<PAGE>
                       SECURITIES AND EXCHANGE COMMISSION
 
                             WASHINGTON, D.C. 20549
 
                                  FORM 10-KSB
 
[ X ]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
       ACT OF 1934 For the fiscal year ended December 31, 1996
 
                                       or
 
[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
     EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
                   TO
 
                 Commission File No. 333-04603 and 333-04603-01
 
                         NEXTLINK COMMUNICATIONS, INC.
              (FORMERLY KNOWN AS NEXTLINK COMMUNICATIONS, L.L.C.)
                             NEXTLINK CAPITAL, INC.
 
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<S>                                            <C>
          A Washington Corporation                    I.R.S. Employer No. 91-1738221
          A Washington Corporation                    I.R.S. Employer No. 91-1716062
</TABLE>
 
         155 108th Avenue, N.E., 8th Floor, Bellevue, Washington 98004
                        Telephone Number (206) 519-8900
 
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
 
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
 
Indicate by check mark whether the Registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days.  Yes [ X ]  No [  ]
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Registration S-B is not contained herein, and will not be contained, to the
best of Registrants' knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.  [ X ]
 
The Registrants' revenues for its most recent fiscal year were $25,686,000.
 
The Registrants' voting stock is not publicly traded, and as a result, no
aggregate market value of the voting stock is available.
 
At March 11, 1997, the number of shares of Class B Common Stock, par value $.01
per share of NEXTLINK Communications, Inc. ("NEXTLINK" or the "Company") was
83,123,084 and there were 1,000 shares of Common Stock, par value $.01 per share
of NEXTLINK Capital, Inc.
 
NEXTLINK Capital, Inc. ("NEXTLINK Capital" and together with the Company, the
"Issuers") meets the conditions set forth in General Instruction G(1)(a) and (b)
of Form 10-KSB and is therefore filing this form with the reduced disclosure
format.
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                               TABLE OF CONTENTS
 
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     ITEM                                                                                                            PAGE
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<C>         <S>                                                                                                   <C>
 
                                                           PART I
 
        1.  Description of Business.............................................................................           1
 
        2.  Description of Properties...........................................................................          27
 
        3.  Legal Proceedings...................................................................................          27
 
        4.  Submission of Matters to a Vote of Security Holders.................................................          27
 
                                                           PART II
 
        5.  Market for Registrants' Common Stock and Related Stockholder Matters................................          27
 
        6.  Managements' Discussion and Analysis of Financial Condition and Results of Operations...............          28
 
        7.  Financial Statements................................................................................          33
 
        8.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................          33
 
                                                          PART III
 
        9.  Directors and Executive Officers of the Company.....................................................          34
 
       10.  Executive Compensation..............................................................................          38
 
       11.  Security Ownership of Certain Beneficial Owners and Management......................................          44
 
       12.  Certain Relationships and Related Transactions......................................................          47
 
       13.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K....................................          48
</TABLE>
<PAGE>
                         NEXTLINK COMMUNICATIONS, INC.
              (FORMERLY KNOWN AS NEXTLINK COMMUNICATIONS, L.L.C.)
                             NEXTLINK CAPITAL, INC.
 
                                     PART I
 
ITEM 1. DESCRIPTION OF BUSINESS
 
OVERVIEW
 
    NEXTLINK Communications, Inc. ("NEXTLINK" or the "Company") was founded in
1994 by Mr. Craig O. McCaw, its Chief Executive Officer and principal equity
owner, to provide local facilities-based telecommunications services with a
focus on delivering switched services to commercial customers. In July 1996,
NEXTLINK became one of the first competitive local exchange carriers ("CLECs")
in the United States to provide facilities-based local dial tone services under
the Telecommunications Act of 1996 (the "Telecom Act"), which opened the entire
local exchange market to competition. In each of the markets it serves,
NEXTLINK's goal is to become the principal competitor to the incumbent local
exchange carrier ("ILEC") for its targeted customer base of small and medium
sized businesses by offering a single source for local, long distance and
enhanced communications services. All operational statistics of the Company
included in this Report include 100% of the operational statistics of
Telecommunications of Nevada, LLC, a limited liability company in which the
Company has a 40% membership interest, which owns a network that is managed by
the Company in Las Vegas, Nevada.
 
    The Company currently offers a bundled package of switched local dial tone
and long distance services in eight markets and anticipates launching these
services in an additional 14 markets, 13 of which are anticipated to be launched
by the end of June 1997. In addition, the Company offers dedicated transmission
and competitive access services to long distance carriers and end users in 18 of
its markets, including those markets where the Company has not yet launched
switched local dial tone and long distance services. NEXTLINK also offers
enhanced communications services, including a series of interactive voice
response ("IVR") products, a virtual communications center for mobile
professionals and workgroups and an interactive communications tool for the
World Wide Web and intranet applications called the Intermind Communicator.
 
    To date, NEXTLINK has acquired and constructed telecommunications networks
in seven states, with operations currently active or under construction in 22
markets containing an aggregate of approximately four million addressable
business lines. As of December 31, 1996, the Company's operations included
approximately 1,080 route miles of installed and operational high capacity fiber
optic cable with a combined total of approximately 66,000 fiber miles which
connect to 403 buildings and an additional 400 route miles under construction.
The Company seeks to encompass the significant business concentrations in each
area it serves, focusing on direct connections to end-user locations and ILEC
central offices. The Company constructs its networks utilizing high capacity
fiber optic cable, with a backbone density generally ranging from 72 to 240
fibers, and self-healing SONET transmission equipment. In addition, the Company
employs a uniform technology platform for each of its networks that is based on
the Nortel DMS 500 digital local and long distance combination switching system
and associated distribution technology. As of December 31, 1996, the Company had
five operational Nortel DMS 500 switches serving eight markets, had installed
three switches during the first quarter of 1997 and anticipates installing one
switch in the second quarter 1997, allowing the Company to service in the
aggregate 14 additional markets. The Company plans to install a tenth switch in
its NEXTLAB facility, a fully functional model of one of the Company's networks,
which will serve as the Company's network operations control center and a
testing facility for switch software and the Company's products and services.
 
    NEXTLINK has interconnection agreements covering 15 markets and is currently
negotiating two additional interconnection agreements that will cover its seven
additional markets. These agreements provide the Company with the ability to
exchange telecommunications traffic between its customers and the customers of
the ILEC. The Company accelerated its offering of switched local dial tone
services by
<PAGE>
establishing initial interconnection agreements while longer term agreements are
negotiated. The operating experience gained by the Company under these
agreements gives the Company critical knowledge for negotiating longer term
arrangements, which the Company believes provides it with an advantage over
other CLECs in modifying its ongoing relationships with the ILECs.
 
BUSINESS STRATEGY
 
    The Company has built an end user-focused, locally oriented organization
dedicated to providing a broad range of products and services at competitive
prices primarily to small and medium sized businesses. The key components of the
Company's strategy to maximize penetration of its targeted customer base are:
 
        FOCUS ON SMALL AND MEDIUM SIZED BUSINESSES.  The Company primarily
    focuses marketing efforts for its switched local, long distance and enhanced
    communications services on small and medium sized businesses and
    professional groups with 10 to 50 business lines. The Company's market
    research indicates that these customers prefer a single source for all of
    their telecommunications requirements, including products, billing,
    installation, maintenance and customer service. The Company has chosen to
    focus on this segment, based on its expectations that higher gross margins
    will generally be available on services provided to these customers, as
    compared with larger businesses, and that ILECs may be less likely to apply
    significant resources towards retaining these customers. The Company expects
    to attract these customers through a direct sales effort by offering: (i)
    bundled facilities-based local dial tone and resold long distance services,
    as well as the Company's enhanced communications services; (ii) a 10% to 15%
    discount to comparable pricing by the ILEC, depending on the individual
    market; and (iii) responsive customer service and support provided on a
    local level.
 
        DEVELOP A DIRECT SALES FORCE AND A CUSTOMER CARE ORGANIZATION.  NEXTLINK
    is building a highly motivated and experienced direct sales force and
    customer care organization that is designed to establish a direct and
    personal relationship with its customers. Salespeople are given incentives
    through a commission structure that targets 40% of a salesperson's
    compensation to be based on performance. To ensure customer satisfaction,
    each customer will have a single point of contact for customer care who is
    responsible for solving problems and responding to customer inquiries.
    Management believes that the quality of its sales force and the
    responsiveness of its customer care organization will help to attract and
    retain customers and provide a key competitive advantage in competing with
    the ILEC in the local exchange market.
 
        STANDARDIZE PROCESSES TO ACCELERATE REVENUE GROWTH.  The Company
    believes that the immediate challenge for CLECs will be developing the
    ability to implement effective provisioning systems, which include the
    complex process of transitioning ILEC customers to the Company's switched
    local dial tone services. Accordingly, the Company has begun to identify and
    will focus, as a key competitive strategy, on implementing best provisioning
    practices in each of its markets that will provide for rapid and seamless
    transitions of customers from the ILEC to the Company. To support the
    provisioning of its services, the Company has begun a long-term development
    program relating to a comprehensive information technology platform geared
    toward delivering information and automated ordering and provisioning
    capability directly to the end-user as well as to the Company's internal
    staff. The Company believes that these practices and its comprehensive
    information technology platform, as developed, will provide the Company with
    a long-term competitive advantage and allow it to implement more rapidly
    switched local dial tone services in its markets and to shorten the time
    between the sale of its services and the generation of revenues.
 
        DEVELOP HIGH CAPACITY NETWORKS WITH BROAD MARKET COVERAGE.  NEXTLINK has
    and intends to continue to approach network design with a long-term view
    focusing on three key elements. First, the Company designs and builds its
    networks to provide extensive coverage of principal business
 
                                       2
<PAGE>
    concentrations, featuring direct physical connection of the Company's
    network to a high percentage of the commercial buildings and a majority of
    the ILEC central offices. This broad coverage is expected to result in a
    higher proportion of traffic that is both originated and terminated on the
    Company's networks, which should provide higher long-term operating margins.
    Second, the Company constructs high capacity networks that utilize large
    fiber bundles capable of carrying high volumes of voice, data, video and
    Internet traffic as well as other high bandwidth services. This strategy
    should reduce potential "overbuild" costs and provide added network capacity
    as the Company adds high bandwidth services in the future. Third, the
    Company employs a uniform technology platform based on Nortel DMS 500
    switches, associated distribution technology and other common transmission
    technologies enabling the Company to (i) deploy features and functions
    quickly in all of its networks, (ii) expand switching capacity in a cost
    effective manner and (iii) lower maintenance costs through reduced training
    and spare parts requirements. The Company also utilizes unbundled loops from
    the ILEC to connect the Company's switch and network to end user buildings
    and is evaluating other alternatives for building connectivity, including
    wireless connections, for the "last mile" of transport.
 
        OFFER ENHANCED COMMUNICATIONS SERVICES.  NEXTLINK offers customers
    value-added services that are not dependent on the Company's local
    facilities. As a result, the Company believes it can establish a customer
    base in a market in advance of constructing network facilities as well as
    offer additional services in markets where the Company has constructed
    facilities. These enhanced communications service offerings include: (i) IVR
    services, which provide an interface between NEXTLINK's clients and their
    customers for a variety of applications; (ii) Xpress, NEXTLINK's virtual
    communications center that allows mobile professionals and workgroups to
    access a suite of commonly used communications services from any telephone
    in the public switched network; and (iii) the Intermind Communicator, an
    interactive communications tool for the World Wide Web and intranet
    applications. The Company plans to focus the marketing of its enhanced
    communications services in all of its markets, as well as in areas of
    planned network expansion. This should increase the Company's visibility,
    develop customer relationships and assist the Company in attracting local
    exchange customers when it operates networks in these markets.
 
        CONTINUE MARKET EXPANSION.  The Company currently operates or is
    constructing networks in 22 markets in seven states. These markets, in the
    aggregate, have approximately four million addressable business lines. The
    Company's goal is to add or expand markets and market clusters in order to
    increase its market potential to approximately 11 million addressable
    business lines by the end of 1998. NEXTLINK believes that its strategy of
    operating its networks in clusters (i) offers substantial advantages
    including economies of scale in management, marketing, sales and network
    operations, (ii) enables the Company to capture a greater percentage of
    regional traffic and to develop regional pricing plans, because the Company
    believes that a significant level of traffic terminates within 300 miles of
    its origination and (iii) provides opportunities in smaller markets and
    those markets that are too small to develop on a stand alone basis. The
    Company anticipates continuing to expand into new geographic areas as
    opportunities arise either through building new networks, acquiring existing
    networks or acquiring capacity. Most recently the Company acquired an 80
    mile fiber optic network located in Los Angeles and six adjacent markets and
    reached an agreement in principle to acquire an existing operational fiber
    optic network in downtown Philadelphia in order to extend its existing
    network in Pennsylvania.
 
    The Company believes that a critical factor in the successful implementation
of the Company's strategy is the quality of its management team and their
extensive experience in the telecommunications industry. The Company has built a
management team that it believes is well suited to challenge the dominance of
the ILECs in the local exchange market. Mr. Craig O. McCaw, the Company's Chief
Executive Officer, and Mr. James F. Voelker, the Company's President, each has
in excess of 17 years of
 
                                       3
<PAGE>
experience in leading companies in competitive segments of the
telecommunications industry. In addition, the Company has recruited experienced
entrepreneurs and industry executives to head each of its operating
subsidiaries, many of whom have previously built and led their own start-up
telecommunications businesses. Many of the Company's mid-level and senior
managers were associated with Mr. McCaw during the early years at McCaw Cellular
Communications, Inc. (now known as AT&T Wireless Services, Inc.), where the
organizational themes included an unyielding focus on the customer, developing a
first-class, differentiated product offering, decentralized management
decision-making and building a high capacity system.
 
THE COMPANY'S TELECOMMUNICATIONS SERVICES
 
    LOCAL AND LONG DISTANCE SERVICES
 
    The Company commenced the offering of switched local dial tone and long
distance services in seven markets on July 4, 1996, and in an eighth market on
January 1, 1997. The Company expects to commence the offering of switched local
dial tone and long distance services in its remaining 14 markets later in 1997.
The Company focuses its product offering on basic telecommunications services,
which it believes are the core of local exchange services. Pricing, which is
determined and implemented by the Company's operating subsidiary in each local
market, has been generally 10% to 15% lower than the pricing for comparable
local services from the ILEC. The Company's current product offering includes:
 
    - Standard dial tone, including touch tone dialing, 911, and operator
      assisted calling;
 
    - Multi-trunk services, including direct inward dialing (DID) and direct
      outward dialing (DOD);
 
    - Long distance service, including 1+, 800/888 and operator services;
 
    - Voice messaging with personalized greetings, send, transfer, reply and
      remote retrieval capabilities; and
 
    - Directory listings and assistance.
 
    Currently, the Company offers competitive access services in 18 of its
markets, focusing on long distance carriers and the private line needs of high
volume customers. In addition, data services that are currently offered by the
Company include Ethernet, TOKEN rings, and Fiber Distributed Data Interface
(FDDI).
 
    The Company's competitive access services, which are used as both primary
and back-up circuits, fall into three principal categories: (i) special access
circuits that connect end-users to long distance carriers; (ii) special access
circuits that connect long distance carriers' facilities to one another; and
(iii) private line circuits that connect several facilities owned by the same
end-user.
 
    ENHANCED COMMUNICATIONS SERVICES
 
    NEXTLINK's IVR platform allows a consumer to dial into a computer-based
system using a toll-free number and a touch tone phone, and, by following a
customized menu, to access a variety of information and to leave simultaneously
a profile of the caller behind for use by either NEXTLINK or its clients.
Currently, NEXTLINK provides four types of IVR services:
 
    - LeaveWord--prompts the consumer to leave messages of any length or
      complexity, ranging from catalog requests and contest entries to specific
      product questions and surveys;
 
    - Dealer Locator--helps a consumer to locate the nearest dealer of the
      client's products by instantly identifying the consumer's area and
      responding with the names, addresses and phone numbers of the client's
      locations within any desired mileage radius;
 
                                       4
<PAGE>
    - Automated Order Entry--allows consumers to purchase products using the
      interactive phone service 24-hours a day, with real-time order and credit
      card confirmation as well as arranging for delivery of the new item to the
      consumer's desired address; and
 
    - Interactive Call Center--provides the consumer with a menu of selections
      that include Dealer Locator, Automated Order Entry and other functions,
      including receiving a catalog, registering the warranty of a product,
      contest entry and an option for callers to be forwarded to a live
      operator.
 
    NEXTLINK also provides a virtual communications center for mobile
professionals and workgroups through its Xpress service, which offers a suite of
personal communications services. These services are made available through a
specialized personal telephone number. The key services provided by this center
are the following:
 
    - Follow-Me--instructs the communications center to forward any calls to an
      Xpress number to a particular local telephone number;
 
    - Voice Messaging--allows subscribers to receive, send, keep, transfer,
      instantly reply to or request future delivery for voice messages;
 
    - Call-out---enables subscribers to make calls from the communications
      center without hanging up between calls or dialing another PIN number;
 
    - Paging--notifies subscribers via pager of new and urgent messages;
 
    - Caller ID--provides the ability to capture the telephone number of anyone
      who calls the subscriber, which is also displayed on the subscriber's
      pager;
 
    - Fax Messaging--stores an incoming fax and delivers it to the nearest fax
      machine designated by the subscriber when the subscriber calls in to
      retrieve it; and
 
    - Teleconferencing--handles all teleconferencing needs through a
      teleconferencing operator.
 
    The Intermind Communicator is a new category of interactive communications
software for the World Wide Web and intranet applications. The Intermind
Communicator provides functions similar to the Company's IVR services for use on
the Internet. The Intermind Communicator utilizes hypercommunications, which is
a special type of publish/subscribe application. The Company markets the
Intermind Communicator to businesses that are seeking to deliver and receive
(that is, "push and pull") information over the Internet. The Intermind
Communicator allows these businesses to interact with end users by providing
requested information and simultaneously receiving specific communications
anonymously from that end user.
 
    The Company has developed its enhanced communications service offerings
through acquisitions, marketing agreements and equity investment. In June 1995,
the Company acquired certain enhanced communications services assets from City
Signal, Inc. These assets are used by the Company to offer its Xpress service.
In September 1995, the Company acquired a fully operational interactive voice
response business through which the Company offers its IVR services. In June
1996, the Company invested in the preferred stock of Intermind Corporation, an
Internet communications tool software developer. Simultaneously, the Company
executed an exclusive marketing agreement, which provides that the Company is
the exclusive telecommunications company authorized to market the Intermind
Communicator in each of the Company's current geographic service areas. The
Company anticipates that it will continue to explore other enhanced
communications services opportunities and may acquire, invest in or establish
marketing relationships with, additional service providers in the future that
support its overall business and marketing strategies.
 
                                       5
<PAGE>
SALES AND CUSTOMER CARE
 
    OVERVIEW
 
    The Company utilizes a two-pronged sales strategy in each of its markets.
The initial sales efforts in the Company's markets are for switched local dial
tone and long distance services focusing on small and medium sized businesses
and professional groups with 10 to 15 business lines. The Company's market
research indicates that these customers prefer a single source for all of their
telecommunications requirements, including products, billing, installation,
maintenance and customer service. The Company utilizes a direct sales effort
offering combined local and long distance services with prices that are
generally at a 10% to 15% discount from the ILEC. Providing a combination of
local and long distance services provides the Company's customers a level of
convenience that has been generally unavailable since the break-up of AT&T. The
Company is also marketing its enhanced communications services through a
separate direct sales force in each market, which is expected to increase the
number of customers for all of NEXTLINK's telecommunications services in that
market at a faster rate. In addition, the Company is continuing its sales
efforts for traditional CAP services to long distance carriers and large
commercial users.
 
    SALES FORCE
 
    The Company is building a highly motivated and experienced direct sales
force and customer care organization that is designed to establish a direct and
personal relationship with its customers. The Company seeks to recruit
salespeople with strong sales backgrounds, including salespeople from long
distance companies, telecommunications equipment manufacturers and the ILECs.
Salespeople are given incentives through a commission structure that targets 40%
of a salesperson's compensation to be based on performance. With respect to
traditional competitive access provider ("CAP") services, the Company currently
utilizes a national sales force to establish and expand long distance company
access service sales. Sales efforts for long distance carriers are centralized
in order to provide a single point of contact for these customers.
 
    The Company anticipates that its enhanced communications service offerings
will continue to be sold across the country by its existing national sales force
for these services. The Company has also augmented these efforts with a
separate, targeted, locally based sales force in each of its markets. The
Company believes that this two-pronged approach to each market will provide
revenues that are incremental to its local exchange operations.
 
    CUSTOMER CARE
 
    The Company is augmenting its direct sales approach with superior customer
care and support through locally based customer care representatives. The
Company is structuring its customer care organization in such a manner that each
customer will have a single point of contact for customer care who is
responsible for solving problems and responding to customer inquiries. The
Company seeks to provide a customer care group that has the ability and
resources to respond to and resolve customer problems as they arise. The Company
believes that customer care representatives will be the most effective if they
are based in the community in which the Company is offering services.
 
NETWORK DEVELOPMENT
 
    GENERAL
 
    In developing its networks, the Company has executed a strategy of (i)
acquiring fully or partially constructed fiber optic networks and (ii) designing
and constructing high capacity fiber optic networks with broad coverage. The
Company is constantly evaluating markets as locations for expansion of the
Company's current networks and the development of additional networks. The
decision to build, acquire
 
                                       6
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or utilize capacity of an existing network is not based on any single factor,
but on a combination of a number of factors including:
 
    - demographic, economic, competitive and telecommunications demand
      characteristics of the market and the surrounding markets;
 
    - availability of rights-of-way;
 
    - actual and potential competitors; and
 
    - potential for the Company to cluster additional networks in the region.
 
    If a particular market targeted for development is deemed to present an
attractive market opportunity, the Company determines whether acquisition
opportunities are available. In some cases a large network can be acquired, and
in other cases a small existing network can serve as a starting point for market
entry. If the Company decides to build a new network, or substantially expand a
small acquired system, the Company designs a proposed new or expanded network
that can connect a large number of businesses, long distance carriers points of
presence and the ILEC's principal central offices in the area to be served,
utilizing existing rights-of-way and/or rights-of-way that the Company will
construct. Concurrently, the Company's market development personnel visit the
location of the proposed network to begin discussions with city officials,
right-of-way providers, potential end-users and long distance companies.
 
    Based on the data developed during these preliminary studies and visits, the
Company develops detailed financial estimates of the costs of constructing a
network, including the cost of fiber optic cable, transmission and other
electronic equipment, as well as costs related to switching, engineering,
building entrance requirements and right-of-way acquisition. If the financial
estimates are satisfactory to the Company, the Company's market development
personnel prepare a detailed business and financial plan for the proposed
network, including competitive, regulatory and right-of-way analyses. Based upon
its review of these analyses the Company determines whether to proceed. The
Company anticipates continuing the expansion of its networks into new markets
utilizing the market development analysis described above. The Company will seek
to continue to expand its operations in states where it has established one or
more networks, by continuing to construct or acquire networks in adjacent areas
to leverage its existing networks, switches and telecommunications equipment,
thereby establishing a cost effective and operationally efficient cluster of
networks in various geographic regions.
 
                                       7
<PAGE>
THE COMPANY'S NETWORKS
 
    The Company currently operates or is constructing networks in 22 markets in
seven states. The following table provides certain information on the Company's
networks.
 
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                                                                                         AS OF DECEMBER 31, 1996
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<S>                                                       <C>                  <C>          <C>          <C>
                                                                                  ROUTE        FIBER         BUILDINGS
STATE/MARKET                                                LAUNCH DATE(1)      MILES(2)     MILES(3)      CONNECTED(4)
--------------------------------------------------------  -------------------  -----------  -----------  -----------------
Tennessee...............................................                              384       32,342             260
  MEMPHIS...............................................  July 1996
  NASHVILLE.............................................  July 1996
Pennsylvania............................................                              357       20,219              37
  ALLENTOWN.............................................  July 1996
  HARRISBURG............................................  July 1996
  LANCASTER.............................................  July 1996
  READING...............................................  July 1996
  SCRANTON/WILKES BARRE.................................  June 1997
  PHILADELPHIA(5).......................................  June 1997
Washington..............................................                                1          152              16
  SPOKANE...............................................  July 1996
Ohio....................................................                               17        2,499               2
  CLEVELAND.............................................  April 1997
  COLUMBUS..............................................  April 1997
  AKRON.................................................  December 1997
Utah....................................................                               10        1,440              10
  SALT LAKE CITY........................................  January 1997
  PROVO/OREM............................................  April 1997
Nevada..................................................                              311        9,394              78
  LAS VEGAS.............................................  April 1997
California(6)...........................................                               80        5,609               8
  LOS ANGELES...........................................  June 1997
  ANAHEIM...............................................  June 1997
  COSTA MESA............................................  June 1997
  GARDEN GROVE..........................................  June 1997
  IRVINE................................................  June 1997
  ORANGE................................................  June 1997
  SANTA ANA.............................................  June 1997
                                                                                    -----   -----------            ---
    Total...............................................                            1,160       71,655             411
                                                                                    -----   -----------            ---
                                                                                    -----   -----------            ---
</TABLE>
 
------------------------
 
(1) Actual/Anticipated launch date of local dial tone services.
 
(2) Route miles refers to the number of miles of the telecommunications path in
    which the Company-owned or leased fiber optic cables are installed.
 
(3) Fiber miles refers to the number of route miles installed along a
    telecommunications path, multiplied by the Company's estimate of the number
    of fibers along that path.
 
(4) Represents on-net building connections.
 
(5) Acquisition anticipated to be completed during the second quarter of 1997.
 
(6) Acquisition completed in February 1997.
 
                                       8
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    TENNESSEE.  In January 1995, the Company acquired from City Signal, Inc. an
extensive, fully operational network in Memphis, Tennessee and another network
then under development in Nashville, Tennessee. Since the date of acquisition,
the Memphis network has provided dedicated private line services, long distance
carrier access services, high speed data transmission, and video conferencing
and, beginning in July 1996, local dial tone and long distance services. The
Company's Memphis network currently is the most mature and extensive of the
Company's networks and provides a model for the route design of the networks the
Company envisions for the other areas it serves. In Nashville, the initial
backbone network was completed in December 1995, and the Company also began
providing local dial tone and long distance services to customers in this area
in July 1996.
 
    PENNSYLVANIA.  In April 1995, the Company began construction of an extensive
regional fiber optic network connecting Harrisburg, Reading, Lancaster, and
Allentown, Pennsylvania. The backbone network connecting these four areas and
covering 21 counties was completed in the first quarter of 1996. The Company
believes that this network provides it with the foundation for significant
regional service offerings. The Company commenced offering switched local dial
tone services to customers utilizing its Pennsylvania networks in July 1996. The
Company recently completed an extension of the network to the Scranton/Wilkes
Barre market. The Company recently entered into an agreement in principle which
will enable it to extend this network into downtown Philadelphia during 1997.
 
    WASHINGTON.  In April 1995, the Company acquired a local exchange service
reseller located in Spokane, Washington. Currently serving approximately 880
business customers with approximately 7,300 lines serving the central business
district of Spokane, the Company completed the construction of a fiber optic
ring in the downtown area to provide facilities-based local telecommunications
services directly to these customers. The Company commenced offering switched
local dial tone services to customers utilizing its Spokane network in July
1996. The Company is in the process of migrating its current resale customers to
the fiber optic network as portions of that network are completed.
 
    OHIO.  In January 1996, the Company acquired existing fiber optic networks
and switching facilities in the downtown business centers of Cleveland, Columbus
and Akron, Ohio. The Company's networks in Ohio currently are limited to the
downtown cores, but the Company will be expanding the route and fiber miles of
each of these networks during 1997. In addition, the Company is currently
replacing the switches that were acquired in Ohio with two Nortel DMS 500
switches, the Company's standard switching platform. The Company anticipates
that it will begin offering switched local and long distance services in
Cleveland and Columbus during the second quarter of 1997 and in Akron during the
fourth quarter of 1997.
 
    UTAH.  In March 1996, the Company admitted a 10% member to the subsidiary
conducting the Company's operations in Utah, which member provided access to its
rights-of-way, franchises, and other valuable services in order for the Company
to commence the construction of a fiber optic network in Salt Lake City and the
Wasatch Valley, which the Company believes is among the fastest growing areas in
the United States. Construction of the downtown fiber optic ring began in the
second quarter of 1996. The switching facilities were installed during the
fourth quarter of 1996 with switched local and long distance service starting
January 1, 1997. The Company recently executed a right-of-way agreement which
will enable the expansion of this network to Provo and Orem during the first
quarter of 1997.
 
    NEVADA.  In April 1996, the Company became a 40% member in, and manager of,
a joint venture that will provide local telecommunications services in Las
Vegas, which the Company believes is one of the fastest growing areas in the
United States. The Company has provided a license to the joint venture to
operate under the name NEXTLINK Nevada. The joint venture currently provides
competitive access services over a fiber optic network covering approximately
300 route miles throughout Las Vegas. The Company will provide strategic
planning and management of the business for a ten year period through one of its
subsidiaries. The Company anticipates that it will begin offering switched local
and long distance services in this market during the second quarter of 1997.
 
                                       9
<PAGE>
    CALIFORNIA.  On February 4, 1997, the Company acquired substantially all the
assets of Linkatel Pacific, L.P. ("Linkatel"), a Los Angeles-based competitive
access telecommunications provider. At the time of the acquisition, Linkatel
operated an 80 mile fiber optic telecommunications network covering several
markets from the downtown Los Angeles area to the City of Irvine in Orange
County. The Los Angeles/Orange County area represents one of the largest
telecommunications markets in the United States, with over 2 million addressable
business lines. The Company assumed management of this operation in November
1996. As part of the assets acquired, the Company obtained access to
approximately 250 route miles of right-of-way, of which 80 miles have been
completed, and the Company is currently constructing an additional 110 miles.
The network is currently providing competitive access services with the launch
of switched local and long distance services scheduled for June 1997.
 
NETWORK ARCHITECTURE
 
    DESIGN
 
    The Company builds or acquires its own fiber optic networks because it
believes that facilities-based full service telecommunications companies whose
networks are directly connected to their customers will have the ability to
respond more quickly to customer needs for capacity and services. Moreover, the
Company believes that facilities-based carriers develop a more knowledgeable,
cooperative relationship with their customers, improving their ability to
provide new services and other telecommunications solutions, which should result
in higher long-term operating margins.
 
    The Company believes that the future telecommunications market will be an
interconnected network of networks. The Company believes that calls will flow
between local networks, with customers selecting their service provider based on
high quality and differentiated products, responsive customer service and price.
In some circumstances, depending in part upon regulatory conditions, the Company
will utilize its own network for one portion of a call and resell the services
of another carrier for the remaining portion of a call. In other instances, both
the origination and termination of calls will take place on the Company's
networks. The Company's networks are designed to maximize connectivity directly
with significant numbers of business end-users, and to easily interconnect and
provide a least-cost routing flow of traffic between the Company's network and
other networks in the marketplace.
 
    In general, the Company seeks to build wide, expansive networks, rather than
a simple core ring in a downtown metropolitan area. This construction focus is
one factor that distinguishes the Company from traditional CAPs, which primarily
focus on connecting high volume long distance users with their selected long
distance carrier. Because the Company's product focus is much broader than
traditional CAPs, its construction efforts reflect the Company's goal of
connecting to a greater number of customers, including those without
particularly high long distance traffic volumes. The Company believes that this
type of broad coverage of the markets in which it operates will result in the
following advantages:
 
    - an increased number of buildings that can be directly connected to the
      Company's network, which should maximize the number of businesses to which
      the Company can offer its services;
 
    - a higher volume of telecommunications traffic both originating and
      terminating on the Company's network, which should result in improved
      operating margins;
 
    - the ability to leverage its investment in high capacity switching
      equipment and electronics; and
 
    - the opportunity for the Company's network to provide backhaul carriage for
      other telecommunications service providers such as long distance and
      wireless carriers.
 
    The Company seeks to build high capacity networks using a backbone density
ranging between 72 and 240 strands. A single pair of glass fibers on the
Company's networks can currently transmit 32,256 simultaneous voice
conversations, whereas a typical pair of copper wires can currently carry a
maximum of 24 digitized simultaneous voice conversations. Although the ILECs
commonly use copper wire in their
 
                                       10
<PAGE>
networks, the ILECs are currently deploying fiber optic cable to upgrade
portions of their copper-based networks. The Company believes that installing
high count fiber strands will allow the Company to offer a higher volume of
voice and broadband services without incurring significant additional
construction costs.
 
    CONSTRUCTION
 
    The construction period of a new network varies depending upon the scope of
the activities, such as the number of backbone route miles to be installed,
whether the construction is underground or aerial, whether the conduit is in
place or requires construction, the initial number of buildings targeted for
connection to the network backbone and the general configuration for its
deployment. After installing the network backbone, extensions to additional
buildings and expansions to other areas of a market are evaluated, based on
detailed assessments of market potential.
 
    The Company's network backbones are installed in conduits that are either
owned by the Company or leased from third parties. The Company leases conduit or
pole space from entities such as utilities, railroads, long distance carriers,
state highway authorities, local governments and transit authorities. These
arrangements are generally for multi-year terms with renewal options, and are
nonexclusive. The availability of these arrangements is an important part of the
Company's evaluation of a market. Cancellation of any of the Company's material
right-of-way agreements could have an adverse effect on the Company's business
in that area and could have a material adverse effect on the Company.
 
    Office buildings are connected primarily by network backbone extensions to
one of a number of physical rings of fiber optic cable, which originate and
terminate at the Company's central node. Alternatively, the Company may access
an end-user's location through interconnection with the ILEC's central office.
The Company is also evaluating other alternatives for building connectivity,
including wireless connections, for the "last mile" of transport. Signals are
generally sent through a network backbone to the central node simultaneously on
both primary and alternate protection paths. Most buildings served have a
discrete Company presence (referred to as a "remote hub") located in the
building. Within each building, Company-owned internal wiring connects the
remote hub to the customer premises. Customer equipment is connected to
Company-provided electronic equipment generally located in the remote hub, where
customer transmissions are digitized, combined and converted to an optical
signal. The traffic is then transmitted through the network backbone to the
Company's central node where originating traffic is reconfigured for routing to
its ultimate destination. After completion of network construction, the Company
employs maintenance and line crews that are responsible for responding to
outages and routine maintenance of the network.
 
    UNIFORM TECHNOLOGY PLATFORM
 
    The Company is implementing a consistent technology platform based on the
Nortel DMS 500 switch throughout its networks. Unlike a traditional long
distance or local switch, the Nortel DMS 500 switch will enable the Company to
provide local and long distance services from a single platform. The Company
believes that having a standardized switch platform will enable it to (i) deploy
features and functions quickly in all of its networks, (ii) expand switch
capacity in a cost effective manner and (iii) lower maintenance costs through
reduced training and spare parts requirements. In addition, the scalability and
capacity of these switches will allow the Company to switch calls from more than
one market, which enhances the Company's ability to use a clustered approach to
the building of its networks.
 
    The Company also is establishing a uniform transmission technology utilizing
SONET design and standardized digital access and cross connect systems ("DACCS")
and other ancillary transmission equipment. DACCS provide the ability to
aggregate and disaggregate capacity along the fiber optic network. Using the
DACCS, the capacity of 24 DS-0s can be aggregated to form a DS-1 and, again
through the DACCS, 28 DS-1s can be aggregated to form a DS-3.
 
                                       11
<PAGE>
    The Company has begun construction of a test site that will house a fully
functional Nortel DMS 500 switch in a configuration that simulates the working
environment of the Company's operational switches, distribution and ancillary
equipment. Located in Dallas, Texas, this site, which will be referred to as
NEXTLAB, will operate separate and apart from the Company's operational switches
as both the Company's network operations control center (NOCC) and as a testing
facility. NEXTLAB will provide the Company with a means to test switch software
and service configurations prior to their release on the Company's networks. The
Company believes that this process should: (i) minimize network outages; (ii)
save network operating and training costs; and (iii) improve levels of customer
service.
 
IMPLEMENTATION OF LOCAL TELECOMMUNICATIONS
 
    A company preparing to offer local exchange services not only requires an
installed switch, but also must have numerous network and routing arrangements
in place. NEXTLINK has established all of these arrangements for Pennsylvania,
Tennessee, Washington, Utah, and Ohio. These key elements include:
 
    INTERCONNECTION.  The Company has executed interconnection agreements for
all of its current operating networks: in Nashville and Memphis, Tennessee, with
BellSouth; in Harrisburg, Reading, Lancaster and Allentown, Pennsylvania, with
Bell Atlantic; and in Spokane, Washington, and Salt Lake City and Provo/Orem,
Utah with US West. In each of the Tennessee, Pennsylvania and Washington
markets, the Company began providing switched local dial tone services on July
4, 1996, and the Company was the first CLEC to interconnect with the ILEC for
local traffic. The Company began providing local switched dial tone services in
Salt Lake City on January 1, 1997. The Company has executed interconnection
agreements with Ameritech for Cleveland, Columbus and Akron, Ohio, with
Sprint/Centel for Las Vegas, Nevada. The Company anticipates executing two
interconnection agreements with the ILECs for Los Angeles and the surrounding
cluster of markets in the second quarter of 1997. In addition, the Company
believes that interconnection arrangements between the ILECs and other CLECs or
the Company will be in place in other markets that the Company may enter. The
Company likely will initially "piggy-back" on these other arrangements while
pursuing more favorable long-term arrangements.
 
    The Company's approach to interconnection has been a two-step process. To
accelerate its launch of switched local dial tone services, the Company has
entered into initial interconnection arrangements that allow for the immediate
exchange of local traffic with the ILEC. These arrangements allow the Company to
commence service immediately and then work to optimize its arrangements with the
ILEC. The Company's ILEC agreements are now being re-negotiated under Sections
251 and 252 of the Telecom Act. The actual operating experience gained through
the Company's initial interconnection agreements gives the Company critical
knowledge for negotiating longer term arrangements, and the Company believes
this knowledge provides it with an advantage over other CLECs in modifying these
relationships with the ILEC. In some cases, where agreement on a long-term
arrangement cannot be reached, the Company will pursue binding arbitration
before the state utility commissions as provided under the Telecom Act. Should
it choose to do so, the Company has the right to initiate arbitration in its
four initial operating markets in the first quarter of 1997. There can be no
assurance, however, that the Company will be able to negotiate longer term
relationships on terms and conditions satisfactory to the Company or that the
arbitrations will result in rates, terms and conditions satisfactory to the
Company.
 
    TELEPHONE NUMBERS.  The Company has been offered interim number portability
arrangements by the ILEC in each of its markets, and the Company also is engaged
in industry negotiations to establish permanent number portability. Number
portability arrangements will allow ILEC customers to retain their telephone
numbers when changing local exchange service carriers. In addition, the Company
has been allocated multiple blocks of 10,000 telephone numbers for each of its
Tennessee, Washington, Pennsylvania, Ohio, Utah and Las Vegas networks for use
in assigning new numbers to its customers. These numbers, known as NXX numbers,
are the first three digits of a customer's seven digit local phone number. In
each of these cases, the NXX is fully loaded into the Local Exchange Routing
Guide or LERG,
 
                                       12
<PAGE>
which instructs ILECs and other carriers to send a call using a NEXTLINK NXX to
the appropriate NEXTLINK switch, for delivery to the NEXTLINK customer.
 
    SS7 POINT CODES.  For each of the Company's switches, the Company has been
assigned Point Codes for use with the advanced signaling system known as SS7
which is a separate or "out of band" communications channel used between
telecommunications carriers to set up and control traffic on and between
networks. The Company has designed its network to fully utilize SS7 signaling,
which improves call processing times and frees capacity for voice, data, and
video transmissions. The Company has entered into an agreement with a national
SS7 service provider that will allow the Company to utilize SS7 signaling in its
current and new markets nationwide.
 
REGULATORY OVERVIEW
 
    OVERVIEW
 
    The Company's services are subject to varying degrees of federal, state and
local regulation. The FCC generally exercises jurisdiction over the facilities
of, and services offered by, telecommunications common carriers that provide
interstate or international communications. The state regulatory commissions
retain jurisdiction over the same facilities and services to the extent they are
used to provide intrastate communications. Local governments sometimes impose
franchise or licensing requirements on CAPs and local exchange carriers and
regulate street opening and construction activities.
 
    The Telecom Act imposes on ILECs certain interconnection obligations that,
taken together, grant competitive entrants such as the Company what is commonly
referred to as "co-carrier status." In addition, the Telecom Act generally
preempts state or local legal requirements that prohibit or have the effect of
prohibiting any entity from providing telecommunications service. The Telecom
Act allows state regulatory authorities to continue to impose competitively
neutral requirements designed to promote universal service, protect public
safety and welfare, maintain quality of service and safeguard the rights of
consumers. The Telecom Act also preserves the ability of state and local
authorities to manage and require compensation for the use of public
rights-of-way by telecommunications providers including CAP and other
competitors of the ILECs in the local market.
 
    It is anticipated that co-carrier status and the preemption of state and
local prohibitions on entry could permit the Company to become a full service
provider of switched telecommunications services anywhere in the United States.
The following table summarizes the interconnection rights granted by the Telecom
Act that are most important to the achievement of this goal and the Company's
belief as to the anticipated effect of the new requirements, if properly
implemented.
 
<TABLE>
<CAPTION>
ISSUE                                   DEFINITION                                ANTICIPATED EFFECT
---------------------  --------------------------------------------  --------------------------------------------
<S>                    <C>                                           <C>
 
Interconnection        Efficient network interconnection to          Allows competitive telecommunications
                       transfer calls back and forth between ILECs   provider to service and terminate calls to
                       and competitive networks (including 911, 0+,  customers not directly connected to its
                       directory assistance, etc.)                   networks
 
Local Loop             Allows competitors to selectively gain        Reduces the capital and operating costs of a
  Unbundling           access at cost-based rates to ILEC wires      competitive telecommunications provider to
                       from central offices to customer premises     serve customers not directly connected to
                                                                     its networks
 
Reciprocal             Mandates reciprocal compensation for local    Improves the competitive telecommunications
  Compensation         traffic exchange between ILECs and            provider's margins for local service
                       competitors
</TABLE>
 
                                       13
<PAGE>
<TABLE>
<CAPTION>
ISSUE                                   DEFINITION                                ANTICIPATED EFFECT
---------------------  --------------------------------------------  --------------------------------------------
<S>                    <C>                                           <C>
Number Portability     Allows customers to change local carriers     Allows customers to switch to competitive
                       without changing numbers; true portability    telecommunications provider's local service
                       allows incoming calls to be routed directly   without changing phone numbers
                       to a competitor. Interim portability allows
                       incoming calls to be routed through the ILEC
                       to a competitor at the economic equivalent
                       of true portability
 
Access to Phone        Mandates assignment of new telephone numbers  Allows competitive telecommunications
  Numbers              to competitive telecommunications provider's  providers to provide telephone numbers to
                       customers                                     new customers on the same basis as the ILEC
</TABLE>
 
    While the interconnection rights established in the Telecom Act are a
necessary prerequisite to the introduction of full local competition, they must
be properly implemented to be effective. Significant implementation issues
remain to be resolved before the barriers to entry into the local telephone
business are sufficiently lowered to permit widespread competitive entry. See
"Federal Legislation" below for a more complete explanation of the potential
effect of the Telecom Act on the Company's business.
 
    FEDERAL LEGISLATION
 
    The Telecom Act, enacted on February 8, 1996, substantially revised the
Communications Act of 1934. The Telecom Act establishes a regulatory framework
for the introduction of local competition throughout the United States. Among
other things, the Telecom Act preempts any state or local government from
prohibiting any entity from providing telecommunications service. This provision
sweeps away prohibitions on entry found in almost half of the states in the
country at the time the Telecom Act was passed.
 
    The Telecom Act also establishes a dual federal-state regulatory scheme for
eliminating other barriers to competition faced by competitors to the ILECs and
other new entrants into the local telephone market. Specifically, the Telecom
Act imposes on ILECs certain interconnection obligations to be implemented by
FCC regulations. The Telecom Act contemplates that states will apply the federal
regulations as they oversee interconnection negotiations between ILECs and their
new competitors.
 
    The FCC has significant responsibility in the manner in which the Telecom
Act will be implemented. The details of the rules adopted by the FCC
implementing the Telecom Act's requirements will have a significant effect in
determining the extent to which barriers to competition in local services are
removed, as well as the time frame within which such barriers are eliminated.
The FCC may also grant ILECs increased pricing flexibility to enable them to
respond to competition. To the extent such pricing flexibility is granted, the
Company's ability to compete for certain services may be adversely affected.
 
    The state Public Utility Commissions ("PUCs") also have significant
responsibility in implementing the Telecom Act. Specifically, the states have
authority to establish interconnection pricing, including unbundled loop
charges, reciprocal compensation and wholesale pricing. The states are also
charged under the Telecom Act with overseeing the arbitration process for
resolving interconnection negotiation disputes between CLECs and the ILECs.
 
    In addition, the Telecom Act provides that ILECs that are subsidiaries of
regional bell operating companies ("RBOCs") cannot combine in-region, long
distance services across local access and transport areas ("LATAs") with the
local services they offer until they have demonstrated that (i) they
 
                                       14
<PAGE>
have entered into an approved interconnection agreement with a facilities-based
CLEC or that no such CLEC has requested interconnection as of a statutorily
determined deadline, (ii) they have satisfied a 14-element checklist designed to
ensure that the ILEC is offering access and interconnection to all local
exchange carriers on competitive terms and (iii) the FCC has determined that
in-region, inter-LATA approval is consistent with the public interest,
convenience and necessity.
 
    FEDERAL REGULATION
 
    The FCC was granted authority to eliminate tariff and reporting requirements
for non-dominant carriers such as the Company. Acting under that authority, the
FCC has eliminated tariff filing requirements for such carriers providing
interstate long distance services. On February 13, 1997, the U.S. Court of
Appeals for the District of Columbia granted motions for stay of the FCC
detariffing order pending judicial review of that order. The result of this stay
is that carriers must continue to file tariffs for interstate long distance
services. Regulatory compliance measures remain in place for international
traffic and for access services. In addition, the Telecom Act now requires that
ILECs provide CLECs with physical collocation on rates, terms and conditions
that are just and reasonable, unless the ILEC can demonstrate to state
regulators that physical collocation is not practical. The Company believes that
either physical or virtual collocation of its facilities in a timely fashion for
appropriate rates and terms will accommodate its purposes.
 
    The FCC has taken two actions related to the assignment of telephone
numbers, first in July 1995 mandating that over the course of the next year
responsibility for administering and assigning local telephone numbers be
transferred from the RBOCs and a few other ILECs to a neutral entity, and second
in July 1996 adopting a regulatory structure under which a wide range of number
portability issues would be resolved.
 
    On August 8, 1996, the FCC issued an order containing rules providing
guidance to the ILECs, CLECs, long distance companies and state PUCs regarding
several provisions of the Telecom Act. The rules include, among other things,
FCC guidance on: (1) discounts for end-to-end resale of ILEC local exchange
services (which the FCC has suggested should be in the range of 17%-25%); (2)
availability of unbundled local loops and other unbundled ILEC network elements;
(3) the use of Total Element Long Run Incremental Costs ("TELRIC") in the
pricing of these unbundled network elements; (4) average default proxy prices
for unbundled local loops in each state; (5) mutual compensation proxy rates for
termination of ILEC/CLEC local calls; (6) an access charge transition plan that:
(a) leaves access charges in place with respect to situations involving resale
of ILEC local exchange services; (b) leaves access charges in place with respect
to situations involving use of ILEC unbundled switching to provide local
exchange access services except for 25% of the transport interconnection charge
("TIC"); and (c) permits avoidance of access charges only when the ILEC switch
is not utilized; and (7) the ability of CLECs and other interconnectors to opt
into portions of interconnection agreements negotiated by the ILECs with other
parties on a most favored nation (or a "pick and choose") basis.
 
    In a combined Report and Order and Notice of Proposed Rulemaking released on
December 24, 1996, the FCC made changes and proposed further changes in the
interstate access charge structure. In the Report and Order, the FCC removed
restrictions on ILECs' ability to lower access prices and relaxed the regulation
of new switched access services in those markets where there are other providers
of access services. If this increased pricing flexibility is not effectively
monitored by federal regulators, it could have a material adverse effect on the
Company's ability to compete in providing interstate access services. In the
Notice of Proposed Rulemaking, the FCC proposed rules to reform the interstate
access charge rate structure. The FCC also proposed to bring interstate access
rate levels more in line with costs either by granting ILECs levels of increased
pricing flexibility upon demonstrations of increased competition (or potential
competition) in relevant markets or by mandating lower rates regardless of the
level of competition (or through some combination of the two approaches).
 
                                       15
<PAGE>
    In its Recommended Decision that was issued on November 8, 1996 (the
"Recommended Decision"), the Federal-State Joint Board on Universal Service
consisting of the FCC, state PUC commissioners and state consumer advocates (the
"Joint Board") recommended that the FCC establish a federal telecommunications
subsidy regime that would probably significantly expand the current subsidy
program. For example, the Recommended Decision proposes a new subsidy regime for
services provided to qualifying schools and libraries. The Joint Board
recommended the adoption of a cap of $2.25 billion per year for the program. The
Joint Board also recommended the expansion of federal subsidies to low-income
consumers of telecommunications services. In addition, the Telecom Act requires
the FCC to adopt a subsidy scheme for the provision of telecommunications
services to rural health care providers. The Joint Board recommended that the
FCC require all providers of interstate telecommunications services, including
in all likelihood the Company, to pay for these and other subsidy programs based
on their gross revenues from the sale of telecommunications services minus
payments made to other telecommunications carriers. The FCC must establish final
universal service rules by May 8, 1997. The Company cannot at this time predict
the level of its mandatory contribution, but the Company believes that it will
likely be a significant expenditure if the FCC adopts the Joint Board
recommendations.
 
    The Company anticipates that the FCC will initiate a number of additional
proceedings, of its own volition and as a result of requests from CLECs and
others, as a result of the Telecom Act. Such proceedings will further define and
construe the Telecom Act's terms.
 
    COURT OF APPEALS DECISION
 
    Various parties, including ILECs and state PUCs, filed appeals of the FCC's
August 8, 1996 order in various U.S. Courts of Appeal, and several parties
petitioned the FCC and the courts to stay the effectiveness of the FCC's rules
included in the FCC's order, pending a ruling on the appeals. Many of the
appeals were consolidated and transferred to the U.S. Court of Appeals for the
Eight Circuit. On October 15, 1996, the Eighth Circuit issued a partial stay of
the FCC's rules until the full appeal on the FCC's rules could be heard. The
stay was limited to two areas of the FCC's rules: (1) the pricing rules other
than those dealing with commercial mobile radio service providers; and (2) the
CLECs' ability to utilize a most favored nation procedure to select favorable
provisions from other interconnectors' agreements.
 
    The Company believes that the stay will not have a material adverse effect
on it, because the Company already has interconnection agreements in place, or
expects to have such agreements in place after state PUC arbitration
proceedings, under the provisions of the FCC's order and the Telecom Act which
have not been stayed by the Court. The stay does not delay the implementation of
the Telecom Act by the parties and by the state PUCs, but rather suspends the
guidance on pricing and most favored nation procedures that the FCC sought to
provide to the parties and the state PUCs.
 
    STATE REGULATION
 
    The Company expects that as it offers local exchange and other intrastate
services in an increasing number of states, it will be subject to direct state
PUC regulation in most if not all such states. In all states where certification
as a common carrier is currently required, the Company's operating subsidiaries
are certificated.
 
    In most states, the Company is required to file tariffs or price lists
setting forth the terms, conditions and prices for services which are classified
as intrastate. In some states, the Company's tariff can list a range of prices
for particular services, and in others, such prices can be set on an individual
customer basis. The Company is not subject to price cap or to rate of return
regulation in any state in which it currently provides services.
 
    As noted above, states retain a significant regulatory role under the
Telecom Act. The Telecom Act allows state regulatory authorities to continue to
impose competitively neutral requirements designed to
 
                                       16
<PAGE>
promote universal service, protect public safety and welfare, maintain quality
of service and safeguard the rights of consumers. The Company anticipates that
state PUCs will play a major role in determining the specific charges for local
network interconnection. In some states, those charges are being determined by
generic cost proceedings and in other states they are being established through
arbitration proceedings.
 
    LOCAL GOVERNMENT AUTHORIZATIONS
 
    In certain locations, the Company is required to obtain local franchises,
licenses or other operating rights and street opening and construction permits
to install and expand its fiber-optic networks. In some of the areas where the
Company provides network services, the Company's subsidiaries pay license or
franchise fees based on a percentage of gross revenues or on a per linear foot
basis. There is no assurance that certain cities that do not currently impose
fees will not seek to impose such fees in the future, nor is there any assurance
that, following the expiration of existing franchises, fees will remain at their
current levels. Under the Telecom Act, state and local governments retain the
right to manage the public rights-of-way and to require fair and reasonable
compensation from telecommunications providers, on a competitively neutral and
nondiscriminatory basis, for use of public rights-of-way.
 
    If any of the Company's existing franchise or license agreements were
terminated prior to its expiration date and the Company were forced to remove
its fiber from the streets or abandon its network in place, such termination
would have a material adverse effect on the Company's subsidiary in that area
and could have a material adverse effect on the Company. The Company believes
that the provisions of the Telecom Act barring state and local requirements that
prohibit or have the effect of prohibiting any entity from providing
telecommunications service should be construed to preclude any such action.
However, there can be no assurance that one or more local authorities will not
attempt to take such action. Nor is it clear that the Company would prevail in
any judicial or regulatory proceeding to resolve such a dispute.
 
COMPETITION
 
    As noted above, the regulatory environment in which the Company operates is
changing rapidly. The passage of the Telecom Act combined with other actions by
the FCC and state regulatory authorities continues to promote competition in the
provision of telecommunications services.
 
    ILECS
 
    In each market served by its networks, the Company faces, and expects to
continue to face, significant competition from the ILECs, which currently
dominate their local telecommunications markets.
 
    The Company competes with the ILECs in its markets for local exchange
services on the basis of product offerings, reliability, state-of-the-art
technology, price, route diversity, ease of ordering and customer service.
However, the ILECs have long-standing relationships with their customers and
provide those customers with various transmission and switching services that
the Company, in many cases, does not currently offer. The Company has sought,
and will continue to seek, to achieve parity with the ILECs in order to become
able to provide a full range of local telecommunications services. See
"Regulatory Overview" for additional information concerning the regulatory
environment in which the Company operates. Existing competition for private line
and special access services is based primarily on quality, capacity and
reliability of network facilities, customer service, response to customer needs,
service features and price, and is not based on any proprietary technology. As a
result of the comparatively recent installation of the Company's fiber optic
networks, its dual path architectures and the state-of-the-art technology used
in its networks, the Company may have cost and service quality advantages over
some currently available ILEC networks.
 
                                       17
<PAGE>
    OTHER COMPETITORS
 
    The Company also faces, and expects to continue to face, competition from
other potential competitors in certain of the markets in which the Company
offers its services. In addition to the ILECs and CAPs, potential competitors
capable of offering private line and special access services include long
distance carriers, cable television companies, electric utilities, microwave
carriers, wireless telephone system operators and private networks built by
large end-users.
 
    The Company believes that the Telecom Act as well as a recent series of
completed and proposed transactions between ILECs and long distance companies
and cable companies increase the likelihood that barriers to local exchange
competition will be removed. The Telecom Act states that entry barriers must be
lowered in the areas served by ILECs that are subsidiaries of RBOCs before such
ILECs are permitted to provide in-region, interLATA services. When ILECs that
are RBOC subsidiaries are permitted to provide such services, they will be in a
position to offer single source service. ILECs that are not RBOC subsidiaries
may offer single source service presently.
 
    In some cases, cable television companies are upgrading their networks with
fiber optics and installing facilities to provide fully interactive transmission
of broadband voice, video and data communications. In addition, under the
Telecom Act, electric utilities may install fiber optic telecommunications cable
and may facilitate provision of telecommunications services by electric
utilities over those networks if granted regulatory authority to do so.
 
    Cellular and PCS providers may also be a source of competitive local
telephone service. However, the Company believes these operators will be large
users of CAP access services to transport their calls among their radio
transmitter/receiver sites through networks that avoid the ILECs with whom they
compete.
 
    The Company also competes with equipment vendors and installers, and
telecommunications management companies, with respect to certain portions of its
business.
 
    A continuing trend toward business combinations and alliances in the
telecommunications industry may create significant new competitors to the
Company. In addition, many of the Company's existing and potential competitors
have financial, personnel and other resources significantly greater than those
of the Company.
 
    With respect to the Company's enhanced communications service offerings,
each is subject to competition. For example, there are several competitors that
offer IVR services, such as Call Interactive, which the Company believes focuses
its sales efforts on large volume IVR service users. Another competitor,
Telemedia, which is owned by Sprint, also offers significant call volume
capacity. With respect to Xpress, the Company's virtual communications center,
there are numerous competitors with product offerings that include some or all
of the services offered by Xpress. Similarly, the Company's Intermind offering
faces competition from the services and products offered by such companies and
Netscape, Marimba, Backweb and others.
 
PURCHASING AND DISTRIBUTION
 
    With respect to the Company's fiber optic networks, which constitute the
Company's most significant capital investments, the Company has entered into
general purchase agreements with key equipment suppliers for fiber and fiber
optic transmission equipment, with Nortel for telecommunications switches, and
with other suppliers for various other components of each system. These
agreements provide the basic framework under which purchase orders for these
system components will be made. The specific purchases made for each network
depend upon the configuration and other factors related to the network, such as
the prospective customer base and location and the services to be offered over
the network. Once these decisions are made, purchase orders for the appropriate
fiber and selected equipment types are placed under the general purchase
agreements.
 
                                       18
<PAGE>
EMPLOYEES
 
    As of December 31, 1996, the Company employed 568 people, including
full-time and part-time employees. The Company considers its employee relations
to be good. None of the employees of the Company is covered by a collective
bargaining agreement.
 
TRADEMARKS AND TRADE NAMES
 
    The Company uses the name "NEXTLINK" as its primary business name. In July
1995, the Company filed for federal trademark protection of this name. In
addition, filings have been made to register the distinctive floating X and
related marks as protected trademarks under federal law. These filings all are
pending. The Company has no assurance that they will be granted.
 
CAUTIONARY STATEMENTS
 
    In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"), the Company is hereby filing
cautionary statements identifying important factors that could cause the
Company's actual results to differ materially from those projected in any
forward-looking statements of the Company made by or on behalf of the Company,
whether oral or written. These forward-looking statements can be identified by
the use of forward-looking terminology such as "believes," "expects," "may,"
"will," "should," or "anticipates" or the negative thereof or other variations
thereon or comparable terminology, or by discussions of strategy that involve
risks and uncertainties. The Company wishes to ensure that any forward-looking
statements are accompanied by meaningful cautionary statements in order to
maximize to the fullest extent possible the protections of the safe harbor
established in the Reform Act. Accordingly, any such statements are qualified in
their entirety by reference to, and are accompanied by, the following important
factors, among others, that could cause the Company's actual results to differ
materially from those projected in forward-looking statements of the Company.
 
NEGATIVE CASH FLOW AND OPERATING LOSSES; LIMITED HISTORY OF OPERATIONS
 
    The development of the Company's businesses and the installation and
expansion of its networks require significant expenditures, a substantial
portion of which must be made before any revenues may be realized. Certain of
the expenditures are expensed as incurred, while certain other expenditures are
capitalized. These expenditures, together with the associated early operating
expenses, result in negative cash flow and operating losses until an adequate
revenue base is established. There can be no assurance that an adequate revenue
base will be established for any of the Company's networks. Since inception, the
Company's operations have resulted in net losses of $0.3 million for the period
from September 16, 1994 through December 31, 1994, $12.7 million for the year
ended December 31, 1995 and $71.1 million for the year ended December 31, 1996.
The Company will continue to incur significant expenditures in the future in
connection with the acquisition, development and expansion of its networks,
services and customer base. There can be no assurance that the Company will
achieve or sustain profitability or generate sufficient positive cash flow to
service its debt and to pay cash dividends on its 14% Senior Exchangeable
Redeemable Preferred Stock, par value $.01 per share (the "Preferred Shares").
 
    The Company was formed in September 1994. A significant portion of the
Company's revenue for the years ended December 31, 1995 and 1996 was derived
from the operations of the Company's IVR enhanced service offering, which was
acquired by the Company in September 1995. Prospective investors, therefore,
have very limited historical financial information about the Company upon which
to base an evaluation of the Company's performance. Although the Company
generates revenues from its current operations, the Company has only recently
commenced operations as a single source service
 
                                       19
<PAGE>
provider of telecommunications services in eight markets and will not commence
such operations in 14 additional markets until later in 1997. Given the
Company's limited operating history, there can be no assurance that it will be
able to compete successfully in the telecommunications business and to generate
sufficient cash flow to service its debt and to pay cash dividends on the
Preferred Shares.
 
SIGNIFICANT FUTURE CAPITAL REQUIREMENTS; SUBSTANTIAL INDEBTEDNESS
 
    Expansion of the Company's existing networks and services and the
development and acquisition of new networks and services will require
significant capital expenditures. The Company estimates that the cash required
to fund its anticipated capital expenditures and operating losses (excluding
acquisitions) for 1997 will approximate $200 million. The Company's planned
growth subsequent to 1997 will require substantial additional capital. The
Company will also continue to evaluate additional revenue opportunities in each
of its markets and, as and when attractive additional opportunities develop, the
Company plans to make capital investments in its networks that might be required
to pursue such opportunities. The Company expects to meet its additional capital
needs with the proceeds from credit facilities and other borrowings, the
proceeds from sales of debt securities, the sale or issuance of equity
securities and through joint ventures. There can be no assurance, however, that
the Company will be successful in raising sufficient additional capital on terms
that it will consider acceptable or that the Company's operations will produce
positive cash flow in sufficient amounts to service its debt and to pay cash
dividends on the Preferred Shares. Failure to raise and generate sufficient
funds may require the Company to delay or abandon some of its planned future
expansion or expenditures, which could have a material adverse effect on the
Company's growth and its ability to compete in the telecommunications services
industry.
 
    The Company expects to incur substantial additional indebtedness (including
secured indebtedness) during the next few years to finance the acquisition,
construction and expansion of networks, the purchase of additional switches, the
offering of local dial tone and Centrex services, the introduction of other new
service offerings and the development and implementation of a comprehensive
information technology platform. The debt service requirements of any additional
indebtedness could make it more difficult for the Company to service its debt
and to pay cash dividends on the Preferred Shares.
 
    The future funding requirements discussed above are based on the Company's
current estimates. There can be no assurance that actual expenditures and
funding requirements will not be significantly higher or lower.
 
RISK ASSOCIATED WITH IMPLEMENTATION OF GROWTH STRATEGY
 
    The expansion and development of the Company's operations (including the
construction and acquisition of additional networks) will depend on, among other
things, the Company's ability to assess markets, identify, finance and complete
suitable acquisitions, design fiber optic network backbone routes, install fiber
optic cable and facilities, including switches, and obtain rights-of-way,
building access rights and any required government authorizations, franchises
and permits, all in a timely manner, at reasonable costs and on satisfactory
terms and conditions. In addition, the Company has experienced rapid growth
since its inception, and the Company believes that sustained growth places a
strain on operational, human and financial resources. In order to manage its
growth, NEXTLINK must continue to improve its operating and administrative
systems including the continued development of effective systems relating to
ordering, provisioning and billing for telecommunications services. NEXTLINK
must also continue to attract and retain qualified managerial, professional and
technical personnel. As a result, there can be no assurance that the Company
will be able to implement and manage successfully its growth strategy. The
Company's growth strategy also involves the following risks:
 
                                       20
<PAGE>
    QUALIFIED PERSONNEL. NEXTLINK believes that a critical component for its
success will be the attraction and retention of qualified managerial,
professional and technical personnel. During the last six months the Company has
experienced significant competition in the attraction and retention of personnel
that possess the skill sets that the Company is seeking. Although the Company
has been successful in attracting and retaining qualified personnel, there can
be no assurance that NEXTLINK will not experience a shortage of qualified
personnel in the future.
 
    SWITCH AND EQUIPMENT INSTALLATION.  An essential element of the Company's
current strategy is the provision of switched local dial tone service. To
provide dial tone service, the Company has installed eight Nortel DMS 500
switches and intends to install an additional two Nortel DMS 500 switches during
the second quarter of 1997. There can be no assurance, however, that the
installation of the required switches, fiber optic cable and associated
electronics will be completed on time or that, during the testing of these
switches and related equipment, the Company will not experience technological
problems that cannot be resolved. The failure of the Company to have its
switches and related equipment operational could have a material adverse effect
upon the Company's ability to enter rapidly the telecommunications market as a
single source provider of telecommunications services.
 
    INTERCONNECTION AGREEMENTS.  The Company has executed agreements for the
interconnection of its networks with the networks of the ILEC covering each
market in which NEXTLINK either has or is constructing a network, with the
exception of those markets in California. NEXTLINK may be required to negotiate
new interconnection agreements as it enters new markets in the future. There can
be no assurance that the Company will successfully negotiate such other
agreements for interconnection with the ILEC or renewals of existing
interconnection agreements. The failure to negotiate required interconnection
agreements could have a material adverse effect upon the Company's ability to
enter rapidly the telecommunications market as a single source provider of
telecommunications services.
 
    ORDERING, PROVISIONING AND BILLING. The Company has developed processes and
procedures and is working with external vendors in the implementation of
customer orders for services, the provisioning, installation and delivery of
such services and monthly billing for those services. In connection with its
development of a comprehensive information technology platform, the Company is
developing automated internal systems for processing customer orders,
provisioning and billing. The failure to develop effective internal processes
and systems for these service elements or the failure of the Company's current
vendors to deliver effectively ordering, provisioning and billing services could
have a material adverse effect upon the Company's ability to achieve its growth
strategy.
 
    PRODUCTS AND SERVICES.  The Company expects to continue to enhance its
systems in order to offer its customers switched local dial tone and other
enhanced products and services in all of its networks as quickly as practicable
and as permitted by applicable regulations. The Company believes its ability to
offer, market and sell these additional products and services will be important
to the Company's ability to meet its long-term strategic growth objectives, but
is dependent on the Company's ability to obtain the needed capital, additional
favorable regulatory developments and the acceptance of such products and
services by the Company's customers. No assurance can be given that the Company
will be able to obtain such capital or that such developments or acceptance will
occur.
 
    ACQUISITIONS.  The Company intends to use the net proceeds of the Offering
to expand its networks and service offerings through internal development and
acquisitions. Such acquisitions, if made, could divert the resources and
management time of the Company and would require integration with the Company's
existing networks and services. There can be no assurance that any such
acquisitions will occur or that any such acquisitions, if made, would be on
terms favorable to the Company or would be successfully integrated into the
Company's operations.
 
                                       21
<PAGE>
NEED TO OBTAIN AND MAINTAIN PERMITS AND RIGHTS-OF-WAY
 
    In order to acquire and develop its networks the Company must obtain local
franchises and other permits, as well as rights to utilize underground conduit
and pole space and other rights-of-way and fiber capacity from entities such as
ILECs and other utilities, railroads, long distance companies, state highway
authorities, local governments and transit authorities. There can be no
assurance that the Company will be able to maintain its existing franchises,
permits and rights or to obtain and maintain the other franchises, permits and
rights needed to implement its business plan on acceptable terms. Although the
Company does not believe that any of the existing arrangements will be canceled
or will not be renewed as needed in the near future, cancellation or non-renewal
of certain of such arrangements could materially adversely affect the Company's
business in the affected metropolitan area. In addition, the failure to enter
into and maintain any such required arrangements for a particular network,
including a network which is already under development, may affect the Company's
ability to acquire or develop that network.
 
COMPETITION
 
    In each of the markets served by the Company's networks, the Company
competes principally with the ILEC serving that area. ILECs are established
providers of local telephone services to all or virtually all telephone
subscribers within their respective service areas. ILECs also have long-standing
relationships with regulatory authorities at the federal and state levels. While
recent FCC administrative decisions and initiatives provide increased business
opportunities to telecommunications providers such as the Company, they also
provide the ILECs with increased pricing flexibility for their private line and
special access and switched access services. In addition, with respect to
competitive access services (as opposed to dial tone local exchange services)
the FCC recently proposed a rule that would provide for increased ILEC pricing
flexibility and deregulation for such access services either automatically or
after certain competitive levels are reached. If the ILECs are allowed by
regulators to offer discounts to large customers through contract tariffs,
engage in aggressive volume and term discount pricing practices for their
customers, and/or seek to charge competitors excessive fees for interconnection
to the ILECs' networks, the income of competitors to the ILECs, including the
Company, could be materially adversely affected. If future regulatory decisions
afford the ILECs increased access services pricing flexibility or other
regulatory relief, such decisions could also have a material adverse effect on
competitors to the ILEC, including the Company.
 
    The Company also faces, and expects to continue to face, competition from
other current and potential market entrants, including long distance carriers
seeking to enter, reenter or expand entry into the local exchange market place
such as AT&T Corp. ("AT&T"), MCI Communications Corporation ("MCI"), Sprint
Corporation ("Sprint") and from other CLECs, CAPs, cable television companies,
electric utilities, microwave carriers, wireless telephone system operators and
private networks built by large end-users. In addition, a continuing trend
toward combinations and strategic alliances in the telecommunications industry
could give rise to significant new competitors. The Telecom Act includes
provisions which impose certain regulatory requirements on all local exchange
carriers, including competitors such as the Company, while granting the FCC
expanded authority to reduce the level of regulation applicable to any or all
telecommunications carriers, including ILECs. The manner in which these
provisions of the Telecom Act are implemented and enforced could have an adverse
effect on the Company's ability to successfully compete against ILECs and other
telecommunications service providers. The Company also competes with equipment
vendors and installers, and telecommunications management companies with respect
to certain portions of its business. Many of the Company's current and potential
competitors have financial, personnel and other resources substantially greater
than those of the Company, as well as other competitive advantages over the
Company.
 
                                       22
<PAGE>
REGULATION
 
    The Company is subject to varying degrees of federal, state and local
regulation. The Company is not currently subject to price cap or rate of return
regulation, nor is it currently required to obtain FCC authorization for the
installation, acquisition or operation of its network facilities. Further, the
FCC has determined that non-dominant carriers, such as the Company and its
subsidiaries, are not required to file interstate tariffs for domestic long
distance service on an ongoing basis. On February 13, 1997, the U.S. Court of
Appeals for the District of Columbia granted motions for stay of the FCC
detariffing order pending judicial review of that order. The result of this stay
is that carriers must continue to file tariffs for interstate long distance
services. The FCC requires the Company and its subsidiaries to file interstate
tariffs on an ongoing basis for international traffic and access services. The
Company's subsidiaries that provide or will provide intrastate services are also
generally subject to certification and tariff or price list filing requirements
by state regulators. Although passage of the Telecom Act should result in
increased opportunities for companies that are competing with the ILECs, no
assurance can be given that changes in current or future regulations adopted by
the FCC or state regulators or other legislative or judicial initiatives
relating to the telecommunications industry would not have a material adverse
effect on the Company. In addition, although the Telecom Act provides incentives
to the ILECs that are subsidiaries of RBOCs to enter the long distance service
market, there can be no assurance that these ILECs will negotiate quickly with
competitors such as the Company for the required interconnection of the
competitor's networks with those of the ILEC.
 
    The Joint Board in its Recommended Decision recommended that the FCC
establish a federal telecommunications subsidy regime for schools and libraries
that would probably significantly expand the current subsidy program. The Joint
Board recommended the adoption of a cap of $2.25 billion per year for the
program. The Joint Board also recommended the expansion of federal subsidies to
low-income consumers of telecommunications services. In addition, the Telecom
Act requires the FCC to adopt a subsidy scheme for the provision of
telecommunications services to rural health care providers. The Joint Board
recommended that the FCC require all providers of interstate telecommunications
services, including in all likelihood the Company, to pay for these and other
subsidy programs based on their gross revenues from the sale of
telecommunications services minus payments made to other telecommunications
carriers. The FCC must establish final universal service rules by May 8, 1997.
The Company cannot at this time predict the level of its mandatory contribution,
but the Company believes that it will likely be a significant expenditure if the
FCC adopts the Joint Board recommendations.
 
DEPENDENCE ON LARGE CUSTOMERS
 
    To date the Company has been dependent on certain large customers of its IVR
enhanced communication service offerings, the loss of one or more of which could
have a material adverse effect on the Company. The Company's 10 largest
customers accounted for approximately 66% and 51% of the Company's revenues in
1995 and 1996, respectively. The Company does not have service contracts with
all of these customers. The Company will continue to be dependent upon a small
number of customers for the majority of its revenues until such time as the
Company generates substantial revenues from the provision of switched local and
long distance communications services, which there can be no assurance the
Company will be able to do.
 
RAPID TECHNOLOGICAL CHANGES
 
    The telecommunications industry is subject to rapid and significant changes
in technology. The effect of technological changes, including changes relating
to emerging wireline and wireless transmission and switching technologies, on
the businesses of the Company cannot be predicted.
 
                                       23
<PAGE>
DEPENDENCE ON KEY PERSONNEL
 
    The Company's businesses are managed by a small number of key executive
officers, the loss of certain of whom could have a material adverse effect on
the Company. The Company believes that its future success will depend in large
part on its ability to develop a large and sophisticated sales force and its
ability to attract and retain highly skilled and qualified personnel. Most of
the executive officers of the Company, including the presidents of its operating
subsidiaries, do not have employment agreements. Although the Company has been
successful in attracting and retaining qualified personnel, there can be no
assurance that NEXTLINK will not experience a shortage of qualified personnel in
the future.
 
VARIABILITY OF QUARTERLY OPERATING RESULTS
 
    As a result of the significant expenses associated with the expansion and
development of its networks and services and the variability of the level of
revenues generated through sales of NEXTLINK's IVR enhanced communications
services, the Company anticipates that its operating results could vary
significantly from period to period.
 
CONTROL BY MR. CRAIG O. MCCAW; POTENTIAL CONFLICTS OF INTERESTS
 
    Mr. Craig O. McCaw, primarily through his majority ownership and control of
Eagle River Investments, L.L.C., a Washington limited liability company ("Eagle
River"), controls approximately 88% of the Company's total voting power. As a
result, Mr. McCaw will have the ability to control the direction and future
operations of the Company. In addition to his investment in the Company through
Eagle River, Mr. McCaw has significant investments in other communications
companies, including Nextel Communications, Inc., Teledesic Corporation and
AT&T, some of which could compete with the Company as a single source provider
of telecommunications services or act as a supplier to the Company of certain
telecommunications services. The Company does not have a noncompetition
agreement with either Mr. McCaw or Eagle River. In addition, although Mr. McCaw
is the Company's Chief Executive Officer, Mr. McCaw devotes only a portion of
his time to the business of the Company.
 
GLOSSARY
 
    CAP (COMPETITIVE ACCESS PROVIDER)--A company that provides its customers
with an alternative to the ILEC for local private line and special access
telecommunications services.
 
    CENTRAL OFFICES--The switching centers or central switching facilities of
the LECs.
 
    CO-CARRIER STATUS--A regulatory scheme under which the ILEC is required to
integrate new, competing providers of local exchange service, such as the
Company, into the systems of traffic exchange, inter-carrier compensation, and
other inter-carrier relationships that already exist among ILECs in most
jurisdictions.
 
    COLLOCATION--The ability of a CLEC such as the Company to connect its
network to the ILECs central offices. Physical collocation occurs when a CLEC
places its network connection equipment inside the ILEC's central offices.
Virtual collocation is an alternative to physical collocation pursuant to which
the ILEC permits a CLEC to connect its network to the ILEC's central offices on
comparable terms, even though the CLEC's network connection equipment is not
physically located inside the central offices.
 
    DEDICATED--Telecommunications lines dedicated or reserved for use by
particular customers and charged on a flat, usually monthly basis.
 
    DIGITAL--A method of storing, processing and transmitting information
through the use of distinct electronic or optical pulses that represent the
binary digits 0 and 1. Digital transmission and switching
 
                                       24
<PAGE>
technologies employ a sequence of these pulses to represent information as
opposed to the continuously variable analog signal. The precise digital numbers
minimize distortion (such as graininess or snow in the case of video
transmission, or static or other background distortion in the case of audio
transmission).
 
    DS-0, DS-1, DS-3--The standard circuit capacity classifications. Each of
these transmission services can be provided using the same type of fiber optic
cable, but offer different bandwidth (that is, capacity), depending upon the
individual needs of the end-user. A DS-0 is a dedicated circuit that is
considered to meet the requirements of usual business communications, with
transmission capacity of up to 64 kilobits of bandwidth per second (that is, a
voice grade equivalent circuit). This service offers a basic low capacity
dedicated digital line for connecting telephones, fax machines, personal
computers and other telecommunications equipment. A DS-1 is a high speed digital
circuit typically linking high volume customer locations to long distance
carriers or other customer locations. Typically utilized for voice transmissions
as well as the interconnection of LANs, DS-1 service accommodates transmission
speeds of up to 1.544 megabits per second, which is the equivalent of 24 voice
grade equivalent circuits. DS-3 service provides a very high capacity digital
circuit with transmission capacity of 45 megabits per second, which is
equivalent to 28 DS-1 circuits or 672 voice grade equivalent circuits. This is a
digital service used by long distance carriers for central office connections
and by some large commercial users to link multiple sites.
 
    ETHERNET--A local area network technology used for connecting computers,
printers, workstations, terminals, etc., within the same building. Ethernet
operates over twisted wire or coaxial cable at speeds up to 100 megabits per
second. Ethernet is the most popular LAN technology.
 
    FCC--The United States Federal Communications Commission.
 
    FDDI (FIBER DISTRIBUTED DATA INTERFACE)--Based on fiber optics, FDDI is a
100 megabit per second local area network technology used to connect computers,
printers, and workstations at very high speeds. FDDI is also used as backbone
technology to interconnect other LANs.
 
    FIBER MILE--The number of route miles installed (excluding pending
installations) along a telecommunications path multiplied by the number of
fibers along that path. See the definition of "route mile" below.
 
    INTERCONNECTION DECISIONS--Rulings by the FCC announced in September 1992
and August 1993, which require the RBOCs and most other large ILECs to provide
interconnection in ILEC central offices to any CAP, long distance carrier or
end-user seeking such interconnection for the provision of interstate special
access and switched access transport services.
 
    KILOBIT--One thousand bits of information. The information-carrying capacity
(i.e., bandwidth) of a circuit may be measured in "kilobits per second." One
kilobit is approximately sufficient to encode a standard telegram.
 
    LANS (LOCAL AREA NETWORKS)--The interconnection of computers for the purpose
of sharing files, programs and various devices such as printers and high-speed
modems. LANs may include dedicated computers or file servers that provide a
centralized source of shared files and programs.
 
    LOCAL EXCHANGE--A geographic area determined by the appropriate state
regulatory authority in which calls generally are transmitted without toll
charges to the calling or called party.
 
    LEC (LOCAL EXCHANGE CARRIER)--A company providing local telephone services.
 
    LINE--an electrical path between a LEC central office and a subscriber.
 
                                       25
<PAGE>
    LONG DISTANCE CARRIERS (INTEREXCHANGE CARRIERS)--Long distance carriers
provide services between local exchanges on an interstate or intrastate basis. A
long distance carrier may offer services over its own or another carrier's
facilities.
 
    MEGABIT--One million bits of information. The information-carrying capacity
(i.e., bandwidth) of a circuit may be measured in "megabits per second." One
megabit is approximately sufficient to encode a 3 inch by 5 inch photograph.
 
    NUMBER PORTABILITY--The ability of an end-user to change local exchange
carriers while retaining the same telephone number.
 
    POPS (POINTS OF PRESENCE)--Locations where a long distance carrier has
installed transmission equipment in a service area that serves as, or relays
calls to, a network switching center of that long distance carrier.
 
    PUC (PUBLIC UTILITY COMMISSION)--A state regulatory body, established in
most states, which regulates utilities, including telephone companies providing
intrastate services.
 
    PRIVATE LINE--A dedicated telecommunications connection between end-user
locations.
 
    PUBLIC SWITCHED NETWORK--That portion of a ILEC's network available to all
users generally on a shared basis (i.e., not dedicated to a particular user).
Traffic along the public switched network is generally switched at the ILEC's
central offices.
 
    RECIPROCAL COMPENSATION--The compensation paid to and from a new competitive
local exchange carrier and the ILEC for termination of a local call on each
other's networks.
 
    ROUTE MILE--The number of miles of the telecommunications path in which the
Company-owned or leased fiber optic cables are installed.
 
    SPECIAL ACCESS SERVICES--The lease of private, dedicated telecommunications
lines or "circuits" along the network of a ILEC or a CAP, which lines or
circuits run to or from the long distance carrier POPs. Examples of special
access services are telecommunications lines running between POPs of a single
long distance carrier, from one long distance carrier POP to the POP of another
long distance carrier or from an end-user to a long distance carrier POP.
 
    SWITCH--A device that opens or closes circuits or selects the paths or
circuits to be used for transmission of information. Switching is a process of
interconnecting circuits to form a transmission path between users.
 
    SWITCHED ACCESS SERVICES--Transmission of switched calls through the local
switched network for the purpose of originating or terminating toll calls. Long
distance companies pay switched access charges to the ILECs for each switched
call originated or terminated on the ILEC's network.
 
    SWITCHED ACCESS TRANSPORT SERVICES--Transportation of switched traffic along
dedicated lines between the ILEC central offices and long distance carrier POPs.
 
    SWITCHED TRAFFIC--Telecommunications traffic along the public switched
network that is charged on a per-minute or other range sensitive basis. This
traffic is generally switched at the ILEC's central offices.
 
    TOKEN RING--A local area network technology used to interconnect personal
computers, file servers, printers, and other devices. Token Ring LANs typically
operate at either 4 megabits per second or 16 megabits per second.
 
                                       26
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTIES
 
    The Company's local exchange service providers own or lease, in their
respective operating territories, telephone property which includes: fiber optic
backbone and distribution network; central office switching equipment;
connecting lines between customers' premises and the central offices; and
customer premise equipment.
 
    The fiber optic backbone and distribution network and connecting lines
include aerial and underground cable, conduit, and poles and wires. These
facilities are located on public streets and highways or on privately owned
land. The Company has permission to use these lands pursuant to consent or
lease, permit, easement, or other agreement. The central office switching
equipment includes electronic switches and peripheral equipment.
 
    The Company and its subsidiaries lease facilities for their administrative
and sales offices, network nodes and warehouse space. The various leases expire
on dates ranging from July 1997 to January 2016. Most have renewal options.
Additional office space and equipment rooms will be leased as the Company's
operations and networks are expanded and as new networks are constructed. The
Company's headquarters are located in leased office space at 155 108th Avenue
NE, 8th Floor, Bellevue, WA.
 
    NEXTLINK Capital owns no property.
 
ITEM 3. LEGAL PROCEEDINGS
 
    The Company is not currently party to any legal proceedings, other than
regulatory and other proceedings that are in the normal course of its business.
NEXTLINK Capital is not currently party to any legal proceedings.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
    No matters were submitted to a vote of security holders during the quarter
ended December 31, 1995.
 
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANTS' COMMON STOCK AND RELATED
       STOCKHOLDER MATTERS
 
MARKET INFORMATION
 
    There is no public trading market for the Company's common equity. In
addition, there is no public trading market for NEXTLINK Capital's common
equity. As of March 11, 1997, there were 12 holders of record of the Company's
Class B Common Stock, par value $.01 per share and no holders of record of the
Company's Class A Common Stock, par value $.01 per share. The Company is the
sole holder of record of NEXTLINK Capital's Common Stock, par value $.01 per
share.
 
DIVIDENDS
 
    Both the Company and NEXTLINK Capital have never declared any cash dividends
on any of their respective equity securities. Covenants in the indenture
pursuant to which the Company's and NEXTLINK Capital's 12 1/2% Senior Notes due
April 15, 2006 restrict the ability of the Company to pay cash dividends on its
capital stock.
 
SALES OF UNREGISTERED SECURITIES
 
    Effective January 1, 1996, the Company issued 651,933 Class A Units to U.S.
Network Corporation in connection with the Company's acquisition of an existing
fiber optic network and switching facilities in
 
                                       27
<PAGE>
the downtown business centers of Cleveland, Columbus and Akron, Ohio. Such Class
A Units were issued in reliance upon an exemption from registration contained in
Section 4(2) of the Securities Act of 1933, as amended (the "Act").
 
    Effective January 1, 1996, the Company merged four of its five operating
subsidiaries with newly formed entities owned by the Company (the
"Recapitalization"). As a result of these mergers, the entities and individuals
holding minority interests in the subsidiaries exchanged these interests for
3,841,207 Class A Units of the Company (representing an approximate 5.9%
ownership interest in the Company) which were valued at approximately $5.6
million. NEXTLINK Washington, L.L.C. did not participate in the merger. The
transaction has been accounted for as a purchase of minority interests.
Accordingly, the $2.9 million excess of the purchase price over the book value
of the interests acquired was recorded as goodwill. In addition to the exchange
of equity interests, the Company exchanged options to acquire equity interests
in the subsidiaries for options to acquire Class B Units in the Company. In
connection with this transaction, the Company issued 1,953,656 options with
exercise prices of $0.01 and four-year vesting schedules. These options had
substantially the same economic values and vesting schedules as the subsidiary
options which were exchanged. Such securities were issued in reliance upon an
exemption from registration contained in Section 4(2) of the Act.
 
    On December 13, 1996, the Company issued 900,000 Class A Units to the prior
owners of the ITC Companies ("ITC") in connection with the acquisition of ITC by
the Company. ITC is a switched-based long distance reseller based in Salt Lake
City, Utah with operations in Utah, Colorado, Arizona, New Mexico and Idaho.
Such Class A Units were issued in reliance upon an exemption from registration
contained in Section 4(2) of the Act.
 
    At various times throughout 1996, the Company issued options under the EOP
to its employees to purchase an aggregate of 1,031,002 Class B Units. The
exercise prices of these options range from $0.01 (with respect to options to
purchase 726,674 Class B Units) to $0.44 (with respect to options to purchase
724,874 Class B Units) to $3.50 (with respect to options to purchase 158,500
Class B Units). The options granted vest in equal installments over four years
(with respect to options to purchase 220,828 Class B Units) or five years (with
respect to options to purchase 810,174 Class B Units). Such options were issued
in reliance upon an exemption from registration contained in Section 4(2) of the
Act.
 
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS
 
OVERVIEW
 
    Since its inception in 1994, the Company has executed a strategy of
constructing and acquiring fiber optic networks and acquiring related
telecommunications businesses. Over this period, the Company has begun
construction of, acquired, or entered into agreements to acquire
telecommunications networks in 22 markets in seven states.
 
    The Company commenced the offering of switched local dial tone
telecommunications services in seven of its markets on July 4, 1996 and in an
eighth market on January 1, 1997. The Company expects to commence the offering
of switched local dial tone and long distance services in its remaining 14
markets later in 1997.
 
    In addition, the Company offers enhanced communications services including:
(i) interactive voice response services, which provide an interface between the
Company's clients and their customers for a variety of applications; (ii)
Xpress, the Company's virtual communications center that allows mobile
professionals and workgroups to access a suite of commonly used communications
services from any telephone in the public switched telephone network; and (iii)
the Intermind Communicator, an interactive communications tool for the World
Wide Web and intranet applications.
 
                                       28
<PAGE>
    The Company plans to acquire and build networks in new areas, expand its
current networks, and also explore the acquisition or licensing of additional
enhanced communications services and other telecommunications service providers.
These efforts should allow the Company to increase its presence in the
marketplace, and facilitate providing a single source solution for the
telecommunications needs of its customers.
 
    The development of the Company's businesses and the construction,
acquisition and expansion of its systems require significant expenditures, a
substantial portion of which is incurred before the realization of revenues.
These expenditures, together with the associated early operating expenses,
result in negative cash flow until an adequate customer base is established.
However, as the customer base grows, the Company expects that incremental
revenues can be generated with decreasing incremental operating expenses, which
may provide positive contributions to cash flow. The Company has made the
strategic decision to build high capacity networks with broad market coverage,
which initially increases its level of capital expenditures and operating
losses. The Company believes that over the long term this will enhance the
Company's financial performance by increasing the traffic flow over the
Company's networks.
 
    Prior to January 31, 1997, the Company was a limited liability company that
was classified and taxed as a partnership for federal and state income tax
purposes. On January 31, 1997, the Company was merged with and into NEXTLINK
Communications, Inc., a Washington corporation, and will be subject to federal
and state income tax. See Note 12 to Consolidated Financial Statements.
 
RESULTS OF OPERATIONS
 
    YEAR ENDED DECEMBER 31, 1996 VS. YEAR ENDED DECEMBER 31, 1995
 
    Revenue increased 240% to $25.7 million for 1996, compared to $7.6 million
in 1995. The increase was due to recording a full year of revenue during 1996
for acquisitions completed during 1995 as well as growth in dedicated and
enhanced communications services revenues. The 1996 revenues included $15.3
million derived from enhanced communications services, $6.4 million from
competitive access and dedicated line services, $3.8 million from local and long
distance resale services and $0.2 million from switched local dial tone and
other services. This compares to $3.4 million derived from enhanced
communications services, $3.2 million from competitive access and dedicated line
services and $1.0 million from local exchange resale services during 1995. The
Company's interactive voice response subsidiary, which was acquired in September
1995, provided 52% of the Company's revenues during 1996, including one customer
who accounted for 23% of the Company's total revenues. The revenues generated by
this subsidiary, while generally increasing over time, have tended to fluctuate
on a quarter to quarter basis as a substantial portion of the revenues are
derived from a small number of customers and the revenues are generally
nonrecurring in nature. The Company began offering switched local dial tone
services in seven of its markets in July 1996. Revenues from the provision of
local dial tone services, while not material during 1996, are expected to
represent an increasing component of total revenues in future periods.
 
    Operating expenses consist of costs directly related to providing
facilities-based network and enhanced communications services and include
salaries and benefits, right-of-way fees and local and long distance service
costs. Operating expenses increased 279% due to the effect of acquisitions and
the Company's continued addition of employees as well as other related costs in
order to expand the Company's switched local dial tone service businesses in its
existing and planned markets. In addition, the Company experienced increased
network costs related to the provision of local and long distance services.
 
    SG&A includes salaries and benefits, sales and marketing, consulting and
legal fees, property taxes, facilities expense and billing and systems
development costs. Selling, general and administrative
 
                                       29
<PAGE>
expenses ("SG&A") increased 228% due to acquisitions completed during 1995, the
Company's continued addition of employees as well as other related costs in
order to expand the Company's switched local dial tone service businesses in its
existing and planned markets and to a lesser degree due to activities associated
with the marketing of the Company's enhanced communications service offerings.
 
    Deferred compensation expenses are recorded in connection with the Company's
Equity Option Plan. The option grants under this plan are considered
compensatory and are accounted for similar to stock appreciation rights. The
Company recorded noncash charges of $9.9 million and $0.4 million during 1996
and 1995, respectively, resulting from an increase in value of the options as
well as the grant of additional options. See Note 10 to Consolidated Financial
Statements.
 
    Depreciation expense increased during 1996 primarily due to placement in
service of additional telecommunications network assets, including switches,
fiber optic cable, network electronics and related equipment as well as due to
acquisitions completed during 1995 and early 1996. Amortization of intangible
assets increased as a result of acquisitions completed during 1995 and 1996.
 
    Interest expense during 1996 (net of $0.9 million capitalized) primarily
reflects the interest expense associated with the Company's and NEXTLINK
Capital's 12 1/2% Senior Notes due April 15, 2006 (the "Senior Notes"). See
"Liquidity and Capital Resources." Pursuant to Statement of Financial Accounting
Standards No. 34, the Company capitalizes a portion of its interest costs as
part of the construction cost of its communications networks. Interest income
results from certain securities that have been pledged as collateral for
interest payments on the Senior Notes and investment of excess cash.
 
    PERIOD FROM INCEPTION (SEPTEMBER 16, 1994) TO DECEMBER 31, 1994 VS. DECEMBER
     31, 1995
 
    From inception through December 31, 1995, the Company acquired certain
operating assets and one company. These acquisitions have been accounted for
utilizing the purchase method of accounting, and accordingly, the Company's
Consolidated Financial Statements include the results of operations of these
acquisitions from the dates of acquisition. The acquired assets and liabilities
were recorded at their estimated fair value on the acquisition dates, and
appropriate amounts were allocated to intangible assets, including goodwill.
 
    The Company generated its first revenues, a total of $7.6 million, in 1995.
Of these revenues, $3.2 million were derived from competitive access and
dedicated line services, $1.0 million from local exchange resale services and
$3.4 million from interactive voice response services.
 
    As reflected in the Consolidated Financial Statements, operating expenses
increased from $106,000 in 1994 to $6.6 million in 1995. This increase is due to
the acquisitions described above and expansion of the business.
 
    SG&A increased from $232,000 in 1994 to $9.6 million in 1995. SG&A increased
substantially as a result of acquisitions and the development of the Company's
systems and structure to support the anticipated growth of its business.
 
    Depreciation increased from $6,500 in 1994 to $1.1 million in 1995 due to
the added property, plant and equipment as a result of the acquisitions and
expansion of the networks completed in 1995. Amortization of intangible assets
increased from $7,000 in 1994 to $2.3 million in 1995 due to the acquisitions
and the resulting increase in intangible assets.
 
    Interest expense was $499,000 in 1995 and related primarily to a note to
Eagle River that was subsequently converted to contributed capital on December
1, 1995.
 
    Minority interest in net losses increased from $3,000 in 1994 to $230,000 in
1995, due to increases in losses and the addition of minority members' interest
in certain of the Company's acquired subsidiaries.
 
                                       30
<PAGE>
The net loss before minority interest was $13.0 million and the net loss was
$12.7 million in 1995 compared to $352,000 and $349,000, respectively for 1994.
 
LIQUIDITY AND CAPITAL RESOURCES
 
    The competitive local telecommunications service business is a capital
intensive business. The Company's existing operations have required and will
continue to require substantial capital investment for the acquisition and
installation of fiber, electronics and related equipment in order to provide
switched services in the Company's networks and the funding of operating losses
during the start-up phase of each market. In addition, the Company's strategic
plan calls for expansion into additional market areas. Such expansion will
require significant additional capital for: potential acquisitions of businesses
or assets; design, development and construction of new networks; and the funding
of operating losses during the start-up phase of each market. During 1996, the
Company used $40.6 million in cash for operating activities, compared to $9.2
million in 1995. The increase was primarily due to a substantial increase in the
Company's activities associated with the development and initiation of
competitive switched local dial tone services and to a lesser degree due to the
activities associated with the marketing of the Company's enhanced
communications service offerings. During 1996, the Company also invested an
additional $72.0 million in property and equipment, acquisitions of
telecommunications assets and equity investments in telecommunications
businesses. During 1995, the Company invested $35.4 million in capital equipment
and acquisitions of telecommunications assets and businesses.
 
    On February 4, 1997 the Company completed the acquisition of substantially
all of the assets of Linkatel, a Los Angeles-based competitive access
telecommunications provider. At the time of acquisition, Linkatel operated an 80
mile fiber optic telecommunications network covering several markets in the
Orange and Los Angeles county areas. The total purchase price of $42.5 million
consisted of a cash payment of $36.1 million (including the release of $6.0
million which was deposited into escrow during 1996) plus the payoff of debt of
$5.6 million and the assumption of net liabilities totaling $0.8 million.
 
    In December 1996, the Company completed the acquisition of ITC, a
switched-based long distance reseller based in Salt Lake City, Utah with
operations in Utah, Colorado, Arizona, New Mexico and Idaho. ITC has
approximately 9,000 long distance customers and recorded 1996 revenues of $11.4
million. The purchase price for ITC consisted of a cash payment of $4.0 million
(of which $2.6 million was placed into escrow to be paid during 1998) plus the
issuance of 900,000 Class A Units of the Company, which were valued at $5.50 per
unit. The Company has granted the seller an option to require the Company to
repurchase such units at $11.50 per unit beginning three years from the date of
closing of the acquisition in the event that the Company has not completed a
public offering of its equity securities prior to that time.
 
    In January 1997, the Company obtained rights-of-way to expand its existing
Salt Lake City network into Provo and Orem, Utah. In December 1996, the Company
reached an agreement in principle to acquire an existing fiber optic network in
downtown Philadelphia in order to extend its existing network in Pennsylvania,
which acquisition is anticipated to be consummated during the second quarter of
1997.
 
    Since inception, the Company has funded its expenditures with approximately
$55.0 million of cash equity investments from two entities that are controlled
by Mr. Craig O. McCaw and with the proceeds from the issuance of long-term debt
and redeemable preferred stock. On April 25, 1996, the Company raised net
proceeds of approximately $190 million through the issuance of $350 million in
Senior Notes. The Company used $117.7 million of the gross proceeds to purchase
U.S. government securities, representing funds sufficient to provide for payment
in full of interest on the Senior Notes through April 15, 1999 and used an
additional $32.2 million to repay certain advances and accrued interest from
Eagle River. In addition, the Company incurred costs of $9.8 million in
connection with the financing. Interest payments on the Senior Notes are due
semi-annually. On January 31, 1997, the Company
 
                                       31
<PAGE>
completed the sale of $285 million of Preferred Shares which after deducting
issuance costs, resulted in net proceeds to the Company of approximately $274
million. The Preferred Shares will accrue dividends at the rate of 14% per
annum. Before February 1, 2002, dividends may, at the option of the Company, be
paid in cash or by issuing additional Preferred Shares with an aggregate
liquidation preference equal to the amount of such dividends. After February 1,
2002, dividends must be paid in cash. Since inception, the Company also has
issued $15.5 million of Class A Units primarily for the acquisition of certain
telecommunications assets and the stock of ITC, which Units were converted to
shares of Class B Common Stock of the Company on January 31, 1997.
 
    The Company will continue to use the remaining proceeds from the sale of the
Senior Notes and the Preferred Shares for expenditures relating to the
construction, acquisition and operation of telecommunications networks and
service providers and the offering of telecommunications services in those areas
where the Company currently operates or intends to operate. Expenditures for the
construction and operation of networks include (i) the purchase and installation
of switches and related electronics in existing networks and in networks to be
constructed or acquired in new or adjacent markets, (ii) the purchase and
installation of fiber optic cable and electronics to expand existing networks
and develop new networks, including the connection of new buildings, (iii) the
development of its comprehensive information technology platform and (iv) the
funding of operating losses and working capital. The Company may also acquire or
invest in businesses that consist of existing networks or companies engaged in
businesses similar to those engaged in by the Company and its subsidiaries or
other complementary businesses.
 
    As of December 31, 1996, the Company had unrestricted cash and investments
of $124.5 million. On a pro forma basis, after giving effect to the Linkatel
acquisition and the sale of the Preferred Shares Offering, the Company would
have had $363.5 million of unrestricted cash and investments. The Company
estimates that the cash required to fund its anticipated capital expenditures
and operating losses (excluding acquisitions) for 1997 will approximate $200
million.
 
    The Company's planned growth subsequent to 1997 will require substantial
additional capital to fund capital expenditures, acquisition opportunities,
working capital and any future operating losses. The Company will continue to
evaluate additional revenue opportunities in each of its markets and, as and
when attractive additional opportunities develop, the Company plans to make
additional capital investments in its networks to pursue such opportunities. The
Company expects to meet its additional capital needs with the proceeds from
sales or issuance of equity securities, credit facilities and other borrowings,
sales of additional debt securities, and through joint ventures. There can be no
assurance, however, that the Company will be successful in raising sufficient
additional capital on terms that it will consider acceptable or that the
Company's operations will produce positive consolidated cash flow in sufficient
amounts to service the Senior Notes and to pay cash dividends on the Preferred
Shares. Failure to raise and generate sufficient funds may require the Company
to delay or abandon some of its planned future expansion or expenditures, which
could have a material adverse effect on the Company's growth and its ability to
compete in the telecommunications services industry.
 
    In addition, the Company's operating flexibility with respect to certain
business matters is, and will continue to be, limited by covenants associated
with the Senior Notes. Among other things, these covenants limit the ability of
the Company and its subsidiaries to incur additional indebtedness, create liens
upon assets, apply the proceeds from the disposal of assets, make dividend
payments and other distributions on capital stock and redeem capital stock. In
addition, the terms of the Preferred Shares contain certain covenants that may
limit the Company's operating flexibility with respect to the incurrence of
indebtedness and issuance of additional preferred shares. There can be no
assurance that such covenants will not adversely affect the Company's ability to
finance its future operations or capital needs or to engage in other business
activities that may be in the interest of the Company. The Company was in
compliance with all covenants associated with the Senior Notes as of December
31, 1996.
 
                                       32
<PAGE>
EFFECTS OF INFLATION
 
    Inflation has not had a significant effect on Company operations. However,
there can be no assurance that inflation will not have a material effect on the
Company's operations in the future.
 
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
    The consolidated financial statements of the Company are filed under this
Item, beginning on page F-1 of this Report, and of NEXTLINK Capital are filed
under this Item, beginning on Page F-19 of this Report.
 
    Selected quarterly financial data required under this item is included in
Note 11 to the Consolidated Financial Statements.
 
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE
 
    None.
 
                                       33
<PAGE>
                                    PART III
 
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
 
                                   MANAGEMENT
 
    The following table sets forth the names, ages and positions of the
executive officers and members of the Company's board of directors. Their
respective backgrounds are described following the table.
 
<TABLE>
<CAPTION>
NAME                                                       AGE                            POSITION
-----------------------------------------------------      ---      -----------------------------------------------------
<S>                                                    <C>          <C>
Craig O. McCaw.......................................          47   Chief Executive Officer and Director
James F. Voelker(1)..................................          46   President and Director
Jan Loichle..........................................          48   Vice President, Chief of Local Exchange Operations
Kathleen H. Iskra....................................          40   Vice President, Chief Financial Officer and Treasurer
R. Bruce Easter, Jr..................................          39   Vice President, General Counsel and Secretary
Charles P. Daniels...................................          40   Vice President, Chief Marketing Officer
Gordon Sileo.........................................          46   Vice President, Chief Information Officer
J. Scott Bonney......................................          40   Vice President, Regulatory and External Affairs
Dennis Weibling(2)...................................          45   Director
Scot Jarvis(1).......................................          35   Director
C. James Judson(2)...................................          52   Director
William A. Hoglund(1)................................          42   Director
</TABLE>
 
--------------------------
 
(1) Member of the Compensation Committee
 
(2) Member of the Audit Committee
 
    The following persons are the presidents of the Company's operating
subsidiaries:
 
<TABLE>
<CAPTION>
NAME                                                       AGE                            POSITION
-----------------------------------------------------      ---      -----------------------------------------------------
<S>                                                    <C>          <C>
Hugh C. Cathey.......................................          46   President of NEXTLINK Ohio, L.L.C.
Greg Green...........................................          33   President of NEXTLINK Washington, L.L.C.
Don Hillenmeyer......................................          50   President of NEXTLINK Tennessee, L.L.C.
Robert Kingery.......................................          42   President of NEXTLINK Interactive, L.L.C.
Dwayne Nielson.......................................          41   President of NEXTLINK Utah, L.L.C.
Gary Rawding.........................................          45   President of NEXTLINK Pennsylvania, L.P.
Donald W. Sessamen...................................          64   President of NEXTLINK California, L.L.C.
</TABLE>
 
    All of the officers identified above serve at the discretion of the Board of
Directors of the Company. There are no family relationships between any person
identified above. The following are brief biographies of persons identified
above.
 
    CRAIG O. MCCAW has been Chief Executive Officer of NEXTLINK since September
1994. Mr. McCaw is also Chairman and Chief Executive Officer of Eagle River, a
company formed and owned by Mr. McCaw to make strategic investments in
telecommunications ventures. Mr. McCaw was the founder, chairman and chief
executive officer of McCaw Cellular Communications, Inc. ("McCaw Cellular"), the
nation's leading provider of wireless communications services, until the company
was sold to AT&T in August 1994. Prior to entering the cellular telephone
business in 1973, Mr. McCaw took over daily operation of a small cable
television operation in Centralia, Washington, that he and his three brothers
 
                                       34
<PAGE>
owned. Under his leadership, this one-system operation serving 4,000 subscribers
eventually grew to be the nation's 20th largest cable operator serving 450,000
subscribers. In 1974, he expanded the cable company's services by entering the
paging and conventional mobile telephone industries and eventually became the
fifth largest paging operator in the country, serving approximately 320,000
subscribers in 13 states. In 1981, Mr. McCaw saw the revolutionary potential of
wireless communications and committed the company to developing broad-based
cellular telephone services. Later, McCaw Cellular became the nation's largest
cellular telephone operator, with cellular system positions in more than 100
U.S. cities, representing more than 100 million potential customers. The company
also had interests in wireless data transmissions, personal communications
services, air-to-ground phone systems and satellite communications at the time
of its sale to AT&T. Mr. McCaw is one of the two principal owners of Teledesic
Corporation, which in March 1994 announced plans for a worldwide satellite-based
telecommunications system. Mr. McCaw is indirectly a significant stockholder, a
director and Chairman of the Operating Committee of Nextel Communications, Inc.,
a provider of wireless telecommunications services.
 
    JAMES F. VOELKER has been the President of NEXTLINK since April 1995 and is
responsible for developing the company vision and guiding overall operations. He
is recognized as one of the early entrepreneurs in the business of building and
delivering competitive local exchange service. Mr. Voelker's career in
telecommunications spans almost two decades and includes experience in very
different segments of the industry in a variety of executive positions. From
1981 to 1984 he served as vice president of sales, marketing and customer
service for Lexitel Corporation, the forerunner of Allnet Communications. Mr.
Voelker co-founded Digital Signal Inc. and served as chief operating officer and
chief executive officer from 1985 through the company's sale to SP Telecom in
1990. Digital Signal operated a nation wide fiber optic network supplying
capacity, engineering, provisioning and operational support to over one hundred
interexchange carriers. In the CAP arena, Mr. Voelker became vice chairman of
City Signal Inc. in 1992, which constructed and operated networks in six
markets. Subsequently, he served as its chief executive officer after the
company merged with its sister company Teledial America to form U S Signal.
Based in Grand Rapids, Michigan, U S Signal was one of the first fully certified
CLECs in the country. Mr. Voelker has served as vice chairman of ALTS, the
industry Association of Local Telephone Service providers and as a director of
Phoenix Network Inc., a publicly held long distance company. Mr. Voelker is also
a member of the Compensation Committee of the Board of Directors.
 
    JAN LOICHLE has been Vice President, Chief of Local Exchange Operations of
NEXTLINK since October 1996. Prior to that, Ms. Loichle was the President of
NEXTLINK Solutions (the virtual communications center) from July 1995. Prior to
joining NEXTLINK, Ms. Loichle was Executive Vice President at U.S. Signal in
Detroit and Grand Rapids, Michigan from April 1993 to July 1995. At U.S. Signal
Ms. Loichle led the development of an enhanced service platform (Magic Number)
from concept through production system and implementation. From 1990 to 1993,
Ms. Loichle was Assistant Vice President of Finance for SP Telecom in San
Francisco. Prior to that, Ms. Loichle was Vice President of Financial Operations
for Lexitel/Allnet/ALC in Birmingham, Michigan from December 1980 to October
1989.
 
    KATHLEEN H. ISKRA has been Vice President, Chief Financial Officer and
Treasurer of NEXTLINK since January 1996. Prior to that, she was President and
Chief Executive Officer of Horizon Air, a wholly owned subsidiary of Alaska Air
Group. Prior to her appointment at Horizon Air, Ms. Iskra served as staff vice
president of finance and controller of Alaska Airlines and Alaska Air Group. Ms.
Iskra's service with Alaska began in 1987, when she was appointed Controller.
Prior to joining Alaska, she was an audit manager with Arthur Andersen.
 
    R. BRUCE EASTER, JR. has been Vice President, General Counsel and Secretary
of NEXTLINK since January 1995. From 1986 to December 1994, Mr. Easter was an
associate and then partner in the law firm of Davis Wright Tremaine in Seattle,
Washington, where he focused on communications law and
 
                                       35
<PAGE>
media matters. Prior to joining Davis Wright Tremaine, Mr. Easter was a legal
assistant at Home Box Office, Inc. from 1980 through 1986.
 
    CHARLES P. DANIELS has been Vice President, Chief Marketing Officer of
NEXTLINK since November 1995. Mr. Daniels is responsible for Marketing, Market
Development, Product Development, and Engineering. From 1992 to 1995, Mr.
Daniels worked for MCI where he was the founder and Program Manager of the
network MCI Developers Lab. Mr. Daniels was also a founding member of MCI's
Advanced Technology Group. Prior to joining MCI, Mr. Daniels worked for
Manufacturers Hanover Trust from 1989 to 1992 as Vice President/Strategic
Technology & Research, where he was responsible for evaluating and implementing
new technologies that either reduced costs or generated new revenue.
 
    GORDON SILEO has been Vice President, Chief Information Officer of NEXTLINK
since August 1995. Mr. Sileo is responsible for designing and implementing the
NEXTLINK information technology, corporate communications and infrastructure.
Prior to joining NEXTLINK, Mr. Sileo was Vice President of Information Services
for US Signal from June 1994 to July 1995. From September 1991 to July 1993, Mr.
Sileo was Vice President of Management Information Services for SP Telecom.
 
    J. SCOTT BONNEY has been Vice President, Regulatory and External Affairs for
NEXTLINK since November 1994. He is responsible for implementing NEXTLINK's
regulatory and industry affairs initiatives. Prior to joining NEXTLINK, from
November 1992 to November 1994, Mr. Bonney was Vice President of Regulatory and
External Affairs for Ameritech in Illinois, where he was responsible for
implementing Ameritech's competitive network unbundling plan. Prior to joining
Ameritech, from 1988 through November 1992, Mr. Bonney served as Director of
Regulatory Affairs for Teleport Communications Group, one of the original
competitors for local phone service.
 
    DENNIS WEIBLING has been a director of the Company since January 1997 and
had been Executive Vice President of NEXTLINK since September 1994. Mr. Weibling
is also President of Eagle River, Inc., since October 1993. Mr. Weibling is a
director and member of Nextel Communications, Inc.'s board, operations, audit
and compensation committees. Nextel is a leading provider of integrated wireless
communications services for teams of mobile workers. Mr. Weibling serves on the
board and executive committee of Teledesic Corporation, a satellite
telecommunications company backed by Mr. McCaw and Microsoft founder Mr. William
Gates. Mr. Weibling is a director of Cable Plus, one of the leading providers of
private cable television and telephony service to residential apartment
complexes. A licensed certified public accountant in Washington, Mr. Weibling is
a member of the American Society of Certified Public Accountants and the
Washington Society of Certified Public Accountants. In addition, Mr. Weibling is
a licensed attorney in Ohio and a member of the American Bar Association and
Ohio State Bar Association. Mr. Weibling is also a member of the Audit Committee
of the Board of Directors.
 
    SCOT JARVIS has been a director of the Company since January 1997 and had
been Executive Vice President of NEXTLINK since September 1994, was a Vice
President of Eagle River, Inc. from October 1994 through April 1996. Mr. Jarvis
is the co-founder and since March 1997 has been a member of Cedar Grove
Partners, LLC. Prior to that, Mr. Jarvis was the acting President of the Company
from September 1994 to April 1995. Prior to joining Eagle River, Inc., Mr.
Jarvis served as Vice President of McCaw Development Corporation from 1993 to
1994 and of McCaw Cellular from 1985 through 1994. During his tenure at McCaw
Cellular, Mr. Jarvis served in the positions of General Manager from 1990 to
1993, Vice President of Acquisitions and Development from 1988 to 1990 and
Assistant Vice President from 1985 to 1988. Mr. Jarvis also recently served on
the Board of Directors or executive committees of: NEXTEL Communications, Inc.,
PriCellular Corporation, Horizon Cellular Group, Los Angeles Cellular Telephone
Company, Cellular 2000 Partnership, Cybertel Cellular Telephone Company (St.
Louis), Northwest Cellular Partnership, and Movitel del Noroeste (Mexico
Region). Mr. Jarvis has also served as the President of the Iberia Cellular
Telephone Company from 1991 to 1994. Mr. Jarvis is also a member of the
Compensation Committee of the Board of Directors.
 
                                       36
<PAGE>
    C. JAMES JUDSON has been a director of the Company since January 1997 and
had been Executive Vice President of NEXTLINK since February 1995. Mr. Judson is
also Vice President and General Counsel of Eagle River, Inc. since January 1995.
Prior to joining Eagle River, Inc., from January 1, 1975 through January 1995,
Mr. Judson was a partner in the Seattle law firm of Davis Wright Tremaine where
he focused his practice primarily in the areas of corporation law and taxation.
Mr. Judson is also a member of the Audit Committee of the Board of Directors.
 
    WILLIAM A. HOGLUND has been a director of the Company since January 1997 and
had been Executive Vice President of NEXTLINK since February 1996. Mr. Hoglund
is also Vice President and Chief Financial Officer of Eagle River, Inc. since
January 1996. Prior to joining Eagle River, Inc., Mr. Hoglund was a Managing
Director of J.P. Morgan & Co. in its investment banking group. Mr. Hoglund was
employed by J.P. Morgan & Co. from 1977 through 1995, focusing for the past nine
years on clients in the telecommunications, cable and media industries. Mr.
Hoglund is also a member of the Compensation Committee of the Board of
Directors.
 
    The following individuals are the senior management of the Company's
subsidiaries.
 
    HUGH C. CATHEY has been the President of NEXTLINK Ohio since August 1996.
Prior to joining NEXTLINK, Mr. Cathey had nearly 20 years of experience in the
telecommunications industry. From 1993 to 1996, Mr. Cathey was president and
chief executive officer of Digital Network, Inc., a publicly traded,
facilities-based long distance company based in Dallas, Texas. From 1989 to
1993, Mr. Cathey served as president and chief executive officer of United
Telemanagement, Inc. Prior to that, Mr. Cathey held sales and product management
positions of increasing responsibility with AT&T, culminating as the senior
executive of a business unit of AT&T with annual revenues of approximately $100
million. During Mr. Cathey's tenure at United Telemanagement, Inc., that company
filed a petition under the Federal bankruptcy laws.
 
    GREG GREEN has been the President of NEXTLINK Washington since March 1995.
Prior to that, from 1985 through March 1995, Mr. Green was the founder and
former President of Tel-West Communications, Inc. ("Tel-West") until the
Company's acquisition of certain assets of that company. At Tel-West, Mr. Green
provided overall management of business development, sales and customer service.
Mr. Green successfully negotiated with the Washington State Utilities and
Transportation Commission to become the second competitive local exchange
carrier in Washington State's history and the first in the city of Spokane.
 
    DON HILLENMEYER has been the President of NEXTLINK Tennessee since March
1995. Prior to joining NEXTLINK in March of 1995, Mr. Hillenmeyer was president
of MCMG, Inc., a Nashville-based wireless communications management consulting
and operations firm specializing in running Rural Service Areas for independent
cellular telephone owners. Before founding MCMG, Inc., Mr. Hillenmeyer held
various senior management positions at McCaw Cellular and was responsible for 13
southern states from August 1986 to February 1990.
 
    ROBERT KINGERY has been the President of NEXTLINK Interactive (the
interactive voice response provider) since joining the Company in August 1995.
Prior to joining NEXTLINK, Mr. Kingery was the President and Chief Executive
Officer of Sound Response Corporation, an interactive voice services business he
co-founded in 1991.
 
    DWAYNE NIELSON has been President of NEXTLINK Utah since February 1996.
Prior to joining NEXTLINK, Mr. Nielson was Assistant Vice President, Consumer
and Small Business Market, at Sprint Corporation from October 1994 to February
1996. Prior to that, from August 1985 through October 1994, Mr. Nielson held a
variety of sales and marketing positions at Sprint and United Telephone.
 
    GARY RAWDING has been President of NEXTLINK Pennsylvania since September
1994. Prior to founding Penns Light Communications, Inc., certain assets of
which were acquired by the Company in September 1994, he served as Vice
President of Sales & Marketing at Eastern TeleLogic Corporation
 
                                       37
<PAGE>
from 1989 until 1993. Prior to joining Eastern TeleLogic, Mr. Rawding held
various positions with Bell Atlantic Corporation.
 
    DONALD W. SESSAMEN has been President of NEXTLINK California since November
1996. Prior to that, Mr. Sessamen acted as a consultant to NEXTLINK. Prior to
acting as a consultant to the Company, Mr. Sessamen joined Brooks Fiber
California in 1994 as president, after the company acquired Phoenix Fiberlink.
At Brooks Fiber California, Mr. Sessamen completed the installation of the San
Jose system and managed the entry into switched services in the Sacramento
market. From 1991 to 1994, Mr. Sessamen was executive vice president of
operations, engineering and MIS at SP Telecom, a fiber optic systems
construction and wholesale transmission company using Southern Pacific Railroad
rights-of-way east of the Mississippi River. At SP Telecom, Mr. Sessamen led SP
Telecom's entry into switch-based products utilizing the Northern Telecom DMS
250 Super Node, introducing innovative switch-based products.
 
ITEM 10. EXECUTIVE COMPENSATION
 
                           SUMMARY COMPENSATION TABLE
 
    The following table sets forth, for the fiscal year ended December 31, 1996,
individual compensation information for the Chief Executive Officer of the
Company and each of the four other most highly compensated executive officers of
the Company who were serving as executive officers at December 31, 1996 (the
"Named Executive Officers").
 
<TABLE>
<CAPTION>
                                                                      ANNUAL COMPENSATION
                                ------------------------------------------------------------------------------------------------
                                                                               OTHER           SECURITIES         ALL OTHER
      NAME AND PRINCIPAL                                                       ANNUAL          UNDERLYING       COMPENSATION
           POSITION              FISCAL YEAR   SALARY ($)    BONUS ($)    COMPENSATION ($)   OPTIONS(#)(1)         ($)(2)
------------------------------  -------------  -----------  -----------  ------------------  --------------  -------------------
<S>                             <C>            <C>          <C>          <C>                 <C>             <C>
 
McCaw, Craig O................         1995           -0-          -0-              -0-                -0-              -0-
  CEO                                  1996           -0-          -0-              -0-                -0-              -0-
 
Voelker, James J..............         1995        89,405       87,000           11,542(3)       1,000,000              -0-
  President                            1996       160,609          -0-              -0-             15,000            6,523
 
Kingery, Robert...............         1995        65,589       88,082              -0-             98,347(4)            -0-
  President of NEXTLINK                1996       225,000       30,000              -0-              5,000            5,625
  Interactive
 
Iskra, Kathleen H.............         1995           -0-          -0-              -0-                -0-              -0-
  Vice President, Chief                1996       121,233       65,250              -0-            153,500            1,575
  Financial Officer and
  Treasurer
 
Daniels, Charles P............         1995        14,423       25,000              -0-            100,000              -0-
  Vice President, Chief                1996       100,000       84,750              -0-              7,500            2,512
  Marketing Officer
</TABLE>
 
--------------------------
 
(1) Represents Class B membership units granted in connection with the Company's
    equity option plan during 1995 and 1996, respectively.
 
(2) Represents contributions made by the Company on behalf of the executive
    officer under the Company's 401(k) Plan.
 
(3) Of this amount, $11,238 was allocated to temporary housing expenses.
 
(4) This represents the number of options to acquire Class B units granted in
    connection with the Recapitalization of the Company and its subsidiaries.
    Prior to the Recapitalization, this executive held options to acquire
    membership interests in Nextlink Interactive.
 
                                       38
<PAGE>
                      OPTION GRANTS IN LAST FISCAL YEAR(1)
 
<TABLE>
<CAPTION>
                                                                                               POTENTIAL REALIZABLE VALUE
                                                 INDIVIDUAL GRANTS                               AT ASSUMED ANNUAL RATES
                                              -----------------------                                OF SHARES PRICE
                              NUMBER OF         % OF TOTAL OPTIONS                           APPRECIATION FOR OPTION TERM(2)
                             SECURITIES             GRANTED TO           EXERCISE OR    -----------------------------------------
  NAME AND PRINCIPAL     UNDERLYING OPTIONS     EMPLOYEES IN FISCAL      BASE PRICE         EXPIRATION          5%         10%
       POSITION              GRANTED(#)               YEAR(%)              ($/SH)             DATE(3)           ($)        ($)
-----------------------  -------------------  -----------------------  ---------------  -------------------  ---------  ---------
<S>                      <C>                  <C>                      <C>              <C>                  <C>        <C>
 
McCaw, Craig O.,                    -0-                    -0-                  -0-             N/A
 
Voelker, James F.                15,000                   1.79                  .44       August 19, 2011          600     46,200
 
Kingery, Robert                   5,000                   0.60                  .44       August 19, 2011          200     15,400
 
Iskra, Kathleen H.               75,000                   8.96                  .01       January 2, 2011          -0-    122,250
                                 75,000                   8.96                  .44       January 2, 2011        3,000    231,000
                                  3,500                    .42                  .44       August 19, 2011          140     10,780
 
Daniels, Charles P.               7,500                    .90                  .44       August 19, 2011          300     23,100
</TABLE>
 
--------------------------
 
(1) Effective on January 31, 1997, NEXTLINK Communications, L.L.C. was merged
    with and into NEXTLINK Communications, Inc. The information presented in
    this table reflects the grant of options pursuant to the Amended and
    Restated Equity Option Plan of NEXTLINK Communications, L.L.C. (the "EOP").
    The Company has adopted a Stock Option Plan and is currently preparing
    documentation to cause the options to be options to purchase the Company's
    Class A Common Stock. See Note 12 to the Consolidated Financial Statements.
 
(2) The value of the Company's Class B Units is determined in accordance with
    the EOP. Although Class B Units, when exercised, would constitute an
    ownership interest in the Company, the interest is limited to the
    appreciation in value of the Company, that is the distributable profits
    interests, if any, of the Company. Pursuant to the EOP, the Administrative
    Committee, which is comprised of two representatives from Eagle River and
    the President of the Company, determines the appreciation interest value of
    the options. During 1995, the members of the Administrative Committee were
    Messrs. Weibling, Jarvis and Voelker. During the period in which theses
    options were granted, the EOP provided that the valuation would be based
    upon financial data dated as of the close of the most recent tax year.
    Because of the small amount of capital invested at December 31, 1994, and
    because there had been no appreciation in the value of Class A Units at
    December 31, 1994, there was no fair market value ascribed to the unit
    options in excess of the $0.01 exercise price at the time of their grants
    during 1994 and 1995. Further, and consistent with the EOP, no separate
    determination of value was made for the grants until the end of 1995. The
    appreciation value was determined by the Administrative Committee by
    applying a rate of return to the capital invested based on expected rates of
    return for similar investments in comparable telecommunications businesses
    and accounting for payment of the preferred return described above and the
    return of capital to the Class A unit holders, and dividing that amount by
    the total Class A Units issued at December 31, 1996 and 1995. Based upon
    this valuation process, the appreciation interest per unit at years ended
    1996 and 1995 for Class B Units was determined to be $3.50 and $0.44,
    respectively, and for Class A Units was determined to be $4.36 and $1.45,
    respectively. Commencing July 1, 1995, the EOP was revised to provide that
    the Administrative Committee could revalue the Company based on such
    financial data as the Administrative Committee deemed appropriate.
 
   The dollar amounts under the 5% and 10% columns are the result of
    calculations required by the rules of the Securities and Exchange Commission
    ("SEC") and, therefore, are not intended to forecast possible future
    appreciation, if any, of the Company's Class B Units. The amounts shown
    reflect the difference between (a) the appreciation of each unit at the
    SEC's assumed annual rates of appreciation through the fifteenth anniversary
    of the date of the grant based on the per unit valuation at the time of the
    grant and (b) the sum of (i) payment of the exercise price, (ii) the return
    of capital to the Class A unit holders, and (iii) the payment of a preferred
    return to the Class A unit holders. Pursuant to the Company's limited
    liability company agreement, the Class A unit holders are entitled to a
    preferred return on their capital contributions equal to the prime rate plus
    2%. The Company utilized a prime rate of 8.25% in calculating the above
    returns under the SEC's assumed rates of return.
 
(3) Options granted during 1996 vest either 20% at employment and 20% at the end
    of each subsequent year or 25% at the end of each of the next four years
    after grant.
 
                                       39
<PAGE>
                    AGGREGATED FISCAL YEAR-END OPTION VALUES
 
<TABLE>
<CAPTION>
                                                          NUMBER OF SECURITIES
                                                               UNDERLYING               VALUE OF UNEXERCISED
                                                         UNEXERCISED OPTIONS AT         IN-THE-MONEY OPTIONS
                                                           DECEMBER 31, 1996          AT DECEMBER 31, 1996 (1)
                                                      ----------------------------  -----------------------------
NAME                                                  EXERCISABLE   UNEXERCISABLE    EXERCISABLE   UNEXERCISABLE
----------------------------------------------------  ------------  --------------  -------------  --------------
<S>                                                   <C>           <C>             <C>            <C>
 
McCaw, Craig O......................................          -0-            -0-              -0-            -0-
 
Voelker, James F....................................      400,000        615,000    $   1,400,000   $  2,152,500
 
Kingery, Robert.....................................       39,339         64,008          137,687        224,028
 
Iskra, Kathleen H...................................       60,000         93,500          210,000        327,250
 
Daniels, Charles P..................................       40,000         67,500          140,000        236,250
</TABLE>
 
--------------------------
 
(1) Reflects the difference between the exercise price and a valuation of $3.50
    per unit. Because there is no public market for the Company's membership
    units, pursuant to the Equity Option Plan, the Plan's Administrative
    Committee determines the value of the Class B options at least as often as
    the end of each fiscal year. The valuation set forth above reflects the
    Administrative Committee's determination of per unit valuation at December
    31, 1996.
 
EMPLOYMENT AGREEMENTS
 
    NEXTLINK Pennsylvania, L.P., an operating subsidiary of the Company, has
entered into an employment agreement with Gary A. Rawding, its President, for a
term expiring on September 15, 1997, subject to automatic month-to-month
extensions unless either party gives 30 days notice not to renew. The agreement
provides for a base salary of $110,000, with a total bonus of $50,000 for the
five-quarter period ended December 31, 1995 based on the attainment of goals and
milestones outlined in the agreement and $10,000 per quarter thereafter. If
NEXTLINK Pennsylvania, L.P. fails to renew the agreement or if employment is
terminated due to the cessation of its business, NEXTLINK Pennsylvania, L.P.
must pay Mr. Rawding his then-current monthly salary until one year after
termination. The agreement also contains non-compete, non-solicitation and
confidentiality provisions.
 
    NEXTLINK Interactive, L.L.C. ("NEXTLINK Interactive"), an operating
subsidiary of the Company, has entered into an employment agreement with Robert
Kingery, its President, for a term expiring on August 31, 1998, subject to
earlier termination. The agreement provides for a base salary of $225,000, with
a bonus based on the attainment of goals and milestones to be agreed to by
NEXTLINK Interactive and Mr. Kingery. If NEXTLINK Interactive terminates Mr.
Kingery's employment on 30 days notice, Mr. Kingery is entitled to receive a
bonus as if he had been employed for each year of the initial term of the
agreement. The agreement also contains non-compete, non-solicitation and
confidentiality provisions.
 
    NEXTLINK Washington, L.L.C. ("NEXTLINK Washington"), an operating subsidiary
of the Company, has entered into an employment agreement with Gregory Green as
its President for a term expiring March 28, 1998, subject to earlier
termination. The agreement provides for a base salary of $100,000 with a bonus
of $30,000 during the first year, $35,000 during the second year and $40,000
during the third year, in each case upon the achievement of objectives. The
agreement also contains non-compete, non-solicitation and confidentiality
provisions.
 
NEXTLINK COMMUNICATIONS, L.L.C. EQUITY OPTION PLAN
 
    The Company adopted an Amended and Restated Equity Option Plan (the "EOP").
Pursuant to the EOP, the Company could grant any employee of the Company or its
Affiliates (as defined in the EOP) the
 
                                       40
<PAGE>
right to acquire Class B membership interests ("Equity Interests") in the
Company (an "Option"). The EOP has been superseded by the NEXTLINK
Communications, Inc. Stock Option Plan, described below, which was adopted in
connection with the incorporation of the Company on January 31, 1997. The
Company anticipates granting replacement options under the NEXTLINK
Communications, Inc. Stock Option Plan to the holders of options granted under
the EOP. The Option Plan is administered by a committee comprised of three
members (the "Administrative Committee"). Two of the members were appointed by
Eagle River, the primary member of the Company, and the third was the President
of the Company. The Administrative Committee had sole and unfettered
discretionary authority to administer the EOP and to alter, modify, change or
terminate the EOP at any time.
 
    An Option granted under the EOP must be evidenced by a written agreement
between the Company and the employee. Such agreement set forth the quantity of
Equity Interests with respect to which the Option is granted, the Option price,
the date the Option was granted, and such other terms, conditions, and
restrictions as the Company deemed advisable and which were not inconsistent
with the terms of the EOP. The holder of an Option (an "Option Holder") did not
acquire any voting or other rights in the Company or in management of the
Company upon the grant of an Option. In addition, the holder of an Equity
Interest obtained upon exercise of an Option would not have voting or other
management rights in the Company.
 
    An Option could have been exercised, in whole or in part, at any time after
December 31, 1996 and within a 15-year period following the date the Option was
granted, subject to ratable vesting of the Option over four Years of Service (as
defined in the EOP) and provisions in the EOP relating to early termination of
the Option in the case of termination of employment. Any portion of an Option
that was not exercised by the end of the 15-year term would terminate unless
extended by the Company.
 
    Under the EOP, the Company had the right to purchase an Option from an
Option Holder (or his or her trustee, personal representative, guardian,
executor or administrator) (collectively the "Transferee") at a purchase price
equal to the then Fair Market Value (as defined in the EOP) of the Option upon
the occurrence of (a) the bankruptcy of the Transferee (b) an adjudication by a
court that the Transferee is insane or incompetent; (c) any general assignment
by the Transferee for the benefit of his creditors; (d) the death of the
Transferee; (e) the termination, for any reason, of the Transferee's employment
with the Company or an Affiliate (as defined in the EOP); or (f) any other event
which would cause an interest in the Company to be sold, assigned, awarded,
confirmed, or otherwise transferred, for consideration or otherwise, to any
person, whether voluntarily, involuntarily or by operation of law.
 
NEXTLINK COMMUNICATIONS, INC. STOCK OPTION PLAN
 
    The Company established the NEXTLINK Communications, Inc. Stock Option Plan
(the "Plan") to replace the EOP and to provide a performance incentive for
certain officers, employees, and individuals who provide services to the
Company, and to enable these individuals to acquire or increase proprietary
interest in the success of the Company.
 
    Pursuant to the terms of the Plan, the Company's Board of Directors (the
"Board") has reserved the right to terminate, modify, or amend the Plan subject
to the following restriction: The Board must obtain shareholder approval for any
amendment that (1) increases the number of shares of Class A Common Stock
available under the Plan, (2) changes the Plan's eligibility provisions, or (3)
requires shareholder approval under applicable law.
 
    The Plan Administrator may modify or amend outstanding options granted under
the Plan, provided modification or amendment of an outstanding option shall not,
without the consent of the optionee, impair or diminish any of the optionee's
rights or any of the obligations of the Company. Except as otherwise provided in
the Plan, no outstanding option shall be terminated without the consent of the
optionee. Unless the optionee agrees otherwise, any change or adjustment to an
outstanding incentive stock option shall be made so as not to constitute a
"modification," as defined in Section 424(h) of the
 
                                       41
<PAGE>
Internal Revenue Code of 1986, as amended (the "Code"), and so as not to cause
the option to cease qualifying as an incentive stock option, as defined in Code
Section 422(b).
 
    The "Plan Administrator" is the Compensation Committee of the Board, and its
members are Messrs. Voelker, Jarvis and Hoglund. The Board may from time to time
remove members from, or add members to, the Compensation Committee. Vacancies on
the committee, however caused, may be filled by the Board.
 
    The Plan Administrator acts as the manager of the Plan, possessing
discretionary authority to determine all matters relating to the options to be
granted. The Plan Administrator has the sole authority to interpret the
provisions of the Plan, any option issued under the Plan, and any rule or
regulation applicable to the Plan. The Plan Administrator's interpretation is
conclusive and binding on all interested parties, so long as the interpretation
and construction with respect to incentive stock options corresponds to the
requirements of Code Section 422, the regulations thereunder, and any amendments
thereto.
 
    The stock available under the stock options granted under the Plan are
shares of the Company's authorized but unissued Class A Common Stock, par value
$.01 per share ("Class A Common Stock"). The total number of shares that may be
issued pursuant to options under the Plan, including both incentive and
non-statutory options, shall not exceed an aggregate of 10,000,000 shares.
 
    Incentive stock options may be granted only to officers and other employees
of the Company (or a parent or subsidiary corporation of the Company), including
Board members who are also employees of the Company (or employees of a parent or
subsidiary corporation of the Company). Non-statutory options may be granted to
both employees and non-employees of the Company (or a corporate or non-corporate
parent or subsidiary), including non-employee Board members. Certain limitations
apply to 10% shareholders.
 
    Within the parameters established by the Plan, the Plan Administrator has
the sole discretion to determine the options to be granted under the Plan,
including selection of the individuals receiving option grants, the number of
shares available under each option, the exercise price, and all other terms and
conditions of the options. Separate option grants under the Plan need not be
identical in any respect, even when made simultaneously. The Plan Administrator
shall issue each optionee an individual "option agreement," which describes the
relevant terms of the option.
 
    The purchase price per share of Class A Common Stock under each incentive
stock option shall be not less than the fair market value of the Class A Common
Stock on the date the option is granted, except where the option is a
substituted or assumed option from another plan, and the exercise price relates
to the original exercise price, in accordance with applicable provisions of the
Code. Certain additional limitations apply to 10% shareholders. The purchase
price per share of Class A Common Stock under each non-statutory stock option
shall be not less than 85% of the fair market value of the Class A Common Stock
on the date the option is granted, except where the option is a substituted or
assumed option from another plan, and the exercise price relates to the option's
original exercise price.
 
    The aggregate shares of Class A Common Stock available to an optionee
through incentive stock options, which are exercisable for the first time during
a calendar year, shall not exceed $100,000 in value. For purposes of this limit,
the Class A Common Stock shall be valued at its fair market value as of the
option grant date. To the extent an incentive stock option exceeds this
limitation, it shall be considered a non-statutory stock option.
 
    An optionee must exercise his or her option, if at all, before it expires.
Each option shall expire on the date specified in the individual option
agreement, which date shall not be later than the tenth anniversary of the date
on which the option was granted with respect to incentive stock options, the
15th anniversary with respect to non-statutory options and the fifth anniversary
in the case of a 10% stockholder.
 
                                       42
<PAGE>
    Options granted under the Plan and the rights and privileges conferred
thereby may not be transferred, assigned, pledged, or hypothecated in any manner
(whether by operation of law or otherwise), other than by will or applicable
laws of descent and distribution; provided that non-statutory stock options may
be transferred to a revocable trust established by the optionee for his or her
descendants, to an immediate family member, or to a partnership in which only
immediate family members or such estate-planning trusts are partners. Options
shall not be subject to execution, attachment, or similar process. Upon any
attempt to transfer, assign, pledge, hypothecate, or otherwise dispose of any
option under the Plan, or any rights or privilege conferred by the Plan,
contrary to the provisions of the Plan, or upon the sale or levy or any
attachment or similar process upon the rights and privileges conferred by the
Plan, such option shall thereupon terminate and become void. No person may
create a lien on any funds, securities, or other property held under the Plan.
 
    Options granted under the Plan shall generally expire on the earlier of the
following two events: (i) the date of expiration expressed in the individual
option agreement, or (ii) three months after termination of employment (unless
the termination is for cause, in which case the option shall immediately
expire). Special rules apply in the event of an optionee's death or disability.
In addition, options shall terminate if the shareholders of the Company receive
cash, stock, or other property in exchange for or in connection with their
shares of Class A Common Stock as a result of a merger, consolidation,
acquisition of property or stock, separation, reorganization, or liquidation of
the Company (other than a mere reincorporation, creation of a holding company,
or merger in which the Company's shareholders receive a corresponding number of
shares of Class A Common Stock in the survivor corporation). Prior to such an
event, the optionee shall have the right to exercise his or her option, in whole
or in part, to the extent vested.
 
                                       43
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
    THE COMPANY.  The following table sets forth certain information as of
January 31, 1997, with respect to the beneficial ownership of NEXTLINK's capital
stock by (i) each person known by the Company to own beneficially 5% or more of
the outstanding shares of capital stock, (ii) the Company's Board of Directors,
(iii) the Company's Chief Executive Officer and each of the Named Executive
Officers and (iv) all directors and executive officers as a group.
 
    CLASS A COMMON STOCK
 
<TABLE>
<CAPTION>
                                                                     AMOUNT AND NATURE OF    PERCENTAGE OF CLASS
NAME AND ADDRESS OF BENEFICIAL OWNER                                      OWNERSHIP                  (%)
------------------------------------------------------------------  ----------------------  ---------------------
<S>                                                                 <C>                     <C>
James F. Voelker..................................................            400,000(1)              21.66
  155 108th Avenue, N.E., Suite 810
  Bellevue, WA 98004
Don Hillenmeyer...................................................            136,943(1)               7.42
  105 Molloy Street
  Suite 300
  Nashville, TN 37201
Greg Breetz.......................................................            136,943(1)               7.42
  105 Molloy Street
  Suite 300
  Nashville, TN 37201
Russ Land.........................................................            136,943(1)               7.42
  105 Molloy Street
  Suite 300
  Nashville, TN 37201
Craig O. McCaw....................................................                  0                --
Dennis Weibling...................................................                  0                --
Scot Jarvis.......................................................                  0                --
C. James Judson...................................................                  0                --
William A. Hoglund................................................                  0                --
Robert Kingery....................................................             39,339(1)               2.13
Kathleen H. Iskra.................................................             60,000(1)               3.25
Charles P. Daniels................................................             40,000(1)               2.17
All directors and executive officers as a group (19 persons)......          1,020,050(1)              56.86
</TABLE>
 
------------------------
 
(1) Represents shares that are anticipated to be eligible for acquisition upon
    exercise of stock options during the next 60 days from January 31, 1997,
    which the Company anticipates granting as replacement options for options
    granted under the EOP.
 
                                       44
<PAGE>
    CLASS B COMMON STOCK
 
<TABLE>
<CAPTION>
                                                                       AMOUNT AND NATURE OF    PERCENTAGE OF CLASS
NAME AND ADDRESS OF BENEFICIAL OWNER                                        OWNERSHIP                  (%)
--------------------------------------------------------------------  ----------------------  ---------------------
<S>                                                                   <C>                     <C>
Eagle River, LLC....................................................          72,307,914                83.41
  2300 Carillon Point
  Kirkland, WA 98033
BWP, Inc............................................................           5,914,497(1)              6.82
  707 S.W. Washington, 8th Floor
  Portland, OR 97205
Craig O. McCaw......................................................          72,911,686(2)             84.10
  2300 Carillon Point
  Kirkland, WA 98033
Dennis Weibling.....................................................          72,307,914(3)             83.41
  2300 Carillon Point
  Kirkland, WA 98033
James F. Voelker....................................................           3,571,364(4)              4.12
Scot Jarvis.........................................................             670,283(5)             *
C. James Judson.....................................................                   0               --
William A. Hoglund..................................................                   0               --
Robert Kingery......................................................           2,081,312(6)              2.50
Kathleen H. Iskra...................................................                   0               --
Charles P. Daniels..................................................                   0               --
All directors and executive officers as a group (19 persons)........          80,110,582(7)             92.41
</TABLE>
 
------------------------
 
(1) Represents shares of Class B Common Stock held beneficially by Douglas Bean
    and Robert F. Kingery, who own 39.88% and 35.19%, respectively of the total
    shares held by BWP, Inc.
 
(2) Represents shares of Class B Common Stock held beneficially by Mr. McCaw as
    a result of his ownership interests in Eagle River and NEXTLINK, Inc.
 
(3) Mr. Weibling, who is President of Eagle River, Inc., an affiliate of Eagle
    River, disclaims beneficial ownership in all securities held by Eagle River,
    except to the extent of his pecuniary interest therein.
 
(4) Represents shares of Class B Common Stock that are eligible for acquisition
    upon exercise of a stock option during the next 60 days from January 31,
    1997.
 
(5) Includes 134,057 shares of Class B Common Stock held by the Rowena Family
    Limited Liability Company, of which Mr. Jarvis is the sole managing member.
 
(6) Represents shares of Class B Common Stock held beneficially by Mr. Kingery
    as a result of his ownership in BWP, Inc.
 
(7) See notes (2), (3), (4) and (6) above.
 
*   Less than 1%.
 
                                       45
<PAGE>
    EAGLE RIVER.  The following table sets forth certain information as of
January 31, 1997, with respect to the beneficial ownership of Eagle River's
member interests by (i) each person known by Eagle River to own beneficially 5%
or more of the outstanding member interests, (ii) the Company's Board of
Directors, (iii) the Company's Chief Executive Officer and each of the Named
Executive Officers and (iv) all directors and executive officers as a group.
 
<TABLE>
<CAPTION>
                                                                       AMOUNT AND NATURE OF    PERCENTAGE OF CLASS
NAME AND ADDRESS OF BENEFICIAL OWNER                                       OWNERSHIP(1)                (%)
--------------------------------------------------------------------  ----------------------  ---------------------
<S>                                                                   <C>                     <C>
Craig O. McCaw......................................................            31,122(2)               97.07
  2300 Carillon Point
  Kirkland, WA 98033
Dennis Weibling.....................................................               940                   2.93
  2300 Carillon Point
  Kirkland, WA 98033
James F. Voelker....................................................                 0                 --
Scot Jarvis.........................................................                 0                 --
C. James Judson.....................................................                 0                 --
William A. Hoglund..................................................                 0                 --
Robert Kingery......................................................                 0                 --
Kathleen H. Iskra...................................................                 0                 --
Charles P. Daniels..................................................                 0                 --
All directors and executive officers as a group                                                              %
  (19 persons)......................................................            32,062                    100
</TABLE>
 
------------------------
 
(1) Represents Class A Units.
 
(2) Represents Class A Units held beneficially by Mr. McCaw as a result of his
    ownership interests in Eagle River and Eagle River, Inc.
 
                                       46
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
    From the inception of NEXTLINK through the end of 1995, NEXTLINK's capital
and operational funding was provided on an as needed basis, primarily by Eagle
River. During this period, under NEXTLINK's limited liability company agreement,
one equity unit was issued for each dollar in cash or assets contributed to
NEXTLINK. The equity ownership units issued from time to time during the course
of this period thus reflect this one dollar to one equity unit equivalency. As
of December 31, 1996, Eagle River had contributed approximately $53.9 million to
NEXTLINK and had received approximately 53.9 million Class A Units in NEXTLINK
Communications, L.L.C., which were converted to approximately 72.3 million
shares of Class B Common Stock of the Company on January 31, 1997, including
certain issuances described below.
 
    On September 15, 1994, NEXTLINK lent $100,000 to Gary A. Rawding, President
of NEXTLINK Pennsylvania, L.P. This loan is unsecured and is due September 15,
2004, or upon the sale of more than one-half of his interest in NEXTLINK
Pennsylvania, L.P. This loan bears interest at the prime rate and requires
annual interest payments on September 15.
 
    On August 18, 1995, NEXTLINK lent $93,141 to James F. Voelker, NEXTLINK's
President, in connection with his relocation to Washington. This loan bears
interest at the prime rate and principal and interest are due on the earlier of
December 31, 1998 or the sale of Mr. Voelker's former residence.
 
    On September 1, 1995, NEXTLINK agreed to pay $3.0 million to BWP, Inc. in
connection with the acquisition of certain assets of Sound Response Corporation.
A payment of $1.5 million was made on September 1, 1996 and an additional
payment of $1.5 million is due September 1, 1997. In addition, NEXTLINK issued
approximately 4.4 million Class A Units in NEXTLINK Communications, L.L.C.,
which were converted to approximately 5.9 million shares of Class B Common Stock
of the Company on January 31, 1997, to BWP, Inc. in connection with this asset
acquisition.
 
    On January 31, 1995, Eagle River lent NEXTLINK $3.3 million in connection
with the acquisition of certain assets from City Signal, Inc. The note was
unsecured and bore interest at the prime rate plus 2%. The note plus accrued
interest was repaid with a portion of the net proceeds of NEXTLINK's offering of
Senior Notes. NEXTLINK's principal equity owner, Mr. Craig O. McCaw, through
Eagle River made advances to NEXTLINK primarily to fund NEXTLINK's capital
expenditures (excluding acquisitions) and operating losses between January 1996
and April 1996. These advances of approximately $32.2 million, including accrued
interest, were repaid using a portion of the net proceeds of the offering of the
Senior Notes.
 
    During 1995, Eagle River lent NEXTLINK $7.3 million in connection with asset
acquisitions and operating expenses. The note bore interest at the prime rate
plus 2% and, on December 1, 1995, was converted to equity and approximately 7.3
million Class A Units in NEXTLINK Communications, L.L.C., which, along with the
other Units owned by Eagle River, were converted to shares of Class B Common
Stock of the Company on January 31, 1997.
 
    During 1995, NEXTLINK incurred expenses for administrative services provided
by U.S. Signal, a minority member of NEXTLINK, pursuant to temporary agreements
related to the acquisitions of certain assets from City Signal, Inc. NEXTLINK
recorded expenses in connection with fees to this affiliate of $1.5 million in
1995.
 
    Each share of the Company's Class B Common Stock is convertible at the
option of the holder thereof, at any time, into one share of Class A Common
Stock. The Company and the current holders of the Company's Class B Common Stock
and the holders of options to purchase Class B Common Stock will enter into a
Registration Rights Agreement (the "Company Registration Rights Agreement") as
of the consummation of the Incorporation, which, among other things, will
provide that at any time after a Qualifying IPO (as defined) and upon the
request of holders of at least 4% of the outstanding Class B Common Stock that
is subject to the Company Registration Rights Agreement, the Company will
 
                                       47
<PAGE>
register under the Securities Act any of the shares of Class A Common Stock
currently held by, or to be acquired in the future by, such holders, for sale in
accordance with such holders' intended method of disposition thereof (a "Demand
Registration"). The holders of the Class B Common Stock will have the right to
request two Demand Registrations. The holders of the Class B Common Stock also
will have the right, at any time after the Qualifying IPO, to include the shares
of Class A Common Stock held by them in certain other registrations of common
equity securities of the Company initiated by the Company on its own behalf or
on behalf of its shareholders. The holders' rights under the Company
Registration Rights Agreement are not transferable. In addition, the holders of
Class B Common Stock and options to purchase Class B Common Stock have agreed to
pay their pro rata share of all costs and expenses incurred in connection with
each registration of their respective shares of Class A Common Stock. For
purposes of the Company Registration Rights Agreement, "Qualifying IPO" means a
public offering of Class A Common Stock that results in net proceeds to the
Company of not less than $75,000,000 or such lesser amount as the Board of
Directors of the Company may, in their discretion, determine to be adequate to
commence the rights of the holders under the Company Registration Rights
Agreement.
 
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
 
    (a) Financial Statements
 
<TABLE>
<CAPTION>
NEXTLINK COMMUNICATIONS, INC.
 
<S>                                                                            <C>
Report of Independent Public Accountants.....................................        F-1
 
Consolidated Balance Sheets at December 31, 1996 and 1995....................        F-2
 
Consolidated Statements of Operations for the Years Ended December 31, 1996
  and 1995 and From Inception (September 16, 1994) to December 31, 1994......        F-3
 
Consolidated Statements of Changes in Members' Equity (Deficit) for the Years
  Ended December 31, 1996 and 1995 and From Inception (September 16, 1994) to
  December 31, 1994..........................................................        F-4
 
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996
  and 1995 and From Inception (September 16, 1994) to December 31, 1994......        F-5
 
Notes to Consolidated Financial Statements...................................        F-7
 
NEXTLINK CAPITAL, INC.
 
Report of Independent Public Accountants.....................................       F-19
 
Balance Sheet at December 31, 1996...........................................       F-20
 
Note to Balance Sheet........................................................       F-21
</TABLE>
 
    (b) List of Exhibits:
 
<TABLE>
<CAPTION>
EXHIBIT NO.  DESCRIPTION
-----------  -------------------------------------------------------------------------------------------
 
<C>          <S>
      3.1    --Articles of Incorporation of the Company.
 
      3.2    --By-laws of the Company
 
      4.1    --Form of Exchange Note Indenture, by and among the Company and United States Trust Company
              of New York, as trustee, relating to the Exchange Notes, including form of Exchange Notes.
 
      4.3    --Certificate of Designations of the Powers, Preferences and Relative, Participating,
              Optional and Other Special Rights of 14% Senior Exchangeable Redeemable Preferred Shares
              and Qualifications, Limitations and Restrictions Thereof.
 
      4.4    --Form of stock certificate of 14% Senior Exchangeable Redeemable Preferred Shares.
</TABLE>
 
                                       48
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO.  DESCRIPTION
-----------  -------------------------------------------------------------------------------------------
      4.5    --Indenture, dated as of April 25, 1996, by and among the Company, NEXTLINK Capital 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 (incorporated by reference to Exhibit 4.1 to
              the Registration Statement on Form S-4 of NEXTLINK Communications, L.L.C. (the predecessor
              of the Company) and NEXTLINK Capital, file no. 333-4603).
<C>          <S>
 
      4.6    --First Supplemental Indenture, dated as of January 31, 1997, by and among the Company,
              NEXTLINK Communications, L.L.C., NEXTLINK Capital and United States Trust Company of New
              York, as Trustee.
 
     10.1    --Stock Option Plan of the Company.
 
     10.2    --Management Agreement, dated as of April 30, 1996, by and between NEXTLINK Management
              Services, L.L.C. and Telecommunications of Nevada, L.L.C. (incorporated by reference to
              Exhibit 10.2 to the Registration Statement on Form S-4 of NEXTLINK Communications, L.L.C.
              (the predecessor of the Company) and NEXTLINK Capital, file no. 333-4603).
 
     10.3    --Warrant Agreement, dated as of January 31, 1997, by and between the Company and
              Continental Stock Trust & Transfer Company, as warrant agent.
 
     10.4    --Registration Rights Agreement dated as of January 15, 1997, between the Company and the
              signatories listed therein.
 
     10.5    --Preferred Exchange and Registration Rights Agreement, dated as of January 31, 1997, by
              and among the Company and the Initial Purchasers.
 
     12      --Statement Regarding Computation of Ratio of Earnings to Fixed Charges.
 
     21      --Subsidiaries of the Registrants.
 
     27      --Financial Data Schedule.
</TABLE>
 
    (c) Reports on Form 8-K
 
        None.
 
                                       49
<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To the Members of NEXTLINK Communications, L.L.C.:
 
    We have audited the accompanying consolidated balance sheets of NEXTLINK
Communications, L.L.C. (a Washington limited liability company) and subsidiaries
as of December 31, 1996 and 1995, and the related consolidated statements of
operations, changes in members' equity (deficit) and cash flows for the years
then ended and the period from inception (September 16, 1994) to December 31,
1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
 
    We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
    In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of NEXTLINK Communications,
L.L.C. and subsidiaries as of December 31, 1996 and 1995, and the results of
their operations and their cash flows for the years then ended and the period
from inception (September 16, 1994) to December 31, 1994 in conformity with
generally accepted accounting principles.
 
                                              ARTHUR ANDERSEN LLP
 
Seattle, Washington
February 10, 1997
 
                                      F-1
<PAGE>
                NEXTLINK COMMUNICATIONS, L.L.C. AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
 
                           DECEMBER 31, 1996 AND 1995
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                                              1996        1995
                                                                                           -----------  ---------
<S>                                                                                        <C>          <C>
                                                     ASSETS
Current assets:
  Cash and cash equivalents..............................................................  $    76,807  $   1,350
  Marketable securities..................................................................       47,713     --
  Accounts receivable, net...............................................................        7,008      3,563
  Other..................................................................................          607        746
  Pledged securities.....................................................................       39,770     --
                                                                                           -----------  ---------
      Total current assets...............................................................      171,905      5,659
Pledged securities.......................................................................       61,668     --
Property and equipment, net..............................................................       97,784     29,664
Goodwill, net............................................................................       24,110     12,137
Other intangible assets, net.............................................................       11,243      5,751
Other long-term assets, net..............................................................       23,973        250
                                                                                           -----------  ---------
      Total assets.......................................................................  $   390,683  $  53,461
                                                                                           -----------  ---------
                                                                                           -----------  ---------
                                    LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
Current liabilities:
  Bank overdraft.........................................................................  $   --       $   1,373
  Accounts payable.......................................................................       18,622      4,315
  Accrued expenses.......................................................................        4,112      1,266
  Accrued interest payable...............................................................        9,250     --
  Current portion of capital lease obligations...........................................        1,194     --
  Payable to affiliates..................................................................        1,500      4,937
                                                                                           -----------  ---------
      Total current liabilities..........................................................       34,678     11,891
Long-term liabilities:
  Long-term debt.........................................................................      350,000     --
  Capital lease obligations..............................................................        6,262     --
  Other..................................................................................       13,139      1,965
                                                                                           -----------  ---------
      Total liabilities..................................................................      404,079     13,856
Commitments and contingencies
Minority interests.......................................................................          308      2,886
Equity units subject to redemption (900,000 units outstanding as of December 31, 1996)...        4,950     --
Members' equity (deficit) (63,793,820 and 49,798,659 units outstanding as of December 31,
  1996 and 1995, respectively)...........................................................      (18,654)    36,719
                                                                                           -----------  ---------
      Total liabilities and members' equity (deficit)....................................  $   390,683  $  53,461
                                                                                           -----------  ---------
                                                                                           -----------  ---------
</TABLE>
 
 The accompanying notes are an integral part of these consolidated statements.
 
                                      F-2
<PAGE>
                NEXTLINK COMMUNICATIONS, L.L.C. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 
       FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 AND FROM INCEPTION
                   (SEPTEMBER 16, 1994) TO DECEMBER 31, 1994
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                                     1996        1995       1994
                                                                                  ----------  ----------  ---------
<S>                                                                               <C>         <C>         <C>
Revenue.........................................................................  $   25,686  $    7,552  $  --
Costs and expenses:
  Operating.....................................................................      25,094       6,618        106
  Selling, general and administrative...........................................      31,353       9,563        232
  Deferred compensation.........................................................       9,914         375     --
  Depreciation..................................................................       6,640       1,125          7
  Amortization of intangible assets.............................................       3,700       2,333          7
                                                                                  ----------  ----------  ---------
      Total costs and expenses..................................................      76,701      20,014        352
                                                                                  ----------  ----------  ---------
Loss from operations............................................................     (51,015)    (12,462)      (352)
Interest income.................................................................      10,446      --         --
Interest expense................................................................     (30,876)       (499)    --
                                                                                  ----------  ----------  ---------
Loss before minority interests..................................................     (71,445)    (12,961)      (352)
Minority interests in loss of consolidated subsidiaries.........................         344         230          3
                                                                                  ----------  ----------  ---------
Net loss........................................................................  $  (71,101) $  (12,731) $    (349)
                                                                                  ----------  ----------  ---------
                                                                                  ----------  ----------  ---------
</TABLE>
 
 The accompanying notes are an integral part of these consolidated statements.
 
                                      F-3
<PAGE>
                NEXTLINK COMMUNICATIONS, L.L.C. AND SUBSIDIARIES
 
        CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' EQUITY (DEFICIT)
 
       FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 AND FROM INCEPTION
                   (SEPTEMBER 16, 1994) TO DECEMBER 31, 1994
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                                            UNITS        AMOUNT
                                                                                        -------------  ----------
<S>                                                                                     <C>            <C>
BALANCE, INCEPTION (SEPTEMBER 16, 1994)...............................................       --        $   --
  Contributed capital.................................................................      1,021,305       1,021
  Net loss............................................................................       --              (349)
                                                                                        -------------  ----------
 
BALANCE, DECEMBER 31, 1994............................................................      1,021,305         672
  Contributed capital.................................................................     44,365,413      44,366
  Issuance of units for NEXTLINK Interactive acquisition..............................      4,411,941       4,412
  Net loss............................................................................       --           (12,731)
                                                                                        -------------  ----------
 
BALANCE, DECEMBER 31, 1995............................................................     49,798,659      36,719
  Contributed capital.................................................................      9,502,021       9,502
  Issuance of units for NEXTLINK Ohio acquisition.....................................        651,933         652
  Impact of recapitalization and merger of affiliates.................................      3,841,207       5,574
  Net loss............................................................................       --           (71,101)
                                                                                        -------------  ----------
 
BALANCE, DECEMBER 31, 1996............................................................     63,793,820  $  (18,654)
                                                                                        -------------  ----------
                                                                                        -------------  ----------
</TABLE>
 
 The accompanying notes are an integral part of these consolidated statements.
 
                                      F-4
<PAGE>
                NEXTLINK COMMUNICATIONS, L.L.C. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
       FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 AND FROM INCEPTION
                   (SEPTEMBER 16, 1994) TO DECEMBER 31, 1994
 
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                                     1996        1995       1994
                                                                                  ----------  ----------  ---------
<S>                                                                               <C>         <C>         <C>
OPERATING ACTIVITIES:
Net loss........................................................................  $  (71,101) $  (12,731) $    (349)
Adjustments to reconcile net loss to net cash used in operating activities:
    Deferred compensation expense...............................................       9,914         375     --
    Equity in loss of affiliates................................................       1,100      --         --
    Depreciation and amortization...............................................      10,340       3,458         14
    Minority interest in loss of consolidated subsidiaries......................        (344)       (230)        (3)
Changes in assets and liabilities, net of effects from acquisitions:
    Accounts receivable.........................................................      (1,659)     (2,529)    --
    Other current assets........................................................         (42)       (638)    --
    Other long-term assets......................................................      (1,430)       (500)       (79)
    Accounts payable............................................................         993       2,163     --
    Accrued expenses............................................................       2,416       1,452         21
    Accrued interest payable....................................................       9,250      --         --
                                                                                  ----------  ----------  ---------
        Total adjustments.......................................................      30,538       3,551        (47)
                                                                                  ----------  ----------  ---------
Net cash used in operating activities...........................................     (40,563)     (9,180)      (396)
INVESTING ACTIVITIES:
    Purchase of property and equipment..........................................     (51,920)    (17,778)      (140)
    Net assets acquired in business and asset acquisitions......................     (15,169)    (17,639)      (460)
    Cash placed into escrow for business acquisition............................      (6,000)     --         --
    Investments in unconsolidated affiliates....................................      (4,953)     --         --
    Purchase of pledged securities..............................................    (117,688)     --         --
    Maturity of pledged securities..............................................      16,431      --         --
    Purchase of marketable securities,net.......................................     (47,713)     --         --
                                                                                  ----------  ----------  ---------
Net cash used in investing activities...........................................    (227,012)    (35,417)      (600)
FINANCING ACTIVITIES:
    Proceeds from issuance of senior notes......................................     350,000      --         --
    Capital contributions.......................................................       9,935      37,091      1,021
    Proceeds from payable to affiliates.........................................      28,766       7,458     --
    Repayment of payables to affiliates.........................................     (33,703)     --         --
    Bank overdraft..............................................................      (1,373)      1,373     --
    Costs incurred in connection with financing.................................      (9,822)     --         --
    Repayment of capital lease obligations......................................        (771)     --         --
                                                                                  ----------  ----------  ---------
Net cash provided by financing activities.......................................     343,032      45,922      1,021
                                                                                  ----------  ----------  ---------
Net increase in cash and cash equivalents.......................................      75,457       1,325         25
Cash and cash equivalents, beginning of period..................................       1,350          25     --
                                                                                  ----------  ----------  ---------
Cash and cash equivalents, end of period........................................  $   76,807  $    1,350  $      25
                                                                                  ----------  ----------  ---------
                                                                                  ----------  ----------  ---------
SUPPLEMENTAL CASH FLOW DISCLOSURES:
    Cash paid for interest, net of amount capitalized...........................  $   20,912  $       16  $  --
                                                                                  ----------  ----------  ---------
                                                                                  ----------  ----------  ---------
</TABLE>
 
                                      F-5
<PAGE>
                NEXTLINK COMMUNICATIONS, L.L.C. AND SUBSIDIARIES
 
               CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
 
       FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 AND FROM INCEPTION
                   (SEPTEMBER 16, 1994) TO DECEMBER 31, 1994
 
                             (DOLLARS IN THOUSANDS)
 
SUPPLEMENTAL CASH FLOW DISCLOSURES:
  (DOLLARS IN THOUSANDS)
 
Noncash investing and financing activities:
 
    During 1996 and 1995, the Company completed various acquisitions of
businesses and assets (see Note 3). In connection with these acquisitions, the
Company issued equity units and assumed liabilities as follows:
 
<TABLE>
<CAPTION>
                                                                                               1996       1995
                                                                                             ---------  ---------
<S>                                                                                          <C>        <C>
Fair value of tangible assets acquired.....................................................  $  12,579  $  11,500
Liabilities assumed........................................................................     (8,228)    (3,554)
Fair value of intangible assets acquired...................................................     16,420     19,335
                                                                                             ---------  ---------
                                                                                             $  20,771  $  27,281
                                                                                             ---------  ---------
                                                                                             ---------  ---------
 
Cash paid for assets.......................................................................  $  15,169  $  17,022
Deferred purchase consideration............................................................     --          3,000
Equity units issued:
  Company units issued (1).................................................................      5,602      4,412
  Subsidiary units and options issued......................................................     --          2,847
                                                                                             ---------  ---------
                                                                                             $  20,771  $  27,281
                                                                                             ---------  ---------
                                                                                             ---------  ---------
</TABLE>
 
------------------------
 
(1) Company units issued in 1996 includes 900,000 Class A Units valued at $4,950
    which are subject to redemption (see Note 3).
 
    During 1996, the Company acquired $1,377 in property and equipment under
capital lease obligations, exclusive of property and equipment under capital
lease obligations which were acquired in acquisitions.
 
    In January 1996, the Company recognized additional members' equity and
goodwill of $5,574 and $2,907, respectively, and a reduction in minority
interests of $2,667 relating to a recapitalization and merger of companies
holding minority equity interests in certain subsidiaries of the Company, which
exchanged these interests for Class A units of the Company.
 
    In December 1995, the Company issued 7,273,918 Class A Units to an affiliate
in satisfaction of a payable of $7,274.
 
 The accompanying notes are an integral part of these consolidated statements.
 
                                      F-6
<PAGE>
                NEXTLINK COMMUNICATIONS, L.L.C. AND SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                               DECEMBER 31, 1996
 
1. ORGANIZATION:
 
    The consolidated financial statements include the accounts of NEXTLINK
Communications, L.L.C., a Washington limited liability company, and its
majority-owned subsidiaries (the Company). The Company, through predecessor
entities, was formed on September 16, 1994 and, through its subsidiaries,
provides competitive local telecommunications services in selected markets in
the United States. The Company is a majority-owned subsidiary of Eagle River
Investments, L.L.C. (Eagle River).
 
    Prior to January 31, 1997, the Company was organized and operated under a
limited liability company agreement. The agreement provided, among other things,
for specific allocation of net profits and losses to each member, allocations
and distributions to members, and a preferred return to members on their
respective contributions invested in the Company, as well as a return of their
respective investments in the Company. On January 31, 1997, NEXTLINK
Communications, L.L.C. merged with and into NEXTLINK Communications, Inc., a
Washington corporation (the Incorporation). See Note 12 for further discussion.
Unless otherwise indicated all information presented herein is presented for
periods prior to the Incorporation, and therefore relate to the time that the
Company was a limited liability company.
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 
    PRINCIPLES OF CONSOLIDATION
 
    The Company's consolidated financial statements include 100% of the assets,
liabilities and results of operations of subsidiaries in which the Company has a
controlling interest of greater than 50%. The ownership interests of the other
members or partners are reflected as minority interests. The Company's
investments in entities in which it has voting interests of at least 20% but not
more than 50% are accounted for using the equity method and investments in
entities in which it has voting interests of not more than 20% are accounted for
using the cost method. All significant intercompany accounts and transactions
have been eliminated.
 
    REVENUE RECOGNITION
 
    The Company recognizes revenue on telecommunications and enhanced
communications services in the period that service is provided.
 
    CASH AND CASH EQUIVALENTS
 
    Cash equivalents consist of highly liquid investments with original
maturities of three months or less at the time of purchase.
 
    MARKETABLE SECURITIES
 
    Marketable securities consist of U.S. government securities and commercial
paper with original maturities beyond three months, but less than 12 months.
Marketable securities are stated at cost, adjusted for discount accretion and
premium amortization. The securities in the Company's portfolio are classified
as "held to maturity," as management has the intent and ability to hold those
securities to maturity. The fair value of the Company's marketable securities
approximates the carrying value.
 
                                      F-7
<PAGE>
                NEXTLINK COMMUNICATIONS, L.L.C. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1996
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
    PLEDGED SECURITIES
 
    In connection with the sale of Senior Notes (see Note 6), a portion of the
net proceeds were utilized to purchase a portfolio consisting of U.S. government
securities, which mature at dates sufficient to provide for payment in full of
interest on the Senior Notes through April 15, 1999. The pledged securities are
stated at cost, adjusted for premium amortization and accrued interest. The fair
value of the pledged securities approximates the carrying value.
 
    PROPERTY AND EQUIPMENT
 
    Property and equipment are stated at cost. Direct costs of construction are
capitalized, including $853,000 of interest costs related to construction during
1996. There were no interest costs capitalized prior to 1996. Depreciation is
computed using the straight-line method over estimated useful lives beginning in
the month an asset is put into service.
 
    Estimated useful lives of property and equipment are as follows:
 
<TABLE>
<S>                                                  <C>
Telecommunications switching and other equipment...  5-10 years
Fiber optic network................................  15-20 years
Office equipment, furniture and other..............  3-5 years
Leasehold improvements.............................  the lesser of the
                                                     estimated useful lives
                                                     or
                                                     the terms of the
                                                     leases
</TABLE>
 
    INTANGIBLE ASSETS
 
    Intangible assets primarily represent costs allocated in acquisitions to
customer bases and contracts, software and related intellectual property and
goodwill. Intangible assets are amortized using the straight-line method over
the estimated useful lives of the assets as follows:
 
<TABLE>
<S>                                                     <C>
Customer contracts....................................  term of the
                                                        contracts
Customer bases........................................  5 years
Software and related intellectual property............  5 years
Goodwill..............................................  15-20 years
</TABLE>
 
    LONG-LIVED ASSETS
 
    The Company periodically reviews the carrying value of its long-lived
assets, including property, equipment and intangible assets, whenever events or
changes in circumstances indicate that the carrying value may not be
recoverable. To the extent the estimated future cash inflows attributable to the
asset, less estimated future cash outflows, is less than the carrying amount, an
impairment loss is recognized.
 
                                      F-8
<PAGE>
                NEXTLINK COMMUNICATIONS, L.L.C. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1996
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
    INCOME TAXES
 
    The Company has been organized and operated under a limited liability
company agreement structured in a manner that is intended to result in the
classification of the Company as a partnership for federal income tax purposes.
Accordingly, no provision for income taxes has been made. See Note 12 for
discussion regarding the effect of the Incorporation.
 
    CONCENTRATION OF CREDIT RISK
 
    The Company is exposed to concentration of credit risk principally from
accounts receivable. The Company had one customer whose revenue represented
approximately 23% of the Company's 1996 revenue and three customers whose
revenue each represented approximately 12-14% of the Company's 1995 revenue.
 
    ESTIMATES USED IN FINANCIAL STATEMENT PRESENTATION
 
    The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
 
    RECLASSIFICATIONS
 
    Certain reclassifications have been made to prior period amounts in order to
conform to the current presentation.
 
3. ACQUISITIONS:
 
    In December 1996, the Company acquired ITC, a switched-based long-distance
reseller based in Salt Lake City, Utah. ITC has approximately 9,000
long-distance customers in Utah, Colorado, Arizona, New Mexico and Idaho.
Consideration for the acquisition of ITC consisted of a cash payment of $4.0
million, of which $2.6 million was placed into escrow to be paid during 1998,
plus the issuance of 900,000 Class A Units of the Company. The Company has
granted the seller an option requiring the Company to repurchase the units at
$11.50 per unit beginning three years from the date of the closing of the
acquisition in the event that the Company has not completed a public
<#>offering</#> of its equity securities prior to that time. The Company has
valued the units, including the put option, at $4,950,000, or $5.50 per unit.
 
    In January 1996, the Company acquired certain assets of FoneNet, Inc. and
U.S. Network, Inc. through NEXTLINK Ohio, L.L.C. NEXTLINK Ohio, L.L.C. is
currently constructing fiber optic telecommunications systems for the Ohio
region. Consideration for the purchase consisted of a cash payment of $9.6
million, the issuance of 651,933 Class A Units of the Company, valued at
$651,933, plus the assumption of capital lease obligations of $6.1 million.
 
                                      F-9
<PAGE>
                NEXTLINK COMMUNICATIONS, L.L.C. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1996
 
3. ACQUISITIONS: (CONTINUED)
    In September 1995, the Company acquired certain assets of Sound Response
Corporation and immediately contributed the assets to NEXTLINK Interactive,
L.L.C. NEXTLINK Interactive, L.L.C. provides interactive voice response and
debit card services. The total cost of the acquisition was approximately $12.2
million. Included in the cost of the acquisition are 4,411,941 Class A Units of
the Company valued at $4,411,941 and $3.0 million of deferred purchase
consideration payable to BWP, Inc. (formerly known as Sound Response
Corporation) of which $1.5 million was paid during 1996 and $1.5 is payable
during 1997.
 
    In May 1995, the Company acquired certain assets of City Signal, Inc. and
Teledial America, Inc. relating to the Magic Number service, through NEXTLINK
Solutions, L.L.C. These assets are used by NEXTLINK Solutions, L.L.C. to offer a
virtual communications center for mobile professionals and workgroups. The total
cost of the acquisition was approximately $617,000.
 
    In April 1995, the Company acquired the telecommunications business of
Tel-West Central Services, Inc., a local exchange service reseller in Spokane,
Washington, through acquisition of the ownership units of NEXTLINK Washington,
L.L.C. The total cost of the acquisition was approximately $1.2 million.
 
    In January 1995, the Company acquired certain assets of City Signal, Inc.
(which is also known as U.S. Signal) through NEXTLINK Tennessee, L.L.C,
primarily consisting of an existing fiber optic telecommunications network in
Memphis and another network then under development in Nashville. NEXTLINK
Tennessee, L.L.C. is expanding the networks and is currently providing switched
local and long-distance telecommunications services in these markets. The total
cost of the acquisition was approximately $17.5 million. Included in the cost of
the acquisition were 2,847,444 Class A Units and related options of NEXTLINK
Tennessee, L.L.C. valued at $2,847,444.
 
    In September 1994, the Company acquired certain assets of Penns Light
Communications, Inc. through NEXTLINK Pennsylvania, L.P. The total cost of the
acquisition was approximately $460,000.
 
    The above described acquisitions have been accounted for as purchases and,
accordingly, the acquired assets and liabilities have been recorded at their
estimated fair values at the date of the acquisition, and the results of
operations have been included in the accompanying consolidated financial
statements since the dates of acquisition. The total purchase price in excess of
the fair market value of the net assets acquired was recorded as goodwill. See
Note 10 for a discussion of valuation of Class A Units.
 
    The following unaudited pro forma information presents the results of the
Company as if the above described acquisitions plus the Linkatel acquisition
(see Note 12) had occurred as of the beginning of 1995. These results include
certain adjustments consistent with the Company's accounting policies. These
results are not necessarily indicative of the results that actually would have
been attained if the acquisitions had been in effect at the beginning of 1995 or
which may be attained in the future.
<TABLE>
<CAPTION>
                                                                            DECEMBER 31,
                                                                       ----------------------
<S>                                                                    <C>         <C>
                                                                          1996        1995
                                                                       ----------  ----------
 
<CAPTION>
                                                                           (UNAUDITED, IN
                                                                             THOUSANDS)
<S>                                                                    <C>         <C>
Revenue..............................................................  $   36,105  $   25,620
Net loss.............................................................  $  (67,616) $  (15,992)
</TABLE>
 
                                      F-10
<PAGE>
                NEXTLINK COMMUNICATIONS, L.L.C. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1996
 
4. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
                                                                                                 DECEMBER 31,
                                                                                             --------------------
<S>                                                                                          <C>        <C>
                                                                                               1996       1995
                                                                                             ---------  ---------
 
<CAPTION>
                                                                                                (IN THOUSANDS)
<S>                                                                                          <C>        <C>
Telecommunications networks................................................................  $  66,762  $  15,358
Office equipment, leasehold improvements, furniture and other..............................     18,097      3,710
                                                                                             ---------  ---------
                                                                                                84,859     19,068
Less accumulated depreciation..............................................................     (8,369)    (1,125)
                                                                                             ---------  ---------
                                                                                                76,490     17,943
Network construction in progress...........................................................     21,294     11,721
                                                                                             ---------  ---------
                                                                                             $  97,784  $  29,664
                                                                                             ---------  ---------
                                                                                             ---------  ---------
</TABLE>
 
5. OTHER LONG-TERM ASSETS:
<TABLE>
<CAPTION>
                                                                                                    DECEMBER 31,
                                                                                                --------------------
<S>                                                                                             <C>        <C>
                                                                                                  1996       1995
                                                                                                ---------  ---------
 
<CAPTION>
                                                                                                   (IN THOUSANDS)
<S>                                                                                             <C>        <C>
Financing costs...............................................................................  $   9,822  $  --
Cash held in escrow for acquisitions..........................................................      8,682     --
Equity investments............................................................................      3,853     --
Advances to business to be acquired...........................................................      1,490     --
Other noncurrent assets.......................................................................        854        250
                                                                                                ---------  ---------
                                                                                                   24,701        250
Less accumulated amortization.................................................................       (728)    --
                                                                                                ---------  ---------
                                                                                                $  23,973  $     250
                                                                                                ---------  ---------
                                                                                                ---------  ---------
</TABLE>
 
    The Company's equity investments include (i) a 40% investment in
Telecommunications of Nevada, L.L.C., which operates a fiber optic
telecommunications network serving the Las Vegas market and (ii) a $3.2 million
investment in convertible preferred stock of Intermind Corporation, representing
a 13.6% voting interest. Intermind markets an interactive communications tool
for the World Wide Web and intranet applications.
 
6. LONG-TERM DEBT:
 
    On April 25, 1996, the Company completed the issuance and sale of $350.0
million in principal amount of 12.5% Senior Notes due April 15, 2006. The
Company used $117.7 million of the gross proceeds to purchase U.S. government
securities, representing funds sufficient to provide for payment in full of
interest on the Senior Notes through April 15, 1999 and used an additional $32.2
million to repay the advances and accrued interest from Eagle River. In
addition, the Company incurred costs of $9.8 million in connection with the
financing (including underwriter discounts and commissions). Interest payments
on the Senior Notes are due semi-annually. As of December 31, 1996, the fair
value of long-term debt approximated carrying value.
 
                                      F-11
<PAGE>
                NEXTLINK COMMUNICATIONS, L.L.C. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1996
 
6. LONG-TERM DEBT: (CONTINUED)
    The Senior Notes will be redeemable at the option of the Company, in whole
or in part, at any time on or after April 15, 2001 at the following prices
(expressed in percentages of the principal amount thereof at stated maturity) if
redeemed during the 12-month period beginning April 15 of the years indicated
below, in each case together with interest accrued to the redemption date:
 
<TABLE>
<CAPTION>
YEAR                                                                                   PERCENTAGE
-------------------------------------------------------------------------------------  -----------
<S>                                                                                    <C>
2001.................................................................................     106.250%
2002.................................................................................     104.167%
2003.................................................................................     102.083%
2004 and thereafter..................................................................     100.000%
</TABLE>
 
    The indenture pursuant to which the Senior Notes are issued contains certain
covenants that, among other things, limits the ability of the Company and its
subsidiaries to incur additional indebtedness, issue stock in subsidiaries, pay
dividends or make other distributions, repurchase equity interests or
subordinated indebtedness, engage in sale and leaseback transactions, create
certain liens, enter into certain transactions with affiliates, sell assets of
the Company and its subsidiaries, and enter into certain mergers and
consolidations.
 
    In the event of a change in control of the Company as defined in the
indenture, holders of the Senior Notes will have the right to require the
Company to purchase their Senior Notes, in whole or in part, at a price equal to
101% of the stated principal amount thereof, plus accrued and unpaid interest,
if any, thereon to the date of purchase. The Senior Notes are senior unsecured
obligations of the Company, and are subordinated to all current and future
indebtedness of the Company's subsidiaries, including trade payables.
 
7. RELATED PARTY TRANSACTIONS:
 
    During 1995, Eagle River loaned the Company $7.3 million at an interest rate
of prime plus 2%. On December 1, 1995, the note payable and accrued interest
were converted to equity.
 
    Included in payable to affiliates is $1.5 million payable to a Company
member in conjunction with the Sound Response Corporation acquisition. The
amount is due September 1, 1997.
 
    The Company incurred expenses provided by an affiliate and minority member
for administrative services as a result of a temporary agreement related to
certain acquisitions. The Company recorded expenses in connection with fees to
this affiliate of approximately $1.5 million in 1995.
 
8. COMMITMENTS AND CONTINGENCIES:
 
    Capitalized leases consist of leases of telecommunications equipment and
fiber optic networks. The Company is also leasing premises under various
operating leases which, in addition to rental payments, require payments for
insurance, maintenance, property taxes and other executory costs related to the
leases. The lease agreements have various expiration dates and renewal options
through 2015.
 
                                      F-12
<PAGE>
                NEXTLINK COMMUNICATIONS, L.L.C. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1996
 
8. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
    Future minimum payments required under the capital leases and operating
leases and agreements that have an initial or remaining noncancelable lease term
in excess of one year at December 31, 1996 are summarized below:
 
<TABLE>
<CAPTION>
                                                                         CAPITAL    OPERATING
YEARS ENDING DECEMBER 31,                                                LEASES      LEASES
----------------------------------------------------------------------  ---------  -----------
<S>                                                                     <C>        <C>
                                                                            (IN THOUSANDS)
1997                                                                    $   2,322   $   2,562
1998                                                                        2,310       2,568
1999                                                                        2,213       2,537
2000                                                                        1,921       2,338
2001                                                                          285       1,971
Thereafter............................................................      1,376       8,051
                                                                        ---------
Total minimum lease payments..........................................     10,427
Amounts representing interest.........................................     (2,971)
                                                                        ---------
Present value of future minimum lease payments........................      7,456
Less amounts due in one year..........................................     (1,194)
                                                                        ---------
                                                                        $   6,262
                                                                        ---------
                                                                        ---------
</TABLE>
 
    Total rent expense amounted to $2,248,000, $579,000 and $18,000 in 1996,
1995 and 1994, respectively.
 
    The Company is obligated under a supply agreement with a telecommunications
equipment vendor to purchase a certain dollar volume of equipment over the next
four years in order to obtain special pricing. If the Company is unable to meet
the required purchase commitment, the Company will be obligated to pay
additional amounts for previous purchases.
 
9. EMPLOYEE BENEFIT PLAN:
 
    The Company offers a 401(k) Plan to eligible employees as part of a 401(k)
Plan administered by an affiliate and Company member. All employees who have
worked at least 1,000 hours and have attained the age of 21 are eligible to
participate in the plan. Company contributions to the plan totaled $357,000 and
$50,000 in 1996 and 1995, respectively.
 
10. MEMBERS' EQUITY:
 
    MEMBERSHIP UNITS
 
    The Company's limited liability company agreement provides for both Class A
and Class B membership interests in the Company. Class A Unit holders are
entitled to a preferred return on their investment in the Company plus a return
of their capital upon the dissolution of the Company. Class B Units are granted
in connection with the Company's Amended and Restated Equity Option Plan (EOP).
Although Class B Units, when exercised, will constitute an ownership interest in
the Company, the interest is limited to the appreciation in the value of the
Company, that is the distributable profits interest,
 
                                      F-13
<PAGE>
                NEXTLINK COMMUNICATIONS, L.L.C. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1996
 
10. MEMBERS' EQUITY: (CONTINUED)
if any, of the Company. On January 31, 1997, the Company merged with and into
NEXTLINK Communications, Inc. (see Note 12).
 
    The valuation of membership units is determined by the EOP Administrative
Committee. The value of Class A Units as of December 31, 1995 and 1996 was
determined to be approximately $1.45 and $4.36, respectively, and the
appreciation interest per unit for Class B Units was approximately $0.44 and
$3.50 as of the same dates.
 
    RECAPITALIZATION
 
    Effective January 1, 1996, the Company merged four of its five operating
subsidiaries with newly formed entities owned by the Company (the
Recapitalization). As a result of these mergers, the entities and individuals
holding minority interests in the subsidiaries exchanged these interests for
3,841,207 Class A Units of the Company (representing an approximate 5.9%
ownership interest in the Company) which were valued at approximately $5.6
million. NEXTLINK Washington, L.L.C. did not participate in the merger. The
transaction has been accounted for as a purchase of minority interests.
Accordingly, the $2.9 million excess of the purchase price over the book value
of the interests acquired was recorded as goodwill.
 
    In addition to the exchange of equity interests, the Company exchanged
options to acquire equity interests in the subsidiaries for options to acquire
Class B Units in the Company. In connection with this transaction, the Company
issued 1,953,656 options with exercise prices of $0.01 and four-year vesting
schedules. These options had substantially the same economic values and vesting
schedules as the subsidiary options which were exchanged. These options are
included in the summary of information regarding the EOP that follows.
 
    EQUITY OPTION PLANS
 
    The Company and certain of its subsidiaries provided for grants of equity
option interests (EO Interests) during 1994 and 1995. The various option grants,
including those granted pursuant to the Recapitalization, are considered
compensatory and are accounted for similar to stock appreciation rights. The
Company recognizes compensation expense over the vesting period based on the
excess of the fair value of the Class B Units, as determined by the
Administrative Committee, over the exercise price of the option and such expense
is periodically adjusted for changes in the fair value of the Class B units.
 
    Effective January 1, 1996, the various option plans mentioned above were
replaced by the EOP. The EOP provides for the grant of EO Interests in the
Company. Options generally expire 15 years from the date of grant and vest 25%
at the end of each of the next four years. Previously granted options continue
to vest under their previous schedule which, in most cases, vested 20% at
employment and 20% at the end of each subsequent year.
 
                                      F-14
<PAGE>
                NEXTLINK COMMUNICATIONS, L.L.C. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1996
 
10. MEMBERS' EQUITY: (CONTINUED)
    Information regarding the Company's EOP is summarized below:
 
<TABLE>
<CAPTION>
                                                                                  WEIGHTED
                                                                                  AVERAGE
                                                                    NUMBER        EXERCISE
                                                                   OF UNITS        PRICES
                                                                  -----------  --------------
<S>                                                               <C>          <C>
Balance, inception (September 16, 1994).........................
  Granted.......................................................      898,996  $         0.01
                                                                  -----------
Balance, December 31, 1994......................................      898,996  $         0.01
  Granted.......................................................    1,135,176  $         0.01
  Granted pursuant to the Recapitalization......................    1,953,656  $         0.01
  Canceled......................................................     (375,000) $         0.01
                                                                  -----------
Balance, December 31, 1995......................................    3,612,828  $         0.01
  Granted.......................................................    1,031,002  $         0.85
  Canceled......................................................     (101,608) $         0.01
                                                                  -----------
Balance, December 31, 1996......................................    4,542,222  $         0.20
                                                                  -----------  --------------
                                                                  -----------  --------------
</TABLE>
 
    Of the options outstanding at December 31, 1996, there were 4,383,722 with
exercise prices ranging from $0.01 to $0.44 and 158,500 with an exercise price
of $3.50.
 
    As of December 31, 1996, 1995 and 1994, there were 1,551,782, 805,864 and
59,149 options vested, respectively. For the same periods, the weighted average
exercise for these vested options were $0.02, $0.01 and $0.01, respectively. The
Company recorded $9,914,000 and $375,000 of deferred compensation expense
related to the EOP during 1996 and 1995, respectively. Such deferred
compensation is included in other long-term liabilities.
 
    On January 31, 1997, in conjunction with the Incorporation, the Company
established a new stock option plan. All options previously outstanding will be
regranted under the new plan with terms and conditions substantially the same as
under the previous plan except that option holders will no longer have the
option to require the Company to repurchase units for cash upon exercise of such
units, nor will the Company have the option to repurchase exercised units for
cash.
 
11. QUARTERLY SUMMARY OF OPERATIONS (UNAUDITED):
 
    The financial information presented below reflects all adjustments
(consisting of normal recurring adjustments) which are, in the opinion of
management, necessary to a fair presentation of the results for the interim
periods.
 
                                      F-15
<PAGE>
                NEXTLINK COMMUNICATIONS, L.L.C. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1996
 
11. QUARTERLY SUMMARY OF OPERATIONS (UNAUDITED): (CONTINUED)
    Summarized quarterly financial data for 1996 and 1995 is as follows
(unaudited, in thousands):
<TABLE>
<CAPTION>
                                                                   1996
                                               ---------------------------------------------
<S>                                            <C>        <C>         <C>         <C>
                                                  1ST        2ND         3RD         4TH
                                               ---------  ----------  ----------  ----------
Revenue......................................  $   5,370  $    6,671  $    6,919  $    6,726
Cost and expenses............................     12,041      15,415      23,050      26,195
                                               ---------  ----------  ----------  ----------
Loss from operations.........................     (6,671)     (8,744)    (16,131)    (19,469)
Other income (expense), net..................       (445)     (4,973)     (7,371)     (7,297)
                                               ---------  ----------  ----------  ----------
Net loss.....................................  $  (7,116) $  (13,717) $  (23,502) $  (26,766)
                                               ---------  ----------  ----------  ----------
                                               ---------  ----------  ----------  ----------
 
<CAPTION>
 
                                                                   1995
                                               ---------------------------------------------
                                                  1ST        2ND         3RD         4TH
                                               ---------  ----------  ----------  ----------
<S>                                            <C>        <C>         <C>         <C>
Revenue......................................  $     399  $    1,000  $    2,825  $    3,328
Cost and expenses............................      2,003       3,289       5,271       9,451
                                               ---------  ----------  ----------  ----------
Loss from operations.........................     (1,604)     (2,289)     (2,446)     (6,123)
Other income, net............................         43          36         (95)       (253)
                                               ---------  ----------  ----------  ----------
Net loss.....................................  $  (1,561) $   (2,253) $   (2,541) $   (6,376)
                                               ---------  ----------  ----------  ----------
                                               ---------  ----------  ----------  ----------
</TABLE>
 
12. SUBSEQUENT EVENTS:
 
    INCORPORATION
 
    On January 31, 1997, the Company was merged into NEXTLINK Communications,
Inc. (Communications), a Washington corporation in a tax-free transaction. In
the merger, the Company's Class A membership interests were converted into
shares of Class B common stock of Communications, and options to purchase Class
B membership interests were converted into options to purchase shares of Class A
common stock of Communications. Communications Class A common stock and Class B
common stock will be identical in dividend and liquidation rights, and will vote
together as a single class on all matters, except as otherwise required by
applicable law, with the Class A shareholders entitled to cast one vote per
share, and the Class B shareholders entitled to cast 10 votes per share. In
calculating the number of shares of Communications common stock that each of the
Company's Class A members received in the merger, the Company applied a formula
that reflected each members' revalued capital account balance as of January 31,
1997. Class B membership options were converted on a one to one basis. After the
incorporation, Communications had 100,000,000 and 83,123,084 shares of Class B
common stock authorized and outstanding, respectively and 250,000,000 and 0
shares of Class A common stock authorized and outstanding, respectively with
options to purchase 4,668,912 shares of Class A common stock outstanding.
Communications also has 25,000,000 shares of Preferred Stock authorized,
5,700,000 are outstanding. See below under "Financing." The amount of Class B
common stock outstanding excludes 3,571,364 shares of Class B common stock
issuable upon exercise of an option granted to Mr. James F. Voelker, the
Company's President.
 
                                      F-16
<PAGE>
                NEXTLINK COMMUNICATIONS, L.L.C. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1996
 
12. SUBSEQUENT EVENTS: (CONTINUED)
    The conversion of the Company to a taxable corporation will result in the
Company recording fully reserved net deferred tax assets. Major items giving
rise to deferred tax assets include deferred compensation and certain operating
expenses capitalized for tax purposes. Management believes that, based on a
number of factors, the available objective evidence creates sufficient
uncertainty regarding the realization of the net deferred tax assets.
Accordingly, a valuation allowance will be provided for the net deferred tax
assets of the Company.
 
    FINANCING
 
    On January 31, 1997, the Company completed the sale of 5.7 million units
consisting of (i) 14% senior exchangeable redeemable preferred shares (Preferred
Shares), liquidation preference $50 per share, and (ii) contingent warrants to
acquire in the aggregate 5% of each class of outstanding junior shares (as
defined) of the Company on a fully diluted basis as of February 1, 1998, which
resulted in gross proceeds to the Company of $285 million and proceeds net of
underwriting discounts, advisory fees and expenses of $274 million. Dividends on
the Preferred Shares will accrue from January 31, 1997 and will be payable
quarterly commencing on May 1, 1997 at an annual rate of 14% of the liquidation
preference thereof. Dividends may be paid, at the Company's option, on any
dividend payment date occurring on or prior to February 1, 2002 either in cash
or by issuing additional Preferred Shares with an aggregate liquidation
preference equal to the amount of such dividends. The Company is required to
redeem all of the Preferred Shares outstanding on February 1, 2009 at a
redemption price equal to 100% of the liquidation preference thereof, plus
accumulated and unpaid dividends to the date of redemption.
 
    Subject to certain conditions, the Preferred Shares are exchangeable in
whole, but not in part, at the option of the Company, on any dividend payment
date, for the 14% senior subordinated notes (Senior Subordinated Notes) due
February 1, 2009 of the Company. All terms and conditions of the Senior
Subordinated Notes would be substantially the same as those of the Preferred
Shares.
 
    The contingent warrants are only exercisable on any business day after
February 1, 1998 if a Qualifying Event has not occurred on or prior to February
1, 1998. A Qualifying Event means a public equity <#>offering</#> (as defined)
or one or more strategic equity investments (as defined) which in either case
results in aggregate net proceeds to the Company of not less than $75 million.
 
    In the event of a change in control of the Company, the Company will be
required to offer to purchase all of the then outstanding Preferred Shares at a
price equal to 101% of the liquidation preference thereof, plus accumulated and
unpaid dividends to the date of redemption.
 
    ACQUISITION
 
    On February 4, 1997, the Company completed the acquisition of substantially
all of the assets of Linkatel Pacific, L.P. (Linkatel), a Los Angeles-based
competitive access telecommunications provider. At the time of acquisition,
Linkatel operated an 80 mile fiber optic telecommunications network covering
several markets in the Orange and Los Angeles county areas. The acquired assets
consist primarily of fiber optic network equipment and rights-of-way. The
Company plans to expand the network and add switching facilities in order to
provide local dial tone services during 1997. The total purchase price of $42.5
million consisted of a cash payment of $36.1 million, the repayment of debt of
$5.6 million and the assumption of net liabilities of $0.8 million.
 
                                      F-17
<PAGE>
                NEXTLINK COMMUNICATIONS, L.L.C. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1996
 
12. SUBSEQUENT EVENTS: (CONTINUED)
    The assets acquired and consideration given were as follows (in thousands):
 
<TABLE>
<S>                                                                 <C>
Fair value of tangible assets and liabilities acquired............  $  12,003
Fair value of intangible assets acquired..........................     29,682
                                                                    ---------
                                                                    $  41,685
                                                                    ---------
                                                                    ---------
 
Cash paid for assets, including repayment of debt.................  $  41,685
                                                                    ---------
                                                                    ---------
</TABLE>
 
                                      F-18
<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
TO NEXTLINK CAPITAL INC.:
 
    We have audited the accompanying balance sheet of NEXTLINK Capital, Inc. (a
Washington corporation) as of December 31, 1996. This balance sheet is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this balance sheet based on our audit.
 
    We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
 
    In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of NEXTLINK Capital, Inc. as of
December 31, 1996, in conformity with generally accepted accounting principles.
 
                                          ARTHUR ANDERSEN LLP
 
SEATTLE, WASHINGTON,
MARCH 11, 1997
 
                                      F-19
<PAGE>
                             NEXTLINK CAPITAL, INC.
 
                                 BALANCE SHEET
 
                               DECEMBER 31, 1996
 
<TABLE>
<CAPTION>
                                             ASSETS
<S>                                                                                    <C>
CASH IN BANK.........................................................................  $     100
                                                                                       ---------
                                                                                       ---------
                                      SHAREHOLDER'S EQUITY
COMMON STOCK, no par value,
  1,000 shares authorized, issued and outstanding....................................  $      --
  Additional paid-in capital.........................................................        100
                                                                                       ---------
                                                                                       $     100
                                                                                       ---------
                                                                                       ---------
</TABLE>
 
        The accompanying note is an integral part of this balance sheet.
 
                                      F-20
<PAGE>
                             NEXTLINK CAPITAL, INC.
 
                             NOTE TO BALANCE SHEET
 
                               DECEMBER 31, 1996
 
1. DESCRIPTION OF THE COMPANY
 
    NEXTLINK Capital, Inc. (NEXTLINK Capital) is a Washington corporation and a
wholly owned subsidiary of NEXTLINK Communications, L.C.C. (NEXTLINK). NEXTLINK
Capital was initially funded with a $100 contribution from NEXTLINK and had no
operations to date.
 
    NEXTLINK Capital was formed in March 1996 to facilitate the issuance of
Senior Notes in conjunction with NEXTLINK. Management's intent is that NEXTLINK
Capital will issue Senior Notes and advance the proceeds to NEXTLINK, NEXTLINK
Capital's sole source and repayment for the notes will be from the operations of
NEXTLINK. Therefore, this balance sheet should be read in conjunction with the
consolidated financial statements of NEXTLINK.
 
                                      F-21
<PAGE>
                                   SIGNATURES
 
    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the <#>Registrant</#> has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, on March 13,
1997.
 
                                NEXTLINK COMMUNICATIONS, INC.
                                /S/ CRAIG O. MCCAW
                                ---------------------------------------------
                                BY:  CRAIG O. MCCAW
                                TITLE: CHIEF EXECUTIVE OFFICER
 
    Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated:
 
          SIGNATURE                        TITLE                    DATE
------------------------------  ---------------------------  -------------------
      /s/ CRAIG O. MCCAW        Chief Executive Officer and
------------------------------    Director                     March 13, 1997
        Craig O. McCaw
 
                                Vice President, Chief
    /s/ KATHLEEN H. ISKRA         Financial Officer
------------------------------    (Principal Financial         March 13, 1997
      Kathleen H. Iskra           Officer and Principal
                                  Accounting Officer)
 
     /s/ JAMES F. VOELKER       President (Principal
------------------------------    Executive Officer) and       March 13, 1997
       James F. Voelker           Director
 
     /s/ DENNIS WEIBLING        Director
------------------------------                                 March 13, 1997
       Dennis Weibling
 
       /s/ SCOT JARVIS          Director
------------------------------                                 March 13, 1997
         Scot Jarvis
 
     /s/ C. JAMES JUDSON        Director
------------------------------                                 March 13, 1997
       C. James Judson
 
    /s/ WILLIAM A. HOGLUND      Director
------------------------------                                 March 13, 1997
      William A. Hoglund