<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 25, 1999
REGISTRATION NO. 333-71749
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
NEXTLINK COMMUNICATIONS, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 4813 91-1738221
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
------------------------
500 108TH AVENUE N.E., SUITE 2200, BELLEVUE, WASHINGTON 98004, (425) 519-8900
(Address, including ZIP code, and telephone number, including area code, of
the Registrant's principal executive offices)
------------------------
R. BRUCE EASTER JR., ESQ.
500 108TH AVENUE N.E., SUITE 2200
BELLEVUE, WASHINGTON 98004
(425) 519-8900
(Name, address, including ZIP code, and telephone number, including area code,
of agent for service)
------------------------
COPY TO:
BRUCE R. KRAUS, ESQ.
WILLKIE FARR & GALLAGHER
787 SEVENTH AVENUE
NEW YORK, NEW YORK 10019
(212) 728-8000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED OFFER TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE OFFERING AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PRICE(1) OFFERING RICE FEE(2)
<S> <C> <C> <C> <C>
10 3/4% Senior Notes due 2008 $500,000,000 100% $500,000,000 $139,000
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Previously paid.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, FEBRUARY 25, 1999.
THIS INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT OFFER THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
[LOGO]
NEXTLINK COMMUNICATIONS, INC.
EXCHANGE OFFER FOR
10 3/4% SENIOR NOTES DUE 2008
This is an offer to exchange the unregistered NEXTLINK 10 3/4% Notes you now
hold for new, substantially identical notes that will be free of the transfer
restrictions that apply to the old notes. This offer will expire at 5:00 p.m.,
New York City time, on March , 1999, unless we extend it. You must tender your
old notes by the deadline to obtain the liquidity benefits provided by this
exchange offer.
We agreed with the initial purchasers of the old notes to make this offer and
register the issuance of the new notes after they bought the old notes. This
offer is unconditional, and applies to any and all old notes tendered by the
deadline.
The new notes will not trade on any established exchange. The new notes have the
same financial terms and covenants as the old notes, and are subject to the same
business and financial risks. A DESCRIPTION OF THOSE RISKS BEGINS ON PAGE 13.
ABOUT NEXTLINK
NEXTLINK provides telephone and other telecommunications services to small and
medium-sized businesses. Our fiber optic networks and switches deliver an
integrated package of high quality local, long distance and enhanced
telecommunications services at competitive prices.
We plan to substantially extend our ability to connect customers directly to our
networks by offering wireless connectivity capabilities. We are also
implementing a national network strategy that will enable us to offer customers
complete, end-to-end voice and data communications services over facilities we
control.
Our founder and principal shareholder, Craig McCaw, also founded McCaw Cellular
(later acquired by AT&T) and has other substantial interests in
telecommunications businesses.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED
OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
February , 1999
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. We have also filed with the SEC a Registration
Statement on Form S-4, to register the new notes being offered in this
Prospectus. This Prospectus, which forms part of the Registration Statement,
does not contain all of the information included in the Registration Statement.
For further information about NEXTLINK and the new notes offered in this
Prospectus, you should refer to the Registration Statement and its exhibits.
You may read and copy any document we file with the SEC at the SEC's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call
the SEC at 1-800-SEC-0330 for further information on the operation of the Public
Reference Room. We file our SEC materials electronically with the SEC, so you
can also review our filings by accessing the web site maintained by the SEC at
http://www.sec.gov. This site contains reports, proxy and information statements
and other information regarding issuers that file electronically with the SEC.
We remind professional securities dealers of their obligation under the
securities laws to deliver a copy of this Prospectus to anyone who buys new
notes from them until , 1999, which is the 90th day after the date of
this Prospectus. Securities dealers who were initial purchasers of the old notes
and are acting as underwriters of unsold allotments have additional prospectus
delivery requirements.
ii
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS IMPORTANT INFORMATION IN THIS PROSPECTUS, BUT DOES
NOT CONTAIN ALL INFORMATION THAT MAY BE IMPORTANT TO YOU. WE ENCOURAGE YOU TO
READ THE ENTIRE PROSPECTUS.
NEXTLINK
We provide telephone and other telecommunications services to our targeted
customer base of small and medium-sized businesses, using our own local fiber
optic networks and switches wherever practicable. We offer our customers an
integrated package of high quality local, long distance and enhanced
telecommunications services at competitive prices. We also offer customers
dedicated transmission lines for their sole use. In addition, we offer long
distance carriers and other end users direct access to our network. In every
market, our principal competitor is the incumbent local telephone company, which
until recently had a virtual monopoly on providing local voice telephone
services.
We currently operate 22 facilities-based networks, and provide switched
local, long distance and enhanced services in 36 markets in 14 states. We serve
larger markets, including New York, Los Angeles, Chicago, Atlanta, the San
Francisco Bay Area, Denver, Dallas and Miami, medium-sized markets, such as Salt
Lake City and Nashville, and clusters of smaller markets in Orange County,
California and central Pennsylvania. Based on our recent successes in expanding
and operating our existing networks, as well as new opportunities in other
markets, we intend to expand into a number of new markets over the next several
years, including San Diego, Washington, D.C. and Seattle in the first half of
1999.
BUSINESS STRATEGY
We have built a customer-focused, locally-oriented organization dedicated to
providing switched local and long distance telephone services at competitive
prices to small and medium-sized businesses. Our goal is to become a leading
provider of complete, end-to-end voice and data communications services and to
maximize penetration of our targeted customer base. The key components of our
strategy to achieve this goal are:
- DEVELOP HIGH-CAPACITY FIBER OPTIC NETWORKS WITH BROAD MARKET COVERAGE. We
build high-capacity
local networks in the central business districts of our targeted markets
using fiber optic cable bundles, which are capable of carrying high
volumes of voice, data, video and Internet traffic as well as other high
bandwidth services. This enables us to provide direct connections to a
high percentage of commercial buildings and local telephone company
switching offices located near our network. We design our networks to
maximize the proportion of our traffic that is both originated and
terminated on our own networks, to give us higher long-term operating
margins. We currently use leased unbundled loop lines from the ILEC to
connect off-network customers to our network. We are also evaluating
wireless connections between our fiber networks and off-net customers as
an alternative means to connect those customers to our network.
- DEVELOP NATIONAL CITY-TO-CITY LONG HAUL CONNECTIVITY. We are developing a
national strategy that will link our local networks to each other using
our interest in a national fiber optic network that is expected to link 50
cities in the United States and Canada. This network, which is now under
construction, is designed to support voice and data services.
- CONTINUE MARKET EXPANSION. We plan to build our own local facilities-based
networks throughout a majority of the nation's top 30 markets and to
provide service in markets with a total of 27 million addressable business
lines by the end of 2000.
1
<PAGE>
- IMPLEMENT DATA STRATEGY. We are developing plans for the deployment of
data switching and transmission equipment in 1999, including Asynchronous
Transfer Mode (ATM), Internet Protocol (IP) and frame-relay facilities,
and Digital Subscriber Line (DSL) services.
- CONTINUE TO FOSTER DECENTRALIZED LOCAL MANAGEMENT AND CONTROL. We have
recruited experienced entrepreneurs and industry executives as presidents
of each of our regional groups of operating subsidiaries, many of whom
have previously built and led their own start-up telecommunications
businesses. We believe that this local management focus will provide a
critical competitive edge in customer acquisition and retention in each
market.
- FOCUSED SALE EFFORTS. We believe that the incumbent local telephone
companies are less likely to apply significant resources towards retaining
businesses and professional groups that have fewer than 50 access lines,
the group on which we currently focus our sales efforts.
- ASSIGNED CUSTOMER CARE REPRESENTATIVES. We assign a single customer care
representative to each customer. Each representative is responsible for
solving problems and responding to inquires from their assigned customers.
- CONTINOUSLY IMPROVE PROVISIONING. Because the process of the transitioning
a new customer from the incumbent company's network is complex, we
continue to identify and implement practices to make the process rapid and
seamless, including implementation of a comprehensive information
technology platform.
Several recent transactions have laid the foundation for a substantial
expansion of our ability to offer complete, end-to-end voice and data
communications services over our own facilities:
- INTERNEXT. In July 1998, we formed INTERNEXT, a joint venture that will
give us the right to use the national fiber optic network that Level 3
Communications is currently constructing. That network is designed to
cover more than 16,000 route miles, connecting 50 cities in the United
States and Canada.
- WIRELESS CONNECTIVITY TECHNOLOGY. We are in the process of acquiring radio
frequency spectrum covering substantially all of the 30 largest markets in
the United States. We plan to use this spectrum to implement wireless
technology to connect many more customers directly to our local networks.
We already own 50% of NEXTBAND, a joint venture formed with a related
party, which acquired substantial amounts of this spectrum in a recent FCC
auction. We have reached an agreement in principle with our partner to
acquire the remaining 50% of NEXTBAND. In addition, we recently agreed to
acquire WNP Communications, Inc., an unrelated company that acquired
substantial amounts of this spectrum in the FCC auction and was the
leading auction bidder. These transactions are subject to federal
regulatory approvals.
- COVAD STRATEGIC ALLIANCE. On January 4, 1999, we announced a strategic
agreement with Covad Communications, a provider of DSL services. DSL is a
technology that increases the data carrying capacity of copper telephone
lines. This technology will enable customers connected to our network by
an incumbent carrier's copper lines to take advantage of high-speed data
services as well as our own telephone service.
2
<PAGE>
THE EXCHANGE OFFER
<TABLE>
<S> <C>
The Exchange Offer............ This is an offer to exchange the unregistered NEXTLINK
10 3/4% Notes due 2008 that you now hold for new,
substantially identical notes of equal principal amount
whose issuance has been registered with the SEC. The old
notes were issued on November 12, 1998 in a private
offering.
In order to exchange your unregistered notes, you must
follow the instructions contained in this Prospectus and
the accompanying letter of transmittal.
The new notes have the same financial terms and covenants
as the old notes, and are subject to the same business and
financial risks, but will not bear legends restricting
their transfer.
Expiration and Exchange
Dates....................... This offer will expire at 5:00 p.m., New York City time, on
March , 1999, unless we extend it, and we will consummate
the exchange on the next business day.
No Substantial Conditions..... This offer is unconditional (as long as it doesn't violate
the securities laws). The offer applies to any and all old
notes tendered by the deadline.
Withdrawal Rights............. You may withdraw your tender of old notes at any time
before the offer expires.
Federal Income Tax
Consequences................ The exchange will not be a taxable event for United States
federal income tax purposes. You will not recognize any
taxable gain or loss or any interest income as a result of
such exchange.
Representations............... If you desire to participate in the Exchange Offer, you
will be required to make the following representations:
- You are not one of our "affiliates" (as defined in Rule
405 of the Securities Act);
- You are not engaged in, do not intend to engage in, and
have no arrangement or understanding with any person to
participate in, a distribution of the new notes; and
- You are acquiring the new notes in the ordinary course of
your business.
Transfer Restrictions on New
Notes....................... If the representations above are true as applied to you,
you should be able to resell your new notes freely, without
having to deliver a copy of this Prospectus to the
purchaser. Otherwise, prospectus delivery requirements
under the securities laws may apply, and we will not be
responsible if you violate those requirements.
Broker-dealers who exchange old notes they acquired for
their own account through market-making or other trading
activities must acknowledge their obligation to deliver a
copy of this Prospectus in connection with any resale of
the new notes.
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
Failure to Exchange will
affect you adversely........ We agreed with the initial purchasers of the old notes to
make this exchange offer in order to provide noteholders
with the opportunity to obtain unlegended securities. Once
the exchange offer is over, you will no longer have any
registration or exchange rights, and, if you have failed to
tender any of your old notes, they will remain subject to
significant restrictions on transfer. If there is any
trading market for old notes after the exchange offer, old
notes are likely to trade at a discount from new notes, due
to these restrictions.
</TABLE>
THE NEW NOTES
The new notes have the same financial terms and covenants as the old notes,
which are as follows:
<TABLE>
<S> <C>
Issuer........................ NEXTLINK Communications, Inc.
Maturity...................... November 15, 2008.
Interest...................... Interest accrues from November 12, 1998 at the rate of
10 3/4% per year, payable semi-annually in arrears on each
May 15 and November 15, beginning on May 15, 1999.
Ranking....................... The new notes are unsecured indebtedness of NEXTLINK.
Optional Redemption........... On or after November 15, 2003, we will have the right to
redeem any or all of the new notes at their principal
amount plus accrued interest and a premium initially equal
to 5.375% and declining thereafter.
In addition, prior to November 15, 2001, we have the right
to use the net cash proceeds of qualifying equity offerings
to redeem up to 33 1/3% of the new notes originally
outstanding at their principal amount plus accrued interest
and a premium of 12.75%. For more information, see
"Description of the New Notes--Optional Redemption".
Change of Control............. If an event treated as a change of control of NEXTLINK
occurs, NEXTLINK must make an offer to purchase any and all
of the new notes then outstanding from you at a purchase
price equal to 101% of their aggregate principal amount,
plus accrued and unpaid interest, if any, to the date of
purchase.
Covenants..................... The indenture under which the old notes have been and the
new notes are being issued contains covenants for your
benefit which, among other things and subject to important
exceptions, restrict our ability and the ability of our
subsidiaries to:
- incur indebtedness;
- make certain payments;
- issue capital stock of certain of our subsidiaries;
- repurchase our stock or subordinated indebtedness;
- enter into transactions with stockholders and affiliates;
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
- create liens;
- pay dividends or make other distributions;
- engage in sale-leaseback transactions; and
- consolidate, merge or sell all or substantially all of
our assets or the assets of our subsidiaries.
The indenture allows modification and amendment of these
and other covenants by a vote of holders of a majority in
aggregate principal amount of the notes, subject to
exceptions described in the indenture. Also, holders of a
majority in aggregate principal amount of the notes may
waive our compliance with certain other restrictive
covenants in the indenture.
</TABLE>
For additional information regarding the notes, see "Description of the
Notes" and "Certain United States Federal Income Tax Consequences."
RISK FACTORS
See "Risk Factors" immediately following this summary for a discussion of
risks relating to the new notes (all of which apply to the old notes, as well.)
5
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS)
We have summarized below our historical consolidated financial data as of
and for the years ended December 31, 1996 and 1997. This data is derived from
and qualified by reference to our audited Consolidated Financial Statements
included in our 1997 Form 10-KSB, which is incorporated in this Prospectus by
reference. Our Consolidated Financial Statements as of and for the years ended
December 31, 1996 and 1997 have been audited by Arthur Andersen LLP, independent
public accountants.
You should be aware that the operating results shown below for the three and
nine-month periods ended September 30, 1998 may not be indicative of what actual
results will be for the full year ending December 31, 1998. The operating data
presented below are derived from our records.
All of the data should be read in conjunction with and are qualified by
reference to "Management's Discussion and Analysis of Financial Condition and
Results of Operations," included in our 1997 Form 10-KSB and our 1998 Form
10-Qs. All data should also be read in conjunction with our audited and
unaudited Consolidated Financial Statements and notes thereto, which are also
included in our 1997 Form 10-KSB and our 1998 Form 10-Qs. Our 1997 Form 10-KSB
and our 1998 Form 10-Qs are incorporated in this Prospectus by reference.
Our financial results for the years ended December 31, 1996 and 1997 include
the results of ITC, which was acquired in December 1996, and Linkatel Pacific,
L.P., which was acquired in February 1997, from their respective dates of
acquisition.
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS ENDED
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
-------------------- -------------------- --------------------
1996 1997 1997 1998 1997 1998
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue..................................................... $ 25,686 $ 57,579 $ 35,058 $ 96,392 $ 13,390 $ 37,817
Costs and expenses:
Operating................................................. 25,094 54,031 35,857 85,448 13,916 32,828
Selling, general and administrative....................... 31,353 75,732 48,421 109,599 19,318 41,565
Deferred compensation..................................... 9,914 3,247 1,449 3,104 334 1,720
Depreciation and amortization............................. 10,340 27,190 14,460 37,141 5,529 14,778
--------- --------- --------- --------- --------- ---------
Loss from operations........................................ (51,015) (102,621) (65,129) (138,900) (25,707) (53,074)
Interest income............................................. 10,446 27,827 15,560 56,116 4,868 21,559
Interest expense............................................ (30,876) (54,495) (32,787) (99,050) (10,746) (37,434)
--------- --------- --------- --------- --------- ---------
Loss before minority interests.............................. (71,445) (129,289) (82,356) (181,834) (31,585) (68,949)
Minority interests.......................................... 344 285 -- -- -- --
--------- --------- --------- --------- --------- ---------
Net loss.................................................... $ (71,101) $(129,004) $ (82,356) $(181,834) $ (31,585) $ (68,949)
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
OTHER DATA:
Ratio of earnings to fixed charges(1)....................... -- -- -- -- -- --
EBITDA(2)................................................... $ (30,761) $ (72,184) $ (49,220) $ (98,655) $ (19,844) $ (36,576)
Summary Cash Flow Information:
Net cash used in operating activities..................... (40,563) (94,495) (59,233) (104,770) (13,436) (25,717)
Net cash provided by (used in) investing activities....... (227,012) (470,195) (141,490) (793,401) (36,032) 117,902
Net cash provided by (used in) financing activities....... 343,032 876,957 268,004 901,447 (5,207) (265)
Capital expenditures, including acquisitions of businesses
(net of cash acquired) and investments in affiliates
(3)..................................................... 85,872 232,069 130,727 209,136 36,032 82,484
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
AS OF DECEMBER 31, -------------------------
-------------------- AS ADJUSTED
1996 1997 ACTUAL (4)
--------- --------- --------- --------------
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities............... $ 124,520 $ 742,357 $1,176,843 $1,665,343
Pledged securities(5).......................................... 101,438 62,610 42,992 42,992
Working capital................................................ 137,227 741,685 1,160,244 1,648,744
Property and equipment, net.................................... 97,784 253,653 448,550 448,550
Total assets................................................... 390,683 1,217,153 2,026,178 2,526,178
Long-term debt and capital lease obligations, less current
portion...................................................... 356,262 757,640 1,518,167 2,018,167
14% Preferred Shares, net of issuance costs.................... -- 313,319 349,174 349,174
6 1/2% Cumulative Convertible Preferred Stock, net of issuance
costs........................................................ -- -- 194,084 194,084
Equity units subject to redemption............................. 4,950 -- -- --
Class B common stock subject to redemption..................... -- 4,950 -- --
Total shareholders' equity (deficit)........................... (18,654) 68,460 (137,828) (137,828)
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF AS OF AS OF AS OF
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1997 1997 1998 1998 1998
------------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
OPERATING DATA(6):
Route miles(7)................................. 1,757 1,897 2,036 2,099 2,150
Fiber miles(8)................................. 124,399 133,224 141,788 152,225 158,987
On-net buildings connected(9).................. 479 513 571 658 736
Switches installed(10)......................... 13 13 14 17 18
Access lines in service(11).................... 30,944 50,131 72,834 102,887 134,107
Employees...................................... 1,027 1,327 1,499 1,765 2,065
</TABLE>
- ------------------------------
(1) For the years ended December 31, 1996 and 1997, and for the three and
nine-month periods ended September 30, 1997 and 1998, earnings were
insufficient to cover fixed charges during the periods presented by the
amount of loss before minority interests of $71,445, $129,289, $31,585,
$82,356, $68,949 and $181,834, respectively.
(2) EBITDA consists of net loss before net interest expense, minority interests,
depreciation, amortization and deferred compensation expense. EBITDA is
commonly used to analyze companies on the basis of operating performance,
leverage and liquidity. While EBITDA should not be construed as a substitute
for operating income or a better measure of liquidity than cash flow from
operating activities, which are determined in accordance with generally
accepted accounting principles, it is included herein to provide additional
information with respect to the ability of the Company to meet future debt
service, capital expenditures and working capital requirements.
(3) Total capital expenditures, acquisitions, and investments in affiliates were
funded as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
-------------------- -------------------- --------------------
1996 1997 1997 1998 1997 1998
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Cash expended..................................... $ 72,042 $ 210,545 $ 130,727 $ 209,136 $ 36,032 $ 82,484
Debt issued and assumed........................... 8,228 5,000 -- -- -- --
Equity issued..................................... 5,602 16,524 -- -- -- --
--------- --------- --------- --------- --------- ---------
Total............................................. $ 85,872 $ 232,069 $ 130,727 $ 209,136 $ 36,032 $ 82,484
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
(4) As adjusted to give effect to the net proceeds to the Company of the sale of
the Old Notes.
(5) Pledged U.S. Treasury securities, which represent funds sufficient to
provide for payment in full of interest through April 15, 1999 on the
Company's 12 1/2% Senior Notes due April 15, 2006.
(6) The operating data include the statistics of the Las Vegas network, which
the Company manages and in which the Company has a 40% membership interest.
(7) Route miles refers to the number of miles of the telecommunications path in
which the Company-owned or leased fiber optic cables are installed.
(8) Fiber miles refers to the number of route miles installed along a
telecommunications path, multiplied by the Company's estimate of the number
of fibers along that path.
(9) Represents buildings physically connected to the Company's networks,
excluding those connected by unbundled ILEC facilities. As of September 30,
1998, the Company had 10,424 buildings physically connected to its networks,
including those buildings connected through unbundled ILEC facilities.
(10) All switch counts include two long distance switches acquired in the ITC
acquisition as well as the switch installed in NEXTLAB, the Company's
testing facility.
(11) Represents the number of access lines in service for which the Company is
billing services, including those lines which are provided through resale of
Centrex services. The Company serviced 3,312 resold Contrex access lines as
of September 30, 1998. The Company defines an access line as a telephone
connection between a customer purchasing local telephone services and
NEXTLINK. 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.
As of December 31, 1998, the Company had 174,182 access lines installed.
7
<PAGE>
RISK FACTORS
The new notes, like the old notes, entail the following risks:
WE HAVE SUBSTANTIAL EXISTING DEBT AND WILL INCUR SUBSTANTIAL DEBT IN THE FUTURE
As of September 30, 1998, NEXTLINK had four issues of senior notes
outstanding, totaling $1,503.3 million in principal amount, as well as
approximately $60.2 million in miscellaneous debt obligations of our
subsidiaries. On November 12, 1998, we issued the old notes, which have a
principal amount of $500 million. Our indentures permit us to incur substantial
additional debt, and we fully expect to borrow substantial additional funds
(which may include secured borrowings) during the next few years. For more
information about leverage, see "Description of the Notes", "Capitalization" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
OUR CASH FLOW AND OPERATING PROFITS HAVE BEEN NEGATIVE AND WILL CONTINUE TO BE
NEGATIVE
For the year ended December 31, 1997, we had a net loss of $129.0 million
and negative cash flow from operations of $94.5 million. For the nine-month
period ended September 30, 1998, we had a net loss of $181.8 million and
negative cash flow from operations of $104.8 million. For 1999, we will require
approximately $157.3 million to service our debt obligations and make payments
of dividends on preferred stock, if we incur no additional debt and issue no
additional preferred stock. Anticipated future borrowings will increase our debt
service requirements.
Our plan to develop our businesses and expand our networks has required, and
will continue require, substantial capital expenditures, a substantial portion
of which we must make before we may realize any revenue from any particular
network. We will continue to have negative cash flow and operating losses until
we begin to realize adequate revenues. We cannot assure you, however, that we
will ever establish an adequate revenue base to produce an operating profit or
generate adequate cash flow to provide future capital expenditures.
For more information, see "Selected Historical Consolidated Financial and
Operating Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
OUR BUSINESS PLAN WILL REQUIRE SIGNIFICANT CAPITAL EXPENDITURES
We expect to make significant capital expenditures in the future. Future
uses of funds are likely to include:
- the construction and expansion of our existing networks and new networks;
- the funding of INTERNEXT and the construction and deployment of facilities
associated with INTERNEXT's network.
- the construction and deployment of facilities associated with local
multipoint distribution service (LMDS) spectrum and payment of the cash
portion of the purchase price in the WNP and NEXTBAND acquisitions;
- the introduction of data transmission service offerings, which may include
the purchase of data switching and transmission equipment, including ATM,
IP, DSL and frame-relay facilities;
- the potential acquisition of other telecommunications companies;
- continued development and implementation of a comprehensive information
technology platform.
8
<PAGE>
WE MAY NOT BE SUCCESSFUL IN RAISING ADDITIONAL CAPITAL
Our anticipated future capital requirements may exceed the $1,176.8 million
in cash and marketable securities we had on hand as of September 30, 1998, plus
the $488.5 million in net proceeds from the sale of the old notes. If so, we may
enter into joint ventures to help fund these expenditures, and otherwise will
need to fund them from the proceeds of:
- future credit facilities;
- public or private sales of additional debt securities;
- the public or private sale or issuance of equity securities; and
- other financing transactions.
We cannot assure you that we will be successful in raising sufficient
additional capital on favorable terms, if at all, to implement our present and
future plans. If we fail to raise sufficient capital, we may be required to
delay or abandon some of our planned future expansion or expenditures, which
could have a material adverse effect on our growth and our ability to compete in
the telecommunications services industry, and could even result in a payment
default on our existing debt.
For more information, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
THE NOTES THAT YOU HOLD ARE STRUCTURALLY SUBORDINATED TO THE OBLIGATIONS OF OUR
SUBSIDIARIES
NEXTLINK is a holding company that operates only through subsidiaries.
Because our cash flows from operations arise at the subsidiary level, all of our
senior notes are structurally subordinated to the debts of our subsidiaries.
Creditors of any NEXTLINK subsidiary, including trade creditors, have and will
have claims that are senior to the senior notes with respect to the assets of
that subsidiary. In addition, some of our subsidiaries are subject to capital
and other lease obligations.
We depend upon cash payments from our subsidiaries to meet our fixed-charge
payment obligations, including our obligation to pay you as a holder of notes.
We cannot assure you that our subsidiaries will have sufficient cash to make any
payments to us, and their cash flows operations are currently negative. The
indentures generally permit us to invest proceeds from the sale of our Senior
Notes in subsidiaries and joint ventures (such as INTERNEXT) that we manage.
THE NOTES THAT YOU HOLD ARE UNSECURED
The senior notes are not secured by any of the assets of NEXTLINK or its
subsidiaries. The indentures relating to the senior notes permit us to incur
secured debt, including:
- unlimited amounts of purchase money indebtedness; and
- indebtedness up to the greater of (1) $175 million and (2) 85% of the
Eligible Receivables (as defined in the indenture), which may be used for
any purpose.
Because the senior notes are not secured, any NEXTLINK secured creditor will
have claims that are prior to the claims of the senior noteholders.
9
<PAGE>
WE MUST OVERCOME NUMEROUS CHALLENGES TO IMPLEMENT OUR GROWTH STRATEGY
Providing local switched telephone service is a challenging, multi-faceted
task that may present obstacles in the future. Here are some of the key
challenges we face:
- SWITCH INSTALLATION. We cannot assure you that we will be able to install
as scheduled and successfully operate the required switches, fiber optic
cable and associated electronics necessary to implement our business plan
in all of our markets.
- INTERCONNECTION AGREEMENTS. An interconnection agreement with the
incumbent local telephone company is essential to our operations in any
market. Otherwise, we would not be able to connect calls between our
on-net customers and non-customers. Although we have certain statutory
rights to interconnection agreements, we cannot assure you that we will be
able to negotiate (or renegotiate) interconnection agreements in all of
our markets on favorable terms.
- ORDERING, PROVISIONING AND BILLING. Switching over a customer from one
local carrier to another is difficult--far more so than changing long
distance carriers. This process is only partly within our control; the
rest depends on cooperation from dominant local carrier, which is our main
competitor. Practices, policies and technical requirements vary by
locality. If we are unable to switch customers to our networks quickly and
conveniently, our business will suffer.
- ACQUISITIONS. In addition to expansion through internal development, we
may expand our networks and service offerings through acquisitions. We
cannot assure you that any such acquisition will be on favorable terms or
will be successfully integrated into our operations.
- DATA STRATEGY. We are still developing and defining material aspects of
our plan for the deployment of data switching and transmission equipment
in 1999, including our relationship with Covad. Data switching and
transmission technology is changing at a rapid pace, posing substantial
technology risk. In addition, to the extent that we utilize Covad and its
DSL technology to implement this strategy, we are subject to risks related
to DSL technology, including the ability of Covad's DSL networks to
perform as planned and the growth in demand for DSL-based services.
- INTERNEXT. We are still developing and defining our long-haul strategy,
and have not finalized our plans for utilizing the national long-haul
network that INTERNEXT will provide. Any such strategy will require us to
develop new areas of expertise.
The construction of the INTERNEXT national fiber optic network is being
managed by and is under the control of an unrelated third party, Level 3.
We cannot assure you that the Level 3 network will be completed, that it
will be placed in service within the expected time frame or that it will
contain the contemplated number of fibers and conduits throughout the
entire network. Although we are not generally required to pay for access
to segments of the Level 3 network until operational, failure of Level 3
to complete its network would delay implementation of our long-haul
strategy.
- WIRELESS CONNECTIVITY. LMDS is a new service, and major telecommunications
equipment manufacturers have yet to introduce infrastructure products for
the LMDS frequency band. As a result, implementation of LMDS systems could
be subject to unforeseen delays, costs and possible quality and
implementation issues. We cannot assure you that we will develop and
implement a successful and profitable fixed wireless strategy, or that
implementation of our fixed wireless strategy will not involve substantial
expense or delay.
Our acquisition of WNP, and the half of NEXTBAND we do not already own,
are subject to regulatory approvals.
10
<PAGE>
WE NEED TO OBTAIN AND MAINTAIN PERMITS AND RIGHTS OF WAY
In order for us to acquire and develop our fiber networks, we must obtain
local franchises and other permits, as well as rights-of-way and fiber capacity
from entities such as incumbent local telephone companies and other utilities,
railroads, long distance companies, state highway authorities, local governments
and transit authorities. We cannot assure you that we will be able to maintain
our existing franchises, permits and rights-of-way that we need to implement our
business. Nor can we assure you that we will be able to obtain and maintain the
other franchises, permits and rights that we require. A sustained and material
failure to obtain or maintain these rights could materially adversely affect our
business in the affected metropolitan area.
COMPETITION IN THE TELECOMMUNICATIONS INDUSTRY IS INTENSE
In each of the markets served by our networks, we compete principally with
the incumbent telephone company in that area. These dominant carriers, most of
which are Bell companies that AT&T divested in 1984, are a formidable
competitors. They are already established providers of local telephone services
to all or virtually all telephone subscribers within their respective service
areas with physical connections to their premises that are expensive and
difficult to duplicate. In addition, they have long-standing relationships with
regulatory authorities at the federal and state levels. We cannot assure you
that we will be able to overcome these advantages and compete successfully with
the incumbent local exchange carriers.
Federal and state regulations give us some rights against the monopoly power
of the dominant carriers in our markets, but we cannot assure you that those
rights will be sufficient to permit us to compete effectively, particularly if
the dominant carriers, which are regulated as common carriers, gain additional
flexibility to lower prices selectively in response to competition.
We also face competition with current and potential market entrants,
including long distance carriers seeking to enter, reenter or expand entry into
the local exchange marketplace such as AT&T, MCI WorldCom and Sprint. In
addition, we expect competition from other companies like ourselves, cable
television companies, electric utilities, microwave carriers, wireless telephone
system operators and private networks built by large end-users. We cannot assure
you that we will be able to compete effectively with these industry
participants.
We also compete with long distance carriers in the provision of long
distance services. Although the long distance market is dominated by three major
competitors, AT&T, MCI WorldCom and Sprint, hundreds of other companies also
compete in the long distance marketplace. We cannot assure you that we will be
able to effectively compete with any of these industry participants.
You should be aware that many of our current and potential competitors have
financial, personnel and other resources, including brand name recognition,
substantially greater than those of the Company, as well as other competitive
advantages over the Company.
OUR COMPANY AND OUR INDUSTRY IS HIGHLY REGULATED
We are subject to varying degrees of federal, state and local regulation,
and our ability to compete effectively is dependent on our success in regulatory
proceedings. In each state in which we desire to offer our services, we are
required to obtain authorization from the appropriate state commission. Although
we have received authorization for each of our operational markets, we cannot
assure you that we will receive authorization for markets to be launched in the
future. For more information, see "Regulation."
With respect to the LMDS spectrum granted to NEXTBAND on July 17, 1998,
another LMDS auction participant filed a petition for reconsideration of the
licenses granted to NEXTBAND,
11
<PAGE>
requesting the FCC to revoke and reauction the licenses. Because the matter
remains pending, we cannot assure you that the FCC will not grant the petitions
and relief sought.
WE FACE SUBSTANTIAL TECHNOLOGY RISK AND RISK OF OBSOLESCENCE
The telecommunications industry is subject to rapid and significant changes
in technology. These changes include areas such as wireline and wireless
transmission technologies, switching technologies and data transmission
technologies, including ATM, frame-relay and IP technologies. You should be
aware that the technologies that we invest in may become obsolete. In addition,
we cannot assure you that the technologies that we choose to invest in will lead
to successful implementation of our business plan.
WE MAY BE REQUIRED TO PAY PATENT LICENSING FEES
From time to time we receive requests to consider licensing certain patents
held by third parties that may have bearing on our interactive voice response
("IVR") services. We consider such requests on their merits. Should we be
required to pay license fees in the future, such payments, if substantial, could
have a material adverse effect on our results of operations.
WE DEPEND ON KEY PERSONNEL AND QUALIFIED TECHNICAL STAFF
Our businesses are managed by a small number of key executive officers. If
we lose certain of these executive officers, there could be a material adverse
effect on the Company. You should be aware that most of our executive officers
and the presidents of our regional groups of operating subsidiaries do not have
employment agreements.
We believe that a critical component for our success will be the attraction
and retention of qualified professional and technical personnel. We expect to
continue to experience significant competition in the attraction and retention
of personnel who possess the skill sets that we seek.
Because we have many operating subsidiaries and decentralized management, we
believe that our future success will depend in large part on our ability to
develop a large and sophisticated sales force and our ability to attract and
retain highly skilled and qualified personnel for each of subsidiaries.
OUR QUARTERLY OPERATING RESULTS MAY VARY SIGNIFICANTLY
We anticipate that our operating results will vary significantly from period
to period as a result of the significant expenses associated with the expansion
and development of our networks and services. This variability may affect our
ability to service our debt, including our senior notes. For more information,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
CRAIG O. MCCAW, WHO CONTROLS APPROXIMATELY 59% OF NEXTLINK, MAY HAVE INTERESTS
WHICH ARE ADVERSE TO YOUR INTERESTS
Craig O. McCaw, primarily through his majority ownership and control of
Eagle River Investments, LLC, controls approximately 59% of NEXTLINK's total
voting power. As a result, Mr. McCaw has the ability to control the direction
and future operations of NEXTLINK. In addition to his investment in NEXTLINK
through Eagle River, Mr. McCaw has significant investments in other
communications companies, including Nextel, Teledesic Corporation and INTERNEXT,
some of which could compete with us or act as one of our suppliers of certain
telecommunications services. You should be aware that we do not have a
noncompetition agreement with either Mr. McCaw or Eagle River. Mr. McCaw is not
bound by any contracts with NEXTLINK restricting his future sales of our common
stock.
12
<PAGE>
THERE IS NO PUBLIC MARKET FOR THE NEW NOTES; THE NOTE PRICE MAY BE VOLATILE
The new notes are new securities for which there is currently no market. We
do not intend to apply for listing of the new notes on any securities exchange
or for the inclusion of the new notes in any automated quotation system.
Accordingly, we cannot assure you that a liquid market for the new notes will
develop. If a market for the new notes does develop, the new notes could trade
at prices that may be higher or lower than their face amount depending upon many
factors, including prevailing interest rates, our operating results and the
markets for similar securities. Historically, the market for non-investment
grade debt has been subject to disruptions that have caused substantial
volatility in the prices of securities similar to the new notes. Any market for
the new notes would likely be subject to similar volatility.
WE MAY FACE RISKS ASSOCIATED WITH YEAR 2000 ISSUES
Many computer systems and software programs will not function properly in
the year 2000 and beyond because of a once common programming standard which
used two digits instead of four digits to signify a year. These computer systems
and software programs read the year 1999 as "99" and not "1999". Because of
this, the year 2000 will appear as the year 1900, which could result in system
failures or disruptions of operations. This problem is ofter referred to as the
"Year 2000" issue.
If we are unable to remediate a material Year 2000 problem, we could
experience an interruption or failure of our business operations. Likewise, if
vendors, customers, or local and interexchange carriers or Internet service
providers with which we interchange traffic are unable to remediate a material
Year 2000 problem, they could experience an interruption or failure of their
business operations.
THIS PROSPECTUS INCLUDES FORWARD-LOOKING STATEMENTS
Certain 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). 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:
- the number of markets we expect to serve by the end of 2000, the expected
number of addressable business lines in markets in which we currently
provide service and the markets in which we expect to provide service by
the end of 2000;
- the basis by which we evaluate entry into markets;
- the participation by other entities in certain joint ventures, and
acquisitions of or investments in other businesses by NEXTLINK and
financial matters related thereto;
- our expectations regarding margins from our chosen market segments,
contributions to cash flows, financial performance, and revenues from
local, long distance and dedicated services as a component of total
revenues;
- our expectations regarding our ability to attract and retain customers;
- our beliefs regarding certain competitive advantages, including that of
our management structure and provisioning processes and systems;
- our expectation regarding the size of our sales and customer care forces;
- our belief regarding traffic flow over our networks and the effects and
benefits of high capacity networks with broad coverage based on a uniform
technology platform;
13
<PAGE>
- our plans to install additional switches and data networking capabilities,
including frame-relay, IP and ATM facilities;
- our plans regarding the deployment of DSL technology;
- our anticipated development of and entry into new markets and market
expansion (including the timing thereof) and the means to accomplish such
development and expansion;
- our plans regarding LMDS technology;
- 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;
- our beliefs regarding the challenges to implement our growth strategy;
- statements with respect to our Year 2000 project; and
- other statements contained in this prospectus regarding matters that are
not historical facts.
We wish to caution you that these forward-looking statements are only
predictions. Actual events or results may differ materially as a result of risks
that we face, including those set forth herein under "Risk Factors". These are
representative of factors that could affect the outcome of the forward-looking
statements.
14
<PAGE>
ABOUT NEXTLINK
NEXTLINK Communications, Inc. is a corporation organized under the laws of
the State of Delaware. NEXTLINK Communications, L.L.C., a predecessor to the
Company, was organized on September 16, 1994, to provide local facilities-based
telecommunications services with a focus on delivering switched services to
commercial customers. On January 31, 1997, NEXTLINK Communications, L.L.C. was
merged with and into NEXTLINK Communications (Washington), Inc. On June 4, 1998,
NEXTLINK Communications (Washington), Inc. merged with and into what is now
NEXTLINK Communications, Inc., a Delaware corporation. The principal executive
offices of the Company are located at 500 108th Avenue N.E., Suite 2200,
Bellevue, Washington 98004. The telephone number is (425) 519-8900.
Except as otherwise required by the context, references in this Prospectus
to "we," "us," "NEXTLINK," or the "Company" refer to NEXTLINK Communications,
Inc., its subsidiaries and its 40% interest in Telecommunications of Nevada, LLC
and gives effect to our June 4, 1998 reincorporation from a Washington
corporation to a Delaware corporation. We account for our investment in
Telecommunications of Nevada, LLC using the equity method. All of our
operational statistics in this Prospectus include 100% of the operational
statistics of Telecommunications of Nevada, LLC. All of our financial and
operational data for periods prior to January 31, 1997 relate to NEXTLINK
Communications, L.L.C., our predecessor entity. The term "old notes" refers to
the 10 3/4% Senior Notes due 2008 that were issued on November 12, 1998. The
term "new notes" refers to our 10 3/4% Senior Notes due 2008 we will issue under
this Exchange Offer. The term "notes" refers to the old notes and the new notes,
collectively. All capitalized terms used in this Prospectus not otherwise
defined herein have the meanings ascribed to them in the indenture pursuant to
which the New Notes will be issued (the "Indenture").
USE OF PROCEEDS
NEXTLINK will not receive any cash proceeds from the issuance of the new
notes as described in this prospectus. NEXTLINK will receive in exchange old
notes in like principal amount. The old notes surrendered in exchange for the
new notes will be retired and canceled and cannot be reissued. Accordingly, the
issuance of the new notes will not result in any change in the indebtedness of
NEXTLINK.
15
<PAGE>
CAPITALIZATION
(Dollars in thousands, except per share amounts)
The following table sets forth as of September 30, 1998, the actual
capitalization of the Company and the capitalization of the Company as adjusted
to reflect the sale of the Old Notes. This table should be read in conjunction
with the Selected Historical Consolidated Financial and Operating Data included
elsewhere in this Prospectus, and the audited and unaudited Consolidated
Financial Statements and notes thereto included in the 1997 Form 10-KSB and the
1998 Form 10-Qs, each of which is incorporated herein by reference.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
--------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
------------ ------------
Cash, cash equivalents and marketable securities...................................... $ 1,176,843 $ 1,665,343
Pledged securities(1)................................................................. 42,992 42,992
------------ ------------
Total............................................................................. $ 1,219,835 $ 1,708,335
------------ ------------
------------ ------------
Current portion of long-term obligations.............................................. $ 2,721 $ 2,721
Capital lease obligations, less current portion....................................... 12,183 12,183
12 1/2% Senior Notes due 2006......................................................... 350,000 350,000
9 5/8% Senior Notes due 2007.......................................................... 400,000 400,000
9% Senior Notes due 2008.............................................................. 334,362 334,362
9.45% Senior Discount Notes due 2008.................................................. 418,901 418,901
10 3/4% Senior Notes due 2008......................................................... -- 500,000
------------ ------------
Total debt........................................................................ 1,518,167 2,018,167
------------ ------------
Redeemable Preferred Stock, par value $0.01 per share, 25,000,000 shares authorized,
net of issuance costs:
14% Preferred Shares, 7,009,348 shares issued and outstanding..................... 349,174 349,174
6 1/2% Cumulative Convertible Preferred Stock, 4,000,000 shares issued and
outstanding..................................................................... 194,084 194,084
Shareholders' deficit:
Common Stock, par value $.02 per share, stated at amounts paid in; Class A,
110,334,000 shares authorized, 20,830,169 issued and outstanding; Class B,
44,133,600 shares authorized, 33,133,502 shares issued and outstanding(2)......... 352,018 352,018
Deferred compensation............................................................... (12,894) (12,894)
Accumulated deficit................................................................. (476,952) (476,952)
------------ ------------
Total shareholders' deficit....................................................... (137,828) (137,828)
------------ ------------
Total capitalization.............................................................. $ 1,923,597 $ 2,423,597
------------ ------------
------------ ------------
</TABLE>
- ------------------------
(1) Pledged U.S. Treasury securities, which represent funds sufficient to
provide for payment in full of interest through April 15, 1999 on the
Company's 12 1/2% Senior Notes due April 15, 2006.
(2) Issued and outstanding does not include 7,938,774 and 654,858 shares of
Class A Common Stock and Class B Common Stock, respectively, issuable upon
exercise of outstanding options.
16
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
(Dollars in thousands)
We have summarized below our historical consolidated financial data as of
and for the years ended December 31, 1996 and 1997. This data is derived from
and qualified by reference to our audited Consolidated Financial Statements
included in our 1997 Form 10-KSB, which is incorporated in this Prospectus by
reference. Our Consolidated Financial Statements as of and for the years ended
December 31, 1996 and 1997 have been audited by Arthur Andersen LLP, independent
public accountants.
You should be aware that the operating results shown below for the three and
nine-month periods ended September 30, 1998 may not be indicative of what actual
results will be for the full year ending December 31, 1998. The operating data
presented below are derived from our records.
All of the data should be read in conjunction with and are qualified by
reference to "Management's Discussion and Analysis of Financial Condition and
Results of Operations," included in our 1997 Form 10-KSB and our 1998 Form
10-Qs. All data should also be read in conjunction with our audited and
unaudited Consolidated Financial Statements and notes thereto, which are also
included in our 1997 Form 10-KSB and our 1998 Form 10-Qs. Our 1997 Form 10-KSB
and our 1998 Form 10-Qs are incorporated in this Prospectus by reference.
Our financial results for the years ended December 31, 1996 and 1997 include
the results of ITC, which was acquired in December 1996, and Linkatel Pacific,
L.P., which was acquired in February 1997, from their respective dates of
acquisition.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED NINE MONTHS ENDED ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
-------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
1996 1997 1997 1998 1997 1998
--------- --------- --------- --------- --------- ---------
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue......................................... $ 25,686 $ 57,579 $ 35,058 $ 96,392 $ 13,390 $ 37,817
Costs and expenses:
Operating..................................... 25,094 54,031 35,857 85,448 13,916 32,828
Selling, general and administrative........... 31,353 75,732 48,421 109,599 19,318 41,565
Deferred compensation......................... 9,914 3,247 1,449 3,104 334 1,720
Depreciation and amortization................. 10,340 27,190 14,460 37,141 5,529 14,778
--------- --------- --------- --------- --------- ---------
Loss from operations............................ (51,015) (102,621) (65,129) (138,900) (25,707) (53,074)
Interest income................................. 10,446 27,827 15,560 56,116 4,868 21,559
Interest expense................................ (30,876) (54,495) (32,787) (99,050) (10,746) (37,434)
--------- --------- --------- --------- --------- ---------
Loss before minority interests.................. (71,445) (129,289) (82,356) (181,834) (31,585) (68,949)
Minority interests.............................. 344 285 -- -- -- --
--------- --------- --------- --------- --------- ---------
Net loss........................................ $ (71,101) $(129,004) $ (82,356) $(181,834) $ (31,585) $ (68,949)
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
OTHER DATA:
Ratio of earnings to fixed charges(1)........... -- -- -- -- -- --
EBITDA(2)....................................... $ (30,761) $ (72,184) $ (49,220) $ (98,655) $ (19,844) $ (36,576)
Summary Cash Flow Information:
Net cash used in operating activities......... (40,563) (94,495) (59,233) (104,770) (13,436) (25,717)
Net cash provided by (used in) investing
activities.................................. (227,012) (470,195) (141,490) (793,401) (36,032) 117,902
Net cash provided by (used in) financing
activities.................................. 343,032 876,957 268,004 901,447 (5,207) (265)
Capital expenditures, including acquisitions of
businesses (net of cash acquired) and
investments in affiliates(3).................. 85,872 232,069 130,727 209,136 36,032 82,484
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
AS OF
AS OF SEPTEMBER 30, 1998
DECEMBER 31, ----------------------
-------------------- AS
1996 1997 ACTUAL ADJUSTED(4)
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities.................. $ 124,520 $ 742,357 $1,176,843 $1,665,343
Pledged securities(5)............................................. 101,438 62,610 42,992 42,992
Working capital................................................... 137,227 741,685 1,160,244 1,648,744
Property and equipment, net....................................... 97,784 253,653 448,550 448,550
Total assets...................................................... 390,683 1,217,153 2,026,178 2,526,178
Long-term debt and capital lease obligations, less current
portion......................................................... 356,262 757,640 1,518,167 2,018,167
14% Preferred Shares, net of issuance costs....................... -- 313,319 349,174 349,174
6 1/2% Cumulative Convertible Preferred Stock, net of issuance
costs........................................................... -- -- 194,084 194,084
Equity units subject to redemption................................ 4,950 -- -- --
Class B common stock subject to redemption........................ -- 4,950 -- --
Total shareholders' equity (deficit).............................. (18,654) 68,460 (137,828) (137,828)
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF AS OF AS OF AS OF
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1997 1997 1998 1998 1998
------------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
OPERATING DATA(6):
Route miles(7)................................. 1,757 1,897 2,036 2,099 2,150
Fiber miles(8)................................. 124,399 133,224 141,788 152,225 158,987
On-net buildings connected(9).................. 479 513 571 658 736
Switches installed(10)......................... 13 13 14 17 18
Access lines in service (11)................... 30,944 50,131 72,834 102,887 134,107
Employees...................................... 1,027 1,327 1,499 1,765 2,065
</TABLE>
- ------------------------
(1) For the years ended December 31, 1996 and 1997, and for the three and
nine-month periods ended September 30, 1997 and 1998, earnings were
insufficient to cover fixed charges during the periods presented by the
amount of loss before minority interests of $71,445, $129,289, $31,585,
$82,356, $68,949 and $181,834, respectively.
(2) EBITDA consists of net loss before net interest expense, minority interests,
depreciation, amortization and deferred compensation expense. EBITDA is
commonly used to analyze companies on the basis of operating performance,
leverage and liquidity. While EBITDA should not be construed as a substitute
for operating income or a better measure of liquidity than cash flow from
operating activities, which are determined in accordance with generally
accepted accounting principles, it is included herein to provide additional
information with respect to the ability of the Company to meet future debt
service, capital expenditures and working capital requirements.
(3) Total capital expenditures, acquisitions, and investments in affiliates were
funded as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
YEAR ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
-------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
1996 1997 1997 1998 1997 1998
--------- --------- --------- --------- --------- ---------
Cash expended.............................................. $ 72,042 $ 210,545 $ 130,727 $ 209,136 $ 36,032 $ 82,484
Debt issued and assumed.................................... 8,228 5,000 -- -- -- --
Equity issued.............................................. 5,602 16,524 -- -- -- --
--------- --------- --------- --------- --------- ---------
Total...................................................... $ 85,872 $ 232,069 $ 130,727 $ 209,136 $ 36,032 $ 82,484
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
(4) As adjusted to give effect to the net proceeds to the Company from the sale
of the Old Notes.
(5) Pledged U.S. Treasury securities, which represent funds sufficient to
provide for payment in full of interest through April 15, 1999 on the
Company's 12 1/2% Senior Notes due April 15, 2006.
(6) The operating data for all periods subsequent to March 1996 include the
statistics of the Las Vegas network, which the Company manages and in which
the Company has a 40% membership interest.
(7) Route miles refers to the number of miles of the telecommunications path in
which the Company-owned or leased fiber optic cables are installed.
(8) Fiber miles refers to the number of route miles installed along a
telecommunications path, multiplied by the Company's estimate of the number
of fibers along that path.
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(9) Represents buildings physically connected to the Company's networks,
excluding those connected by unbundled ILEC facilities. As of September 30,
1998, the Company had 10,424 buildings physically connected to its networks,
including those buildings connected through unbundled ILEC facilities.
(10) All switch counts include two long distance switches acquired in the ITC
acquisition, as well as the switch installed in NEXTLAB, the Company's
testing facility.
(11) Represents the number of access lines in service, including those lines
which are provided through resale of Centrex services, for which the Company
is billing services. The Company serviced 3,312 resold access lines as of
September 30, 1998. The Company defines an access line as a telephone
connection between a customer purchasing local telephone services and
NEXTLINK. 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.
As of December 31, 1998, the Company had 174,182 access lines installed.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Since its inception in 1994, NEXTLINK has executed a strategy of
constructing and acquiring fiber optic networks and acquiring related
telecommunications businesses. Over this period, NEXTLINK has pursued this
strategy by constructing, acquiring, leasing fibers or capacity on, and entering
into agreements to acquire local telecommunications networks.
NEXTLINK develops and operates high capacity, local fiber optic networks
with broad market coverage in a growing number of markets across the United
States. In its switched local service markets, NEXTLINK offers its customers a
bundled package of local and long distance services and also offers dedicated
transmission and competitive access services to long distance carriers and end
users. NEXTLINK plans to acquire, build or develop networks in new areas, expand
its current networks, and also explore the acquisition or licensing of
additional enhanced communications services and other telecommunications service
providers. These efforts should allow NEXTLINK to increase its presence in the
marketplace, and facilitate providing a single source solution for the
telecommunications needs of its customers.
NEXTLINK currently operates 22 facilities-based networks providing switched
local and long distance services in 36 markets in 14 states. NEXTLINK serves
larger markets including 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. NEXTLINK anticipates developing additional
new markets throughout a majority of the nation's top 30 markets which, together
with its existing markets, are expected to have a total of approximately 27
million addressable business lines by the end of 2000. NEXTLINK plans to launch
service in San Diego, Washington, D.C. and Seattle in the first half of 1999.
NEXTLINK is also developing a national network strategy to enable it to offer
its customers complete, end-to-end voice and data communications services over
NEXTLINK-owned facilities.
NEXTLINK builds its networks to encompass the significant business
concentrations in each area it serves, focusing on direct connections to
end-user locations and ILEC central offices. NEXTLINK employs a uniform
technology platform for each of its local exchange networks that is based on the
Nortel DMS 500 digital local and long distance combination switching platform
and associated distribution technology. As of December 31, 1998, NEXTLINK had 19
operational Nortel DMS 500 switches, including one switch in its NEXTLAB
facility. NEXTLAB is a fully functional model of one of NEXTLINK's networks,
which serves as a testing facility for switch software and NEXTLINK's products
and services and will serve as NEXTLINK's network operations control center.
The development of NEXTLINK's businesses and the construction, acquisition
and expansion of its networks require significant expenditures, substantial
portions of which are incurred before the realization of revenues. These
expenditures, together with the associated early operating expenses, result in
negative cash flow until an adequate customer base is established. However, as
the customer base grows, NEXTLINK expects that incremental revenues can be
generated with decreasing incremental operating expenses, which may provide
positive contributions to cash flow. NEXTLINK has made the strategic decision to
build high capacity networks with broad market coverage, which initially
increases its level of capital expenditures and operating losses. NEXTLINK
believes that over the long term this will enhance NEXTLINK's financial
performance by increasing the traffic flow over NEXTLINK's networks. NEXTLINK
has recently entered into leased dark fiber and fiber capacity arrangements
which allow NEXTLINK, by installing one or more switches and related
electronics, to enter a market prior to completing construction of its own fiber
optic network.
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RESULTS OF OPERATIONS
THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1998 COMPARED WITH THREE
AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1997
Revenue increased 182% to $37.8 million during the third quarter of 1998,
from $13.4 million in the same period in 1997. Year to date revenue of $96.4
million represented a 175% increase from the $35.1 million reported for the
comparable period in 1997. The increase was driven by 290% growth in revenues
from bundled local and long distance services and dedicated services, as well as
by the acquisitions of Start Technologies Corporation (Start) and Chadwick
Telecommunications Corporation (Chadwick) in the fourth quarter of 1997.
Revenues reported in the third quarter of 1998 included $31.5 million derived
from local and long distance, competitive access, dedicated line services and
shared tenant services and $6.3 million derived from enhanced communications
services, primarily interactive voice response (IVR) services. NEXTLINK's IVR
revenue comprised 16% and 28% of NEXTLINK's total revenues during the third
quarter of 1998 and 1997, respectively.
NEXTLINK increased the number of customer access lines added during the
quarter from 30,053 in the second quarter of 1998 to 31,220 during the third
quarter of 1998. As of September 30, 1998, NEXTLINK had 134,107 access lines in
service, compared to 50,131 as of December 31, 1997 and 30,944 as of September
30, 1997. Revenues from the provision of such services are expected to continue
to increase as a component of total revenues over future periods. Access lines
in service includes those lines which are provided through resale of Centrex
services, the number of which is decreasing over time as NEXTLINK converts those
customers to its own network.
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 136% in the third quarter of 1998 to $32.8 million,
an increase of $18.9 million over the third quarter of 1997. For the nine months
ended September 30, 1998, operating expenses rose $49.6 million, or 138%, over
the same period in 1997. These increases were attributed to increased network
costs related to provisioning higher volumes of local, long distance and
enhanced communications services, an increase in employees and an increase in
other related costs primarily to expand NEXTLINK's switched local and long
distance service businesses in its existing and planned markets. To a lesser
extent, the acquisitions of Start and Chadwick in the fourth quarter of 1997
also contributed to the increase in operating costs over those in the third
quarter of 1997.
Selling, general and administrative (SG&A) 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. SG&A
expenses increased 115% and 126% in the three and nine-month periods ended
September 30, 1998 as compared to the corresponding periods in 1997. The
increases were due to NEXTLINK's increase in employees, as well as other costs
associated with the expansion of NEXTLINK's switched local and long distance
service businesses in its existing and planned markets.
Deferred compensation expense was recorded in connection with NEXTLINK's
Equity Option Plan until April 1997, and in connection with NEXTLINK's Stock
Option Plan, which replaced the Equity Option Plan, subsequent to April 1997.
The stock options granted under the Equity Option Plan were considered
compensatory and were accounted for on a basis similar to that for stock
appreciation rights. All options outstanding under the Equity Option Plan were
regranted under the new Stock Option Plan with terms and conditions
substantially the same as under the Equity Option Plan. As such, NEXTLINK
continues to record deferred compensation expense for those compensatory stock
options issued, as well as for compensatory stock options issued subsequent to
the Plan conversion date. Compensation expense is recognized over the vesting
periods based on the excess of the fair value of the stock options at the date
of grant over the exercise price.
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Depreciation expense increased primarily due to placement in service of
additional telecommunications network assets, including switches, fiber optic
cable, network electronics and related equipment. Amortization of intangible
assets increased primarily as a result of the Start and Chadwick acquisitions in
the fourth quarter of 1997.
Interest expense increased 248% in the third quarter of 1998 over the
comparable period in the prior year due to an increase in NEXTLINK's average
outstanding indebtedness over the respective periods. Interest expense will
increase in future periods in conjunction with the sale of $500.0 million in
aggregate principal amount of 10 3/4% Senior Notes on November 12, 1998. See
"--Liquidity and Capital Resources." Pursuant to Statement of Financial
Accounting Standards No. 34, NEXTLINK capitalizes a portion of its interest
costs as part of the construction cost of its communications networks.
Capitalized interest during the first nine months of 1998 totaled $3.0 million.
Interest income results from investment of excess cash as well as certain
securities that have been pledged as collateral for interest payments on the
12 1/2% Senior Notes. The increase in interest income for the three and
nine-month periods in 1998 over the same periods in 1997 corresponded to the
increase in NEXTLINK's average outstanding cash balances.
LIQUIDITY AND CAPITAL RESOURCES
The competitive local telecommunications service business is a
capital-intensive business. NEXTLINK's existing operations have required and
will continue to require substantial capital investment for the acquisition and
installation of fiber, electronics and related equipment in order to provide
switched services in NEXTLINK's networks and the funding of operating losses
during the start-up phase of each market. In addition, NEXTLINK's strategic plan
calls for expansion into additional market areas. Such expansion will require
significant additional capital for: potential acquisitions of businesses or
assets; design, development and construction of new networks; and the funding of
operating losses during the start-up phase of each market. During the first nine
months of 1998, NEXTLINK used $104.8 million in cash for operating activities,
compared to $59.2 million for the same period in the prior year. The increase
was primarily due to a substantial increase in NEXTLINK's activities associated
with the continued development and expansion of switched local and long distance
service operations. During the first nine months of 1998, NEXTLINK invested an
additional $301.1 million in property and equipment and acquisitions of
telecommunications assets. During the same period in 1997, NEXTLINK invested
$130.7 million in property and equipment, acquisitions of telecommunications
assets and businesses and equity investments in telecommunications businesses.
On January 14, 1999, NEXTLINK entered into an agreement to acquire WNP
Communications, Inc. ("WNP"). The total consideration to be paid by the Company
will be $695 million. Of this amount, $152.9 million will be paid in cash to the
FCC for license fees, including interest thereon. The remainder will be paid to
stockholders of WNP, which will consist of cash and, at NEXTLINK's election,
shares of its Class A Common stock, provided, however, that at least
approximately $187 million of such remainder will be paid in cash. The
acquisition of WNP is subject to certain conditions, including approval by
federal regulatory authorities.
In July 1998, NEXTLINK announced the formation of INTERNEXT L.L.C., which is
beneficially owned 50% each by NEXTLINK and Eagle River Investments, L.L.C.
(Eagle River). INTERNEXT entered into an agreement with Level 3 Communications
LLC (Level 3). 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
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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 thereunder. NEXTLINK is in the process of defining its plans for
implementation of a national network strategy, which will require additional
capital expenditures.
In February 1998, NEXTLINK signed a definitive agreement with Metromedia
Fiber Network for exclusive rights to multiple fibers and innerducts for 20
years, with two 10-year renewals. The route covered by the agreement extends
from Manhattan to White Plains (NY), to Stamford (CT), to Newark (NJ) and south
from Manhattan through Philadelphia, Wilmington (DE), Baltimore, and to
Washington (DC). The route will offer frequent splice points within metropolitan
areas and on routes between metropolitan areas, as well as provide access to
ILEC central and tandem switching offices. NEXTLINK paid $92.0 million in cash
for this transaction, $80.3 million of which was placed into escrow, to be
released as segments of the route are constructed and delivered to NEXTLINK.
In January 1998, NEXTLINK and Nextel formed NEXTBAND, a joint venture that
is owned 50% each by NEXTLINK and Nextel. NEXTBAND was the successful bidder in
42 markets in the FCC's local multipoint distribution service (LMDS) auctions.
NEXTLINK's pro rata share of NEXTBAND's total bid in the LMDS auctions was $67.4
million, which was paid in full in June 1998. NEXTLINK is in process of defining
its operational and financial plans for implementation of an LMDS strategy,
which will likely involve additional capital expenditures.
On March 3, 1998, NEXTLINK completed the sale of $335.0 million in aggregate
principal amount of 9% Senior Notes due March 15, 2008. Proceeds from the sale
net of discounts, underwriting commissions, advisory fees and expenses totaled
approximately $326.5 million. Interest payments on the 9% Senior Notes are due
semi-annually, beginning September 1998.
On March 31, 1998, NEXTLINK completed the sale of 4,000,000 shares of 6 1/2%
cumulative convertible preferred stock (6 1/2% Preferred Stock) with a
liquidation preference of $50 per share. The sale generated gross proceeds to
NEXTLINK of $200.0 million, and proceeds net of underwriting discounts, advisory
fees and expenses of $193.8 million. Each share of 6 1/2% Preferred Stock is
convertible, at the option of the holder, into 1.145 shares of NEXTLINK's Class
A common stock (subject to adjustments in certain circumstances). Dividends on
the 6 1/2% Preferred Stock accrue from March 31, 1998 and are payable quarterly
in cash, beginning on June 30, 1998.
On April 1, 1998, NEXTLINK completed the sale of 9.45% Senior Discount Notes
(9.45% Notes), due April 15, 2008. The 9.45% Notes were issued at a discount
from their principal amount to generate aggregate gross proceeds to NEXTLINK of
approximately $400.0 million. Proceeds net of underwriting commissions, advisory
fees and expenses totaled $390.9 million. The 9.45% Notes accrete at a rate of
9.45% compounded semi-annually, to an aggregate principal amount of
approximately $637.0 million by April 15, 2003. No cash interest will accrue on
the Notes until April 15, 2003. Interest will become payable in cash
semi-annually beginning on October 15, 2003.
On November 12, 1998, NEXTLINK completed the sale of $500.0 million in
aggregate principal amount of 10 3/4% Senior Notes due November 15, 2008.
Proceeds from the sale net of underwriting commissions, advisory fees and
expenses totaled approximately $488.5 million. Interest payments on the notes
are due semi-annually, beginning May 1999. Pursuant to a covenant in the
indenture under which the 10 3/4% Senior Notes were issued, NEXTLINK has agreed
to use the net proceeds from the sale for expenditures relating to the
construction, improvement and acquisition of new and existing networks and
services and direct or indirect investments in certain joint ventures (including
NEXTBAND and INTERNEXT) to fund similar expenditures.
NEXTLINK will use the net proceeds from the sale of the 9% Senior Notes, the
6 1/2% Preferred Stock, the 9.45% Notes, the 10 3/4% Senior Notes (subject to
the limitations described above) and
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existing unrestricted cash balances for expenditures relating to the
development, construction, acquisition and operation of telecommunications
networks and service providers and the offering of telecommunications services
in those areas where NEXTLINK currently operates or intends to operate.
Expenditures for the construction and operation of networks include (1) the
purchase and installation of switches and related electronics in existing
networks and in networks to be constructed or acquired in new or adjacent
markets, (2) the purchase and installation of fiber optic cable and electronics
to expand existing networks and develop new networks, including the connection
of new buildings, (3) the development of its comprehensive information
technology platform, (4) the acquisition of LMDS spectrum purchased in the FCC's
auction and the construction and deployment of associated facilities and (5) the
funding of operating losses and working capital. NEXTLINK may also acquire or
invest in businesses that consist of existing networks or companies engaged in
businesses similar to those engaged in by NEXTLINK and its subsidiaries or other
complementary businesses.
As of September 30, 1998, NEXTLINK had unrestricted cash and investments of
$1,176.8 million and $1,665.3 million on a pro forma basis after giving effect
to the sale of the 10 3/4% Senior Notes. NEXTLINK's current plan contemplates an
aggressive expansion into a number of new markets throughout the United States.
NEXTLINK may pursue various alternatives for achieving its growth strategy,
including: additional network construction; additional leases of network
capacity from third party providers; acquisitions of existing networks; and
spectrum that was purchased during the LMDS auction and associated facilities
construction and deployment. NEXTLINK also anticipates that a substantial amount
of additional capital expenditures will be made in 1999 and beyond. The funding
of these capital expenditures is expected to be provided by existing cash
balances, future vendor and/or credit facilities, future public or private sales
of debt securities, future sales of public or private capital stock and joint
ventures. There can be no assurance, however, that NEXTLINK will be successful
in raising sufficient additional capital on terms that it will consider
acceptable or that NEXTLINK's operations will produce positive consolidated cash
flow in sufficient amounts to meet its interest and dividend obligations on its
outstanding securities. Failure to raise and generate sufficient funds may
require NEXTLINK to delay or abandon some of its planned future expansion or
expenditures, which could have a material adverse effect on NEXTLINK's growth
and its ability to compete in the telecommunications services industry.
In addition, NEXTLINK's operating flexibility with respect to certain
business matters is, and will continue to be, limited by covenants associated
with the 12 1/2% Senior Notes, the 9 5/8% Senior Notes, the 9% Senior Notes, the
9.45% Notes and the 10 3/4% Senior Notes (collectively referred to as the
Notes). Among other things, these covenants limit the ability of NEXTLINK and
its subsidiaries to incur additional indebtedness, create liens upon assets,
apply the proceeds from the disposal of assets, make dividend payments and other
distributions on capital stock and redeem capital stock. In addition, the terms
of the 14% Senior Exchangeable Redeemable Preferred Shares (14% Preferred
Shares) contain certain covenants that may limit NEXTLINK's operating
flexibility with respect to the incurrence of indebtedness and issuance of
additional preferred shares. There can be no assurance that such covenants will
not adversely affect NEXTLINK's ability to finance its future operations or
capital needs or to engage in other business activities that may be in the
interest of NEXTLINK. NEXTLINK was in compliance with all covenants associated
with the Notes and the 14% Preferred Shares as of September 30, 1998.
IMPACT OF YEAR 2000
Certain of NEXTLINK's 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
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"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 (the "Plan"). The purpose of the Plan will be to develop
and perform reasonable steps intended to prevent NEXTLINK's critical operational
functions from being impaired due to the Year 2000 problem. The first phase of
NEXTLINK's Year 2000 assessment, which has been completed, includes: 1) taking
an inventory of company-wide systems and equipment to determine the extent of
testing required for Year 2000 compliance (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), 2)
developing a strategy to manage vendors' and other outside entities' progress
toward Year 2000 compliance, 3) designing a company-wide Year 2000
communications plan, and 4) creating a risk assessment and impact analysis from
which the Plan can be developed. NEXTLINK has engaged outside consultants to aid
in formulating and implementing the Plan.
NEXTLINK's assessments to date have indicated that its major operational
support systems, including its billing, order management, network management,
and financial systems are Year 2000 compliant. In addition, NEXTLINK has
received positive confirmation from its vendor that NEXTLINK's Nortel DMS 500
switches are also Year 2000 compliant.
As part of the Plan and ongoing Year 2000 assessment, NEXTLINK will continue
its testing of existing telecommunications equipment and back office systems to
access the effects of the Year 2000 problem on those areas that would result in
significant impairment to NEXTLINK's critical operations. Through its NEXTLAB
facility, which operates separate and apart from the NEXTLINK's operational
switches, NEXTLINK has the means to test switch configurations without impacting
its networks or customers, and NEXTLINK is using NEXTLAB to independently verify
Year 2000 compliance of its network systems and equipment.
The Plan will also address the potential adverse effects to NEXTLINK in the
event that the computer, telecommunications, and other systems of outside
entities' (including vendors, customers, and local and interexchange carriers
and Internet service providers with which NEXTLINK interchanges traffic) are not
Year 2000 compatible. NEXTLINK does not have control of these outside entities
or their systems. However, NEXTLINK's Plan will include ongoing identification
of and contact with such outside entities whose systems may have a substantial
effect on NEXTLINK's ability to continue to conduct the critical aspects of its
operations without disruption from Year 2000 problems. In the event such outside
systems are identified, NEXTLINK will work with the outside entities in a
reasonable attempt to inventory, assess, analyze, test, and develop contingency
plans for the NEXTLINK's connections to these outside entities and their systems
and to determine the extent to which they are, or can be made to be, Year 2000
compliant.
COSTS TO ADDRESS YEAR 2000 ISSUES
NEXTLINK has not incurred material historical costs for Year 2000 awareness,
inventory, assessment, analysis, conversion, testing, or contingency planning.
Further, NEXTLINK anticipates that its future costs for these purposes will not
be material.
Year 2000 costs are difficult to estimate accurately because of
unanticipated vendor delays, technical difficulties, the impact of tests of
outside entities' systems, and similar events. Although management believes that
its estimates are reasonable, NEXTLINK cannot assure you that the actual costs
of implementing the Plan will not differ materially from the estimated costs or
that NEXTLINK will not be materially adversely affected by Year 2000 issues.
Furthermore, the estimated costs of
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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 NEXTLINK's
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. NEXTLINK believes it employs an adequate number of personnel skilled in
dealing with the Year 2000 problem and has retained outside consultants who
bring additional skilled people to deal with the Year 2000 problem as it affects
NEXTLINK. Nevertheless, NEXTLINK could face shortages of skilled personnel or
other resources, such as Year 2000 compliant computer chips. These shortages
might delay or otherwise impair NEXTLINK's ability to assure that its critical
systems are Year 2000 compliant. Outside entities could face similar problems
that could materially affect NEXTLINK. NEXTLINK believes that the possible
impact of the shortage of skilled people and resources is not, and will not be,
unique to NEXTLINK.
NEXTLINK believes that its critical systems will be Year 2000 compliant
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
NEXTLINK.
NEXTLINK is taking reasonable steps to identify, assess, and, where
appropriate, replace devices that contain embedded chips. Despite these
reasonable efforts, NEXTLINK may not be able to find and remediate all embedded
chips in all of NEXTLINK's systems. Further, outside entities on which NEXTLINK
depends 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 NEXTLINK's ability to serve
its customers and otherwise fulfill contractual and legal obligations. NEXTLINK
believes that the possible adverse impact of the embedded chip problem is not,
and will not be, unique to NEXTLINK.
NEXTLINK cannot ensure that suppliers upon which it depends 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, to make their systems and processes Year
2000 compliant could create substantial disruptions having a material adverse
effect on NEXTLINK's 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 NEXTLINK; widespread disruption
of the services provided by common communications carriers; similar disruption
to the means and modes of transportation for NEXTLINK and its employees,
contractors, suppliers, and customers; significant disruption to NEXTLINK's
ability to gain access to, and remain working in, office buildings and other
facilities; the failure of substantial numbers of NEXTLINK's 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,
NEXTLINK 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. NEXTLINK could also experience an
inability by customers and others to pay, on a timely basis or at all,
obligations owed to NEXTLINK. Under these circumstances, the adverse
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effects on NEXTLINK 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 NEXTLINK from a domestic or global recession or depression also could
be material, although not quantifiable at this time.
NEXTLINK 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
two aspects of the Year 2000 problem: 1) that NEXTLINK, despite its good faith
and reasonable efforts, may not have satisfactorily addressed the Year 2000
problem with respect to its critical internal systems and 2) that outside
entities' systems may not be Year 2000 ready. NEXTLINK's contingency plans will
be designed to minimize the disruptions or other adverse effects resulting from
Year 2000 incompatibilities with respect to critical functions or systems.
NEXTLINK'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, NEXTLINK will assess any
critical disruptions due to Year 2000-related failures that are external to
NEXTLINK. These processes will begin January 1, 2000, and will continue as long
as circumstances require.
NEXTLINK'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 composition of teams that are assigned to deal
with such problems will vary according to the nature, significance, and location
of the problem.
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 will
not have a material impact NEXTLINK's financial position.
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BUSINESS
Craig O. McCaw founded NEXTLINK in 1994 and is our largest and controlling
shareholder. We provide telephone and other telecommunications services to our
targeted customer base of small and medium-sized businesses using our
facilities-based networks and switches. We were one of the first companies to
take advantage of the Telecommunications Act of 1996 (the "Telecom Act"), which
opened the market for local telecommunications services to competition. In the
language of the Telecom Act, we are referred to as a "competitive local exchange
carrier" or "CLEC." We compete in each of our markets principally against the
existing telephone company in that area that had a virtual monopoly on local
voice service prior to the entry of CLECs. Each of these existing carriers are
referred to in the Telecom Act as the "incumbent local exchange carrier" or the
"ILEC." We offer our customers an integrated package of high quality local, long
distance and enhanced telecommunications services at competitive prices. We also
are developing a national network strategy to enable us to offer our customers
complete, end-to-end voice and data communications services over facilities we
control.
We develop and operate high capacity, local fiber optic networks with broad
market coverage in a growing number of markets across the United States. We
currently operate 22 facilities-based networks, and provide switched local, long
distance and enhanced services in 36 markets in 14 states. We serve larger
markets, including 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.
In the markets where we provide switched local telecommunications services,
we offer our customers a bundled package of local and resold long distance
services. In these same local markets we also offer customers dedicated
transmission lines for their sole use, as well as direct access to our networks
to long distance carriers and other end users. Our target customer base within
our markets is small and medium-sized businesses, generally those businesses
with fewer than 50 telephone lines (these lines are generally called "access
lines" in our industry). Based on consultants' reports, we estimate that as of
year end 1997, there were approximately 170 million access lines nationwide,
including approximately 55 million business lines.
Our customer base has been growing rapidly, as the following table
demonstrates:
<TABLE>
<CAPTION>
TOTAL ACCESS LINES
DATE MARKETS IN SERVICE INSTALLED
- ------------------------------------------------------------------- ----------------------- -------------------------
<S> <C> <C>
December 31, 1996.................................................. 7 8,511
December 31, 1997.................................................. 25 50,131
December 31, 1998.................................................. 36 174,182
</TABLE>
We have also improved our quarterly rate of access line installations. The
following table illustrates this improvement:
<TABLE>
<CAPTION>
ACCESS LINE
INSTALLATIONS
PERIOD PER QUARTER
- ------------------------------------------------------------------------------------------ -----------------------
<S> <C>
Fourth Quarter 1996....................................................................... 1,604
Fourth Quarter 1997....................................................................... 19,187
Fourth Quarter 1998....................................................................... 40,075
</TABLE>
Based on our recent successes in expanding and operating our existing
networks, as well as new opportunities in other markets, we have recently
expanded our growth plan. We now intend to develop networks throughout a
majority of the nation's top 30 markets and to serve markets with 27 million
addressable business lines by the end of 2000. We plan to launch switched
service in San Diego, Washington, D.C. and Seattle in the first half of 1999. We
plan to enter other large and medium-sized markets on a stand-alone basis where
economic, competitive and other market factors warrant such
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<PAGE>
entry, and will consider pursuing smaller markets where we can extend or cluster
an existing network with relatively little incremental capital.
Several recent transactions, described in more detail below, have laid the
foundation for a substantial expansion of our ability to offer a more customers
complete, end-to-end voice and data communications services over our own
facilities.
We believe that a critical factor in the successful implementation of our
strategy is the quality of our management team and their extensive experience in
the telecommunications industry. NEXTLINK has built a management team that we
believe is well suited to challenge the dominance of the ILECs in the local
exchange market. Craig O. McCaw, NEXTLINK's founder and largest and controlling
shareholder, Steven W. Hooper, NEXTLINK's Chairman of the Board, Wayne M. Perry,
NEXTLINK's Vice Chairman and Chief Executive Officer, and George M. Tronsrue
III, NEXTLINK's President and Chief Operating Officer, each has 15 or more years
of experience in leading companies in competitive segments of the
telecommunications industry. In addition, the presidents of NEXTLINK's operating
subsidiaries and NEXTLINK's senior officers have an average of 18 years of
experience in the telecommunications industry. Mr. Hooper and Mr. Perry were
members of the senior management team at McCaw Cellular Communications, Inc.
during the years in which it became the nation's largest cellular telephone
company. Following McCaw Cellular's sale to AT&T Corp. in 1994, Mr. Perry was
Vice Chairman of AT&T Wireless Services, Inc. and Mr. Hooper was Chief Executive
Officer of AT&T Wireless Services.
BUSINESS STRATEGY
We have built a customer-focused, locally-oriented organization dedicated to
providing switched local and long distance telephone service at competitive
prices to small and medium-sized businesses. Our goal is to become a leading
provider of complete, end-to-end voice and data telecommunications services and
to maximize penetration of our targeted customer base.
- DEVELOP HIGH CAPACITY FIBER OPTION NETWORKS WITH BROAD MARKET COVERAGE. We
build high-capacity local networks in the central business districts of
our target markets using large fiber optic cable bundles. These cables are
capable of carrying high volumes of voice, data, video and Internet
traffic as well as other high-bandwidth services. We employ a uniform
technology platform within these networks based on Nortel DMS 500 switches
and other common transmission technologies. The architecture enables us to
provide direct connections to a high percentage of commercial buildings
and ILEC central switching offices situated near our network. We also
expect this architecture to result in a higher proportion of traffic that
is both originated and terminated in our network, thereby providing higher
long-term operating margins. In some markets, we lease unused fiber
(generally called "dark fiber") and fiber capacity from third parties to
launch facilities-based services and begin building a customer base in
advance of completing construction of our own fiber optic network in those
markets. We currently utilize both direct connections from our network to
buildings in the central business district as well as leased unbundled
loop lines from the ILEC to connect off-network customers to our network
(commonly referred to as "last mile"). For off-network buildings, we are
also evaluating alternative means for establishing transport that links
our end-user to our network through the use of local multipoint
distribution service (generally called "LMDS") wireless spectrum.
- IMPLEMENT DATA STRATEGY. We also are developing plans for the deployment
of data switching and transmission equipment in 1999, including
Asynchronous Transfer Mode (ATM), Internet Protocol (IP) and frame-relay
facilities and Digital Subscriber Line (DSL) services. The network, which
we will have the right to use through INTERNEXT, has been designed to
support these packet-switched data services, as well as voice circuits.
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<PAGE>
- CONTINUE MARKET EXPANSION. We plan to build our own local facilities-based
networks throughout a majority of the nation's top 30 markets and to
provide service in markets with a total of 27 million addressable business
lines by the end of 2000. We anticipate continuing our expansion into new
geographic areas, including additional large markets, as opportunities
arise, either through building new networks, acquiring existing networks
or other telecommunications companies, or acquiring or leasing dark fiber
and fiber capacity. We will continue to consider clustered market
expansion in geographic areas with smaller markets that offer us the
opportunity to (1) create economies of scale in management, marketing,
sales and network operations, and (2) capture a significant percentage of
regional traffic and develop regional pricing plans.
- DEVELOP NATIONAL CITY-TO-CITY LONG HAUL CONNECTIVITY. We are developing a
national strategy that will link our local networks to each other. We
anticipate executing this strategy by using our interest in a 16,000 route
mile national fiber optic network that is expected to link 50 cities in
the United States and Canada. This national network is now under
construction, and we expect substantially all of its segments to be
completed in years 2000 and 2001. Through this network, we will be able to
provide our customers with complete, end-to-end communications services
over NEXTLINK facilities. The network is designed to support switched
voice circuits and packet-switched data services, such as IP, ATM and
frame relay.
- CONTINUE TO FOSTER DECENTRALIZED LOCAL MANAGEMENT AND CONTROL. We believe
that our success has been enhanced by our locally based management teams.
We have recruited experienced entrepreneurs and industry executives as
presidents of each of its regional groups of operating subsidiaries, many
of whom have previously built and led their own start-up
telecommunications businesses. The local presidents and their teams are
charged with achieving growth objectives in their respective markets and
have decision making authority in the following key areas: customer care,
network growth and building connectivity, and managing the relationship
and provisioning efforts with the ILEC. We believe that this local
management focus will provide a critical competitive edge in customer
acquisition and retention in each market.
- PROVIDE BUNDLED TELECOMMUNICATIONS THROUGH DIRECT SALES AND EFFECTIVE
CUSTOMER CARE ORGANIZATIONS. Currently, we primarily focus our sales
efforts on businesses and professional groups having fewer than 50 access
lines. We have a record of success in penetrating this market, where we
believe that ILECs are less likely to apply significant resources towards
retaining customers. To reach and retain these customers, we have
established and are continuing to build a highly motivated and experienced
direct sales force and customer care organization with direct and personal
relationships with our customers. We have expanded our sales force from
223 salespeople (152 dedicated to CLEC sales) at December 31, 1997 to 288
salespeople (244 dedicated to CLEC sales) at September 30, 1998. To ensure
customer satisfaction, each customer is assigned a single customer care
representative who is responsible for solving problems and responding to
customer inquiries. We have expanded our customer care organization from
162 customer care employees at December 31, 1997 to 220 customer care
employees at September 30, 1998.
- CONTINUOUSLY IMPROVE PROVISIONING PROCESSES TO ACCELERATE REVENUE GROWTH.
The process of transitioning new CLEC customers from an ILEC's network to
our network is complex. Therefore, we continue to identify and focus on
implementing best provisioning practices so that we will be able to
provide rapid and seamless customer transitions. To support the
provisioning of our services, we are implementing a comprehensive
information technology platform geared toward delivering information and
automated ordering and provisioning capability directly to our internal
staff. Eventually, we anticipate being able to deliver this capability to
the end user. We believe that our provisioning practices and our
comprehensive information technology platform, as it is developed, will
allow us to more rapidly implement switched local services in our targeted
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<PAGE>
markets and to shorten the time between the receipt of a customer order
and the generation of revenues. Our improving capacity to provision access
lines to our networks is reflected in the increased number of access lines
we install per business day. In those markets where we have offered
switched local services since 1996, we have increased our installation
rate from 108 installations per business day during the fourth quarter of
1997 to 132 installations per business day during the fourth quarter of
1998.
RECENT DEVELOPMENTS
INTERNEXT
In July 1998, we announced the formation of INTERNEXT L.L.C. ("INTERNEXT").
NEXTLINK and Eagle River Investments, L.L.C. ("Eagle River") each beneficially
owns 50% of INTERNEXT. Eagle River is the holding company (owned principally by
Craig O. McCaw) that is our largest shareholder. INTERNEXT has entered into a
Cost Sharing and IRU Agreement (the "Cost Sharing Agreement") with Level 3
Communications, LLC ("Level 3"). 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. INTERNEXT has an
exclusive interest in 24 fibers in a shared, filled conduit. INTERNEXT also has
an exclusive interest in one empty conduit and the right to 25% of the fibers
pulled through the sixth and any additional conduits in the network. INTERNEXT
has a $700 million commitment under the Cost Sharing Agreement, which is payable
largely as segments of the network are built out and accepted by INTERNEXT.
INTERNEXT expects the network build-out to occur substantially in years 2000 and
2001. We have guaranteed 50% of the financial obligations of INTERNEXT under the
Cost Sharing Agreement. Together with Eagle River, we also have guaranteed the
performance of certain other obligations of INTERNEXT under the Cost Sharing
Agreement.
NEXTBAND
NEXTLINK and Nextel Communications, Inc., a wireless telecommunications
company in which Eagle River holds a substantial interest, each owns 50% of
NEXTBAND Communications, L.L.C. NEXTBAND acquired LMDS licenses for 42 markets
covering approximately 114 million persons located within the licensed areas
("POPs") through a Federal Communications Commission ("FCC")-sponsored auction.
We have reached an agreement in principle with Nextel to acquire Nextel's 50%
interest in NEXTBAND. LMDS is a newly-authorized fixed broadband
point-to-multipoint service which the license holder may deploy for wireless
local loop telephony, mobile wireless backhaul services, high-speed data
transfer, video broadcasting and videoconferencing, in any combination. We are
evaluating means to use our access to NEXTBAND's LMDS spectrum to enhance our
ability to connect customers to our fiber rings and to deploy fixed wireless
telephony technologies using LMDS spectrum, where we determine that it is cost
effective to do so. Our acquisition of Nextel's interest in NEXTBAND will be
subject to certain conditions, including approval by the FCC.
ACQUISITION OF WNP COMMUNICATIONS, INC.
On January 14, 1999, we entered into an agreement to acquire WNP
Communications, Inc. ("WNP") for approximately $695 million, payable in cash and
our Class A Common Stock. Of this amount, approximately $152.9 million will be
paid to the FCC for license fees, including interest thereon. Pursuant to this
acquisition, we will receive 39 A block LMDS wireless licenses covering 98
million POPs and one B block LMDS wireless license covering 16 million POPs.
After combining the wireless LMDS licenses that we have agreed to acquire from
WNP with the licenses that we own through our interest in NEXTBAND, we will
become the largest holder of LMDS wireless spectrum in North America, covering
approximately 95 percent of the POPs in the 30 largest markets in the United
States. Our acquisition of WNP is subject to certain conditions, including
approval by the FCC.
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<PAGE>
COVAD STRATEGIC ALLIANCE
On January 4, 1999, we announced a strategic agreement with Covad
Communications Group, Inc., a leading provider of high-speed digital
communication services using DSL technology. DSL technology is designed to
decrease performance bottlenecks of the existing public switched telephone
networks by increasing the data carrying capacity of copper telephone lines.
Under this agreement, we have invested $20 million in Covad. In addition, Covad
will become a preferred provider of DSL services to NEXTLINK. NEXTLINK will also
be a preferred provider to Covad for local transport and collocation services
for Covad's regional data centers.
MANAGEMENT
At its meeting on June 4, 1998, our Board of Directors amended NEXTLINK's
Bylaws to increase the size of the Board from nine to ten persons. At that
meeting, our Board appointed Gregory J. Parker to fill the new vacancy. Mr.
Parker, who is 41 years old, is President of Ampersand Holdings, Inc., an
investment management company. He was a partner of the law firm of Seed, Mackall
& Cole LLP from 1990 to 1998, where his practice emphasized financing, capital
investment and real estate matters. From 1994 to 1997, he was Managing Partner
of the firm. Mr. Parker also is the trustee of the Ampersand Telecom Trust
("Ampersand"). Ampersand owns 9,722,649 shares of our Class B Common Stock.
Ampersand's holdings represent 33% of the outstanding shares of our Class B
Common Stock, 18% of the total outstanding shares of our common stock, and 31%
of the total voting power of our outstanding common stock. The beneficiary of
Ampersand is Wendy P. McCaw.
Effective July 17, 1998, James F. Voelker resigned as President and from our
Board of Directors. Our Board of Directors elected George M. Tronsrue, III, who
had been serving as NEXTLINK's Chief Operating Officer, to the additional office
of President, but has not filled the Board of Directors vacancy resulting from
Mr. Voelker's resignation.
Effective January 21, 1999, Scot Jarvis resigned from our Board of
Directors. At its February 4, 1999 meeting, our Board of Directors appointed
Nicolas Kauser to our Board of Directors to fill the vacancy created by the
resignation of Mr. Jarvis. From 1994 until his recent retirement, Mr. Kauser was
Executive Vice President and Chief Technology Officer of AT&T Wireless Services.
From 1990 until 1994, Mr. Kauser was Chief Technology Officer of McCaw Cellular,
which merged with AT&T Wireless in 1994.
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<PAGE>
REGULATION
We are subject to varying degrees of federal, state and local regulation. In
each state in which we desire to offer our services, we are required to obtain
authorization from the appropriate state commission. Although we have received
such authorization for each of our operational markets, there can be no
assurance that we will receive such authorization for markets to be launched in
the future.
Unlike the dominant carriers, we are not currently subject to price cap or
rate of return regulation, nor are we currently required to obtain FCC
authorization for the installation, acquisition or operation of our wireline
network facilities. FCC has determined that non-dominant carriers, such as
NEXTLINK and our subsidiaries, are not required to file interstate tariffs for
interstate access and domestic long distance service on an ongoing basis.
However, on February 13, 1997, the United States Court of Appeals for the
District of Columbia granted motions for a stay of this FCC detariffing order
pending judicial review of that order. The result of this stay is that all
carriers, including NEXTLINK and our subsidiaries, must continue to file tariffs
for interstate long distance services.
The FCC requires us and our subsidiaries to file interstate tariffs on an
ongoing basis for interstate and international interexchange traffic. Our
subsidiaries that provide or will provide intrastate services are also generally
subject to certification and tariff or price list filing requirements by state
regulators. Although passage of the Telecom Act should result in increased
opportunities for companies that are competing with the ILECs, we cannot assure
you that changes in current or future regulations adopted by the FCC or state
regulators or other legislative or judicial initiatives relating to the
telecommunications industry would not have a material adverse effect on
NEXTLINK. In addition, although the Telecom Act provides incentives to the ILECs
that are subsidiaries of Regional Bell Operating Companies ("RBOCs") to enter
the long distance service market, we cannot assure you that these ILECs will
negotiate quickly with us (or other competitors) for the required
interconnection of our networks (or the competitor's network) with those of the
ILEC.
The FCC has significant responsibility in the manner in which the Telecom
Act will be implemented, especially in the areas of universal service, access
charges, numbering, number portability and price caps. The details of the rules
adopted by the FCC will have a significant effect in determining the extent to
which barriers to competition in local services are removed, as well as the time
frame within which such barriers are eliminated. The FCC may also grant ILECs
increased flexibility to enable them to respond to competition for special
access, private line services and advanced telecommunications services. In
September 1998, the FCC ruled that certain ILEC "teaming" arrangements with long
distance carriers, which would have allowed ILECs to offer a form of "one stop
shopping" in competition with our offerings, violated the Telecom Act. However,
the ILECs have filed petitions with the United States Court of Appeals for the
District of Columbia seeking review of this FCC ruling, and if the courts uphold
such "teaming" arrangements, our ability to compete for certain services may be
adversely affected.
In two 1997 decisions, the United States Court of Appeals for the Eighth
Circuit overturned many of the rules the FCC had established pursuant to the
Telecom Act governing the terms under which CLECs may, among other things,
interconnect with ILECs, resell ILEC services, lease unbundled ILEC network
elements and terminate traffic on ILEC networks. On January 25, 1999, the
Supreme Court, in a decision generally favorable to the CLEC industry,
reinstated all but one of the FCC rules vacated by the English Circuit. In
finding that the FCC has general jurisdiction to implement the Telecom Act's
local competition provisions, including pricing and enforcement jurisdiction,
the Supreme Court's decision restored the balance of power in telecommunications
regulation between the FCC and the states. For example, the Court held that the
FCC's "pick and choose" rule, which allows competitors to adopt specific
provisions of other carriers' interconnection agreements is consistent with the
Telecom Act. The Court also affirmed that the FCC, rather than the states, has
the power to adopt rules implementing key provisions of the Telecom Act and held
that the FCC correctly interpreted the
33
<PAGE>
meaning of the term "network element" which defines the parts of an ILEC's
operations that may be subject to the "unbundling" requirement of the Telecom
Act. The Court, however, also held that the FCC did not correctly determine
which network elements must be unbundled and made available to CLEC's. Based
upon this ruling, a number of the ILECs stated publicly that they might refuse
to provide some or all network elements or sign new interconnection agreements
until the FCC initiated and completed a new proceeding determining the list of
network elements ILECs are required to offer to CLECs. Shortly thereafter, the
RBOCs and GTE assured FCC officials that they would continue to provide
currently available network elements and continue to negotiate new
interconnection agreements in good faith. If, however, an ILEC nonetheless
refused to enter into new interconnection agreements or make available network
elements, including unbundled loops, our ability to provision new services may
be adversely affected for some period of time in that ILEC region. Although the
Court's decision confirms the FCC's role in establishing national
telecommunications policy and creates greater certainty regarding the rules
governing local competition going forward, there are still a number of issues
associated with the FCC's local competition rules that are unresolved. Primary
among these unresolved issues is the ILECs' contention that the pricing
methodology adopted by the FCC for the pricing of network elements is flawed. In
filings with the FCC, the ILECs have challenged the forward-looking cost
methodology known as "TELRIC" pricing adopted by the FCC. The ILECs claim that
the correct cost methodology should take into account historical or embedded
costs. If the ILECs are ultimately successful in replacing the FCC's
forward-looking cost methodology with an historical or embedded cost
methodology, it would significantly increase our cost of purchasing network
elements and may significantly increase our cost of doing business.
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<PAGE>
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The old notes were sold by NEXTLINK on November 12, 1998 to the Initial
Purchasers, who placed the old notes with certain institutional investors. In
connection therewith, NEXTLINK and the initial purchasers entered into the
Registration Rights Agreement, pursuant to which NEXTLINK agreed, for the
benefit of the holders of the old notes, that NEXTLINK would, at its sole cost,
(1) within 90 days following the original issuance of the old notes, file with
the commission the Exchange Offer Registration Statement (of which this
Prospectus is a part) under the Securities Act with respect to an issue of a
series of new notes of NEXTLINK identical in all material respects to the series
of old notes and (2) use its reasonable best efforts to cause such Exchange
Offer Registration Statement to become effective under the Securities Act at the
earliest possible time, but in no event later than 120 days following the
original issuance of the old notes. Upon the effectiveness of the Exchange Offer
Registration Statement (of which this prospectus is a part), NEXTLINK will offer
to the holders of the old notes the opportunity to exchange their old notes for
a like principal amount of new notes, to be issued without a restrictive legend
and which may, subject to certain exceptions described below, be reoffered and
resold by the holder without restrictions or limitations under the Securities
Act. The term "Holder" with respect to any note means any person in whose name
such note is registered on the books of NEXTLINK.
Each holder desiring to participate in the Exchange Offer will be required
to represent, among other things, that (1) it is not an "affiliate" (as defined
in Rule 405 of the Securities Act) of NEXTLINK, (2) it is not engaged in, and
does not intend to engage in, and has no arrangement or understanding with any
person to participate in, a distribution of the new notes, and (3) it is
acquiring the new notes in the ordinary course of its business (a holder unable
to make the foregoing representations is referred to herein as a "Restricted
Holder"). A Restricted Holder will not be able to participate in the exchange
offer, and may only sell its old notes pursuant to a registration statement
containing the selling securityholder information required by Item 507 of
Regulation S-K of the Securities Act, or pursuant to an exemption from the
registration requirement of the Securities Act.
Each Participating Broker-Dealer is required to acknowledge in the Letter of
Transmittal that it acquired the old notes as a result of market-making
activities or other trading activities and that it will deliver a prospectus in
connection with the resale of such new notes. Based upon interpretations by the
staff of the commission, NEXTLINK believes that new notes issued pursuant to the
exchange offer to Participating Broker-Dealers may be offered for resale,
resold, and otherwise transferred by a Participating Broker-Dealer upon
compliance with the prospectus delivery requirements, but without compliance
with the registration requirements, of the Securities Act. NEXTLINK has agreed
that for a period of 30 days following consummation of the exchange offer they
will make this prospectus available to Participating Broker-Dealers for use in
connection with any such resale. During such period of time, delivery of this
prospectus, as it may be amended or supplemented, will satisfy the prospectus
delivery requirements of a Participating Broker-Dealer engaged in market-making
or other trading activities.
Based upon interpretations by the staff of the Commission, NEXTLINK believes
that new notes issued pursuant to the exchange offer may be offered for resale,
resold and otherwise transferred by a holder thereof (other than a Participating
Broker-Dealer) without compliance with the registration and prospectus delivery
requirements of the Securities Act.
If prior to the consummation of the exchange offer existing commission
interpretations are changed such that the new notes received by holders other
than Restricted holders in the exchange offer for Registrable Securities are not
or would not be, upon receipt, transferable by each such holder without
restriction under the Securities Act, then NEXTLINK is required under the
registration rights agreement to file with the commission a shelf registration
statement (the "Shelf Registration
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<PAGE>
Statement"). NEXTLINK is required under the registration rights agreement to use
its reasonable best efforts to cause the Shelf Registration Statement to be
declared effective at the earliest possible time but in no event later than 120
days after the issuance of the old notes and to keep such Shelf Registration
continuously effective for a period ending on the earlier of the second
anniversary of the issuance of the old notes or such time as there are no longer
any Registrable Securities outstanding.
Registrable Securities shall mean the old notes unless such old notes are
sold pursuant to Rule 144 (or any successor provision) promulgated under the
Securities Act under circumstances in which any legend borne by such notes
relating to restrictions on transferability thereof, under the Securities Act or
otherwise, is removed by NEXTLINK or pursuant to the indenture or such notes are
eligible to be sold pursuant to paragraph (k) of Rule 144 or (when) such notes
shall cease to be outstanding.
NEXTLINK will, in the event of the filing of the Shelf Registration
Statement, provide to each holder of Registrable Securities covered by the Shelf
Registration Statement copies of any Shelf Registration Statement or any
prospectus which is a part of the Shelf Registration Statement, notify each such
holder when the Shelf Registration Statement has become effective and take
certain other actions as are required to permit unrestricted resales of
Registrable Securities. A holder of Registrable Securities that sells such
Registrable Securities pursuant to the Shelf Registration Statement generally
will be required to be named as a selling security holder in the related
prospectus and to deliver a prospectus to the purchaser, will be subject to
certain of the civil liability provisions under the Securities Act in connection
with such sales and will be bound by the provisions of the registration rights
agreement which are applicable to such holder (including certain indemnification
obligations). In addition, holders of Registrable Securities will be required to
deliver information to be used in connection with the Shelf Registration
Statement and to provide comments on the Shelf Registration Statement within the
time periods set forth in the registration rights agreement in order to have
their Registrable Securities included in the Shelf Registration Statement and
benefit from the provisions regarding Liquidated Damages, if any, set forth in
the following paragraph.
If (1) NEXTLINK is required to file the Shelf Registration Statement and (2)
the Shelf Registration has not become effective or been declared effective by
the commission on or before the 120th day after the issuance of the old notes,
or (3) the Shelf Registration Statement is filed and declared effective but
shall thereafter cease to be effective (except as specifically permitted in the
registration rights agreement) without being succeeded promptly by an additional
registration statement filed and declared effective (each such event referred to
in clauses (1) through (3), a "Registration Default"), then interest will accrue
(in addition to any stated interest on the Securities) a the rate of 0.5% per
annum on the principal amount of the old notes, determined daily (calculated on
the same basis as interest on the notes shall be calculated) for the period from
the occurrence of the Registration Default until such time as no Registration
Default is in effect (after which time no such special interest will accrue).
Such additional interest (the "Additional Interest") will be payable in cash
semi-annually in arrears on each March 15 and September 15 in accordance with
the indenture. In addition, in the event that the Shelf Registration has not
become effective or been declared effective by the commission on or before the
165th day after the issuance of the old notes, then the per annum rate of
Additional Interest shall increase by an additional 0.25% for each subsequent
90-day period (provided that such Additional Interest shall in no event exceed
1.0% per annum in the aggregate), that Additional Interest will be paid at such
increased rate until such time as the Shelf Registration has become or been
declared effective.
Payment of Additional Interest is the sole remedy available to the holders
of Registrable Securities in the event that NEXTLINK does not comply with the
deadlines set forth in the registration rights agreement with respect to the
registration of Registrable Securities for resale under the Shelf Registration
Statement.
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TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus
and in the Letter of Transmittal, NEXTLINK will accept any and all old notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. NEXTLINK will issue $1,000 principal amount at stated
maturity of new notes in exchange for each $1,000 principal amount at stated
maturity of outstanding old notes accepted in the exchange offer. Holders may
tender some or all of their old notes pursuant to the exchange offer. However,
old notes may be tendered only in integral multiples of $1,000.
The form and terms of the new notes will be identical in all material
respects (including principal amount, interest rate, maturity and ranking) to
terms of the old notes for which they may be exchanged pursuant to the exchange
offer except that the new notes have been registered under the Securities Act
and, therefore, will not bear legends restricting their transfer and will not
contain certain terms providing for an increase in the interest rate on the old
notes under certain circumstances described in the registration rights agreement
(as defined). The new notes will evidence the same debt as the old notes and
will be entitled to the benefits of the indenture under which the old notes
were, and the new notes will be, issued.
As of the date of this prospectus, $500,000,000 million aggregate principal
amount of the old notes is outstanding. NEXTLINK has fixed the close of business
on , 1999 as the record date for the exchange offer for purposes of
determining the persons to whom this prospectus, together with the Letter of
Transmittal, will initially be sent. As of such date, there was one registered
holder of the old notes.
Holders of the old notes do not have any appraisal or dissenters' rights
under law or the Indenture in connection with the exchange offer. NEXTLINK
intends to conduct the exchange offer in accordance with the applicable
requirements of the Exchange Act and the rules and regulations of the commission
thereunder.
Holders who tender old notes in the exchange offer will not be required to
pay brokerage commission or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of old notes
pursuant to the Exchange Offer. NEXTLINK will pay all charges and expenses,
other than certain applicable taxes, in connection with the exchange offer. See
"--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1999, unless NEXTLINK, in its reasonable discretion, extends the exchange
offer, in which case the term "Expiration Date" shall mean the latest date and
time to which the exchange offer is extended.
In order to extend the exchange offer, NEXTLINK will notify the Exchange
Agent (as defined) of any extension by oral or written notice and will make a
public announcement thereof prior to 9:00 a.m., New York City time, on the next
business day after each previously scheduled Expiration Date, unless otherwise
required by applicable law or regulation.
NEXTLINK reserves the right, in its reasonable discretion, (1) to delay
accepting any old notes, to extend the exchange offer or, if in their reasonable
judgment any of the conditions set forth below under the caption "--Conditions"
shall not have been satisfied, to terminate the exchange offer, by giving oral
or written notice of such delay, extension or termination to the Exchange Agent,
or (2) to amend the terms of the exchange offer in any manner. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly as
practicable by a public announcement thereof. If the exchange offer is amended
in a manner determined by NEXTLINK to constitute a material change, NEXTLINK
will promptly disclose such amendment by means of a prospectus
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<PAGE>
supplement that will be distributed to the registered holders, and NEXTLINK will
extend the exchange offer for a period of five to ten business days, depending
upon the significance of the amendment and the manner of disclosure to the
registered holders, if the exchange offer would otherwise expire during such
five to ten business day period.
Without limiting the manner in which NEXTLINK may choose to make a public
announcement of any delay, extension, termination or amendment of the exchange
offer, NEXTLINK shall have no obligation to publish, advertise or otherwise
communicate any such public announcement, other than by making a timely release
to the Dow Jones News Service.
PROCEDURES FOR TENDERING
Only a holder of old notes may tender such old notes in the exchange offer.
A holder who wishes to tender old notes for exchange pursuant to the exchange
offer must transmit a properly completed and duly executed Letter of
Transmittal, or a facsimile thereof, together with any required signature
guarantees, or, in the case of a book-entry transfer, Agent's Message (as
defined), and any other required documents, to the Exchange Agent prior to
Midnight, New York City time, on the Expiration Date. In addition, either (1)
certificates for such old notes must be received by the Exchange Agent prior to
the Expiration Date along with the Letter of Transmittal, (2) a timely
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such old
notes into the Exchange Agent's account at The Depository Trust Company ("DTC"
or the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date or (3) the holder must comply with the guaranteed delivery
procedures described below. To be tendered effectively, the old notes, or
Book-Entry Confirmation, as the case may be, the Letter of Transmittal and other
required documents must be received by the Exchange Agent at the address set
forth below under "--Exchange Agent" prior to 5:00 p.m., New York City time, on
the Expiration Date.
DELIVERY OF DOCUMENTS TO THE BOOK ENTRY TRANSFER FACILITY IN ACCORDANCE WITH
ITS PROCEDURE DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
DTC has authorized DTC participants that hold old notes on behalf of
beneficial owners of old notes through DTC to tender their old notes as if they
were holders. To effect a tender of old notes, DTC participants should either
(1) complete and sign the Letter of Transmittal (or a manually signed facsimile
thereof), have the signature thereon guaranteed if required by the Instructions
to the Letter of Transmittal, and mail or deliver the Letter of Transmittal (or
such manually signed facsimile) to the Exchange Agent pursuant to the procedure
set forth in "Procedures for Tendering" or (2) transmit their acceptance to DTC
through the DTC Automated Tender Offer Program ("ATOP") for which the
transaction will be eligible and follow the procedure for book-entry transfer
set forth in "--Book-Entry Transfer."
The tender by a holder will constitute an agreement between such holder and
NEXTLINK in accordance with the terms and subject to the conditions set forth
herein and in the Letter of Transmittal.
The method of delivery of the old notes and the Letter of Transmittal and
all other required documents to the Exchange Agent is at the election and risk
of the holder. Instead of delivery by mail, it is recommended that holders use
an overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure delivery to the Exchange Agent before the Expiration Date. No
Letter of Transmittal or old notes, or Book-Entry Confirmation, as the case may
be, should be sent to NEXTLINK.
Any beneficial owner whose old notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
should contact the registered holder
38
<PAGE>
promptly and instruct such registered holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes to tender on such beneficial
owner's own behalf, such owner must, prior to completing and executing the
Letter of Transmittal and delivering such beneficial owner's old notes, either
make appropriate arrangement to register ownership of the old notes in such
owner's name or obtain a properly completed bond power from the registered
holder. The transfer of registered ownership may take considerable time.
If the Letter of Transmittal is signed by a person other than the registered
holder of any old notes listed therein, such old notes must be endorsed or
accompanied by a properly completed bond power and signed by such registered
holder as such registered holder's name appears on such old notes.
If the Letter of Transmittal or any old notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by NEXTLINK, evidence
satisfactory to NEXTLINK of their authority to so act must be submitted with the
Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (as defined below) unless
the old notes tendered pursuant thereto are tendered (1) by a registered holder
who has not completed the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (2) for the
account of an Eligible Institution. In the event that signatures on a Letter of
Transmittal or a notice of withdrawal, as the case may be, are required to be
guaranteed, such guarantee must be by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-5 under the Exchange Act (an "Eligible Institution").
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered old notes will be determined by
NEXTLINK in its sole discretion, which determination shall be final and binding.
NEXTLINK reserves the absolute right to reject any and all old notes not
properly tendered or any old notes NEXTLINK's acceptance of which would, in the
opinion of counsel for NEXTLINK, be unlawful. NEXTLINK also reserves the right
to waive any defects, irregularities or conditions of tender as to particular
old notes. NEXTLINK's interpretation of the terms and conditions of the exchange
offer (including the instructions in the Letter of Transmittal) shall be final
and binding on all parties. Unless waived, any defects of irregularities in
connection with tenders of old notes must be cured within such time as NEXTLINK
shall determine. Neither NEXTLINK, the Exchange Agent nor any other person shall
incur any liability for failure to give notice of any defect or irregularity
with respect to any tender of old notes. Tenders of old notes will not be deemed
to have been made until such defects or irregularities have been cured or
waived. Any old notes received by the Exchange Agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will not be deemed to have been properly tendered. Any old notes received
by the Exchange Agent that are not properly tendered and as to which the defects
or irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holders, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
By tendering, each holder will represent to NEXTLINK, among other things,
that such holder is not a Restricted holder. Each Participating Broker-Dealer
must acknowledge that it will deliver a prospectus in connection with any resale
of such new notes. See "Plan of Distribution."
39
<PAGE>
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
For each old note accepted for exchange, the holder of such old note will
receive a new note having a principal amount equal to that of the surrendered
old note. For purposes of the exchange offer, NEXTLINK shall be deemed to have
accepted properly tendered old notes for exchange when, as and if NEXTLINK has
given oral or written notice thereof to the Exchange Agent.
In all cases, issuance of new notes for old notes that are accepted for
exchange pursuant to the exchange offer will be made only after timely receipt
by the Exchange Agent of certificates for such old notes or a timely Book-Entry
Confirmation of such old notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal or Agent's Message and all other required documents. If any tendered
old notes are not accepted for any reason set forth in the terms and conditions
of the exchange offer or if old notes are submitted for a greater principal
amount than the holder desires to exchange, such unaccepted or non-exchanged old
notes will be returned without expense to the tendering holder thereof (or, in
the case of old notes tendered by book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described below, such non-exchanged old notes will be credited to an
account maintained with such Book-Entry Transfer Facility) as promptly as
practicable after the Expiration Date.
BOOK-ENTRY TRANSFER
The Exchange Agent will establish a new account or utilize an existing
account with respect to the old notes at DTC promptly after the date of this
prospectus, and any financial institution that is a participant in DTC and whose
name appears on a security position listing as the owner of old notes may make a
book-entry tender of old notes by causing DTC to transfer such old notes into
the Exchange Agent's account in accordance with DTC's procedures for such
transfer. However, although tender of old notes may be effected through
book-entry transfer into the Exchange Agent's account at DTC, the Letter of
Transmittal (or a manually signed facsimile thereof), properly completed and
validly executed, with any required signature guarantees, or an Agent's Message
in lieu of the Letter of Transmittal, and any other required documents, must, in
any case, be received by the Exchange Agent at its address set forth below under
the caption "Exchange Agent" on or prior to the Expiration Date, or the
guaranteed delivery procedures described below must be complied with. The
confirmation of a book-entry transfer of old notes into the Exchange Agent's
account at DTC as described above is referred to herein as a "Book-Entry
Confirmation." Delivery of documents to DTC in accordance with DTC's procedures
does not constitute delivery to the Exchange Agent.
The term "Agent's Message" means a message transmitted by DTC to, and
received by, the Exchange Agent and forming a part of a Book-Entry Confirmation,
which states that DTC has received an express acknowledgment from the
participant in DTC tendering the old notes stating (1) the aggregate principal
amount of old notes which have been tendered by such participant, (2) that such
participant has received and agrees to be bound by the term of the Letter of
Transmittal and (3) that NEXTLINK enforce such agreement against the
participant.
GUARANTEE DELIVERY PROCEDURES
Holders who wish to tender their old notes and (1) whose old notes are not
immediately available, (2) who cannot deliver their old notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date or (3) who cannot complete the procedure for book-entry transfer
on a timely basis, may effect a tender if:
(a) the tender is made through an Eligible Institution;
40
<PAGE>
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate number(s)
of such old notes and the principal amount of old notes tendered, stating
that the tender is being made thereby and guaranteeing that, within three
New York Stock Exchange trading days after the Expiration Date, the Letter
of Transmittal (or facsimile thereof) or, in the case of a book-entry
transfer, an Agent's Message, together with the certificate(s) representing
the old notes, or a Book-Entry Confirmation, as the case may be, and any
other documents required by the Letter of Transmittal will be deposited by
the Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof) or, in the case of a book-entry transfer, an Agent's
Message, as well as the certificate(s) representing all tendered old notes
in proper form for transfer, or a Book-Entry Confirmation, as the case may
be, and all other documents required by the Letter of Transmittal are
received by the Exchange Agent within three New York Stock Exchange trading
days after the Expiration Date.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of old notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of old notes in the exchange offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must (1) specify the name of
the person having deposited the old notes to be withdrawn (the "Depositor"), (2)
identify the old Uotes to be withdrawn (including the certificate number or
numbers and principal amount of such old notes), (3) be signed by the holder in
the same manner as the original signature on the Letter of Transmittal by which
such old notes were tendered (including any required signature guarantees) or be
accompanied by documents of transfer sufficient to have the trustee with respect
to the old notes register the transfer of such old notes into the name of the
person withdrawing the tender and (4) specify the name in which any such old
notes are to be registered, if different from that of the Depositor. If
certificates for old notes have been delivered or otherwise identified to the
Exchange Agent, then, prior to the release of such certificates, the withdrawing
holder must also submit the serial numbers of the particular certificates to be
withdrawn and a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution unless such holder is an Eligible Institution. If old notes
have been tendered pursuant to the procedure for book-entry transfer described
above, any notice of withdrawal must specify the name and number of the account
at the Book-Entry Transfer Facility to be credited with the withdrawn old notes
and otherwise comply with the procedures of the Book-Entry Transfer Facility.
All questions as to the validity, form and eligibility (including time of
receipt) of such notices will be determined by NEXTLINK in its sole discretion,
which determination shall be final and binding on all parties. Any old notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
exchange offer and no new notes will be issued with respect thereto unless the
old notes so withdrawn are validly retendered. Properly withdrawn old notes may
be retendered by following one of the procedures described above under
"--Procedures for Tendering" at any time prior to the Expiration Date.
Any old notes which have been tendered but which are not accepted for
payment due to withdrawal, rejection of tender or termination of the exchange
offer will be returned as soon as practicable after withdrawal, rejection of
tender or termination of the exchange offer to the holder thereof without cost
to such holder (or, in the case of old notes tendered by book-entry transfer
into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant
to the book-entry transfer procedures described above, such old notes will be
credited to an account maintained with such Book-Entry Transfer Facility for the
old notes).
41
<PAGE>
CONDITIONS
Notwithstanding any other term of the exchange offer, NEXTLINK shall not be
required to accept for exchange, or exchange new notes for, any old notes, and
may terminate the exchange offer as provided herein before the acceptance of
such old notes, if:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the exchange offer
which, in the reasonable judgment of NEXTLINK , might materially impair the
ability of NEXTLINK to proceed with the exchange offer or materially impair
the contemplated benefits of the exchange offer to NEXTLINK , or any
material adverse development has occurred in any existing action or
proceeding with respect to NEXTLINK or any of its subsidiaries;
(b) any change, or any development involving a prospective change, in
the business or financial affairs of NEXTLINK or any of their subsidiaries
has occurred which, in the reasonable judgment of NEXTLINK , might
materially impair the ability of NEXTLINK to proceed with the exchange offer
or materially impair the contemplated benefits of the exchange offer to
NEXTLINK ;
(c) any law, statute, rule or regulation is proposed, adopted or
enacted, which, in the reasonable judgment of NEXTLINK, might materially
impair the ability of NEXTLINK to proceed with the exchange offer or
materially impair the contemplated benefits of the exchange offer to
NEXTLINK; or
(d) any governmental approval has not been obtained, which approval
NEXTLINK shall, in its reasonable discretion, deem necessary for the
consummation of the exchange offer as contemplated hereby.
The foregoing conditions are for the sole benefit of NEXTLINK and may be
asserted by NEXTLINK regardless of the circumstances giving rise to any such
condition or may be waived by NEXTLINK in whole or in part at any time and from
time to time in their reasonable discretion. The failure by NEXTLINK at any time
to exercise any of the foregoing rights shall not be deemed a waiver of such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time.
If NEXTLINK determines in its reasonable discretion that any of the
conditions are not satisfied, NEXTLINK may (1) refuse to accept any old notes
and return all tendered old notes to the tendering holders, (2) extend the
exchange offer and retain all old notes tendered prior to the expiration of the
exchange offer, subject, however, to the rights of holders to withdraw such old
notes (see "--Withdrawal of Tenders" above) or (3) waive such unsatisfied
conditions with respect to the exchange offer and accept all properly tendered
old notes which have not been withdrawn. If such waiver constitutes a material
change to the exchange offer, NEXTLINK will promptly disclose such waiver by
means of a prospectus supplement that will be distributed to the registered
holders, and NEXTLINK will extend the exchange offer for a period of five to ten
business days, depending upon the significance of the waiver and the manner of
disclosure to the registered holders, if the exchange offer would otherwise
expire during such five to ten business day period.
42
<PAGE>
EXCHANGE AGENT
United States Trust Company has been appointed as Exchange Agent for the
exchange offer. Requests for additional copies of this prospectus or of the
Letter of Transmittal should be directed to the Exchange Agent addressed as
follows:
To: United States Trust Company
By Hand/Overnight Courier:
United States Trust Company
114 West 47(th) Street
New York, NY 10036
Attn: Patricia Stermer
Reorganization Section
Facsimile Transmission
(212) 852-1625
Confirm by Telephone: (212) 852-1664
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by NEXTLINK. NEXTLINK has
not retained any dealer-manager in connection with the exchange offer and will
not make any payments to brokers, dealers or others soliciting acceptances of
the exchange offer. NEXTLINK , however, will pay the exchange agent reasonable
and customary fees for its services and will reimburse it for its reasonable
out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the exchange offer will
be paid by NEXTLINK. Such expenses include fees and expenses of the Exchange
Agent and trustee, accounting and legal fees and printing costs, among others.
NEXTLINK will pay all transfer taxes, if any, applicable to the exchange of
old notes pursuant to the exchange offer. If, however, certificates representing
new notes or old notes for principal amounts not tendered or accepted for
exchange are to be delivered to, or are to be issued in the name of, any person
other than the registered holder of the old notes tendered, or if tendered old
notes are registered in the name of any person other than the person signing the
Letter of Transmittal, or if a transfer tax is imposed for any reason other than
the exchange of old notes pursuant to the exchange offer, then the amount of any
such transfer taxes (whether imposed on the registered holder or any other
persons) will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
ACCOUNTING TREATMENT
The new notes will be recorded at the same carrying value as the old notes,
which is the principal amount as reflected in NEXTLINK's accounting records on
the date of the exchange. Accordingly, no gain or loss for accounting purposes
will be recognized. The expenses of the exchange offer and the unamortized
expenses related to the issuance of the old notes will be amortized over the
term of the Notes.
43
<PAGE>
REGULATORY APPROVALS
NEXTLINK does not believe that the receipt of any material federal or state
regulatory approvals will be necessary in connection with the exchange offer,
other than the effectiveness of the Exchange Offer Registration Statement under
the Securities Act.
OTHER
Participation in the exchange offer is voluntary and holders of old notes
should carefully consider whether to accept the terms and conditions thereof.
Holders of the old notes are urged to consult their financial and tax advisors
in making their own decisions on what action to take with respect to the
exchange offer.
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DESCRIPTION OF THE NOTES
The new notes, like the old notes, will be issued under the indenture, dated
November 12, 1998, between NEXTLINK and The United States Trust Company, as
trustee. The new notes are the same as the old notes except that the new notes
- will not bear legends restricting their transfer and
- will not contain certain terms providing for an increase in the interest
rate under the circumstances described in the registration rights
agreement.
The indenture and its associated documents contain the full legal text of
the matters described in this section. A copy of the indenture has been filed
with the commission as part of our Registration Statement. See "Where You Can
Find More Information" on page ii for information on how to obtain a copy.
Because this section is a summary, it does not describe every aspect of the
notes. This summary is subject to and qualified in its entirety by reference to
all the provisions of the indenture, including definitions of certain terms used
in the indenture. For example, in this section we use capitalized words to
signify defined terms that have been given special meaning in the indenture. We
describe the meaning for only the more important terms, under "Definitions". We
also include references in parentheses to certain Sections of the indenture.
Whenever we refer to particular Sections or defined terms of the indenture in
this prospectus, such Sections or defined terms are incorporated by reference
here.
In this description of notes, the term "NEXTLINK" refers to NEXTLINK
Communications, Inc. and does not include its subsidiaries except for purposes
of financial data determined on a consolidated basis.
GENERAL
The notes:
- will be senior obligations of NEXTLINK;
- will be limited to $500 million aggregate principal amount;
- will mature on November 15, 2008; and
- will bear interest at the rate of 10 3/4% per annum.
Interest will be paid semi-annually on May 15 and November 15 of each year,
commencing May 15, 1999, to the registered holder at the close of business on
the preceding May 1 or November 1.
Interest on the notes will be computed on the basis of a 360 day year of
twelve 30 day months. (Section 301, 307 and 310)
NEXTLINK will pay interest, principal and any other money due on the notes
at the corporate trust office of the trustee in New York City. That office is
currently located at 114 West 47th Street, New York, New York 10036. You must
make arrangements to have your payments picked up at or wired from that office.
NEXTLINK may also choose to pay interest by mailing checks. (Section301, 305 and
1002)
The notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple of $1,000. (Section302) You
will not be required to pay a service charge to transfer or exchange notes, but
you may be required to pay for any tax or other governmental charge associated
with the exchange or transfer. (Section305)
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RANKING
The notes:
- will be senior obligations of NEXTLINK;
- will rank pari passu in right of payment with all existing and future
senior obligations of NEXTLINK, including, without limitation, the 9%
notes, the 9 5/8% notes, the 12 1/2% notes and the 9.45% notes; and
- will rank senior in right of payment to all future subordinated
obligations of NEXTLINK.
Holders of secured obligations of NEXTLINK will, however, have claims that
are prior to the claims of the holders of the notes with respect to the assets
securing those other obligations.
NEXTLINK's principal operations are conducted through its Subsidiaries, and
NEXTLINK is therefore dependent upon the cash flow of its Subsidiaries to meet
its obligations. NEXTLINK's Subsidiaries will have no obligation to guarantee or
otherwise pay amounts due under the Notes. Therefore, the notes will be
effectively subordinated to all indebtedness and other liabilities and
commitments (including trade payables) of NEXTLINK's Subsidiaries. Any right of
NEXTLINK to receive assets of any Subsidiary upon any liquidation or
reorganization of that Subsidiary (and the consequent right of holders of the
notes to participate in those assets) will be effectively subordinated to the
claims of the Subsidiary's creditors, except to the extent that NEXTLINK itself
is recognized as a creditor of the Subsidiary. See "Risk Factors--Holding
Company Structure; Unsecured Obligations; Effective Subordination of the Notes."
As of September 30, 1998, on a pro forma basis after giving effect to the
sale of the old notes:
- the total amount of outstanding consolidated liabilities of NEXTLINK and
its Subsidiaries, including trade payables, would have been approximately
$2,120.7 million, of which $14.2 million would have been secured
obligations (excluding the 12 1/2% notes, which are secured by a pledge of
$43.0 million of U.S. Treasury securities as of September 30, 1998); and
- the total amount of outstanding liabilities of NEXTLINK's Subsidiaries,
including trade payables, would have been $60.2 million, of which $11.7
million would have been secured obligations.
For more information, see "Description of Certain Indebtedness" and
"Selected Historical Consolidated Financial and Operating Data."
OPTIONAL REDEMPTION
The notes may be redeemed, at NEXTLINK's option, in whole or in part, at any
time on or after November 15, 2003 upon not less than 30 nor more than 60 days'
notice mailed to each holder of notes to be redeemed at such holder's address
appearing in the Note Register, in amounts of $1,000 principal amount or an
integral multiple of $1,000, at the following Redemption Prices (expressed as
percentages of the principal amount) plus accrued interest, if redeemed during
the 12 month period beginning November 15 of the years indicated:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ------------------------------------------------------------------------ ----------------
<S> <C>
2003.................................................................... 105.375%
2004.................................................................... 103.583%
2005.................................................................... 101.792%
2006 and thereafter..................................................... 100.000%
</TABLE>
(SectionSection 203, 1101, 1105 and 1107)
46
<PAGE>
The notes will be redeemable prior to November 15, 2003 only if on or before
November 15, 2001 NEXTLINK receives net proceeds from a sale of its Common
Equity. In that case NEXTLINK may, at its option, use all or a portion of any
such net proceeds to redeem Notes in a principal amount of up to 33 1/3% of the
original principal amount of the notes, PROVIDED that:
- at least 66 2/3% of the original aggregate principal amount of the notes
remains outstanding after the redemption; and
- the redemption occurs on a Redemption Date within 90 days of such sale and
upon not less than 30 nor more than 60 days' notice mailed to each holder
of notes to be redeemed, in amounts of $1,000 principal amount or an
integral multiple of $1,000, at a redemption price of 112.750% of their
principal amount plus accrued and unpaid interest.
If less than all the notes are to be redeemed, the trustee shall select, on
a pro rata basis, by lot or by such other method as the trustee shall deem fair
and appropriate, the particular notes to be redeemed or any portion thereof that
is an integral multiple of $1,000. (Section1104)
MANDATORY REDEMPTION; SINKING FUND
Except as set forth under "Covenants--Limitation on Asset Dispositions" and
"Covenants-- Change of Control" below, NEXTLINK is not required to purchase or
make mandatory redemption payments or sinking fund payments with respect to the
notes.
COVENANTS
The following "restrictive covenants" are promises that we make to you about
how we will run our business, or business actions that we promise not to take.
LIMITATION ON CONSOLIDATED INDEBTEDNESS
NEXTLINK may not, and may not permit any Restricted Subsidiary to, Incur any
Debt unless either:
(a) the ratio of (1) the aggregate consolidated principal amount of Debt
of NEXTLINK outstanding as of the most recent available quarterly or annual
balance sheet, after giving pro forma effect to the Incurrence of such Debt
and any other Debt Incurred since such balance sheet date and the receipt
and application of the proceeds thereof to (2) Consolidated Cash Flow
Available for Fixed Charges for the four full fiscal quarters next preceding
the Incurrence of such Debt for which consolidated financial statements are
available, determined on a pro forma basis as if
(x) any such Debt had been Incurred and the proceeds thereof had been
applied at the beginning of such four fiscal quarters,
(y) the net income (or loss) for such period of any Person or related
to any assets disposed of by NEXTLINK or a Restricted Subsidiary prior to
the end of such period had been excluded from Consolidated Net Income and
(z) the net income (or loss) for such period of any Person or related
to any assets acquired by NEXTLINK or any Restricted Subsidiary prior to
the end of such period had been included in Consolidated Net Income,
would be less than 5.5 to 1 for such four quarter periods ending on or prior
to December 31, 1999 and 5.0 to 1 for such periods ending thereafter; or
(b) NEXTLINK's Consolidated Capital Ratio as of the most recent
available quarterly or annual balance sheet, after giving pro forma effect
to the Incurrence of such Debt, any issuance of
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capital stock (other than Disqualified Stock) since such balance sheet date,
any increase in paid-in-capital (other than in respect of Disqualified
Stock) since such balance sheet date and the Incurrence of any other Debt
since such balance sheet date and the receipt and application of the
proceeds thereof, is less than 2.0 to 1.
Notwithstanding the foregoing limitation, NEXTLINK and any Restricted
Subsidiary may Incur the following:
(1) Debt under any one or more Bank Credit Agreements or Vendor
Financing Facilities in an aggregate principal amount at any one time not to
exceed the greater of (x) $175 million and (y) 85% of the Eligible
Receivables, and any renewal, extension, refinancing or refunding thereof in
an amount which, together with any principal amount remaining outstanding or
available under all Bank Credit Agreements and Vendor Financing Facilities
of NEXTLINK and its Restricted Subsidiaries, plus the amount of any premium
required to be paid in connection with such refinancing pursuant to the
terms of any Bank Credit Agreement so refinanced plus the amount of expenses
incurred in connection with such refinancing, does not exceed the aggregate
principal amount outstanding or available under all such Bank Credit
Agreements and Vendor Financing Facilities of NEXTLINK and its Restricted
Subsidiaries immediately prior to such renewal, extension, refinancing or
refunding;
(2) Purchase Money Debt Incurred to finance the construction,
acquisition or improvement of Telecommunications Assets, provided that the
net proceeds of such Purchase Money Debt do not exceed 100% of the cost of
construction, acquisition or improvement price of the applicable
Telecommunications Assets;
(3) Debt owed by NEXTLINK to any Restricted Subsidiary of NEXTLINK or
Debt owed by a Restricted Subsidiary to NEXTLINK or a Restricted Subsidiary
of NEXTLINK; provided, however, that upon either (x) the transfer or other
disposition by such Restricted Subsidiary or NEXTLINK of any Debt so
permitted to a Person other than NEXTLINK or another Restricted Subsidiary
of NEXTLINK or (y) the issuance (other than directors' qualifying shares),
sale, lease, transfer or other disposition of shares of Capital Stock
(including by consolidation or merger) of such Restricted Subsidiary, as a
result of which the obligor of such Debt ceases to be a Restricted
Subsidiary, the provisions of this clause (3) shall no longer be applicable
to such Debt and such Debt shall be deemed to have been Incurred at the time
of such transfer or other disposition;
(4) Debt Incurred to renew, extend, refinance or refund (each, a
"refinancing") Debt outstanding at the date of the indenture or incurred
pursuant to the preceding paragraph or clause (2) of this paragraph or the
notes in an aggregate principal amount not to exceed the aggregate principal
amount of and accrued interest on the Debt so refinanced plus the amount of
any premium required to be paid in connection with such refinancing pursuant
to the terms of the Debt so refinanced or the amount of any premium
reasonably determined by NEXTLINK as necessary to accomplish such
refinancing by means of a tender offer or privately negotiated repurchase,
plus the amount of expenses of NEXTLINK incurred in connection with such
refinancing; provided, however, that Debt the proceeds of which are used to
refinance the notes or Debt which is pari passu to the notes or debt which
is subordinate in right of payment to the notes shall only be permitted if
(A) in the case of any refinancing of the notes or Debt which is pari passu
to the notes, the refinancing Debt is made pari passu to the notes or
subordinated to the notes, and, in the case of any refinancing of Debt which
is subordinated to the notes, the refinancing Debt constitutes Subordinated
Debt and (B) in either case, the refinancing Debt by its terms, or by the
terms of any agreement or instrument pursuant to which such Debt is issued,
(x) does not provide for payments of principal of such Debt at the stated
maturity thereof or by way of a sinking fund applicable thereto or by way of
any mandatory redemption, defeasance, retirement or repurchase thereof by
NEXTLINK (including any redemption, retirement or
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repurchase which is contingent upon events or circumstances, but excluding
any retirement required by virtue of acceleration of such Debt upon any
event of default thereunder), in each case prior to the time the same are
required by the terms of the Debt being refinanced and (y) does not permit
redemption or other retirement (including pursuant to an offer to purchase
made by NEXTLINK) of such debt at the option of the holder thereof prior to
the final stated maturity of the Debt being refinanced, other than a
redemption or other retirement at the option of the holder of such Debt
(including pursuant to an offer to purchase made by NEXTLINK) which is
conditioned upon a change substantially similar to those described under
"--Change of Control" or which is pursuant to provisions substantially
similar to those described under "--Limitation on Asset Dispositions".
(5) Debt consisting of Permitted Interest Rate or Currency Protection
Agreements;
(6) Debt outstanding under the Notes;
(7) Subordinated Debt invested by (a) a group of employees of NEXTLINK,
which includes the Chief Executive Officer of NEXTLINK, who own, directly or
indirectly, through an employee stock ownership plan or arrangement, shares
of NEXTLINK's Capital Stock or (b) any other Person that controls NEXTLINK
(i) on the Issue Date or (ii) after a Change of Control, provided that
NEXTLINK is not in default with respect to its obligations described under
"--Change of Control" below;
(8) Debt consisting of performance and other similar bonds and
reimbursement obligations Incurred in the ordinary course of business
securing the performance of contractual, franchise or license obligations of
NEXTLINK or a Restricted Subsidiary, or in respect of a letter of credit
obtained to secure such performance; and
(9) Debt not otherwise permitted to be Incurred pursuant to clauses (1)
through (8) above, which, together with any other outstanding Debt Incurred
pursuant to this clause (9), has an aggregate principal amount or, in the
case of Debt issued at a discount, an accreted amount (determined in
accordance with generally accepted accounting principles) at the time of
Incurrence not in excess of $10 million at any time outstanding.
For purposes of determining compliance with this "Limitation on Consolidated
Debt" covenant, if an item of Debt meets the criteria of more than one of the
types of Debt NEXTLINK is permitted to incur pursuant to the foregoing clauses
(1) through (9) or the first unnumbered paragraph of this "Limitation on
Consolidated Indebtedness," NEXTLINK shall have the right, in its sole
discretion, to classify such item of Debt and shall only be required to include
the amount and type of such Debt under the clause or paragraph permitting the
Debt as so classified. For purposes of determining any particular amount of Debt
under such covenant, Guarantees or Liens with respect to letters of credit
supporting Debt otherwise included in the determination of a particular amount
shall not be included. (Section1007)
LIMITATION ON DEBT AND PREFERRED STOCK OF RESTRICTED SUBSIDIARIES
NEXTLINK may not permit any Restricted Subsidiary (other than a Restricted
Subsidiary that has fully and unconditionally Guaranteed the notes on an
unsubordinated basis) to Incur or suffer to exist any Debt or issue any
Preferred Stock except:
(1) Debt or Preferred Stock outstanding on the date of the Indenture
after giving effect to the application of the proceeds of the notes;
(2) Debt Incurred or Preferred Stock issued to and held by NEXTLINK or a
Restricted Subsidiary of NEXTLINK (provided that such Debt or Preferred
Stock is at all times held by NEXTLINK or a Restricted Subsidiary of
NEXTLINK);
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(3) Debt Incurred or Preferred Stock issued by a Person prior to the
time (A) such Person became a Restricted Subsidiary of NEXTLINK, (B) such
Person merges into or consolidates with a Restricted Subsidiary of NEXTLINK
or (C) another Restricted Subsidiary of NEXTLINK merges into or consolidates
with such Person (in a transaction in which such Person becomes a Restricted
Subsidiary of NEXTLINK), which Debt or Preferred Stock was not Incurred or
issued in anticipation of such transaction and was outstanding prior to such
transaction;
(4) Debt consisting of Permitted Interest Rate and Currency Protection
Agreements;
(5) Debt or Preferred Stock of a Joint Venture;
(6) Debt under any one or more Bank Credit Agreements or Vendor
Financing Facilities (and renewals, extensions, refinancings or refundings
thereof) which is permitted to be outstanding under clause (1) of the
"--Limitation on Consolidated Indebtedness";
(7) Debt consisting of Guarantees of the Notes;
(8) Debt or Preferred Stock which is exchanged for, or the proceeds of
which are used to refinance, refund or redeem, any Debt or Preferred Stock
permitted to be outstanding pursuant to clauses (1), (3) and (9) hereof (or
any extension or renewal thereof) (for purposes hereof, a "refinancing"), in
an aggregate principal amount, in the case of Debt, or with an aggregate
liquidation preference, in the case of Preferred Stock, not to exceed the
aggregate principal amount of the Debt so refinanced or the aggregate
liquidation preference of the Preferred Stock so refinanced, plus the amount
of any premium required to be paid in connection with such refinancing
pursuant to the terms of the Debt or Preferred Stock so refinanced or the
amount of any premium reasonably determined by NEXTLINK as necessary to
accomplish such refinancing by means of a tender offer or privately
negotiated repurchase, plus the amount of expenses of NEXTLINK and the
Restricted Subsidiary incurred in connection therewith and provided the Debt
or Preferred Stock incurred or issued upon such refinancing by its terms, or
by the terms of any agreement or instrument pursuant to which such Debt or
Preferred Stock is Incurred or issued, (10) does not provide for payments of
principal or liquidation value at the stated maturity of such Debt or
Preferred Stock or by way of a sinking fund applicable to such Debt or
Preferred Stock or by way of any mandatory redemption, defeasance,
retirement or repurchase of such Debt or Preferred Stock by NEXTLINK or any
Restricted Subsidiary of NEXTLINK (including any redemption, retirement or
repurchase which is contingent upon events or circumstances, but excluding
any retirement required by virtue of acceleration of such Debt upon an event
of default thereunder), in each case prior to the time the same are required
by the terms of the Debt or Preferred Stock being refinanced and (y) does
not permit redemption or other retirement (including pursuant to an offer to
purchase made by NEXTLINK or a Restricted Subsidiary) of such Debt or
Preferred Stock at the option of the holder thereof prior to the stated
maturity of the Debt or Preferred Stock being refinanced, other than a
redemption or other retirement at the option of the holder of such Debt or
Preferred Stock (including pursuant to an offer to purchase made by NEXTLINK
or a Restricted Subsidiary) which is conditioned upon the change of control
of NEXTLINK pursuant to provisions substantially similar to those contained
in the Indenture described under "--Change of Control" or which is pursuant
to provisions substantially similar to those described under "--Limitation
on Asset Dispositions", and provided, further, that in the case of any
exchange or redemption of Preferred Stock of a Restricted Subsidiary, such
Preferred Stock may only be exchanged for or redeemed with Preferred Stock
of such Restricted Subsidiary;
(11) Purchase Money Debt Incurred to finance the construction,
acquisition or improvement of Telecommunications Assets, provided that the
net proceeds of such Purchase Money Debt do not exceed 100% of the cost of
construction, acquisition or improvement price of the applicable
Telecommunications Assets;
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(12) Debt consisting of performance and other similar bonds and
reimbursement obligations Incurred in the ordinary course of business
securing the performance of contractual, franchise or license obligations of
NEXTLINK or a Restricted Subsidiary, or in respect of a letter of credit
obtained to secure such performance; and
(13) Debt not otherwise permitted to be incurred pursuant to clauses (1)
through (12) above, which, together with any other outstanding Debt incurred
pursuant to this clause (13), has an aggregate principal amount (or, in the
case of Debt issued at a discount, an accreted amount (determined in
accordance with generally accepted accounting principles) at the time of
Incurrence) not in excess of $10 million at any time outstanding.
(Section1008)
For purposes of determining compliance with this "Limitation on Debt and
Preferred Stock of Restricted Subsidiaries" covenant, in the event that an item
of Debt meets the criteria of more than one of the types of Debt a Restricted
Subsidiary is permitted to incur pursuant to the foregoing clauses (1) through
(9), NEXTLINK shall have the right, in its sole discretion, to classify such
item of Debt and shall be only required to include the amount and type of such
Debt under the clause permitting the Debt as so classified. For purposes of
determining any particular amount of Debt under such covenant, Guarantees or
Liens with respect to letters of credit supporting Debt or otherwise included in
the determination of a particular amount shall not be included.
LIMITATION ON RESTRICTED PAYMENTS
NEXTLINK may not:
(1) directly or indirectly, declare or pay any dividend, or make any
distribution, in respect of its Capital Stock or to the holders thereof (in
their capacity as such), excluding any dividends or distributions payable
solely in shares of its Capital Stock (other than Disqualified Stock) or in
options, warrants or other rights to acquire its Capital Stock (other than
Disqualified Stock);
(2) and may not permit any Restricted Subsidiary to, purchase, redeem,
or otherwise retire or acquire for value (a) any Capital Stock of NEXTLINK
or any Related Person of NEXTLINK; or (b) any options, warrants or rights to
purchase or acquire shares of Capital Stock of NEXTLINK or any Related
Person of NEXTLINK or any securities convertible or exchangeable into shares
of Capital Stock of NEXTLINK or any Related Person of NEXTLINK;
(3) make, or permit any Restricted Subsidiary to make, any Investment
in, or payment on a Guarantee of any obligation of, any Person, other than
NEXTLINK or a Restricted Subsidiary of NEXTLINK, except for Permitted
Investments; and
(4) and may not permit any Restricted Subsidiary to, redeem, defease,
repurchase, retire or otherwise acquire or retire for value, prior to any
scheduled maturity, repayment or sinking fund payment, Debt of NEXTLINK
which is subordinate in right of payment to the Notes (each of clauses (1)
through (4) being a "Restricted Payment")
if:
(a) a Default or an Event of Default shall have occurred and is continuing;
or
(b) upon giving effect to such Restricted Payment, NEXTLINK could not Incur
at least $1.00 of additional Debt pursuant to the terms of the Indenture
described in the first paragraph of "--Limitation on Consolidated
Indebtedness" above; or
(c) upon giving effect to such Restricted Payment, the aggregate of all
Restricted Payments from April 25, 1996 exceeds the sum of:
(i) 50% of cumulative Consolidated Net Income (or, in the case
Consolidated Net Income shall be negative, less 100% of such deficit)
since the end of the last full fiscal quarter
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prior to April 25, 1996 through the last day of the last full fiscal
quarter ending immediately preceding the date of such Restricted
Payment; plus
(ii) $5 million; plus
(iii) 100% of the net reduction in Investments in any Unrestricted
Subsidiary resulting from payments of interest on Debt, dividends,
repayments of loans or advances, or other transfers of assets, in
each case to NEXTLINK or any Restricted Subsidiary of NEXTLINK from
such Unrestricted Subsidiary (except to the extent that any such
payment is included in the calculation of Consolidated Net Income)
or from redesignations of Unrestricted Subsidiaries as Restricted
Subsidiaries; PROVIDED that the amount included in this clause
(iii) shall not exceed the amount of Investments previously made by
NEXTLINK and its Restricted Subsidiaries in such Unrestricted
Subsidiary;
PROVIDED, FURTHER, that NEXTLINK or a Restricted Subsidiary of NEXTLINK may make
any Restricted Payment with the aggregate net proceeds received after April 25,
1996, including the fair value of property other than cash (determined in good
faith by the Board of Directors of NEXTLINK, as conclusively evidenced by a
Board Resolution filed with the trustee), as capital contributions to NEXTLINK
or from the issuance (other than to a Restricted Subsidiary) of Capital Stock
(other than Disqualified Stock) of NEXTLINK and warrants, rights or options on
Capital Stock (other than Disqualified Stock) of NEXTLINK and the principal
amount of Debt of NEXTLINK that has been converted into Capital Stock (other
than Disqualified Stock and other than by a Restricted Subsidiary) of NEXTLINK
after April 25, 1996.
Notwithstanding the foregoing:
(1) NEXTLINK may pay any dividend on Capital Stock of any class within
60 days after the declaration thereof if, on the date when the dividend was
declared, NEXTLINK could have paid such dividend in accordance with the
foregoing provisions
(2) NEXTLINK may repurchase any shares of its Common Equity or options
to acquire its Common Equity from Persons who were formerly officers or
employees of NEXTLINK, PROVIDED that the aggregate amount of all such
repurchases made pursuant to this clause (2) shall not exceed $2 million,
plus the aggregate cash proceeds received by NEXTLINK since April 25, 1996
from issuances of its Common Equity or options to acquire its Common Equity
to members, officers, managers, directors and employees of NEXTLINK or any
of its Subsidiaries;
(3) NEXTLINK and its Restricted Subsidiaries may refinance any Debt
otherwise permitted by clause (4) of the second paragraph under
"--Limitation on Consolidated Indebtedness" above; and
(4) NEXTLINK and its Restricted Subsidiaries may retire or repurchase
any Capital Stock or Subordinated Debt of NEXTLINK in exchange for, or out
of the proceeds of the substantially concurrent sale (other than to a
Restricted Subsidiary of NEXTLINK) of, Capital Stock (other than
Disqualified Stock) of NEXTLINK. If NEXTLINK makes a Restricted Payment
which, at the time it is made, would in good faith determination of NEXTLINK
be permitted under the Indenture, such Restricted Payment shall be deemed to
have been made in compliance with the Indenture notwithstanding any
subsequent adjustments in good faith to NEXTLINK financial statements
affecting Consolidated Net Income for any period.
In determining the aggregate amount expended or available for Restricted
Payments in accordance with clause (c) of the first paragraph above, (1) no
amounts expended under clauses (3) or (4) of the immediately preceding paragraph
shall be included, (2) 100% of the amounts expended under clauses (1) and (2) of
the immediately preceding paragraph shall be included, and (3) no amount shall
be
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credited in respect of issuances of Capital Stock in transactions under clause
(4) of the immediately preceding paragraph. (Section 1009)
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES
NEXTLINK may not, and may not permit any Restricted Subsidiary to, directly
or indirectly, create or otherwise cause or suffer to exist or become effective
any consensual encumbrance or restriction on the ability of any Restricted
Subsidiary of NEXTLINK:
(1) to pay dividends (in cash or otherwise) or make any other
distributions in respect of its Capital Stock owned by NEXTLINK or any other
Restricted Subsidiary or pay any Debt or other obligation owed to NEXTLINK
or any other Restricted Subsidiary;
(2) to make loans or advances to NEXTLINK or any other Restricted
Subsidiary; or
(3) to transfer any of its property or assets to NEXTLINK or any other
Restricted Subsidiary.
Notwithstanding the foregoing, NEXTLINK may, and may permit any Restricted
Subsidiary to, suffer to exist any such encumbrance or restriction:
(a) pursuant to any agreement in effect on the Issue Date;
(b) pursuant to an agreement relating to any Acquired Debt, which
encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person so acquired and
its Subsidiaries;
(c) pursuant to any one or more Bank Credit Agreements or Vendor
Financing Facilities (and renewals, extensions, refinancings or refundings
thereof) which is permitted to be outstanding under clause (i) of the
"Limitation on Consolidated Indebtedness", PROVIDED that such restriction is
consistent with, and not materially more restrictive (as conclusively
determined in good faith by the Chief Financial Officer of NEXTLINK), taken
as a whole, than, comparable provisions included in similar agreements or
facilities extended to comparable credits engaged in the Telecommunications
Business;
(d) pursuant to an agreement effecting a renewal, refunding or extension
of Debt Incurred pursuant to an agreement referred to in clause (a) or (b)
above or (e) below, PROVIDED, HOWEVER, that the provisions contained in such
renewal, refunding or extension agreement relating to such encumbrance or
restriction are not materially more restrictive (as conclusively determined
in good faith by the Chief Financial Officer of NEXTLINK), taken as a whole,
than the provisions contained in the agreement the subject thereof;
(e) in the case of clause (3) above, restrictions contained in any
security agreement (including a Capital Lease Obligation) securing Debt of
NEXTLINK or a Restricted Subsidiary otherwise permitted under the Indenture,
but only to the extent such restrictions restrict the transfer of the
property subject to such security agreement;
(f) in the case of clause (3) above, customary nonassignment provisions
entered into in the ordinary course of business in leases and other
agreements;
(g) any restriction with respect to a Restricted Subsidiary of NEXTLINK
imposed pursuant to an agreement which has been entered into for the sale or
disposition of all or substantially all of the Capital Stock or assets of
such Restricted Subsidiary, PROVIDED that consummation of such transaction
would not result in a Default or an Event of Default, that such restriction
terminates if such transaction is not consummated and that such consummation
or abandonment of such transaction occurs within one year of the date such
agreement was entered into;
(h) pursuant to applicable law or regulations;
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(i) pursuant to the indenture and the notes; or
(j) any restriction on the sale or other disposition of assets or
property securing Debt as a result of a Permitted Lien on such assets or
property. (Section 1010)
LIMITATION ON LIENS
NEXTLINK may not, and may not permit any Restricted Subsidiary to, Incur or
suffer to exist any Lien on or with respect to any property or assets now owned
or hereafter acquired to secure any Debt without making, or causing such
Restricted Subsidiary to make, effective provision for securing the Notes (x)
equally and ratably with (or prior to) such Debt as to such property for so long
as such Debt will be so secured or (y) in the event such Debt is Debt of
NEXTLINK which is subordinate in right of payment to the Notes, prior to such
Debt as to such property for so long as such Debt will be so secured.
The foregoing restrictions shall not apply to:
(1) Liens existing on the Issue Date and securing Debt outstanding on
the Issue Date or securing the Notes or Liens securing Debt incurred
pursuant to any Bank Credit Agreement or Vendor Financing Facility (whether
or not such Bank Credit Agreement or Vendor Financing Facility was
outstanding on the Issue Date);
(2) Liens securing Debt in an amount which, together with the aggregate
amount of Debt then outstanding or available under the Bank Credit Agreement
and the Vendor Financing Facility (or under refinancings or amendments of
such agreements), does not exceed 1.5 times NEXTLINK's Consolidated Cash
Flow Available for Fixed Charges for the four full fiscal quarters preceding
the Incurrence of such Lien for which consolidated financial statements are
available, determined on a pro forma basis as if such Debt had been Incurred
and the proceeds thereof had been applied at the beginning of such four
fiscal quarters;
(3) Liens in favor of NEXTLINK or any Wholly Owned Restricted Subsidiary
of NEXTLINK;
(4) Liens on real or personal property of NEXTLINK or a Restricted
Subsidiary of NEXTLINK acquired, constructed or constituting improvements
made after the Issue Date to secure Purchase Money Debt which is Incurred
for the construction, acquisition and improvement of Telecommunications
Assets and is otherwise permitted under the indenture, PROVIDED, HOWEVER,
that (a) the net proceeds of any Debt secured by such a Lien does not exceed
100% of such purchase price or cost of construction or improvement of the
property subject to such Lien; (b) such Lien attaches to such property prior
to, at the time of or within 180 days after the acquisition, completion of
construction or commencement of operation of such property; and (c) such
Lien does not extend to or cover any property other than the property (or
identifiable portions thereof) acquired, constructed or constituting
improvements made with the proceeds of such Purchase Money Debt (it being
understood and agreed that all Debt owed to any single lender or group of
lenders or outstanding under any single credit facility shall be considered
a single Purchase Money Debt, whether drawn at one time or from time to
time);
(5) Liens to secure Acquired Debt, provided, however, that (a) such Lien
attaches to the acquired asset prior to the time of the acquisition of such
asset and (b) such Lien does not extend to or cover any other asset;
(6) Liens to secure Debt Incurred to extend, renew, refinance or refund
(or successive extensions, renewals, refinancings or refundings), in whole
or in part, Debt secured by any Lien referred to in the foregoing clauses
(1), (2), (4) and (5) so long as such Lien does not extend to any other
property and the principal amount of Debt so secured is not increased except
as otherwise permitted under clause (4) of "--Limitation on Consolidated
Indebtedness";
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(7) Liens securing Debt not otherwise permitted by the foregoing clauses
(1) through (4) in an amount not to exceed 5% of NEXTLINK's Consolidated
Tangible Assets determined as of the most recent available quarterly or
annual balance sheet; and
(8) Permitted Liens. (Section 1011)
LIMITATION ON SALE AND LEASEBACK TRANSACTIONS
NEXTLINK may not, and may not permit any Restricted Subsidiary to, enter
into any Sale and Leaseback Transaction unless:
(1) NEXTLINK or such Restricted Subsidiary would be entitled to incur a
Lien to secure Debt by reason of the provisions described under
"--Limitation on Liens" above, equal in amount to the Attributable Value of
the Sale and Leaseback Transaction without equally and ratably securing the
notes; or
(2) the Sale and Leaseback Transaction is treated as an Asset
Disposition and all of the conditions of the Indenture described under
"--Limitation on Asset Dispositions" (including the provisions concerning
the application of Net Available Proceeds) are satisfied with respect to
such Sale and Leaseback Transaction, treating all of the consideration
received in such Sale and Leaseback Transaction in the same manner as
consideration received in respect of an Asset Disposition for purposes of
such covenant. (Section 1012)
LIMITATION ON ASSET DISPOSITIONS
NEXTLINK may not, and may not permit any Restricted Subsidiary to, make any
Asset Disposition in one or more related transactions occurring within any 12
month period unless:
(1) NEXTLINK or the Restricted Subsidiary, as the case may be, receives
consideration for such disposition at least equal to the fair market value
for the assets sold or disposed of as determined by the Board of Directors
of NEXTLINK in good faith and evidenced by a Board Resolution filed with the
Trustee, which determination shall be conclusive;
(2) at least 75% of the consideration for such disposition consists of
(a) cash or readily marketable cash equivalents or the assumption of Debt of
NEXTLINK (other than Debt that is subordinated to the Notes) or of the
Restricted Subsidiary and release from all liability on the Debt assumed;
(b) Telecommunications Assets; or (c) shares of publicly traded Voting Stock
of any Person engaged in the Telecommunications Business in the United
States; and
(3) all Net Available Proceeds, less any amounts invested in
Telecommunications Assets (within 180 days prior to and 360 days following
such disposition), are applied within 360 days of such disposition
(a) first, to the permanent repayment or reduction of Debt then
outstanding under any Bank Credit Agreement or Vendor Financing Facility,
to the extent such agreements would require such application or prohibit
payments pursuant to clause (b) following,
(b) second, to the extent of remaining Net Available Proceeds, to
make an Offer to Purchase outstanding notes at 100% of their principal
amount, plus accrued interest to the date of purchase, and, to the extent
required by the terms thereof, any other Debt of NEXTLINK that is PARI
PASSU with the notes at a price no greater than 100% of the principal
amount thereof plus accrued interest to the date of purchase (or 100% of
the accreted value thereof in the case of Debt issued at an original
issue discount) and
(c) third, to the extent of any remaining Net Available Proceeds
following the completion of the Offer to Purchase, to the repayment of
other Debt of NEXTLINK or Debt of a
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Restricted Subsidiary of NEXTLINK, to the extent permitted under the
terms thereof. To the extent any Net Available Proceeds remain after such
uses, NEXTLINK and its Restricted Subsidiaries may use such amounts for
any purposes not prohibited by the indenture. (Section 1013)
Notwithstanding the foregoing, these provisions shall not apply to any Asset
Disposition which constitutes a transfer, conveyance, sale, lease or other
disposition of all or substantially all of NEXTLINK's properties or assets as
described under "--Mergers, Consolidations and Certain Sales of Assets."
LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES
NEXTLINK may not, and may not permit any Restricted Subsidiary to, issue,
transfer, convey, sell or otherwise dispose of any shares of Capital Stock of a
Restricted Subsidiary of NEXTLINK or securities convertible or exchangeable
into, or options, warrants, rights or any other interest with respect to,
Capital Stock of a Restricted Subsidiary of NEXTLINK to any person other than
NEXTLINK or a Wholly Owned Restricted Subsidiary of NEXTLINK except:
(1) in a transaction consisting of a sale of Capital Stock of such
Restricted Subsidiary owned by NEXTLINK or any Restricted Subsidiary of
NEXTLINK and that complies with the provisions described under "--Limitation
on Asset Dispositions" above to the extent such provisions apply;
(2) if required, the issuance, transfer, conveyance, sale or other
disposition of directors' qualifying shares;
(3) in a transaction in which, or in connection with which, NEXTLINK or
a Restricted Subsidiary acquires at the same time sufficient Capital Stock
of such Restricted Subsidiary to at least maintain the same percentage
ownership interest it had prior to such transaction;
(4) constituting the issuance of Preferred Stock permitted by the
provisions described under "--Limitation on Debt and Preferred Stock of
Restricted Subsidiaries" above; and
(5) Disqualified Stock issued in exchange for, or upon conversion of, or
the proceeds of the issuance of which are used to redeem, refinance, replace
or refund shares of Disqualified Stock of such Restricted Subsidiary,
provided that the amounts of the redemption obligations of such Disqualified
Stock shall not exceed the amounts of the redemption obligations of, and
such Disqualified Stock shall have redemption obligations no earlier than
those required by, the Disqualified Stock being exchanged, converted,
redeemed, refinanced, replaced or refunded. (Section 1014)
TRANSACTIONS WITH AFFILIATES AND RELATED PERSONS
NEXTLINK may not, and may not permit any Restricted Subsidiary to, enter
into any transaction (or series of related transactions) with an Affiliate or
Related Person of NEXTLINK (other than NEXTLINK or a Wholly Owned Restricted
Subsidiary of NEXTLINK), including any Investment, but excluding transactions
pursuant to employee compensation arrangements approved by the Board of
Directors of NEXTLINK, either directly or indirectly, unless such transaction is
on terms no less favorable to NEXTLINK or such Restricted Subsidiary than those
that could reasonably be obtained in a comparable arm's length transaction with
an entity that is not an Affiliate or Related Person and is in the best
interests of NEXTLINK or such Restricted Subsidiary. For any transaction that
involves in excess of $1 million but less than or equal to $15 million, the
Chief Executive Officer of NEXTLINK shall determine that the transaction
satisfies the above criteria and shall evidence such a determination by a
certificate filed with the trustee. For any transaction that involves in excess
of $15 million, NEXTLINK shall also obtain an opinion from a nationally
recognized expert with experience in appraising the terms and conditions, taken
as a whole, of the type of transaction (or series of related transactions) for
which the opinion is required stating that such transaction (or series of
related
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transactions) is on terms and conditions, taken as a whole, no less favorable to
NEXTLINK or such Restricted Subsidiary than those that could be obtained in a
comparable arm's length transaction with an entity that is not an Affiliate or
Related Person of NEXTLINK, which opinion shall be filed with the Trustee. This
covenant shall not apply to Investments by an Affiliate or a Related Person of
NEXTLINK in the Capital Stock (other than Disqualified Stock) of NEXTLINK or any
Restricted Subsidiary of NEXTLINK. (Section 1015)
CHANGE OF CONTROL
Within 30 days of the occurrence of a Change of Control, NEXTLINK will be
required to make an Offer Purchase all outstanding Notes at a purchase price
equal to 101% of their principal amount plus accrued and unpaid interest to the
date of purchase. A "Change of Control" will be deemed to have occurred at such
time as either:
(1) any Person or any Persons acting together that would constitute a
"group" (a "Group") for purposes of Section 13(d) of the Securities Exchange
Act of 1934, or any successor provision thereto (other than Eagle River, Mr.
Craig O. McCaw and their respective Affiliates or an underwriter engaged in
a firm commitment underwriting on behalf of NEXTLINK), shall beneficially
own (within the meaning of Rule 13d-3 under the Exchange Act, or any
successor provision thereto) more than 50% of the aggregate voting power of
all classes of Voting Stock of NEXTLINK; or
(2) neither Mr. Craig O. McCaw nor any person designated by him to
NEXTLINK as acting on his behalf shall be a director of NEXTLINK; or
(3) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of NEXTLINK
(together with any new directors whose election by the Board of Directors of
NEXTLINK or whose nomination for election by the shareholders was proposed
by a vote of a majority of the directors of NEXTLINK then still in office
who were either directors at the beginning of such period or whose election
or nomination for election was previously so approved) cease for any reason
to constitute a majority of the Board of Directors of NEXTLINK then in
office. (Section 1016)
Except as described above with respect to a Change of Control, the indenture
does not contain provisions that permit the holders of the notes to require that
NEXTLINK repurchase or redeem the notes in the event of a takeover,
recapitalization or similar restructuring.
Restrictions in the indenture described herein on the ability of NEXTLINK
and its Restricted Subsidiaries to incur additional Indebtedness, to grant Liens
on its or their property, to make Restricted Payments and to make Asset Sales
may also make more difficult or discourage a takeover of NEXTLINK, whether
favored or opposed by the management of NEXTLINK. Consummation of any such
transaction in certain circumstances may require redemption or repurchase of the
notes, and there can be no assurance that NEXTLINK or the acquiring party will
have sufficient financial resources to effect such redemption or repurchase.
Such restrictions and the restrictions on transactions with Affiliates may, in
certain circumstances, make more difficult or discourage any leveraged buyout of
NEXTLINK or any of its Subsidiaries by the management of NEXTLINK or other
Persons. While such restrictions cover a variety of arrangements which have
traditionally been used to effect highly leveraged transactions, the indenture
may not afford the holders of notes protection in all circumstances from the
adverse aspects of a highly leveraged transaction, reorganization,
restructuring, merger or similar transaction.
In the event of a Change of Control, the indentures relating to the 9.45%
notes, the 9% notes, the 9 5/8% notes and the 12 1/2% notes would require
NEXTLINK to make an offer to purchase those securities. NEXTLINK does not
currently have adequate financial resources to effect such repurchases
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and repurchase the notes upon a Change of Control and there can be no assurance
that NEXTLINK will have such resources in the future. The inability of NEXTLINK
to repurchase the notes upon a Change of Control would constitute an Event of
Default.
In addition, there may be restrictions contained in instruments evidencing
Indebtedness incurred by NEXTLINK or its Restricted Subsidiaries permitted under
the indenture which restrict or prohibit the ability of NEXTLINK to effect any
repurchase required under the indenture in connection with a Change of Control.
In the event that NEXTLINK makes an Offer to Purchase the notes, NEXTLINK
intends to comply with any applicable securities laws and regulations, including
any applicable requirements of Section 14(e) of, and Rule 14e-1 under, the
Exchange Act.
PROVISION OF FINANCIAL INFORMATION
NEXTLINK has agreed that, for so long as any notes remain outstanding, it
will file with the trustee within 15 days after it files them with the
commission copies of the annual and quarterly reports and the information,
documents, and other reports that NEXTLINK is required to file with the
commission pursuant to Section 13(a) or 15(d) of the Exchange Act ("SEC
Reports"). In the event NEXTLINK shall cease to be required to file SEC Reports
pursuant to the Exchange Act, NEXTLINK will nevertheless continue to file such
reports with the commission (unless the commission will not accept such a
filing) and the trustee. NEXTLINK will furnish copies of the SEC Reports to the
holders of notes at the time NEXTLINK is required to file the same with the
trustee and will make such information available to investors who request it in
writing. (Section 1017)
LIMITATION ON USE OF PROCEEDS
NEXTLINK will apply the net proceeds from the sale of the Old Notes toward
the construction, improvement and acquisition by NEXTLINK or one or more
Restricted Subsidiaries of NEXTLINK or Joint Ventures of Telecommunications
Assets of NEXTLINK, such Restricted Subsidiaries or Joint Ventures (or will
advance such net proceeds to such Restricted Subsidiaries of NEXTLINK or Joint
Ventures for such purpose); provided, however, pending such application, the net
proceeds of the sale of the old notes may be invested in Marketable Securities.
(Section 1020)
MERGERS, CONSOLIDATIONS AND CERTAIN SALES OF ASSETS
NEXTLINK may not, in a single transaction or a series of related
transactions:
(1) consolidate with or merge into any other Person or permit any other
Person to consolidate with or merge into NEXTLINK (other than a
consolidation or merger of a Wholly Owned Restricted Subsidiary organized
under the laws of a State of the United States into NEXTLINK), or
(2) directly or indirectly, transfer, sell, lease or otherwise dispose
of all or substantially all of its assets (determined on a consolidated
basis for NEXTLINK and its Restricted Subsidiaries taken as a whole and
PROVIDED that the creation of a Lien on or in any of its assets shall not in
and of itself constitute the transfer, sale, lease or disposition of the
assets subject to the Lien),
unless (a) in a transaction in which NEXTLINK does not survive or in which
NEXTLINK sells, leases or otherwise disposes of all or substantially all of its
assets to any other Person, the successor entity to NEXTLINK shall be a
corporation organized under the laws of the United States of America or any
State thereof or the District of Columbia and shall expressly assume, by a
supplemental indenture executed and delivered to the trustee in form
satisfactory to the trustee, all of NEXTLINK's obligations under the indenture,
(b) immediately after giving pro forma effect to such transaction as if such
transaction had occurred at the beginning of the last full fiscal quarter
immediately prior to the
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consummation of such transaction with the appropriate adjustments with respect
to the transaction being included in such pro forma calculation and treating any
Debt which becomes an obligation of NEXTLINK or a Subsidiary as a result of such
transaction as having been incurred by NEXTLINK or such Subsidiary at the time
of the transaction, no Default or Event of Default shall have occurred and be
continuing, (c) immediately after giving effect to such transaction, the
Consolidated Net Worth of NEXTLINK (or other successor entity to NEXTLINK) is
equal to or greater than that of NEXTLINK immediately prior to the transaction,
(d) if, as a result of any such transaction, property or assets of NEXTLINK
would become subject to a Lien prohibited by the provisions of the Indenture
described under "Covenants--Limitation on Liens" above, NEXTLINK or the
successor entity to NEXTLINK shall have secured the notes as required by said
covenant, and (e) certain other conditions are met. (Section 801)
In the event of any transaction (other than a lease) described in and
complying with the immediately preceding paragraph in which NEXTLINK is not the
surviving Person and the surviving Person assumes all the obligations of
NEXTLINK under the notes and the indenture pursuant to a supplemental indenture,
such surviving Person shall succeed to, and be substituted for, and may exercise
every right and power of, NEXTLINK, and NEXTLINK will be discharged from its
obligations under the indenture and the notes; PROVIDED that solely for the
purpose of calculating amounts described in clause (c) under
"Covenants--Limitations on Restricted Payments," any such surviving Person shall
only be deemed to have succeeded to and be substituted for NEXTLINK with respect
to the period subsequent to the effective time of such transaction, and NEXTLINK
(before giving effect to such transaction) shall be deemed to be the "Indenture
obligor" for such purposes for all prior periods. (Section801)
The meaning of the phrase "all or substantially all" as used above varies
according to the facts and circumstances of the subject transaction, has no
clearly established meaning under relevant law and is subject to judicial
interpretation. Accordingly, in certain circumstances, there may be a degree of
uncertainty in ascertaining whether a particular transaction would involve a
disposition of "all or substantially all" of the assets of NEXTLINK, and
therefore it may be unclear whether the foregoing provisions are applicable.
CERTAIN DEFINITIONS
Set forth below is a summary of some of the definitions used in the
Indenture. Reference is made to the Indenture for the definition of all such
terms, as well as any other term used herein for which no definition is
provided. (Section101)
"Acquired Debt" means, with respect to any specified Person,
(i) Debt of any other Person existing at the time such Person merges
with or into or consolidates with or becomes a Restricted Subsidiary of such
specified Person and;
(ii) Debt secured by a Lien encumbering any asset acquired by such
specified Person, which Debt was not Incurred in anticipation of, and was
outstanding prior to, such merger, consolidation or acquisition.
"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For the purposes of this definition, "control" when used with
respect to any specified Person means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Asset Disposition" by NEXTLINK or any Restricted Subsidiary means any
transfer, conveyance, sale, lease or other disposition(other than a creation of
a Lien) by such Person (including a
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consolidation or merger or other sale of any such Restricted Subsidiary with,
into or to another Person in a transaction in which such Restricted Subsidiary
ceases to be a Restricted Subsidiary of NEXTLINK, but excluding a disposition by
a Restricted Subsidiary of NEXTLINK to NEXTLINK or a Restricted Subsidiary of
NEXTLINK or by NEXTLINK to a Restricted Subsidiary of NEXTLINK) of:
(i) shares of Capital Stock or other ownership interests of a Restricted
Subsidiary of NEXTLINK, other than as permitted by the provisions of the
Indenture described above under the Caption "--Limitation on Debt and
Preferred Stock of Restricted Subsidiaries" or pursuant to a transaction in
compliance with the covenant described under "Mergers, Consolidations and
Certain Sales of Assets" above;
(ii) substantially all of the assets of NEXTLINK or any of, its
Restricted Subsidiaries representing a division or line of business (other
than as part of a Permitted Investment); or
(iii) other assets or rights of NEXTLINK or any of its Restricted
Subsidiaries other than (A) in the ordinary course of business or (B) that
constitutes a Restricted Payment which is permitted under the covenant
"--Limitation on Restricted Payments" above; provided that a transaction
described in clauses (i), (ii) and (iii) shall constitute an Asset
Disposition only if the aggregate consideration for such transfer,
conveyance, sale, lease or other disposition is equal to $5 million or more
in any 12 month period.
"Attributable Value" means, as to any particular lease under which any
Person is at the time liable other than a Capital Lease Obligation, and at any
date as of which the amount thereof is to be determined, the total net amount of
rent required to be paid by such Person under such lease during the initial term
thereof as determined in accordance with generally accepted accounting
principles, discounted from the last date of such initial term to the date of
determination at a rate per annum equal to the discount rate which would be
applicable to a Capital Lease Obligation with like term in accordance with
generally accepted accounting principles. The net amount of rent required to be
paid under any such lease for any such period shall be the aggregate amount of
rent payable by the lessee with respect to such period after excluding amounts
required to be paid on account of insurance, taxes, assessments, utility,
operating and labor costs and similar charges. In the case of any lease which is
terminable by the lessee upon the payment of penalty, such net amount shall also
include the lesser of the amount of such penalty (in which case no rent shall be
considered as required to be paid under such lease subsequent to the first date
upon which it may be so terminated) or the rent which would otherwise be
required to be paid if such lease is not so terminated. "Attributable Value"
means, as to a Capital Lease Obligation, the principal amount thereof.
"Bank Credit Agreement" means any one or more credit agreements (which may
include or consist of revolving credits) between NEXTLINK or any Restricted
Subsidiary of NEXTLINK and one or more banks or other financial institutions
providing financing for the business of NEXTLINK and its Restricted
Subsidiaries.
"Capital Lease Obligation" of any Person means the obligation to pay rent or
other payment amounts under a lease of (or other Debt arrangements conveying the
right to use) real or personal property of such Person which is required to be
classified and accounted for as a capital lease or a liability on the face of a
balance sheet of such Person in accordance with generally accepted accounting
principles (a "Capital Lease"). The stated maturity of such obligation shall be
the date of the last payment of rent or any other amount due under such lease
prior to the first date upon which such lease may be terminated by the lessee
without payment of a penalty. The principal amount of such obligation shall be
the capitalized amount thereof that would appear on the face of a balance sheet
of such Person in accordance with generally accepted accounting principles.
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"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of corporate stock or
other equity participations, including partnership interests, whether general or
limited, of such Person.
"Common Equity" of any Person means Capital Stock of such Person that is not
Disqualified Stock, and a "sale of Common Equity" includes any sale of Common
Equity effected by private sale or public offering.
"Consolidated Capital Ratio" of any Person as of any date means the ratio of
(i) the aggregate consolidated principal amount of Debt (or in the case of Debt
issued at a discount the accreted amount thereof) of such Person then
outstanding (which amount of Debt shall be reduced by any amount of cash or cash
equivalent collateral securing on a perfected basis and dedicated for
disbursement exclusively to the payment of principal of and interest on such
Debt) to (ii) the aggregate consolidated Capital Stock (other than Disqualified
Stock) and paid in capital (other than in respect of Disqualified Stock) of such
Person as of such date.
"Consolidated Cash Flow Available for Fixed Charges" for any period means
the Consolidated Net Income of NEXTLINK and its Restricted Subsidiaries for such
period increased by the sum of (i) Consolidated Interest Expense of NEXTLINK and
its Restricted Subsidiaries for such period, plus (ii) Consolidated Income Tax
Expense of NEXTLINK and its Restricted Subsidiaries for such period, plus (iii)
the consolidated depreciation and amortization expense included in the income
statement of NEXTLINK and its Restricted Subsidiaries for such period plus (iv)
any noncash expense for such period (excluding any noncash charge to the extent
that it requires an accrual of or a reserve for cash disbursements in any future
period), plus (v) any charge related to any premium or penalty paid in
connection with redeeming or retiring any Debt prior to its stated maturity;
PROVIDED, HOWEVER, that there shall be excluded therefrom the Consolidated Cash
Flow Available for Fixed Charges (if positive) of any Restricted Subsidiary of
NEXTLINK (calculated separately for such Restricted Subsidiary in the same
manner as provided above for NEXTLINK) that is subject to a restriction which
prevents the payment of dividends or the making of distributions to NEXTLINK or
another Restricted Subsidiary of NEXTLINK to the extent of such restriction.
"Consolidated Income Tax Expense" for any period means the consolidated
provision for income taxes of NEXTLINK and its Restricted Subsidiaries for such
period calculated on a consolidated basis in accordance with generally accepted
accounting principles.
"Consolidated Interest Expense" means for any period the consolidated
interest expense included in a consolidated income statement (excluding interest
income) of NEXTLINK and its Restricted Subsidiaries for such period calculated
on a consolidated basis in accordance with generally accepted accounting
principles, including without limitation or duplication (or, to the extent not
so included, with the addition of):
(i) the amortization of Debt discounts;
(ii) any payments or fees with respect to letters of credit, bankers'
acceptances or similar facilities;
(iii) fees with respect to interest rate swap or similar agreements or
foreign currency hedge, exchange or similar agreements;
(iv) Preferred Dividends of NEXTLINK and its Restricted Subsidiaries
(other than dividends paid in shares of Preferred Stock that is not
Disqualified Stock) declared and paid or payable;
(v) accrued Disqualified Stock dividends of NEXTLINK and its Restricted
Subsidiaries, whether or not declared or paid;
(vi) interest on Debt guaranteed by NEXTLINK and its Restricted
Subsidiaries; and
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(vii) the portion of any Capital Lease Obligation paid or accrued during
such period that is allocable to interest expense.
"Consolidated Net Income" for any period means the consolidated net income
(or loss) of NEXTLINK and its Restricted Subsidiaries for such period determined
on a consolidated basis in accordance with generally accepted accounting
principles; PROVIDED that there shall be excluded therefrom:
(a) the net income (or loss) of any Person acquired by NEXTLINK or a
Restricted Subsidiary of NEXTLINK in a pooling of interests transaction for
any period prior to the date of such transaction;
(b) the net income (or loss) of any Person that is not a Restricted
Subsidiary of NEXTLINK except to the extent of the amount of dividends or
other distributions actually paid to NEXTLINK or a Restricted Subsidiary of
NEXTLINK by such Person during such period;
(c) gains or losses on Asset Dispositions by NEXTLINK or its Restricted
Subsidiaries;
(d) all extraordinary gains and extraordinary losses;
(e) the cumulative effect of changes in accounting principles;
(f) noncash gains or losses resulting from fluctuations in currency
exchange rates;
(g) any noncash gain or loss realized on the termination of any employee
pension benefit plan; and
(h) the tax effect of any of the items described in clauses (a) through
(g) above.
PROVIDED, FURTHER, that for purposes of any determination pursuant to the
provisions described under "Covenants--Limitation on Restricted Payments," there
shall further be excluded therefrom the net income (but not net loss) of any
Restricted Subsidiary of NEXTLINK that is subject to a restriction which
prevents the payment of dividends or the making of distributions to NEXTLINK or
another Restricted Subsidiary of NEXTLINK to the extent of such restriction.
"Consolidated Net Worth" of any Person means the consolidated stockholders'
equity of such Person, determined on a consolidated basis in accordance with
generally accepted accounting principles, less amounts attributable to
Disqualified Stock of such Person; PROVIDED that, with respect to NEXTLINK,
adjustments following the date of the Indenture to the accounting books and
records of NEXTLINK in accordance with Accounting Principles Board Opinions Nos.
16 and 17 (or successor opinions thereto) or otherwise resulting from the
acquisition of control of NEXTLINK by another Person shall not be given effect
to.
"Consolidated Tangible Assets" of any Person means the total amount of
assets (less applicable reserves and other properly deductible items) which
under generally accepted accounting principles would be included on a
consolidated balance sheet of such Person and its Restricted Subsidiaries after
deducting therefrom all goodwill, trade names, trademarks, patents, unamortized
debt discount and expense and other like intangibles, which in each case under
generally accepted accounting principles would be included on such consolidated
balance sheet; PROVIDED that, with respect to NEXTLINK, adjustments following
the date of the Indenture to the accounting books and records of NEXTLINK in
accordance with Accounting Principles Board Opinions Nos. 16 and 17 (or
successor opinions thereto) or otherwise resulting from the acquisition of
control of NEXTLINK by another Person shall not be given effect to.
"Debt" means (without duplication), with respect to any Person, whether
recourse is to all or a portion of the assets of such Person and whether or not
contingent:
(i) every obligation of such Person for money borrowed;
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(ii) every obligation of such Person evidenced by bonds, debentures,
notes or other similar instruments, including any such obligations Incurred
in connection with the acquisition of property, assets or businesses;
(iii) every reimbursement obligation of such Person with respect to
letters of credit, bankers' acceptances or similar facilities issued for the
account of such Person;
(iv) every obligation of such Person issued or assumed as the deferred
purchase price of property or services (including securities repurchase
agreements but excluding trade accounts payable or accrued liabilities
arising in the ordinary course of business which are not overdue or which
are being contested in good faith);
(v) every Capital Lease Obligation of such Person;
(vi) all Receivables Sales of such Person, together with any obligation
of such Person to pay any discount, interest, fees, indemnities, penalties,
recourse, expenses or other amounts in connection therewith;
(vii) all obligations to redeem Disqualified Stock issued by such
Person;
(viii) every obligation under Interest Rate and Currency Protection
Agreements of such Person; and
(ix) every obligation of the type referred to in clauses (i) through
(viii) of another Person and all dividends of another Person the payment of
which, in either case, such Person has Guaranteed.
The "amount" or "principal amount" of Debt at any time of determination as
used herein represented by (a) any Debt issued at a price that is less than the
principal amount at maturity thereof, shall be the amount of the liability in
respect thereof determined in accordance with generally accepted accounting
principles, (b) any Receivables Sale, shall be the amount of the unrecovered
capital or principal investment of the purchaser (other than NEXTLINK or a
Wholly Owned Restricted Subsidiary of NEXTLINK) thereof, excluding amounts
representative of yield or interest earned on such investment, (c) any
Disqualified Stock, shall be the maximum fixed redemption or repurchase price in
respect thereof, (d) any Capital Lease Obligation, shall be determined in
accordance with the definition thereof, or (e) any Permitted Interest Rate or
Currency Protection Agreement, shall be zero. In no event shall Debt include any
liability for taxes.
"Default" means an event that with the passing of time or the giving of
notice or both shall constitute an Event of Default.
"Disqualified Stock" of any Person means any Capital Stock of such Person
(other than Capital Stock outstanding on the Issue Date) which, by its terms (or
by the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
final Stated Maturity of the notes; PROVIDED, HOWEVER, that any Preferred Stock
which would not constitute Disqualified Stock but for provisions thereof giving
holders thereof the right to require NEXTLINK to repurchase or redeem such
Preferred Stock upon the occurrence of an asset sale or a Change of Control
occurring prior to the final Stated Maturity of the notes shall not constitute
Disqualified Stock if the asset sale or change of control provisions applicable
to such Preferred Stock are no more favorable to the holders of such Preferred
Stock than the provisions applicable to the notes contained in the covenant
described under "Covenants--Limitation on Asset Dispositions" or
"Covenants--Change of Control" and such Preferred Stock specifically provides
that NEXTLINK will not repurchase or redeem any such stock pursuant to such
provisions prior to NEXTLINK's repurchase of such notes as are required to be
repurchased pursuant to the covenant described under "Covenants--Limitation on
Asset Dispositions" or "Covenants--Change of Control".
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"Eligible Institution" means a commercial banking institution that has
combined capital and surplus of not less than $500 million or its equivalent in
foreign currency, whose debt is rated "A 3" or higher, "A" or higher or "A" or
higher according to Moody's Investors Service, Inc., Standard & Poor's Ratings
Group or Duff & Phelps Credit Rating Co. (or such similar equivalent rating by
at least one "nationally recognized statistical rating organization" (as defined
in Rule 436 under the Securities Act)) respectively, at the time as of which any
investment or rollover therein is made.
"Eligible Receivables" means, at any time, Receivables of NEXTLINK and its
Restricted Subsidiaries, as evidenced on the most recent quarterly consolidated
balance sheet of NEXTLINK as at a date at least 45 days prior to such time
arising in the ordinary course of business of NEXTLINK or any Restricted
Subsidiary of NEXTLINK.
"Event of Default" has the meaning set forth under "Events of Default"
below.
"Exchange Act" means the Securities Exchange Act of 1934, as amended (or any
successor act) and the rules and regulations thereunder.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which obligations
or guarantee the full faith and credit of the United States is pledged and which
have a remaining weighted average life to maturity of not more than 18 months
from the date of Investment therein.
"Guarantee" by any Person means any obligation, contingent or otherwise, of
such Person guaranteeing, or having the economic effect of guaranteeing, any
Debt of any other Person (the "primary obligor") in any manner, whether directly
or indirectly, and including, without limitation, any obligation of such Person:
(i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt or to purchase (or to advance or supply funds for the
purchase of) any security for the payment of such Debt;
(ii) to purchase property, securities or services for the purpose of
assuring the holder of such Debt of the payment of such Debt; or
(iii) to maintain working capital, equity capital or other financial
statement condition or liquidity of the primary obligor so as to enable the
primary obligor to pay such Debt (and "Guaranteed", "Guaranteeing" and
"Guarantor" shall have meanings correlative to the foregoing):
PROVIDED, HOWEVER, that the Guarantee by any Person shall not include
endorsements by such Person for collection or deposit, in either case, in the
ordinary course of business; and PROVIDED FURTHER, that the incurrence by a
Restricted Subsidiary of NEXTLINK of a lien permitted under clause (iv) of the
second paragraph of the "Limitation on Liens" covenant shall not be deemed to
constitute a Guarantee by such Restricted Subsidiary of any Purchase Money Debt
of NEXTLINK secured thereby.
"Incur" means, with respect to any Debt or other obligation of any Person,
to create, issue, incur (by conversion, exchange or otherwise), assume,
Guarantee or otherwise become liable in respect of such Debt or other obligation
including by acquisition of Subsidiaries or the recording, as required pursuant
to generally accepted accounting principles or otherwise, of any such Debt or
other obligation on the balance sheet of such Person (and "Incurrence",
"Incurred", "Incurrable" and "Incurring" shall have meanings correlative to the
foregoing); PROVIDED, HOWEVER, that a change in generally accepted accounting
principles that results in an obligation of such Person that exists at such time
becoming Debt shall not be deemed an Incurrence of such Debt and that neither
the accrual of interest nor the accretion of original issue discount shall be
deemed an Incurrence of Debt; PROVIDED, FURTHER, however, that NEXTLINK may
elect to treat all or any portion of revolving credit debt of NEXTLINK or a
Subsidiary as being Incurred from and after any date beginning the date the
revolving credit commitment is extended to NEXTLINK or a Subsidiary, by
furnishing notice thereof to the Trustee,
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and any borrowings or reborrowings by NEXTLINK or a Subsidiary under such
commitment up to the amount of such commitment designated by NEXTLINK as
Incurred shall not be deemed to be new lncurrences of Debt by NEXTLINK or such
Subsidiary.
"Interest Rate or Currency Protection Agreement" of any Person means any
forward contract, futures contract, swap, option or other financial agreement or
arrangement (including, without limitation, caps, floors, collars and similar
agreements) relating to, or the value of which is dependent upon, interest rates
or currency exchange rates or indices.
"Investment" by any Person means any direct or indirect loan, advance or
other extension of credit or capital contribution (by means of transfers of cash
or other property to others or payments for property or services for the account
or use of others, or otherwise) to, or purchase or acquisition of Capital Stock,
bonds, notes, debentures or other securities or evidence of Debt issued by, any
other Person, including any payment on a Guarantee of any obligation of such
other Person, but excluding any loan, advance or extension of credit to an
employee of NEXTLINK or any of its Restricted Subsidiaries in the ordinary
course of business, accounts receivables and other commercially reasonable
extensions of trade credit.
"Issue Date" means the date on which the Notes are first authenticated and
delivered under the Indenture.
"Joint Venture" means a corporation, partnership or other entity engaged in
one or more Telecommunications Businesses as to which NEXTLINK (directly or
through one or more Restricted Subsidiaries) exercises managerial control and in
which NEXTLINK owns (i) a 50% or greater interest, or (ii) a 30% or greater
interest, together with options or other contractual rights, exercisable not
more than seven years after NEXTLINK's initial Investment in such Joint Venture,
to increase its interest to not less than 50%.
"Lien" means, with respect to any property or assets, any mortgage or deed
of trust, pledge, hypothecation, assignment, Receivables Sale, deposit
arrangement, security interest, lien, charge, easement (other than any easement
not materially impairing usefulness or marketability), encumbrance, preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such property or assets (including,
without limitation, any conditional sale or other title retention agreement
having substantially the same economic effect as any of the foregoing).
"Marketable Securities" means:
(i) Government Securities;
(ii) any time or demand deposit account, money market deposit and
certificate of deposit maturing not more than 365 days after the date of
acquisition issued by, or time deposit of, an Eligible Institution;
(iii) commercial paper maturing not more than 365 days after the date of
acquisition issued by a corporation (other than an Affiliate of NEXTLINK)
with a rating, at the time as of which any investment therein is made, of
"P1" or higher according to Moody's Investors Service, Inc., "A1" or higher
according to Standard & Poor's Ratings Group or "A1" or higher according to
Duff & Phelps Credit Rating Co. (or such similar equivalent rating by at
least one "nationally recognized statistical rating organization" (as
defined in Rule 436 under the Securities Act));
(iv) any banker's acceptances or money market deposit accounts issued or
offered by an Eligible Institution;
(v) repurchase obligations with a term of not more than 7 days for
Government Securities entered into with an Eligible Institution;
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(vi) auction rate preferred stocks of any corporation maturing within 90
days after the date of acquisition by NEXTLINK thereof, having a rating of
at least AA by Standard & Poor's; and
(vii) any fund investing exclusively in investments of the types
described in clauses (i) through (vi) above.
"Net Available Proceeds" from any Asset Disposition by any Person means cash
or readily marketable cash equivalents received (including by way of sale or
discounting of a note, installment receivable or other receivable, but excluding
any other consideration received in the form of assumption by the acquiror of
Debt or other obligations relating to such properties or assets) therefrom by
such Person, net of:
(i) all legal, title and recording tax expenses, commissions and other
fees and expenses Incurred and all federal, state, provincial, foreign and
local taxes (including taxes payable upon payment or other distribution of
funds from a foreign subsidiary to NEXTLINK or another Subsidiary of
NEXTLINK) required to be accrued as a liability as a consequence of such
Asset Disposition;
(ii) all payments made by such Person or its Restricted Subsidiaries on
any Debt which is secured by such assets in accordance with the terms of any
Lien upon or with respect to such assets or which must by the terms of such
Lien, or in order to obtain a necessary consent to such Asset Disposition or
by applicable law, be repaid out of the proceeds from such Asset
Disposition;
(iii) all distributions and other payments made to minority interest
holders in Restricted Subsidiaries of such Person or joint ventures as a
result of such Asset Disposition;
(iv) appropriate amounts to be provided by such Person or any Restricted
Subsidiary thereof, as the case may be, as a reserve in accordance with
generally accepted accounting principles against any liabilities associated
with such assets and retained by such Person or any Restricted Subsidiary
thereof, as the case may be, after such Asset Disposition, including,
without limitation, liabilities under any indemnification obligations and
severance and other employee termination costs associated with such Asset
Disposition, in each case as determined by the Board of Directors of
NEXTLINK, in its reasonable good faith judgment evidenced by a Board
Resolution filed with the Trustee; PROVIDED, HOWEVER, that any reduction in
such reserve within twelve months following the consummation of such Asset
Disposition will be treated for all purposes of the Indenture and the Notes
as a new Asset Disposition at the time of such reduction with Net Available
Proceeds equal to the amount of such reduction; and
(v) any consideration for an Asset Disposition (which would otherwise
constitute Net Available Proceeds) that is required to be held in escrow
pending determination of whether a purchase price adjustment will be made,
but amounts under this clause shall become Net Available Proceeds at such
time and to the extent such amounts are released to such Person.
"Offer to Purchase" means a written offer (the "Offer") sent by NEXTLINK by
first class mail, postage prepaid, to each holder at his address appearing in
the Note Register on the date of the Offer describing the transaction or
transactions necessitating the Offer and offering to purchase up to the
principal amount of Notes specified in such Offer at the purchase price
specified in such Offer (as determined pursuant to the Indenture). Unless
otherwise required by applicable law, the Offer shall specify an expiration date
(the "Expiration Date") of the Offer to Purchase which shall be, subject to any
contrary requirements of applicable law, not less than 30 days or more than 60
days after the date of such Offer and a settlement date (the "Purchase Date")
for purchase of Notes within five Business Days after the Expiration Date. The
Offer shall contain all instructions and materials necessary to enable the
holders to tender Notes pursuant to the Offer to Purchase.
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"Permitted Interest Rate or Currency Protection Agreement" of any Person
means any Interest Rate or Currency Protection Agreement entered into with one
or more financial institutions in the ordinary course of business that is
designed to protect such Person against fluctuations in interest rates or
currency exchange rates with respect to Debt Incurred and which shall have a
notional amount no greater than the payments due with respect to the Debt being
hedged thereby and not for purposes of speculation.
"Permitted Investment" means:
(i) any Investment in a Joint Venture (including the purchase or
acquisition of any Capital Stock of a Joint Venture), provided the aggregate
amount of all outstanding Investments pursuant to this clause (i) in Joint
Ventures in which NEXTLINK owns, directly or indirectly, a less than 50%
interest shall not exceed $25 million;
(ii) any Investment in any Person as a result of which such Person
becomes a Restricted Subsidiary or, subject to the proviso to clause (i) of
this definition, becomes a Joint Venture of NEXTLINK;
(iii) any Investment in Marketable Securities,
(iv) Investments in Permitted Interest Rate or Currency Protection
Agreements;
(v) Investments made as a result of the receipt of noncash consideration
from an Asset Disposition that was made pursuant to and in compliance with
the covenant described under "Covenants--Limitation on Asset Dispositions"
above; and
(vi) other Investments in an aggregate amount not to exceed the
aggregate net proceeds received by NEXTLINK or any Restricted Subsidiary
after the date of the Indenture from the sale or liquidation of any
Unrestricted Subsidiary or any interest therein (except to the extent that
any such amount is included in the calculation of Consolidated Net Income).
"Permitted Liens" means:
(a) Liens for taxes, assessments, governmental charges or claims which
are not yet delinquent or which are being contested in good faith by
appropriate proceedings, if a reserve or other appropriate provision, if
any, as shall be required in conformity with generally accepted accounting
principles shall have been made therefor;
(b) other Liens incidental to the conduct of NEXTLINK's and its
Restricted Subsidiaries' business or the ownership of its property and
assets not securing any Debt, and which do not in the aggregate materially
detract from the value of NEXTLINK's and its Restricted Subsidiaries'
property or assets when taken as a whole, or materially impair the use
thereof in the operation of its business;
(c) Liens with respect to assets of a Restricted Subsidiary granted by
such Restricted Subsidiary to NEXTLINK to secure Debt owing to NEXTLINK;
(d) pledges and deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
types of statutory obligations (including to secure government contracts);
(e) deposits made to secure the performance of tenders, bids, leases,
and other obligations of like nature incurred in the ordinary course of
business (exclusive of obligations for the payment of borrowed money);
(f) zoning restrictions, servitudes, easements, rights-of-way,
restrictions and other similar charges or encumbrances incurred in the
ordinary course of business which, in the aggregate, do
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not materially detract from the value of the property subject thereto or
interfere with the ordinary conduct of the business of NEXTLINK or its
Restricted Subsidiaries;
(g) Liens arising out of judgments or awards against NEXTLINK or any
Restricted Subsidiary with respect to which NEXTLINK or such Restricted
Subsidiary is prosecuting an appeal or proceeding for review and NEXTLINK or
such Restricted Subsidiary is maintaining adequate reserves in accordance
with generally accepted accounting principles;
(h) any interest or title of a lessor in the property subject to any
lease other than a Capital Lease; and
(i) any statutory warehousemen's, materialmen's or other similar Liens
for sums not then due and payable (or which, if due and payable, are being
contested in good faith and with respect to which adequate reserves are
being maintained to the extent required by generally accepted accounting
principles).
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint stock company, trust, unincorporated
organization, government or agency or political subdivision thereof or any other
entity.
"Preferred Dividends" for any Person means for any period the quotient
determined by dividing the amount of dividends and distributions paid or accrued
(whether or not declared) on Preferred Stock of such Person during such period
calculated in accordance with generally accepted accounting principles, by 1
minus the maximum statutory income tax rate then applicable to NEXTLINK
(expressed as a decimal).
"Preferred Stock" of any Person means Capital Stock of such Person of any
class or classes (however designated) that ranks prior, as to the payment of
dividends or as to the distribution of assets upon any voluntary or involuntary
liquidation, dissolution or winding up of such Person, to shares of Capital
Stock of any other class of such Person.
"Purchase Money Debt" means (i) Acquired Debt Incurred in connection with
the acquisition of Telecommunications Assets and (ii) Debt of NEXTLINK or of any
Restricted Subsidiary of NEXTLINK (including, without limitation, Debt
represented by Bank Credit Agreements, Capital Lease Obligations, Vendor
Financing Facilities, mortgage financings and purchase money obligations)
Incurred for the purpose of financing all or any part of the cost of
construction, acquisition or improvement by NEXTLINK or any Restricted
Subsidiary of NEXTLINK or any Joint Venture of any Telecommunications Assets of
NEXTLINK, any Restricted Subsidiary of NEXTLINK or any Joint Venture, and
including any related notes, Guarantees, collateral documents, instruments and
agreements executed in connection therewith, as the same may be amended,
supplemented, modified or restated from time to time.
"Receivables" means receivables, chattel paper, instruments, documents or
intangibles evidencing or relating to the right to payment of money in respect
of the sale of goods or services.
"Receivables Sale" of any Person means any sale of Receivables of such
Person (pursuant to a purchase facility or otherwise), other than in connection
with a disposition of the business operations of such Person relating thereto or
a disposition of defaulted Receivables for purpose of collection and not as a
financing arrangement.
"Related Person" of any Person means any other Person directly or indirectly
owning (a) 10% or more of the Outstanding Common Equity of such Person (or, in
the case of a Person that is not a corporation, 10% or more of the equity
interest in such Person) or (b) 10% or more of the combined voting power of the
Voting Stock of such Person.
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"Restricted Subsidiary" of NEXTLINK means any Subsidiary, whether existing
on or after the date of the Indenture, unless such Subsidiary is an Unrestricted
Subsidiary.
"Sale and Leaseback Transaction" of any Person means an arrangement with any
lender or investor or to which such lender or investor is a party providing for
the leasing by such Person of any property or asset of such Person which has
been or is being sold or transferred by such Person more than 365 days after the
acquisition thereof or the completion of construction or commencement of
operation thereof to such lender or investor or to any person to whom funds have
been or are to be advanced by such lender or investor on the security of such
property or asset. The stated maturity of such arrangement shall be the date of
the last payment of rent or any other amount due under such arrangement prior to
the first date on which such arrangement may be terminated by the lessee without
payment of a penalty.
"Significant Subsidiary" means a Restricted Subsidiary that is a
"significant subsidiary" as defined in Rule 102(w) of Regulation S-X under the
Securities Act and the Exchange Act.
"Subordinated Debt" means Debt of NEXTLINK as to which the payment of
principal of (and premium, if any) and interest and other payment obligations in
respect of such Debt shall be subordinate to the prior payment in full of the
Notes to at least the following extent:
(i) no payments of principal of (or premium, if any) or interest on or
otherwise due in respect of such Debt may be permitted for so long as any
default in the payment of principal (or premium, if any) or interest on the
Notes exists;
(ii) in the event that any other default that with the passing of time
or the giving of notice, or both, would constitute an Event of Default
exists with respect to the notes, upon notice by 25% or more in principal
amount of the Notes to the trustee, the trustee shall have the right to give
notice to NEXTLINK and the holders of such Debt (or trustees or agents
therefor) of a payment blockage, and thereafter no payments of principal of
(or premium, if any) or interest on or otherwise due in respect of such Debt
may be made for a period of 179 days from the date of such notice or for the
period until such default has been cured or waived or ceased to exist and
any acceleration of the notes has been rescinded or annulled, whichever
period is shorter (which Debt may provide that no new period of payment
blockage may be commenced by a payment blockage notice unless and until 360
days have elapsed since the effectiveness of the immediately prior notice,
no nonpayment default that existed or was continuing on the date of delivery
of any payment blockage notice to such holders (or such agents or trustees)
shall be, or be made, the basis for a subsequent payment blockage notice and
failure of NEXTLINK to make payment on such Debt when due or within any
applicable grace period, whether or not on account of such payment blockage
provisions, shall constitute an event of default thereunder); and
(iii) such Debt may not provide for payments of principal of such Debt
at the stated maturity thereof or by way of a sinking fund applicable
thereto or by way of any mandatory redemption, defeasance, retirement or
repurchase thereof by NEXTLINK (including any redemption, retirement or
repurchase which is contingent upon events or circumstances, but executing
any retirement required by virtue of acceleration of such Debt upon an event
of default thereunder), in each case prior to the final Stated Maturity of
the notes or permit redemption or other retirement (including pursuant to an
offer to purchase made by NEXTLINK) of such other Debt at the option of the
holder thereof prior to the final Stated Maturity of the notes, other than a
redemption or other retirement at the option of the holder of such Debt
(including pursuant to an offer to purchase made by NEXTLINK) which is
conditioned upon a change of control of NEXTLINK pursuant to provisions
substantially similar to those described under "Covenants-- Change of
Control" (and which shall provide that such Debt will not be repurchased
pursuant to such provisions prior to NEXTLINK's repurchase of the notes
required to be repurchased by NEXTLINK pursuant to the provisions described
under "Covenants--Change of Control").
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"Subsidiary" of any Person means (i) a corporation more than 50% of the
combined voting power of the outstanding Voting Stock of which is owned,
directly or indirectly, by such Person or by one or more other Subsidiaries of
such Person or by such Person and one or more Subsidiaries thereof or (ii) any
other Person (other than a corporation) in which such Person, or one or more
other Subsidiaries of such Person or such Person and one or more other
Subsidiaries thereof, directly or indirectly, has at least a majority ownership
and power to direct the policies, management and affairs thereof.
"Telecommunications Assets" means all assets, rights (contractual or
otherwise) and properties, whether tangible or intangible, used or intended for
use in connection with a Telecommunications Business.
"Telecommunications Business" means the business of (i) transmitting, or
providing services relating to the transmission of, voice, video or data through
owned or leased transmission facilities, (ii) creating, developing or marketing
communications related network equipment, software and other devices for use in
a Telecommunication Business or (iii) evaluating, participating or pursuing any
other activity or opportunity that is primarily related to those identified in
(i) or (ii) above and shall, in any event, include all businesses in which
NEXTLINK or any of its Subsidiaries are engaged on the Issue Date; provided that
the determination of what constitutes a Telecommunications Business shall be
made in good faith by the Board of Directors of NEXTLINK, which determination
shall be conclusive.
"Unrestricted Subsidiary" means (1) any Subsidiary of NEXTLINK designated as
such by the Board of Directors of NEXTLINK as set forth below where (a) neither
NEXTLINK nor any of its other Subsidiaries (other than another Unrestricted
Subsidiary) (i) provides credit support for, or Guarantee of, any Debt of such
Subsidiary or any Subsidiary of such Subsidiary (including any undertaking,
agreement or instrument evidencing such Debt) or (ii) is directly or indirectly
liable for any Debt of such Subsidiary or any Subsidiary of such Subsidiary, and
(b) no default with respect to any Debt of such Subsidiary or any Subsidiary of
such Subsidiary (including any right which the holders thereof may have to take
enforcement action against such Subsidiary) would permit (upon notice, lapse of
time or both) any holder of any other Debt of NEXTLINK and its Restricted
Subsidiaries to declare a default on such other Debt or cause the payment
thereof to be accelerated or payable prior to its final scheduled maturity and
(2) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors of
NEXTLINK may designate any Subsidiary to be an Unrestricted Subsidiary unless
such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any
property of, any other Subsidiary of NEXTLINK which is not a Subsidiary of the
Subsidiary to be so designated or otherwise an Unrestricted Subsidiary, PROVIDED
that either (x) the Subsidiary to be so designated has total assets of $1,000 or
less or (y) immediately after giving effect to such designation, NEXTLINK could
Incur at least $1.00 of additional Debt pursuant to the first paragraph under
"Covenants--Limitation on Consolidated Indebtedness" above and provided,
further, that NEXTLINK could make a Restricted Payment in an amount equal to the
greater of the fair market value and the book value of such Subsidiary pursuant
to the covenant described under "Covenants--Limitation on Restricted Payments"
and such amount is thereafter treated as a Restricted Payment for the purpose of
calculating the aggregate amount available for Restricted Payments thereunder.
The Board of Directors of NEXTLINK may designate any Unrestricted Subsidiary to
be a Restricted Subsidiary, PROVIDED that, if such Unrestricted Subsidiary has
Debt outstanding at such time, either (a) immediately after giving effect to
such designation, NEXTLINK could Incur at least $1.00 of additional Debt
pursuant to the first paragraph under "Covenants--Limitation on Consolidated
Indebtedness" above or (b) NEXTLINK or such Restricted Subsidiary could Incur
such Debt hereunder (other than as Acquired Debt).
"Vendor Financing Facility" means any agreements between NEXTLINK or a
Restricted Subsidiary and one or more vendors or lessors of equipment or other
capital assets to NEXTLINK or any of its Restricted Subsidiaries (or any
affiliate of any such vendor or lessor) providing financing for
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the acquisition by NEXTLINK or any such Restricted Subsidiary of equipment or
other capital assets from any such vendor or lessor.
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons performing
similar functions) of such Person, whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person 99% or more of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person or by such Person and one or more Wholly Owned
Restricted Subsidiaries of such Person.
EVENTS OF DEFAULT
The following are Events of Default under the indenture:
(a) failure to pay principal of (or premium, if any, on) any note when
due;
(b) failure to pay any interest on any note when due, continued for 30
days;
(c) default in the payment of principal and interest on notes required
to be purchased pursuant to an Offer to Purchase as described under
"Covenants--Change of Control" when due and payable;
(d) failure to perform or comply with the provisions described under
"Mergers, Consolidations and Certain Sales of Assets";
(e) failure to perform any other covenant or agreement of NEXTLINK under
the Indenture or the notes continued for 60 days after written notice to
NEXTLINK by the Trustee or Holders of at least 25% in aggregate principal
amount of outstanding notes;
(f) default under the terms of any instrument evidencing or securing
Debt of NEXTLINK or any Significant Subsidiary having an outstanding
principal amount of $10 million individually or in the aggregate which
default results in the acceleration of the payment of such Debt or
constitutes the failure to pay such Debt when due;
(g) the rendering of a final judgment or judgments (not subject to
appeal) for the payment of money against NEXTLINK or any Significant
Subsidiary in an aggregate amount in excess of $10 million which remains
undischarged or unstayed for a period of 45 days after the date on which the
right to appeal all such judgments has expired; and
(h) certain events of bankruptcy, insolvency or reorganization affecting
NEXTLINK or any Significant Subsidiary. (Section 501)
Subject to the provisions of the indenture relating to the duties of the
trustee in case an Event of Default shall occur and be continuing, the trustee
will be under no obligation to exercise any of its rights or powers under the
indenture at the request or direction of any of the holders, unless such holders
shall have offered to the trustee reasonable indemnity. (Section603) Subject to
such provisions for the indemnification of the trustee, the holders of a
majority in aggregate principal amount of the
outstanding notes will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the trustee or exercising
any trust or power conferred on the trustee. The trustee may refuse, however, to
follow any direction that the trustee, in its sole discretion, determines may be
unduly prejudicial to the rights of another holder or that may subject the
trustee to any liability or expense if the trustee determines, in its sole
discretion, that it lacks indemnification against such loss or expense.
(Section512)
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If an Event of Default (other than an Event of Default described in Clause
(h) above with respect to NEXTLINK) shall occur and be continuing, either the
trustee or the holders of at least 25% in aggregate principal amount of the
outstanding notes at maturity may accelerate the maturity of all notes;
PROVIDED, HOWEVER, that after such acceleration, but before a judgment or decree
based on acceleration, the holders of a majority in aggregate principal amount
at maturity of outstanding notes may, under certain circumstances, rescind and
annul such acceleration if all Events of Default, other than the nonpayment of
accelerated principal, have been cured or waived as provided in the indenture.
If an Event of Default specified in Clause (h) above occurs with respect to
NEXTLINK, the outstanding Notes will IPSO FACTO become immediately due and
payable without any declaration or other act on the part of the trustee or any
holder. (Section502) For information as to waiver of defaults, see "Modification
and Waiver".
No holder of any note will have any right to institute any proceeding with
respect to the indenture or for any remedy thereunder, unless such holder shall
have previously given to the trustee written notice of a continuing Event of
Default (as defined) and unless also the holders of at least 25% in aggregate
principal amount of the outstanding notes shall have made written request, and
offered reasonable indemnity, to the trustee to institute such proceeding as
trustee, and the trustee shall not have received from the holders of a majority
in aggregate principal amount of the outstanding notes a direction inconsistent
with such request and shall have failed to institute such proceeding within 60
days. (Section507) However, such limitations do not apply to a suit instituted
by a holder of a note for enforcement of payment of the principal of and
premium, if any, or interest on such Note on or after the respective due dates
expressed in such Note. (Section508)
The indenture provides that if a Default occurs and is continuing, generally
the Trustee must, within 90 days after the occurrence of such Default, give to
the holders notice of such Default. The Trustee may withhold from holders of the
notes notice of any continuing Default or Event of Default (except a Default or
Event of Default relating to the payment of principal of, premium, if any or
interest) if it determines that withholding notice is in their interest;
PROVIDED, HOWEVER, that in the case of any default of a character specified in
Clause (e) above, no such notice to holders shall be given until at least 30
days after the occurrence thereof. (Section602)
NEXTLINK will be required to furnish to the trustee quarterly a statement as
to the performance by NEXTLINK of certain of its obligations under the Indenture
and NEXTLINK is required upon becoming aware of any Default or Event of Default
to deliver to the trustee a statement specifying such Default or Event of
Default. (Section1018)
SATISFACTION AND DISCHARGE OF THE INDENTURE
The indenture will cease to be of further effect as to all outstanding notes
(except as to (i) rights of registration of transfer and exchange and NEXTLINK's
right of optional redemption, (ii) substitution of apparently mutilated,
defaced, destroyed, lost or stolen notes, (iii) rights of holders to receive
payment of principal of and premium, if any, and interest on the Notes, (iv)
rights, obligations and immunities of the trustee under the indenture and (v)
rights of the holders of the notes as beneficiaries of the Indenture with
respect to any property deposited with the trustee payable to all or any of
them), if (x) NEXTLINK will have paid or caused to be paid the principal of and
premium, if any, and interest on the Notes as and when the same will have become
due and payable or (y) all outstanding notes (except lost, stolen or destroyed
notes which have been replaced or paid) have been delivered to the trustee for
cancellation. (Section401)
DEFEASANCE
The indenture will provide that, at the option of NEXTLINK, (a) if
applicable, NEXTLINK will be discharged from any and all obligations in respect
of the outstanding Notes or (b) if applicable,
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NEXTLINK may omit to comply with certain restrictive covenants, and that such
omission shall not be deemed to be an Event of Default under the indenture and
the notes, in either case (a) or (b) upon irrevocable deposit with the trustee,
in trust, of money and/or U.S. government obligations which will provide money
in an amount sufficient in the opinion of a nationally recognized firm of
independent certified public accountants to pay the principal of and premium, if
any, and each installment of interest, if any, on the outstanding Notes on the
Stated Maturity. With respect to clause (b), the obligations under the indenture
other than with respect to such covenants and the Events of Default other than
the Events of Default relating to such covenants above shall remain in full
force and effect. Such trust may only be established if, among other things (i)
with respect to clause (a), NEXTLINK has received from, or there has been
published by, the Internal Revenue Service a ruling or there has been a change
in law after the Issue Date, which in the Opinion of Counsel provides that
holders of the notes will not recognize gain or loss for Federal income tax
purposes as a result of such deposit, defeasance and discharge and will be
subject to Federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such deposit, defeasance and discharge
had not occurred; or, with respect to clause (b), NEXTLINK has delivered to the
trustee an Opinion of Counsel to the effect that the holders of the notes will
not recognize gain or loss for Federal income tax purposes as a result of such
deposit and defeasance and will be subject to Federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such deposit and defeasance had not occurred; (ii) no Default or Event of
Default shall have occurred or be continuing; (iii) NEXTLINK has delivered to
the trustee an Opinion of Counsel to the effect that such deposit shall not
cause the trustee or the trust so created to be subject to the Investment
Company Act of 1940, as amended; and (iv) certain other customary conditions
precedent are satisfied. (Section1201)
MODIFICATION AND WAIVER
Modifications and amendments of the indenture may be made by NEXTLINK and
the Trustee with the consent of the holders of a majority in aggregate principal
amount of the outstanding Notes; PROVIDED, HOWEVER, that no such modification or
amendment may, without the consent of the holder of each outstanding note
affected thereby:
(a) change the due date of the principal of, or any installment of
interest on, any note;
(b) reduce the principal amount of, or the premium or interest on, any
note;
(c) change the place or currency of payment of principal of, or premium
or interest on, any note;
(d) impair the right to institute suit for the enforcement of any
payment on or with respect to any note;
(e) reduce the above stated percentage of outstanding notes necessary to
modify or amend the indenture;
(f) reduce the percentage of aggregate principal amount of outstanding
notes necessary for waiver of compliance with certain provisions of the
indenture or for waiver of certain defaults;
(g) modify any provisions of the indenture relating to the modification
and amendment of the Indenture or the waiver of past defaults or covenants,
except as otherwise specified; or
(h) following the mailing of any Offer to Purchase and until the
Expiration Date of that Offer to Purchase, modify any Offer to Purchase for
the notes required under the "Limitation on Asset Dispositions" and the
"Change of Control" covenants contained in the indenture in a manner
materially adverse to the holders thereof. (Section 902)
Notwithstanding the foregoing, without the consent of any holder of notes,
NEXTLINK and the trustee may amend or supplement the indenture or the notes
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- to cure any ambiguity, defect or inconsistency,
- to provide for uncertificated notes in addition to or in place of
certificated notes,
- to provide for the assumption of NEXTLINK's obligations to holders of
notes in the case of a merger or consolidation,
- to make any change that would provide any additional rights or benefits to
holders of notes or that does not adversely affect the legal rights under
the indenture of any such holder, or
- to comply with requirements of the commission in order to maintain the
qualification of the indenture under the Trust Indenture Act. (Section901)
The holders of a majority in aggregate principal amount of the outstanding
notes, on behalf of all holders of notes, may waive compliance by NEXTLINK with
certain restrictive provisions of the indenture. (Section1019) Subject to
certain rights of the Trustee, as provided in the indenture, the holders of a
majority in aggregate principal amount of the outstanding notes, on behalf of
all holders of notes, may waive any past default under the indenture, except a
default in the payment of principal, premium or interest or a default arising
from failure to purchase any note tendered pursuant to an Offer to Purchase.
(Section513)
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of NEXTLINK, as
such, shall have any liability for any obligations of NEXTLINK under the notes
or the indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each holder of notes by accepting a note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the notes. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
commission that such waiver is against public policy.
GOVERNING LAW
The indenture and the notes will be governed by the laws of the State of New
York.
THE TRUSTEE
The indenture provides that, except during the continuance of an Event of
Default, the trustee will perform only such duties as are specifically set forth
in the indenture. During the existence of an Event of Default, the trustee will
exercise such rights and powers vested in it under the indenture and use the
same degree of care and skill in its exercise as a prudent person would exercise
under the circumstances in the conduct of such person's own affairs.
(Section601)
The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the trustee, should it
become a creditor of NEXTLINK, to obtain payment of claims in certain cases or
to realize on certain property received by it in respect of any such claim as
security or otherwise. The trustee is permitted to engage in other transactions
with NEXTLINK or any Affiliate, PROVIDED, HOWEVER, that if it acquires any
conflicting interest (as defined in the indenture or in the Trust Indenture
Act), it must eliminate such conflict or resign. (SectionSection 608, 613)
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BOOK-ENTRY; DELIVERY AND FORM
The new notes initially will be represented by one or more permanent global
certificates in definitive, fully registered form (the "Global Note"). The
Global Note will be deposited upon issuance with The Depositary Trust Company,
New York, New York (the "Depositary" or "DTC") and registered in the name of a
nominee of DTC.
THE GLOBAL NOTE. We expect that pursuant to procedures established by DTC
(1) upon the issuance of the Global Note, DTC or its custodian will
credit, on its internal system, the principal amount of the individual
beneficial interests represented by the Global Note to the respective
accounts of persons who have accounts with such depositary and
(2) ownership of beneficial interests in the Global Note will be shown
on, and the transfer of ownership will be effected only through, records
maintained by DTC or its nominee (with respect to interests of participants)
and the records of participants (with respect to interests of persons other
than participants).
Ownership of beneficial interests in the Global Notes will be limited to persons
who have accounts with DTC ("participants") or persons who hold interests
through participants.
So long as DTC (or its nominee) is the registered owner or holder of the new
notes, DTC (or the nominee) will be considered the sole owner or holder of the
New Notes represented by the Global Note for all purposes under the indenture.
No beneficial owner of an interest in the Global Note will be able to transfer
that interest except in accordance with DTC's procedures.
Payments of interest, principal and other amounts due on the Global Note
will be made to DTC (or its nominee) as the registered owner. None of NEXTLINK,
the trustee or any Paying Agent will have any responsibility or liability for
any aspect of the records relating to or payments made on account of beneficial
ownership interests in the Global Note or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interest.
We expect that DTC or its nominee, upon receipt of any payment of interest,
principal or other amounts due on the Global Note, will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the Global Note as shown on the records of DTC. We also expect that
payments by participants to owners of beneficial interests in the Global Note
held through such participants will be governed by standing instructions and
customary practice, as is the case with securities held for the accounts of
customers registered in the names of nominees for those customers. Such payments
will be the responsibility of the participants.
Transfers between participants in DTC will be effected in the ordinary way
through DTC's settlement system in accordance with DTC rules and will be settled
in same day funds.
DTC has advised us that it will take any action permitted to be taken by a
holder of new notes (including the presentation of new notes for exchange as
described below) only at the direction of a participant to whose account the DTC
interests in the Global Note are credited and only as to such portion of the
notes as to which the participant has given such direction. However, if there is
an Event of Default under the indenture, DTC will exchange the Global Note for
certificated notes, which it will distribute to its participants.
DTC has advised us as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "Clearing Agency" registered pursuant to the provisions of
Section 17A of the Exchange Act. DTC was created to hold securities for its
participants and facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry changes in
accounts of its participants, thereby eliminating the need for physical
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movement of certificates. Participants include securities brokers and dealers,
banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly
("indirect participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Note among participants of DTC, it is under
no obligation to perform those procedures, and those procedures may be
discontinued at any time. Neither NEXTLINK nor the trustee will have any
responsibility of the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
CERTIFICATED SECURITIES. If DTC is at any time unwilling or unable to
continue as a depositary for the Global Note and a successor depositary is not
appointed by NEXTLINK within 90 days, certificated notes will be issued in
exchange for the Global Note.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
DESCRIPTION OF THE 12 1/2% NOTES
GENERAL. NEXTLINK and NEXTLINK Capital, Inc., a Washington corporation and
a wholly owned subsidiary of NEXTLINK ("Capital" and, together with NEXTLINK,
the "Issuers") issued $350 million of 12 1/2% Senior Notes Due April 15, 2006
pursuant to an indenture among NEXTLINK, Capital and United States Trust Company
of New York, as trustee. On September 6, 1996, NEXTLINK consummated an offer to
exchange such notes for $350 million of 12 1/2% Senior Notes Due April 15, 2006
that had been registered under the Securities Act.
PRINCIPAL, MATURITY AND INTEREST. The 12 1/2% notes are limited in
aggregate principal amount to $350 million and will mature on April 15, 2006.
Interest on the 12 1/2% notes accrues at 12 1/2% per annum and is payable
semiannually in arrears on April 15 and October 15 of each year. At the closing
of the offering, NEXTLINK used $117.7 million of the net proceeds of the
offering of the 12 1/2% notes to purchase a portfolio of U.S. government
securities (the "Pledged Securities"), to pledge as security for payment of
interest on the 12 1/2% notes through April 15, 1999 and, under certain
circumstances, as security for repayment of the principal of the 12 1/2% notes.
Proceeds from the Pledged Securities may be used by NEXTLINK to make interest
payments on the 12 1/2% notes through April 15, 1999. The Pledged Securities are
being held by the trustee pending disbursement.
RANKING. The 12 1/2% notes are unsecured senior obligations of the Issuers,
will rank PARI PASSU in right of payment with all existing and future senior
obligations of the Issuers (including the 9 5/8% notes, the 9% notes, the 9.45%
notes and the notes) and will rank senior in right of payment to all future
subordinated obligations of the Issuers.
REDEMPTION. The 12 1/2% notes are redeemable at on or after April 15, 2001,
at NEXTLINK's option, in whole or in part, at the following redemption prices
(expressed as percentages of principal amount) plus accrued interest, if
redeemed during the twelve-month period beginning on April 15 of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ------------------------------------------------------------------------------ -----------
<S> <C>
2001.......................................................................... 106.250%
2002.......................................................................... 104.167%
2003.......................................................................... 102.083%
2004 and thereafter........................................................... 100.000%
</TABLE>
Except in connection with a Change of Control or an Asset Disposition (as
defined in the indenture relating to the 12 1/2% notes) of NEXTLINK, the Issuers
are not required to make mandatory redemption or sinking fund payments with
respect to the 12 1/2% notes.
COVENANTS. The indenture relating to the 12 1/2% notes restricts, among
other things, NEXTLINK's ability to incur additional indebtedness, pay dividends
or make certain other restricted payments, incur certain liens to secure PARI
PASSU or subordinated indebtedness, engage in any sale and leaseback
transaction, sell assign, transfer, lease, convey or otherwise dispose of
substantially all of the assets of NEXTLINK, enter into certain transactions
with affiliates, or incur indebtedness that is subordinate in right of payment
to any senior indebtedness and senior in right of payment to the 12 1/2% notes.
The indenture relating to the 12 1/2% notes permits, under certain
circumstances, NEXTLINK's subsidiaries to be deemed unrestricted subsidiaries
and thus not subject to the restrictions of the indenture.
EVENTS OF DEFAULT. The indenture relating to the 12 1/2% notes contains
standard events of default, including (1) defaults in the payment of principal,
premium or interest, (2) defaults in the compliance with covenants contained in
the indenture, (3) cross defaults on more than $10 million of other
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indebtedness, (4) failure to pay more than $10 million of judgments and (5)
certain events of its subsidiaries.
DESCRIPTION OF THE 9 5/8% NOTES
GENERAL. NEXTLINK issued $400 million of 9 5/8% Senior Notes Due 2007
pursuant to an indenture between NEXTLINK and United States Trust Company of New
York, as trustee. The 9 5/8% notes have been registered under the Securities
Act.
PRINCIPAL, MATURITY AND INTEREST. The 9 5/8% notes are limited in aggregate
principal amount to $400 million and will mature on October 1, 2007. Interest on
the 9 5/8% notes accrues at 9 5/8% per annum and is payable semiannually in
arrears on April 1 and October 1 of each year.
RANKING. The 9 5/8% notes are unsecured senior obligations of NEXTLINK,
will rank PARI PASSU in right of payment with all existing and future senior
obligations of NEXTLINK (including the 12 1/2% notes, the 9% notes, the 9.45%
notes and the notes) and will rank senior in right of payment to all future
subordinated obligations of NEXTLINK.
REDEMPTION. The 9 5/8% notes are redeemable on or after October 1, 2002, at
NEXTLINK's option, in whole or in part, at the following redemption prices
(expressed as percentages of principal amount) plus accrued interest, if
redeemed during the twelve-month period beginning on October 1 of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ------------------------------------------------------------------------------ -----------
<S> <C>
2002.......................................................................... 104.813%
2003.......................................................................... 103.208%
2004.......................................................................... 101.604%
2005 and thereafter........................................................... 100.000%
</TABLE>
In addition, at any time on or before October 1, 2002, NEXTLINK may redeem
up to 33 1/3% of the original aggregate principal amount of the 9 5/8% notes
with the net proceeds of a sale of common equity at a redemption price equal to
109.625% of the principal amount thereof, plus accrued interest, provided that
at least $266.7 million in aggregate principal amount of 9 5/8% notes remains
outstanding after such redemption. Except in connection with a Change of Control
or an Asset Disposition (as defined in the indenture relating to the 9 5/8%
notes) of NEXTLINK, NEXTLINK is not required to make mandatory redemption or
sinking fund payments with respect to the 9 5/8% notes.
COVENANTS. The indenture relating to the 9 5/8% notes restricts, among
other things, NEXTLINK's ability to incur additional indebtedness, pay dividends
or make certain other restricted payments, incur certain liens to secure PARI
PASSU or subordinated indebtedness, engage in any sale and leaseback
transaction, sell assign, transfer, lease, convey or otherwise dispose of
substantially all of the assets of NEXTLINK, enter into certain transactions
with affiliates, or incur indebtedness that is subordinate in right of payment
to any senior indebtedness and senior in right of payment to the 9 5/8% notes.
The indenture relating to the 9 5/8% notes permits, under certain circumstances,
NEXTLINK's subsidiaries to be deemed unrestricted subsidiaries and thus not
subject to the restrictions of the indenture.
EVENTS OF DEFAULT. The indenture relating to the 9 5/8% notes contains
standard events of default, including (1) defaults in the payment of principal,
premium or interest, (2) defaults in the compliance with covenants contained in
the indenture, (3) cross defaults on more than $10 million of other
indebtedness, (4) failure to pay more than $10 million of judgments and (5)
certain events of its subsidiaries.
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DESCRIPTION OF THE 9% NOTES
GENERAL. NEXTLINK issued $335 million of 9% Senior Notes Due 2008 pursuant
to an indenture between NEXTLINK and United States Trust Company of New York, as
trustee. On July 15, 1998, NEXTLINK consummated an offer to exchange such notes
for $335 million of 9% Senior Notes Due 2008 that had been registered under the
Securities Act.
PRINCIPAL, MATURITY AND INTEREST. The 9% notes are limited in aggregate
principal amount to $335 million and will mature on March 15, 2008. Interest on
the 9% notes accrues at 9% per annum and is payable semiannually in arrears on
March 15 and September 15 of each year.
RANKING. The 9% notes are unsecured senior obligations of NEXTLINK, will
rank PARI PASSU in right of payment with all existing and future senior
obligations of NEXTLINK (including the 9.45% notes, the 9 5/8% notes, the
12 1/2% notes and the notes) and will rank senior in right of payment to all
future subordinated obligations of NEXTLINK.
REDEMPTION. The 9% notes are redeemable on or after March 15, 2003, at
NEXTLINK's option, in whole or in part, at the following redemption prices
(expressed as percentages of principal amount) set forth below plus accrued
interest, if redeemed during the twelve-month period beginning on March 15 of
the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ------------------------------------------------------------------------------ -----------
<S> <C>
2003.......................................................................... 104.500%
2004.......................................................................... 103.000%
2005.......................................................................... 101.500%
2006 and thereafter........................................................... 100.000%
</TABLE>
In addition, at any time on or before March 15, 2003, NEXTLINK may redeem up
to 33 1/3% of the original aggregate principal amount of the 9% notes with the
net proceeds of a sale of common equity at a redemption price equal to 9% of the
principal amount thereof, plus accrued interest, provided that at least 66 2/3%
of the original aggregate principal amount of 9% notes remains outstanding after
such redemption. Except in connection with a Change of Control or an Asset
Disposition (as defined in the indenture relating to the 9% notes) of NEXTLINK,
NEXTLINK is not required to make mandatory redemption or sinking fund payments
with respect to the 9% notes.
COVENANTS. The indenture relating to the 9% notes restricts, among other
things, NEXTLINK's ability to incur additional indebtedness, pay dividends or
make certain other restricted payments, incur certain liens to secure PARI PASSU
or subordinated indebtedness, engage in any sale and leaseback transaction, sell
assign, transfer, lease, convey or otherwise dispose of substantially all of the
assets of NEXTLINK, enter into certain transactions with affiliates, or incur
indebtedness that is subordinate in right of payment to any senior indebtedness
and senior in right of payment to the 9% notes. The indenture relating to the 9%
notes permits, under certain circumstances, NEXTLINK's subsidiaries to be deemed
unrestricted subsidiaries and thus not subject to the restrictions of the
indenture.
EVENTS OF DEFAULT. The indenture relating to the 9% Notes contains standard
events of default, including (1) defaults in the payment of principal, premium
or interest, (2) defaults in the compliance with covenants contained in the
indenture, (3) cross defaults on more than $10 million of other indebtedness,
(4) failure to pay more than $10 million of judgments and (5) certain events of
its subsidiaries.
DESCRIPTION OF THE 9.45% NOTES
GENERAL. NEXTLINK issued $636,974,000 principal amount at stated maturity
of 9.45% Senior Discount Notes Due 2008 pursuant to an indenture between
NEXTLINK and United States Trust
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Company of New York, as trustee. On August 24, 1998, NEXTLINK consummated an
offer to exchange such notes for $636,974,000 million in principal amount at
stated maturity of 9.45% Senior Discount Notes due 2008 that have been
registered under the Securities Act.
PRINCIPAL, MATURITY AND INTEREST. The 9.45% notes are limited to
$636,974,000 aggregate principal amount at stated maturity and will mature on
April 15, 2008. The 9.45% notes were issued at a discount from their principal
amount to generate aggregate gross of proceeds of approximately $400.0 million.
The 9.45% notes accrete at a rate of 9.45% compounded semi-annually, to an
aggregate principal amount of $636,974,000 by April 15, 2003. No interest will
accrue on the 9.45% notes prior to April 15, 2003. The 9.45% notes bear interest
at 9.45% per annum payable semi-annually on April 15 and October 15 of each
year, commencing October 15, 2003, accruing from April 15, 2003, or from the
most recent interest payment date to which interest has been paid or provided.
RANKING. The 9.45% notes are unsecured senior obligations of NEXTLINK, rank
PARI PASSU in right of payment with all existing and future senior obligations
of NEXTLINK (including the 9 5/8% notes, the 12 1/2% notes, the 9% notes and the
notes), and will rank senior in right of payment to all future subordinated
obligations of NEXTLINK.
REDEMPTION. The 9.45% notes are redeemable on or after April 15, 2003, at
NEXTLINK's option, in whole or in part, at the following redemption prices
(expressed as percentages of the principal amount) plus accrued interest, if
redeemed during the 12 month period beginning April 15 of the years indicated:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ------------------------------------------------------------------------------ -----------
<S> <C>
2003.......................................................................... 104.725%
2004.......................................................................... 103.150%
2005.......................................................................... 101.575%
2006 and thereafter........................................................... 100.000%
</TABLE>
In addition, at any time on or before April 15, 2003, NEXTLINK may redeem up
to 33 1/3% of the original aggregate principal amount of the 9.45% Notes with
the net proceeds of a sale of common equity, at a redemption price 109.45% of
the principal amount thereof, plus accrued interest, provided that at least
66 2/3% of the original aggregate principal amount of the 9.45% notes remains
outstanding after such redemption. Except in connection with a Change of Control
or an Asset Disposition (as defined in the indenture relating to the 9.45%
notes) of NEXTLINK, NEXTLINK is not required to make mandatory redemption or
sinking fund payments with respect to the 9.45% Notes.
COVENANTS. The indenture relating to the 9.45% notes restricts, among other
things, NEXTLINK's ability to incur additional indebtedness, pay dividends or
make certain other restricted payments, incur certain liens to secure PARI PASSU
or subordinated indebtedness, engage in any sale and leaseback transaction,
sell, assign, transfer, lease, convey or otherwise dispose of substantially all
of the assets of NEXTLINK, enter into certain transactions with affiliates, or
incur indebtedness that is subordinate in right of payment to any senior
indebtedness and senior in right of payment to the 9.45% notes. The indenture
relating to the 9.45% notes permits, under certain circumstances, NEXTLINK's
subsidiaries to be deemed unrestricted subsidiaries and thus not subject to the
restrictions of such indenture.
EVENTS OF DEFAULT. The indenture relating to the 9.45% notes contains
standard events of default, including (1) defaults in the payment of principal,
premium or interest, (2) defaults in the compliance with covenants contained in
the indenture, (3) cross defaults on more than $10 million of other
indebtedness, (4) failure to pay more than $10 million of judgments and (5)
certain events of its subsidiaries.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain United States federal income tax
consequences associated with the ownership and disposition of the notes. Except
where noted, it deals only with Notes held as capital assets and does not deal
with special situations, such as those of dealers in securities or currencies,
traders in securities that elect to mark to market, financial institutions, life
insurance companies, tax-exempt organizations or U.S. Holders (defined below)
whose "functional currency" is not the U.S. dollar or who hold the notes as a
hedge or part of a straddle or conversion transaction. Furthermore, the
discussion below is based upon the provisions of the Internal Revenue Code of
1986, as amended (the "Code"), and regulations, rulings and judicial decisions
thereunder as of the date hereof, and, at any time and without prior notice,
such authorities may be repealed, revoked or modified so as to result in federal
income tax consequences different from those discussed below.
PERSONS CONSIDERING THE TENDER OF THEIR OLD NOTES FOR THE NEW NOTES OFFERED
HEREBY, OR THE PURCHASE, OWNERSHIP OR DISPOSITION OF NOTES, SHOULD CONSULT THEIR
OWN TAX ADVISORS CONCERNING THE FEDERAL INCOME TAX CONSEQUENCES AND CONSEQUENCES
ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTION.
THE EXCHANGE OFFER
The exchange of old notes for new notes pursuant to the exchange offer
should be treated as a continuation of the corresponding old notes because the
terms of the new notes do not constitute a significant modification from the
terms of the old notes. Accordingly, such exchange should not constitute a
taxable event to holders and, therefore, (1) no gain or loss should be realized
by holders upon receipt of a new note, (2) the holding period of the new note
should include the holding period of the old note exchanged therefor and (3) the
adjusted tax basis of the new note should be the same as the adjusted tax basis
of the old note exchanged therefor immediately before the exchange.
UNITED STATES HOLDERS
A United States holder (a "U.S. Holder") is generally, a citizen or resident
of the United States, a corporation, a partnership or other entity created or
organized in or under the laws of the United States or any political subdivision
thereof, or an estate the income of which is subject to United States federal
income taxation regardless of its source, a trust if a United States court can
exercise primary supervision over the administration of the trust and one or
more United States persons have the authority to control all substantial
decisions of the trust, or any other person whose worldwide income or gain is
otherwise subject to United States federal income taxation on a net income
basis.
PAYMENT OF INTEREST
Interest on the notes will be taxable to a U.S. Holder as ordinary interest
income in accordance with the U.S. Holder's method of tax accounting at the time
that such interest is accrued or (actually or constructively) received. NEXTLINK
expects that the notes will not be issued with original issue discount for
United States federal income tax purposes.
MARKET DISCOUNT
If a U.S. Holder purchases a note for an amount that is less than its issue
price (or, in the case of a subsequent purchaser, its principal amount), such
U.S. Holder will be treated as having purchased such note at a "market
discount," unless the amount of such market discount is less than a specified DE
MINIMUS amount. Under the market discount rules, a U.S. Holder will be required
to treat any gain on the maturity, sale, exchange, retirement or other
disposition of notes as ordinary income to the extent of the market discount
which has not previously been included in income and is treated as having
accrued on such notes at the time of such disposition. In addition, a U.S.
Holder may be required to
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defer, until the maturity of the notes or earlier disposition in a taxable
transaction, the deduction of all or a portion of the interest expense on any
indebtedness incurred or continued to purchase or carry such notes.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the notes, unless the U.S.
Holder elects to accrue on a constant yield method. A U.S. Holder of notes may
elect to include market discount in income currently as it accrues (on either a
ratable or constant yield method), in which case the rule described above
regarding deferral of interest deductions will not apply. This election to
include market discount in income currently, once made, applies to all market
discount obligations acquired in or after the first taxable year to which the
election applies and may not be revoked without the consent of the Internal
Revenue Service ("IRS"). U.S. Holders should consult with their own tax advisors
regarding this election.
AMORTIZABLE BOND PREMIUM
A U.S. Holder that purchases notes for an amount greater than the principal
amount of the notes, will be considered to have purchased such notes with "bond
premium." A U.S. Holder generally may elect to amortize the bond premium over
the remaining term of the Notes on a constant yield method. The amount amortized
in any year will be treated as a reduction of the U.S. Holder's interest income
from the notes. Bond premium on a note held by a U.S. Holder that does not make
such an election will decrease the gain or increase the loss otherwise
recognized on disposition of the Notes. Any election to amortize bond premium
applies to all debt obligations (other than debt obligations the interest on
which is excludable from gross income) held by the U.S. Holder at the beginning
of the first taxable year to which the election applies or thereafter acquired
by the U.S. Holder, and may not be revoked without the consent of the IRS. U.S.
Holders should consult with their tax advisors regarding this election.
SALE, EXCHANGE AND RETIREMENT OF NOTES
A U.S. Holder's adjusted tax basis in notes will, in general, equal the
holder's cost therefor increased by any market discount included in the U.S.
Holder's income and reduced by any amortized bond premium. Upon the sale,
exchange or retirement of notes, a U.S. Holder will recognize gain or loss equal
to the difference between the amount realized upon the sale, exchange or
retirement and the U.S. Holder's adjusted tax basis in the notes. Except with
respect to market discount accrued but unpaid interest, such gain or loss will
be capital gain or loss. Long-term capital gain of an individual U.S. Holder is
generally subject to a maximum tax rate of 20% in respect of property held for
more than twelve month. The deductibility of capital losses is subject to
limitations.
EXCHANGE OFFER
The exchange of notes for new notes pursuant to the exchange offer should
not be taxable to the holders of the notes. Any Additional Interest payment due
to the holders of the notes will be taxable income and may be characterized as
additional interest income for tax purposes.
NON-UNITED STATES HOLDERS
For purposes of this discussion, a "Non-U.S. Holder" is any holder of a note
who is (1) a nonresident alien individual or (2) a foreign corporation,
partnership or estate or trust which is not subject to United States federal
income tax on a net income basis in respect of income or gain from a note.
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Under present United States federal income and estate tax law, and subject
to the discussion of backup withholding below:
(1) payments of principal, premium, if any, and interest by NEXTLINK or
any of its paying agents to a Non-U.S. Holder will not be subject to United
States federal withholding tax if, in the case of interest, (a) the
beneficial owner of the note does not actually or constructively own 10% or
more of the total combined voting power of all classes of stock of in
NEXTLINK, (b) the beneficial owner of the Note is not a controlled foreign
corporation that is related to NEXTLINK through stock ownership, and (c)
either (A) the beneficial owner of the note certifies to NEXTLINK or its
agent, under penalties of perjury, that it is not a U.S. Holder and provides
its name and address or (B) a securities clearing organization, bank or
other financial institution that holds customers' securities in the ordinary
course of its trade or business (a "financial institution") and holds the
Note certifies to NEXTLINK or its agent under penalties of perjury that such
statement has been received from the beneficial owner by it or by a
financial institution between it and the beneficial owner and furnishes the
payor with a copy thereof;
(2) a non-U.S. Holder of a note will not be subject to United States
federal withholding tax on any gain realized on the sale or exchange of a
note; and
(3) a note held by an individual who at death is not a citizen or
resident of the United States will not be includible in the individual's
gross estate for purposes of the United States federal estate tax as a
result of the individual's death if (a) the individual did not actually or
constructively own 10% or more of the total combined voting power of all
classes of stock in NEXTLINK and (b) the income on the note would not have
been effectively connected with a United States trade or business of the
individual at the individual's death.
Recently finalized regulations (the "Final Withholding Regulations"), that
are generally effective with respect to payments made after December 31, 1999,
would provide alternative methods for satisfying the certification requirement
described in clause (1)(c) above. The Final Withholding Regulations also
require, in the case of Notes held by a foreign partnership, that (x) the
certification described in clause (1)(c) above would generally be applied to the
partners of the partnership and (y) the partnership provide certain information,
including a United States taxpayer identification number. A look-through rule
will apply in the case of tiered partnerships. Non-U.S. Holders who exchange
their old notes for new notes pursuant to the exchange offer are urged to
consult their tax advisor regarding the Final Withholding Regulations.
BACKUP WITHHOLDING AND INFORMATION REPORTING
UNITED STATES HOLDERS
In general, information reporting requirements will apply to certain
payments of principal, premium, if any, and interest and to the proceeds of sale
of a note made to holders other than certain exempt recipients (such as
corporations). Backup withholding and information reporting generally will not
apply to payments of principal, premium, if any, and interest on notes made
outside the United States (other than payments made to an address in the United
Sates or by transfer to an account maintained by the holder with a bank in the
United States) by NEXTLINK or any paying agent (acting in its capacity as such)
to a holder. A 31% backup withholding tax may apply to such payments if the U.S.
Holder fails to provide a taxpayer identification number or certification of
foreign or other exempt status or is notified by the IRS that it has failed to
report in full dividend and interest income.
NON-UNITED STATES HOLDERS
Under current law, information reporting on Internal Revenue Service Form
1099 and backup withholding will not apply to payments of principal, premium (if
any) and interest made by
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NEXTLINK or a paying agent to a Non-U.S. Holder on a note; provided, the
certification described in clause (1)(c) under "Non-United States Holders" above
is received, and provided further that the payor does not have actual knowledge
that the holder is a United States person. NEXTLINK or a paying agent, however,
may report (on Internal Revenue Service Form 1042S) payments of interest on
notes.
Payments of the proceeds from the sale by a Non-U.S. Holder of a note made
to or thorough a foreign office of a broker will not be subject to information
reporting or backup withholding, except that information reporting requirements
will apply if the broker is a United States person, a controlled foreign
corporation for United States tax purposes or a foreign person 50% or more of
whose gross income is effectively connected with a United States trade or
business for a specified three-year period, information reporting may apply to
such payments. Payments of the proceeds from the sale of a note to or through
the United States office of a broker is subject to information reporting and
backup withholding unless the holder or beneficial owner certifies as to its
non-United States status or otherwise establishes an exemption from information
reporting and backup withholding. See the discussion above with respect to the
rules under the Final Withholding Regulations.
PLAN OF DISTRIBUTION
Each holder desiring to participate in the exchange offer will be required
to represent, among other things, that (1) it is not an "affiliate" (as defined
in Rule 405 of the Securities Act) of NEXTLINK, (2) it is not engaged in, and
does not intend to engage in, and has no arrangement or understanding with any
person to participate in, a distribution of the new notes, and (3) it is
acquiring the new notes in the ordinary course of its business (a holder unable
to make the foregoing representations is referred to herein as a "Restricted
Holder"). A Restricted Holder will not be able to participate in the exchange
offer, and may only sell its old notes pursuant to a registration statement
containing the selling securityholder information required by Item 507 of
Regulation S-K of the Securities Act, or pursuant to an exemption from the
registration requirement of the Securities Act.
Each Participating Broker-Dealer is required to acknowledge in the Letter of
Transmittal that it acquired the old notes as a result of market-making
activities or other trading activities and that it will deliver a prospectus in
connection with the resale of such new notes. Based upon interpretations by the
staff of the Commission, NEXTLINK believes that new notes issued pursuant to the
exchange offer to Participating Broker-Dealers may be offered for resale,
resold, and otherwise transferred by a Participating Broker-Dealer upon
compliance with the prospectus delivery requirements, but without compliance
with the registration requirements, of the Securities Act. NEXTLINK has agreed
that for a period of 30 days following consummation of the exchange offer, they
will make this Prospectus available to Participating Broker-Dealers for use in
connection with any such resale. During such period of time, delivery of this
prospectus, as it may be amended or supplemented, will satisfy the prospectus
delivery requirements of a Participating Broker-Dealer engaged in market making
or other trading activities.
Based upon interpretations by the staff of the commission, NEXTLINK believes
that new notes issued pursuant to the exchange offer may be offered for resale,
resold and otherwise transferred by a holder thereof (other than a Participating
Broker-Dealer) without compliance with the registration and prospectus delivery
requirements of the Securities Act.
NEXTLINK will not receive any proceeds from any sale of new notes by
broker-dealers. new notes received by Participating Broker-Dealers for their own
account pursuant to the exchange offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the new notes or a combination of such methods
of resale, at market prices prevailing at the time of resale, at prices related
to such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any
84
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such Participating Broker-Dealer and/or the purchasers of any such new notes.
Any Participating Broker-Dealer that resells new notes that were received by it
for its own account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of such new notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of new notes and any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The Letter of Transmittal states that by acknowledging that it will deliver and
by delivering a prospectus, a Participating Broker-Dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
NEXTLINK has agreed to pay all expenses incidental to the exchange offer
other than commissions and concessions of any brokers or dealers and will
indemnify holders of the notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act, as set forth in the
registration rights agreement.
INCORPORATION OF MATERIAL DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file with
them, which means we can disclose important information to you by referring you
to those documents. The information included in the following documents is
incorporated by reference and is considered to be a part of this Prospectus. The
most recent information that we file with the SEC automatically updates and
supersedes more dated information. We have previously filed the following
documents with the SEC and are incorporating them by reference into this
Prospectus:
1. Our Annual Report on Form 10-KSB for the fiscal year ended December
31, 1997, filed on March 25, 1998;
2. Our Quarterly Report on Form 10-Q, for the quarter ended March 31,
1998, filed on May 15, 1998;
3. Our Quarterly Report on Form 10-Q, for the quarter ended June 30,
1998, filed on August 14, 1998;
4. Our Quarterly Report on Form 10-Q, for the quarter ended September
30, 1998, filed on November 16, 1998.
5. Our Current Reports on Form 8-K, filed on March 12, 1998, April 14,
1998, July 20, 1998, July 22, 1998, December 8, 1998 and January 19, 1999.
We also incorporate by reference all documents subsequently filed by us
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act until all of
the old notes are exchanged for new notes.
We will provide without charge to each person, including any person having a
control relationship with that person, to whom a Prospectus is delivered, a copy
of any or all of the information that has been incorporated by reference in this
Prospectus but not delivered with this Prospectus. If you would like to obtain
this information from us, please direct your request, either in writing or by
telephone to R. Bruce Easter, Jr., General Counsel and Secretary, NEXTLINK
Communications, Inc., 500 108(th) Avenue N.E., Suite 2200, Bellevue, Washington
98004. In order to insure timely delivery of the documents, any request should
be made five days before March , 1999, which is when the exchange offer
expires.
LEGAL MATTERS
The validity of the new notes will be passed upon for NEXTLINK by Willkie
Farr & Gallagher, New York, New York.
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EXPERTS
The audited financial statements included in the NEXTLINK's Annual Report on
Form 10-KSB, filed on March 25, 1998, which is incorporated herein by reference,
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
86
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION OR TO MAKE ANY
REPRESENTATION TO YOU THAT IS NOT CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS
IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO
BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED. YOU SHOULD NOT UNDER ANY CIRCUMSTANCES ASSUME THAT THE INFORMATION IN
THIS PROSPECTUS IS CORRECT ON ANY DATE AFTER THE DATE OF THIS PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Where You Can Find More Information............. ii
Prospectus Summary.............................. 1
Risk Factors.................................... 8
About NEXTLINK.................................. 15
Use Of Proceeds................................. 15
Capitalization.................................. 16
Selected Historical Consolidated Financial And
Operating Data................................ 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 20
Business........................................ 28
Regulation...................................... 33
The Exchange Offer.............................. 35
Description Of The Notes........................ 45
Book-Entry; Delivery and Form................... 75
Description Of Certain Indebtedness............. 77
Certain United States Federal Income Tax
Consequences.................................. 81
Plan Of Distribution............................ 84
Incorporation Of Material Documents By
Reference..................................... 85
Legal Matters................................... 85
Experts......................................... 86
</TABLE>
$500,000,000
Offer to Exchange 10 3/4% Senior
Notes due 2008
that have been registered under the
Securities Act of 1933
for outstanding 10 3/4% Senior
Notes due 2008
---------------------
P R O S P E C T U S
DATED FEBRUARY , 1999
---------------------
[LOGO]
NEXTLINK
COMMUNICATIONS,
INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is a Delaware corporation. In its Certificate of Incorporation,
the Company has adopted the provisions of Section 102(b)(7) of the Delaware
General Corporation Law (the "Delaware Law"), which enables a corporation in its
original certificate of incorporation or an amendment thereto to eliminate or
limit the personal liability of a director for monetary damages for breach of
the director's fiduciary duty, except (i) for any breach of the director's duty
of loyalty to the corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) pursuant to Section 174 of the Delaware law (providing for
liability of directors for unlawful payment of dividends or unlawful stock
purchases or redemptions) or (iv) for any transaction from which a director will
personally receive a benefit in money, property or services to which the
director is not legally entitled.
The Company has also adopted indemnification provisions pursuant to Section
145 of the Delaware Law, which provides that a corporation may indemnify any
persons, including officers and directors, who are, or are threatened to be
made, parties to any threatened, pending or completed legal action, suit or
proceedings, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation), by reason of the fact
that such person was an officer, director, employee or agent of the corporation,
or is or was serving at the request of such corporation as a director, officer,
employee or agent of another corporation or enterprise. The indemnity may
include expenses (including attorneys fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding, provided such officer, director, employee or
agent acted in good faith and in a manner he reasonably believed to be in or not
opposed to the corporation's best interests and, with respect to criminal
proceedings, had no reasonable cause to believe that his conduct was unlawful. A
Delaware corporation may indemnify officers or directors in an action by or in
the right of the corporation under the same conditions, except that no
indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against expenses
(including attorney's fees) that such officer or director actually and
reasonably incurred.
The Company has entered into indemnification agreements with each of the
Company's officers and directors.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS:
<TABLE>
<C> <C> <S>
1 -- Purchase Agreement by and among the Company and the Initial Purchasers.*
3.1 -- Certificate of Incorporation of the Company.(1)
3.2 -- By-laws of the Company.(1)
4.1 -- 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.*
4.2 -- Form of Exchange Note Indenture, by and among NEXTLINK Communications, Inc. and
United States Trust Company of New York, as Trustee, relating to the Exchange
Notes, including form of Exchange Note.(3)
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <C> <S>
4.3 -- Certificate of Designation of the Powers, Preferences and Relative, Participating,
Optional and Other Special Rights of 14% Senior Exchangeable Redeemable Preferred
Shares and Qualifications, Limitations and Restrictions Thereof.(1)
4.4 -- Form of stock certificate of 14% Senior Exchangeable Redeemable Preferred
Shares.(3)
4.5 -- Indenture, dated as of April 25, 1996, by and among NEXTLINK Communications, Inc.,
NEXTLINK Capital, Inc. and United States Trust Company of New York, as Trustee,
relating to 12 1/2% Senior Notes due April 15, 2006, including form of global
note.(2)
4.6 -- First Supplemental Indenture, dated as of January 31, 1997, by and among the
Company, NEXTLINK Communications, L.L.C., NEXTLINK Capital, Inc. and United States
Trust Company of New York, as Trustee.(3)
4.7 -- Form of Indenture between United States Trust Company, as Trustee and NEXTLINK
Communications, Inc., relating to the 9 5/8% Senior Notes due 2007.(4)
4.8 -- Indenture, dated March 3, 1998, between United States Trust Company, as Trustee and
NEXTLINK Communications, Inc., relating to the 9% Senior Notes due 2008.(5)
4.9 -- Certificate of Designation of Powers, Preferences and Relative, Participating,
Optional and Other Special Rights of 6 1/2% Cumulative Convertible Preferred Stock
and Qualifications, Limitations and Restrictions Thereof.(1)
4.10 -- Indenture, dated April 1, 1998, between United States Trust Company, as Trustee and
NEXTLINK Communications, Inc., relating to the 9.45% Senior Discount Notes due
2008.(6)
4.11 -- Second Supplemental Indenture, dated June 3, 1998, amending Indenture dated April
25, 1996, by and among NEXTLINK Communications, Inc., NEXTLINK Capital, Inc. and
United States Trust Company of New York, as Trustee.(1)
4.12 -- First Supplemental Indenture, dated June 3, 1998, amending Indenture dated
September 25, 1997, by and between NEXTLINK Communications, Inc. and United States
Trust Company of New York, as Trustee.(1)
4.13 -- First Supplemental Indenture, dated June 3, 1998, amending Indenture dated March 3,
1998, by and between NEXTLINK Communications, Inc. and United States Trust Company
of New York, as Trustee.(1)
4.14 -- First Supplemental Indenture, dated June 3, 1998, amending Indenture dated April 1,
1998, by and between NEXTLINK Communications, Inc. and United States Trust Company
of New York, as Trustee.(1)
5.1 -- Opinion of Willkie Farr & Gallagher.*
8.1 -- Tax Opinion of Willkie Farr & Gallagher.*
10.1 -- Stock Option Plan of the Company, as amended.(1)
10.2 -- Employee Stock Purchase Plan of the Company.(1)
10.3 -- Registration Rights Agreement dated as of January 15, 1997, between the Company and
the signatories listed therein(3).
10.4 -- Preferred Exchange and Registration Rights Agreement, dated as of January 31, 1997,
by and among the Company and the Initial Purchasers(3).
10.5 -- Fiber Lease and Innerduct Use Agreement, dated February 23, 1998, by and between
the Company and Metromedia Fiber Network, Inc. (5)
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <C> <S>
10.6 -- Amendment No. 1 to Fiber Lease and Innerduct Use Agreement, dated March 4, 1998, by
and between the Company and Metromedia Fiber Network, Inc. (5)
10.7 -- Agreement and Plan of Merger, dated as of January 14, 1999, among the Company, WNP
Communications, Inc. and PCO Acquisition Corp. (7)
10.8 -- Registration Rights Agreement, dated January 14, 1999, between the Company and the
Holders referred to therein. (7)
21 -- Subsidiaries of the Registrant.(5)
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of Willkie Farr & Gallagher (included in their opinion filed as Exhibit 5.1
and Exhibit 8.1).*
25 -- Statement on Form T-1 of Eligibility of Trustee.*
99.1 -- Form of Letter of Transmittal.*
99.2 -- Form of Notice of Guaranteed Delivery.*
99.3 -- Form of Letter to Clients.*
99.4 -- Form of Letter to Nominees.*
</TABLE>
- ------------------------
* Previously filed.
(1) Incorporated herein by reference to the exhibit filed with the Registration
Statement on Form S-4 of NEXTLINK Communications, Inc. (Commission File No.
333-53975).
(2) Incorporated herein by reference to the exhibit filed with the Registration
Statement on Form S-4 of NEXTLINK Communications, L.L.C. (the predecessor of
NEXTLINK Communications, Inc.) and NEXTLINK Capital, Inc. (Commission File
No. 333-4603).
(3) Incorporated herein by reference to the exhibit filed with the Annual Report
on Form 10-KSB for the year ended December 31, 1996 of NEXTLINK
Communications, Inc. and NEXTLINK Capital, Inc. (Commission File Nos.
33-04603 and 333-04603-01).
(4) Incorporated here by reference to the exhibit filed with the Registration
Statement on Form S-1 of NEXTLINK Communications, Inc. (Commission File No.
333-32003).
(5) Incorporated herein by reference to the exhibit filed with the Annual Report
on Form 10-KSB for the year ended December 31, 1997 of NEXTLINK
Communications, Inc. and NEXTLINK Capital, Inc. (Communication File Nos.
333-04603 and 333-04603-01).
(6) Incorporated herein by reference to the exhibit filed with the quarterly
report on Form 10-Q for the quarterly period ended March 31, 1998 of
NEXTLINK Communications, Inc. (Commission File No. 000-22939).
(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).
(B) FINANCIAL STATEMENT SCHEDULES:
None.
II-3
<PAGE>
ITEM 22. UNDERTAKINGS.
Insofar as indemnifications for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 20 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the option of their counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of this Registration Statement through the date
of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this Registration Statement when it became effective.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant certifies
that it has reasonable grounds to believe that it meets all of the requirements
for filing a Form S-4 and has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Bellevue, State of Washington, on the 25th day of February, 1999.
NEXTLINK COMMUNICATIONS, INC.
By: /s/ R. BRUCE EASTER, JR.
-----------------------------------------
R. Bruce Easter, Jr.
VICE PRESIDENT, GENERAL COUNSEL AND
SECRETARY
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
* Chairman of the Board
- ------------------------------ February 25, 1999
Steven W. Hooper
Vice Chairman and Chief
* Executive Officer
- ------------------------------ (Principal Executive February 25, 1999
Wayne M. Perry Officer) and Director
Vice President, Chief
Financial Officer and
* Treasurer (Principal
- ------------------------------ Financial Officer and February 25, 1999
Kathleen H. Iskra Principal Accounting
Officer)
* Director
- ------------------------------ February 25, 1999
Craig O. Mccaw
* Director
- ------------------------------ February 25, 1999
Dennis Weibling
* Director
- ------------------------------ February 25, 1999
William A. Hoglund
II-5
<PAGE>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
* Director
- ------------------------------ February 25, 1999
Sharon L. Nelson
* Director
- ------------------------------ February 25, 1999
Jeffrey S. Raikes
* Director
- ------------------------------ February 25, 1999
Gregory J. Parker
Director
- ------------------------------
Nicolas Kauser
*By: /s/ R. BRUCE EASTER,
JR.
-------------------------
R. Bruce Easter, Jr.
ATTORNEY-IN-FACT
II-6
<PAGE>
Exhibit 23.1
[Letterhead of Arthur Andersen LLP]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference to this registration statement on Form S-4 (the
"Registration Statement") of our report dated March 12, 1998 included in
NEXTLINK Communications, Inc.'s Form 10-KSB for the year ended December 31,
1997 and to all references to our firm included in this Registration
Statement.
/s/ Arthur Andersen LLP
Seattle, Washington
February 22, 1999
