlement; (b) use of
illegal drugs or alcohol that materially impairs the Optionee's ability to
fulfill his or her duties as an employee or independent contractor; (c)
willful disclosure of trade secrets or confidential information of the
Company; (d) dishonesty which results in substantial harm to the Company; or
(e) conviction or confession of a criminal felony.
If an Optionee's relationship with the Company or any related
entity ceases because of a permanent and total disability, the Optionee's
option shall not terminate, and in the case of an incentive stock option,
shall not cease to be treated as an incentive stock option, until the end of
the 12-month period following such cessation (unless by its terms it sooner
terminates
Page 6 - STOCK OPTION PLAN
<PAGE>
and expires). As used in this Plan, the term "permanent and total
disability" has the same meaning provided in Code Section 22(e)(3).
For purposes of this subsection 5.9, a transfer of relationship
between or among the Company and/or any related entity shall not be deemed to
constitute a cessation of relationship with the Company or any of its related
entities. For purposes of this subsection 5.9, with respect to incentive
stock options, employment shall be deemed to continue while the Optionee is
on military leave, sick leave or other bona fide leave of absence (as
determined by the Plan Administrator). The foregoing notwithstanding,
employment shall not be deemed to continue beyond the first 90 days of such
leave, unless the Optionee's reemployment rights are guaranteed by statute or
by contract.
As used in this Plan, the term "related entity," when referring to
a subsidiary, shall mean any business entity (other than the Company) which,
at the time of the granting of the option, is in an unbroken chain of
entities ending with the Company, if stock or voting interests possessing 50%
or more of the total combined voting power of all classes of stock or other
ownership interests of each of the entities other than the Company is owned
by one of the other entities in such chain. When referring to a parent
entity, the term "related entity" shall mean any entity in an unbroken chain
of entities ending with the Company if, at the time of the granting of the
option, each of the entities other than the Company owns stock or other
ownership interests possessing 50% or more of the total combined voting power
of all classes of stock (or other ownership interests) in one of the other
entities in such chain. In addition, with respect to an incentive stock
option, the definition of "related entity" as used in th is Plan shall apply
by only considering entities that are corporations.
5.10 DEATH OF OPTIONEE. If an Optionee dies while he or she has a
relationship with the Company or any related entity or dies within the three
month period (or 12-month period in the case of totally disabled Optionees)
following cessation of such relationship, any option held by such Optionee to
the extent that the Optionee would have been entitled to exercise such
option, may be exercised within one year after his or her death by the
personal representative of his or her estate or by the person or persons to
whom the Optionee's rights under the option shall pass by will or by the
applicable laws of descent and distribution.
5.11 STATUS OF SHAREHOLDER. Neither the Optionee nor any party to
which the Optionee's rights and privileges under the option may pass shall
be, or have any of the rights or privileges of, a shareholder of the Company
with respect to any of the shares issuable upon the exercise of any option
granted under this Plan unless and until such option has been exercised.
5.12 CONTINUATION OF EMPLOYMENT. Nothing in this Plan or in any
option granted pursuant to this Plan shall confer upon any Optionee any right
to continue in the employ of the Company or of a related entity, or to
interfere in any way with the right of the Company or of any related entity
to terminate his or her employment or other relationship with the Company or
a related entity at any time.
5.13 MODIFICATION AND AMENDMENT OF OPTION. Subject to the
requirements of Code Section 422 with respect to incentive stock options and
to the terms and conditions and within
Page 7 - STOCK OPTION PLAN
<PAGE>
the limitations of this Plan, the Plan Administrator may modify or amend
outstanding options granted under this Plan. The modification or amendment of
an outstanding option shall not, without the consent of the Optionee, impair
or diminish any of his or her rights or any of the obligations of the Company
under such option. Except as otherwise provided in this Plan, no outstanding
option shall be terminated without the consent of the Optionee. Unless the
Optionee agrees otherwise, any changes or adjustments made to outstanding
incentive stock options granted under this Plan shall be made in such a
manner so as not to constitute a "modification" as defined in Code Section
424(h) and so as not to cause any incentive stock option issued hereunder to
fail to continue to qualify as an incentive stock option as defined in Code
Section 422(b).
5.14 LIMITATION ON VALUE FOR INCENTIVE STOCK OPTIONS. As to all
incentive stock options granted under the terms of this Plan, to the extent
that the aggregate fair market value (determined at the time the incentive
stock option is granted) of the stock with respect to which incentive stock
options are exercisable for the first time by the Optionee during any
calendar year (under this Plan and all other incentive stock option plans of
the Company, a related entity or a predecessor corporation) exceeds $100,000,
those options (or the portion of an option) beyond the $100,000 threshold
shall be treated as nonqualified stock options. The previous sentence shall
not apply if the Internal Revenue Service publicly rules, issues a private
ruling to the Company, any Optionee, or any legatee, personal representative
or distributee of an Optionee or issues regulations changing or eliminating
such annual limit.
SECTION 6. GREATER THAN 10% SHAREHOLDERS.
6.1 EXERCISE PRICE AND TERM OF INCENTIVE STOCK OPTIONS. If
incentive stock options are granted under this Plan to employees who own more
than 10% of the total combined voting power of all classes of stock of the
Company or any related entity, the term of such incentive stock options shall
not exceed five years and the exercise price shall be not less than 110% of
the fair market value of the Class A Common Stock at the time the incentive
stock option is granted. This provision shall control notwithstanding any
contrary terms contained in an option agreement or any other document.
6.2 ATTRIBUTION RULE. For purposes of subsection 6.1, in
determining stock ownership, an employee shall be deemed to own the stock
owned, directly or indirectly, by or for his brothers, sisters, spouse,
ancestors and lineal descendants. Stock owned, directly or indirectly, by or
for a corporation, partnership, estate or trust shall be deemed to be owned
proportionately by or for its shareholders, partners or beneficiaries. If an
employee or a person related to the employee owns an unexercised option or
warrant to purchase stock of the Company, the stock subject to that portion
of the option or warrant which is unexercised shall not be counted in
determining stock ownership. For purposes of this Section 6, stock owned by
an employee shall include all stock actually issued and outstanding
immediately before the grant of the incentive stock option to the employee.
SECTION 7. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. The aggregate
number and class of shares for which options may -be granted under this Plan,
the number and class of shares covered by each outstanding option and the
exercise price per share thereof (but not the total
Page 8 - STOCK OPTION PLAN
<PAGE>
price), and each such option, shall all be proportionately adjusted for any
increase or decrease in the number of issued shares of Class A Common Stock
of the Company resulting from a split-up or consolidation of shares or any
like capital adjustment, or the payment of any stock dividend.
7.1 EFFECT OF LIQUIDATION, REORGANIZATION OR CHANGE IN CONTROL.
7.1.1 CASH, STOCK OR OTHER PROPERTY FOR STOCK. Except as
provided in subsection 7.1.2, upon a merger (other than a merger of the
Company in which the holders of Class A Common Stock immediately prior to the
merger have the same proportionate ownership of Class A Common Stock in the
surviving corporation immediately after the merger), consolidation,
acquisition of property or stock, separation, reorganization (other than a
mere reincorporation or the creation of a holding company) or liquidation of
the Company, as a result of which the shareholders of the Company receive
cash, stock or other property in exchange for or in connection with their
shares of Class A Common Stock, any option granted under this Plan shall
terminate. Notwithstanding the foregoing, the Optionee shall have the right
immediately prior to any such merger, consolidation, acquisition of property
or stock, separation, reorganization or liquidation to exercise such option
in whole or in part, to the extent the vesting requirements set forth in this
Plan have been satisfied, unless stated otherwise in the Optionee's
individual option agreement.
7.1.2 CONVERSION OF OPTIONS ON STOCK FOR STOCK EXCHANGE.
If the shareholders of the Company receive capital stock of another
corporation ("Exchange Stock") in exchange for their shares of Class A Common
Stock in any transaction involving a merger (other than a merger of the
Company in which the holders of Class A Common Stock immediately prior to the
merger have the same proportionate ownership of common stock in the surviving
corporation immediately after the merger), consolidation, acquisition of
property or stock, separation or reorganization (other than a mere
reincorporation or the creation of a holding company), all options granted
under this Plan shall be converted into options to purchase shares of
Exchange Stock unless the Company and the corporation issuing the Exchange
Stock, in their sole discretion, determine that any or all such options
granted under this Plan shall not be converted into options to purchase
shares of Exchange Stock, but instead shall terminate in accordance with the
provisions o f subsection 7.1.1. The amount and price of converted options
shall be determined by adjusting the amount and price of the options granted
under this Plan in the same proportion as used for determining the number of
shares of Exchange Stock the holders of the Class A Common Stock receive in
such merger, consolidation, acquisition of property or stock, separation or
reorganization. Unless accelerated by the Board, the vesting schedule set
forth in the option agreement shall continue to apply for the Exchange Stock.
7.1.3 CHANGE IN CONTROL. In the event of a "Change in
Control," as defined in Section 7.1.4 below, of the Company after the Company
has registered any of its equity securities pursuant to Section 12(b) or
12(g) of the Exchange Act, unless otherwise determined by the Board prior to
the occurrence of such Change in Control, any options or portions of such
options outstanding as of the date such Change in Control is determined to
have occurred that are not yet fully vested shall not become fully vested
merely by the occurrence of a Change in Control.
Page 9 - STOCK OPTION PLAN
<PAGE>
7.1.4 DEFINITION OF "CHANGE IN CONTROL." For purposes of
this Plan, a "Change in Control" shall mean (a) the first approval by the
Board or by the stockholders of the Company of an Extraordinary Event, (b) a
Purchase, or (c) a Board Change.
For purposes of the Plan, an "Extraordinary Event" shall mean any
of the following actions:
(i) any consolidation or merger of the Company in which the
Company is not the continuing or surviving corporation or pursuant to which
shares of Class A Common Stock would be converted into cash, securities or
other property, other than a merger of the Company in which the holders of
common stock immediately prior to the merger have substantially the same
proportionate ownership of common stock of the surviving corporation
immediately after the merger;
(ii) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or substantially
all, the assets of the Company; or
(iii) the adoption of any plan or proposal for liquidation or
dissolution of the Company.
For purposes of the Plan, a "Purchase" shall mean the acquisition
by any person (as such term is defined in Section 13(d) of the Exchange Act)
of any shares of Class A Common Stock or securities convertible into Class A
Common Stock) without the prior approval of a majority of the Continuing
Directors (as defined below) of the Company, if after making such acquisition
such person is the beneficial owner (as such term is defined in Rule 13d-3
under the Exchange Act) directly or indirectly of securities of the Company
representing 20% or more of the combined voting power of the Company's then
outstanding securities (calculated as provided in paragraph (d) of such Rule
13d-3).
For purposes of the Plan, a "Board Change" shall have occurred if
individuals who constitute the Board of the Company at the time of adoption
of this Plan (the "Continuing Directors") cease for any reason to constitute
at least a majority of the Board, provided that any person becoming a
Director subsequent to the date of adoption of this Plan whose nomination for
election was approved by a vote of at least a majority of the Continuing
Directors (other than a nomination of an individual whose initial assumption
of office is in connection with an actual threatened election contest
relating to the election of the Directors of the Company, as such terms are
used in Rule 14a-11 of Regulation 14A under the Exchange Act) shall be deemed
to be a Continuing Director.
7.2 FRACTIONAL SHARES. In the event of any adjustment in the
number of shares covered by any option, any fractional shares resulting from
such adjustment shall be disregarded and each such option shall cover only
the number of full shares resulting from such adjustment.
7.3 DETERMINATION OF BOARD TO BE FINAL. All Section 7
adjustments shall be made by the Board, and its determination as to what
adjustments shall be made, and the extent of such adjustments, shall be
final, binding and conclusive. Unless an Optionee agrees otherwise, any
Page 10 - STOCK OPTION PLAN
<PAGE>
change or adjustment to an incentive stock option shall be made in such a
manner so as not to constitute a "modification" as defined in Code Section
424(h) and so as not to cause his or her incentive stock option issued under
this Plan to fail to continue to qualify as an incentive stock option as
defined in Code Section 422(b).
SECTION 8. SECURITIES REGULATION. Shares shall not be issued with
respect to an option granted under this Plan unless the exercise of such
option and the issuance and delivery of such shares pursuant to the exercise
of such option shall comply with all relevant provisions of law, including,
without limitation, any applicable state securities laws, the Securities Act
of 1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the shares
may then be listed, and shall be further subject to the approval of counsel
for the Company with respect to such compliance, including the availability
of an exemption from registration for the issuance and sale of any shares
under this Plan. Inability of the Company to obtain from any regulatory body
having jurisdiction, the authority deemed by the Company's counsel to be
necessary for the lawful issuance and sale of any shares under this Plan or
the unavailability of an exemption from registration for the issuance and
sale of any shares under this Plan shall relieve the Company of any liability
in respect of the nonissuance or sale of such shares as to which such
requisite authority shall not have been obtained.
As a condition to the exercise of an option, the Company may
require the Optionee to represent and warrant at the time of any such
exercise that the shares are being purchased only for investment and without
any present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any relevant
provision of the aforementioned laws. At the option of the Company, a
stop-transfer order against any shares of stock may be placed on the official
stock books and records of the Company, and a legend indicating that the
stock may not be pledged, sold or otherwise transferred unless an opinion of
counsel is provided (concurred in by counsel for the Company) stating that
such transfer is not in violation of any applicable law or regulation, may be
stamped on stock certificates in order to assure exemption from registration.
The Plan Administrator may also require such other action or agreement by the
Optionees as may from time to time be necessary to c omply with the federal
and state securities laws. THIS PROVISION SHALL NOT OBLIGATE THE COMPANY TO
UNDERTAKE REGISTRATION OF THE OPTIONS OR STOCK HEREUNDER.
Should any of the Company's capital stock of the same class as the
stock subject to options granted under this Plan be listed on a national
securities exchange, all stock issued under this Plan if not previously
listed on such exchange shall be authorized by that exchange for listing on
such exchange prior to the issuance of such stock.
SECTION 9. AMENDMENT AND TERMINATION.
9.1 BOARD ACTION. The Board may at any time suspend, amend or
terminate this Plan, provided that except as set forth in Section 7, the
approval of the Company's shareholders is necessary within 12 months before
or after the adoption by the Board of any amendment which will:
Page 11 - STOCK OPTION PLAN
<PAGE>
(a) increase the number of shares which are to be
reserved for the issuance of options under this Plan;
(b) permit the granting of stock options to a class of
persons other than those presently permitted to receive stock options under
this Plan; or
(c) require shareholder approval under applicable law,
including Section 16(b) of the Exchange Act.
Any amendment to this Plan that would constitute a "modification"
to incentive stock options outstanding on the date of such amendment shall
not be applicable to outstanding incentive stock options, but shall have
prospective effect only, unless individual Optionees agree otherwise.
9.2 AUTOMATIC TERMINATION. Unless sooner terminated by the
Board, this Plan shall terminate ten years from the earlier of (a) the date
on which this Plan is adopted by the Board or (b) the date on which this Plan
is approved by the shareholders of the Company. No option may be granted
after such termination or during any suspension of this Plan. The amendment
or termination of this Plan shall not, without the consent of the option
holder, alter or impair any rights or obligations under any option previously
granted under this Plan.
SECTION 10. EFFECTIVENESS OF THIS PLAN. This Plan shall become effective
upon adoption by the Board so long as it is approved by the Company's
shareholders any time within 12 months before or after the adoption of this
Plan.
Page 12 - STOCK OPTION PLAN
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<PERIOD-END> JUN-30-1999
<CASH> 611,534
<SECURITIES> 1,231,421
<RECEIVABLES> 49,635
<ALLOWANCES> 0
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<CURRENT-ASSETS> 1,914,057
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<BONDS> 3,036,639
583,322
0
<COMMON> 1,029,219
<OTHER-SE> (710,206)
<TOTAL-LIABILITY-AND-EQUITY> 4,090,061
<SALES> 0
<TOTAL-REVENUES> 109,243
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<TOTAL-COSTS> 260,826
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<INCOME-PRETAX> (225,051)
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