AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 22, 1999
REGISTRATION NO. 333-71749
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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NEXTLINK COMMUNICATIONS, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 4813 91-1738221
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
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500 108TH AVENUE N.E., SUITE 2200, BELLEVUE, WASHINGTON 98004, (425) 519-8900
(Address, including ZIP code, and telephone number, including area code, of
the Registrant's principal executive offices)
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R. BRUCE EASTER JR., ESQ.
500 108TH AVENUE N.E., SUITE 2200
BELLEVUE, WASHINGTON 98004
(425) 519-8900
(Name, address, including ZIP code, and telephone number, including area code,
of agent for service)
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COPY TO:
BRUCE R. KRAUS, ESQ.
WILLKIE FARR & GALLAGHER
787 SEVENTH AVENUE
NEW YORK, NEW YORK 10019
(212) 728-8000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED OFFER TO THE PUBLIC:
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. / /
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CALCULATION OF REGISTRATION FEE
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)
10 3/4% Senior Notes due 2008 $500,000,000 100% $500,000,000 $139,000
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Previously paid.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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SUBJECT TO COMPLETION, MARCH 22, 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.
[LOGO]
NEXTLINK COMMUNICATIONS, INC.
EXCHANGE OFFER FOR
10 3/4% SENIOR NOTES DUE 2008
This is an offer to exchange the outstanding, unregistered NEXTLINK 10 3/4%
Notes you now hold for new, substantially identical 10 3/4% Senior 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 April , 1999, unless we
extend it. You must tender your old, unregistered notes by the deadline to
obtain new, registered notes and the liquidity benefits they offer.
We agreed with the initial purchasers of the old notes to make this offer
and register the issuance of the new notes following the closing. This offer
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 11.
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.
March , 1999
TABLE OF CONTENTS
PAGE
---------
Nextlink.................................................................................................... 1
Risk Factors................................................................................................ 11
Where You Can Find More Information......................................................................... 18
Delivery Of Prospectus...................................................................................... 18
Use Of Proceeds............................................................................................. 18
Capitalization.............................................................................................. 19
Business.................................................................................................... 20
Regulation.................................................................................................. 26
The Exchange Offer.......................................................................................... 28
Description Of The Notes.................................................................................... 41
Book-Entry; Delivery and Form............................................................................... 84
Description Of Material Indebtedness........................................................................ 86
Material United States Federal Income Tax Consequences...................................................... 92
Plan Of Distribution........................................................................................ 96
Incorporation Of Material Documents By Reference............................................................ 97
Legal Matters............................................................................................... 98
Experts..................................................................................................... 98
i
NEXTLINK
We provide high-quality local and long distance telecommunications and data
services to small and medium-sized businesses in 38 U.S. cities. We offer our
customers these services at competitive prices individually or as an integrated
package of services. We deliver these services over networks that consist of
communications cables containing multiple glass fiber strands, known as fiber
optic cables. These cables connect our customers' telephone and data lines to
our advanced, electronic switching equipment, or switches, which route each call
from the customer's premises to the ultimate call destination. Each of our
networks can carry high volumes of voice, data, video and Internet traffic.
Whenever practicable, we build and own these networks ourselves.
We currently operate 23 fiber optic networks in 14 states, serving large and
medium-sized cities, as well as clusters of smaller locales. Based on our recent
successes in operating and expanding our existing networks, as well as
opportunities arising in cities we do not currently serve, we intend to expand
into a number of new locations over the next several years.
In each city we serve, our principal competitor is the dominant local
telephone company, which Congress and our industry refer to as the incumbent
local exchange carrier. Until recently, each incumbent carrier held a virtual
monopoly on providing local telephone service. Our goal is for businesses
located in the cities we serve to choose to have their telephone and data lines
connected to our network, rather than that of the incumbent. In constructing
each network, we create a ring of fiber optic cables around the central business
district of each location we serve. This design allows for a high percentage of
the commercial buildings within these locations to be connected directly to our
networks. A number of our customers, however, are not directly connected to our
networks. For these customers, we lease telephone lines from the incumbent
carrier to cover the relatively short distance between the customer and our
network. We plan to increase the number of businesses that we can connect
directly to our networks by using fixed wireless radio spectrum that we control
or have contracts to acquire in the majority of the top 30 U.S. cities.
We are developing plans to link our local fiber optic networks to one
another through the use of a national fiber optic network currently being
constructed by Level 3 Communications. We manage and own 50% of a joint venture
that owns exclusive interests in the Level 3 network. This network is designed
to traverse more than 16,000 miles, connecting 50 cities in the United States
and Canada. With this system of local networks linked together by long-haul
fiber optic cable, we should be able to offer our customers complete, end-to-end
voice and data communications services over facilities we control.
We also are developing plans to deploy data switching and transmission
equipment in 1999 that will enable us to provide a full range of innovative data
1
services. The Level 3 network is also designed to support the types of equipment
necessary to provided these data services, in addition to voice services.
Our founder and principal shareholder, Craig McCaw, also founded McCaw
Cellular (later acquired by AT&T) and has substantial interests in other
telecommunications businesses.
BUSINESS STRATEGY
Our goal is to become a leading provider of complete, end-to-end voice and
data communications services and to maximize penetration of our targeted
customer base of small and medium-sized businesses. The key components of our
strategy to achieve this goal are:
- Building high-capacity local networks with cables holding large bundles of
fiber optic strands in a majority of the nation's top 30 cities and
providing service in cities with a total of 27 million business lines by
the end of 2000.
- Extending direct customer connections to our networks using fixed wireless
radio spectrum.
- Linking our local networks to one another using our interest in a national
fiber optic network now under construction.
- Deploying data switching and transmission equipment in 1999, including
Asynchronous Transfer Mode, or ATM, Internet Protocol, or IP, and frame-
relay facilities and digital subscriber line, or DSL, services.
- Attracting and retaining experienced management and maintaining a
decentralized, local management focus at each operating subsidiary.
- Focusing sales efforts on businesses and professional groups with fewer
than 50 telephone lines, and assigning a single customer care
representative to each customer.
- Continuously improving the complex process of the changing over a new
customer from the incumbent carrier to NEXTLINK service
2
THE EXCHANGE OFFER
The Exchange Offer............ We are offering to exchange $1,000 principal amount at
maturity of NEXTLINK's 10 3/4% Senior Notes due 2008 which
have been registered under the Securities Act for each
$1,000 principal amount at maturity of NEXTLINK's
outstanding 10 3/4% Senior Notes due 2008 which were issued
in November 1998 in a private offering. In order to be
exchanged, an old note must be properly tendered and
accepted. We will exchange all notes validly tendered and
not validly withdrawn. As of this date there is $500.0
million aggregate principal amount at maturity of old notes
outstanding.
Expiration and Exchange
Dates........................ This offer will expire at 5:00 p.m., New York City time, on
April , 1999, unless we extend it, and we will consummate
the exchange on the next business day.
Registration Rights
Agreement.................... You have the right to exchange the old notes that you now
hold for new notes with substantially identical terms. This
exchange offer is intended to satisfy these rights. After
the exchange offer is complete, you will no longer be
entitled to any exchange or registration rights with
respect to your notes.
No Substantial Conditions..... This offer is unconditional as long as it does not 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.
Resale Without Further
Registration................. We believe that the new notes may be offered for resale,
resold and otherwise transferred by you without compliance
with the registration and prospectus delivery provisions of
the Securities Act so long as the following statements are
true:
3
- you acquire the new notes issued in the exchange offer in
the ordinary course of your business;
- you are not an "affiliate," as defined under Rule 405 of
the Securities Act, of ours;
- you are not participating, and do not intend to
participate, and have no arrangement or understanding
with any person to participate, in the distribution of
the new notes issued to you in the exchange offer.
By tendering your notes as described below, you will be
making representations to this effect.
Transfer Restrictions on New
Notes........................ You may incur liability under the Securities Act if:
(1) any of the representations listed above are not true;
and
(2) you transfer any new note issued to you in the exchange
offer without:
- delivering a prospectus meeting the requirements of the
Securities Act; or
- an exemption from the Securities Act's requirements to
register your new notes.
We do not assume or indemnify you against such liability.
Each broker-dealer that is issued new notes for its own
account in exchange for old notes that were acquired as a
result of market-making or other trading activities, must
acknowledge that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any
resale of the new notes. A broker-dealer may use this
prospectus for an offer to resell, a resale or other
retransfer of the new notes issued to it in the exchange
offer.
Procedures for Tendering Old
Notes........................ Each holder of old notes who wishes to accept the exchange
offer must:
- complete, sign and date the accompanying letter of
transmittal, or a facsimile thereof; or
- arrange for the The Depository Trust Company to transmit
certain required information to the
4
exchange agent in connection with a book-entry transfer.
You must mail or otherwise deliver such documentation and
your old notes to the United States Trust Company of New
York, as exchange agent, at the address set forth under
"The Exchange Offer--Exchange Agent."
Failure to Exchange will
affect you adversely......... If you are eligible to participate in the exchange offer
and you do not tender your old notes, you will not have any
further registration or exchange rights and your old notes
will continue to be subject to some restrictions on
transfer. Accordingly, the liquidity of the old notes could
be adversely affected.
Special Procedures for
Beneficial Owners............ If you beneficially own old notes registered in the name of
a broker, dealer, commercial bank, trust company or other
nominee and you wish to tender your old notes in the
exchange offer, you should contact such registered holder
promptly and instruct it to tender on your behalf. If you
wish to tender on your own behalf, you must, before
completing and executing the letter of transmittal for the
exchange offer and delivering your old notes, either
arrange to have your old notes registered in your name or
obtain a properly completed bond power from the registered
holder. The transfer of registered ownership may take
considerable time.
Guaranteed Delivery
Procedures................... You may comply with the procedures described in this
prospectus under the heading "The Exchange Offer--
Guaranteed Delivery Procedure" if you wish to tender your
old notes and:
- time will not permit your required documents to reach the
exchange agent by the expiration date of the exchange
offer,
- you cannot complete the procedure for book-entry transfer
on time, or
- your old notes are not immediately available.
5
THE NEW NOTES
The new notes have the same financial terms and covenants as the old notes,
which are as follows:
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 after that date.
In addition, before November 15, 2001, we have the right to
use the net cash proceeds of qualifying offerings of stock
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 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. For a summary of what constitutes change of
control please see "Description of the
Notes--Covenants--Change of Control".
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 the payments required by the indenture;
6
- issue capital stock of certain of our subsidiaries;
- repurchase our stock or subordinated indebtedness;
- enter into transactions with stockholders and affiliates;
- 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.
For additional information regarding the notes, see "Description of the
Notes" and "Material 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.
7
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 information 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. 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 Operation" included in our 1997 Form 10-KSB and our 1998 Form 10-Qs.
NINE MONTHS THREE MONTHS ENDED
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
-------------------- -------------------- --------------------
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)
--------- --------- --------- --------- --------- ---------
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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
AS OF SEPTEMBER 30, 1998
AS OF DECEMBER 31, -------------------------
-------------------- AS ADJUSTED
1996 1997 ACTUAL (4)
--------- --------- --------- --------------
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)
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(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
8
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 anticipated ability of NEXTLINK to meet
future debt service, capital expenditures and working capital requirements.
(3) Total capital expenditures, acquisitions, and investments in affiliates were
funded as follows:
YEAR ENDED NINE MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------- --------------------
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
--------- ---------- ---------- ---------- --------- ---------
--------- ---------- ---------- ---------- --------- ---------
(4) As adjusted to give effect to the net proceeds to NEXTLINK of the sale of
the notes that you hold.
(5) Pledged U.S. Treasury securities, which represent funds sufficient to
provide for payment in full of interest through April 15, 1999 on our
12 1/2% Senior Notes.
9
The table below contains operating data, including statistics of our Las
Vegas network which we manage and in which we have a 40% membership interest.
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
------------- ------------- ----------- ----------- -------------
OPERATING DATA:
Route miles(1)................................. 1,757 1,897 2,036 2,099 2,150
Fiber miles(2)................................. 124,399 133,224 141,788 152,225 158,987
On-net buildings connected(3).................. 479 513 571 658 736
Switches installed(4).......................... 13 13 14 17 18
Access lines installed(5)...................... 30,944 50,131 72,834 102,887 134,107
Employees...................................... 1,027 1,327 1,499 1,765 2,065
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(1) A "route mile" measures the expansiveness of our network, and is equal to
the number of physical miles along which we have installed or leased fiber
optic cable. A "fiber strand" is an advanced telephone line which can carry
a large volume of telephone calls and data transmissions.
(2) The number of "fiber miles" that we have installed is equal to our estimate
of the number of fiber strands that we have installed along our network,
multiplied by the number of route miles covered by our network. It is a
measure of our carrying capacity of large volumes of telephone calls and
data transmissions.
(3) "On-net buildings connected" means buildings physically connected to our
network, excluding those buildings which are connected to our network by
facilities leased from the incumbent telephone company. As of September 30,
1998, we had 10,424 buildings physically connected to our network, including
those buildings connected to our network by facilities leased from the
incumbent telephone company.
(4) "Switches" are electronic devices that route telephone calls and data
transmissions to their final destination. All switch counts include two long
distance switches acquired in 1996 as well as the switch installed in
NEXTLAB, our telecommunications and data testing facility.
(5) An "access line" is a telephone connection between a customer purchasing
local telephone services and our facilities. This definition of access lines
is adjusted to reflect the fact that some high performance connections,
known as primary rate interface, can carry comparatively larger volumes of
voice and data communications. Lines over which primary rate interface
service is provided are counted as 23 access lines.
The number of "access lines installed" represents the number of access lines
for which NEXTLINK is billing services. This number includes access lines that
are provisioned through the resale of services. We serviced 3,312 resold access
lines as of September 30, 1998.
10
RISK FACTORS
The new notes, like the old notes, entail the following risks:
WE HAVE SUBSTANTIAL EXISTING DEBT AND WILL INCUR SUBSTANTIAL ADDITIONAL DEBT, SO
WE MAY BE UNABLE TO PAY INTEREST OR PRINCIPAL ON THE NOTES THAT YOU HOLD
As of September 30, 1998, NEXTLINK had outstanding four issues of senior
notes totaling $1,503.3 million in principal amount and approximately $60.2
million in miscellaneous debt obligations of its subsidiaries. Because we have
these substantial obligations, we may be unable to pay interest or principal on
the notes that you hold. Our indentures permit us to incur substantial
additional debt, and we fully expect to borrow substantial additional funds
during the next few years. These borrowings may be secured by our assets or the
assets of our subsidiaries. This additional debt may make it more difficult for
us to repay you. For more information, see "Description of the Notes" and
"Capitalization."
WE DO NOT CURRENTLY GENERATE CASH FLOW FROM WHICH TO MAKE PAYMENTS ON THE NOTES
THAT YOU HOLD
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. Consequently, we do not
currently generate cash flows from which we can make payments on the notes that
you hold.
Our plan to develop our businesses and expand our networks, which has
required and will continue require substantial capital expenditures, contributes
to our negative cash flow. We will continue to have negative cash flow and
operating losses until we begin to realize adequate revenues. We cannot assure
you that we will ever establish an adequate revenue base to produce an operating
profit or generate adequate cash flow to provide future capital expenditures and
repayment of debt.
For more information, see "Selected Historical Consolidated Financial and
Operating Data."
SIGNIFICANT CAPITAL EXPENDITURES WILL DIVERT FUNDS WHICH COULD BE USED TO MAKE
PAYMENTS ON THE NOTES THAT YOU HOLD
We expect to make significant capital expenditures in the future. These
expenditures will divert funds which could be used to make payments on the notes
that you hold. In addition to the expenditures required to implement our
strategy discussed under "Business," additional expenditures are likely to
include the potential acquisition of other telecommunications companies and the
continued development and implementation of a comprehensive information
technology platform.
11
IF WE ARE NOT SUCCESSFUL IN RAISING ADDITIONAL CAPITAL, WE WILL NOT BE ABLE TO
BUILD AND MAINTAIN OUR NETWORKS
Because our anticipated future capital requirements may exceed the $1,478.1
million in cash and marketable securities we had on hand as of December 31,
1998, we may be required to raise additional capital. If we fail to raise
sufficient capital, we may be required to delay or abandon some of our planned
future expansion or expenditures, which could have a material adverse effect on
our growth and our ability to compete in the telecommunications services
industry, and could even result in a payment default on our existing debt.
BECAUSE YOUR NOTES ARE STRUCTURALLY SUBORDINATED TO THE OBLIGATIONS OF OUR
SUBSIDIARIES, YOU MAY NOT BE FULLY REPAID IF WE BECOME INSOLVENT
Because our cash flows from operations arise at the subsidiary level, all of
our senior notes are structurally subordinated to the debts of our subsidiaries.
Creditors of any NEXTLINK subsidiary, including trade creditors, have and will
have claims that 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.
OUR SUBSIDIARIES MUST MAKE PAYMENTS TO US IN ORDER FOR US TO MAKE PAYMENTS ON
THE NOTES THAT YOU HOLD
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 debt
securities in subsidiaries and joint ventures that we manage.
BECAUSE THE NOTES THAT YOU HOLD ARE UNSECURED, YOU MAY NOT BE FULLY REPAID IF WE
BECOME INSOLVENT
The new notes will not be secured by any of the assets of NEXTLINK or its
subsidiaries. Therefore, you may not be fully repaid if we become insolvent.
Moreover, the indentures relating to the senior notes permit us to incur secured
debt. If we were to incur secured debt and we become insolvent, the holders of
the secured debt would receive payments from the assets used as security before
you receive payments.
IF WE CANNOT QUICKLY AND EFFICIENTLY INSTALL OUR HARDWARE, WE WILL BE UNABLE TO
GENERATE REVENUE
Each of our networks consists of many different pieces of hardware,
including switches, fiber optic cables, electronics, and wireless transmitters
and receivers which are difficult to install. If we cannot install this hardware
quickly, the time in which customers can be connected to our network and we can
begin to generate revenue
12
from our network will be delayed. You should be aware that the construction of
the INTERNEXT national fiber optic network is not under our control, but is
under the control of Level 3 Communications. We cannot assure you that the Level
3 network will be completed, that it will be placed in service within the
expected time frame or that it will contain the contemplated number of fibers
and conduits throughout the entire network. Failure of Level 3 to complete its
network would delay implementation of our strategy of linking our local networks
to one another.
WE MAY NOT BE ABLE TO CONNECT OUR NETWORK TO THE INCUMBENT CARRIER'S NETWORK ON
FAVORABLE TERMS
We require interconnection agreements with the incumbent carrier to connect
calls between our on-net customers and non-customers. We cannot assure you that
we will be able to negotiate or renegotiate interconnection agreements in all of
our markets on favorable terms.
THE REQUIREMENT THAT WE OBTAIN PERMITS AND RIGHTS OF WAY INCREASES OUR COST OF
DOING BUSINESS
In order for us to acquire and develop our fiber networks, we must obtain
local franchises and other permits, as well as rights-of-way and fiber capacity
from entities such as incumbent carriers and other utilities, railroads, long
distance companies, state highway authorities, local governments and transit
authorities. You should be aware that the process of obtaining these permits and
rights of way increases our cost of doing business.
We cannot assure you that we will be able to maintain our existing
franchises, permits and rights-of-way that we need to implement our business.
Nor can we assure you that we will be able to obtain and maintain the other
franchises, permits and rights that we require. A sustained and material failure
to obtain or maintain these rights could materially adversely affect our
business in the affected metropolitan area.
IN LOCAL MARKETS, WE COMPETE AGAINST THE INCUMBENT CARRIER, WHICH HAS A VESTED
INTEREST IN MAKING IT DIFFICULT TO FOR US TO CONNECT CUSTOMERS TO OUR NETWORK
In each of the local markets served by our networks, we compete principally
with the incumbent carrier in that market.
The incumbent carriers are already established providers of local telephone
services to all or virtually all telephone subscribers within their respective
service areas. The physical connections from their premises to those of their
customers are expensive and difficult to duplicate. In addition, they have
long-standing relationships with regulatory authorities at the federal and state
levels.
It is expensive and difficult for us to switch a new customer to our network
because:
13
- a potential customer faces switching costs if they decide to become our
customers, and
- we require cooperation from the incumbent carrier.
We cannot assure you that we will be able to overcome these advantages and
compete successfully with the incumbent carriers.
WE MAY FACE COMPETITION IN LOCAL MARKETS FROM NEW ENTRANTS, PUTTING DOWNWARD
PRESSURE ON PRICES
We also face competition from potential market entrants, including long
distance carriers seeking to enter, reenter or expand entry into the local
exchange marketplace such as AT&T, MCI WorldCom and Sprint. This places downward
pressure on prices for local telephone service and makes it more difficult for
us to achieve operating cash flow. In addition, we expect competition from other
companies like ourselves, cable television companies, electric utilities,
microwave carriers, wireless telephone system operators and private networks
built by large end-users. We cannot assure you that we will be able to compete
effectively with these industry participants.
WE FACE COMPETITION IN LONG DISTANCE MARKETS, PUTTING DOWNWARD PRESSURE ON
PRICES
We also face intense competition from long distance carriers in the
provision of long distance services, which places downward pressure on prices
for long distance service and makes it difficult for us to achieve operating
cash flow. Although the long distance market is dominated by three major
competitors, AT&T, MCI WorldCom and Sprint, hundreds of other companies also
compete in the long distance marketplace. We cannot assure you that we will be
able to effectively compete with any of these industry participants.
OUR COMPETITION MAY HAVE SUPERIOR RESOURCES
Many of our current and potential competitors have financial, personnel and
other resources, including brand name recognition, substantially greater than
those of NEXTLINK.
OUR COMPANY AND INDUSTRY ARE HIGHLY REGULATED, IMPOSING SUBSTANTIAL COMPLIANCE
COSTS AND RESTRICTING OUR ABILITY TO COMPETE IN OUR TARGET MARKETS
We are subject to varying degrees of federal, state and local regulation.
This regulation imposes substantial compliance costs on us. It also restricts
our ability to compete. For example, in each state in which we desire to offer
our services, we are required to obtain authorization from the appropriate state
commission. We cannot assure you that we will receive authorization for markets
to be launched in the future. For more information, see "Regulation."
The FCC licenses for fixed wireless radio spectrum held by our 50%-owned
affiliate, NEXTBAND, are subject to a petition for reconsideration filed by
another
14
auction participant. The petition asks the FCC to revoke and reauction
NEXTBAND's licenses. Because the matter remains pending, we cannot assure you
that the FCC will not grant the petitions and relief sought. Our acquisition of
additional high frequency spectrum from WNP remains subject to FCC approval.
THE TECHNOLOGIES THAT WE USE MAY BECOME OBSOLETE, WHICH WOULD LIMIT OR ABILITY
TO COMPETE EFFECTIVELY
The telecommunications industry is subject to rapid and significant changes
in technology. If we do not replace or upgrade technology and equipment that
becomes obsolete, we will be unable to compete effectively because we will not
be able to meet the expectations of our customers.
The following technology and equipment that we use or will use is subject to
obsolescence: wireline and wireless transmission technologies, circuit,
frame-relay and packet switching technologies and data transmission
technologies, including, the Nortel DMS 500 switches, DSL, ATM, frame-relay and
IP technologies. In addition, we cannot assure you that the technologies that we
choose to invest in will lead to successful implementation of our business plan.
WE MAY BE REQUIRED TO PAY PATENT LICENSING FEES, WHICH WILL DIVERT FUNDS WHICH
COULD BE USED TO MAKE PAYMENTS ON THE NOTES THAT YOU HOLD
From time to time we receive requests to consider licensing certain patents
held by third parties that may have bearing on our interactive voice response
services. Should we be required to pay license fees in the future, such
payments, if substantial, could have a material adverse effect on our results of
operations.
IF WE LOSE KEY PERSONNEL AND QUALIFIED TECHNICAL STAFF, OUR ABILITY TO MANAGE
THE DAY-TO-DAY ASPECTS OF OUR COMPLEX NETWORK WILL BE WEAKENED
We believe that a critical component for our success will be the attraction
and retention of qualified professional and technical personnel. If we lose key
personnel and qualified technical staff, or are unable to recruit qualified
personnel, our ability to manage the day-to-day aspects of our complex network
will be weakened. You should be aware that we face significant competition in
the attraction and retention of personnel who possess the skill sets that we
seek.
In addition, our subsidiaries must also develop and retain a large and
sophisticated sales force. If our subsidiaries do not develop and retain a large
and sophisticated sales force, there will be an adverse effect on our ability to
generate revenue and, consequently, our operating cash flow.
CRAIG O. MCCAW, WHO CONTROLS APPROXIMATELY 59% OF NEXTLINK'S VOTING POWER, MAY
HAVE INTERESTS WHICH ARE ADVERSE TO YOUR INTERESTS
Craig O. McCaw, primarily through his majority ownership and control of
Eagle River Investments, LLC, controls approximately 59% of NEXTLINK's total
voting
15
power. Because Mr. McCaw has the ability to control the direction and future
operations of NEXTLINK, he may make decisions which are adverse to your
interests.
In addition to his investment in NEXTLINK through Eagle River, Mr. McCaw has
significant investments in other communications companies, including Nextel,
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.
THERE IS NO PUBLIC MARKET FOR THE NEW NOTES, SO YOU MAY BE UNABLE TO SELL NEW
NOTES
The new notes are new securities for which there is currently no market.
Consequently, the new notes will be relatively illiquid, and you may be unable
to sell your new notes. 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.
WE MAY FACE ADDITIONAL COST AND OTHER ADVERSE EFFECTS DUE TO YEAR 2000 ISSUES
To ensure that our computer systems and applications will function properly
beyond 1999, we have implemented a year 2000 program. As part of this program,
we conducted an inventory of network equipment and enterprise systems that
execute primary business processes, such as accounting, service assurance,
service delivery, customer service and billing. We cannot be sure that mission
critical equipment has not been overlooked.
Our determinations whether any systems or applications require modification
or replacement are based in part on statements made to us by vendors as to the
year 2000 compliance of their systems and applications that we use. We will not
be able to independently confirm the accuracy or completeness of these vendor
representations.
Telecommunications and data traffic between our customers who are directly
connected to one of our networks and parties who are not customers of ours are
routed over networks that we do not control. In addition, many of our customers
are connected to one of our networks through facilities of the incumbent local
exchange carrier. Consequently, our customers may not be able to complete calls
or data transmissions if the computer, telecommunications and other systems of
outside entities, including local and interexchange carriers and Internet
service providers that interchange traffic, are not year 2000 compliant. A
failure by some or all of these entities to make their systems year 2000
compliant could create substantial disruptions, which in turn could have a
material adverse effect on our operations.
16
For further discussion on our year 2000 program, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Impact
of Year 2000" in our most recent periodic filing with the Securities and
Exchange Commission.
THIS PROSPECTUS INCLUDES FORWARD-LOOKING STATEMENTS
Some statements and information contained in this prospectus are not
historical facts, but are "forward-looking statements", as such term is defined
in the Private Securities Litigation Reform Act of 1995. We wish to caution you
that these forward-looking statements are only predictions, and actual events or
results may differ materially as a result of risks that we face, including those
set forth herein under "Risk Factors." These forward-looking statements can be
identified by the use of forward-looking terminology such as "believes",
"expects", "plans", "may", "will", "would," "could," "should", or "anticipates"
or the negative of these words or other variations of these words or other
comparable words, or by discussions of strategy that involve risks and
uncertainties. Such forward-looking statements include, but are not limited to:
- the number of markets we expect to serve by the end of 2000, the expected
number of addressable business lines in markets in which we currently
provide service and the markets in which we expect to provide service by
the end of 2000;
- our expectations regarding our ability to attract and retain customers;
- our beliefs regarding certain competitive advantages, including that of
our management structure and provisioning processes and systems;
- our expectation regarding the size of our sales and customer care forces;
- our belief regarding traffic flow over our networks and the effects and
benefits of high capacity networks with broad coverage based on a uniform
technology platform;
- our plans to install additional switches, data networking capabilities
such as frame-relay, IP and ATM facilities, high speed technologies such
as DSL and wireless technologies;
- our expectation regarding the development of a national network and the
implementation of a national network end-to-end strategy;
- our anticipated capital expenditures, funding thereof and levels of
indebtedness and our expectations regarding additional indebtedness;
- statements with respect to our Year 2000 project.
17
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 this exchange offer. This prospectus, which
forms part of the registration statement, does not contain all of the
information included in that registration statement. For further information
about NEXTLINK and the 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.
Our principal executive offices are located at 500 108th Avenue N.E., Suite
2200, Bellevue, Washington 98004. Our telephone number is (425) 519-8900.
DELIVERY OF PROSPECTUS
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.
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.
18
CAPITALIZATION
(Dollars in thousands, except per share amounts)
The following table sets forth as of September 30, 1998, the actual
capitalization of NEXTLINK and the capitalization of NEXTLINK 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.
AS OF SEPTEMBER 30, 1998
--------------------------
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
------------ ------------
------------ ------------
- ---------------------
(1) Pledged U.S. Treasury securities, which represent funds sufficient to
provide for payment in full of interest through April 15, 1999 on NEXTLINK's
12 1/2% Senior Notes due April 15, 2006.
(2) Issued and outstanding does not include 7,938,774 and 654,858 shares of
Class A Common Stock and Class B Common Stock, respectively, issuable upon
exercise of outstanding options.
19
BUSINESS
Craig O. McCaw founded NEXTLINK in 1994 and is our largest and controlling
shareholder. We provide telephone and other telecommunications and data services
to our targeted customer base of small and medium-sized businesses using our own
electronics and, where practical, our own network facilities, to route telephone
calls and data communications, such as facsimile transmissions, to their final
destination. We were one of the first companies to take advantage of the
Telecommunications Act of 1996, which opened the market for local
telecommunications services to competition. In the language of the 1996 Act, we
are referred to as a "competitive local exchange carrier" or "CLEC." We compete
in each of our markets principally against the dominant telephone company in
that area that had a virtual monopoly on local voice service prior to the entry
of CLECs. We offer our customers high quality local, long distance, data and
enhanced services at competitive prices. We provide these services individually
and as bundled packages, such as a combined package of local and long distance
services. 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 23 individual networks of telephone lines and electronics, and
provide local, long distance, data and enhanced services in 38 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. 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:
TOTAL ACCESS LINES
DATE MARKETS IN SERVICE INSTALLED
- ------------------------------------------------------------------- ----------------------- -------------------------
December 31, 1996.................................................. 7 8,511
December 31, 1997.................................................. 25 50,131
December 31, 1998.................................................. 37 174,182
20
We have also improved our quarterly rate of access line installations. The
following table illustrates this improvement:
ACCESS LINE
INSTALLATIONS
PERIOD PER QUARTER
- ------------------------------------------------------------------------------------------ -----------------------
Fourth Quarter 1996....................................................................... 1,604
Fourth Quarter 1997....................................................................... 19,187
Fourth Quarter 1998....................................................................... 40,075
Based on our recent successes in operating and expanding our existing
networks, as well as new opportunities in other markets, we are pursuing an
aggressive growth plan. We 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. The next phase of our expansion plan includes
the launch of switched service in Washington, D.C. and Seattle in the second
quarter 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 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 dominant carriers 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 16 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 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 local and long distance telephone services at competitive prices to
small and medium-sized businesses. Our goal is maximize penetration of our
targeted customer
21
base and to become a leading provider of end-to-end voice and data
communications services.
- DEVELOP FIBER OPTIC NETWORKS. 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 dominant carrier 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.
- LINK OUR OPERATIONS IN EACH CITY TO ONE ANOTHER. 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.
- DEPLOY ADVANCED TECHNOLOGIES FOR USE IN DATA COMMUNICATIONS.We are
developing plans for deploying new technologies which will route data
communications to their final destination efficiently and at high speeds.
These technologies include Asynchronous Transfer Mode, or ATM, Internet
Protocol, or IP frame-relay facilities, and Digital Subscriber Line, or
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.
- FOCUS SALE EFFORTS ON SMALL AND MEDIUM-SIZED BUSINESS. 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 TO EACH CUSTOMER. We assign a
single customer care representative to each customer. Each representative
is
22
responsible for solving problems and responding to inquires from their
assigned customers.
- CONTINOUSLY IMPROVE TRANSITIONING OF NEW CUSTOMERS ONTO OUR NETWORK.
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.
RECENT TRANSACTIONS
INTERNEXT
In July 1998, we announced the formation of INTERNEXT L.L.C. NEXTLINK and
Eagle River Investments, L.L.C. 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 agreement with
Level 3 Communications, INC. Level 3 is constructing a national fiber optic
network that is expected to cover more than 16,000 route miles with six or more
conduits and connect 50 cities in the United States and Canada.
INTERNEXT has an exclusive interest in 24 fibers in a shared, filled conduit
throughout this network, and 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 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 high-frequency radio spectrum
licenses for 42 markets covering approximately 114 million persons located
within the licensed areas through a FCC-sponsored auction. The number of persons
located within a licensed area is referred to as "POPs". We have reached an
agreement in principle with Nextel to acquire Nextel's 50% interest in NEXTBAND.
Nextband's FCC licences are in the Local Multipoint Distribution Service, or
LMDS, which is a newly-authorized fixed broadband service that 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
23
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 Federal Communications
Commission.
ACQUISITION OF WNP COMMUNICATIONS, INC.
On January 14, 1999, we entered into an agreement to acquire WNP
Communications, Inc. 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. Substantially all of
WNP's assets consist of recently-issued LMDS licenses. By acquiring WNP, 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 Federal
Communications Commission.
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
overcome 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., a holding
company that manages the investments of Wendy P. McCaw. 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 Telecom, LLC owns 9,722,649 shares of our
Class B Common Stock. Ampersand Telecom LLC'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
24
stock. The Ampersand Telecom Trust is the Managing Member of Ampersand Telecom,
LLC. The beneficiary of The Ampersand Telecom Trust is Wendy P. McCaw.
Effective upon approval from our board of directors, Steven W. Hooper, the
chairman of our board of directors, will become our chief executive officer. He
will replace Wayne Perry, our current chief executive officer and vice chairman,
who will retain his position as vice chairman. Mr. Hooper will continue to serve
as chairman of our board.
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.
25
REGULATION
The federal Telecommunications Act of 1996 opened local telephone markets to
competition from companies like NEXTLINK. Prior to that time, states typically
granted an exclusive franchise in each local service area to a single dominant
carrier-- often a former subsidiary of AT&T known as a "Baby Bell"--which owned
and operated the entire local exchange network. The 1996 Act preserved state and
local jurisdiction over many aspects of local telephone service, and, as a
result, NEXTLINK is subject to varying degrees of federal, state and local
regulation. FCC and state regulators, and other legislative or judicial
initiatives relating to the telecommunications industry, could help or hinder
our business.
We are not currently required to obtain FCC authorization for the
installation, acquisition or operation of our wireline network facilities. We
are required to hold and we have obtained FCC authorizations for the operation
of our wireless facilities. In each state in which we desire to offer our
services, we also must first obtain authorization from the appropriate state
commission. Although we currently hold the required state authorizations in each
of our operational markets, we can't be certain that we will receive the
necessary state authorizations for markets to be launched in the future.
Unlike the incumbent carriers, we are not currently subject to price cap or
rate of return regulation, which leaves us more free to set our own pricing
policies. The FCC requires us to file interstate tariffs on an ongoing basis for
interstate and international interexchange traffic. An FCC order that would have
exempted us from any requirement to file tariffs for interstate access and
domestic long distance service has been stayed pending further judicial review,
and, as a result, we currently file tariffs for these services. Our intrastate
services are also generally subject to state certification and tariff or price
list filing requirements.
The 1996 Act gave the FCC significant responsibility for its implementation,
especially in the areas of universal service, access charges, numbering, number
portability and price caps. The details of the rules adopted by the FCC, and the
extent to which they are upheld by the courts reviewing the FCC's rules, will
have a significant effect on when and to what extent barriers to competition in
local services are removed. For example, the FCC has the power to grant
incumbent carriers increased flexibility to enable them to reduce prices for
special access, private line services and advanced telecommunications services.
The 1996 Act provides incentives to most of the incumbent carriers to enter
into interconnection agreements with carriers like NEXTLINK. We need
interconnection agreements to gain access to the incumbent carriers' networks.
Although we have interconnection agreements in all of our currently operational
markets, we can't be certain that incumbent carriers in new markets we seek to
enter will negotiate quickly with us or that any resulting agreements will be on
terms favorable to us.
26
The incumbent carriers have frequently resorted to litigation in an attempt
to obtain the benefits of these incentives without offering consumers and
competitors like NEXTLINK the full benefits intended by the 1996 Act. For
example, in September 1998, the FCC ruled that certain incumbent carrier
"teaming" arrangements with long distance carriers, which would have allowed
incumbent carriers to offer a form of "one stop shopping" in competition with
NEXTLINK's combined local and long distance offerings, violated the 1996 Act. In
response, the incumbent carriers have filed petitions with the United States
Court of Appeals for the District of Columbia seeking to overturn this ruling.
If this FCC's ruling is reversed by the courts, one of our current competitive
advantages would be undermined.
In January 1999, the U.S. Supreme Court upheld key provisions of the FCC
rules implementing the 1996 Act, in a decision that was generally favorable to
competitive telephone companies like NEXTLINK. In two earlier decisions, the
United States Court of Appeals for the Eighth Circuit had invalidated these
rules. The Supreme Court's decision reinstated all but one of the FCC rules
invalidated by the Eighth Circuit. The Supreme Court held that the FCC has
general jurisdiction to implement the 1996 Act's local competition provisions,
including pricing and enforcement jurisdiction. Significantly, the Court upheld
that the FCC's "pick and choose" rule, which allows competitors to choose which
provisions of other carriers' interconnection agreements they wish to
incorporate in their own interconnection agreements with that incumbent carrier.
A key provision of the 1996 Act requires incumbent carriers to make elements
of their networks available to competing carriers like NEXTLINK at reasonable
rates. The Supreme Court broadly affirmed these provisions, but held that the
FCC did not correctly determine precisely which network elements must be
unbundled and made available to competitors like NEXTLINK. This ruling cast
existing interconnection agreements in doubt when some incumbent carriers stated
that they would no longer make elements of their networks available until the
FCC clarified which elements they must offer to competitors. These incumbent
carriers subsequently assured FCC officials that they would continue to provide
currently available network elements to their competitors and continue to
negotiate new interconnection agreements in good faith.
Until the FCC adopts new rules complying with the Supreme Court's decision,
competitors like NEXTLINK will need to rely to a great extent on the continued
good faith of the incumbent carriers, rather than express regulatory rights, to
obtain new interconnection agreements and network elements.
The Supreme Court decision did not address or resolve the incumbent
carriers' challenge to the FCC's forward-looking pricing methodology for
unbundled network elements. The incumbent carriers have challenged this
methodology, claiming that any correct procedure would take into account
historical costs. If the incumbent carriers succeed in this contention, we would
have to pay more to purchase network elements, which could significantly
increase our cost of doing business.
27
THE EXCHANGE OFFER
BACKGROUND
NEXTLINK originally sold the outstanding 10 3/4% Senior Notes due 2008 on
November 12, 1998 in a transaction exempt from the registration requirements of
the Securities Act. Salomon Smith Barney Inc., as the initial purchaser,
subsequently resold the notes to qualified institutional buyers in reliance on
Rule 144A and under Regulation S under the Securities Act. As of the date of
this prospectus, $500.0 million aggregate principal amount of unregistered notes
are outstanding.
NEXTLINK and Salomon Smith Barney Inc. entered into a registration rights
agreement under which NEXTLINK agreed that it would, at its own cost,
- file an exchange offer registration statement under the Securities Act
within 90 days after November 12, 1998, the original issue date of the old
notes, and
- use its reasonable best efforts to cause the exchange offer registration
statement to become effective under the Securities Act at the earliest
possible time, but no later than 120 days following November 12, 1998.
The summary in this prospectus of provisions of the registration rights
agreement does not purport to be complete and is subject to, and is qualified in
its entirety by, all the provisions of the registration rights agreement, a copy
of which is filed as an exhibit to the registration statement of which this
prospectus is a part.
RESALE OF THE NEW NOTES
Based on no-action letters issued by the staff of the Securities and
Exchange Commission to third parties, NEXTLINK believes that a holder of old
notes, but not a holder who is an affiliate of NEXTLINK within the meaning of
Rule 405 of the Securities Act, who exchanges old notes for new notes in the
exchange offer, generally may offer the new notes for resale, sell the new notes
and otherwise transfer the new notes without further registration under the
Securities Act and without delivery of a prospectus that satisfies the
requirements of Section 10 of the Securities Act. This does not apply, however,
to a holder who is an affiliate of NEXTLINK within the meaning of Rule 405 of
the Securities Act. NEXTLINK also believes that a holder may offer, sell or
transfer the new notes only if the holder acquires the new notes in the ordinary
course of its business and is not participating, does not intend to participate
and has no arrangement or understanding with any person to participate in a
distribution of the new notes.
Any holder of old notes using the exchange offer to participate in a
distribution of new notes cannot rely on the no-action letters referred to
above. This includes a broker-dealer that acquired old notes directly from
NEXTLINK, but not as a result of market-making activities or other trading
activities. Consequently, the holder must comply with the registration and
prospectus delivery requirements of the Securities Act in the absence of an
exemption from such requirements.
28
Each broker-dealer that receives new notes for its own account in exchange
for old notes, where such old notes were acquired by the broker-dealer as a
result of market-making activities or other trading activities may be a
statutory underwriter and must acknowledge that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with the resale of
new notes received in exchange for old notes. The letter of transmittal which
accompanies this prospectus states that by so acknowledging 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. A participating
broker-dealer may use this prospectus, as it may be amended from time to time,
in connection with resales of new notes it receives in exchange for old notes in
the exchange offer. NEXTLINK will make this prospectus available to any
participating broker-dealer in connection with any resale of this kind for a
period of 30 days after the expiration date of the exchange offer. See "Plan of
Distribution".
Each holder of the old notes who wishes to exchange old notes for new notes
in the exchange offer will be required to represent and acknowledge, for the
holder and for each beneficial owner of such old notes, whether or not the
beneficial owner is the holder, in the letter of transmittal that:
- the new notes to be acquired by the holder and each beneficial owner, if
any, are being acquired in the ordinary course of business,
- neither the holder nor any beneficial owner is an affiliate, as defined in
Rule 405 of the Securities Act, of NEXTLINK or any of its subsidiaries,
- any person participating in the exchange offer with the intention or
purpose of distributing new notes received in exchange for old notes,
including a broker-dealer that acquired old notes directly from NEXTLINK,
but not as a result of market-making activities or other trading
activities cannot rely on the no-action letters referenced above and must
comply with the registration and prospectus delivery requirements of the
Securities Act, in connection with a secondary resale of the new notes
acquired by such person,
- if the holder is not a broker-dealer, the holder and each beneficial
owner, if any, are not participating, do not intend to participate and
have no arrangement or understanding with any person to participate in any
distribution of the new notes received in exchange for old notes, and
- if the holder is a broker-dealer that will receive new notes for the
holder's own account in exchange for old notes, the old notes to be so
exchanged were acquired by the holder as a result of market-making or
other trading activities and the holder will deliver a prospectus meeting
the requirements of the Securities Act in connection with any resale of
such new notes received in the exchange offer. However, by so representing
and acknowledging and by delivering a prospectus, the holder will not be
deemed to admit that it is an underwriter within the meaning of the
Securities Act.
29
SHELF REGISTRATION STATEMENT
If applicable law or interpretations of the staff of the SEC are changed so
that the new notes received by holders who make all of the above representations
in the letter of transmittal are not or would not be, upon receipt,
transferrable by each such holder without restriction under the Securities Act,
NEXTLINK will, at its cost:
- file a shelf registration statement covering resales of the old notes,
- use its reasonable best efforts to cause the shelf registration statement
to be declared effective under the Securities Act at the earliest possible
time, but no later than 120 days after November 12, 1998, and
- use its reasonable best efforts to keep effective the shelf registration
statement until the earlier of two years after November 12, 1998 or the
time when all of the applicable old notes are no longer outstanding.
NEXTLINK will, if and when it files the shelf registration statement,
provide to each holder of the old notes copies of the prospectus which is a part
of the shelf registration statement, notify each holder when the shelf
registration statement has become effective and take other actions as are
required to permit unrestricted resales of the old notes. A holder that sells
old notes pursuant to the shelf registration statement generally must be named
as a selling security-holder in the related prospectus and must deliver a
prospectus to purchasers, will be subject to civil liability provisions under
the Securities Act in connection with these sales and will be bound by the
provisions of the registration rights agreement which are applicable to the
holder, including certain indemnification obligations. In addition, each holder
of old notes must deliver information to be used in connection with the shelf
registration statement and provide comments on the shelf registration statement
in order to have its old notes included in the shelf registration statement and
benefit from the provisions regarding any liquidated damages described below.
INCREASE IN INTEREST RATE
If NEXTLINK is required to file the shelf registration statement and
(1) either
- the shelf registration statement has not become effective or been declared
effective on or before the 120th calendar day following November 12, 1998,
or
- the shelf registration statement has been declared effective and such
shelf registration statement ceases 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, or
30
(2) the shelf registration statement has not become effective or been
declared effective on or before the 165th day after November 12, 1998, the
interest rate borne by the old notes will be increased in accordance with the
following table:
INITIAL INCREASE
EVENT IN INTEREST RATE
- -------------------------------------------------------- --------------------------------------------------------
1. Shelf registration statement not declared effective 0.5% per annum following this 120 day period, determined
on or prior to 120th day following November 12, 1998 daily, from the date of the event, until the date it is
or shelf registration statement ceases to be cured.
effective
2. Shelf registration statement has not become Additional 0.25% for each subsequent 90 day period
effective or been declared effective on or before
the 165th day after November 12, 1998
However, in no event will the interest rate borne by the outstanding notes
be increased by an aggregate of more than 1.0%.
The sole remedy available to the holders of the old notes will be the
immediate assessment of cash interest on the old notes as described above. Any
amounts of additional interest due as described above will be payable in cash on
the same interest payments dates as the old notes.
TERMS OF THE EXCHANGE OFFER
Upon the exchange offer registration statement being declared effective,
NEXTLINK will offer the new notes in exchange for surrender of the old notes.
NEXTLINK will keep the exchange offer open for at least 30 days, or longer if
required by applicable law, after the date notice of the exchange offer is
mailed to the holders of the old notes.
Upon the terms and subject to the conditions contained in this prospectus
and in the letter of transmittal which accompanies this prospectus, NEXTLINK
will accept any and all old notes validly tendered and not withdrawn before 5:00
p.m., New York City time, on the expiration date of the exchange offer. NEXTLINK
will issue an equal principal amount of new notes in exchange for the principal
amount of old notes accepted in the exchange offer. Holders may tender some or
all of their old notes under the exchange offer. Old notes may be tendered only
in integral multiples of $1,000.
The form and terms of the new notes will be the same as the form and terms
of the old notes except that:
(1) the new notes will have been registered under the Securities Act and
therefore will not bear legends restricting their transfer, and
(2) the new notes will not contain certain terms providing for an increase
in the interest rate on the old notes under specific circumstances which
are described in the registration rights agreement.
31
The new notes will evidence the same debt as the old notes and will be entitled
to the benefits of the indenture governing the old notes.
In connection with the exchange offer, holders of old notes do not have any
appraisal or dissenters' rights under law or the indenture governing the old
notes. NEXTLINK intends to conduct the exchange offer in accordance with the
applicable requirements of the Exchange Act and the rules and regulations of the
Securities and Exchange Commission related to such offers.
NEXTLINK shall be deemed to have accepted validly tendered old notes when,
as and if NEXTLINK has given oral or written notice of acceptance to United
States Trust Company, exchange agent for the exchange offer. The exchange agent
will act as agent for the tendering holders for the purpose of receiving the new
notes from NEXTLINK.
If any tendered old notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events specified in this
prospectus or if old notes are submitted for a greater principal amount than the
holder desires to exchange, the certificates for the unaccepted old notes will
be returned without expense to the tendering holder. If old notes were tendered
by book-entry transfer in the exchange agent account at The Depository Trust
Company in accordance with the book-entry transfer procedures described below,
these non-exchanged old notes will be credited to an account maintained with The
Depositary Trust Company as promptly as practicable after the expiration date of
the exchange offer.
NEXTLINK will pay all charges and expenses, other than transfer taxes in
certain circumstances, in connection with the exchange offer. See "--Fees and
Expenses." Holders who tender old notes in the exchange offer will therefore not
need to pay brokerage commissions or fees or, subject to the instructions in the
letter of transmittal, transfer taxes with respect to the exchange of old notes
in the exchange offer.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The expiration date of the exchange offer is 5:00 p.m., New York City time,
on , 1999, unless NEXTLINK, in its reasonable discretion, extends
the exchange offer, in which case the expiration date shall be 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 of any extension by oral or written notice and will make a public
announcement of the extension before 9:00 a.m., New York City time, on the next
business day after the previously scheduled expiration date.
NEXTLINK reserves the right, in its reasonable discretion:
- to delay accepting any old notes, to extend the exchange offer or to
terminate the exchange offer if, in its reasonable judgement, any of the
conditions
32
described below under "--Conditions" shall not have been satisfied, by
giving oral or written notice of the delay, extension or termination to
the exchange agent, or
- to amend the terms of the exchange offer in any manner.
NEXTLINK will promptly announce any such event making a timely release to
Dow Jones News Service and may or may not do so by other means as well.
PROCEDURES FOR TENDERING
You may tender your own old notes in the exchange offer. To tender in the
exchange offer, a holder must do the following:
- complete, sign and date the letter of transmittal, or a facsimile of the
letter of transmittal,
- have the signatures thereon guaranteed if required by the letter of
transmittal, and
- except as discussed in "--Guaranteed Delivery Procedures," mail or
otherwise deliver the letter of transmittal, or facsimile, together with
the old notes and any other required documents, to the exchange agent
prior to 5:00 p.m., New York City time, on the expiration date of the
exchange offer.
The exchange agent must receive the old notes, a completed letter of
transmittal and all other required documents at the address listed below under
"--Exchange Agent" before 5:00 p.m., New York City time, on the expiration date
for the tender to be effective. You may deliver your old notes by using the
book-entry transfer procedures described below, as long as the exchange agent
receives confirmation of the book-entry transfer before the expiration date.
The Depository Trust Company has authorized its participants that hold old
notes on behalf of beneficial owners of old notes through The Depository Trust
Company to tender their old notes as if they were holders. To effect a tender of
old notes, The Depository Trust Company participants should either:
(1) complete and sign the letter of transmittal (or a manually signed
facsimile of the letter), have the signature thereon guaranteed if
required by the instructions to the letter of transmittal, and mail or
deliver the letter of transmittal (or the manually signed facsimile) to
the exchange agent according to the procedure described in "Procedures
for Tendering" or
(2) transmit their acceptance to The Depository Trust Company through its
automated tender offer program for which the transaction will be eligible
and follow the procedure for book-entry transfer its described in
"--Book-Entry Transfer."
By tendering, each holder will make the representations contained in the
fourth paragraph above under the heading "--Resale of the New Notes." Each
participating
33
broker-dealer must acknowledge that it will deliver a prospectus in connection
with any resale of such new notes. See "Plan of Distribution."
The tender by a holder and the acceptance of the tender by NEXTLINK will
constitute the agreement between the holder and NEXTLINK set forth in this
prospectus and in the letter of transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE RISK
OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO
CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, HOLDERS SHOULD ALLOW
SUFFICIENT TIME TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION
DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES OR BOOK-ENTRY CONFIRMATION SHOULD BE
SENT TO NEXTLINK. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
ON THEIR BEHALF.
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 promptly and instruct it to tender on the
beneficial owner's behalf. See "Instructions to Registered Holder and/or
Book-Entry Transfer Facility Participant from Beneficial Owner" included with
the letter of transmittal. If the beneficial owner wishes to tender on his 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 arrangements 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.
Signatures on a letter of transmittal or a notice of withdrawal must be
guaranteed by an eligible guarantor institution (within the meaning of Rule 17A
d-5 under the Exchange Act) unless the old notes are tendered:
- by a registered holder who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the letter of
transmittal, or
- for the account of an eligible guarantor institution.
If signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, are required to be guaranteed, the 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.
If a letter of transmittal is signed by a person other than the registered
holder of any old notes listed in the letter of transmittal, the old notes must
be endorsed or accompanied by a properly completed bond power and signed by the
registered holder as the registered holder's name appears on the old notes.
34
If a 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.
Promptly after the date of this prospectus, the exchange agent will
establish a new account or utilize an existing account with respect to the old
notes at the book-entry transfer facility, The Depository Trust Company, for the
purpose of facilitating the exchange offer. Subject to the establishment of the
accounts, any financial institution that is a participant in the book-entry
transfer facility's system may make book-entry delivery of old notes by causing
the book-entry transfer facility to transfer the old notes into the exchange
agent's account with respect to the old notes in accordance with that facility's
procedures. Although delivery of the old notes may be effected through
book-entry transfer into the exchange agent's account at the book-entry transfer
facility, an appropriate letter of transmittal properly completed and duly
executed or an agent's message with any required signature guarantee and all
other required documents the exchange agent at its address listed below on or
before the expiration date of the exchange offer, or, if the guaranteed delivery
procedures described below are complied with, within the time period provided
under such procedures. Delivery of documents to the book-entry transfer facility
does not constitute delivery to the exchange agent.
The term "agent's message" means a message transmitted by The Depositary
Trust Company to, and received by, the exchange agent, which states that The
Depository Trust Company has received an express acknowledgment from the
participant in The Depository Trust Company tendering the old notes stating:
- the aggregate principal amount of old notes which have been tendered by
such participant,
- that such participant has received and agrees to be bound by the term of
the letter of transmittal and
- that NEXTLINK may enforce such agreement against the participant.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered old notes and withdrawal of tendered old notes
will be determined by NEXTLINK in its sole discretion, which determination will
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, will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of old notes must be cured
within a period of time that NEXTLINK shall determine.
35
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 mentioned above 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 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 of the exchange offer.
GUARANTEED DELIVERY PROCEDURES
A holder who wishes to tender its old notes and:
- whose old notes are not immediately available,
- who cannot deliver the holder's old notes, the letter of transmittal
or any other required documents to the exchange agent prior to the
expiration date, or
- who cannot complete the procedures for book-entry transfer, before the
expiration date,
may effect a tender if:
- the tender is made through an eligible guarantor institution,
- before the expiration date, the exchange agent receives from the
eligible guarantor institution a properly completed and duly executed
notice of guaranteed delivery by facsimile transmission, mail or hand
delivery, the name and address of the holder, the certificate
number(s) of the 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 facsimiles
thereof) together with the certificate(s) representing the old notes
(or a confirmation of book-entry transfer of the old notes into the
exchange agent's account at the book-entry transfer facility), and any
other documents required by the letter of transmittal will be
deposited by the eligible guarantor institution with the exchange
agent, and
- the exchange agent receives, within three New York Stock Exchange
trading days after the expiration date, a properly completed and
executed letter of transmittal or facsimile, as well as the
certificate(s) representing all tendered old notes in proper form for
transfer or a confirmation of book-entry transfer of such old notes
into the exchange agent's account at the book-entry transfer facility,
and all other documents required by the letter of transmittal.
36
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, tenders of old notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the expiration
date of the exchange offer.
To withdraw a tender of old notes in the exchange offer, a letter or
facsimile transmission notice of withdrawal must be received by the trustee at
its address set forth below prior to 5:00 p.m., New York City time, on the
expiration date. Any notice of withdrawal must:
- specify the name of the person having deposited the old notes to be
withdrawn,
- identify the old notes to be withdrawn including the certificate number(s)
and principal amount of such old notes or, in the case of old notes
transferred by book-entry transfer, the name and number of the account at
the book-entry transfer facility to be credited and otherwise comply with
the procedures of the transfer agent,
- be signed by the holder in the same manner as the original signature on
the letter of transmittal by which the old notes were tendered, including
any required signature guarantees, or be accompanied by documents of
transfer sufficient to have the trustee under the indenture governing the
old notes register the transfer of the old notes into the name of the
person withdrawing the tender, and
- specify the name in which any such old notes are to be registered, if
different from that of the person who deposited the notes.
If certificates for old notes have been delivered or otherwise identified to
the exchange agent, then, before the release of the 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 guarantor institution unless the holder is an eligible
guarantor institution.
All questions as to the validity, form and eligibility, including time of
receipt, of such notices will be determined by NEXTLINK, whose 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, unless the old notes so withdrawn are validly
retendered. Any old notes which have been tendered but which are not accepted
for exchange will be returned to the holder of the notes without cost to the
holder as soon as practicable after withdrawal, rejection of tender or
termination of the exchange offer. Properly withdrawn old notes may be
retendered by following one of the procedures described above under
"--Procedures for Tendering" at any time before the expiration date.
37
CONDITIONS
Despite 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 in this prospectus before the
acceptance of the old notes, if:
(1) 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;
(2) any change, or any development involving a prospective change, in the
business or financial affairs of NEXTLINK or any of its 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;
(3) 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
(4) any governmental approval has not been obtained, which approval NEXTLINK
shall, in its reasonable discretion, deem necessary for the consummation
for the exchange offer as contemplated by this prospectus.
The conditions listed above are for the sole benefit of NEXTLINK and may be
asserted by NEXTLINK regardless of the circumstances giving rise to any of these
conditions. NEXTLINK may waive these conditions in its reasonable discretion in
whole or in part at any time and from time to time. The failure by NEXTLINK at
any time to exercise any of the above rights shall not be deemed a waiver of
such right and 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 before the
expiration of the exchange offer, subject, however, to the rights of
holders to withdraw these old notes (See "--Withdrawal of Tenders" above)
or
38
(3) waive unsatisfied conditions with respect to the exchange offer and
accept all properly tendered old notes which have not been withdrawn. If
this waiver constitutes a material change to the exchange offer, NEXTLINK
will promptly disclose the waiver by means of a prospectus supplement
that will be distributed to the registered holders. NEXTLINK will also
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.
EXCHANGE AGENT
United States Trust Company has been appointed as exchange agent for the
exchange offer. Questions and requests for assistance and requests for
additional copies of this prospectus or of the letter of transmittal should be
directed to United States Trust Company addressed as follows:
For Information by Telephone:
(212) 8952-1664
By Hand or Overnight Delivery Service:
United States Trust Company
114 West 47th Street
New York, New York 10036
Attention: Patricia Stermer,
Reorganization Section
By Facsimile Transmission:
(212) 852-1625
(Telephone Confirmation)
(212) 852-1664
United States Trust Company also acts as trustee under the indenture
governing the notes.
FEES AND EXPENSES
NEXTLINK will bear the expenses of soliciting tenders. 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 with providing the services.
The cash expenses to be incurred in connection with the exchange offer will
be paid by NEXTLINK. Such expenses include fees and expenses of United States
Trust
39
Company as exchange agent and as trustee under the indenture governing the
notes, accounting and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The new notes will be recorded at the same carrying value as the old notes
as reflected in NEXTLINK's accounting records on the date of exchange.
Accordingly, no gain or loss for accounting purposes will be recognized by
NEXTLINK. 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.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of old notes who are eligible to participate in the exchange offer
but who do not tender their old notes will not have any further registration
rights, and their old notes will continue to be subject to restrictions on
transfer. Accordingly, such old notes may be resold only:
- to NEXTLINK, upon redemption of these notes or otherwise,
- so long as the old notes are eligible for resale pursuant to Rule 144A
under the Securities Act, to a person inside the United States whom the
seller reasonably believes is a qualified institutional buyer within the
meaning of Rule 144A in a transaction meeting the requirements of Rule
144A,
- in accordance with Rule 144 under the Securities Act, or under another
exemption from the registration requirements of the Securities Act, and
based upon an opinion of counsel reasonably acceptable to NEXTLINK,
- outside the United States to a foreign person in a transaction meeting the
requirements of Rule 904 under the Securities Act, or
- under to an effective registration statement under the Securities Act,
in each case in accordance with any applicable securities laws of any state of
the United States.
REGULATORY APPROVALS
NEXTLINK does not believe that the receipt of any material federal or state
regulatory approval 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 condition of this
offer. 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.
40
DESCRIPTION OF THE NOTES
The new notes, like the old notes, will be issued under the indenture, dated
November 12, 1998, between NEXTLINK and 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 some 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, these sections or defined terms are incorporated by reference into
this prospectus.
In this description of notes, the term "NEXTLINK" refers to NEXTLINK
Communications, Inc. and does not include its subsidiaries except for purposes
of financial data determined on a consolidated basis.
BRIEF DESCRIPTION OF THE NOTES
These 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)
41
METHODS OF RECEIVING PAYMENTS ON THE NOTES
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)
RANKING
The notes:
- will be senior obligations of NEXTLINK;
- will rank equally in right of payment with all existing and future senior
obligations of NEXTLINK, including 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--the notes that
you hold are structurally subordinated to the obligations of our subsidiaries."
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
42
$2,120.7 million, of which $14.2 million would have been secured
obligations. This does not include, however 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 Other Indebtedness" and "Selected
Historical Consolidated Financial and Operating Data."
OPTIONAL REDEMPTION
NEXTLINK may opt to redeem the notes, in whole or in part, at any time on or
after November 15, 2003. If NEXTLINK chooses this optional redemption, it is
required to mail a notice of the redemption not less than 30 and not more than
60 days after the redemption to each holder of notes to be redeemed at this
holders address as it appears in the Note Register
YEAR REDEMPTION PRICE
- ------------------------------------------------------------------------ ----------------
2003.................................................................... 105.375%
2004.................................................................... 103.583%
2005.................................................................... 101.792%
2006 and thereafter..................................................... 100.000%
The prices are expressed as percentages of the principal amount.
(SectionSection 203, 1101, 1105 and 1107)
NEXTLINK may only redeem the notes 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 before November 15, 2003, if,
on or before November 2001, NEXTLINK receives net proceeds from a sale of its
Common Equity.
If, in addition:
- at least 66 2/3% of the original aggregate principal amount of the note
remains outstanding after the redemption; and
- the redemption occurs on a redemption date within 90 days of the sale and
NEXTLINK mails not less than 30 and not more than 60 days after the
redemption a notice to each holder of notes to be redeemed
NEXTLINK may opt to use all or a portion of any such net proceeds to redeem
notes in a principal amount of up to 33 1/2% of the original principal amount of
the notes.
If less than all the notes are to be redeemed, the trustee shall select the
particular notes to be redeemed or any portion thereof that is an integral
multiple of $1,000. The trustee shall make this selection on a pro rata basis,
by lot or by such other method as it shall deem fair and appropriate.
43
MANDATORY REDEMPTION; SINKING FUND
Except as described under "Covenants--Limitation on Asset Dispositions" and
"Covenants--Change of Control" below, NEXTLINK is not required to purchase or
make mandatory redemption payments or sinking fund payments with respect to the
notes.
COVENANTS
In the indenture, NEXTLINK agreed to certain restrictions that limit its and
its Restricted Subsidiaries' ability to:
(1) Incur additional Debt;
(2) issue Preferred Stock;
(3) pay dividends, acquire shares of Capital Stock of NEXTLINK, make
Investments or redeem Debt of NEXTLINK which is subordinate in
right of payment to the notes;
(4) restrict the ability of any Restricted Subsidiary to pay dividends,
to make loans or advances to NEXTLINK or any other Restricted
Subsidiary or to transfer any of its property or assets to
NEXTLINK or any other Restricted Subsidiary;
(5) create liens;
(6) engage in sale-leaseback transactions;
(7) make Asset Dispositions;
(8) issue or sell shares of Capital Stock of Restricted Subsidiaries; and
(9) enter into transactions with Affiliates and Related Persons.
In addition, if a Change of Control occurs, each holder of notes will have
the right to require NEXTLINK to repurchase all or part of such holder's notes
at a price equal to 101% of their principal amount plus accrued and unpaid
interest to the date of purchase. The above limitations are "restrictive
covenants" that are promises that we make to you about how we will run our
business, or business actions that we promise not to take. A more detailed
description of the restrictive covenants and the exceptions to them follows
below.
LIMITATION ON CONSOLIDATED INDEBTEDNESS
NEXTLINK may not, and may not permit any Restricted Subsidiary to, Incur any
Debt unless either:
(1) the ratio of
(a) the aggregate consolidated principal amount of Debt of NEXTLINK
outstanding as of the most recent available quarterly or annual
balance sheet, after giving pro forma effect to the Incurrence of
such Debt and
44
any other Debt Incurred since such balance sheet date and the
receipt and application of the proceeds thereof to
(b) Consolidated Cash Flow Available for Fixed Charges for the four full
fiscal quarters next preceding the Incurrence of such Debt for
which consolidated financial statements are available, determined
on a pro forma basis as if
(x) any such Debt had been Incurred and the proceeds thereof had
been applied at the beginning of such four fiscal quarters;
(y) the net income (or loss) for such period of any Person or
related to any assets disposed of by NEXTLINK or a Restricted
Subsidiary prior to the end of such period had been excluded
from Consolidated Net Income; and
(z) the net income (or loss) for such period of any Person or
related to any assets acquired by NEXTLINK or any Restricted
Subsidiary prior to the end of such period had been included
in Consolidated Net Income;
would be less than 5.5 to 1 for such four quarter periods ending on or
prior to December 31, 1999 and 5.0 to 1 for such periods ending
thereafter; or
(2) NEXTLINK's Consolidated Capital Ratio as of the most recent available
quarterly or annual balance sheet, after giving pro forma effect to the
Incurrence of such Debt, any issuance of capital stock (other than
Disqualified Stock) since such balance sheet date, any increase in
paid-in-capital (other than in respect of Disqualified Stock) since such
balance sheet date and the Incurrence of any other Debt since such
balance sheet date and the receipt and application of the proceeds
thereof, is less than 2.0 to 1.
Notwithstanding the foregoing limitation, NEXTLINK and any Restricted
Subsidiary may Incur the following:
(1) Debt under any one or more Bank Credit Agreements or Vendor Financing
Facilities in an aggregate principal amount at any one time not to exceed
the greater of (a) $175 million and (b) 85% of the Eligible Receivables,
and any renewal, extension, refinancing or refunding thereof in an amount
which, together with any principal amount remaining outstanding or
available under all Bank Credit Agreements and Vendor Financing
Facilities of NEXTLINK and its Restricted Subsidiaries, plus the amount
of any premium required to be paid in connection with such refinancing
pursuant to the terms of any Bank Credit Agreement so refinanced plus the
amount of expenses incurred in connection with such refinancing, does not
exceed the aggregate principal amount outstanding or available under all
such Bank Credit Agreements and Vendor Financing Facilities of NEXTLINK
and its Restricted Subsidiaries immediately prior to such renewal,
extension, refinancing or refunding;
45
(2) Purchase Money Debt Incurred to finance the construction, acquisition or
improvement of Telecommunications Assets, provided that the net proceeds
of such Purchase Money Debt do not exceed 100% of the cost of
construction, acquisition or improvement price of the applicable
Telecommunications Assets;
(3) Debt owed by NEXTLINK to any Restricted Subsidiary of NEXTLINK or Debt
owed by a Restricted Subsidiary to NEXTLINK or a Restricted Subsidiary of
NEXTLINK; provided, however, that upon either (a) the transfer or other
disposition by such Restricted Subsidiary or NEXTLINK of any Debt so
permitted to a Person other than NEXTLINK or another Restricted
Subsidiary of NEXTLINK or (b) the issuance (other than directors'
qualifying shares), sale, lease, transfer or other disposition of shares
of Capital Stock (including by consolidation or merger) of such
Restricted Subsidiary, as a result of which the obligor of such Debt
ceases to be a Restricted Subsidiary, the provisions of this clause (3)
shall no longer be applicable to such Debt and such Debt shall be deemed
to have been Incurred at the time of such transfer or other disposition;
(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 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
46
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 (x) on the Issue Date or (y) after a Change of Control, provided
that NEXTLINK is not in default with respect to its obligations described
under "--Change of Control" below;
(8) Debt consisting of performance and other similar bonds and reimbursement
obligations Incurred in the ordinary course of business securing the
performance of contractual, franchise or license obligations of NEXTLINK
or a Restricted Subsidiary, or in respect of a letter of credit obtained
to secure such performance; and
(9) Debt not otherwise permitted to be Incurred pursuant to clauses (1)
through (8) above, which, together with any other outstanding Debt
Incurred pursuant to this clause (9), has an aggregate principal amount
or, in the case of Debt issued at a discount, an accreted amount
(determined in accordance with generally accepted accounting principles)
at the time of Incurrence not in excess of $10 million at any time
outstanding.
For purposes of determining compliance with this "Limitation on Consolidated
Debt" covenant, if an item of Debt meets the criteria of more than one of the
types of Debt NEXTLINK is permitted to incur pursuant to the foregoing clauses
(1) through (9) or the first unnumbered paragraph of this "Limitation on
Consolidated Indebtedness," NEXTLINK shall have the right, in its sole
discretion, to classify such item of Debt and shall only be required to include
the amount and type of such Debt under the clause or paragraph permitting the
Debt as so classified. 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. (Section 1007)
47
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);
(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
48
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, (x) 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;
(9) Purchase Money Debt Incurred to finance the construction, acquisition or
improvement of Telecommunications Assets, provided that the net proceeds
of such Purchase Money Debt do not exceed 100% of the cost of
construction, acquisition or improvement price of the applicable
Telecommunications Assets;
(10) Debt consisting of performance and other similar bonds and
reimbursement obligations Incurred in the ordinary course of business
securing the performance of contractual, franchise or license obligations
of NEXTLINK or a Restricted Subsidiary, or in respect of a letter of
credit obtained to secure such performance; and
(11) Debt not otherwise permitted to be incurred pursuant to clauses (1)
through (10) above, which, together with any other outstanding Debt
incurred pursuant to this clause (11), has an aggregate principal amount
(or, in the
49
case of Debt issued at a discount, an accreted amount (determined in
accordance with generally accepted accounting principles) at the time of
Incurrence) not in excess of $10 million at any time outstanding.
(Section 1008)
For purposes of determining compliance with this "Limitation on Debt and
Preferred Stock of Restricted Subsidiaries" covenant, in the event that an item
of Debt meets the criteria of more than one of the types of Debt a Restricted
Subsidiary is permitted to incur pursuant to the foregoing clauses (1) through
(9), NEXTLINK shall have the right, in its sole discretion, to classify such
item of Debt and shall be only required to include the amount and type of such
Debt under the clause permitting the Debt as so classified. 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
50
(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:
(A) 50% of cumulative Consolidated Net Income (or, in the case
Consolidated Net Income shall be negative, less 100% of such
deficit) since the end of the last full fiscal quarter prior
to April 25, 1996 through the last day of the last full fiscal
quarter ending immediately preceding the date of such
Restricted Payment; plus
(B) $5 million; plus
(C) 100% of the net reduction in Investments in any Unrestricted
Subsidiary resulting from payments of interest on Debt,
dividends, repayments of loans or advances, or other transfers
of assets, in each case to NEXTLINK or any Restricted
Subsidiary of NEXTLINK from such Unrestricted Subsidiary
(except to the extent that any such payment is included in the
calculation of Consolidated Net Income) or from redesignations
of Unrestricted Subsidiaries as Restricted Subsidiaries;
PROVIDED that the amount included in this clause (C) shall not
exceed the amount of Investments previously made by NEXTLINK
and its Restricted Subsidiaries in such Unrestricted
Subsidiary;
PROVIDED, FURTHER, that NEXTLINK or a Restricted Subsidiary of NEXTLINK
may make any Restricted Payment with the aggregate net proceeds received
after April 25, 1996, including the fair value of property other than
cash (determined in good faith by the Board of Directors of NEXTLINK, as
conclusively evidenced by a Board Resolution filed with the trustee), as
capital contributions to NEXTLINK or from the issuance (other than to a
Restricted Subsidiary) of Capital Stock (other than Disqualified Stock)
of NEXTLINK and warrants, rights or options on Capital Stock (other than
Disqualified Stock) of NEXTLINK and the principal amount of Debt of
NEXTLINK that has been converted into Capital Stock (other than
Disqualified Stock and other than by a Restricted Subsidiary) of NEXTLINK
after April 25, 1996.
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
51
(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 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
52
(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
53
that such consummation or abandonment of such transaction occurs
within one year of the date such agreement was entered into;
(h) pursuant to applicable law or regulations;
(i) pursuant to the 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
54
(a) the net proceeds of any Debt secured by such a Lien does not exceed
100% of such purchase price or cost of construction or improvement
of the property subject to such Lien;
(b) such Lien attaches to such property prior to, at the time of or
within 180 days after the acquisition, completion of construction
or commencement of operation of such property; and
(c) such Lien does not extend to or cover any property other than the
property (or identifiable portions thereof) acquired, constructed
or constituting improvements made with the proceeds of such
Purchase Money Debt (it being understood and agreed that all Debt
owed to any single lender or group of lenders or outstanding under
any single credit facility shall be considered a single Purchase
Money Debt, whether drawn at one time or from time to time);
(5) Liens to secure Acquired Debt, provided, however, that (a) such Lien
attaches to the acquired asset prior to the time of the acquisition of
such asset and (b) such Lien does not extend to or cover any other asset;
(6) Liens to secure Debt Incurred to extend, renew, refinance or refund (or
successive extensions, renewals, refinancings or refundings), in whole or
in part, Debt secured by any Lien referred to in the foregoing clauses
(1), (2), (4) and (5) so long as such Lien does not extend to any other
property and the principal amount of Debt so secured is not increased
except as otherwise permitted under clause (4) of "--Limitation on
Consolidated Indebtedness";
(7) Liens securing Debt not otherwise permitted by the foregoing clauses (1)
through (4) in an amount not to exceed 5% of NEXTLINK's Consolidated
Tangible Assets determined as of the most recent available quarterly or
annual balance sheet; and
(8) Permitted Liens. (Section 1011)
55
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,
56
(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 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
57
(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 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
58
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 and
repurchase the notes upon a Change of Control and there can be no assurance that
NEXTLINK will have such
59
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
60
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 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
61
for NEXTLINK with respect to the period subsequent to the effective time of such
transaction, and NEXTLINK (before giving effect to such transaction) shall be
deemed to be the "Indenture obligor" for such purposes for all prior periods.
(Section 801)
The meaning of the phrase "all or substantially all" as used above varies
according to the facts and circumstances of the subject transaction, has no
clearly established meaning under relevant law and is subject to judicial
interpretation. Accordingly, in certain circumstances, there may be a degree of
uncertainty in ascertaining whether a particular transaction would involve a
disposition of "all or substantially all" of the assets of NEXTLINK, and
therefore it may be unclear whether the foregoing provisions are applicable.
CERTAIN DEFINITIONS
Set forth below is a summary of some of the definitions used in the
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. (Section 101)
"Acquired Debt" means, with respect to any specified Person,
(1) Debt of any other Person existing at the time such Person merges with or
into or consolidates with or becomes a Restricted Subsidiary of such
specified Person and;
(2) Debt secured by a Lien encumbering any asset acquired by such specified
Person, which Debt was not Incurred in anticipation of, and was
outstanding prior to, such merger, consolidation or acquisition.
"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 consolidation or merger or other sale of any
such Restricted Subsidiary with, into or to another Person in a transaction in
which such Restricted Subsidiary ceases to be a Restricted Subsidiary of
NEXTLINK, but excluding a disposition by a Restricted Subsidiary of NEXTLINK to
NEXTLINK or a Restricted Subsidiary of NEXTLINK or by NEXTLINK to a Restricted
Subsidiary of NEXTLINK) of:
(1) shares of Capital Stock or other ownership interests of a Restricted
Subsidiary of NEXTLINK, other than as permitted by the provisions of the
Indenture described above under the Caption "--Limitation on Debt and
62
Preferred Stock of Restricted Subsidiaries" or pursuant to a transaction
in compliance with the covenant described under "Mergers, Consolidations
and Certain Sales of Assets" above;
(2) substantially all of the assets of NEXTLINK or any of, its Restricted
Subsidiaries representing a division or line of business (other than as
part of a Permitted Investment); or
(3) other assets or rights of NEXTLINK or any of its Restricted Subsidiaries
other than (A) in the ordinary course of business or (B) that constitutes
a Restricted Payment which is permitted under the covenant "--Limitation
on Restricted Payments" above; provided that a transaction described in
clauses (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
63
payment of rent or any other amount due under such lease prior to the first date
upon which such lease may be terminated by the lessee without payment of a
penalty. The principal amount of such obligation shall be the capitalized amount
thereof that would appear on the face of a balance sheet of such Person in
accordance with generally accepted accounting principles.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of corporate stock or
other equity participations, including partnership interests, whether general or
limited, of such Person.
"Common Equity" of any Person means Capital Stock of such Person that is not
Disqualified Stock, and a "sale of Common Equity" includes any sale of Common
Equity effected by private sale or public offering.
"Consolidated Capital Ratio" of any Person as of any date means the ratio of
(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.
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"Consolidated Interest Expense" means for any period the consolidated
interest expense included in a consolidated income statement (excluding interest
income) of NEXTLINK and its Restricted Subsidiaries for such period calculated
on a consolidated basis in accordance with generally accepted accounting
principles, including without limitation or duplication (or, to the extent not
so included, with the addition of):
(1) the amortization of Debt discounts;
(2) any payments or fees with respect to letters of credit, bankers'
acceptances or similar facilities;
(3) fees with respect to interest rate swap or similar agreements or foreign
currency hedge, exchange or similar agreements;
(4) Preferred Dividends of NEXTLINK and its Restricted Subsidiaries (other
than dividends paid in shares of Preferred Stock that is not Disqualified
Stock) declared and paid or payable;
(5) accrued Disqualified Stock dividends of NEXTLINK and its Restricted
Subsidiaries, whether or not declared or paid;
(6) interest on Debt guaranteed by NEXTLINK and its Restricted Subsidiaries;
and
(7) the portion of any Capital Lease Obligation paid or accrued during such
period that is allocable to interest expense.
"Consolidated Net Income" for any period means the consolidated net income
(or loss) of NEXTLINK and its Restricted Subsidiaries for such period determined
on a consolidated basis in accordance with generally accepted accounting
principles; PROVIDED that there shall be excluded therefrom:
(1) the net income (or loss) of any Person acquired by NEXTLINK or a
Restricted Subsidiary of NEXTLINK in a pooling of interests transaction
for any period prior to the date of such transaction;
(2) the net income (or loss) of any Person that is not a Restricted
Subsidiary of NEXTLINK except to the extent of the amount of dividends or
other distributions actually paid to NEXTLINK or a Restricted Subsidiary
of NEXTLINK by such Person during such period;
(3) gains or losses on Asset Dispositions by NEXTLINK or its Restricted
Subsidiaries;
(4) all extraordinary gains and extraordinary losses;
(5) the cumulative effect of changes in accounting principles;
(6) noncash gains or losses resulting from fluctuations in currency exchange
rates;
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(7) any noncash gain or loss realized on the termination of any employee
pension benefit plan; and
(8) the tax effect of any of the items described in clauses (1) through (8)
above.
PROVIDED, FURTHER, that for purposes of any determination pursuant to the
provisions described under "Covenants--Limitation on Restricted Payments," there
shall further be excluded therefrom the net income (but not net loss) of any
Restricted Subsidiary of NEXTLINK that is subject to a restriction which
prevents the payment of dividends or the making of distributions to NEXTLINK or
another Restricted Subsidiary of NEXTLINK to the extent of such restriction.
"Consolidated Net Worth" of any Person means the consolidated stockholders'
equity of such Person, determined on a consolidated basis in accordance with
generally accepted accounting principles, less amounts attributable to
Disqualified Stock of such Person; PROVIDED that, with respect to NEXTLINK,
adjustments following the date of the 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:
(1) every obligation of such Person for money borrowed;
(2) every obligation of such Person evidenced by bonds, debentures, notes or
other similar instruments, including any such obligations Incurred in
connection with the acquisition of property, assets or businesses;
(3) every reimbursement obligation of such Person with respect to letters of
credit, bankers' acceptances or similar facilities issued for the account
of such Person;
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(4) every obligation of such Person issued or assumed as the deferred
purchase price of property or services (including securities repurchase
agreements but excluding trade accounts payable or accrued liabilities
arising in the ordinary course of business which are not overdue or which
are being contested in good faith);
(5) every Capital Lease Obligation of such Person;
(6) all Receivables Sales of such Person, together with any obligation of
such Person to pay any discount, interest, fees, indemnities, penalties,
recourse, expenses or other amounts in connection therewith;
(7) all obligations to redeem Disqualified Stock issued by such Person;
(8) every obligation under Interest Rate and Currency Protection Agreements
of such Person; and
(9) every obligation of the type referred to in clauses (1) through (8) of
another Person and all dividends of another Person the payment of which,
in either case, such Person has Guaranteed.
The "amount" or "principal amount" of Debt at any time of determination as
used herein represented by
(1) any Debt issued at a price that is less than the principal amount at
maturity thereof, shall be the amount of the liability in respect thereof
determined in accordance with generally accepted accounting principles,
(2) any Receivables Sale, shall be the amount of the unrecovered capital or
principal investment of the purchaser (other than NEXTLINK or a Wholly
Owned Restricted Subsidiary of NEXTLINK) thereof, excluding amounts
representative of yield or interest earned on such investment,
(3) any Disqualified Stock, shall be the maximum fixed redemption or
repurchase price in respect thereof,
(4) any Capital Lease Obligation, shall be determined in accordance with the
definition thereof, or
(5) any Permitted Interest Rate or Currency Protection Agreement, shall be
zero. In no event shall Debt include any liability for taxes.
"Default" means an event that with the passing of time or the giving of
notice or both shall constitute an Event of Default.
"Disqualified Stock" of any Person means any Capital Stock of such Person
(other than Capital Stock outstanding on the Issue Date) which, by its terms (or
by the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
final Stated Maturity of the notes;
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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".
"Eligible Institution" means a commercial banking institution that has
combined capital and surplus of not less than $500 million or its equivalent in
foreign currency, whose debt is rated "A 3" or higher, "A" or higher or "A" or
higher according to Moody's Investors Service, Inc., Standard & Poor's Ratings
Group or Duff & Phelps Credit Rating Co. (or such similar equivalent rating by
at least one "nationally recognized statistical rating organization" (as defined
in Rule 436 under the Securities Act)) respectively, at the time as of which any
investment or rollover therein is made.
"Eligible Receivables" means, at any time, Receivables of NEXTLINK and its
Restricted Subsidiaries, as evidenced on the most recent quarterly consolidated
balance sheet of NEXTLINK as at a date at least 45 days prior to such time
arising in the ordinary course of business of NEXTLINK or any Restricted
Subsidiary of NEXTLINK.
"Event of Default" has the meaning set forth under "Events of Default"
below.
"Exchange Act" means the Securities Exchange Act of 1934, as amended (or any
successor act) and the rules and regulations thereunder.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which obligations
or guarantee the full faith and credit of the United States is pledged and which
have a remaining weighted average life to maturity of not more than 18 months
from the date of Investment therein.
"Guarantee" by any Person means any obligation, contingent or otherwise, of
such Person guaranteeing, or having the economic effect of guaranteeing, any
Debt of any other Person (the "primary obligor") in any manner, whether directly
or indirectly, and including, without limitation, any obligation of such Person:
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt or to purchase (or to advance or supply funds for
the purchase of) any security for the payment of such Debt;
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(2) to purchase property, securities or services for the purpose of assuring
the holder of such Debt of the payment of such Debt; or
(3) to maintain working capital, equity capital or other financial statement
condition or liquidity of the primary obligor so as to enable the primary
obligor to pay such Debt (and "Guaranteed", "Guaranteeing" and
"Guarantor" shall have meanings correlative to the foregoing):
PROVIDED, HOWEVER, that the Guarantee by any Person shall not include
endorsements by such Person for collection or deposit, in either case, in the
ordinary course of business; and PROVIDED FURTHER, that the incurrence by a
Restricted Subsidiary of NEXTLINK of a lien permitted under clause (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, 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,
69
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 November 12, 1998.
"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:
(1) Government Securities;
(2) any time or demand deposit account, money market deposit and certificate
of deposit maturing not more than 365 days after the date of acquisition
issued by, or time deposit of, an Eligible Institution;
(3) commercial paper maturing not more than 365 days after the date of
acquisition issued by a corporation (other than an Affiliate of NEXTLINK)
with a rating, at the time as of which any investment therein is made, of
"P1" or higher according to Moody's Investors Service, Inc., "A1" or
higher according to Standard & Poor's Ratings Group or "A1" or higher
according to Duff & Phelps Credit Rating Co. (or such similar equivalent
rating by at least one "nationally recognized statistical rating
organization" (as defined in Rule 436 under the Securities Act));
(4) any banker's acceptances or money market deposit accounts issued or
offered by an Eligible Institution;
(5) repurchase obligations with a term of not more than 7 days for
Government Securities entered into with an Eligible Institution;
70
(6) auction rate preferred stocks of any corporation maturing within 90 days
after the date of acquisition by NEXTLINK thereof, having a rating of at
least AA by Standard & Poor's; and
(7) any fund investing exclusively in investments of the types described in
clauses (1) through (6) above.
"Net Available Proceeds" from any Asset Disposition by any Person means cash
or readily marketable cash equivalents received (including by way of sale or
discounting of a note, installment receivable or other receivable, but excluding
any other consideration received in the form of assumption by the acquiror of
Debt or other obligations relating to such properties or assets) therefrom by
such Person, net of:
(1) all legal, title and recording tax expenses, commissions and other fees
and expenses Incurred and all federal, state, provincial, foreign and
local taxes (including taxes payable upon payment or other distribution
of funds from a foreign subsidiary to NEXTLINK or another Subsidiary of
NEXTLINK) required to be accrued as a liability as a consequence of such
Asset Disposition;
(2) all payments made by such Person or its Restricted Subsidiaries on any
Debt which is secured by such assets in accordance with the terms of any
Lien upon or with respect to such assets or which must by the terms of
such Lien, or in order to obtain a necessary consent to such Asset
Disposition or by applicable law, be repaid out of the proceeds from such
Asset Disposition;
(3) all distributions and other payments made to minority interest holders
in Restricted Subsidiaries of such Person or joint ventures as a result
of such Asset Disposition;
(4) appropriate amounts to be provided by such Person or any Restricted
Subsidiary thereof, as the case may be, as a reserve in accordance with
generally accepted accounting principles against any liabilities
associated with such assets and retained by such Person or any Restricted
Subsidiary thereof, as the case may be, after such Asset Disposition,
including, without limitation, liabilities under any indemnification
obligations 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
(5) any consideration for an Asset Disposition (which would otherwise
constitute Net Available Proceeds) that is required to be held in escrow
pending
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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.
"Permitted Interest Rate or Currency Protection Agreement" of any Person
means any Interest Rate or Currency Protection Agreement entered into with one
or more financial institutions in the ordinary course of business that is
designed to protect such Person against fluctuations in interest rates or
currency exchange rates with respect to Debt Incurred and which shall have a
notional amount no greater than the payments due with respect to the Debt being
hedged thereby and not for purposes of speculation.
"Permitted Investment" means:
(1) any Investment in a Joint Venture (including the purchase or acquisition
of any Capital Stock of a Joint Venture), provided the aggregate amount
of all outstanding Investments pursuant to this clause (i) in Joint
Ventures in which NEXTLINK owns, directly or indirectly, a less than 50%
interest shall not exceed $25 million;
(2) any Investment in any Person as a result of which such Person becomes a
Restricted Subsidiary or, subject to the proviso to clause (i) of this
definition, becomes a Joint Venture of NEXTLINK;
(3) any Investment in Marketable Securities,
(4) Investments in Permitted Interest Rate or Currency Protection
Agreements;
(5) Investments made as a result of the receipt of noncash consideration
from an Asset Disposition that was made pursuant to and in compliance
with the covenant described under "Covenants--Limitation on Asset
Dispositions" above; and
(6) other Investments in an aggregate amount not to exceed the aggregate net
proceeds received by NEXTLINK or any Restricted Subsidiary after the date
of the Indenture from the sale or liquidation of any Unrestricted
Subsidiary
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or any interest therein (except to the extent that any such amount is
included in the calculation of Consolidated Net Income).
"Permitted Liens" means:
(1) Liens for taxes, assessments, governmental charges or claims which are
not yet delinquent or which are being contested in good faith by
appropriate proceedings, if a reserve or other appropriate provision, if
any, as shall be required in conformity with generally accepted
accounting principles shall have been made therefor;
(2) other Liens incidental to the conduct of NEXTLINK's and its Restricted
Subsidiaries' business or the ownership of its property and assets not
securing any Debt, and which do not in the aggregate materially detract
from the value of NEXTLINK's and its Restricted Subsidiaries' property or
assets when taken as a whole, or materially impair the use thereof in the
operation of its business;
(3) Liens with respect to assets of a Restricted Subsidiary granted by such
Restricted Subsidiary to NEXTLINK to secure Debt owing to NEXTLINK;
(4) pledges and deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
types of statutory obligations (including to secure government
contracts);
(5) deposits made to secure the performance of tenders, bids, leases, and
other obligations of like nature incurred in the ordinary course of
business (exclusive of obligations for the payment of borrowed money);
(6) zoning restrictions, servitudes, easements, rights-of-way, restrictions
and other similar charges or encumbrances incurred in the ordinary course
of business which, in the aggregate, do not materially detract from the
value of the property subject thereto or interfere with the ordinary
conduct of the business of NEXTLINK or its Restricted Subsidiaries;
(7) Liens arising out of judgments or awards against NEXTLINK or any
Restricted Subsidiary with respect to which NEXTLINK or such Restricted
Subsidiary is prosecuting an appeal or proceeding for review and NEXTLINK
or such Restricted Subsidiary is maintaining adequate reserves in
accordance with generally accepted accounting principles;
(8) any interest or title of a lessor in the property subject to any lease
other than a Capital Lease; and
(9) any statutory warehousemen's, materialmen's or other similar Liens for
sums not then due and payable (or which, if due and payable, are being
contested in good faith and with respect to which adequate reserves are
being maintained to the extent required by generally accepted accounting
principles).
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"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 (1) Acquired Debt Incurred in connection with
the acquisition of Telecommunications Assets and (2) Debt of NEXTLINK or of any
Restricted Subsidiary of NEXTLINK (including, without limitation, Debt
represented by Bank Credit Agreements, Capital Lease Obligations, Vendor
Financing Facilities, mortgage financings and purchase money obligations)
Incurred for the purpose of financing all or any part of the cost of
construction, acquisition or improvement by NEXTLINK or any Restricted
Subsidiary of NEXTLINK or any Joint Venture of any Telecommunications Assets of
NEXTLINK, any Restricted Subsidiary of NEXTLINK or any Joint Venture, and
including any related notes, Guarantees, collateral documents, instruments and
agreements executed in connection therewith, as the same may be amended,
supplemented, modified or restated from time to time.
"Receivables" means receivables, chattel paper, instruments, documents or
intangibles evidencing or relating to the right to payment of money in respect
of the sale of goods or services.
"Receivables Sale" of any Person means any sale of Receivables of such
Person (pursuant to a purchase facility or otherwise), other than in connection
with a disposition of the business operations of such Person relating thereto or
a disposition of defaulted Receivables for purpose of collection and not as a
financing arrangement.
"Related Person" of any Person means any other Person directly or indirectly
owning (1) 10% or more of the Outstanding Common Equity of such Person (or, in
the case of a Person that is not a corporation, 10% or more of the equity
interest in such Person) or (2) 10% or more of the combined voting power of the
Voting Stock of such Person.
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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:
(1) no payments of principal of (or premium, if any) or interest on or
otherwise due in respect of such Debt may be permitted for so long as any
default in the payment of principal (or premium, if any) or interest on
the Notes exists;
(2) in the event that any other default that with the passing of time or the
giving of notice, or both, would constitute an Event of Default exists
with respect to the notes, upon notice by 25% or more in principal amount
of the Notes to the trustee, the trustee shall have the right to give
notice to NEXTLINK and the holders of such Debt (or trustees or agents
therefor) of a payment blockage, and thereafter no payments of principal
of (or premium, if any) or interest on or otherwise due in respect of
such Debt may be made for a period of 179 days from the date of such
notice or for the period until such default has been cured or waived or
ceased to exist and any acceleration of the 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
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any applicable grace period, whether or not on account of such payment
blockage provisions, shall constitute an event of default thereunder);
and
(3) such Debt may not provide for payments of principal of such Debt at the
stated maturity thereof or by way of a sinking fund applicable thereto or
by way of any mandatory redemption, defeasance, retirement or repurchase
thereof by NEXTLINK (including any redemption, retirement or repurchase
which is contingent upon events or circumstances, but executing any
retirement required by virtue of acceleration of such Debt upon an event
of default thereunder), in each case prior to the final Stated Maturity
of the 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").
"Subsidiary" of any Person means (1) a corporation more than 50% of the
combined voting power of the outstanding Voting Stock of which is owned,
directly or indirectly, by such Person or by one or more other Subsidiaries of
such Person or by such Person and one or more Subsidiaries thereof or (2) any
other Person (other than a corporation) in which such Person, or one or more
other Subsidiaries of such Person or such Person and one or more other
Subsidiaries thereof, directly or indirectly, has at least a majority ownership
and power to direct the policies, management and affairs thereof.
"Telecommunications Assets" means all assets, rights (contractual or
otherwise) and properties, whether tangible or intangible, used or intended for
use in connection with a Telecommunications Business.
"Telecommunications Business" means the business of
(1) transmitting, or providing services relating to the transmission of, voice,
video or data through owned or leased transmission facilities,
(2) creating, developing or marketing communications related network equipment,
software and other devices for use in a Telecommunication Business or
(3) evaluating, participating or pursuing any other activity or opportunity that
is primarily related to those identified in (1) or (2) above and shall, in
any event, include all businesses in which NEXTLINK or any of its
Subsidiaries are engaged on the Issue Date; provided that the determination
of what constitutes a
76
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)
(A) 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
(B) 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
(a) the Subsidiary to be so designated has total assets of $1,000 or less
or
(b) immediately after giving effect to such designation, NEXTLINK could
Incur at least $1.00 of additional Debt pursuant to the first
paragraph under "Covenants--Limitation on Consolidated
Indebtedness" above and provided, further, that NEXTLINK could
make a Restricted Payment in an amount equal to the greater of the
fair market value and the book value of such Subsidiary pursuant
to the covenant described under "Covenants--Limitation on
Restricted Payments" and such amount is thereafter treated as a
Restricted Payment for the purpose of calculating the aggregate
amount available for Restricted Payments thereunder. The Board of
Directors of NEXTLINK may designate any Unrestricted Subsidiary to
be a Restricted Subsidiary, PROVIDED that, if such Unrestricted
Subsidiary has Debt outstanding at such time, either (a)
immediately after giving effect to such designation, NEXTLINK
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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 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:
(1) failure to pay principal of (or premium, if any, on) any note when due;
(2) failure to pay any interest on any note when due, continued for 30 days;
(3) 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;
(4) failure to perform or comply with the provisions described under
"Mergers, Consolidations and Certain Sales of Assets";
(5) failure to perform any other covenant or agreement of NEXTLINK under the
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;
(6) default under the terms of any instrument evidencing or securing Debt of
NEXTLINK or any Significant Subsidiary having an outstanding principal
amount of $10 million individually or in the aggregate which default
results in the acceleration of the payment of such Debt or constitutes
the failure to pay such Debt when due;
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(7) the rendering of a final judgment or judgments (not subject to appeal)
for the payment of money against NEXTLINK or any Significant Subsidiary
in an aggregate amount in excess of $10 million which remains
undischarged or unstayed for a period of 45 days after the date on which
the right to appeal all such judgments has expired; and
(8) certain events of bankruptcy, insolvency or reorganization affecting
NEXTLINK or any Significant Subsidiary. (Section 501)
Subject to the provisions of the 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. (Section 603) 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. (Section 512)
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. (Section 502) 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. (Section 507) However, such limitations do not
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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. (Section 602)
NEXTLINK will be required to furnish to the trustee quarterly a statement as
to the performance by NEXTLINK of certain of its obligations under the 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. (Section 1018)
SATISFACTION AND DISCHARGE OF THE INDENTURE
The indenture will cease to be of further effect as to all outstanding notes
(except as to
(1) rights of registration of transfer and exchange and NEXTLINK's right of
optional redemption,
(2) substitution of apparently mutilated, defaced, destroyed, lost or stolen
notes,
(3) rights of holders to receive payment of principal of and premium, if
any, and interest on the Notes,
(4) rights, obligations and immunities of the trustee under the indenture
and
(5) 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
(a) 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
(b) all outstanding notes (except lost, stolen or destroyed notes which
have been replaced or paid) have been delivered to the trustee for
cancellation. (Section 401)
DEFEASANCE
The indenture will provide that, at the option of NEXTLINK, (1) if
applicable, NEXTLINK will be discharged from any and all obligations in respect
of the
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outstanding Notes or (2) if applicable, NEXTLINK may omit to comply with certain
restrictive covenants, and that such omission shall not be deemed to be an Event
of Default under the indenture and the notes, in either case (1) or (2) upon
irrevocable deposit with the trustee, in trust, of money and/or U.S. government
obligations which will provide money in an amount sufficient in the opinion of a
nationally recognized firm of independent certified public accountants to pay
the principal of and premium, if any, and each installment of interest, if any,
on the outstanding Notes on the Stated Maturity. With respect to clause (2), 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 (a) with respect to clause (1), NEXTLINK has
received from, or there has been published by, the Internal Revenue Service a
ruling or there has been a change in law after the Issue Date, which in the
Opinion of Counsel provides that holders of the notes will not recognize gain or
loss for Federal income tax purposes as a result of such deposit, defeasance and
discharge and will be subject to Federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such deposit,
defeasance and discharge had not occurred; or, with respect to clause (2),
NEXTLINK has delivered to the trustee an Opinion of Counsel to the effect that
the holders of the notes will not recognize gain or loss for Federal income tax
purposes as a result of such deposit and defeasance and will be subject to
Federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such deposit and defeasance had not occurred; (b)
no Default or Event of Default shall have occurred or be continuing; (c)
NEXTLINK has delivered to the trustee an Opinion of Counsel to the effect that
such deposit shall not cause the trustee or the trust so created to be subject
to the Investment Company Act of 1940, as amended; and (d) certain other
customary conditions precedent are satisfied. (Section 1201)
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:
(1) change the due date of the principal of, or any installment of interest
on, any note;
(2) reduce the principal amount of, or the premium or interest on, any note;
(3) change the place or currency of payment of principal of, or premium or
interest on, any note;
(4) impair the right to institute suit for the enforcement of any payment on
or with respect to any note;
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(5) reduce the above stated percentage of outstanding notes necessary to
modify or amend the indenture;
(6) 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;
(7) 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
(8) following the mailing of any Offer to Purchase and until the Expiration
Date of that Offer to Purchase, modify any Offer to Purchase for the
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
- 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. (Section
901)
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. (Section 1019) 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.
(Section 513)
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of NEXTLINK, as
such, shall have any liability for any obligations of NEXTLINK under the 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
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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. (Section
601)
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. This global note will be
deposited upon issuance with The Depositary Trust Company, New York, New York
and registered in the name of a nominee of the Depository Trust Company.
THE GLOBAL NOTE. We expect that pursuant to procedures established by The
Depository Trust Company
(1) upon the issuance of the global note, The Depository Trust Company or
its custodian will credit, on its internal system, the principal amount
of the individual beneficial interests represented by the global 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 The Depository Trust Company or its nominee, with respect
to interests of participants, and the records of participants, with
respect to interests of persons other than participants.
Ownership of beneficial interests in the global notes will be limited to persons
who have accounts with The Depository Trust Company or persons who hold
interests through participants.
So long as The Depository Trust Company or its nominee is the registered
owner or holder of the new notes, The Depository Trust Company (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 The Depository Trust Company's procedures.
Payments of interest, principal and other amounts due on the global note
will be made to The Depository Trust Company or its nominee as the registered
owner. None of NEXTLINK, the trustee or any paying agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the global note or
for maintaining, supervising or reviewing any records relating to this
beneficial ownership interest.
We expect that The Depository Trust Company or its nominee, upon receipt of
any payment of interest, principal or other amounts due on the global 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
The Depository Trust Company. 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. These payments will be the responsibility of the
participants.
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Transfers between participants in The Depository Trust Company will be
effected in the ordinary way through The Depository Trust Company's settlement
system in accordance with The Depository Trust Company rules and will be settled
in same day funds.
The Depository Trust Company has advised us that it will take any action
permitted to be taken by a holder of new notes, including the presentation of
new notes for exchange as described below, only at the direction of a
participant to whose account the The Depository Trust Company interests in the
global note are credited. Further, The Depository Trust Company will take action
only as to such portion of the notes as to which the participant has given such
direction. However, if there is an Event of Default under the indenture, the
Depository Trust Company will exchange the global note for certificated notes,
which it will distribute to its participants.
The Depository Trust Company has advised us as follows: The Depository Trust
Company is a limited purpose trust company organized under the laws of the State
of New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the Uniform Commercial Code and a "Clearing Agency"
registered under to the provisions of Section 17A of the Exchange Act. The
Depository Trust Company was created to hold securities for its participants and
facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks, trust
companies and clearing corporations and certain other organizations. Indirect
access to the Depository Trust Company system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly.
Although the Depository Trust Company has agreed to the foregoing procedures
in order to facilitate transfers of interests in the global note among
participants of the Depository Trust Company, it is under no obligation to
perform those procedures, and those procedures may be discontinued at any time.
Neither NEXTLINK nor the trustee will have any responsibility of the performance
by the Depository Trust Company or its participants or indirect participants of
their respective obligations under the rules and procedures governing their
operations.
CERTIFICATED SECURITIES. If the Depository Trust Company is at any time
unwilling or unable to continue as a 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 MATERIAL INDEBTEDNESS
DESCRIPTION OF THE 12 1/2% NOTES
GENERAL. NEXTLINK and NEXTLINK Capital, Inc., (a wholly owned subsidiary of
NEXTLINK) together issued $350 million of 12 1/2% Senior Notes Due April 15,
2006 pursuant to an indenture among NEXTLINK, NEXTLINK Capital and United States
Trust Company of New York, as trustee. On September 6, 1996, NEXTLINK
consummated an offer to exchange these notes for $350 million of 12 1/2% Senior
Notes Due April 15, 2006 that had been registered under the Securities Act.
PRINCIPAL, MATURITY AND INTEREST. The 12 1/2% Notes are limited in
aggregate principal amount to $350 million and will mature on April 15, 2006.
Interest on the 12 1/2% notes accrues at 12 1/2% per annum and is payable
semiannually in arrears on April 15 and October 15 of each year. NEXTLINK used
$117.7 million of the net proceeds of the offering of the 12 1/2% notes to
purchase a portfolio of U.S. government securities, to pledge as security for
payment of interest on the 12 1/2% notes through April 15, 1999 and, under
certain circumstances, as security for repayment of the principal of the 12 1/2%
notes. Proceeds from the pledged securities may be used by NEXTLINK to make
interest payments on the 12 1/2% notes through April 15, 1999. The pledged
securities are being held by the trustee pending disbursement.
RANKING. The 12 1/2% Notes are unsecured senior obligations of the issuers,
will rank equally in right of payment with all existing and future senior
obligations of the issuers and will rank senior in right of payment to all
future subordinated obligations of the issuers.
REDEMPTION. The 12 1/2% Notes are redeemable at on or after April 15, 2001,
at NEXTLINK's option, in whole or in part, at the following redemption prices
(expressed as percentages of principal amount) plus accrued interest, if
redeemed during the twelve-month period beginning on April 15 of the years
indicated below:
YEAR PERCENTAGE
- ------------------------------------------------------------------------------ -----------
2001.......................................................................... 106.250%
2002.......................................................................... 104.167%
2003.......................................................................... 102.083%
2004 and thereafter........................................................... 100.000%
In addition, at any time on or before April 15, 1999, NEXTLINK may redeem up
to 33 1/3% of the original aggregate principal amount of the 12 1/2% Notes with
the net proceeds of a sale of common equity at a redemption price equal to
112.50% of the principal amount thereof, plus accrued and unpaid interest
thereon, if any, to the date of redemption, provided that at least $175 million
of aggregate principal amount of 12 1/2% Notes remains outstanding immediately
after such redemption. Except in connection with a Change of Control or an Asset
Disposition (as defined in the indenture relating to the 12 1/2% Notes) of
NEXTLINK, the issuers are not required to
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make mandatory redemption or sinking fund payments with respect to the 12 1/2%
Notes.
COVENANTS. The indenture relating to the 12 1/2% Notes restricts, among
other things, NEXTLINK's ability to incur additional indebtedness, pay dividends
or make certain other restricted payments, incur certain liens to secure debt
which is subordinated to or ranks equally with the 12 1/2% Notes, engage in any
sale and leaseback transaction, sell assign, transfer, lease, convey or
otherwise dispose of substantially all of the assets of NEXTLINK, enter into
certain transactions with affiliates, or incur indebtedness that is subordinate
in right of payment to any senior indebtedness and senior in right of payment to
the 12 1/2% Notes. The indenture relating to the 12 1/2% Notes permits, under
certain circumstances, NEXTLINK's subsidiaries to be deemed unrestricted
subsidiaries and thus not subject to the restrictions of the indenture.
EVENTS OF DEFAULT. The indenture relating to the 12 1/2% Notes contains
standard events of default, including
- defaults in the payment of principal, premium or interest,
- defaults in the compliance with covenants contained in the indenture,
- cross defaults on more than $10 million of other indebtedness,
- failure to pay more than $10 million of judgments and
- certain events of its subsidiaries.
DESCRIPTION OF THE 9 5/8% NOTES
GENERAL. NEXTLINK issued $400 million of 9 5/8% Senior Notes Due 2007
pursuant to an indenture between NEXTLINK and United States Trust Company of New
York, as trustee. The 9 5/8% Notes have been registered under the Securities
Act.
PRINCIPAL, MATURITY AND INTEREST. The 9 5/8% notes are limited in aggregate
principal amount to $400 million and will mature on October 1, 2007. Interest on
the 9 5/8% Notes accrues at 9 5/8% per annum and is payable semiannually in
arrears on April 1 and October 1 of each year.
RANKING. The 9 5/8% notes are unsecured senior obligations of NEXTLINK,
will rank equally in right of payment with all existing and future senior
obligations of NEXTLINK and will rank senior in right of payment to all future
subordinated obligations of NEXTLINK.
REDEMPTION. The 9 5/8% Notes are redeemable on or after October 1, 2002, at
NEXTLINK's option, in whole or in part, at the following redemption prices
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(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:
YEAR PERCENTAGE
- ------------------------------------------------------------------------------ -----------
2002.......................................................................... 104.813%
2003.......................................................................... 103.208%
2004.......................................................................... 101.604%
2005 and thereafter........................................................... 100.000%
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, plus accrued interest, provided that at least
$266.7 million in aggregate principal amount of 9 5/8% Notes remains outstanding
after such redemption. Except in connection with a Change of Control or an Asset
Disposition (as defined in the indenture relating to the 9 5/8% Notes) of
NEXTLINK, NEXTLINK is not required to make mandatory redemption or sinking fund
payments with respect to the 9 5/8% Notes.
COVENANTS. The indenture relating to the 9 5/8% Notes restricts, among
other things, NEXTLINK's ability to incur additional indebtedness, pay dividends
or make certain other restricted payments, incur certain liens to secure debt
which is subordinated to or ranks equally with the 9 5/8% Notes, engage in any
sale and leaseback transaction, sell assign, transfer, lease, convey or
otherwise dispose of substantially all of the assets of NEXTLINK, enter into
certain transactions with affiliates, or incur indebtedness that is subordinate
in right of payment to any senior indebtedness and senior in right of payment to
the 9 5/8% Notes. The indenture relating to the 9 5/8% Notes permits, under
certain circumstances, NEXTLINK's subsidiaries to be deemed unrestricted
subsidiaries and thus not subject to the restrictions of the indenture.
EVENTS OF DEFAULT. The indenture relating to the 9 5/8% notes contains
standard events of default, including
- defaults in the payment of principal, premium or interest,
- defaults in the compliance with covenants contained in the indenture,
- cross defaults on more than $10 million of other indebtedness,
- failure to pay more than $10 million of judgments and
- certain events of its subsidiaries.
DESCRIPTION OF THE 9% NOTES
GENERAL. NEXTLINK issued $335 million of 9% Senior Notes Due 2008 pursuant
to an indenture between NEXTLINK and United States Trust Company of New York, as
trustee. On July 15, 1998, NEXTLINK consummated an offer to
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exchange such notes for $335 million of 9% Senior Notes Due 2008 that had been
registered under the Securities Act.
PRINCIPAL, MATURITY AND INTEREST. The 9% notes are limited in aggregate
principal amount to $335 million and will mature on March 15, 2008. Interest on
the 9% Notes accrues at 9% per annum and is payable semiannually in arrears on
March 15 and September 15 of each year.
RANKING. The 9% Notes are unsecured senior obligations of NEXTLINK, will
rank equally in right of payment with all existing and future senior obligations
of NEXTLINK and will rank senior in right of payment to all future subordinated
obligations of NEXTLINK.
REDEMPTION. The 9% Notes are redeemable on or after March 15, 2003, at
NEXTLINK's option, in whole or in part, at the following redemption prices
(expressed as percentages of principal amount) described below plus accrued
interest, if redeemed during the twelve-month period beginning on March 15 of
the years indicated below:
YEAR PERCENTAGE
- ------------------------------------------------------------------------------ -----------
2003.......................................................................... 104.500%
2004.......................................................................... 103.000%
2005.......................................................................... 101.500%
2006 and thereafter........................................................... 100.000%
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 debt which
is subordinated to or ranks equally with the 9% Notes, engage in any sale and
leaseback transaction, sell assign, transfer, lease, convey or otherwise dispose
of substantially all of the assets of NEXTLINK, enter into certain transactions
with affiliates, or incur indebtedness that is subordinate in right of payment
to any senior indebtedness and senior in right of payment to the 9% Notes. The
indenture relating to the 9% notes permits, under certain circumstances,
NEXTLINK's subsidiaries to be deemed unrestricted subsidiaries and thus not
subject to the restrictions of the indenture.
89
EVENTS OF DEFAULT. The indenture relating to the 9% Notes contains standard
events of default, including
- defaults in the payment of principal, premium or interest
- defaults in the compliance with covenants contained in the indenture
- cross defaults on more than $10 million of other indebtedness
- failure to pay more than $10 million of judgments and
- certain events of its subsidiaries.
DESCRIPTION OF THE 9.45% NOTES
GENERAL. NEXTLINK issued $636,974,000 principal amount at stated maturity
of 9.45% Senior Discount Notes Due 2008 under an indenture between NEXTLINK and
United States Trust Company of New York, as trustee. On August 24, 1998,
NEXTLINK consummated an offer to exchange such notes for $636,974,000 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
equally in right of payment with all existing and future senior obligations of
NEXTLINK and will rank senior in right of payment to all future subordinated
obligations of NEXTLINK.
REDEMPTION. The 9.45% Notes are redeemable on or after April 15, 2003, at
NEXTLINK's option, in whole or in part, 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:
YEAR PERCENTAGE
- ------------------------------------------------------------------------------ -----------
2003.......................................................................... 104.725%
2004.......................................................................... 103.150%
2005.......................................................................... 101.575%
2006 and thereafter........................................................... 100.000%
90
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 debt which
is subordinated to or ranks equally with the 9.45% Notes, engage in any sale and
leaseback transaction, sell, assign, transfer, lease, convey or otherwise
dispose of substantially all of the assets of NEXTLINK, enter into certain
transactions with affiliates, or incur indebtedness that is subordinate in right
of payment to any senior indebtedness and senior in right of payment to the
9.45% Notes. The indenture relating to the 9.45% Notes permits, under certain
circumstances, NEXTLINK's subsidiaries to be deemed unrestricted subsidiaries
and thus not subject to the restrictions of such indenture.
EVENTS OF DEFAULT. The indenture relating to the 9.45% Notes contains
standard events of default, including
- defaults in the payment of principal, premium or interest
- defaults in the compliance with covenants contained in the indenture
- cross defaults on more than $10 million of other indebtedness
- failure to pay more than $10 million of judgments and
- certain events of its subsidiaries.
91
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of 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 or tax-exempt organizations. It also does not deal with U.S. holders
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, and regulations, rulings and judicial decisions under the
Internal Revenue Code as of the date of this filing. At any time and without
prior notice, these 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 under the exchange offer should be
treated as a continuation of the corresponding old notes because the terms of
the new notes are substantially the same as the terms of the old notes.
Accordingly, the exchange should not constitute a taxable event to holders and,
therefore:
- no gain or loss should be realized by holders upon receipt of a new note;
- the holding period of the new note should include the holding period of
the old note; and
- the adjusted tax basis of the new note should be the same as the adjusted
tax basis of the old note immediately before the exchange.
UNITED STATES HOLDERS
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 qualifies as a U.S. holder 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. A U.S. holder is also any other person whose worldwide
income or gain is otherwise subject to United States federal income taxation on
a net income basis.
92
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 MINIMIS
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 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 on or after the first taxable year to which the
election applies and may not be revoked without the consent of the Internal
Revenue Service. 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
93
consent of the Internal Revenue Service. 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 and 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 months. 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 a nonresident alien individual or 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.
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 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
94
(B) a securities clearing organization, bank or other
financial institution that holds customers' securities in the
ordinary course of its trade or business and holds the note
certifies to NEXTLINK or its agent under penalties of perjury that
this statement has been received from the beneficial owner by it
or by a one of the financial institutions 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, 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. These
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 under the exchange offer are
urged to consult their tax advisor regarding the regulations described above.
BACKUP WITHHOLDING AND INFORMATION REPORTING
UNITED STATES HOLDERS
In general, information reporting requirements will apply to some payments
of principal, premium, if any, and interest and to the proceeds of sale of a
note made to holders other than recipients which are specifically exempt, 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 by NEXTLINK or any paying agent to a holder. However,
a 31% backup withholding tax will apply to payments made to an address in the
United States or by transfer to an account maintained by the holder with a bank
in the United States. This backup withholding tax may also apply to some of the
payments described above if the U.S. holder fails to provide a taxpayer
identification number or certification of foreign or
95
other exempt status or if the U.S. holder is notified by the Internal Revenue
Service 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 NEXTLINK or a paying agent to a non-U.S. holder on a
note; so long as the certification described in clause (1)(c) under "Non-United
States Holders" above is received and 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 through a foreign office of a broker will not be subject to information
reporting or backup withholding. Information reporting requirements will apply,
however, 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. 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 above representations is referred to 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
96
resale of such new notes. Based upon interpretations by the staff of the
Securities and Exchange 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 Securities and Exchange
Commission, NEXTLINK believes that new notes issued pursuant to the exchange
offer may be offered for resale, resold and otherwise transferred by their
holder, 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 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 Securities and Exchange Commission allows us to "incorporate by
reference" the information we file with them, which means we can disclose
important
97
information to you by referring you to those documents. The information included
in the following documents is incorporated by reference and is considered to be
a part of this prospectus. The most recent information that we file with the
Securities and Exchange Commission automatically updates and supersedes more
dated information. We have previously filed the following documents with the
Securities and Exchange Commission and are incorporating them by reference into
this prospectus:
1. Our Annual Report on Form 10-KSB for the fiscal year ended December
31, 1998, filed on March , 1999;
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.
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.
98
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.
---------------------
$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 MARCH , 1999
---------------------
[LOGO]
NEXTLINK
COMMUNICATIONS,
INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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:
1 -- Purchase Agreement by and among the Company and the Initial Purchasers.*
3.1 -- Certificate of Incorporation of the Company.(1)
II-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)
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)
II-2
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)
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.*
- ---------------------
* Previously filed.
II-3
(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.
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
II-4
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-5
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 18th day of March, 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
- ------------------------------ March 18, 1999
Steven W. Hooper
Vice Chairman and Chief
* Executive Officer
- ------------------------------ (Principal Executive March 18, 1999
Wayne M. Perry Officer) and Director
Vice President, Chief
Financial Officer and
* Treasurer (Principal
- ------------------------------ Financial Officer and March 18, 1999
Kathleen H. Iskra Principal Accounting
Officer)
* Director
- ------------------------------ March 18, 1999
Craig O. McCaw
II-6
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
* Director
- ------------------------------ March 18, 1999
Dennis Weibling
* Director
- ------------------------------ March 18, 1999
William A. Hoglund
* Director
- ------------------------------ March 18, 1999
Sharon L. Nelson
* Director
- ------------------------------ March 18, 1999
Jeffrey S. Raikes
* Director
- ------------------------------ March 18, 1999
Gregory J. Parker
Director
- ------------------------------
Nicolas Kauser
*By: /s/ R. BRUCE EASTER,
JR.
-------------------------
R. Bruce Easter, Jr.
ATTORNEY-IN-FACT
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