<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 5, 1997.
REGISTRATION NO. 33-26367
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
___________________
WINSTAR COMMUNICATIONS, INC.
WINSTAR EQUIPMENT CORP.
(Exact Name of Each Registrant as Specified in its Charter)
DELAWARE 4812 13-3585278
(State or other (Primary standard industrial (I.R.S. Employer
jurisdiction of classification code number) Identification Number
incorporation or of WinStar
organization Communications, Inc.)
___________________
230 PARK AVENUE
NEW YORK, NEW YORK 10169
(212) 584-4000
(Address, including zip code, and telephone number, including area code, of each
registrant's principal executive office)
___________________
WILLIAM J. ROUHANA, JR.
CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD
WINSTAR COMMUNICATIONS, INC.
230 PARK AVENUE
NEW YORK, NEW YORK 10169
(212) 584-4000
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
___________________
COPIES TO:
DAVID ALAN MILLER, ESQ.
GRAUBARD MOLLEN & MILLER
600 THIRD AVENUE
NEW YORK, NEW YORK 10016
TELEPHONE: (212) 818-8800
FAX: (212) 818-8881
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement become effective.
If any of the securities being registered on this Form are to be offered
in connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box: |_|
<PAGE>
(COVER PAGE CONTINUED)
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===========================================================================================================
Title of Each Class of Amount to be Proposed Proposed Amount of
Securities to be Registered Registered Maximum Maximum Registration
Offering Price Aggregate Fee
Per Note Offering Price
- ---------------------------------------- -------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
14 1/2% Senior Deferred Interest Exchange 1,000,000 $1,000(3) $100,000,000(4) $34,482.76
Notes Due 2005 ("New Senior Notes")(1)
- ---------------------------------------- -------------- ----------------- ---------------- ----------------
12 1/2% Guaranteed Senior Secured 2,000,000 $1,000(3) $200,000,000(4) $68,965.52
Exchange Notes Due 2004 ("New
Equipment Notes")(2)
- ---------------------------------------- -------------- ----------------- ---------------- ----------------
Guarantee of the New Equipment Notes -- -- -- (5)
- ---------------------------------------- -------------- ----------------- ---------------- ----------------
Total $300,000,000 $103,448.28(6)
===========================================================================================================
</TABLE>
(1) The New Senior Notes being registered hereby are being offered by
WinStar Communications, Inc. ("WinStar") in exchange for certain 14 1/2%
senior deferred interest notes due 2005 ("Old Senior Notes") sold by it
in a private placement in March 1997.
(2) The New Equipment Notes being registered hereby are being offered by
WinStar Equipment Corp., a wholly-owned subsidiary of WinStar, in
exchange for certain 12 1/2% guaranteed senior secured notes due 2004
("Old Equipment Notes" and, together with the Old Senior Notes, the "Old
Notes").
(3) Represents the minimum principal amount of each of the Old Notes for
which the New Notes will be exchanged.
(4) Based on the book value of the notes as of the latest practicable date
pursuant to Rule 457(f)(2) under the Securities Act of 1933 ("Act").
(5) Pursuant to Rule 457(n) under the Act, no separate fee for the
guarantees is required.
(6) Fee was previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
==============================================================================
<PAGE>
OFFER TO EXCHANGE
14 1/2% SENIOR DEFERRED INTEREST EXCHANGE NOTES DUE 2005
(INTEREST PAYABLE ON APRIL 15 AND OCTOBER 15,
COMMENCING APRIL 15, 2001)
FOR
ALL OUTSTANDING
141/2% SENIOR DEFERRED INTEREST NOTES DUE 2005
(INTEREST PAYABLE ON APRIL 15 AND OCTOBER 15,
COMMENCING APRIL 15, 2001)
OF
WINSTAR COMMUNICATIONS, INC.
______________________
OFFER TO EXCHANGE
12 1/2% GUARANTEED SENIOR SECURED EXCHANGE NOTES DUE 2004
(INTEREST PAYABLE ON MARCH 15 AND SEPTEMBER 15,
COMMENCING SEPTEMBER 15, 1997)
FOR
ALL OUTSTANDING
12 1/2% GUARANTEED SENIOR SECURED NOTES DUE 2004
(INTEREST PAYABLE ON MARCH 15 AND SEPTEMBER 15,
COMMENCING SEPTEMBER 15, 1997)
OF
WINSTAR EQUIPMENT CORP.
UNCONDITIONALLY GUARANTEED ON A SENIOR BASIS BY
WINSTAR COMMUNICATIONS, INC.
______________________
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME ON SEPTEMBER 12, 1997,
UNLESS EXTENDED BY WINSTAR COMMUNICATIONS, INC.
______________________
SEE "RISK FACTORS" BEGINNING ON PAGE 19 HEREOF FOR A DISCUSSION OF CERTAIN
INFORMATION
THAT SHOULD BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER AND
AN INVESTMENT IN THE SENIOR DEFERRED INTEREST EXCHANGE NOTES
AND GUARANTEED SENIOR SECURED EXCHANGE NOTES.
______________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
______________________
THE DATE OF THIS PROSPECTUS IS AUGUST ____, 1997
(CONTINUED ON NEXT PAGE)
<PAGE>
(COVER PAGE CONTINUED)
WinStar Communications, Inc., a Delaware corporation ("Company"), hereby
offers ("Exchange Offer"), upon the terms and subject to the conditions set
forth in this Prospectus and the accompanying letter of transmittal ("Letter of
Transmittal"), to exchange $1,000 principal amount of its 141/2% Senior Deferred
Interest Exchange Notes Due 2005 ("New Senior Notes") for each $1,000 principal
amount of its outstanding 141/2% Senior Deferred Interest Notes Due 2005 ("Old
Senior Notes" or "1997 Senior Notes"). The Old Senior Notes and the New
Senior Notes are referred to herein collectively as the "Senior Notes."
As part of the Exchange Offer, WinStar Equipment Corp., a Delaware
corporation and wholly-owned subsidiary of the Company ("WinStar Equipment" and,
together with the Company, the "Issuers"), hereby offers, upon the terms and
subject to the conditions set forth in this Prospectus and the Letter of
Transmittal, to exchange $1,000 principal amount of its 121/2% Guaranteed Senior
Secured Exchange Notes Due 2004 ("New Equipment Notes" and, together with the
New Senior Notes, the "New Notes") for each $1,000 principal amount of its
outstanding 121/2% Guaranteed Senior Secured Notes Due 2004 ("Old Equipment
Notes" and, together with the Old Senior Notes, the "Old Notes"). The Company,
which has guaranteed the Old Equipment Notes on a senior basis, has agreed to
guarantee the New Equipment Notes on a senior basis ("New Equipment Note
Guarantee"). The Old Equipment Notes and the New Equipment Notes are referred
to herein collectively as the "Equipment Notes."
The New Notes (and the New Equipment Note Guarantee) will be registered
under the Securities Act of 1933, as amended ("Securities Act"), pursuant to the
registration statement on Form S-4 ("Registration Statement") of which this
Prospectus forms a part. As of the date hereof, $100.0 million principal amount
of the Old Senior Notes and $200.0 million principal amount of the Old Equipment
Notes were outstanding. The Registration Statement of which this Prospectus
forms a part has been filed by the Company and WinStar Equipment in accordance
with the terms of the Purchase Agreement, dated March 13, 1997 ("Purchase
Agreement"), and Registration Rights Agreement, dated March 13, 1997
("Registration Agreement"), between the Issuers and Credit Suisse First Boston
Corporation and BT Securities Corporation, the initial purchasers of the Old
Notes ("Initial Purchasers"). The New Notes and Old Notes are referred to
herein collectively as the "1997 Notes" or "Notes." The Exchange Offer is being
made by the Issuers to fulfill certain obligations under the Purchase Agreement
and Registration Agreement. After the consummation of the Exchange Offer, the
Issuers will have no further obligation to make any other such exchange offers.
The Issuers will accept for exchange any and all Old Notes that are validly
tendered and not withdrawn on or prior to 5:00 p.m., New York City time, on the
date the Exchange Offer expires, which will be September 12, 1997, unless the
Exchange Offer is extended by the Company in its sole discretion ("Expiration
Date"). Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the Expiration Date. The Exchange Offer is not
conditioned upon any minimum principal amount of Old Notes being tendered for
exchange. However, the Exchange Offer is subject to certain conditions which
may be waived by the Issuers and to the terms and provisions of the Registration
Statement. The Old Notes may be tendered only in denominations of $1,000
principal amount and integral multiples thereof. The Company has agreed to pay
all expenses related to the Exchange Offer, except costs related to the delivery
of the Old Notes by each holder of such notes to the United States Trust Company
of New York, the exchange agent ("Exchange Agent" or "U.S. Trust"), and
underwriting discounts, commissions and transfer taxes. Any waiver, extension
or termination of the Exchange Offer will be publicly announced by the Company
through a release to the Dow Jones News Service and as otherwise required by
applicable laws or regulations. See "The Exchange Offer."
The New Senior Notes and the New Equipment Guarantee will be obligations of
the Company and the New Equipment Notes will be the obligations of WinStar
Equipment. The New Senior Notes will be entitled to the benefits of the
indenture under which the Old Senior Notes were issued (the "Senior Notes
Indenture") and the New Equipment Notes will be entitled to the benefits of the
indenture under which the Old Equipment Notes were issued ("Equipment Notes
Indenture" and, together with the Senior Notes Indenture, the "1997
Indentures"). The form of the New Notes will be identical to the form of the
Old Notes, except that the New Notes will have been registered under the
Securities Act and, therefore, will not bear legends restricting the transfer
thereof. The New Notes will have the same terms, conditions and rankings as the
Old Notes. The New Senior Notes and the New Equipment Note Guarantee will be
unsecured, unsubordinated obligations of the Company, will rank PARI PASSU in
right of payment with all existing and future unsecured, unsubordinated
obligations of the Company and will be senior in right of payment to all
existing and
2
<PAGE>
(Cover page continued)
future subordinated indebtedness of the Company. The New Equipment Notes will
be secured, senior obligations of WinStar Equipment. WEC has no indebtedness
senior to the Equipment Notes.
The New Senior Notes will bear interest at a rate of 141/2% per annum,
payable on April 15 and October 15, commencing April 15, 2001. Until October
15, 2000, interest on the New Senior Notes will accrue and be compounded
semiannually on each SemiAnnual Interest Accrual Date (as defined), but will not
be payable in cash. Interest on the Accumulated Amount (as defined) of the New
Senior Notes as of October 15, 2000 will be payable semiannually commencing
April 15, 2001. The New Senior Notes will mature on October 15, 2005 and are
redeemable on or after October 15, 2000, at the option of the Company, in whole
or in part, at the redemption prices set forth herein. The term "(as defined)"
used after a capitalized term means that the term is defined herein under the
section entitled "Description of Notes" or in the 1997 Indentures.
The New Equipment Notes will bear interest at a rate of 121/2% per annum,
payable on March 15 and September 15, commencing September 15, 1997. The New
Equipment Notes will mature on March 15, 2004 and are redeemable on or after
March 15, 2002, at the option of WinStar Equipment, in whole or in part, at the
redemption prices set forth herein. In the event that by March 18, 1999,
WinStar Equipment has not applied $200.0 million to fund the Acquisition Costs
(as defined) of Designated Equipment (as defined), WinStar Equipment is required
to redeem New Equipment Notes in an aggregate principal amount equal to such
shortfall at a redemption price of 112.50% of such principal amount, plus
accrued interest, if any, to the date of redemption.
Based on no-action letters issued by the staff of the Securities and
Exchange Commission ("Commission") to third parties, the Company believes that
New Notes issued pursuant to this Exchange Offer in exchange for Old Notes may
be offered for resale, resold and otherwise transferred by a holder thereof
(other than a broker-dealer who purchased such Old Notes directly from the
Company to resell pursuant to Rule 144A or any other available exemption under
the Securities Act) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that the holder is acquiring
the New Notes in the ordinary course of its business and is not participating,
and has no arrangement or understanding with any person to participate, in the
distribution of the New Notes. Holders of Old Notes wishing to accept the
Exchange Offer must represent to the Company in the Letter of Transmittal that
such conditions have been met.
Each broker-dealer that receives New Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with resales of New Notes
received in exchange for Old Notes where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of 90 days after the
Expiration Date, it will make this Prospectus available to any broker-dealer for
use in connection with any such resale. See "Plan of Distribution."
As of July 31, 1997, Cede & Co. ("Cede"), as nominee for The Depository
Trust Company, New York, New York ("DTC"), was the registered holder of $100
million aggregate principal amount of the Old Senior Notes and held such Old
Senior Notes for six of its participants, and was the registered holder of $200
million aggregate principal amount of the Old Equipment Notes and held such Old
Equipment Notes for 21 of its participants. The Company believes that no such
participant is an affiliate (as such term is defined in Rule 405 of the
Securities Act) of the Company or WinStar Equipment. There has previously been
only a limited secondary market, and no public market, for the Old Notes. The
Old Notes are, and the New Notes will be, eligible for trading in the Private
Offering, Resales and Trading through Automatic Linkages ("PORTAL") market.
There can be no assurance as to the liquidity of the trading market for either
the New Notes or the Old Notes. The New Notes constitute securities for which
there is no established trading market, and the Company does not currently
intend to list the Notes on any securities exchange. If such a trading market
develops for the New Notes, future trading prices will depend on many factors,
including, among other things, prevailing interest rates, the Company's results
of operations and the market for similar securities. Depending on such factors,
the New Notes may trade at a discount from their face value. See "Risk Factors
- -- Absence of Public Market for the New Notes."
3
<PAGE>
(Cover page continued)
Any Old Notes not tendered and accepted in the Exchange Offer will remain
outstanding and will be entitled to all the rights and preferences and will be
subject to the limitations applicable thereto under the 1997 Indentures.
Following the consummation of the Exchange Offer, the holders of Old Notes will
continue to be subject to the existing restrictions upon transfer thereof and
the Issuers will have no further obligation to such holders to provide for any
other exchange offer with respect to the Old Notes held by such holders.
Following the completion of the Exchange Offer in accordance with the terms
hereof and the Registration Agreement, certain of the Old Notes may not be
entitled to the contingent increase in interest rate as provided in the
Registration Agreement. See "The Exchange Offer."
This Prospectus, together with the Letter of Transmittal, is being sent to
all registered holders of Old Notes as of August 8, 1997.
The Issuers will not receive any proceeds from this Exchange Offer. No
dealer-manager is being used in connection with this Exchange Offer. See "Plan
of Distribution."
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY OR WINSTAR
EQUIPMENT ACCEPT SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY
JURISDICTION IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE
IN COMPLIANCE WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
The Old Notes were issued originally in global form (the "Old Global
Notes"). The Old Global Notes were deposited with, or on behalf of, DTC, as the
initial depository with respect to the Old Notes (in such capacity, the
"Depository"). The Old Global Notes are registered in the name of Cede, as
nominee of DTC, and beneficial interests in the Old Global Notes are shown on,
and transfers thereof are effected only through, records maintained by the
Depository and its participants. The use of the Old Global Notes to represent
the Old Notes permits the Depository's participants, and anyone holding a
beneficial interest in an Old Note registered in the name of such a participant,
to transfer interests in the Old Notes electronically in accordance with the
Depository's established procedures without the need to transfer a physical
certificate. Except as provided below, the New Notes will also be issued
initially as a note in global form (the "New Global Notes", and together with
the Old Global Notes, the "Global Notes") and deposited with, or on behalf of,
the Depository. Notwithstanding the foregoing, holders of Old Notes that are
held, at any time, by a person that is not a qualified institutional buyer under
Rule 144A (a "Qualified Institutional Buyer") and exchanges Old Notes in the
Exchange Offer, will receive the New Notes in certificated form and is not, and
will not be, able to trade such securities through the Depository unless the New
Notes are resold to a Qualified Institutional Buyer. After the initial issuance
of the New Global Notes, New Notes in certificated form will be issued in
exchange for a holder's proportionate interest in the New Global Notes only as
set forth in the Indenture.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THE EXCHANGE OFFER OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE EXCHANGE AGENT. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE NEW NOTES IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION. THE DELIVERY OF THIS PROSPECTUS SHALL NOT,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS
CORRECT AT ANY TIME SUBSEQUENT TO ITS DATE.
4
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE PAGE
<S> <C> <C> <C>
Available Information................................5 Certain United States Federal
Incorporation of Information by Reference............6 Income Tax Considerations..........................67
Prospectus Summary...................................7 Description of Certain Indebtedness
Risk Factors........................................20 and Preferred Stock................................72
The Exchange Offer..................................32 Plan of Distribution................................75
Capitalization......................................39 Legal Matters.......................................75
Description of Notes.............................. 40 Experts...........................................76
</TABLE>
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on
Form S-4 under the Securities Act with respect to the New Notes offered in the
Exchange Offer. For the purposes hereof, the term "Registration Statement"
means the original Registration Statement and any and all amendments thereto.
In accordance with the rules and regulations of the Commission, this Prospectus
does not contain all of the information set forth in the Registration Statement
and the schedules and exhibits thereto. Each statement made in this Prospectus
concerning a document filed as an exhibit to the Registration Statement is
qualified in its entirety by reference to such exhibit for a complete statement
of its provisions. For further information pertaining to Company and the New
Notes offered in the Exchange Offer, reference is made to such Registration
Statement, including the exhibits and schedules thereto and the financial
statements, notes and schedules filed as a part thereof. The Registration
Statement (and the exhibits and schedules thereto) may be inspected and copied
at the public reference facilities maintained by the Commission at its principal
office at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549 ("Washington Office"), or at its regional offices at Citicorp Center, 500
West Madison Street, 14th Floor, Chicago, Illinois 60661 ("Chicago Office"), and
at Seven World Trade Center, 13th Floor, New York, New York 10048 ("New York
Office"). Any interested party may obtain copies of all or any portion of the
Registration Statement and the exhibits thereto at prescribed rates from the
Public Reference Section of the Commission at its Washington Office.
Additionally, the Commission maintains a web site (http://www.sec.gov) that
contains certain reports, proxy and information statements and other information
relating to the Company.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended ("Exchange Act"), and in accordance with the
Exchange Act, the Company files periodic reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed by the Company with the Commission can be inspected and copied
(at prescribed rates) at the Commission's Washington Office, Chicago Office and
New York Office. In addition, reports, proxy statements and other information
concerning the Company can be inspected and copied at the offices of The Nasdaq
Stock Market, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
If the Company ceases to be subject to the informational reporting
requirements of the Exchange Act, the Company has agreed that, so long as any
Notes are outstanding, it will file with the Commission all such reports and
other information as it would be required to file with the Commission by
Sections 13(a) or 15(d) under the Exchange Act. The Company will supply the
Trustee and each holder of Notes, or will supply to the Trustee for forwarding
to each such holder, without cost to such holder, copies of such reports or
other information.
5
<PAGE>
INCORPORATION OF INFORMATION BY REFERENCE
The following documents or information have been filed by the Company with
the Commission pursuant to the Exchange Act and are incorporated herein by
reference:
(1) Annual Report on Form 10-K for the year ended December 31, 1996;
(2) Current Report on Form 8-K filed January 17, 1997.
(3) Current Report on Form 8-K filed February 14, 1997.
(4) Current Report on Form 8-K filed February 27, 1997.
(5) Current Report on Form 8-K filed March 27, 1997;
(6) Quarterly Report on Form 10-Q for the three-month period ended March
31, 1997, as amended on June 10, 1997;
(7) Proxy Statement, dated May 15, 1997;
(8) Current Report on Form 8-K filed June 10, 1997; and
(9) Current Report on Form 8-K filed July 2, 1997.
All documents subsequently filed by the Company with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date
of this Prospectus and prior to the termination of the offering covered by this
Prospectus shall be deemed incorporated by reference into this Prospectus and to
be a part hereof from the date of filing of such documents. Any statement
contained in a document incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein modifies or supersedes such statement. Any statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
THE COMPANY HEREBY UNDERTAKES TO PROVIDE WITHOUT CHARGE TO EACH PERSON TO
WHOM A COPY OF THIS PROSPECTUS HAS BEEN DELIVERED, UPON THE WRITTEN OR ORAL
REQUEST OF SUCH PERSON TO WINSTAR COMMUNICATIONS, INC., 230 PARK AVENUE, SUITE
2700, NEW YORK, NEW YORK 10169 (TELEPHONE 212-584-4000), ATTENTION: INVESTOR
RELATIONS, A COPY OF ANY AND ALL OF THE DOCUMENTS REFERRED TO ABOVE (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS) WHICH HAVE BEEN INCORPORATED BY REFERENCE IN THIS
PROSPECTUS. ALL SUCH DOCUMENTS CAN ALSO BE RETRIEVED FROM THE COMMISSION'S
ELECTRONIC DATA GATHERING AND RETRIEVAL (EDGAR) SYSTEM AT WWW.SEC.GOV.
6
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION AND
FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, REFERENCES HEREIN TO
THE "COMPANY" OR "WINSTAR" REFER TO WINSTAR COMMUNICATIONS, INC. AND, WHERE
APPROPRIATE, ITS SUBSIDIARIES. EFFECTIVE JANUARY 1, 1996, THE COMPANY CHANGED
ITS FISCAL YEAR END FROM THE LAST DAY IN FEBRUARY TO DECEMBER 31. WIRELESS
FIBERSM IS A SERVICE MARK AND WINSTAR-Registered Trademark- IS A TRADEMARK OF
WINSTAR COMMUNICATIONS, INC.
THE COMPANY
The Company provides a full range of telecommunications services, including
local, long distance and Internet access services, as a competitive local
exchange carrier ("CLEC"). By exploiting its fiber-quality digital capacity in
the 38 GHz portion of the radio spectrum ("Wireless Fiber") and a switch-based
infrastructure, the Company seeks to distinguish itself as a facilities-based,
value-added provider of high-capacity telecommunications services to small and
medium-sized businesses and an attractive alternative to established providers,
such as the regional Bell operating companies ("RBOCs"). The Company introduced
its switch-based local exchange services to end users in New York City in
October 1996, is currently also offering such switch-based local exchange
service in Boston, Chicago, Los Angeles and San Diego and offering local
exchange services on a resale basis in Atlanta, Newark, Philadelphia, San
Francisco and Washington, D.C. The Company's local exchange services include
the provision of PBX trunks, individual business lines and Centrex and Internet
access, and provide customers with full-feature services such as custom calling,
caller ID, conference calling and voice mail. During the next several years,
the Company intends to introduce its local exchange services in each of the
other major metropolitan areas where it is licensed to provide 38 GHz services
over four or more 100 MHz channels. Over time, the Company intends to carry a
substantial majority of its local telecommunications service traffic over
Wireless Fiber and its own switched networks, unlike most fiber-based CLECs,
which typically do not carry the majority of their customer traffic over their
own networks. The Company also offers a variety of facilities-based broadband,
high-capacity local access and digital network services ("Carrier Services") to
other telecommunications service providers on a wholesale basis. As of June 30,
1997, the Company had more than 40 carrier customers, including, among others,
Ameritech Cellular Services, MCI Communications, Pacific Bell and Teleport
Communications.
The Company is the holder of the largest amount of 38 GHz spectrum in the
United States and is utilizing this asset to build local telephone networks for
the transmission of voice, data and video traffic in the major metropolitan
areas covered by the Company's 38 GHz licenses (the "Wireless Licenses"). The
Company recently consummated an acquisition (the "Milliwave Acquisition") of
another 38 GHz license holder, increasing its 38 GHz spectrum asset base by 88
channels, each providing 100 MHz of bandwidth. The Wireless Licenses, including
those acquired in the Milliwave Acquisition, cover an aggregate of more than 100
cities with populations exceeding 100,000 each, and encompass an aggregate
population of approximately 172 million. Furthermore, the Wireless Licenses
allow the Company to provide Wireless Fiber services in 49 of the 50 most
populated Metropolitan Statistical Areas ("MSAs") in the United States. The
Company has agreed to acquire an aggregate of 62 additional 38 GHz licenses in
various transactions, subject to approval by the Federal Communications
Commission ("FCC"). Upon completion of these acquisitions, the Company's
Wireless Licenses will enable the Company to provide services in all 50 of the
most populated MSAs and will cover cities encompassing an aggregate population
of 180 million. Many of the Company's Wireless Licenses allow for the provision
of Wireless Fiber services over four or more channels in a single market. The
Company believes that the utilization of multiple 38 GHz channels in a single
licensed area provides it with advantages over 38 GHz service providers that
possess fewer channels, by allowing it to build out city-wide networks of
broadband capacity.
The 38 GHz portion of the radio spectrum has characteristics well suited
for the provision of local telecommunications services, including:
RAPID DEPLOYMENT OF ALTERNATIVE LOCAL INFRASTRUCTURE. 38 GHz technology
generally can be deployed considerably more rapidly than wireline (because of
permit procedures and construction time required for wireline buildout) and many
other wireless technologies (because of their infrastructure requirements and,
in many instances, the need to follow FCC frequency coordination procedures in
connection with wireless facilities).
7
<PAGE>
BROAD BANDWIDTH. The total amount of bandwidth for each 38 GHz channel is
100 MHz, which exceeds the bandwidth of any other present terrestrial wireless
channel allotment and supports full broadband capability. For example, one 38
GHz DS-3 channel at 45 Mbps can transfer data at a rate which is over 1,500
times the rate of the fastest dial-up modem currently in general use (28.8 Kbps)
and over 350 times the rate of the fastest ISDN line currently in general use
(128 Kbps). Data transfer rates of a 38 GHz DS-3 channel even exceed the data
transfer rates of cable modems (30 Mbps). The broadband capacity of 38 GHz
provides improved speed and quality in transmissions, as compared to
transmissions that are carried over a "last mile" consisting of copper wire. In
addition to accommodating standard voice and data requirements, 45 Mbps data
transmission rates allow end users to receive full-motion video and 3-D graphics
and to use highly interactive applications on the Internet and other networks.
EASE OF INSTALLATION. The equipment used for point-to-point applications
in 38 GHz (i.e., antennae, transceivers and digital interface units) is
typically smaller, less obtrusive and less expensive, and uses less power than
equipment used for similar applications at lower frequencies. These
characteristics make it relatively easier to obtain the roof rights ("Roof
Rights") required to install 38 GHz transceivers, and less costly to initiate 38
GHz-based services as compared to most other wireless services.
EFFICIENT CHANNEL REUSE. Certain characteristics of 38 GHz, including the
small amount of dispersion (i.e., scattering) of the radio beam as compared to
the more dispersed radio beams produced at lower frequencies, allow for the
reuse of bandwidth capacity in a licensed area. The ability to reuse capacity
allows the 38 GHz license holder to densely deploy its 38 GHz services in a
given geographic area, provide services to multiple customers over the same 38
GHz channel, and conserve bandwidth capacity, thereby enhancing the types of
services that can be provided and increasing the number of customers to which
such services can be provided.
BUSINESS STRATEGY
The Company's objective is to become the full-service telecommunications
provider of choice to small and medium-sized business customers and a provider
of high-quality alternative and broadband facilities to its Carrier Services
customers. Key elements of the Company's strategy are to:
EXPAND NETWORK INFRASTRUCTURE. The Company is creating an infrastructure
on a city-by-city basis using its Wireless Fiber capabilities, switches acquired
by the Company from equipment vendors and facilities leased from other carriers
to originate and terminate traffic. Pursuant to its building-centric network
plan, the Company is identifying strategically located sites in each
metropolitan area to serve as hubs for its network. These hub sites will be
connected via Wireless Fiber links to end users. The Company believes that a
limited number of hub sites (generally less than a dozen) in each metropolitan
area will allow it to address more than 70% of its targeted customers' buildings
and to carry the majority of its customers' traffic on its own network instead
of the higher cost facilities of other carriers.
EXPLOIT FIRST-TO-MARKET ADVANTAGES. The Company seeks to capitalize on the
significant opportunities emerging in the industry as a result of the
Telecommunications Act of 1996 (the "Telecommunications Act") by exploiting a
"first-to-market" advantage as one of the few holders of 38 GHz licenses with an
established operating and management infrastructure. The Company believes that
its early entrance into its markets provides it with advantages over many
potential competitors by allowing it to: (i) establish a customer base prior to
widespread competition from other CLECs; (ii) develop a proven, reliable network
infrastructure using its own switching capacity ahead of many other CLECs;
(iii) develop pioneering expertise in the utilization of 38 GHz for the delivery
of telecommunications services and the design and management of 38 GHz-based
networks; and (iv) acquire Roof Rights to place its 38 GHz antennae on a large
number of buildings on favorable terms and in advance of other wireless service
providers.
FOCUS ON SMALL AND MEDIUM-SIZED BUSINESS CUSTOMERS. The Company believes
there exists a substantial opportunity to attract a base of small and
medium-sized business customers by providing superior customer service and sales
support. The customer base initially targeted by the Company consists of
businesses typically located in buildings that have more than 100,000 square
feet of commercial space and which, in many instances, are not served by CLECs
or competitive access providers ("CAPs"). The Company estimates that there are
more than 8,000 buildings in this target group, populated by approximately 9.7
million workers using more than 2.1 million phone lines. Over time, the Company
intends to expand its target customer base to include the majority of small and
medium-sized businesses in
8
<PAGE>
the metropolitan areas covered by the Wireless Licenses, which the Company
estimates contain approximately 60% of all such businesses in the United States
and represent a market opportunity in excess of $30 billion per year.
MARKET WIRELESS FIBER TO OTHER CARRIERS. The Company markets its Carrier
Services to other carriers such as the RBOCs and other local exchange carriers
("LECs"), interexchange carriers ("IXCs"), other CAPs and CLECs, providers of
personal communications services ("PCS") and cellular and specialized mobile
radio services ("CMRS") providers. The Company believes that its Carrier
Services present an attractive, economical method for telecommunications service
providers to add a high-capacity extension to their own networks and service
territories, especially as they seek to rapidly penetrate new markets opening as
a result of the Telecommunications Act. The Company's Carrier Services can also
provide cost-efficient route diversity where network reliability concerns
require multiple telecommunications paths.
Since the commercial introduction of the Company's Carrier Services in
October 1995, the number of carrier customers has increased significantly. Such
customers include Ameritech Cellular Services, AT&T Wireless, Bell
Atlantic/NYNEX Mobile, Brooks Fiber, Cellular One, PrimeCo Personal
Communications, Siemens Stromberg-Carlson, Teleport Communications and Western
Wireless. In addition, the Company has entered into multi-year master service
agreements with American Communications Services, Electric Lightwave, IntelCom,
MCI Communications and Pacific Bell. These agreements establish the framework
under which such companies may effect the integration of Wireless Fiber services
into their own telecommunications networks. The Company is in the process of
negotiating additional master service agreements with other large
telecommunications providers, including AT&T.
MARKET WIRELESS FIBER SERVICES AS A SOLUTION TO GROWING CAPACITY SHORTAGES.
The Company believes that demand for its Wireless Fiber-based CLEC and Carrier
Services will grow because of the expanding volume of data communications
traffic resulting from increasing Internet usage and other high-volume data
transmission requirements. This type of traffic increasingly requires
high-capacity, end-to-end networks that are often difficult to provide
economically with older RBOC and LEC infrastructure.
PROVIDE INFORMATION AND CONTENT SERVICES. The Company believes that the
ability to deliver information and other content will become an increasingly
important factor in the choice of a telecommunications provider by businesses as
competition increases and the markets covered by the Wireless Licenses mature.
Accordingly, the Company actively seeks opportunities to utilize its information
and content services to enhance the marketability of the Company's
telecommunications services.
DEVELOPMENT OF CORE ASSETS
The Company believes that in order to effectively compete with incumbent
LECs and other telecommunications service providers in its target markets, it
must develop a core group of assets, capabilities and resources. The Company has
made substantial progress in acquiring and developing these core assets, which
include:
TRANSMISSION AND SWITCHING FACILITIES. In October 1996, the Company
initiated local switched services in New York City, utilizing its first 5ESS
switch, purchased from Lucent Technologies, Inc. ("Lucent"), and facilities
leased from NYNEX. In April 1997, the Company initiated local switched services
in Chicago. During the next three years, the Company intends to install Lucent
switches to serve most of its major markets. The Company has acquired the
necessary Roof Rights to install its Wireless Fiber transmission facilities on
approximately 1,400 buildings. The Company also has developed monitoring and
management systems that will ensure the efficient use of its networks and
provide network reliability and transmission quality equivalent to that
provided by fiber-optic networks. The Company recently completed construction
of a network operating center ("NOC"), which is operating 24 hours a day,
7 days a week, and is currently building a national field service force.
STATE AUTHORIZATIONS. The Company has obtained authorization to operate as
a CLEC in 24 states and the District of Columbia and is in the process of
seeking authorization to operate as a CLEC in a number of additional
jurisdictions. The Company is authorized to provide its local access and other
Carrier Services as a CAP in 35 states and has applications pending for such
authorizations in a number of additional jurisdictions.
9
<PAGE>
SALES AND CUSTOMER SUPPORT ORGANIZATIONS. The Company is expending a
significant amount of time and capital to build a dedicated, responsive sales
and customer support organization in order to ensure that the people and systems
necessary to achieve customer satisfaction keep pace with a growing customer
base. The Company has a direct sales organization for its CLEC services,
currently consisting of more than 240 people located in 12 major cities, and a
Carrier Services sales group, currently consisting of more than 70 people.
INFORMATION SYSTEMS. The Company is investing significant capital
developing state-of-the-art information systems platforms directed toward the
accurate and flexible handling of the billing and customer satisfaction
requirements of a diverse customer base purchasing a variety of
telecommunications services. The Company believes that its information systems
allow it to provide customers with a level of service and responsiveness that
many other telecommunications service providers do not offer and that such level
of service will become a key factor in customers' choice of telecommunications
service providers as the market matures.
EXPERIENCED MANAGEMENT AND OPERATING PERSONNEL. The Company has assembled
a management team and hired operating personnel experienced in all areas of
telecommunications operations, including more than 200 former officers and
employees of MCI Communications and more than 50 former officers and employees
of Sprint Corporation, as well as officers and employees from other established
telecommunications companies. The Company plans to hire additional experienced
telecommunications marketing and operations personnel as appropriate.
WINSTAR EQUIPMENT
WinStar Equipment is a recently organized, wholly owned subsidiary of the
Company established to facilitate the financing and purchase of
telecommunications equipment and inventory ("Designated Equipment"), including
radios, antennae, switches, cable, service vehicles and related equipment and
software, used in the Company's businesses and for the buildout of its
telecommunications operations. WinStar Equipment will use the proceeds of the
Equipment Notes Offering (as defined) to purchase Designated Equipment which it
will, in turn, lease in connection with the furtherance of the Company's
telecommunications business.
In July 1997, counsel for the Company delivered to the Commission a letter
("No-Action Letter") asking the Commission to confirm that it would not raise
any objection if the Company does not include separate financial statements of
WinStar Equipment but rather, provides summarized financial information
regarding WinStar Equipment in the Company's periodic reports filed pursuant to
the Exchange Act. In addition, the No-Action Letter requests that the
Commission agree that it will not raise any objection if WinStar Equipment does
not comply with the periodic reporting requirements of Sections 13 or 15(d) of
the Exchange Act. The Company believes that its position with respect to
financial information of WinStar Equipment is appropriate because: (i) WinStar
Equipment does not and will not generate any revenue other than lease payments
it receives from the lessees of equipment, which payments WinStar Equipment will
in turn apply to service the debt evidenced by the Equipment Notes; (ii) WinStar
Equipment has no operating history and no assets other than cash and cash
equivalents, the Designated Equipment it has already purchased with the proceeds
of the Equipment Notes, and the Designated Equipment it will purchase in the
future until the proceeds from the Equipment Notes are exhausted; (iii) the
Company is the sole shareholder of WinStar Equipment, which currently has no
employees; (iv) each of WinStar Equipment's officers and directors is also an
employee of the Company; and (v) WinStar Equipment has no independent
operations other than to function as a telecommunications equipment leasing
company serving primarily WinStar and its telecommunications businesses.^
OTHER BUSINESSES
The Company has historically generated a significant portion of its
revenues from the resale of long distance services to residential customers. As
part of its CLEC service offerings, the Company is focusing on the sale of long
distance services to small and medium-sized businesses and is not currently
marketing such services to residential customers on an active basis, except
through established affinity group and other targeted programs.
Prior to the Company's entry into the telecommunications industry, it
marketed and distributed consumer products, including personal care and bath and
beauty products, through a nonstrategic subsidiary. That subsidiary continues to
sell such products, primarily to large retailers, mass merchandisers, discount
stores, department stores, national and regional drug store chains and other
regional retail chains. The Company expects to divest itself of this
subsidiary during the next 9 to 12 months.
CORPORATE INFORMATION
The Company and WinStar Equipment were incorporated under the laws of the
State of Delaware in September 1990 and February 1997, respectively, and their
principal offices are located at 230 Park Avenue, New York, New York 10169.
Their phone number is (212) 584-4000.
10
<PAGE>
SUMMARY OF THE EXCHANGE OFFER
BACKGROUND - THE PRIVATE OFFERING OF DEBT SECURITIES
General. . . . . . . . . . In March 1997, the Company sold an aggregate of
$100.0 million principal amount of Old Senior
Notes and WinStar Equipment sold an aggregate of
$200.0 million principal amount of Old Equipment
Notes in an institutional private placement ("1997
Debt Placement") to the Initial Purchasers. The
principal purpose of the 1997 Debt Placement was
to raise proceeds to fund the expansion of the
Company's Wireless Fiber services and the general
development and growth of the Company's
telecommunications operations.
Exchange of Old Notes. . . Pursuant to the Registration Agreement, the
Company is obligated to consummate the Exchange
Offer with respect to the Old Senior Notes and
WinStar Equipment is obligated to consummate the
Exchange Offer with respect to the Old Equipment
Notes pursuant to the Registration Statement of
which this Prospectus forms a part or, if required
in lieu thereof, cause the Old Senior Notes or Old
Equipment Notes, as the case may be, to be
registered under the Securities Act pursuant to a
shelf registration statement. If (i) by September
15, 1997, neither the Exchange Offer is
consummated nor the shelf registration statement
is declared effective; or (ii) after either the
Registration Statement of which this Prospectus
forms a part (or the shelf registration statement)
is declared effective, such registration statement
thereafter ceases to be effective or usable
(subject to certain exceptions) in connection with
resales of the Old Notes or the applicable New
Notes in accordance with and during the periods
specified in the Registration Agreement (each such
event referred to in clauses (i) and (ii) a
"Registration Default"), additional interest of
0.50% will accrue on such Notes from and including
the date on which any such Registration Default
shall occur, but excluding the date on which all
Registration Defaults have been cured.
TERMS OF THE EXCHANGE OFFER
The Exchange Offer . . . . Pursuant to the Exchange Offer, $1,000 principal
amount of New Notes will be issued in exchange for
each $1,000 principal amount of outstanding Old
Notes validly tendered and not withdrawn. The New
Notes will be issued to tendering holders of Old
Notes as promptly as practicable after the
Expiration Date.
Resale . . . . . . . . . . Based on an interpretation by the staff of the
Commission set forth in no-action letters issued
to third parties, the Issuers believe that the New
Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale,
resold and otherwise transferred by any holder
thereof (other than broker-dealers, as set forth
below^) without compliance with the registration
and prospectus delivery provisions of the
Securities Act, provided that such New Notes are
acquired in the ordinary course of such holder's
business and that such holder has no arrangement
or understanding with any person to participate in
the distribution of such New Notes. Each
broker-dealer ^ that receives New Notes for its
own account in exchange for Old Notes that were
acquired as a result of market-making or other
trading activity must acknowledge that it will
deliver a prospectus in connection with any resale
of New Notes. The
11
<PAGE>
Letter of Transmittal states that by so
acknowledging and delivering a prospectus, such
broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be
amended or supplemented from time to time, may be
used by such broker-dealer in connection with
resales of New Notes received in exchange for Old
Notes where such New Notes were acquired by such
broker-dealer as a result of market-making
activities or other trading activities. Each of
the Company and WinStar Equipment has agreed that,
for a period of 180 days after the Expiration
Date, it will make this Prospectus available to
any such broker-dealer for use in connection with
any such resale. See "Plan of Distribution." Any
holder who tenders in the Exchange Offer with the
intention to participate, or for the purpose of
participating, in a distribution of the New Notes
^ may not rely on the foregoing position of the
staff of the Commission and, in the absence of an
exemption therefrom, must comply with the
registration and prospectus delivery requirements
of the Securities Act in connection with a
secondary resale transaction. Failure to comply
with such requirements in such instance may result
in such holder incurring liabilities under the
Securities Act for which the holder is not
indemnified by the Company.
The Exchange Offer is not being made to, nor will
be accepted from, holders of Old Notes in any
jurisdiction in which this Exchange Offer or the
acceptance thereof would not be in compliance with
the securities laws of such jurisdiction.
Expiration Date. . . . . . 5:00 p.m., New York City time, September 12,
1997, unless the Exchange Offer is extended, in
which case the term "Expiration Date" means the
latest date and time to which the Exchange Offer
is extended. Any extension, if made, will be
publicly announced through a release to the Dow
Jones News Service and as otherwise required by
applicable law or regulations. The Company may
extend the Expiration Date in its sole and
absolute discretion.
Conditions to the
Exchange Offer . . . . . The Exchange Offer is not subject to any
conditions, other than that the Exchange Offer
does not violate applicable law or any applicable
interpretation of the staff of the Commission.
See "The Exchange Offer -- Conditions to the
Exchange Offer." The Exchange Offer is not
conditioned upon any minimum principal amount of
Old Notes being tendered.
Procedures for Tendering
Old Notes. . . . . . . . Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver the
Letter of Transmittal, or a facsimile thereof,
together with the Old Notes to be exchanged and
any other required documentation to U.S. Trust, as
Exchange Agent, at the address set forth herein
and therein. By executing a Letter of
Transmittal, each holder will represent to the
Company that, among other things, the New Notes
acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the
person receiving such New Notes, whether or not
such person is the holder, AND that neither the
holder nor any such other person has any
arrangement or understanding with any person to
participate in the distribution of such New Notes.
12
<PAGE>
Special Procedures for
Beneficial Owners. . . . Any beneficial owner whose Old Notes are
registered in the name of a broker, commercial
bank, trust company or other nominee, and who
wishes to tender in the Exchange Offer should
contact such registered holder promptly and
instruct such registered holder to tender on such
beneficial owner's behalf. If such beneficial
owner wishes to tender on his own behalf, such
beneficial owner must, prior to completing and
executing the Letter of Transmittal and delivering
his Old Notes, either make appropriate
arrangements to register ownership of the Old
Notes in such owner's name or obtain a properly
completed bond power from the registered holder.
Beneficial owners should be aware that the
transfer of registered ownership may take
considerable time and may not be able to be
completed prior to the Expiration Date.
Guaranteed Delivery
Procedures . . . . . . . Holders of Old Notes who wish to tender such Old
Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes
and a properly completed Letter of Transmittal or
any other documents required by the Letter of
Transmittal to the Exchange Agent prior to the
Expiration Date may tender their Old Notes
according to the guaranteed delivery procedures
set forth in "The Exchange Offer -- Procedures for
Tendering."
Acceptance of Old Notes and
Delivery of New Notes. . Subject to certain conditions (as described more
fully in "The Exchange Offer -- Conditions to the
Exchange Offer"), the Company and WinStar
Equipment, as the case may be, will accept for
exchange any and all Old Notes which are properly
tendered in the Exchange Offer and not withdrawn,
prior to 5:00 p.m., New York City time, on the
Expiration Date. The New Notes issued pursuant to
the Exchange Offer will be delivered as promptly
as practicable following the Expiration Date.
Withdrawal Rights. . . . . Subject to the conditions set forth herein,
tenders of Old Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time on the
Expiration Date. See "The Exchange Offer --
Withdrawal of Tenders."
Certain Federal Income
Tax Considerations . . . The exchange pursuant to the Exchange Offer should
not constitute a taxable exchange for federal
income tax purposes. Each New Note should be
treated as having been originally issued at the
time the Old Note exchange therefor was originally
issued. However, holders should consult their own
tax advisors. See "Certain United States Federal
Income Tax Considerations."
Exchange Agent . . . . . . U.S. Trust, the Trustee under the Indentures, is
serving as Exchange Agent in connection with the
Exchange Offer. For information with respect to
the Exchange Offer, the telephone number for the
Exchange Agent is (212) 852-1000 and the facsimile
number for the Exchange Agent is (212) 852-1625.
SEE "THE EXCHANGE OFFER," BELOW, FOR MORE DETAILED INFORMATION CONCERNING
THE TERMS OF THE EXCHANGE OFFER.
13
<PAGE>
THE NEW NOTES
The Exchange Offer applies to $100.0 million aggregate principal amount of
Old Senior Notes and $200.0 million principal amount of Old Equipment Notes.
The form and terms of the New Notes will be the same as the form and terms of
the Old Notes, except that the New Notes will be registered under the Securities
Act and, therefore, will not bear legends restricting the transfer thereof. The
New Notes will evidence the same debt as the Old Notes and the New Senior Notes
and New Equipment Notes will be entitled to the benefits of the Senior Notes
Indenture and Equipment Notes Indenture, respectively. Upon consummation of the
Exchange Offer, the New Senior Notes will be treated as a single class with any
Old Senior Notes, and the New Equipment Notes will be treated as a single class
with any Old Equipment Notes, that remain outstanding. Upon consummation of the
Exchange Offer, the Old Notes will not be entitled to certain registration
rights under the Registration Agreement. See "Description of Notes."
SECURITIES OFFERED
New Senior Notes. . . . $100,000,000 principal amount of 141/2% Senior
Deferred Interest Exchange Notes Due 2005 of the
Company.
New Equipment Notes . . $200,000,000 principal amount of 121/2% Guaranteed
Senior Secured Exchange Notes Due 2004 of WinStar
Equipment.
MATURITY DATE
New Senior Notes. . . . October 15, 2005.
New Equipment Notes . . March 15, 2004.
INTEREST PAYMENT DATES
New Senior Notes. . . . April 15 and October 15, commencing April 15,
2001. Until October 15, 2000, interest on the New
Senior Notes will accrue at a rate of 141/2% per
annum and be compounded semiannually on each
SemiAnnual Interest Accrual Date, but, other than
additional interest payable upon any Registration
Default, will not be payable in cash. Interest on
the Accumulated Amount of the New Senior Notes as
of October 15, 2000 will be payable semiannually
in cash, commencing April 15, 2001. For a
discussion of the federal income tax treatment of
the New Senior Notes under the original issue
discount rules, see "Certain United States Federal
Income Tax Considerations."
New Equipment Notes . . March 15 and September 15, commencing September
15, 1997.
OPTIONAL REDEMPTION
New Senior Notes. . . . The New Senior Notes will not be redeemable prior
to October 15, 2000. Thereafter, the New Senior
Notes will be redeemable at the option of the
Company, in whole or in part, at the redemption
prices set forth herein plus accrued interest, if
any, on the Accumulated Amount of the New Senior
Notes to the date of redemption.
New Equipment Notes . . The New Equipment Notes will not be redeemable
prior to March 15, 2002, except pursuant to the
mandatory redemption provision described below.
Thereafter, the New Equipment Notes will be
14
<PAGE>
redeemable at the option of WinStar Equipment, in
whole or in part, at the redemption prices set
forth herein plus accrued interest, if any, to the
date of redemption.
MANDATORY REDEMPTION OF
NEW EQUIPMENT NOTES . . In the event that by March 18, 1999, WinStar
Equipment has not applied at least $200.0 million
to fund the Acquisition Costs of Designated
Equipment ($200.0 million less the amount so
applied being herein called the "Unused Equipment
Amount"), WinStar Equipment is required to redeem
New Equipment Notes in an aggregate principal
amount equal to the Unused Equipment Amount at a
redemption price of 112.50% of such principal
amount, plus accrued interest, if any, to the date
of redemption.
CHANGE OF CONTROL. . . . . Upon a Change of Control (as defined), each holder
of Notes may require the Issuer of such Notes to
repurchase such Notes at 101% of (i) in the case
of the New Senior Notes, the Accumulated Amount of
such Notes on the date of repurchase and (ii) in
the case of the New Equipment Notes, the principal
amount of such Notes, plus, in either case,
accrued interest, if any, on such amount to the
date of repurchase.
RANKING
General . . . . . . . . At March 31, 1997, the Company had (on an
unconsolidated basis) approximately $600.0 million
of indebtedness, $508.9 million of which would
have been senior indebtedness (including the Old
Equipment Note Guarantee and the Company's
outstanding 14% Senior Discount Notes due 2005
("1995 Senior Notes")) and $91.1 million of which
would have been subordinated indebtedness
(consisting of the Company's outstanding 14%
Convertible Senior Subordinated Discount Notes due
2005 (the "Convertible Notes" and, together with
the 1995 Senior Notes, the "1995 Notes")). The
Company is a holding company and, accordingly, the
New Senior Notes and the New Equipment Note
Guarantee will be effectively subordinated to all
liabilities of the Company's subsidiaries,
including trade payables. At March 31, 1997, the
total liabilities of the Company's subsidiaries
was approximately $258.8 million, including trade
payables.
New Senior Notes and
New Equipment
Note Guarantee. . . . . The New Senior Notes and the New Equipment Note
Guarantee will be unsecured, senior obligations of
the Company, will rank pari passu in right of
payment with all existing and future senior
indebtedness of the Company, including the 1995
Senior Notes, and will be senior in right of
payment to all existing and future subordinated
indebtedness of the Company, including the
Convertible Notes.
New Equipment Notes. . . . The New Equipment Notes will be secured, senior
obligations of WinStar Equipment.
SECURITY/GUARANTEE . . . . The New Equipment Notes will be secured by liens
on Designated Equipment purchased with the
proceeds of the
15
<PAGE>
Equipment Notes Offering. In addition, the New
Equipment Notes will be unconditionally guaranteed
by the Company pursuant to the New Equipment Note
Guarantee.
RESTRICTIVE COVENANTS. . . The New Notes will be issued pursuant to the 1997
Indentures, which restrict the incurrence of
additional debt by WinStar, the issuance of debt
and preferred stock by WinStar's subsidiaries,
dividends on and redemptions of capital stock of
WinStar, the redemptions of certain subordinated
obligations of WinStar, the sale of assets and
subsidiaries' stock and transactions with
affiliates. The 1997 Indentures also prohibit
certain restrictions on distributions from
subsidiaries and will restrict WinStar from
consolidating or merging with or transferring all
or substantially all of its assets to another
person. However, all of these restrictions and
prohibitions are subject to a number of important
qualifications, including the ability of WinStar
to designate certain subsidiaries as unrestricted
subsidiaries. The Equipment Note Indenture
restricts WinStar Equipment from engaging in any
business other than the ownership and leasing of
the Designated Equipment and related activities.
RISK FACTORS
See "Risk Factors" commencing on page 19 hereof for a discussion of certain
risks that should be considered in connection with an investment in the Notes,
including the risks related to historical and anticipated future operating
losses and negative EBITDA.
16
<PAGE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
The summary financial data presented below for the year ended February 28,
1995, the ten months ended December 31, 1995 and the year ended December 31,
1996 have been derived from the Company's audited Consolidated Financial
Statements included in its Annual Report on Form 10-K for the year ended
December 31, 1996, reclassified to reflect the operations of WinStar Global
Products, Inc. ("Global Products"), the Company's merchandising subsidiary, as a
discontinued operation. The summary financial data for the three months ended
March 31, 1996 and 1997 have been derived from the unaudited Consolidated
Financial Statements included in its Quarterly Report on Form 10-Q for the three
months ended March 31, 1997. In the opinion of management, the unaudited
consolidated financial statements have been prepared on the same basis as the
audited Consolidated Financial Statements and include all adjustments, which
consist only of normal recurring adjustments, necessary for a fair presentation
of the results of operations for the period.
<TABLE>
<CAPTION>
TEN MONTHS
YEAR ENDED ENDED YEAR ENDED 1996 THREE MONTHS
FEBRUARY 28, DECEMBER 31, DECEMBER 31, PRO ENDED MARCH 31, 1997
1995 1995 1996 FORMA(1) 1996 1997 PRO FORMA(1)
------ ---- ---- -------- ---- ---- ------------
(in thousands, except per share data)
Statement of Operations Data:
Operating revenues:
<S> <C> <C> <C> <C> <C> <C> <C>
Telecommunications(2).......... $14,909 $13,137 $33,969 $32,481 $10,217 $7,063 $7,063
Information services........... 473 2,648 14,650 14,650 771 6,014 6,014
-------- -------- -------- -------- -------- -------- -------
Total net sales.......... 15,382 15,785 48,619 47,131 10,988 13,077 13,077
Operating income (loss):
Telecommunications............. (4,984) (7,288) (43,698) (49,805) (3,105) (26,546) (26,546)
Information services........... (157) 217 (1,409) (1,409) (54) (1,105) (1,105)
General corporate.............. (944) (3,861) (11,373) (11,373) (1,868) (5,285) (5,285)
-------- -------- -------- -------- -------- -------- -------
Total operating loss..... (6,085) (10,932) (56,480) (62,587) (5,027) (32,936) (32,936)
Interest expense................. (375) (7,186) (36,748) (77,831) (8,643) (10,798) (19,305)
Interest income.................. 343 2,890 10,515 8,453 3,108 2,235 2,235
Other expenses, net.............. (1,109) (866) - - - - -
-------- -------- -------- -------- -------- -------- -------
Net loss from continuing operations (7,226) (16,094) (82,713) (131,965) (10,562) (41,499) (50,006)
Net (loss) income from
discontinued
operations(3).................. (4) 237 (1,010) (1,010) (137) (477) (477)
-------- -------- -------- -------- -------- -------- -------
Net loss......................... (7,230) (15,857) (83,723) (132,975) (10,699) (41,976) (50,483)
Preferred stock dividends - - - (6,000) - (833) (1,500)
------- ------- ------- ------ ----- -------
Net loss applicable to common
stock........................... $(7,230) $(15,857) $(83,723) $(138,975) $(10,699) $(42,809) $(51,983)
Net loss per share from continuing
operations..................... $(0.42) $(0.71) $(2.96) $(4.37) $(0.39) $(1.27) $(1.58)
Net (loss) income per share from
discontinued operations........ - 0.01 (0.04) (0.04) - (0.02) (0.02)
------ ---- ----- ----- ----- ----- -----
Net loss per common share
outstanding.................... $(0.42) $(0.70) $(3.00) $(4.41) $(0.39) $(1.29) $(1.60)
Weighted average common
shares outstanding............. 17,122 22,770 27,911 31,506 27,214 32,610 32,610
Other Financial Data:
Ratio of earnings to combined fixed
charges and preferred stock
dividends(4)................... - - - - - - -
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
AS OF MARCH 31,
---------------
1997
(IN THOUSANDS)
ACTUAL
------
<S> <C>
Balance Sheet Data:
Cash, cash equivalents and short-term investments................................. $413,474
Property and equipment, net....................................................... 93,789
Total assets...................................................................... 748,869
Current portion of long-term debt and capital lease obligations................... 23,095
Long-term debt and capital lease obligations, less current portion................ 587,420
Common and preferred stock and additional paid-in capital......................... 247,270
Stockholders' equity.............................................................. 79,585
</TABLE>
___________
(1) Gives effect to an institutional private placement of $100 million of
Units, consisting of preferred stock and warrants in February 1997
("Preferred Stock Placement") and the 1997 Debt Placement as if they
occurred as of the beginning of the respective periods. Interest expense
has been adjusted to include approximately $8.5 million and $41.1 million
of interest on such debt and amortization of debt offering costs and other
related fees in the three months ended March 31, 1997 and the year ended
December 31, 1996, respectively, but not to include interest income earned
on additional available cash.
(2) The Company has generated minimal revenues from its Wireless Fiber
services.
(3) Such loss is from the operations of the Company's consumer products
subsidiary, WinStar Global Products, Inc. ("Global Products"). On May 13,
1997, a formal plan of disposition for Global Products was approved by the
Board of Directors, and it is anticipated that the disposition will be
completed within the next 12 months. The disposition of Global Products
has been accounted for as a discontinued operation and, accordingly, its
net assets have been segregated from continuing operations in the balance
sheet data, and its operating results are segregated and reported as
discontinued operations in the statements of operations data.
(4) For the years ended February 28, 1993, 1994 and 1995, the ten months ended
December 31, 1995, the year ended December 31, 1996 and the three months
ended March 31, 1996 and 1997, earnings from continuing operations were
insufficient to cover combined fixed charges and preferred stock dividends
by $4,679,000, $8,622,000, $7,288,000, $16,310,000, $83,033,000,
$10,562,000 and $42,537,000, respectively. On a pro forma basis, giving
effect to the items described in footnote 1 above, earnings from continuing
operations were insufficient to cover combined fixed charges and preferred
stock dividends by $51,711,000 and $138,285,000 for the three months ended
March 31, 1997 and the year ended December 31, 1996, respectively. Fixed
charges consist of interest charges and amortization of debt expense and
discount or premium related to indebtedness, whether expensed or
capitalized, and that portion of rent expense that the Company
believes to be representative of interest.
FORWARD-LOOKING STATEMENTS
This Prospectus and the documents incorporated by reference herein contain
certain forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 with respect to the financial condition, results
of operations and business of the Company. These forward-looking statements
involve certain risks and uncertainties. No assurance can be given that any of
such matters will be realized. Factors that may cause actual results to differ
materially from those contemplated by such forward-looking statements include,
among others, the following: (a) the Company's ability to service its debt or to
obtain financing for the buildout of its telecommunications network; (b) the
Company's ability to attract and retain a sufficient revenue-generating customer
base; (c) competitive pressures in the telecommunications industry; and
(d) general economic conditions. For further information and other factors which
could affect the financial results of the Company and such forward-looking
statements, see "Risk Factors."
18
<PAGE>
RISK FACTORS
THE NEW NOTES OFFERED HEREBY CONTAIN THE SAME TERMS AND CONDITIONS AS THE
OLD NOTES AND, ACCORDINGLY, INVOLVE A HIGH DEGREE OF RISK. EACH PROSPECTIVE
INVESTOR SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS RELATING TO BOTH
THE OLD NOTES AND THE NEW NOTES.
HISTORICAL AND ANTICIPATED FUTURE NET AND OPERATING LOSSES AND NEGATIVE EBITDA
The Company has incurred significant operating and net losses attributable
in substantial part to the development of its telecommunications businesses. The
Company historically has had net losses and negative EBITDA, including net
losses and negative EBITDA of approximately $15.9 million and $9.0 million,
respectively, for the ten months ended December 31, 1995, $83.7 million and
$49.6 million, respectively, for the year ended December 31, 1996 and $42.0
million and $29.4 million, respectively, for the three months ended March 31,
1997. The Company has been offering local access and other Carrier Services
only since December 1994, and local exchange services as a CLEC only since
April 1996, and has made and is making significant expenditures in the
development of its local telecommunications operations, including expenditures
associated with establishing an operating infrastructure and introducing and
marketing its telecommunications services. The Company expects to continue to
experience significant and increasing operating losses, net losses and total and
per share amounts of net loss, along with decreasing net current assets, and to
generate increasingly negative EBITDA while it seeks to establish a sufficient
revenue-generating customer base and build its network infrastructure so that it
can provide services over its own facilities. As a result of increased expenses,
principally relating to an increase in the number of employees in connection
with the rollout of CLEC services and expenses relating to the servicing of
debt, there will continue to be substantial increases in the Company's net loss,
operating loss and negative EBITDA. There can be no assurance that the Company
will achieve or sustain positive EBITDA or profitability or at any time have
sufficient financial resources to make principal and interest payments on its
outstanding debt, including the Notes offered hereby.
SUBSTANTIAL INDEBTEDNESS; ABILITY TO SERVICE INDEBTEDNESS
The Company has significant indebtedness and interest expense. At March
31, 1997, the Company had, on a consolidated basis, approximately $619.2 million
of indebtedness, including capitalized lease obligations. The accrual of
interest on the 1997 Notes and the accretion of original issue discount on the
1995 Notes will significantly increase the Company's liabilities (except to the
extent that the Convertible Notes are converted into the Company's common stock
(the "Common Stock")). Additionally, the Company may need to incur additional
indebtedness in the future. The indentures pursuant to which the 1995 Notes
were issued (the "1995 Indentures") and the 1997 Indentures limit, but do not
prohibit, the incurrence of additional indebtedness by the Company and its
subsidiaries. Additionally, the 1995 Indentures and the 1997 Indentures do not
limit the amount of indebtedness that may be incurred by the Company's new media
and consumer products subsidiaries.
The level of the Company's indebtedness could have important consequences,
including the following: (i) the combined debt service requirements of the 1995
Notes and the 1997 Notes could make it more difficult for the Company to make
payments on the Notes; (ii) the ability of the Company to obtain any necessary
financing in the future for working capital, capital expenditures, debt service
requirements or other purposes may be limited; (iii) a substantial portion of
the Company's cash flow from operations, if any, must be dedicated to the
payment of principal and interest on its indebtedness and other obligations and
will not be available for use in the Company's business; (iv) the Company's
level of indebtedness could limit its flexibility in planning for, or reacting
to changes in, its business; (v) the Company is more highly leveraged than many
of its competitors, which may place it at a competitive disadvantage; and
(vi) the Company's high degree of indebtedness would make it more vulnerable in
the event of a downturn in its business or if operating cash flow does not
significantly increase.
HOLDING COMPANY STRUCTURE; RANKING OF THE NOTES; SECURED INDEBTEDNESS
The Company is a holding company and its only material assets consist of
the common stock of its operating subsidiaries and the proceeds raised from
certain private placements of equity and debt securities, all of which the
Company has loaned or contributed, or intends to loan or contribute, to its
subsidiaries. The Company may have to rely upon dividends and other payments
from its subsidiaries to generate the funds necessary to pay the principal of
and
19
<PAGE>
interest on the 1995 Notes and 1997 Notes. The subsidiaries, however, are
legally distinct from the Company and have no obligation, contingent or
otherwise, to pay amounts due pursuant to the Notes (except for WinStar
Equipment's obligation to pay the Equipment Notes) or the Equipment Note
Guarantee or to make funds available for such payment. The Company's
subsidiaries have not guaranteed the Old Notes and will not guarantee the New
Notes. The ability of the Company's subsidiaries to make such dividends and
other payments to the Company is subject to, among other things, the
availability of funds, the terms of such subsidiaries' indebtedness and
applicable state laws. See "Description of Certain Indebtedness and Preferred
Stock." Claims of creditors of the Company's subsidiaries, including trade
creditors, will generally have priority as to the assets of such subsidiaries
over the claims of the Company and the holders of the Company's indebtedness,
including the Senior Notes. Accordingly, the New Senior Notes and the New
Equipment Note Guarantee will be effectively subordinated to all liabilities
(including trade payables) of the subsidiaries of the Company. At March 31,
1997, the subsidiaries of the Company had approximately $258.8 million of
liabilities (excluding intercompany payables to the Company and each other),
including $227.5 million of indebtedness (including the Equipment Notes). See
"Description of the Notes."
The New Senior Notes and the New Equipment Note Guarantee will be unsecured
indebtedness of the Company. At March 31, 1997, the Company had an aggregate of
approximately $619.2 million of indebtedness, including capitalized lease
obligations, approximately $227.6 million of which was secured by liens on
assets of the Company and/or its subsidiaries (including the Equipment Notes).
In the event such secured indebtedness goes into default and the holders thereof
foreclose on the collateral, the holders of secured indebtedness will be
entitled to payment out of the proceeds of their collateral prior to any holders
of general unsecured indebtedness, including the New Senior Notes and the New
Equipment Note Guarantee, notwithstanding the existence of any event of default
with respect to the New Senior Notes. The 1995 Indentures and 1997 Indentures
also permit the Company to incur additional secured indebtedness and to grant
additional liens. In the event of a bankruptcy, liquidation or reorganization of
the Company, holders of secured indebtedness will have a claim, prior to the
claim of the holders of the New Senior Notes, on the assets of the Company
securing such indebtedness. In addition, to the extent that the value of such
collateral is insufficient to satisfy such secured indebtedness, holders of
amounts remaining outstanding on such secured indebtedness (as well as other
unsubordinated creditors of the Company) are entitled to share pari passu with
the 1995 Senior Notes and Senior Notes with respect to any other assets of the
Company. Assets remaining after satisfaction of the claims of holders of secured
indebtedness may not be sufficient to pay all or any portion of amounts due on
the Senior Notes then outstanding and the Equipment Note Guarantee. See
"Description of the Notes--Ranking."
LIMITED PURPOSE, ASSETS AND SOURCES OF REVENUES OF WINSTAR EQUIPMENT
WinStar Equipment was recently organized by the Company solely to
facilitate the financing and purchase of Designated Equipment. WinStar
Equipment's assets consist solely of a combination of the proceeds received from
the sale of the Old Equipment Notes, Designated Equipment and the Leases.
WinStar Equipment's only source of revenues will be payments due to it pursuant
to the terms of the Leases and, accordingly, the ability of WinStar Equipment to
make payments of principal and interest on the Equipment Notes will be dependent
on the ability of the lessees to make payments under the Leases. Accordingly,
there can be no assurance that WinStar Equipment will be able to generate
sufficient funds from its business to meet its obligations to pay principal and
interest on the New Equipment Notes, in which event the Company would be
obligated to make such payment in accordance with the Equipment Note Guarantee.
RISKS REGARDING THE COLLATERAL
Although the Equipment Notes are secured by Designated Equipment acquired
by WinStar Equipment, the value of the collateral is expected to be
substantially less than the principal amount of the Equipment Notes. The
Equipment Notes are not secured by the proceeds from the issuance of the
Equipment Notes, but only by such Designated Equipment. As of June 30, 1997,
WinStar Equipment has accepted delivery of approximately $22.1 million of
Designated Equipment, and has placed orders for the purchase of approximately
$17.5 million of additional Designated Equipment. WinStar Equipment does not
expect to use substantially all the proceeds from the sale of the Equipment
Notes until some time in late 1998 or early 1999. Until WinStar Equipment uses
all such proceeds, the Equipment Notes will not be secured by Designated
Equipment having an aggregate purchase price equal to the principal amount of
the Equipment Notes; and, in any event, the purchase price of any such
Designated Equipment may not represent the value that a secured party would be
able to receive upon enforcement of its security interest in such Designated
Equipment. Furthermore, it is likely that the value of such Designated Equipment
will decrease over time
20
<PAGE>
as such Designated Equipment is deployed in the business and equipment
manufacturers develop improved products or similar products at reduced prices.
Except for the requirement to redeem Equipment Notes in an amount equal to the
unused proceeds from the issuance of the Equipment Notes, WinStar Equipment is
not required to reduce the outstanding amount of the Equipment Notes based on
the value of the collateral. Therefore, it is likely that, if the Equipment
Notes were in default and the Trustee attempted to foreclose on the collateral,
the value of the collateral would be substantially less than the amount of the
indebtedness under the Equipment Notes.
The security interest in Designated Equipment acquired by WinStar Equipment
will not arise until WinStar Equipment actually acquires such Designated
Equipment, which (except for the limited amount of equipment acquired
contemporaneously with the closing of the 1997 Debt Placement) will be
substantially after the issuance of the Equipment Notes. As a result, the
security interest arising in connection with the later acquired Designated
Equipment may be subject to challenge, in a bankruptcy or reorganization of
WinStar Equipment, as a preferential transfer insofar as such security interest
secures an antecedent debt. In such event, if WinStar Equipment became subject
to a bankruptcy or similar proceeding during the preference period (generally 90
days) following the acquisition of any Designated Equipment, the security
interest in such Designated Equipment could be set aside in such proceeding for
the benefit of other creditors (if any) of WinStar Equipment. See "Description
of the Notes."
FAILURE TO MAINTAIN PERFECTED SECURITY INTEREST
Under the Equipment Notes Indenture, WinStar Equipment is required to
secure the Equipment Notes by granting liens on the Designated Equipment.
WinStar Equipment has filed UCC-1 financing statements naming WinStar Equipment
as debtor and the Equipment Notes Trustee (as defined) as the secured party
acting as collateral agent for holders of Equipment Notes with the Secretary of
State or other appropriate office of each state in the United States. WinStar
Equipment will covenant to maintain the effectiveness of such filings under the
relevant provisions of the Uniform Commercial Code. However, the liens will be
perfected only to the extent that such filings are sufficient to perfect liens
on the Designated Equipment. Generally, filings will not be made in local filing
offices, in real estate records, with any Federal office or agency or in respect
of any certificate of title. Failure to make additional filings or to maintain
the contemplated filings may allow other creditors of WinStar Equipment to
obtain rights to the Designated Equipment equal or superior to those of the
holders of the Equipment Notes. Owners or mortgagees of property on which items
of Designated Equipment are installed may also obtain such rights. This could
result in all or some of the value of the Designated Equipment acquired by
WinStar Equipment not being available to the holders of the Equipment Notes to
satisfy the outstanding indebtedness of the Equipment Notes in the event of a
default. Such failure could arise, among other reasons, because of the failure
to file continuation statements prior to the expiration of each five-year period
after the initial filing or because of the failure to make the additional
filings discussed above. Accordingly, investors should not rely on the
perfection of any specific lien in making an investment decision to purchase
Equipment Notes.
NEED TO REFINANCE SUBSTANTIAL AMOUNT OF INDEBTEDNESS TO REPAY EQUIPMENT NOTES AT
MATURITY
The Equipment Notes mature in March 2004. If WinStar Equipment does not
have cash flow from operations with which to pay the Equipment Notes, the
Company, as guarantor, would be required to pay the Equipment Notes, and in the
absence of sufficient cash flows of its own, the Company would be forced to
raise the cash to pay the Equipment Notes through equity offerings or additional
debt financings. The Company's ability to raise additional debt financing to
repay the Equipment Notes is severely restricted under the terms of the 1995
Indentures, which may require the Company to refinance the Old Notes prior to or
simultaneously with any refinancing of the Equipment Notes. Accordingly, the
Company may be forced to refinance a substantial amount of other indebtedness in
order for the Equipment Notes to be paid when due. There can be no assurance
that the Company will be able to refinance any or all of such indebtedness at
such time.
RISKS RELATED TO CLEC STRATEGY; ANTICIPATED INITIAL NEGATIVE OPERATING MARGINS
IN CLEC BUSINESS
The Company is pursuing an accelerated strategy to enter the local exchange
services market as a CLEC in the metropolitan areas in which it has Wireless
Licenses and to develop and obtain the facilities necessary to provide its own
local exchange services. The Company has virtually no experience providing local
exchange services and there can be no assurance that the Company's CLEC strategy
will be successful. In addition, local exchange service providers have
21
<PAGE>
never utilized 38 GHz wireless-based systems as a significant segment of their
local exchange services facilities and there can be no assurance that the
Company will be successful in implementing its Wireless Fiber-based system. The
Company's CLEC strategy is subject to risks relating to: the receipt of
necessary regulatory approvals; the negotiation and implementation of resale
agreements with other local service providers; the negotiation and
implementation of interconnection agreements with RBOCs and other incumbent
LECs; the failure of LECs and RBOCs to honor the letter and spirit of
consummated interconnection agreements; the ability of third-party equipment
providers and installation and maintenance contractors to meet the Company's
rollout schedule; the recruitment of additional personnel in a timely manner, so
as to be able to attract and service new customers but not incur excessive
personnel costs in advance of the rollout; the Company's ability to attract and
retain new customers through delivery of high-quality services; the potential
adverse reaction to the Company's services by the Company's carrier customers,
which may view the Company as a competitor; and the Company's ability to manage
the simultaneous implementation of its plan in multiple markets. In addition,
the Company is subject to the risk of unforeseen problems inherent in being a
new entrant in a rapidly evolving industry.
Historically, almost all of the Company's telecommunications revenues have
been derived from the resale of long distance services to residential customers.
As part of its CLEC strategy, the Company is marketing its long distance
services to small and medium-sized businesses and is no longer actively
marketing such services to residential customers, except through certain
established affinity and other target programs. As a result, revenues from the
provision of long distance services to residential customers can be expected to
substantially decline through attrition of the Company's long distance
residential customer base.
Although the Company's initial implementation of its CLEC strategy entails
the resale of the facilities and services of other service providers, which
itself is dependent on the negotiation and implementation of satisfactory resale
arrangements, the Company's CLEC strategy will require significant capital
investment related to the purchase and installation of numerous switches and the
interconnection of these facilities to customers' buildings and LEC and CLEC
local networks, including the installation of Wireless Fiber links and the
buildout of other facility infrastructure, in advance of generating material
revenues.
As the Company rolls out its CLEC operations, it will experience negative
operating margins while it develops its facilities. After initial rollout of its
CLEC services in a particular city, the Company expects operating margins for
such operations to improve only when and if: (i) sales efforts result in
sufficiently increased volumes of traffic; (ii) the Company has installed a
switch and a sufficient number of Wireless Fiber links so that a substantial
portion of the Company's traffic in that city can be originated and terminated
over the Company's Wireless Fiber facilities instead of LEC or other CLEC
facilities; and (iii) higher margin-enhanced services are sought by, provided to
and accepted by customers. While the Company believes that the unbundling and
resale of LEC services and the implementation of local telephone number
portability (which will permit customers to retain their telephone numbers when
switching carriers), which are mandated by the Telecommunications Act, will
reduce the Company's costs of providing local exchange services and facilitate
the marketing of such services, there can be no assurance that the Company's
CLEC operations will become profitable due to, among other factors, lack of
customer demand, competition from other CLECs and pricing pressure from the LECs
and other CLECs. The Company's failure to implement its CLEC strategy
successfully would have a material adverse effect on the operations of the
Company and the ability of the Company and its subsidiaries to make principal
and interest payments on their outstanding debt, including the Notes.
NEGATIVE OPERATING MARGINS IN THE INITIAL PROVISION OF WIRELESS FIBER-BASED
CARRIER SERVICES
The Company has experienced negative operating margins in connection with
the development and initial provision of its Wireless Fiber-based Carrier
Services and expects to continue to experience negative operating margins until
it develops a sufficient revenue-generating customer base for such services. In
order to demonstrate the efficacy of Wireless Fiber, the Company often provides
complimentary service on a trial basis for a limited period. The Company expects
to improve operating margins in the provision of its Carrier Services over time
by: (i) obtaining appropriate Roof Rights; (ii) acquiring and retaining an
adequate customer base; (iii) placing telecommunications traffic of new
customers and additional telecommunications traffic of existing customers across
installed Wireless Fiber links; and (iv) inducing providers of
telecommunications services to utilize and market the Company's Wireless Fiber
services as part of their own networks, systems and services, thereby reducing
the Company's related marketing costs. If the Company fails to accomplish any of
the foregoing, particularly acquiring and retaining an adequate customer base,
it
22
<PAGE>
will not be able to improve the operating margins of its Carrier Services
business. There can be no assurance that the Company will be able to achieve or
sustain positive operating margins. Failure to achieve positive operating
margins would have a material adverse effect on the operations of the Company
and the ability of the Company and its subsidiaries to make principal and
interest payments on their outstanding debt, including the Notes.
RISKS ASSOCIATED WITH RAPID EXPANSION AND ACQUISITIONS
The Company intends to pursue a strategy of aggressive and rapid growth,
including the accelerated rollout of its CLEC services, acquisitions of
businesses and assets, including additional spectrum licenses, continued
aggressive marketing of its Carrier Services, and the hiring of additional
management, technical and marketing personnel, all of which will result in
significantly higher operating expenses. Rapid expansion of the Company's
operations may place a significant strain on the Company's management, financial
and other resources. The Company's ability to manage future growth, should it
occur, will depend upon its ability to monitor operations, control costs,
maintain effective quality controls and significantly expand the Company's
internal management, technical, information and accounting systems. Any failure
to expand these areas and to implement and improve such systems, procedures and
controls in an efficient manner at a pace consistent with the growth of the
Company's business could have a material adverse effect on the business,
financial condition and results of operations of the Company and the ability of
the Company and its subsidiaries to make principal and interest payments on
their outstanding debt, including the Notes. As part of its strategy, the
Company may acquire complementary assets or businesses. The pursuit of
acquisition opportunities will place significant demands on the time and
attention of the Company's senior management and will involve considerable
financial and other costs with respect to identifying and investigating
acquisition candidates, negotiating acquisition agreements and integrating the
acquired businesses with the Company's existing operations. Employees and
customers of acquired businesses may sever their relationship with such
businesses during or after the acquisition. There can be no assurance that the
Company will be able to successfully consummate any acquisitions or integrate
any business or assets which it may acquire into its operations.
COMPETITION
The Company is subject to intense competition in each of the areas in which
it operates. Many of the Company's competitors have longer-standing
relationships with customers and suppliers in their respective industries,
greater name recognition and significantly greater financial, technical and
marketing resources than the Company. Further, sales of the Company's Carrier
Services are typically made to other telecommunications providers that compete
or may compete in the future with the Company.
LOCAL TELECOMMUNICATIONS MARKET. The local telecommunications market is
intensely competitive for new entrants and currently is dominated by the RBOCs
and other LECs. The LECs have long-standing relationships with their customers,
have the ability to subsidize competitive services with revenues from a variety
of other services and benefit from existing state and federal regulations that
currently favor the LECs over the Company in certain respects. In addition to
competition from the LECs, the Company also faces competition from a growing
number of new market entrants, such as other CLECs and CAPs. The Company also
may face competition in the provision of local telecommunications services from
cable companies, electric utilities, LECs operating outside their current local
service areas and IXCs. Moreover, the consolidation of telecommunications
companies and the formation of strategic alliances within the telecommunications
industry, which are expected to accelerate as a result of the passage of the
Telecommunications Act, could give rise to significant new or stronger
competitors. The Company currently also faces or anticipates facing competition
from other entities which offer, or are licensed to offer, 38 GHz services and
could face competition in certain aspects of its existing and proposed
businesses from competitors providing wireless services in other portions of the
radio spectrum (including 2 GHz, 18 GHz and 28 GHz, among others). The Company's
Internet services also face significant competition from, among others, cable
television operators deploying cable modems that provide high-speed data
transmission over existing coaxial cable television networks. As competition
increases in the local telecommunications market, the Company anticipates that
general pricing competition and pressures will increase significantly. The
Company has not obtained significant market share in any of the areas where it
offers its services, nor does it expect to do so given the size of the local
telecommunications services market, the intense competition therein and the
diversity of customer requirements. There can be no assurance that the Company
will be able to compete effectively in any of its markets.
23
<PAGE>
LONG DISTANCE MARKET. The long distance market has relatively
insignificant barriers to entry, numerous entities competing for the same
customers and a high (and increasing) average churn rate as customers frequently
change long distance providers in response to the offering of lower rates or
promotional incentives by competitors. The Company competes for long distance
customers with major IXCs, as well as other national and regional long distance
carriers and resellers, many of whom own substantially all of their own
facilities and are able to provide services at costs lower than the Company's
current costs since the Company generally leases its access facilities. The
Company believes that the RBOCs and CLECs also will become significant
competitors in the long distance telecommunications industry. To maintain its
competitive posture, the Company believes that it must be in a position to
reduce its prices in order to meet reductions in rates, if any, by competitors.
Any such reductions could adversely affect the Company. In addition, LECs have
been obtaining additional pricing and regulatory flexibility. This may enable
LECs to grant volume discounts to larger long distance companies, which also
could put the Company's long distance business at a disadvantage in competing
with larger providers.
Additionally, providers of long distance services, including the major
IXCs, as well as resellers, such as the Company, are coming under intensified
scrutiny for marketing activities by them or their agents which result in
alleged unauthorized switching of customers from one long distance provider to
another. The FCC and a number of state authorities are seeking to introduce more
stringent regulations to curtail the intentional or erroneous switching of
customers, which could include the imposition of fines, penalties and possible
operating restrictions on entities which engage in unauthorized switching
activities. In addition, the Telecommunications Act requires the FCC to
prescribe regulations imposing procedures for verifying the switching of
customers and additional remedies on behalf of carriers for unauthorized
switching of their customers. The effects, if any, of the adoption of any such
proposed regulations would have on the long distance industry and the business
practices therein cannot be predicted. Statutes and regulations which are or may
become applicable to the Company as it expands could require the Company to
alter methods of operations, at costs which could be substantial, or otherwise
limit the types of services it offers.
NEW MEDIA BUSINESS. The industry in which the Company's new media
subsidiary competes consists of a very large number of entities producing,
owning or controlling news, sports, entertainment, educational and informational
content and services, including telecommunications companies, television
broadcast companies, sports franchises, film and television studios, record
companies, newspaper and magazine publishing companies, universities and on-line
computer services. Competition is intense for timely and highly marketable or
usable information and entertainment content. Almost all of the entities with
which the Company's new media subsidiary competes have significantly greater
presence in the various media markets and greater resources than the Company,
including existing content libraries, financial resources, personnel and
existing distribution channels. There can be no assurance that the Company will
be able to compete successfully in the emerging new media industry.
CONSUMER PRODUCTS BUSINESS. The consumer products industry is subject to
changes in styles and consumer tastes. An unanticipated change in consumer
preferences inconsistent with the Company's merchandise lines could have a
material adverse effect upon its operations. The Company's product lines are
subject to intense competition with numerous manufacturers and distributors of
hair, beauty and bath products. Mass merchandisers, drug store chains, and other
mass volume retailers typically utilize freestanding pegboard fixtures or
pegboard wall fixtures, as well as in-line shelving and end-cap displays, to
display their products. Competition for shelf and wall space for product
placement is intense, as many companies seek to have their products
strategically placed within the store. Competition also exists with respect to
product name recognition and pricing, since retailers and consumers often choose
products on the basis of name brand, cost and value. Many of the Company's
competitors have greater product and name recognition, as well as much larger
and more sophisticated sales forces, product development, marketing and
advertising programs and facilities. The Company generally competes by
attempting to offer retail customers quality, service and products at reasonable
prices.
SIGNIFICANT CAPITAL REQUIREMENTS
The expansion of the Company's telecommunications operations and the
continued funding of operating expenses will require substantial capital
investment. Additionally, as part of its strategy, the Company may seek to
acquire complementary assets or businesses (including additional spectrum
licenses, by auction or otherwise), which also could require substantial capital
investment. The Company's decision to accelerate the development of its CLEC
operations in response to the Telecommunications Act has substantially increased
the Company's capital expenditure
24
<PAGE>
requirements. Management anticipates, based on current plans and assumptions
relating to its operations, that the Company's existing financial resources and
additional equipment financing arrangements which the Company intends to seek,
will be sufficient to fund the Company's growth and operations for approximately
24 to 30 months from the date of this Prospectus. In order to provide
additional future liquidity to the Company, the Company has obtained a
commitment for a $150 million facility from affiliates of the Initial Purchasers
of the Notes in the 1997 Debt Placement, which subject to the Company satisfying
various operating and financial criteria, may be drawn by the Company on March
31, 1999. The commitment will be reduced by the amount so funded or rejected.
In the event the Company's plans or assumptions change or prove to be
inaccurate, or if the Company consummates any acquisitions of businesses or
assets (including additional spectrum licenses, by auction or otherwise), or if
the Company fails to secure additional equipment financing arrangements, the
Company may be required to seek additional sources of capital sooner than
currently anticipated. Sources of additional capital may include public and
private equity and debt financing, sales of nonstrategic assets and other
financing arrangements. There can be no assurance that the Company will be able
to obtain additional financing or, if such financing is available, that the
Company will be able to obtain it on acceptable terms. Failure to obtain
additional financing, if needed, could result in the delay or abandonment of
some or all of the Company's development and expansion plans, which would have a
material adverse effect on the Company's business and could adversely affect the
ability of the Company and its subsidiaries to make principal and interest
payments on their outstanding debt, including the Notes.
GOVERNMENT REGULATION
The Company's telecommunications services are subject to varying degrees of
federal, state and local regulation. Generally, the FCC exercises jurisdiction
over all telecommunications services providers to the extent such services
involve the provision of jurisdictionally interstate or international
telecommunications, including the resale of long distance services, the
provision of local access services necessary to connect callers to long distance
carriers and the use of electromagnetic spectrum (I.E., wireless services). With
the passage of the Telecommunications Act, the FCC's jurisdiction has been
extended to include certain interconnection and related issues that
traditionally have been considered subject primarily to state regulation. The
state regulatory commissions retain nonexclusive jurisdiction over the provision
of telecommunications services to the extent such services involve the provision
of jurisdictionally intrastate telecommunications.
The Telecommunications Act is intended to remove the formal barriers
between the long distance and local telecommunications services markets,
allowing service providers from each market (as well as providers of cable
television and other services) to compete in all communications markets. The
Telecommunications Act will permit the RBOCs eventually to compete in the
provision of long distance services between local access transport areas
("LATAs"). Additionally, the FCC must promulgate new regulations over the next
several years to address mandates contained in the Telecommunications Act, which
will change the regulatory environment significantly. The Telecommunications Act
generally requires LECs to provide competitors with interconnection and
nondiscriminatory access to the LEC network on more favorable terms than have
been available in the past. However, such interconnection and the terms thereof
are subject to negotiations with each LEC, which may involve considerable delays
and may not necessarily be obtained on terms and conditions that are acceptable
to the Company. In such instances, although the Company may petition the proper
regulatory agency to arbitrate disputed issues, there can be no assurance that
the Company will be able to obtain acceptable interconnection agreements. In
addition, the Telecommunications Act requires the promulgation of regulations to
implement universal service reform, to revise the existing subsidy system which
is intended to provide support for the provision of ubiquitous telephone service
and to effect access charge reform to more closely align the access charges
required to be paid by the long distance carriers to the LECs to the actual cost
of providing service. The Company is unable to predict what effect the
Telecommunications Act will have on the telecommunications industry in general
and on the Company in particular. No assurance can be given that any regulation
will broaden the opportunities available to the Company or will not have a
material adverse effect on the Company and its operations. Further, there can be
no assurance that the Company will be able to comply with additional applicable
laws, regulations and licensing requirements or have sufficient resources to
take advantage of the opportunities which may arise from this dynamic regulatory
environment.
As required by the Telecommunications Act, the FCC adopted, in August 1996,
new rules implementing the interconnection and resale provisions of the
Telecommunications Act (the "Interconnection Order"). These rules constitute a
pro-competitive, deregulatory national policy framework designed to remove or
minimize the regulatory, economic and operational impediments to full
competition for local services, including switched local
25
<PAGE>
exchange service. There can be no assurance how the Interconnection Order will
be implemented or enforced or as to what effect such implementation or
enforcement will have on competition within the telecommunications industry
generally or on the competitive position of the Company specifically. A number
of LECs, the National Association of Regulatory Utility Consumers and others
have filed in Federal court seeking to appeal aspects of the Interconnection
Order. In July 1997, the United States Court of Appeals for the Eighth Circuit
invalidated certain provisions of the Interconnection Order, including those
provisions in which the FCC asserted jurisdiction over the pricing of
interconnection elements and the "pick and choose" provisions for
interconnectors to select discrete provisions of other carriers' interconnection
decisions. As has been the case since the Interconnection Order was stayed by
the Court in January 1997, many states continue to set the prices for
interconnection, resale and unbundled network elements. The FCC has indicated
its intention to appeal the Eighth Circuit's ruling to the United States Supreme
Court. The Company believes that the Eighth Circuit's ruling will not adversely
affect its CLEC operations and may, in certain instances, positively affect the
operations of its Carrier Services business.
FINITE INITIAL TERM OF WIRELESS LICENSES; POTENTIAL LICENSE RENEWAL COSTS;
FLUCTUATIONS IN THE VALUE OF WIRELESS LICENSES; TRANSFER OF CONTROL
The FCC's current policy is to align the expiration dates of all 38 GHz
licenses such that they mature concurrently and, upon expiration, to renew all
such licenses for ten years. The initial term of all currently outstanding 38
GHz licenses, including the Company's licenses, expires in February 2001. While
the Company believes that all of its Wireless Licenses will be renewed based
upon FCC custom and practice establishing a presumption in favor of licensees
that have complied with their regulatory obligations during the initial license
period, there can be no assurance that any Wireless License will be renewed upon
expiration of its initial term.
In a notice of proposed rulemaking ("NPRM"), the FCC proposed auctioning
licenses for currently unallocated 38 GHz channels. Given the current political
climate with respect to balancing the federal budget, there is a risk that the
FCC will require significant payments upon renewal of the Company's Wireless
Licenses. The FCC's failure to renew, or its imposition of significant charges
for renewal of, one or more Wireless Licenses could have a material adverse
effect on the Company and the ability of the Company and its subsidiaries to
make principal and interest payments on their outstanding debt, including the
Notes.
The Wireless Licenses are integral assets of the Company, the value of
which will depend significantly upon the success of the Company's wireless
telecommunications operations and the future direction of the wireless
telecommunications segment of the telecommunications industry. The value of
licenses to provide wireless services also may be affected by fluctuations in
the level of supply and demand for such licenses. Any assignment of a license or
transfer of control by an entity holding a license is subject to certain
limitations relating to the identity and qualifications of the transferee and
requires prior FCC approval (and in some instances state regulatory approval as
it relates to the provision of telecommunications services in that state),
thereby possibly diminishing the value of the Wireless Licenses.
The Company has entered into agreements to acquire a number of additional
38 GHz licenses. The transfer of licenses issued by the FCC, including 38 GHz
licenses (as well as a change of control of entities holding licenses), is
subject to the prior consent of the FCC, which consent generally turns on a
number of factors including the identity, background and the legal and financial
qualifications of the transferee and the satisfaction of certain other
regulatory requirements. In addition, the existence of proposed channel
limitations in the NPRM, which in at least one licensed area may result in the
Company exceeding the proposed maximum number of licenses for that area, may
result in the FCC denying consent for one or more license transfers. In light of
the foregoing, the newness of this service and the uncertainty of final
regulations to be issued in connection with the NPRM, there can be no assurance
that the FCC will approve all or any of the proposed acquisitions or, if
approved, that the FCC will not impose limitations on the ultimate number of
licenses held in any particular licensed area.
CHANGES IN TECHNOLOGY, SERVICES AND INDUSTRY STANDARDS
The telecommunications industry has been characterized by rapid
technological change, changing end-user requirements, frequent new service
introductions and evolving industry standards. The Company believes that its
future success will depend on its ability to anticipate or adapt to such changes
and to offer, on a timely basis, services that meet these evolving industry
standards. The extent to which competitors using existing or currently
undeployed methods of
26
<PAGE>
delivery of local telecommunications services will compete with the Company's
Wireless Fiber services cannot be anticipated. There can be no assurance that
existing, proposed or as yet undeveloped technologies will not become dominant
in the future and render 38 GHz-based (and other spectrum-based) systems less
profitable or less viable. For example, there are several existing technologies
that may be able to allow the transmission of high bandwidth traffic over
existing copper lines. There can be no assurance that the Company will have
sufficient resources to make the investments necessary to acquire new
technologies or to introduce new services that could compete with future
technologies or that equipment held by the Company in inventory will not be
rendered obsolete, any of which would have an adverse effect on the operations
of the Company and the ability of the Company and its subsidiaries to make
principal and interest payments on their outstanding debt, including the Notes.
CERTAIN FINANCIAL AND OPERATING RESTRICTIONS
The 1997 Indentures and the 1995 Indentures impose significant operating
and financial restrictions on the Company, affecting, and in certain cases
limiting, among other activities, the ability of the Company to incur additional
indebtedness or create liens on its assets, pay dividends, sell assets, engage
in mergers or acquisitions or make investments. Failure to comply with any such
restrictions could limit the availability of borrowings or result in a default
under the terms of any such indebtedness, and there can be no assurance that the
Company will be able to comply with such restrictions. Moreover, these
restrictions could limit the Company's ability to engage in certain business
transactions which the Company may desire to consummate. The Company's inability
to consummate any such transaction could have an adverse effect on the Company's
operations and the ability of the Company and its subsidiaries to make principal
and interest payments on their outstanding debt, including the Notes.
ORIGINAL ISSUE DISCOUNT; POSSIBLE UNFAVORABLE TAX AND OTHER LEGAL CONSEQUENCES
FOR HOLDERS OF SENIOR NOTES AND THE COMPANY
As there will be no periodic payments in cash of interest on the Senior
Notes prior to April 2001, original issue discount (the difference between the
stated redemption price at maturity and the issue price of the Senior Notes)
will accrue from the issue date of the Senior Notes. Original issue discount
must be included as interest income periodically in a United States noteholder's
gross income for United States federal income tax purposes in advance of receipt
of the cash payments to which the income is attributable. See "Certain United
States Federal Income Tax Considerations" for a more detailed discussion of the
United States federal income tax consequences to holders of Senior Notes
regarding the purchase, ownership and disposition of such Notes.
Further, the Senior Notes will be subject to the high yield discount
obligation rules. Consequently, the Company will not be able to deduct the
original issue discount attributable to the Senior Notes until actually paid. As
explained in, and subject to, the discussion under "Certain United States
Federal Income Tax Consequences--Tax Consequences to U.S. Holders--Applicable
High Yield Discount Rules," the Senior Notes will be subject to these
rules because their yield to maturity equals or exceeds the Treasury-based
interest rate in effect for the month of their issuance plus five percentage
points. For mid-term debt instruments issued in March 1997, such Treasury-based
interest rate plus five percentage points is 11.32%, compounded semiannually.
Moreover, because the yield to maturity of the Senior Notes exceeds a
Treasury-based interest rate in effect for the month of their issuance plus six
percentage points, a portion of the original issue discount attributable to the
Senior Notes will not be deductible at all. For mid-term debt instruments issued
in March 1997, such Treasury-based interest rate plus six percentage points is
12.32%, compounded semiannually. As a result of the application of these high
yield discount rules, the Company's after tax cash flow might be less than if
such original issue discount were deductible when accrued.
DEPENDENCE ON THIRD PARTIES FOR SERVICE AND MARKETING; POSSIBLE SERVICE
INTERRUPTIONS AND EQUIPMENT FAILURES
The Company's long distance resale business is dependent on utilizing the
facilities of major IXCs to carry its customers' long distance telephone calls
and, in many instances, especially during initial market penetrations, the
Company's CLEC business will be dependent on the facilities of the LECs and
other local exchange service providers to carry its customers' local telephone
calls. The Company has agreements with IXCs that provide it with access to such
carriers' networks and has entered or is entering into interconnect agreements
with various LECs, and other CLECs, to access their local exchange facilities.
Although the Company believes that it currently has sufficient access to long
27
<PAGE>
distance networks and will be able to obtain sufficient access to local exchange
facilities, any increase in the rates or access fees charged by the owners of
such facilities or their unwillingness to provide access to such facilities to
the Company, as well as potential reticence of the LECs to honor appropriate
provisioning and service intervals with respect to interconnection arrangements,
could materially adversely affect the Company's operations. Failure to obtain
continuing access to such networks and facilities could require the Company to
significantly curtail or cease its operations and could have an adverse effect
on the ability of the Company and its subsidiaries to make principal and
interest payments on their outstanding debt, including the Notes. See
"Description of Certain Indebtedness and Preferred Stock." Further, the
Company's CLEC operations will rely to some extent upon network elements which
the LECs must provide pursuant to the Telecommunications Act and the
Interconnection Order. These facilities often use copper wire for "last mile"
access to end users. To the extent that the Company relies upon LEC facilities
that use copper wire, the Company may not be able to offer potential customers
the benefits of Wireless Fiber with respect to high transmission capacity and
quality. In addition, the Company's operations require that the networks leased
by it, and any facilities which may be developed by the Company, operate on a
continuous basis. It is not unusual for networks and switching facilities to
experience periodic service interruptions and equipment failures. It is
therefore possible that the networks and facilities utilized by the Company may
from time to time experience service interruptions or equipment failures
resulting in material delays which would adversely affect consumer confidence as
well as the Company's business operations and reputation.
The Company utilizes, in certain cases, third parties for marketing its
Wireless Fiber services and maintaining its operational systems. The Company has
entered into master service agreements with other telecommunications providers
that allow those companies to utilize and resell the Company's Wireless Fiber
services to their own customers. The Company also has an agreement with Lucent
to provide field service for, and network monitoring of, the Company's Wireless
Fiber facilities and another agreement with Lucent for the purchase by the
Company of telecommunications switches and related equipment. The failure of any
of these third parties to perform under their respective agreements or the loss
of any of these agreements could have a material adverse effect on the Company's
results of operations and its ability to service its customers. The Company
plans to enter into master service agreements with other telecommunications
service providers, and the failure to do so could have an adverse effect on the
Company's development and results of operations and the ability of the Company
and its subsidiaries to make principal and interest payments on their
outstanding debt, including the Notes.
RELIANCE ON EQUIPMENT SUPPLIERS
The Company currently purchases substantially all of its wireless
telecommunications equipment, including transceivers and network monitoring
equipment, from a single supplier and its switches and related equipment from a
single supplier even though, in each case, there are other manufacturers of such
equipment. Any reduction or interruption in supply from its suppliers could have
a material adverse effect on the Company until sufficient alternative supply
sources are established. The Company does not manufacture, nor does it have the
capability to manufacture, any of its telecommunications equipment. Although
there are other manufacturers who have, or are developing, equipment that would
satisfy the Company's needs, there can be no assurance that the Company would be
able to replace its current primary suppliers on commercially reasonable terms.
In addition, as no industry standard or uniform protocol currently exists for 38
GHz equipment, a single manufacturer's equipment must be used in establishing
each wireless link.
LINE OF SIGHT; DISTANCE LIMITATIONS IMPOSED BY RAINFALL CONDITIONS IN CERTAIN
GEOGRAPHIC AREAS; ROOF RIGHTS
In order to provide quality transmission, Wireless Fiber services require
an unobstructed line of sight between two transceivers comprising a link, with a
maximum distance between any two corresponding transceivers of five miles (or
shorter distances in certain areas; weather conditions may necessitate distances
as short as 1.1 miles between transceivers to maintain desired transmission
quality). The areas in which such shorter distances are required are those where
rainfall intensity and the size of the raindrops adversely impact transmission
quality at longer distances. Other weather conditions, such as snow, electrical
storms and high winds, have not, in the Company's experience, affected the
quality or reliability of Wireless Fiber services. The establishment of Wireless
Fiber services may require additional transceivers to triangulate around
obstacles (such as buildings). Similarly, to establish Wireless Fiber services
covering a distance in excess of five miles, additional transceivers are
required to establish a chain with links no more than five miles apart or to
establish a system of interconnected hub sites. The cost of additional
transceivers where required by
28
<PAGE>
weather, physical obstacles or distance may render Wireless Fiber uneconomical
in certain instances. The Company must obtain Roof Rights (or rights to access
other locations where lines of sight are available) in each building where a
transceiver will be placed. The Company seeks to prequalify and obtain Roof
Rights at buildings targeted by potential customers in its licensed areas in
advance of anticipated orders. There can be no assurance, however, that the
Company will be successful in obtaining Roof Rights necessary to establish its
Wireless Fiber services in its potential markets. The Company's prequalification
activities often require the payment of option fees to the owners of buildings
that are being prequalified. There can be no assurance that the Company will
receive orders for Wireless Fiber services which allow the Company to utilize
Roof Rights it obtains.
UNCERTAINTY OF MARKET ACCEPTANCE OF WIRELESS FIBER SERVICES
The Company has been marketing its Wireless Fiber services since
December 1994. The Company has not obtained a significant market share in any
of the licensed areas where it offers Wireless Fiber services. The provision of
wireless local telecommunications services over 38 GHz represents an emerging
sector of the telecommunications industry and the demand for and acceptance of
Wireless Fiber services are subject to a high level of uncertainty. Despite the
Company's initial success in attracting customers, there can be no assurance
that substantial markets will develop for wireless local telecommunications
services delivered over 38 GHz or that, even if such markets develop, the
Company will be able to succeed in positioning itself as a provider of such
services or provide such services profitably. The Company's success in providing
wireless broadband services is subject to a number of factors beyond the
Company's control. These factors include, without limitation, historical
perceptions of the unreliability and lack of security of previous microwave
radio technologies, changes in general and local economic conditions,
availability of equipment, changes in telecommunications service rates charged
by other service providers, changes in the supply and demand for wireless
broadband services, competition from wireline and wireless operators in the same
market area and changes in the federal and state regulatory schemes affecting
the operations of telecommunications service providers in general and wireless
broadband systems in particular (including the enactment of new statutes and the
promulgation of changes in the interpretation or enforcement of existing or new
rules and regulations). In addition, the extent of the potential demand for
wireless broadband services in the Company's target markets cannot be estimated
with certainty. There can be no assurance that one or more of these factors will
not have an adverse effect on the Company's financial condition and results of
operations and the ability of the Company and its subsidiaries to make principal
and interest payments on their outstanding debt, including the Notes.
RELIANCE ON KEY PERSONNEL
The efforts of a relatively small number of key management and operating
personnel will largely determine the Company's success. The loss of any of such
personnel could adversely affect the Company. The Company's success also depends
in part upon its ability to hire and retain highly skilled and qualified
operating, marketing, financial and technical personnel. The competition for
qualified personnel in the telecommunications industry is intense. Accordingly,
there can be no assurance that the Company will be able to hire or retain
necessary personnel.
LACK OF PUBLIC MARKET FOR SECURITIES
There is no public market and only a limited secondary market for the
Notes. The Old Notes are and the New Notes will be designated eligible for
trading in The Private Offerings, Resales and Trading through Automated Linkages
(PORTAL) Market of The Nasdaq Stock Market, Inc. Notes traded after their
initial issuance may trade at a discount from their initial offering price,
depending upon prevailing interest rates, the market for similar securities and
other factors, including general economic conditions and the financial condition
of, performance of, and prospects for the Company.
INVESTMENT COMPANY ACT CONSIDERATIONS
After giving effect to the Offering, the Company will have substantial
cash, cash equivalents and short-term investments. See "Capitalization." Such
amount may be invested from time to time in investment securities, which may
result in the Company being treated as an "investment company" under the
Investment Company Act of 1940 (the "1940 Act"). The 1940 Act requires the
registration of, and imposes various substantive restrictions on, certain
companies ("investment companies") that are, or hold themselves out as being,
engaged primarily, or propose to engage primarily in, the business of
investing, reinvesting or trading in securities, or that fail certain
statistical tests regarding composition of assets and sources of income and
are not primarily engaged in businesses other than investing, reinvesting,
owning, holding or trading securities.
The Company believes that it is primarily engaged in a business other than
investing, reinvesting, owning, holding or trading securities and, therefore, is
not an investment company within the meaning of the 1940 Act. If the Company is
found to be an investment company, the Company intends to rely upon an exemption
from the 1940 Act for certain "transient" or temporary investment companies.
However, such exemption is only available for one year.
If the Company were required to register as an investment company under the
1940 Act, it would become subject to substantial regulation with respect to its
capital structure, management, operations, transactions with affiliated persons
(as defined in the 1940 Act) and other matters. Application of the provisions of
the 1940 Act to the Company would have a material adverse effect on the Company.
In addition, if the Company is an investment company under the 1940 Act, the
Notes will not be eligible to be resold in reliance on Rule 144A under the
Securities Act and certain holders of the Notes may not be able to own the
Notes. In such event, the market price of the Notes may be adversely affected.
CONSEQUENCES OF THE EXCHANGE OFFER ON NON-TENDERING HOLDERS OF THE OLD NOTES
In the event the Exchange Offer is consummated, the Company may not be
required to register certain of the Old Notes not tendered and accepted in the
Exchange Offer. In such event, holders of certain of the Old Notes seeking
liquidity in their investment would have to rely on exemptions to the
registration requirements under the securities laws,
29
<PAGE>
including the Securities Act. Following the consummation of the Exchange
Offer, certain of the Old Notes may not be entitled to the contingent increase
in interest rate provided for in the event of a failure to consummate the
Exchange Offer in accordance with the terms of the Registration Agreement.
30
<PAGE>
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were sold by the Issuers in the 1997 Debt Placement to the
Initial Purchasers who, in turn, sold such Old Notes to certain qualified
institutional buyers in reliance on Rule 144A under the Securities Act. In
connection with the 1997 Debt Placement, the Company and WinStar Equipment
entered into the Registration Agreement, pursuant to which each of the Company
and WinStar Equipment agreed to use its best efforts to consummate this Exchange
Offer of the Old Notes for the New Notes pursuant to an effective registration
statement by September 15, 1997. Unless the context requires otherwise, the
term "holder" with respect to the Exchange Offer means any person in whose name
Old Notes are registered on the books of the Company, or any other person who
has obtained a properly completed bond power from the registered holder, or any
person whose Old Notes are held of record by DTC (who may deliver such Old Notes
by book-entry transfer at DTC).
The Company has not requested, and does not intend to request, an
interpretation by the staff of the Commission with respect to whether the New
Notes issued pursuant to the Exchange Offer in exchange for the Old Notes may be
offered for sale, resold or otherwise transferred by any holder without
compliance with the registration and prospectus delivery provisions of the
Securities Act. Based on interpretations by the staff of the Commission set
forth in no-action letters issued to third parties, the Company believes that
New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be
offered for resale, resold and otherwise transferred by any holder of such New
Notes (except in the case of broker-dealers, as set forth below) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such New Notes are acquired in the ordinary course
of such holder's business and such holder has no arrangement or understanding
with any person to participate in the distribution of such New Notes. Any holder
who tenders in the Exchange Offer for the purpose of participating in a
distribution of the New Notes may not rely on such interpretation by the staff
of the Commission and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any secondary resale
transaction. Each broker-dealer that receives New Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes. See "Plan of Distribution."
By tendering in the Exchange Offer, each holder of Old Notes will represent
to the Company and WinStar Equipment, as the case may be, that, among other
things, (i) the New Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the person receiving such New
Notes, whether or not such person is such holder, (ii) neither the holder of Old
Notes nor any such other person has an arrangement or understanding with any
person to participate in the distribution of such New Notes, and (iii) if the
holder is not a broker-dealer, or is a broker-dealer but will not receive New
Notes for its own account in exchange for Old Notes. Neither the holder nor
any such other person is engaged in or intends to participate in the
distribution of such New Notes.
Following the consummation of the Exchange Offer, holders of Old Notes not
tendered will no longer have certain registration rights and the Old Notes will
continue to be subject to certain restrictions on transfer. Accordingly, the
liquidity of the market for the Old Notes could be adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company and WinStar Equipment will accept
any and all Old Notes validly tendered and not withdrawn prior to 5:00 p.m., New
York City time, on the Expiration Date. Subject to the minimum denomination
requirements of the New Notes, the Company will issue $1,000 principal amount of
New Senior Notes in exchange for each $1,000 principal amount of outstanding Old
Senior Notes and WinStar Equipment will issue $1,000 principal amount of New
Equipment Notes in exchange for each $1,000 principal amount of outstanding Old
Equipment Notes accepted in the Exchange Offer. Holders may tender some or all
of their Old Notes pursuant to the Exchange Offer. However, Old Notes may be
tendered only in integral multiples of $1,000 principal amount.
31
<PAGE>
The forms and terms of the New Notes will be identical in all material
respects to the forms and terms of the corresponding Old Notes, except that the
New Notes will have been registered under the Securities Act and, therefore,
will not bear legends restricting the transfer thereof. The Exchange Offer is
not conditioned upon any minimum aggregate principal amount at maturity of Old
Notes being tendered for exchange. DTC is the sole registered holder of the Old
Notes, and holds such notes on behalf of numerous participants. This
Prospectus, together with the Letter of Transmittal, is being sent to all such
registered holders as of August 8, 1997.
Holders of Old Notes do not have any appraisal or dissenters rights under
the 1997 Indentures in connection with the Exchange Offer. Each of the Company
and WinStar Equipment intends to conduct the Exchange Offer in accordance with
the applicable requirements of the Exchange Act and the applicable rules and
regulations of the Commission thereunder.
Each of the Company and WinStar Equipment, as the case may be, shall be
deemed to have accepted validly tendered Old Notes when, as and if it has given
oral or written notice thereof to the Exchange Agent. The Exchange Agent will
act as agent for the tendering holders for the purpose of receiving the New
Notes from each of the Company and WinStar Equipment. If any tendered Old Notes
are not accepted for exchange, such unaccepted Old Notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offer. See
" -- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
September 12, 1997, unless the Company in its sole discretion extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended. Although the Company has
no current intention to extend the Exchange Offer, the Company reserves the
right to extend the Exchange Offer at any time and from time to time by giving
oral or written notice to the Exchange Agent and by timely public announcement
communicated, unless otherwise required by applicable law or regulation, by
making a release to the Dow Jones News Service. During any extension of the
Exchange Offer, all Old Notes previously tendered pursuant to the Exchange Offer
and not withdrawn will remain subject to the Exchange Offer. The date of the
exchange of the New Notes for Old Notes will be the first New York Stock
Exchange trading day following the Expiration Date.
Each of the Company and WinStar Equipment, as the case may be, expressly
reserves the right to (i) terminate the Exchange Offer and not accept for
exchange any Old Notes if any of the events set forth below under " --
Conditions to the Exchange Offer" shall have occurred and shall not have been
waived by the Issuers and (ii) amend the terms of the Exchange Offer in any
manner which, in its good faith judgment, is advantageous to the holders of the
Old Notes, whether before or after any tender of the Old Notes.
PROCEDURES FOR TENDERING
The tender to the Company or WinStar Equipment, as the case may be, of Old
Notes by a holder thereof pursuant to one of the procedures set forth below will
constitute an agreement between such holder and the Company and/or WinStar
Equipment, as the case may be, in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal signed by such
holder. A holder of the Old Notes may tender such Old Notes by (i) properly
completing and signing a Letter of Transmittal or a facsimile thereof (all
references in this Prospectus to a Letter of Transmittal shall be deemed to
include a facsimile thereof) and delivering the same, together with any
corresponding certificate or certificates representing the Old Notes being
tendered (if in certificated form) and any required signature guarantees, to the
Exchange Agent at its address set forth in the Letter of Transmittal on or prior
to the Expiration Date (or complying with the procedure for book-entry transfer
described below) or (ii) complying with the guaranteed delivery procedures
described below.
32
<PAGE>
If tendered Old Notes are registered in the name of the signer of the
Letter of Transmittal and the New Notes to be issued in exchange therefor are to
be issued (and any untendered Old Notes are to be reissued) in the name of the
registered holder (which term, for the purposes described herein, shall include
any participant in DTC whose name appears on a security listing as the owner Of
Old Notes), the signature of such signer need not be guaranteed. In any other
case, the tendered Old Notes must be endorsed or accompanied by written
instruments of transfer in form satisfactory to the Company and duly executed by
the registered holder and the signature on the endorsement or instrument of
transfer must be guaranteed by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States or an "eligible guarantor institution" as defined by Rule 17Ad-15 under
the Exchange Act (any of the foregoing hereinafter referred to as an "Eligible
Institution"). If the New Notes and/or Old Notes not exchanged are to be
delivered to an address other than that of the registered holder appearing on
the register for the Old Notes, the signature in the Letter of Transmittal must
be guaranteed by an Eligible Institution.
THE METHOD OF DELIVERY OF OLD NOTES, LETTER OF TRANSMITTAL AND ALL OTHER
DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER. IF SUCH DELIVERY IS BY
MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN
RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ASSURE TIMELY DELIVERY. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO
THE COMPANY OR WINSTAR EQUIPMENT.
The Issuers understand that the Exchange Agent will make a request promptly
after the date of this Prospectus to establish accounts with respect to the Old
Notes at DTC for the purpose of facilitating the Exchange Offer, and subject to
the establishment thereof, any financial institution that is a participant in
DTC's system may make book-entry delivery of Old Notes by causing DTC to
transfer such Old Notes into the Exchange Agent's account with respect to the
Old Notes in accordance with DTC's procedure for such transfer. Although
delivery of the Old Notes may be effected through book-entry transfer into the
Exchange Agent's account at DTC, an appropriate Letter of Transmittal with any
required signature guarantee and all other required documents must in each case
be transmitted to and received or confirmed by the Exchange Agent at the address
set forth in the Letter of Transmittal on or prior to the Expiration Date, or,
if the guaranteed delivery procedures described below are complied with, within
the time period provided under such procedures.
If the holder desires to accept the Exchange Offer and time will not permit
a Letter of Transmittal or Old Notes to reach the Exchange Agent before the
Expiration Date or the procedure for book-entry transfer cannot be completed on
a timely basis, a tender may be effected if the Exchange Agent has received at
its office, on or prior to the Expiration Date, a letter, telegram or facsimile
transmission from an Eligible Institution setting forth the name and address of
the tendering holder, the name(s) in which the Old Notes are registered and the
certificate number(s) of the Old Notes to be tendered, and stating that the
tender is being made thereby and guaranteeing that, within three New York Stock
Exchange trading days after the date of execution of such letter, telegram or
facsimile transmission by the Eligible Institution, such Old Notes, in proper
form for transfer (or a confirmation of book-entry transfer of such Old Notes
into the Exchange Agent's account at DTC), will be delivered by such Eligible
Institution together with a properly completed and duly executed Letter of
Transmittal (and any other required documents). Unless Old Notes being tendered
by the above-described method are deposited with the Exchange Agent within the
time period set forth above (accompanied or preceded by a properly completed
Letter of Transmittal and any other required documents), each of the Issuers
may, at its option, reject the tender. Copies of a Notice of Guaranteed
Delivery which may be used by Eligible Institutions for the purposes described
in this paragraph are available from the Exchange Agent.
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Old Notes (or a confirmation of book-entry transfer of such
Old Notes into the Exchange Agent's account at DTC) is received by the Exchange
Agent or (ii) a Notice of Guaranteed Delivery or letter, telegram or facsimile
transmission to similar effect (as provided above) from an Eligible Institution
is received by the Exchange Agent. Issuances of New Notes in exchange for Old
Notes tendered pursuant to a Notice of Guaranteed Delivery or letter, telegram
or facsimile transmission to similar effect (as provided above) by an Eligible
Institution will be made only against submission of a duly signed Letter of
Transmittal (and any other required documents) and deposit of the tendered Old
Notes.
33
<PAGE>
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Old Notes will be
determined by the Issuers, whose determination will be final and binding. The
Issuers reserve the absolute right to reject any or all tenders not in proper
form or the acceptance for exchange of which may, in the opinion of Issuers'
counsel, be unlawful. The Issuers also reserve the absolute right to waive any
of the conditions of the Exchange Offer or any defect or irregularity in the
tender of any Old Notes. None of the Company, WinStar Equipment, the Exchange
Agent or any other person will be under any duty to give notification of any
defects or irregularities in tenders or incur any liability for failure to give
any such notification. If any Old Notes received by the Exchange Agent are not
validly tendered and as to which the defects or irregularities have not been
cured or waived, or if Old Notes are submitted in a principal amount greater
than the principal amount of Old Notes being tendered by such tendering holder,
such unaccepted or non-exchanged Old Notes will be returned by the Exchange
Agent to the tendering holders, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
In addition, each of the Company and WinStar Equipment reserves the right
in its sole discretion, to the extent permitted by the Senior Notes Indenture
and Equipment Note Indenture, as the case may be, to (a) purchase or make offers
for any Old Notes that remain outstanding subsequent to the Expiration Date and
(b) to the extent pertained by applicable law, purchase Old Notes in the open
market, in privately negotiated transactions or otherwise. The terms of any
such purchases or offers will differ from the terms of the Exchange Offer.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.
The party tendering Old Notes for exchange ("Transferor") exchanges,
assigns and transfers the Old Notes to the Company and WinStar Equipment, as the
case may be, and irrevocably constitutes and appoints the Exchange Agent as the
Transferor's agent and attorney-in-fact to cause the Old Notes to be assigned,
transferred and exchanged. The Transferor represents and warrants that it has
full power and authority to tender, exchange, assign and transfer the Old Notes
and to acquire New Notes issuable upon the exchange of such tendered Old Notes,
and that, when the same are accepted for exchange, the Company and WinStar
Equipment, as the case may be, will acquire good and unencumbered title to the
tendered Old Notes, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim. The Transferor also warrants
that it will, upon request, execute and deliver any additional documents deemed
by the Issuers to be necessary or desirable to complete the exchange, assignment
and transfer of tendered Old Notes or transfer ownership of such Old Notes on
the account books maintained by DTC. All authority conferred by the Transferor
will survive the death, bankruptcy or incapacity of the Transferor and every
obligation of the Transferor shall be binding upon the heirs, legal
representatives, successors, assigns, executors and administrators of such
Transferor.
By executing a Letter of Transmittal, each holder will make to the Company
and WinStar Equipment, as the case may be, the representations set forth above
in the third paragraph under the heading " -- Purpose and Effect of the Exchange
Offer."
WITHDRAWAL OF TENDERS
Tenders of Old Notes pursuant to the Exchange Offer are irrevocable, except
that Old Notes tendered pursuant to the Exchange Offer may be withdrawn at any
time prior to 5:00 p.m., New York City time, on the Expiration Date.
To be effective, a written, telegraphic, or facsimile transmission notice
of withdrawal must be timely received by the Exchange Agent at the address set
forth in the Letter of Transmittal prior to 5:00 p.m., New York City time on the
Expiration Date. Any such notice of withdrawal must specify the holder named in
the Letter of Transmittal as having tendered Old Notes to be withdrawn, the
certificate numbers and designation of Old Notes to be withdrawn, the principal
amount of Old Notes delivered for exchange, a statement that such holder is
withdrawing his election to have such Old Notes exchanged, and the name of the
registered holder of such Old Notes, and must be signed by the holder in the
same manner as the original signature on the Letter of Transmittal (including
any required signature guarantees) or be accompanied by evidence satisfactory to
the Company and WinStar Equipment, as the case may be, that the person
34
<PAGE>
withdrawing the tender has succeeded to the beneficial ownership of the Old
Notes being withdrawn. The Exchange Agent will return the properly withdrawn
Old Notes promptly following receipt of notice of withdrawal. If Old Notes
have been tendered pursuant to the procedure for book-entry transfer, any notice
of withdrawal must specify the name and number of the account at DTC to be
credited with the withdrawn Old Notes or otherwise comply with DTC procedure.
All questions as to the validity of notices of withdrawal, including time of
receipt, will be determined by the Issuers and such determination will be final
and binding on all parties.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, or any extension
of the Exchange Offer, the Issuers will not be required to issue New Notes in
exchange for any properly tendered Old Notes not theretofore accepted and may
terminate the Exchange Offer, or, at their option, modify or otherwise amend
the Exchange Offer, if either of the following events occur:
(a) any statute, rule or regulation shall have been enacted, or any
action shall have been taken by any court or governmental authority which,
in the sole judgment of the Company, would prohibit, restrict or otherwise
render illegal the consummation of the Exchange Offer, or
(b) there shall occur a change in the current interpretation by the
staff of the Commission which, in the Company's sole judgment, might
materially impair the Company's or WinStar Equipment's ability to proceed
with the Exchange Offer.
Each of the Company and WinStar Equipment expressly reserves the right to
terminate the Exchange Offer and not accept for exchange any Old Notes upon the
occurrence of either of the foregoing conditions (which represent all of the
material conditions to the acceptance by the Company and WinStar Equipment, as
the case may be, of properly tendered Old Notes).
The foregoing conditions are for the sole benefit of the Issuers and may
be waived by the Issuers if it is legally permitted to do so, in whole or in
part, in its sole discretion. The foregoing conditions must be either satisfied
or waived prior to termination of the Exchange Offer. Any determination made by
the Issuers concerning an event, development or circumstance described or
referred to above will be final and binding on all parties.
EXCHANGE AGENT
U.S. Trust has been appointed as Exchange Agent for the Exchange Offer.
Questions and requests for assistance, requests for additional copies of this
Prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
BY MAIL (REGISTERED OR CERTIFIED MAIL RECOMMENDED):
United States Trust Company of New York
P.O. Box 844
Cooper Station
New York, New York 10276-0844
BY OVERNIGHT COURIER:
United States Trust Company of New York
770 Broadway - 13th Floor
Corporate Trust Operations Department
New York, New York 10003
Attn: Corporate Trust Operations Department
35
<PAGE>
BY HAND DELIVERY:
United States Trust Company of New York
111 Broadway, Lower Level
New York, New York 10006
Attn: Corporate Trust Services
BY FACSIMILE (FOR ELIGIBLE INSTITUTIONS ONLY):
(212) 420-6152
Confirm by telephone (800) 548-6565
FEES AND EXPENSES
The expense of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitations
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates. No additional compensation will be
paid to any such officers and employees who engage in soliciting tenders.
The Issuers have not retained any dealer-manager or other soliciting agent
in connection with the Exchange Offer and will not make any payments to brokers,
dealers or others soliciting acceptances of the Exchange Offer. The Company,
however, will pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for its reasonable out-of-pocket expenses in
connection therewith. The Company may also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this Prospectus, the Letter of
Transmittal and related documents to the beneficial owners of the Old Notes and
in handling or forwarding tenders for exchange.
The expenses to be incurred by the Company in connection with the Exchange
Offer, including fees and expenses of the Exchange Agent and Trustee and
accounting and legal fees, will be paid by the Company. The Company will not,
however, pay the costs incurred by a holder in delivering its Old Notes to the
Exchange Agent, underwriting fees, or Commissions or transfer taxes.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes
as reflected in the Company's accounting records on the date of the exchange
because the exchange of the Old Notes for the New Notes is the completion of the
selling process contemplated in the issuance of the Old Notes. Accordingly, no
gain or loss for accounting purposes will be recognized. The expenses of the
Exchange Offer and the unamortized expenses related to the issuance of the Old
Notes will be amortized over the term of the New Notes.
OTHER MATTERS
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of the Old Notes are urged to
consult their financial and tax advisors in making their own decisions on what
action to take.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations
should not be relied upon as having been authorized by the Company. Neither the
delivery of this Prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the respective dates as of which information is
given herein. The Exchange Offer is not being made to (nor will tenders be
accepted from or on behalf of) holders of Old Notes in any jurisdiction in which
the making of the Exchange Offer or the acceptance thereof would not be in
compliance with the laws of such jurisdiction. However, the Company may, at its
discretion, take such action as it may deem necessary to make the Exchange Offer
in any such jurisdiction and extend the Exchange Offer to holders of Old Notes
in such jurisdiction.
36
<PAGE>
As a result of the making of the Exchange Offer, the Issuers will have
fulfilled a covenant contained in the Registration Agreement. Holders of the
Old Notes who do not tender their Old Notes in the Exchange Offer will continue
to hold such Old Notes and will be entitled to all the rights and limitations
applicable thereto under the Senior Notes Indenture and Equipment Notes
Indenture, as the case may be, except for certain rights under the Registration
Agreement and except that certain of the Old Notes may not be entitled to the
contingent increase in interest rate provided for in the Old Notes. All
untendered Old Notes will continue to be subject to the restrictions on transfer
set forth in the Senior Notes Indenture and the Equipment Notes Indenture, as
the case may be, and the Old Notes. To the extent that Old Notes are tendered
and accepted in the Exchange Offer, the trading market, if any, for untendered
Old Notes could be adversely affected.
Neither the Company nor WinStar Equipment will receive any cash proceeds
from the issuance of the New Notes offered hereby. In consideration for issuing
the New Notes as contemplated in this Prospectus, the Company will receive in
exchange Old Senior Notes, and WinStar Equipment will receive in exchange Old
Equipment Notes, in like principal amount, the terms of which are identical to
the New Senior Notes and New Equipment Notes, as the case may be, except that
such New Notes will be registered under the Securities Act and, therefore, will
not bear legends restricting the transfer thereof. Old Notes surrendered in
exchange for New Notes will be retired and canceled and cannot be reissued.
Accordingly, issuance of the New Notes will not result in a change in the
indebtedness of the Company or WinStar Equipment.
37
<PAGE>
CAPITALIZATION
The following table sets forth the cash and capitalization of the
continuing operations of the Company as of March 31, 1997.
CAPITALIZATION
The following table sets forth the cash and capitalization of the
continuing operations of the Company as of March 31, 1997.
<TABLE>
<CAPTION>
MARCH 31, 1997
------------------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C>
Cash, cash equivalents and short-term investments..................................... $413,474
-----------
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current portion of long-term debt and capital lease obligations....................... $23,095
-----------
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS:
Equipment Notes.................................................................... 200,000
Old Senior Notes................................................................... 182,233
Senior Notes....................................................................... 100,483
Convertible Notes.................................................................. 91,116
Other notes........................................................................ 597
Capital lease obligations, net of current portion.................................. 12,991
-----------
Total long-term debt and capital lease obligations.............................. 587,420
-----------
STOCKHOLDERS' EQUITY:
Preferred stock of the Company, 15,000,000 shares authorized, 4,000,000 shares
issued and outstanding (with a liquidation preference of $100,000,000).......... 40
Common Stock, $.01 par value, 75,000,000 shares authorized, 32,583,373 shares
issued and outstanding(1)....................................................... 328
Additional paid-in capital......................................................... 246,902
Accumulated deficit................................................................ (167,010)
-----------
80,260
Unrealized loss on long term investments........................................ (675)
-----------
Total stockholders' equity......................................................... 79,585
-----------
Total capitalization....................................................... $690,100
-----------
-----------
</TABLE>
___________
(1) Does not include (i) an aggregate of 1,106,620 shares of Common Stock
issuable upon exercise of options granted or which may be granted under the
1992 Performance Equity Plan ("1992 Plan"), (ii) an aggregate of 3,500,000
shares of Common Stock issuable upon exercise of options granted or which
may be granted under the 1995 Performance Equity Plan ("1995 Plan") and
(iii) 6,301,449 shares of Common Stock issuable upon exercise of other
outstanding options and warrants. Also does not include shares issuable
upon the conversion of the Convertible Preferred Stock and/or the
Convertible Notes, nor dividends on Convertible Preferred Stock which were
paid in kind on March 31, 1997. See "Description of Certain Indebtedness
and Preferred Stock." The exercise and conversion prices of certain of the
foregoing securities are below the current market price of the Common Stock
as of the date of this Prospectus. Includes the issuance of 3,594,620
shares of Common Stock in connection with the Milliwave Acquisition. Also
in June 1997, the shareholders of the Company approved an additional
4,000,000 shares of Common Stock issuable upon exercise of options which
may be granted under the 1995 Plan, increasing the total shares which may
be granted under the 1995 Plan from 3,500,000 to 7,500,000. In June 1997,
the Company authorized an additional 125,000,000 shares of Common Stock,
increasing the authorized shares from 75,000,000 at March 31, 1997, to
200,000,000 at the date of this Prospectus.
38
<PAGE>
DESCRIPTION OF NOTES
The Old Senior Notes were issued in the 1997 Debt Placement under the
Senior Notes Indenture, dated as of March 1, 1997, between WinStar
Communications, Inc. (for the purposed of this Description of Notes, "WCI"), as
issuer, and U.S. Trust, as trustee (in such capacity, the "Senior Notes
Trustee"). The Old Equipment Notes were issued in the 1997 Debt Placement under
the Equipment Notes Indenture, dated as of March 1, 1997, between WinStar
Equipment, as issuer, WCI, as guarantor, and U.S. Trust, as trustee (in such
capacity, the "Equipment Notes Trustee" and, together with the Senior Notes
Trustee, the "Trustees"). Any references herein to a "Trustee" means the Senior
Notes Trustee or the Equipment Notes Trustee, as the context may require. Copies
of the forms of 1997 Indentures are available on request from WCI.
The New Senior Notes will be issued under the Senior Notes Indenture and
the New Equipment Notes will be issued under the Equipment Notes Indenture. The
form and terms of the New Notes are the same as the form and terms of the Old
Notes, except that the New Notes will have been registered under the Securities
Act, and therefore, will not bear legends restricting transfer thereof. The New
Senior Notes and New Equipment Notes will evidence the same debt as the Old
Senior Notes and Old Equipment Notes. Upon consummation of the Exchange
Offering, the New Senior Notes will be treated as a single class under the
Senior Notes Indenture with any Old Senior Notes remaining outstanding, and the
New Equipment Notes will be treated as a single class under the Equipment Notes
Indenture with any Old Equipment Notes remaining outstanding. Upon the
consummation of the Exchange Offer, holders of Old Notes may not be entitled to
certain registration rights under, or the contingent increase in interest rate
provided by, the Registration Agreement.
The term "Senior Notes" used herein refers to both Old Senior Notes and New
Senior Notes and the term "Equipment Notes" used herein refers to both Old
Equipment Notes and New Equipment Notes. The term "Notes" or "1997 Notes"
refers to both Senior Notes and Equipment Notes.
GENERAL
The New Notes will be issued only in fully registered form, without
coupons, in denominations of $1,000 of principal amount and any integral
multiple of $1,000. See "--Book-Entry, Delivery and Form." No service charge
will be made for any registration of transfer or exchange of Notes, but WCI may
require payment of a sum sufficient to cover any transfer tax or other similar
governmental charge payable in connection therewith. The Notes may be exchanged
or transferred at the office or agency of WCI in the Borough of Manhattan, The
City of New York (which initially will be the corporate trust office of the
Trustee at 114 West 47th Street, New York, New York 10036-1532).
Although for United States federal income tax purposes a significant amount
of original issue discount, taxable as ordinary income, will be recognized by a
Holder of Senior Notes as such discount is amortized from the date of issuance
of the Senior Notes, Holders of Senior Notes will not receive any payments on
the Senior Notes until April 15, 2001. For a description of certain tax matters
related to an investment in the Notes, see "Certain United States Federal Income
Tax Considerations."
TERMS OF THE NOTES
SENIOR NOTES
The Senior Notes are unsecured senior obligations of WCI, limited to $100.0
million aggregate principal amount, and will mature on October 15, 2005. Until
October 15, 2000, interest on the Senior Notes accrues at a rate of 141/2% per
annum and will be compounded semiannually on each SemiAnnual Interest Accrual
Date with respect to the Senior Notes, but, except as described herein, will not
be payable in cash. From and after October 15, 2000, interest on the Accumulated
Amount of each Senior Note will be paid semiannually to Holders of record at the
close of business on the April 1 or October 1 immediately preceding the interest
payment date of April 15 and October 15 of each year, commencing April 15, 2001.
39
<PAGE>
EQUIPMENT NOTES
The Equipment Notes are secured senior obligations of WinStar Equipment,
limited to $200.0 million aggregate principal amount, and will mature on March
15, 2004. Interest on the Equipment Notes accrues at a rate of 12 1 2% per
annum and will be paid semiannually to Holders of record at the close of
business on the March 1 or September 1 immediately preceding the interest
payment date of March 15 and September 15 of each year, commencing September 15,
1997.
OPTIONAL REDEMPTION
SENIOR NOTES
The Senior Notes are not redeemable prior to October 15, 2000. Thereafter,
the Senior Notes will be redeemable, at WCI's option, in whole at any time, or
in part from time to time, upon not less than 30 nor more than 60 days' prior
notice mailed by first-class mail to each Holder's registered address, at the
following redemption prices (expressed as a percentage of the Accumulated Amount
of the New Senior Notes), plus accrued and unpaid interest, if any, on such
Accumulated Amount to the redemption date (subject to the right of Holders of
record on the relevant regular record date that is on or prior to the redemption
date to receive interest due on the relevant interest payment date), if redeemed
during the 12-month period commencing October 15 of the years set forth below:
YEAR SENIOR NOTE
REDEMPTION
PRICE
-------------
2000...................................................... 107.250%
2001...................................................... 104.833
2002...................................................... 102.417
2003 and thereafter....................................... 100.000
EQUIPMENT NOTES
The Equipment Notes are not redeemable prior to March 15, 2002, except as
discussed below under "--Mandatory Redemption of Equipment Notes." On and after
March 15, 2002, the New Equipment Notes will be redeemable, at WinStar
Equipment's option, in whole at any time, or in part from time to time, upon not
less than 30 nor more than 60 days' prior notice mailed by first-class mail to
each Holder's registered address, at the following redemption prices (expressed
as a percentage of principal amount), plus accrued and unpaid interest, if any,
to the redemption date (subject to the right of Holders of record on the
relevant regular record date that is on or prior to the redemption date to
receive interest due on the relevant interest payment date), if redeemed during
the 12-month period commencing March 15 of the years set forth below:
YEAR EQUIPMENT
NOTE REDEMPTION
PRICE
---------
2002............................................. 106.250%
2003............................................. 103.125
SELECTION OF NOTES FOR OPTIONAL REDEMPTION
In the case of any partial optional redemption, selection of the Senior
Notes or Equipment Notes, as the case may be, for redemption will be made by the
relevant Trustee in compliance with the requirements of the principal national
securities exchange, if any, on which such Notes are listed or, if such Notes
are not listed on a national securities exchange, on a pro rata basis, by lot or
such other method as such Trustee, in its sole discretion, shall deem fair and
appropriate; provided, however, that no Note of $1,000 in principal amount or
less shall be redeemed in part. If any Note
40
<PAGE>
is to be redeemed in part only, the notice of redemption relating to such Note
shall state the portion of the principal amount thereof to be redeemed. A
replacement Senior Note or Equipment Note, as the case may be, in principal
amount equal to the unredeemed portion thereof will be issued in the name of the
Holder thereof upon cancellation of the original New Senior Note or New
Equipment Note, as the case may be.
WCI's and WinStar Equipment's ability to redeem the 1997 Notes at their
option is severely limited under the 1995 Indentures. WCI may not be able to
redeem the Notes at its option unless it simultaneously redeems all of the 1995
Notes.
MANDATORY REDEMPTION OF EQUIPMENT NOTES
In the event that by March 18, 1999, WinStar Equipment shall not have
applied at least $200.0 million to fund the Acquisition Costs of Designated
Equipment pursuant to the covenant described below under "--Covenants--Covenants
Relating to the Equipment Notes--Use of Proceeds" ($200.0 million less the
amount so applied being herein called the "Unused Equipment Amount"), WinStar
Equipment shall redeem Equipment Notes in an aggregate principal amount equal to
the Unused Equipment Amount at a redemption price of 112.50% of such principal
amount, plus accrued and unpaid interest thereon to the redemption date (subject
to the right of Holders of record on the relevant record date that is on or
prior to the redemption date to receive interest due on the relevant interest
payment date). The mandatory redemption described herein shall occur no later
than April 2, 1999.
Selection of the Equipment Notes for mandatory redemption will be made on a
pro rata basis; provided, however, that no Equipment Note of $1,000 in principal
amount or less shall be redeemed in part. If any Note is to be redeemed in part
only, a new Equipment Note in principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the original Equipment Note.
EQUIPMENT NOTE GUARANTEE
WCI, as primary obligor and not merely as surety, has irrevocably and
unconditionally guaranteed (the "Equipment Note Guarantee") on a senior
unsecured basis the performance and punctual payment when due, whether at Stated
Maturity, by acceleration or otherwise, of all obligations of WinStar Equipment
under the Equipment Notes Indenture and the Equipment Notes, whether for
principal of or interest on the Equipment Notes, expenses, indemnifications or
otherwise (all such obligations guaranteed by WCI pursuant to the Equipment Note
Guarantee being herein called the "Guaranteed Obligations"). WCI has agreed to
pay, on a senior unsecured basis and in addition to the amount stated above, any
and all expenses (including reasonable counsel fees and expenses) incurred by
the Equipment Notes Trustee or the Holders of Equipment Notes in enforcing any
rights under the Equipment Note Guarantee with respect to WCI.
The Equipment Note Guarantee is a continuing guarantee and shall (i) remain
in full force and effect until payment in full of all the Guaranteed
Obligations, (ii) be binding upon WCI and (iii) enure to the benefit of and be
enforceable by the Equipment Notes Trustee, the Holders of Equipment Notes and
their successors, transferees and assigns.
SECURITY FOR THE EQUIPMENT NOTES
Pursuant to the Equipment Notes Indenture and related documents, including
the Security Agreement, between WinStar Equipment and the Equipment Notes
Trustee, the Equipment Notes Trustee, for its benefit and the benefit of the
Holders of the Equipment Notes, receives a security interest in: (i) all
Designated Equipment acquired by WinStar Equipment pursuant to the covenant
described below under "--Covenants--Covenants Relating to the Equipment
Notes--Use of Proceeds;" (ii) the proceeds of any sale or other disposition of
such Designated Equipment (including any insurance proceeds from the loss or
destruction of such Designated Equipment); and (iii) any additional Designated
Equipment acquired by WinStar Equipment with the proceeds of any such sale or
other disposition of Designated Equipment (collectively, the "Collateral").
If the Equipment Notes become due and payable prior to their Stated
Maturity or are not paid in full at the Stated Maturity thereof, the Equipment
Notes Trustee, on behalf of the Holders of the Equipment Notes, in addition to
any other
41
<PAGE>
rights or remedies available to it under the Equipment Notes Indenture, may take
such action as it deems advisable to protect and enforce the rights of the
Trustee and such Holders in the Collateral, including the institution of
foreclosure proceedings. Any proceeds received by the Trustee from the
disposition of the Collateral will be applied by the Trustee, first to pay
certain expenses of the Trustee and the Holders of the Equipment Notes, second
to pay interest with respect to the Equipment Notes, third to pay unpaid
principal of the Equipment Notes, fourth to pay costs and expenses of, and all
premiums on, and all other amounts due under, the Equipment Notes, and finally,
to pay any remainder to WinStar Equipment or as a court of competent
jurisdiction otherwise directs.
The right of the Equipment Notes Trustee to repossess and dispose of the
Collateral upon the occurrence of an Event of Default is likely to be
significantly impaired by applicable bankruptcy law if a bankruptcy proceeding
were to be commenced by or against WinStar Equipment prior to the Equipment
Notes Trustee's having disposed of the Collateral. Under Title XI of the United
States Code (the "Bankruptcy Code"), a secured creditor such as the Trustee is
prohibited from disposing of security repossessed from a debtor in a bankruptcy
case without bankruptcy court approval. Moreover, the Bankruptcy Code prohibits
a secured creditor from disposing of collateral even though the debtor is in
default under the applicable debt instruments if the secured creditor is given
"adequate protection." The meaning of the term "adequate protection" may vary
according to circumstances, but it is intended in general to protect the value
of the secured creditor's interest in the collateral and may include cash
payments or the granting of additional security, if and at such times as the
court in its discretion determines, for any diminution in the value of the
collateral as a result of the stay of disposition during the pendency of the
bankruptcy case. In view of the lack of a precise definition of the term
"adequate protection" and the broad discretionary powers of a bankruptcy court,
it is impossible to predict how long payments under the Equipment Notes could be
delayed following commencement of a bankruptcy case, whether or when the
Equipment Notes Trustee could dispose of the Collateral or whether or to what
extent Holders would be compensated for any delay in payment or loss of value of
the Collateral through the requirement of "adequate protection."
In addition, notwithstanding anything to the contrary described above,
unless an Event of Default shall have occurred and be continuing, WinStar
Equipment will have the right to remain in possession of and retain exclusive
control of the Collateral, will have the right to freely utilize the Collateral
(including the right to lease such Collateral) and will have the right to
collect, invest and dispose of any income thereon. Upon any foreclosure by the
Equipment Notes Trustee, on behalf of Holders of the Equipment Notes, on any
Collateral that has been made the subject of a lease by WinStar Equipment, the
Equipment Notes Trustee's ability to dispose of such Collateral may be
restricted by the terms of such lease arrangement. See "Risk Factors--Failure to
Maintain Perfected Security Interest."
Collateral may be released from the liens of the Equipment Notes Indenture
in connection with an Asset Sale of Designated Equipment, in which case WinStar
Equipment will be required to comply with the covenant described below under
"--Covenants--Covenants Relating to All the Notes--Limitation on Asset Sales."
RANKING
SENIOR NOTES AND EQUIPMENT NOTE GUARANTEE
The indebtedness evidenced by the Senior Notes and the Equipment Note
Guarantee are unsecured senior obligations of WCI, ranks pari passu in right of
payment with all existing and future senior indebtedness of WCI, including the
1995 Senior Notes, and is senior in right of payment to all existing and future
subordinated indebtedness of WCI, including the Convertible Notes.
At March 31, 1997, after giving effect to the issuance of the Old Notes,
WCI would have had (on an unconsolidated basis) approximately $600.0 million of
indebtedness (including the Equipment Note Guarantee), $508.9 million of which
would have been senior indebtedness, and there would have been no indebtedness
junior to the Senior Notes and the 1995 Senior Notes, other than the Convertible
Notes.
WCI is a holding company. Substantially all the operations of WCI are
conducted through its subsidiaries. Claims of creditors of such subsidiaries,
including trade creditors, secured creditors and creditors holding indebtedness
and guarantees issued by such subsidiaries, and claims of preferred stockholders
(if any) of such subsidiaries, generally will have priority with respect to the
assets and earnings of such subsidiaries over the claims of creditors of WCI,
including holders of the Senior Notes and the Equipment Note Guarantee. The
Senior Notes and the Equipment Note Guarantee,
42
<PAGE>
therefore, would be effectively subordinated to creditors (including trade
creditors) and preferred stockholders (if any) of subsidiaries of WCI (subject
in the case of the Equipment Note Guarantee, however, to a Holder's direct claim
against WinStar Equipment). At March 31, 1997, after giving effect to the
issuance of the Notes, the total liabilities of WCI's subsidiaries were
approximately $258.8 million, including trade payables and the Equipment Notes.
Although the Indentures limit the incurrence of Indebtedness and the issuance of
preferred stock of certain of WCI's subsidiaries, such limitations are subject
to a number of significant qualifications. Moreover, the Indentures do not
impose any limitation on the incurrence by such subsidiaries of liabilities that
are not considered Indebtedness under the Indentures.
The Senior Notes Indenture specifically designates the Senior Notes as, and
the Equipment Notes Indenture specifically designates the Equipment Note
Guarantee as, "Designated Senior Indebtedness" for purposes of the Convertible
Notes Indenture (as defined).
EQUIPMENT NOTES
The indebtedness evidenced by the Equipment Notes are secured senior
obligations of WinStar Equipment. As of the Closing Date, there was no
indebtedness of WinStar Equipment other than the Equipment Notes. Under the
Equipment Notes Indenture, WinStar Equipment is prohibited from incurring any
additional Indebtedness (other than certain refinancing indebtedness in respect
of the Equipment Notes). See "--Covenants--Covenants Relating to the Equipment
Notes--Business Activities."
REGISTRATION RIGHTS
The Registration Statement of which this Prospectus forms a part, has been
filed by WCI and WinStar Equipment pursuant to the Registration Agreement.
Under the terms of the Registration Agreement, the Issuers will be entitled to
close the Exchange Offer 30 days after the commencement thereof provided that
they have accepted all Old Notes theretofore validly tendered in accordance with
the terms of such Exchange Offer. After consummation of the Exchange Offer,
the Issuers will have no further obligation to make any other such exchange
offers.
REPURCHASE OF NOTES UPON A CHANGE OF CONTROL
Each of WCI and WinStar Equipment must commence, within 30 days of the
occurrence of a Change of Control, and consummate an Offer to Purchase for all
of its respective Notes then outstanding, at a purchase price equal to 101% of,
in the case of the Senior Notes, the Accumulated Amount of such Notes on the
date of purchase, and, in the case of the Equipment Notes, the principal amount
of such Notes, plus, in each case, accrued and unpaid interest (if any) on such
amount to the date of purchase. Prior to the mailing of the notice to Holders of
Notes commencing such Offer to Purchase, but in any event within 30 days
following any Change of Control, WCI covenants to (i) repay in full all
indebtedness of WCI and WinStar Equipment that would prohibit the repurchase of
the Notes pursuant to such Offer to Purchase or (ii) obtain any requisite
consents under instruments governing any such indebtedness of WCI and WinStar
Equipment to permit the repurchase of the Notes. WCI shall first comply with the
covenant in the preceding sentence before it shall repurchase Notes pursuant to
this "Repurchase of Notes Upon a Change of Control" covenant.
If WCI is unable to repay all of its indebtedness that would prohibit
repurchase of the Notes or is unable to obtain the consents of the holders of
indebtedness, if any, outstanding at the time of a Change of Control whose
consent would be so required to permit the repurchase of Notes or otherwise
fails to purchase any Notes validly tendered, then WCI will have breached such
covenant. This breach will constitute an Event of Default under the relevant
Indenture if it continues for a period of 30 consecutive days after written
notice is given to WCI by the relevant Trustee or the Holders of at least 25% in
aggregate principal amount of the Senior Notes or the Equipment Notes, as the
case may be, outstanding. In addition, the failure by WCI and WinStar Equipment
to repurchase Notes at the conclusion of the Offer to Purchase will constitute
an Event of Default without any waiting period or notice requirements.
There can be no assurance that WCI or WinStar Equipment will have
sufficient funds available at the time of any Change of Control to make any debt
payment (including repurchases of Notes) required by the foregoing covenant (as
well as may be contained in other securities of WCI or WinStar Equipment which
might be outstanding at the time). The above covenant requiring WCI or WinStar
Equipment to repurchase the Notes will, unless the consents referred to
43
<PAGE>
above are obtained, require WCI or WinStar Equipment to repay all indebtedness
then outstanding which by its terms would prohibit such Note repurchase, either
prior to or concurrently with such Note repurchase.
COVENANTS
COVENANTS RELATING TO ALL THE NOTES
LIMITATION ON INDEBTEDNESS
(a) Under the terms of each of the Indentures, WCI will not, and will not
permit any of its Restricted Subsidiaries to, Incur any Indebtedness (other than
the Notes and Indebtedness existing on the Closing Date); provided, however,
that WCI may Incur Indebtedness if, after giving effect to the Incurrence of
such Indebtedness and the receipt and application of the proceeds therefrom, the
Indebtedness to EBITDA Ratio would be greater than zero and less than 5:1.
Notwithstanding the foregoing, WCI and any Restricted Subsidiary (except as
specified below) may Incur each and all of the following: (i) Indebtedness of
WCI outstanding at any time in an aggregate principal amount not to exceed
$125.0 million, less any amount of Indebtedness Incurred pursuant to this clause
(i) and permanently repaid as provided under "--Limitation on Asset Sales"
below; (ii) Indebtedness (A) to WCI evidenced by an unsubordinated promissory
note or (B) to any of its Restricted Subsidiaries; provided, however, that any
event which results in any such Restricted Subsidiary ceasing to be a Restricted
Subsidiary or any subsequent transfer of such Indebtedness (other than to WCI or
another Restricted Subsidiary) shall be deemed, in each case, to constitute an
Incurrence of such Indebtedness not permitted by this clause (ii);
(iii) Indebtedness issued in exchange for, or the net proceeds of which are used
to refinance or refund, then outstanding Indebtedness, other than Indebtedness
Incurred under clause (i), (ii), (v), (vi) or (viii) of this paragraph, and any
refinancings thereof in an amount not to exceed the amount so refinanced or
refunded (plus premiums, accrued interest, fees and expenses); provided, however
, that Indebtedness the proceeds of which are used to refinance or refund the
Senior Notes or the Equipment Notes, as the case may be, or Indebtedness that is
pari passu with, or subordinated in right of payment to, the Senior Notes or the
Equipment Note Guarantee, as the case may be, shall only be permitted under this
clause (iii) if (A) in case the Senior Notes or the Equipment Notes, as the case
may be, are refinanced in part or the Indebtedness to be refinanced is pari
passu with the Senior Notes or the Equipment Note Guarantee, as the case may be,
such new Indebtedness, by its terms or by the terms of any agreement or
instrument pursuant to which such new Indebtedness is outstanding, is expressly
made pari passu with, or subordinate in right of payment to, the remaining
Senior Notes or the Equipment Note Guarantee, as the case may be, (B) in case
the Indebtedness to be refinanced is subordinated in right of payment to the
Senior Notes or the Equipment Note Guarantee, as the case may be, such new
Indebtedness, by its terms or by the terms of any agreement or instrument
pursuant to which such new Indebtedness is outstanding, is expressly made
subordinate in right of payment to the Senior Notes or the Equipment Note
Guarantee, as the case may be, at least to the extent that the Indebtedness to
be refinanced is subordinated to the Senior Notes or the Equipment Note
Guarantee, as the case may be, and (C) such new Indebtedness, determined as of
the date of Incurrence of such new Indebtedness, does not mature prior to the
Stated Maturity of the Indebtedness to be refinanced or refunded, and the
Average Life of such new Indebtedness is at least equal to the remaining Average
Life of the Indebtedness to be refinanced or refunded; provided further,
however, that in no event may Indebtedness of WCI be refinanced by means of any
Indebtedness of any Restricted Subsidiary of WCI pursuant to this clause (iii);
(iv) Indebtedness (A) in respect of performance, surety or appeal bonds provided
in the ordinary course of business, (B) under Currency Agreements and Interest
Rate Agreements; provided, however, that such agreements do not increase the
Indebtedness of the obligor outstanding at any time other than as a result of
fluctuations in foreign currency exchange rates or interest rates or by reason
of fees, indemnities and compensation payable thereunder, and (C) arising from
agreements providing for indemnification, adjustment of purchase price or
similar obligations, or from Guarantees or letters of credit, surety bonds or
performance bonds securing any obligations of WCI or any of the Restricted
Subsidiaries pursuant to such agreements, in any case Incurred in connection
with the disposition of any business, assets or Restricted Subsidiary of WCI
(other than Guarantees of Indebtedness Incurred by any Person acquiring all or
any portion of such business, assets or Restricted Subsidiary of WCI for the
purpose of financing such acquisition), in a principal amount not to exceed the
gross proceeds actually received by WCI or any Restricted Subsidiary in
connection with such disposition; (v) Indebtedness of WCI not to exceed, at any
one time outstanding, two times the Net Cash Proceeds received by WCI from and
after October 23, 1995 from the issuance and sale of its Capital Stock (other
than Redeemable Stock and Preferred Stock that provides for the payment of
dividends in cash); provided, however, that such Indebtedness (x) does
44
<PAGE>
not mature prior to the Stated Maturity of the Notes and has an Average Life
longer than the Notes and (y) is subordinated to the Senior Notes and the
Equipment Note Guarantee at least to the extent that the Convertible Notes are
subordinated to Senior Indebtedness (as defined in the Convertible Notes
Indenture); (vi) Indebtedness of any Restricted Subsidiary Incurred pursuant to
any credit agreement of such Restricted Subsidiary in effect on the Closing Date
(and refinancings thereof), up to the amount of the commitment under such credit
agreement on the Closing Date; (vii) Indebtedness to the extent such
Indebtedness is secured by Liens which are purchase money or other Liens upon
equipment or inventory acquired or held by WCI or any of its Restricted
Subsidiaries taken or obtained by (A) the seller or lessor of such equipment or
inventory to secure all or a part of the purchase price or lease payments
therefor or (B) the person who makes advances or incurs obligations, thereby
giving value to WCI to enable it to purchase or acquire rights in such equipment
or inventory, to secure the repayment of all or a part of the advances so made
or obligations so incurred; provided, however, that such Liens do not extend to
or cover any property or assets of WCI or any Restricted Subsidiary other than
the equipment or inventory acquired; (viii) Indebtedness of any Restricted
Subsidiary not to exceed, at any one time outstanding, 80% of the accounts
receivable net of reserves and allowances for doubtful accounts, determined in
accordance with GAAP, of such Restricted Subsidiary and its Restricted
Subsidiaries (without duplication); provided, however, that such Indebtedness is
not Guaranteed by WCI or any of its Restricted Subsidiaries; and
(ix) Indebtedness of WCI, to the extent the proceeds thereof are immediately
used to purchase Notes tendered in an Offer to Purchase made as a result of a
Change of Control.
(b) For purposes of determining any particular amount of Indebtedness
under this "Limitation on Indebtedness" covenant, Guarantees, Liens or
obligations with respect to letters of credit supporting Indebtedness otherwise
included in the determination of such particular amount shall not be included.
For purposes of determining compliance with this "Limitation on Indebtedness"
covenant, in the event that an item of Indebtedness meets the criteria of more
than one of the types of Indebtedness described in the above clauses, WCI, in
its sole discretion, shall classify such item of Indebtedness and only be
required to include the amount and type of such Indebtedness in one of such
clauses.
(c) WCI will not, and will not permit any Restricted Subsidiary to, Incur
any Guarantee of Indebtedness of any Unrestricted Subsidiary.
LIMITATION ON RESTRICTED PAYMENTS
Under the terms of each of the Indentures, WCI will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, (i) declare or pay
any dividend or make any distribution on its Capital Stock (other than dividends
or distributions payable solely in shares of its or such Restricted Subsidiary's
Capital Stock (other than Redeemable Stock) held by such holders or in options,
warrants or other rights to acquire such shares of Capital Stock) other than
such Capital Stock held by WCI or any of its Restricted Subsidiaries (and other
than pro rata dividends or distributions on Common Stock of Restricted
Subsidiaries), (ii) repurchase, redeem, retire or otherwise acquire for value
any shares of Capital Stock of WCI (including options, warrants or other rights
to acquire such shares of Capital Stock) held by Persons other than any Wholly
Owned Restricted Subsidiaries of WCI, (iii) make any voluntary or optional
principal payment, or voluntary or optional redemption, repurchase, defeasance,
or other acquisition or retirement for value, of Indebtedness of WCI that is
subordinated in right of payment to the Senior Notes or the Equipment Note
Guarantee, as the case may be, or (iv) make any Investment, other than a
Permitted Investment, in any Person (such payments or any other actions
described in clauses (i) through (iv) being collectively "Restricted Payments")
if, at the time of, and after giving effect to, the proposed Restricted Payment:
(A) a Default or Event of Default shall have occurred and be continuing,
(B) except with respect to any Investment (other than an Investment consisting
of the designation of a Restricted Subsidiary as an Unrestricted Subsidiary),
WCI could not Incur at least $1.00 of Indebtedness under the first paragraph of
the "Limitation on Indebtedness" covenant or (C) the aggregate amount expended
for all Restricted Payments (the amount so expended, if other than in cash, to
be determined in good faith by the Board of Directors, whose determination shall
be conclusive and evidenced by a Board Resolution) after the Closing Date shall
exceed the sum of (1) 50% of the aggregate amount of the Adjusted Consolidated
Net Income (or, if the Adjusted Consolidated Net Income is a loss, minus 100% of
such amount) (determined by excluding income resulting from transfers of assets
by WCI or a Restricted Subsidiary to an Unrestricted Subsidiary) accrued on a
cumulative basis during the period (taken as one accounting period) beginning on
the first day of the fiscal quarter immediately following the Closing Date and
ending on the last day of the last fiscal quarter preceding the Transaction Date
for which reports have been filed pursuant to "--SEC Reports and Reports to
Holders" plus (2) the aggregate Net Cash Proceeds received by WCI after the
Closing Date from the issuance and sale permitted by the
45
<PAGE>
Indentures of its Capital Stock (other than Redeemable Stock) to a Person who is
not a Subsidiary of WCI, or from the issuance to a Person who is not a
Subsidiary of WCI of any options, warrants or other rights to acquire Capital
Stock of WCI (in each case, exclusive of any convertible Indebtedness,
Redeemable Stock or any options, warrants or other rights that are redeemable at
the option of the holder, or are required to be redeemed, prior to the Stated
Maturity of the Senior Notes or the Equipment Notes, as the case may be) plus
(3) an amount equal to the net reduction in Investments (other than reductions
in Permitted Investments and other than reductions in Investments made pursuant
to clauses (vi) or (vii) of the second paragraph of this "Limitation on
Restricted Payments" covenant) in any Person resulting from payments of interest
on Indebtedness, dividends, repayments of loans or advances, or other transfers
of assets, in each case to WCI or any Restricted Subsidiary (except to the
extent any such payment is included in the calculation of Adjusted Consolidated
Net Income), or from redesignations of Unrestricted Subsidiaries as Restricted
Subsidiaries (valued in each case as provided in the definition of
"Investments"), not to exceed the amount of Investments previously made by WCI
and its Restricted Subsidiaries in such Person.
The foregoing provision shall not be violated by reason of: (i) the payment
of any dividend within 60 days after the date of declaration thereof if, at said
date of declaration, such payment would comply with the foregoing paragraph;
(ii) the redemption, repurchase, defeasance or other acquisition or retirement
for value of Indebtedness that is subordinated in right of payment to the Senior
Notes or the Equipment Note Guarantee, as the case may be, including premium, if
any, and accrued and unpaid interest, with the proceeds of, or in exchange for,
Indebtedness Incurred under clause (iii) of the second paragraph of the covenant
described under "--Limitation on Indebtedness;" (iii) the repurchase, redemption
or other acquisition of Capital Stock of WCI (or options, warrants or other
rights to acquire such Capital Stock) in exchange for, or out of the proceeds of
a substantially concurrent sale of, shares of Capital Stock or options, warrants
or other rights to acquire such Capital Stock (in each case other than
Redeemable Stock) of WCI; (iv) the making of any other Restricted Payment made
by exchange for, or out of the proceeds of, a substantially concurrent sale of,
shares of the Capital Stock or options, warrants or other rights to acquire such
Capital Stock (in each case other than Redeemable Stock) of WCI; (v) payments or
distributions, in the nature of satisfaction of dissenters' rights, pursuant to
or in connection with a consolidation, merger or transfer of assets that
complies with the provisions of the applicable Indenture applicable to mergers,
consolidations and transfers of all or substantially all of the property and
assets of WCI; (vi) Investments, not to exceed $15 million at any one time
outstanding; (vii) Investments, not to exceed $15 million at any one time
outstanding, in entities, substantially all of the assets of which consist of
Telecommunications Assets; (viii) (A) cash payments in lieu of the issuance of
fractional shares of Common Stock upon conversion (including mandatory
conversion) of the Convertible Notes provided for in the Convertible Notes
Indenture and (B) cash payments on the Convertible Notes required to be made
under the provisions of the Convertible Notes Indenture that relate to
repurchases of Convertible Notes upon a change of control and that relate to
limitations on sales of assets; (ix) cash payments in lieu of the issuance of
fractional shares of Common Stock of WCI upon conversion of any class of
Preferred Stock of WCI; provided, however, that this exception shall not be
available with respect to more than two such conversions with respect to any
such class of Preferred Stock by any given Affiliate of WCI; and (x) Investments
in entities that directly (or indirectly through subsidiaries) own licenses
granted by the FCC or any other governmental entity with authority to grant
telecommunications licenses; provided, however, that, in each case WCI or a
Restricted Subsidiary shall, at the time of making such Investment, have an
active role in the management or operation of such entity and in the provision
of telecommunications services by such entity; provided, however, that, except
in the case of clauses (i) and (iii) of this paragraph, no Default or Event of
Default shall have occurred and be continuing or occur as a consequence of the
actions or payments set forth herein. Any Investments made other than in cash
shall be valued, in good faith, by the Board of Directors. Any Investment made
pursuant to clause (vi) or (vii) of this paragraph shall be deemed to be no
longer outstanding (and repaid in full) if and when the Person in which such
Investment is made becomes a Restricted Subsidiary of WCI.
Each Restricted Payment permitted pursuant to the preceding paragraph
(other than the Restricted Payment referred to in clause (ii) thereof), and the
Net Cash Proceeds from any issuance and sale of Capital Stock referred to in
clauses (iii) or (iv) shall be included in calculating whether the conditions of
clause (C) of the first paragraph of this "Limitation on Restricted Payments"
covenant have been met with respect to any subsequent Restricted Payments. In
the event the proceeds of an issuance of Capital Stock of WCI are used for the
redemption, repurchase or other acquisition of the Senior Notes or the Equipment
Notes, as the case may be, or Indebtedness that is pari passu with the Senior
Notes or the Equipment Note Guarantee, as the case may be, then the Net Cash
Proceeds of such issuance shall be included in clause (C) of the first paragraph
of this "Limitation on Restricted Payments" covenant only to the extent such
proceeds are not used for such redemption, repurchase or other acquisition of
Indebtedness.
46
<PAGE>
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES
Under the terms of each of the Indentures, WCI will not, and will not
permit any Restricted Subsidiary to, create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction of any kind
on the ability of any Restricted Subsidiary to (i) pay dividends or make any
other distributions permitted by applicable law on any Capital Stock of such
Restricted Subsidiary owned by WCI or any other Restricted Subsidiary, (ii) pay
any Indebtedness owed to WCI or any other Restricted Subsidiary that owns,
directly or indirectly, any Capital Stock of such Restricted Subsidiary,
(iii) make loans or advances to WCI or any other Restricted Subsidiary that
owns, directly or indirectly, any Capital Stock of such Restricted Subsidiary or
(iv) transfer any of its property or assets to WCI or any other Restricted
Subsidiary that owns, directly or indirectly, any Capital Stock of such
Restricted Subsidiary.
The foregoing provisions shall not prohibit any encumbrances or
restrictions: (i) existing on the Closing Date in the Indentures or any other
agreement in effect on the Closing Date, and any extensions, refinancings,
renewals or replacements of such agreements; provided, however, that the
encumbrances and restrictions in any such extensions, refinancings, renewals or
replacements are no less favorable in any material respect to the Holders than
those encumbrances or restrictions that are then in effect and that are being
extended, refinanced, renewed or replaced; (ii) existing under or by reason of
applicable law; (iii) existing with respect to any Person or the property or
assets of such Person acquired by WCI or any Restricted Subsidiary, at the time
of such acquisition and not incurred in contemplation thereof, which
encumbrances or restrictions are not applicable to any Person or the property or
assets of any Person other than such Person or the property or assets of such
Person so acquired; (iv) in the case of clause (iv) of the first paragraph of
this "Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries" covenant, (A) that restrict in a customary manner the subletting,
assignment or transfer of any property or asset that is a lease, license,
conveyance or contract or similar property or asset, (B) existing by virtue of
any transfer of, agreement to transfer, option or right with respect to, or Lien
on, any property or assets of WCI or any Restricted Subsidiary not otherwise
prohibited by the Indenture or (C) arising or agreed to in the ordinary course
of business, not relating to any Indebtedness, and that do not, individually or
in the aggregate, detract from the value of property or assets of WCI or any
Restricted Subsidiary in any manner material to WCI or any Restricted
Subsidiary; or (v) with respect to a Restricted Subsidiary and imposed pursuant
to an agreement that has been entered into for the sale or disposition of all or
substantially all of the Capital Stock of, or property and assets of, such
Restricted Subsidiary. Nothing contained in this "Limitation on Dividend and
Other Payment Restrictions Affecting Restricted Subsidiaries" covenant shall
prevent WCI or any Restricted Subsidiary from (i) restricting the sale or other
disposition of property or assets of WCI or any of its Restricted Subsidiaries
that secure Indebtedness of WCI or any of its Restricted Subsidiaries or
(ii) creating, incurring, assuming or suffering to exist any Liens otherwise
permitted pursuant to the covenant described under "--Covenants Relating to the
Senior Notes and the Equipment Notes--Limitation on Liens."
LIMITATION ON THE ISSUANCE AND SALE OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES
Under the terms of each of the Indentures, WCI will not sell, and will not
permit any Restricted Subsidiary, directly or indirectly, to issue or sell any
shares of Capital Stock of a Restricted Subsidiary (including options, warrants
or other rights to purchase shares of such Capital Stock) except (i) to WCI or a
Wholly Owned Restricted Subsidiary, (ii) issuances or sales to foreign nationals
of shares of Capital Stock of foreign Restricted Subsidiaries, to the extent
required by applicable law, (iii) if, immediately after giving effect to such
issuance or sale, such Restricted Subsidiary would no longer constitute a
Restricted Subsidiary or (iv) issuances or sales of Common Stock of Restricted
Subsidiaries, other than the Telecommunications Subsidiaries, if within six
months of each such issuance or sale, WCI or such Restricted Subsidiary applies
an amount not less than the Net Cash Proceeds thereof (if any) in accordance
with clause (A) or (B) of the first paragraph of the "Limitation on Asset Sales"
covenant described below.
LIMITATION ON ISSUANCES OF GUARANTEES BY RESTRICTED SUBSIDIARIES
Under the terms of each of the Indentures, WCI will not permit any
Restricted Subsidiary, directly or indirectly, to Guarantee any Indebtedness of
WCI ("Guaranteed Indebtedness"), unless (i) such Restricted Subsidiary
simultaneously executes and delivers a supplemental indenture to the Indenture
providing for a Guarantee (a "Subsidiary Guarantee") of payment of the Notes by
such Restricted Subsidiary and (ii) such Restricted Subsidiary waives and will
not in any manner whatsoever claim or take the benefit or advantage of, any
rights of reimbursement, indemnity or subrogation or any other rights against
WCI or any other Restricted Subsidiary as a result of any payment by such
Restricted Subsidiary under its
47
<PAGE>
Subsidiary Guarantee; provided, however, that this paragraph shall not be
applicable to any Guarantee of any Restricted Subsidiary that (x) existed at the
time such Person became a Restricted Subsidiary and (y) was not Incurred in
connection with, or in contemplation of, such Person becoming a Restricted
Subsidiary. If the Guaranteed Indebtedness is (A) pari passu with the Senior
Notes or the Equipment Note Guarantee, as the case may be, then the Guarantee of
such Guaranteed Indebtedness shall be pari passu with, or subordinated to, the
Subsidiary Guarantee or (B) subordinated to the Senior Notes or the Equipment
Note Guarantee, as the case may be, then the Guarantee of such Guaranteed
Indebtedness shall be subordinated to the Subsidiary Guarantee at least to the
extent that the Guaranteed Indebtedness is subordinated to the Senior Notes or
the Equipment Note Guarantee, as the case may be.
Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted
Subsidiary shall provide by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or transfer,
to any Person not an Affiliate of WCI of all of WCI's and each Restricted
Subsidiary's Capital Stock in, or all or substantially all the assets of, such
Restricted Subsidiary (which sale, exchange or transfer is not prohibited by the
Indenture) or (ii) the release or discharge of the Guarantee which resulted in
the creation of such Subsidiary Guarantee, except a discharge or release by or
as a result of payment under such Guarantee.
LIMITATION ON TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES
Under the terms of each of the Indentures, WCI will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, enter into, renew
or extend any transaction (including, without limitation, the purchase, sale,
lease or exchange of property or assets, or the rendering of any service) with
any holder (or any Affiliate of such holder) of 5% or more of any class of
Capital Stock of WCI or with any Affiliate of WCI or any Restricted Subsidiary,
except upon fair and reasonable terms no less favorable to WCI or such
Restricted Subsidiary than could be obtained, at the time of such transaction
or, if such transaction is pursuant to a written agreement, at the time of the
execution of the agreement providing therefor, in a comparable arm's-length
transaction with a Person that is not such a holder or an Affiliate.
The foregoing limitation does not limit, and shall not apply to
(i) transactions (A) approved by a majority of the disinterested members of the
Board of Directors or (B) for which WCI or a Restricted Subsidiary delivers to
the Trustee a written opinion of a nationally recognized investment banking firm
stating that the transaction is fair to WCI or such Restricted Subsidiary from a
financial point of view; (ii) any transaction solely between WCI and any of its
Wholly Owned Restricted Subsidiaries or solely between Wholly Owned Restricted
Subsidiaries; (iii) the payment of reasonable fees to directors of WCI who are
not employees of WCI; (iv) any payments or other transactions pursuant to any
tax-sharing agreement between WCI and any other Person with which WCI files a
consolidated tax return or with which WCI is part of a consolidated group for
tax purposes; or (v) any Restricted Payments not prohibited by the covenant
described under "--Limitation on Restricted Payments" (other than pursuant to
clause (iv) of the definition of "Permitted Investment" or clause (vi) of the
second paragraph of such covenant). Notwithstanding the foregoing, any
transaction covered by the first paragraph of this "Limitation on Transactions
with Shareholders and Affiliates" covenant and not covered by clauses
(ii) through (iv) of this paragraph, the aggregate amount of which exceeds
$250,000 in value, must be approved or determined to be fair in the manner
provided for in clause (i)(A) or (B) above.
LIMITATION ON ASSET SALES
Under the terms of each of the Indentures, WCI will not, and will not
permit any Restricted Subsidiary to, consummate any Asset Sale, unless (i) the
consideration received by WCI or such Restricted Subsidiary is at least equal to
the fair market value of the assets sold or disposed of and (ii) at least 85% of
the consideration received consists of cash or Temporary Cash Investments. In
the event and to the extent that the Net Cash Proceeds received by WCI or its
Restricted Subsidiaries from one or more Asset Sales occurring on or after the
Closing Date in any period of 12 consecutive months exceed 10% of Adjusted
Consolidated Net Tangible Assets (determined as of the date closest to the
commencement of such 12-month period for which a consolidated balance sheet of
WCI and its Subsidiaries has been prepared), then WCI shall or shall cause the
relevant Restricted Subsidiary to (i) within six months after the date Net Cash
Proceeds so received exceed 10% of Adjusted Consolidated Net Tangible Assets
(A) apply an amount equal to such excess Net Cash Proceeds to permanently repay
unsubordinated Indebtedness of WCI, or Indebtedness of any Restricted
Subsidiary, in each case owing to a Person other than WCI or any of its
Restricted Subsidiaries or (B) invest an equal amount, or the amount not so
applied pursuant to clause (A) (or enter into a definitive agreement committing
to so invest within six months after the date of such agreement), in property or
assets of a nature or type or that are used in a business
48
<PAGE>
(or in a company having property and assets of a nature or type, or engaged in a
business) similar or related to the nature or type of the property and assets
of, or the business of, WCI and its Restricted Subsidiaries existing on the date
of such investment (as determined in good faith by the Board of Directors, whose
determination shall be conclusive and evidenced by a Board Resolution) and
(ii) apply (no later than the end of the six-month period referred to in clause
(i)) such excess Net Cash Proceeds (to the extent not applied pursuant to clause
(i)) as provided in the following paragraph of this "Limitation on Asset Sales"
covenant. The amount of such excess Net Cash Proceeds required to be applied (or
to be committed to be applied) during such six-month period as set forth in
clause (i) of the preceding sentence and not applied as so required by the end
of such period shall constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to this
"Limitation on Asset Sales" covenant totals at least $10.0 million, WCI must
commence, not later than the 15th Business Day after the first day of such
month, and consummate an Offer to Purchase from the Holders on a pro rata basis
an aggregate principal amount of Notes equal to the Excess Proceeds on such
date, at a purchase price equal to 101% of, in the case of the Senior Notes, the
Accumulated Amount of such Notes on such date of purchase, and, in the case of
the Equipment Notes, the principal amount of such Notes, plus, in each case,
accrued and unpaid interest (if any) on such amount to the date of purchase.
Because of similar requirements in the indentures governing the Old Senior
Notes and the Convertible Notes, WCI may not have Excess Proceeds from an Asset
Sale to be able to comply with the foregoing requirements.
Notwithstanding the foregoing, pursuant to the Equipment Notes Indenture,
WinStar Equipment will not, and WCI will not permit WinStar Equipment to,
consummate any Asset Sale of Collateral, unless (A) such Asset Sale complies
with clause (i) and (ii) of the first paragraph of this covenant and WinStar
Equipment applies the Net Cash Proceeds from such Asset Sale within 45 days
following the date of receipt of such Net Cash Proceeds to acquire additional
Designated Equipment and (B) WinStar Equipment takes such action as is necessary
to vest in the Equipment Notes Trustee a security interest in such additional
Designated Equipment pursuant to the covenant described under "--Covenants
Relating to the Equipment Notes--Purchase Money Security Interests."
LIMITATION ON LIENS
Under the terms of each of the Indentures, WCI will not, and will not
permit any Restricted Subsidiary to, create, incur, assume or suffer to exist
any Lien on any of its assets or properties of any character, or any shares of
Capital Stock or Indebtedness of any Restricted Subsidiary (collectively,
"Protected Property"), without making effective provision for all of the Senior
Notes or the Equipment Note Guarantee, as the case may be, and all other amounts
due under the Indentures and payable by WCI to be directly secured equally and
ratably with (or, if the obligation or liability to be secured by such Lien is
subordinated in right of payment to the Senior Notes or the Equipment Note
Guarantee, as the case may be, prior to) the obligation or liability secured by
such Lien.
The foregoing limitation does not apply to (i) Liens existing on the
Closing Date; (ii) Liens granted after the Closing Date on any assets or Capital
Stock of WCI or its Restricted Subsidiaries created in favor of the Holders;
(iii) Liens with respect to the assets of a Restricted Subsidiary granted by
such Restricted Subsidiary to WCI or a Wholly Owned Restricted Subsidiary to
secure Indebtedness owing to WCI or such other Restricted Subsidiary; (iv) Liens
securing Indebtedness which is Incurred to refinance secured Indebtedness which
is permitted to be Incurred under clause (iii) of the second paragraph of the
covenant described under "--Limitation on Indebtedness;" provided, however, that
such Liens do not extend to or cover any property or assets of WCI or any
Restricted Subsidiary other than the property or assets securing the
Indebtedness being refinanced; (v) Liens securing Indebtedness Incurred pursuant
to the first sentence of the covenant described under "--Limitation on
Indebtedness;" (vi) purchase money or other Liens upon equipment or inventory
acquired or held by WCI or any of its Restricted Subsidiaries taken or obtained
by (A) the seller or lessor of such equipment or inventory to secure all or a
part of the purchase price or lease payments therefor or (B) the person who
makes advances or incurs obligations, thereby giving value to WCI to enable it
to purchase or acquire rights in such equipment or inventory, to secure the
repayment of all or a part of the advances so made or obligations so incurred;
provided, however, that such Liens do not extend to or cover any property or
assets of WCI or any Restricted Subsidiary other than the equipment or inventory
acquired; or (vii) Permitted Liens.
49
<PAGE>
LIMITATION ON SALE-LEASEBACK TRANSACTIONS
Under the terms of each of the Indentures, WCI will not, and will not
permit any Restricted Subsidiary to, enter into any sale-leaseback transaction
involving any of its assets or properties whether now owned or hereafter
acquired, whereby WCI or a Restricted Subsidiary sells or transfers such assets
or properties and then or thereafter leases such assets or properties or any
part thereof or any other assets or properties which WCI or such Restricted
Subsidiary, as the case may be, intends to use for substantially the same
purpose or purposes as the assets or properties sold or transferred.
The foregoing restriction does not apply to any sale-leaseback transaction
if (i) the lease is for a period, including renewal rights, of not in excess of
three years; (ii) the lease secures or relates to industrial revenue or
pollution control bonds; (iii) the transaction is solely between WCI and any
Wholly Owned Restricted Subsidiary or solely between Wholly Owned Restricted
Subsidiaries; (iv) the assets or properties are sold and leased back within 30
days of the date that the account payable with respect to the acquisition by WCI
or any Restricted Subsidiary of such assets or properties is due and payable; or
(v) WCI or such Restricted Subsidiary, within six months after the sale or
transfer of any assets or properties is completed, applies an amount not less
than the net proceeds received from such sale in accordance with clause (A) or
(B) of the first paragraph of the covenant described under "--Limitation on
Asset Sales."
COVENANTS RELATING TO THE EQUIPMENT NOTES
BUSINESS ACTIVITIES
Under the terms of the Equipment Notes Indenture, WinStar Equipment shall
not, and WCI shall not permit WinStar Equipment to, (i) Incur any Indebtedness
other than the Equipment Notes and refinancings thereof permitted by the
covenant described under "--Covenants Relating to All the Notes--Limitation of
Indebtedness" or (ii) engage in any business activities other than (A) the
activities contemplated in the covenants described under "--Use of Proceeds" and
"--Purchase Money Security Interests," (B) leasing Designated Equipment and
(C) activities incidental to the activities described in clauses (A) and (B).
USE OF PROCEEDS
Under the terms of the Equipment Notes Indenture, WinStar Equipment will,
and WCI will cause WinStar Equipment to, apply the gross proceeds received by
WinStar Equipment from the sale of the Equipment Notes to acquire Designated
Equipment, including the payment of the purchase price therefor and shipping,
handling, storage, transportation, testing and insurance charges, design,
integration and site preparation expenses and installation and service/warranty
costs associated with the acquisition of any Designated Equipment (collectively,
"Acquisition Costs"). On the Closing Date, WinStar Equipment will acquire
Designated Equipment having an Acquisition Cost of at least $10.0 million. Any
gross proceeds not applied on the Closing Date to acquire Designated Equipment
pursuant to this covenant will be invested by WinStar Equipment in Temporary
Cash Investments pending application of such gross proceeds to acquire
Designated Equipment (or application of such gross proceeds pursuant to the
provisions describe above under "--Mandatory Redemption of Equipment Notes").
PURCHASE MONEY SECURITY INTERESTS
Under the terms of the Equipment Notes Indenture, upon the acquisition by
WinStar Equipment of Designated Equipment, WinStar Equipment will, and WCI will
cause WinStar Equipment to, take such action as is required to vest in the
Equipment Notes Trustee a security interest in such Designated Equipment, for
the benefit of the Holders of Equipment Notes, and thereupon all provisions of
the Indenture relating to Collateral shall be deemed to relate to and include
such Designated Equipment. On the Closing Date and from time to time if
requested by the Equipment Notes Trustee, WinStar Equipment will, and WCI will
cause WinStar Equipment to, execute such security instruments and financing
statements as may be reasonably necessary to vest in the Trustee such security
interest. In addition, with respect to any telecommunications switch that
constitutes Designated Equipment acquired pursuant to the covenant described
under "--Use of Proceeds," WinStar Equipment will post a notice on, or in the
location housing, such telecommunications switch, identifying WinStar Equipment
as the owner of such telecommunications switch and stating that such
telecommunications switch is subject to the security interest under the
Equipment Notes Indenture.
IMPAIRMENT OF SECURITY INTEREST
Under the terms of the Equipment Notes Indenture, WinStar Equipment will,
and WCI will cause WinStar Equipment to, on or prior to the Closing Date, file
UCC-1s in each state in the United States covering all Designated Equipment
acquired by WinStar Equipment pursuant to the covenant described above under
"--Use of Proceeds," and to file such UCC-3 continuation statements from time to
time as may be necessary to continue the effectiveness of such filings, and
WinStar Equipment will not, and WCI will not and will not permit any of its
Subsidiaries to, grant to any Person (other than the Equipment Notes Trustee on
behalf of Holders of the Equipment Notes) any security interest in the
Collateral.
OWNERSHIP OF WINSTAR EQUIPMENT
Under the terms of the Equipment Notes Indenture, WCI will at all times own
all the Capital Stock of WinStar Equipment.
SEC REPORTS AND REPORTS TO HOLDERS
Whether or not WCI is required to file reports with the SEC, if any Notes
are outstanding, WCI shall file with the SEC all such reports and other
information as it would be required to file with the SEC by Sections 13(a) or
15(d) under the Exchange Act. See "Available Information." WCI shall supply the
Trustee and each Holder of Notes, as the case may be, or shall supply to the
relevant Trustee for forwarding to each such Holder, without cost to such
Holder, copies of such reports or other information.
CONSOLIDATION, MERGER AND SALE OF ASSETS
50
<PAGE>
Under the terms of the Indentures, WCI shall not consolidate with, merge
with or into, or sell, convey, transfer, lease or otherwise dispose of all or
substantially all of its property and assets (as an entirety or substantially an
entirety in one transaction or a series of related transactions) to, any Person
(other than a consolidation or merger with or into a Wholly Owned Restricted
Subsidiary with a positive net worth; provided, however, that, in connection
with any such merger or consolidation, no consideration (other than Common Stock
in the surviving Person or WCI) shall be issued or distributed to the
stockholders of WCI) or permit any Person to merge with or into WCI unless:
(i) WCI shall be the continuing Person, or the Person (if other than WCI) formed
by such consolidation or into which WCI is merged or that acquired or leased
such property and assets of WCI shall be a corporation organized and validly
existing under the laws of the United States of America or any jurisdiction
thereof and shall expressly assume, by a supplemental indenture, executed and
delivered to the Trustee, all of the obligations of WCI on all of the Senior
Notes or the Equipment Note Guarantee, as the case may be, and under the
relevant Indenture; (ii) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing;
(iii) immediately after giving effect to such transaction on a pro forma basis,
WCI or any Person becoming the successor obligor of the Senior Notes or the
Equipment Note Guarantee, as the case may be, shall have a Consolidated Net
Worth equal to or greater than the Consolidated Net Worth of WCI immediately
prior to such transaction; (iv) immediately after giving effect to such
transaction on a pro forma basis WCI, or any Person becoming the successor
obligor of the Senior Notes or the Equipment Note Guarantee, as the case may be,
could Incur at least $1.00 of Indebtedness under the first paragraph of the
covenant described under "--Covenants--Covenants Relating to All the
Notes--Limitation on Indebtedness;" and (v) WCI delivers to the relevant Trustee
an Officers' Certificate (attaching the arithmetical computations to demonstrate
compliance with clauses (iii) and, if applicable, (iv)) and Opinion of Counsel,
in each case stating that such consolidation, merger or transfer and such
supplemental indenture complies with this provision and that all conditions
precedent provided for herein relating to such transaction have been complied
with; provided, however, that clauses (iii) and (iv) above do not apply if, in
the good faith determination of the Board of Directors of WCI, whose
determination shall be evidenced by a Board Resolution, the principal purpose of
such transaction is to change the state of incorporation of WCI; provided
further, however, that any such transaction shall not have as one of its
purposes the evasion of the foregoing limitations.
Under the terms of the Equipment Notes Indenture, WinStar Equipment shall
not consolidate with, merge with or into, or sell, convey, transfer, lease
(other than in the ordinary course of business) or otherwise dispose of all or
substantially all of its property and assets to, any Person or permit any Person
to merge with and into WinStar Equipment unless: (i) WinStar Equipment shall be
the continuing Person, or the Person (if other than WinStar Equipment) formed by
such consolidation or into which WinStar Equipment is merged or that acquired or
leased such property and assets of WinStar Equipment shall be a corporation
organized and validly existing under the laws of the United States of America or
any jurisdiction thereof and shall expressly assume, by a supplemental
indenture, executed and delivered to the Equipment Notes Trustee, all of the
obligations of WinStar Equipment on all of the Equipment Notes and under the
Equipment Notes Indenture; (ii) immediately after giving effect to such
transaction, no Default or Event of Default shall have occurred and be
continuing; and (iii) WinStar Equipment delivers to the Equipment Notes Trustee
an Officers' Certificate and Opinion of Counsel, in each case stating that such
consolidation, merger or transfer and such supplemental indenture complies with
this provision and that all conditions precedent provided for herein relating to
such transaction have been complied with.
EVENTS OF DEFAULT
The following events will be defined as "Events of Default" in each of the
Indentures: (i) default in the payment of principal of (or premium, if any, on)
any Senior Note or Equipment Note, as the case may be, when the same becomes due
and payable at maturity, upon acceleration, redemption or otherwise;
(ii) default in the payment of interest on any Senior Note or Equipment Note, as
the case may be, when the same becomes due and payable, and such default
continues for a period of 30 days; (iii) WCI or WinStar Equipment defaults in
the performance of or breaches any other covenant or agreement of WCI or WinStar
Equipment in the Senior Notes Indenture or the Equipment Notes Indenture, as the
case may be, or under the Senior Notes or the Equipment Notes, as the case may
be, and such default or breach continues for a period of 30 consecutive days
after written notice by the relevant Trustee or the Holders of 25% or more in
aggregate principal amount of Senior Notes or Equipment Notes, as the case may
be; (iv) there occurs with respect to any issue or issues of Indebtedness of WCI
or any Significant Subsidiary having an outstanding principal amount of $25.0
51
<PAGE>
million or more in the aggregate for all such issues of all such Persons,
whether such Indebtedness now exists or shall hereafter be created, (a) an event
of default that has caused the holder thereof to declare such Indebtedness to be
due and payable prior to its Stated Maturity and such Indebtedness has not been
discharged in full or such acceleration has not been rescinded or annulled
within 30 days of such acceleration and/or (b) the failure to make a principal
payment at the final (but not any interim) fixed maturity and such defaulted
payment shall not have been made, waived or extended within 30 days of such
payment default; (v) any final judgment or order (not covered by insurance) for
the payment of money in excess of $25.0 million in the aggregate for all such
final judgments or orders against all such Persons (treating any deductibles,
self-insurance or retention as not so covered) shall be rendered against WCI or
any Significant Subsidiary and shall not be paid or discharged, and there shall
be any period of 60 consecutive days following entry of the final judgment or
order that causes the aggregate amount for all such final judgments or orders
outstanding and not paid or discharged against all such Persons to exceed $25.0
million during which a stay of enforcement of such final judgment or order, by
reason of a pending appeal or otherwise, shall not be in effect; (vi) a court
having jurisdiction in the premises enters a decree or order for (a) relief in
respect of WCI or any Significant Subsidiary in an involuntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, (b) appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of WCI or any Significant Subsidiary or for all
or substantially all of the property and assets of WCI, WinStar Equipment or any
Significant Subsidiary or (c) the winding up or liquidation of the affairs of
WCI or any Significant Subsidiary and, in each case, such decree or order shall
remain unstayed and in effect for a period of 60 consecutive days; or (vii) WCI
or any Significant Subsidiary (a) commences a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or consents to the entry of an order for relief in an involuntary case
under any such law, (b) consents to the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official of WCI or any Significant Subsidiary or for all or substantially all of
the property and assets of WCI or any Significant Subsidiary or (c) effects any
general assignment for the benefit of creditors. In addition to the foregoing,
it shall be an Event of Default under the Equipment Notes Indenture if (i) any
of the provisions of the Equipment Notes Indenture relating to the Security
Documents or the Security Documents shall cease to be in full force and effect
or shall cease to give the secured parties the liens, rights, powers and
privileges purported to be created thereby or (ii) the Equipment Note Guarantee
ceases to be in full force and effect (other than in accordance with its terms)
or WCI denies or disaffirms its obligations under the Equipment Note Guarantee.
If an Event of Default (other than an Event of Default specified in clause
(vi) or (vii) above that occurs with respect to WCI or WinStar Equipment) occurs
and is continuing under the Indenture, the Trustee or the Holders of at least
25% in aggregate principal amount of the Senior Notes or Equipment Notes, as the
case may be, then outstanding, by written notice to WCI (and to the relevant
Trustee if such notice is given by the Holders), may, and the relevant Trustee
at the request of such Holders shall, declare the principal of, premium, if any,
and accrued interest, if any, on the Senior
52
<PAGE>
Notes or the Equipment Notes, as the case may be, to be immediately due and
payable. Upon a declaration of acceleration, such principal, premium, if any,
and accrued interest, if any, shall be immediately due and payable. In the event
of a declaration of acceleration because an Event of Default set forth in clause
(iv) above has occurred and is continuing, such declaration of acceleration
shall be automatically rescinded and annulled if the event of default triggering
such Event of Default pursuant to clause (iv) shall be remedied or cured by WCI
or the relevant Significant Subsidiary or waived by the holders of the relevant
Indebtedness within 60 days after the declaration of acceleration with respect
thereto. If an Event of Default specified in clause (vi) or (vii) above occurs
with respect to WCI or WinStar Equipment, the principal of, premium, if any, and
accrued interest, if any, on the Notes then outstanding shall ipso facto become
and be immediately due and payable without any declaration or other act on the
part of either Trustee or any Holder. The Holders of at least a majority in
principal amount of the outstanding Senior Notes or Equipment Notes, as the case
may be, by written notice to WCI and to the relevant Trustee, may waive all past
defaults and rescind and annul a declaration of acceleration and its
consequences if (A) all existing Events of Default, other than the nonpayment of
the principal of, premium, if any, and interest on the Senior Notes or the
Equipment Notes, as the case may be, that have become due solely by such
declaration of acceleration, have been cured or waived and (B) the rescission
would not conflict with any judgment or decree of a court of competent
jurisdiction. For information as to the waiver of defaults, see "--Modification
and Waiver."
The Holders of at least a majority in aggregate principal amount of the
outstanding Senior Notes or Equipment Notes, as the case may be, may direct the
time, method and place of conducting any proceeding for any remedy available to
the relevant Trustee or exercising any trust or power conferred on the relevant
Trustee. However, such Trustee may refuse to follow any direction that conflicts
with law or the relevant Indenture, that may involve such Trustee in personal
liability, or that such Trustee determines in good faith may be unduly
prejudicial to the rights of Holders of Senior Notes or Equipment Notes, as the
case may be, not joining in the giving of such direction and may take any other
action it deems proper that is not inconsistent with any such direction received
from Holders of Senior Notes or Equipment Notes, as the case may be. A Holder
may not pursue any remedy with respect to the relevant Indenture or the Senior
Notes or the Equipment Notes, as the case may be, unless: (i) the Holder gives
the relevant Trustee written notice of a continuing Event of Default; (ii) the
Holders of at least 25% in aggregate principal amount of outstanding Senior
Notes or Equipment Notes, as the case may be, make a written request to the
relevant Trustee to pursue the remedy; (iii) such Holder or Holders offer the
relevant Trustee indemnity satisfactory to such Trustee against any costs,
liability or expense; (iv) such Trustee does not comply with the request within
60 days after receipt of the request and the offer of indemnity; and (v) during
such 60-day period, the Holders of a majority in aggregate principal amount of
the outstanding Senior Notes or Equipment Notes, as the case may be, do not give
the relevant Trustee a direction that is inconsistent with the request. However,
such limitations do not apply to the right of any Holder of a Senior Note or
Equipment Note, as the case may be, to receive payment of the principal of,
premium, if any, or interest on, such Note or to bring suit for the enforcement
of any such payment, on or after the due date expressed in the Senior Notes or
the Equipment Notes, as the case may be, which right shall not be impaired or
affected without the consent of the Holder.
The Indentures require certain officers of WCI to certify, on or before a
date not more than 90 days after the end of each fiscal year, that a review has
been conducted of the activities of WCI and its Restricted Subsidiaries'
performance under the Indentures and that, to the best knowledge of such
officer, WCI has fulfilled all obligations thereunder, or, if there has been a
default in the fulfillment of any such obligation, specifying each such default
and the nature and status thereof. WCI is also obligated to notify the relevant
Trustee of any default or defaults in the performance of any covenants or
agreements under the Senior Notes Indenture or the Equipment Notes Indenture, as
the case may be.
DEFEASANCE
DEFEASANCE AND DISCHARGE. The Indentures provide that WCI and WinStar
Equipment will be deemed to have paid and will be discharged from any and all
obligations in respect of the Senior Notes or the Equipment Notes, as the case
may be, on the 123rd day after the deposit referred to below, and the provisions
of such Indenture will no longer be in effect with respect to the Senior Notes
or the Equipment Notes, as the case may be, (except for, among other matters,
certain obligations to register the transfer or exchange of the Senior Notes or
the Equipment Notes, as the case may be, to replace stolen, lost or mutilated
Senior Notes or Equipment Notes, as the case may be, to maintain paying
agencies, to hold monies for payment in trust), including in the case of the
Equipment Notes Indenture, the provisions of such Indenture pursuant to which
the Equipment Notes are secured by the Collateral and guaranteed by WCI, if,
among other things, (A) WCI or WinStar Equipment, as the case may be, has
deposited with the relevant Trustee, in trust, money and/or U.S. Government
Obligations that through the payment of interest and principal in respect
thereof in accordance with their terms will provide money in an amount
sufficient to pay the principal of, premium, if any, and accrued interest
on the Senior Notes or the Equipment Notes, as the case may be, on the Stated
Maturity of such payments or upon earlier optional redemption, in each case in
accordance with the terms of the relevant Indenture and the Senior Notes or the
Equipment Notes, as the case may be, (B) WCI or WinStar Equipment, as the case
may be, has delivered to the relevant Trustee (i) either (x) an Opinion of
Counsel to the effect that Holders will not recognize income, gain or loss for
federal income tax purposes as a result of WCI's or WinStar Equipment's
exercise of its option under this "Defeasance" provision and will be subject to
federal income tax on the same amount and in the same manner and at the same
times as would have been the case if such deposit, defeasance and discharge had
not occurred, which Opinion of Counsel must be based upon (and accompanied by a
copy of) a ruling of the Internal Revenue Service to the same effect unless
there has been a change in applicable federal income tax law after the Closing
Date such that a ruling is no longer required or (y) a ruling directed to the
Trustee received from the Internal Revenue Service to the same effect as the
aforementioned Opinion of Counsel and (ii) an Opinion of Counsel to the effect
that the creation of the defeasance trust does not violate the Investment
Company Act of 1940 and after the passage of 123 days following the deposit,
the trust fund will not be subject to the effect of Section 547 of the
Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law,
(C) immediately after giving effect to such deposit on a pro forma basis,
no Event of Default, or event that after the giving of notice or lapse of time
or both would become an Event of Default, shall have occurred and be continuing
on the date of such deposit or during the period ending on the 123rd day after
the date of such deposit, and such deposit shall not result in a breach or
violation of, or constitute a default under, any other agreement or instrument
to which WCI or any of its Subsidiaries or WinStar Equipment, as the case may
be, is a party or by which WCI or any of its Subsidiaries or WinStar Equipment,
as the case may be, is bound, and (D) if at such time the Senior Notes or the
Equipment Notes, as the case may be, are listed on a national securities
exchange, WCI or WinStar Equipment, as the case may be, has delivered to the
relevant Trustee an Opinion of Counsel to the effect that the applicable Notes
will not be delisted as a result of such deposit, defeasance and discharge.
DEFEASANCE OF CERTAIN COVENANTS AND CERTAIN EVENTS OF DEFAULT. The
Indentures further provide that their provisions will no longer be in effect
with respect to clauses (iii) and (iv) under "Consolidation, Merger and Sale of
Assets" and all the covenants described herein under "Covenants," clause
(c) under "--Events of Default" with respect to such covenants and clauses (iii)
and (iv) under "Consolidation, Merger and Sale of Assets," and clauses (d) and
(e) and, if applicable, (i) and (ii) under "--Events of Default" shall be deemed
not to be Events of Default, and, with respect to the Equipment Notes, the
Collateral will be released and the Equipment Note Guarantee will be deemed
terminated, upon, among other things, the deposit with the relevant Trustee, in
trust, of money and/or U.S. Government Obligations that through the payment of
interest and principal in respect thereof in accordance with their terms will
provide money in an amount sufficient to pay the principal of, premium, if any,
and accrued interest on the Senior Notes or the Equipment Notes, as the case may
be, on the Stated Maturity of such payments or upon earlier optional redemption,
in each case in accordance with the terms of the relevant Indenture and the
Senior Notes or the Equipment Notes, as the case may be, the satisfaction of the
provisions described in clauses (B)(ii), (C) and (D) of the preceding paragraph
and the delivery by WCI or WinStar Equipment, as the case may be, to the
relevant Trustee of an Opinion of Counsel to the effect that, among other
things, the Holders will not recognize income, gain or loss for federal income
tax purposes as a result of such deposit and defeasance of certain covenants and
Events of Default and will be subject to federal income tax on the same amount
and in the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred.
53
<PAGE>
DEFEASANCE AND CERTAIN OTHER EVENTS OF DEFAULT. In the event WCI or
WinStar Equipment, as the case may be, exercises its option to omit compliance
with certain covenants and provisions of an Indenture with respect to the Senior
Notes or the Equipment Notes, as the case may be, as described in the
immediately preceding paragraph and the Senior Notes or the Equipment Notes, as
the case may be, are declared due and payable because of the occurrence of an
Event of Default that remains applicable, the amount of money and/or U.S.
Government Obligations on deposit with the relevant Trustee will be sufficient
to pay amounts due on the Senior Notes or the Equipment Notes, as the case may
be, at the time of their Stated Maturity but may not be sufficient to pay
amounts due on the Senior Notes or the Equipment Notes, as the case may be, at
the time of the acceleration resulting from such Event of Default. However, WCI
or WinStar Equipment, as applicable, will remain liable for such payments.
54
<PAGE>
MODIFICATION AND WAIVER
Modifications and amendments of the 1997 Indentures may be made by WCI or
WinStar Equipment, as the case may be, and the relevant Trustee with the consent
of the Holders of not less than a majority in aggregate principal amount of the
outstanding Senior Notes or Equipment Notes, as the case may be; provided,
however, that no such modification or amendment may, without the consent of each
Holder affected thereby, (i) change the Stated Maturity of the principal of, or
any installment of interest on, any Note, (ii) reduce the principal amount of,
or premium, if any, or interest on, any Note, (iii) change the place or currency
of payment of principal of, or premium, if any, or interest on, any Note,
(iv) impair the right to institute suit for the enforcement of any payment on or
after the Stated Maturity (or, in the case of a redemption, on or after the
Redemption Date) of any Note, (v) reduce the above-stated percentage of
outstanding Senior Notes or Equipment Notes, as the case may be, the consent of
whose Holders is necessary to modify or amend the Indenture, (vi) waive a
default in the payment of principal of, premium, if any, or interest on the
Notes, (vii) reduce the percentage or aggregate principal amount of outstanding
Senior Notes or Equipment Notes, as the case may be, the consent of whose
Holders is necessary for waiver of compliance with certain provisions of the
Indenture or for waiver of certain defaults or (viii) in the case of the
Equipment Notes, make any change in the Equipment Note Guarantee or in the
provisions relating to Collateral that would adversely affect the Holders of the
Equipment Notes.
Without the consent of any Holder of the Senior Notes or the Equipment
Notes, as the case may be, WCI or WinStar Equipment, as the case may be, and the
relevant Trustee may modify or amend the relevant Indenture to cure any
ambiguity, defect or inconsistency, to provide for the assumption by a successor
company of WCI's or WinStar Equipment's, as the case may be, obligations under
the relevant Indenture, to comply with the requirements of the Trust Indenture
Act, to appoint a successor Trustee or to make any change that, in the opinion
of the Board of Directors of WCI or WinStar Equipment, as the case may be,
evidenced by a Board Resolution, does not materially and adversely affect the
rights of any Holder.
NO PERSONAL LIABILITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS, DIRECTORS OR
EMPLOYEES
The Indentures provide that no recourse for the payment of the principal
of, premium, if any, or interest on any of the Notes or for any claim based
thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of WCI or WinStar Equipment, as the case may
be, in such Indenture, or in any of the Notes or because of the creation of any
Indebtedness represented thereby, shall be had against any incorporator,
stockholder, officer, director, employee or controlling person of WCI, WinStar
Equipment or of any successor Person thereof in such capacity; provided,
however, that the foregoing shall not affect WCI's obligations with respect to
the Equipment Note Guarantee. Each Holder, by accepting the Notes, waives and
releases all such liability.
CONCERNING THE TRUSTEE
The Indentures provide that, except during the continuance of a Default,
the Trustee will not be liable, except for the performance of such duties as are
specifically set forth in such Indenture. If an Event of Default has occurred
and is continuing, the Trustee will use the same degree of care and skill in its
exercise as a prudent person would exercise under the circumstances in the
conduct of such person's own affairs.
The Indentures and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustees, should they
become creditors of WCI or WinStar Equipment, as the case may be, to obtain
payment of claims in certain cases or to realize on certain property received by
it in respect of any such claims, as security or otherwise. The Trustees are
permitted to engage in other transactions; provided, however, that if any
Trustee acquires any conflicting interest, it must eliminate such conflict or
resign.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indentures. Reference is made to the
relevant Indenture for the full definition of all terms as well as any other
capitalized term used herein for which no definition is provided.
55
<PAGE>
"Accumulated Amount" means, as of any date (the "Specified Date"), the
amount provided below for each $1,000 principal amount of Senior Notes.
(i) if the Specified Date occurs on one of the following dates (each, a
"SemiAnnual Interest Accrual Date"), the Accumulated Amount of a
Senior Note will equal the amount set forth below for such Senior Note
for such SemiAnnual Interest Accrual Date:
SEMIANNUAL INTEREST ACCRUAL DATE ACCUMULATED AMOUNT
April 15, 1997...................................... $1,010.88
October 15, 1997.................................... 1,084.16
April 15, 1998...................................... 1,162.77
October 15, 1998.................................... 1,247.07
April 15, 1999...................................... 1,337.48
October 15, 1999.................................... 1,434.45
April 15, 2000...................................... 1,538.44
October 15, 2000.................................... 1,649.98
(ii) if the Specified Date occurs before the first SemiAnnual Interest
Accrual Date, the Accumulated Amount will equal the sum of (A)
$1,000 and (B) an amount equal to the product of (1) the
Accumulated Amount for the first SemiAnnual Interest Accrual Date
less $1,000 multiplied by (2) a fraction, the numerator of which is
the number of days elapsed from the Closing Date to the Specified
Date, using a 360-day year of twelve 30-day months, and the
denominator of which is the number of days from the Closing Date to
the first SemiAnnual Interest Accrual Date, using a 360-day year of
twelve 30-day months;
(iii) if the Specified Date occurs between two SemiAnnual Interest
Accrual Dates, the Accumulated Amount will equal the sum of (A) the
Accumulated Amount for the SemiAnnual Interest Accrual Date
immediately preceding such Specified Date and (B) an amount equal
to the product of (1) the Accumulated Amount for the immediately
following SemiAnnual Interest Accrual Date less the Accumulated
Amount for the immediately preceding SemiAnnual Interest Accrual
Date multiplied by (2) a fraction, the numerator of which is the
number of days elapsed from the immediately preceding SemiAnnual
Interest Accrual Date to the Specified Date, using a 360-day year
of twelve 30-day months, and the denominator of which is 180; or
(iv) if the Specified Date occurs after the last SemiAnnual Interest
Accrual Date, the Accumulated Amount of a Senior Note will equal
$1,649.98.
"Adjusted Consolidated Net Income" means, for any period, the aggregate net
income (or loss) of WCI and its Restricted Subsidiaries for such period
determined in conformity with GAAP; provided, however, that the following items
shall be excluded in computing Adjusted Consolidated Net Income (without
duplication): (i) the net income of any Person (other than net income
attributable to a Restricted Subsidiary) in which any Person (other than WCI or
any of its Restricted Subsidiaries) has a joint interest and the net income of
any Unrestricted Subsidiary, except to the extent of the amount of dividends or
other distributions actually paid to WCI or any of its Restricted Subsidiaries
by such other Person, including, without limitation, an Unrestricted Subsidiary
during such period; (ii) solely for the purposes of calculating the amount of
Restricted Payments that may be made pursuant to clause (C) of the first
paragraph of the covenant described under "--Covenants--Covenants Relating to
All the Notes--Limitation on Restricted Payments" (and in such case, except to
the extent includable pursuant to clause (i) above), the net income (or loss) of
any Person accrued prior to the date it becomes a Restricted Subsidiary or is
merged into or consolidated with WCI or any of its Restricted Subsidiaries or
all or substantially all of the property and assets of such Person are acquired
by WCI or any of its Restricted Subsidiaries; (iii) the net income of any
Restricted Subsidiary to the extent that the declaration or payment of dividends
or similar distributions by such Restricted Subsidiary of such net income is not
at the time permitted by the operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to such Restricted Subsidiary; (iv) any gains or losses
(on an after-tax basis) attributable to Asset Sales; (v) except for purposes of
calculating the amount of Restricted Payments that may be made pursuant to
clause (C) of the first paragraph
56
<PAGE>
of the covenant described under "--Covenants--Covenants Relating to All the
Notes--Limitation on Restricted Payments," any amount paid as, or accrued
for, cash dividends on Preferred Stock of WCI or any Restricted Subsidiary
owned by Persons other than WCI and any of its Restricted Subsidiaries; and
(vi) all extraordinary gains and extraordinary losses.
"Adjusted Consolidated Net Tangible Assets" means the total amount of
assets of WCI and its Restricted Subsidiaries (less applicable depreciation,
amortization and other valuation reserves), except to the extent resulting from
write-ups of capital assets (excluding write-ups in connection with accounting
for acquisitions in conformity with GAAP), after deducting therefrom (i) all
current liabilities of WCI and its Restricted Subsidiaries (excluding
intercompany items) and (ii) all goodwill, trade names, trademarks, patents,
unamortized debt discount and expense and other like intangibles (other than
licenses issued by the FCC), all as set forth on the quarterly or annual
consolidated balance sheet of WCI and its Restricted Subsidiaries, prepared in
conformity with GAAP and most recently filed with the Commission pursuant to
"--SEC Reports and Reports to Holders;" provided, however, that the value of any
licenses issued by the FCC shall, in the event of an auction for similar
licenses, be equal to the fair market value ascribed thereto in good faith by
the Board of Directors and evidenced by a Board Resolution. As used in the
Indentures, references to financial statements of WCI and its Restricted
Subsidiaries shall be adjusted to exclude Unrestricted Subsidiaries if the
context requires.
"Affiliate" means, as applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Asset Acquisition" means (i) an investment by WCI or any of its Restricted
Subsidiaries in any other Person pursuant to which such Person shall become a
Restricted Subsidiary of WCI or shall be merged into or consolidated with WCI or
any of its Restricted Subsidiaries or (ii) an acquisition by WCI or any of its
Restricted Subsidiaries of the property and assets of any Person other than WCI
or any of its Restricted Subsidiaries that constitute substantially all of a
division or line of business of such Person.
"Asset Sale" means any sale, transfer or other disposition (including by
way of merger, consolidation or sale-leaseback transactions) in one transaction
or a series of related transactions by WCI or any of its Restricted Subsidiaries
to any Person other than WCI or any of its Restricted Subsidiaries of (i) all or
any of the Capital Stock of any Restricted Subsidiary, (ii) all or substantially
all of the property and assets of an operating unit or business of WCI or any of
its Restricted Subsidiaries or (iii) any other property or assets of WCI or any
of its Restricted Subsidiaries outside the ordinary course of business of WCI or
such Restricted Subsidiary and, in each case, that is not governed by the
provisions of the relevant Indenture applicable to mergers, consolidations and
sales of assets of WCI; provided, however, that the following shall not be
included within the meaning of "Asset Sale": (A) sales or other dispositions of
inventory, receivables and other current assets; (B) sales or other dispositions
of equipment that has become worn out, obsolete or damaged or otherwise
unsuitable for use in connection with the business of WCI or its Restricted
Subsidiaries; (C) a substantially simultaneous exchange of, or a sale or
disposition (other than 85% or more for cash or cash equivalents) by WCI or any
of its Restricted Subsidiaries of, licenses issued by the FCC or applications or
bids therefor; provided, however, that the consideration received by WCI or any
such Restricted Subsidiary in connection with such exchange, sale or disposition
shall be equal to the fair market value of licenses so exchanged, sold or
disposed of, as determined by the Board of Directors; and (D) except for
purposes of the definition of "Indebtedness to EBITDA Ratio," any sale or other
disposition of securities of an Unrestricted Subsidiary. The Equipment Notes
Indenture also provides that, notwithstanding anything to the contrary in this
definition, any sale, transfer or other disposition (other than a lease in the
ordinary course of business but including the receipt of insurance proceeds in
respect of Collateral) of any Collateral shall be deemed to be an Asset Sale of
such Collateral.
"Average Life" means, at any date of determination with respect to any debt
security, the quotient obtained by dividing (i) the sum of the products of
(a) the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (b) the amount
of such principal payment by (ii) the sum of all such principal payments.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in The City of New York, or in the city of the Corporate
Trust Office of the Trustee, are authorized by law to close.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) in equity of such Person, whether now outstanding or
issued after the date of the Indenture, including, without limitation, all
Common Stock and Preferred Stock.
57
<PAGE>
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present value
of the rental obligations of such Person as lessee, in conformity with GAAP, is
required to be capitalized on the balance sheet of such Person; and "Capitalized
Lease Obligations" means the discounted present value of the rental obligations
under such lease.
"Change of Control" means such time as (i) a "person" or "group" (within
the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act of
1934, as amended ("Exchange Act")), other than the Permitted Investor, becomes
the ultimate "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act) of Voting Stock representing more than 50% of the total voting power of the
Voting Stock of WCI on a fully diluted basis or (ii) individuals who on the
Closing Date constituted the Board of Directors (together with any new directors
whose election by the Board of Directors or whose nomination for election by
WCI's stockholders was approved by a vote of at least two-thirds of the members
of the Board of Directors then in office who either were members of the Board of
Directors on the Closing Date or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
members of the Board of Directors then in office.
"Closing Date" means the date on which the Senior Notes or the Equipment
Notes, as the case may be, are originally issued under the applicable Indenture.
"Consolidated EBITDA" means, for any period, the sum of the amounts for
such period of (i) Adjusted Consolidated Net Income, (ii) Consolidated Interest
Expense, to the extent such amount was deducted in calculating Adjusted
Consolidated Net Income, (iii) income taxes, to the extent such amount was
deducted in calculating Adjusted Consolidated Net Income (other than income
taxes (either positive or negative) attributable to extraordinary and
nonrecurring gains or losses or sales of assets), (iv) depreciation expense, to
the extent such amount was deducted in calculating Adjusted Consolidated Net
Income, (v) amortization expense, to the extent such amount was deducted in
calculating Adjusted Consolidated Net Income and (vi) all other noncash items
reducing Adjusted Consolidated Net Income (other than items that will require
cash payments and for which an accrual or reserve is, or is required by GAAP to
be, made), less all noncash items increasing Adjusted Consolidated Net Income,
all as determined on a consolidated basis for WCI and its Restricted
Subsidiaries in conformity with GAAP; provided, however, that, if any Restricted
Subsidiary is not a Wholly Owned Restricted Subsidiary, Consolidated EBITDA
shall be reduced (to the extent not otherwise reduced in accordance with GAAP)
by an amount equal to (A) the amount of the Adjusted Consolidated Net Income
attributable to such Restricted Subsidiary multiplied by (B) the quotient of
(1) the number of shares of outstanding Common Stock of such Restricted
Subsidiary not owned on the last day of such period by WCI or any of its
Restricted Subsidiaries divided by (2) the total number of shares of outstanding
Common Stock of such Restricted Subsidiary on the last day of such period.
"Consolidated Interest Expense" means, for any period, the aggregate amount
of interest in respect of Indebtedness (including amortization of original issue
discount on any Indebtedness and the interest portion of any deferred payment
obligation, calculated in accordance with the effective interest method of
accounting; all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing; the net costs
associated with Interest Rate Agreements; and Indebtedness that is Guaranteed or
secured by WCI or any of its Restricted Subsidiaries) and all but the principal
component of rentals in respect of Capitalized Lease Obligations paid, accrued
or scheduled to be paid or to be accrued by WCI and its Restricted Subsidiaries
during such period; excluding, however, (i) any amount of such interest of any
Restricted Subsidiary if the net income of such Restricted Subsidiary is
excluded in the calculation of Adjusted Consolidated Net Income pursuant to
clause (iii) of the definition thereof (but only in the same proportion as the
net income of such Restricted Subsidiary is excluded from the calculation of
Adjusted Consolidated Net Income pursuant to clause (iii) of the definition
thereof) and (ii) any premiums, fees and expenses (and any amortization thereof)
payable in connection with the offering of the Notes, all as determined on a
consolidated basis (without taking into account Unrestricted Subsidiaries) in
conformity with GAAP.
"Consolidated Net Worth" means, at any date of determination, stockholders'
equity as set forth on the most recently available quarterly or annual
consolidated balance sheet of WCI and its Restricted Subsidiaries (which shall
be
58
<PAGE>
as of a date not more than 90 days prior to the date of such computation, and
which shall not take into account Unrestricted Subsidiaries), less any amounts
attributable to Redeemable Stock or any equity security convertible into or
exchangeable for Indebtedness, the cost of treasury stock and the principal
amount of any promissory notes receivable from the sale of the Capital Stock of
WCI or any of its Restricted Subsidiaries, each item to be determined in
conformity with GAAP (excluding the effects of foreign currency exchange
adjustments under Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 52).
"Convertible Notes" means the 14% Convertible Senior Subordinated Discount
Notes of WCI due 2005.
"Convertible Notes Indenture" means the Indenture dated as of October 23,
1995, between WCI and United States Trust Company of New York pursuant to which
the Convertible Notes were issued.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Equipment" means (i) telecommunications switches and related
equipment and inventory; (ii) customer premise equipment; (iii) radios, antennae
and cabling; (iv) office and warehouse furniture, fixtures and equipment
(including, without limitation, computers and communications equipment);
(v) company service vehicles; and (vi) software related to each of the
foregoing, in each case used in the telecommunications business of WCI and its
Subsidiaries.
"Equipment Notes" means the 121/2% Guaranteed Senior Secured Notes of
WinStar Equipment Due 2004.
"fair market value" means the price that would be paid in an arm's-length
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy, as determined in
good faith by the Board of Directors (whose determination shall be conclusive)
and evidenced by a Board Resolution.
"FCC" means the United States Federal Communications Commission and any
state or local telecommunications authority, department, commission or agency
(and any successors thereto).
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the date of the Indenture, including, without
limitation, those set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as approved by a significant segment
of the accounting profession. All ratios and computations contained in the
Indenture shall be computed in conformity with GAAP applied on a consistent
basis, except that calculations made for purposes of determining compliance with
the terms of the covenants and with other provisions of the Indentures shall be
made without giving effect to (i) the amortization of any expenses incurred in
connection with the offering of the Senior Notes or the Equipment Notes and
(ii) except as otherwise provided, the amortization of any amounts required or
permitted by Accounting Principles Board Opinion Nos. 16 and 17.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation of such other Person (whether arising by virtue
of partnership arrangements, or by agreements to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obligee of such Indebtedness or other obligation of the
payment thereof or to protect such obligee against loss in respect thereof (in
whole or in part); PROVIDED, HOWEVER, that the term "Guarantee" shall not
include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.
"Holder" means the Person in whose name a Note is registered on the books
of the registrar for the applicable Notes.
"Incur" means, with respect to any Indebtedness, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such Indebtedness,
59
<PAGE>
including, with respect to the Company and its Restricted Subsidiaries, an
"incurrence" of Indebtedness by reason of a Person becoming a Restricted
Subsidiary of the Company; provided, however, that neither the accrual of
interest nor the accretion of original issue discount shall be considered an
Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments (whether negotiable or
non-negotiable), (iii) all obligations of such Person in respect of letters of
credit or other similar instruments (including reimbursement obligations with
respect thereto), (iv) all obligations of such Person to pay the deferred and
unpaid purchase price of property or services, which purchase price is due more
than six months after the date of placing such property in service or taking
delivery and title thereto or the completion of such services, except trade
payables, (v) all obligations of such Person as lessee under Capitalized Leases,
(vi) all Indebtedness of other Persons secured by a Lien on any asset of such
Person, whether or not such Indebtedness is assumed by such Person; PROVIDED,
HOWEVER, that the amount of such Indebtedness shall be the lesser of (A) the
fair market value of such asset at such date of determination and (B) the amount
of such Indebtedness, (vii) all Indebtedness of other Persons Guaranteed by such
Person to the extent such Indebtedness is Guaranteed by such Person and
(viii) to the extent not otherwise included in this definition, obligations
under Currency Agreements and Interest Rate Agreements. The amount of
Indebtedness of any Person at any date shall be the outstanding balance at such
date of all unconditional obligations as described above and, with respect to
contingent obligations that are included in any of clauses (i) through
(viii) above, the maximum liability upon the occurrence of the contingency
giving rise to the obligation; provided, however, that (A) the amount
outstanding at any time of any Indebtedness issued with original issue discount
is (1) for purposes of determining the Indebtedness to EBITDA Ratio, the face
amount of such Indebtedness less the remaining unamortized portion of the
original issue discount of such Indebtedness at such time as determined in
conformity with GAAP and (2) for all other purposes, the amount determined in
clause (1) on the date such Indebtedness is originally Incurred and
(B) Indebtedness shall not include any liability for federal, state, local or
other taxes.
"Indebtedness to EBITDA Ratio" means, as at any date of determination, the
ratio of (i) the aggregate amount of Indebtedness of WCI and its Restricted
Subsidiaries on a consolidated basis ("Consolidated Indebtedness") as at the
date of determination (the "Transaction Date") to (ii) the Consolidated EBITDA
of WCI for the then most recent four full fiscal quarters for which reports have
been filed pursuant to "--SEC Reports and Reports to Holders" (such four full
fiscal quarter period being referred to herein as the "Four Quarter Period");
provided, however, that (x) pro forma effect shall be given to any Indebtedness
Incurred from the beginning of the Four Quarter Period through the Transaction
Date (including any Indebtedness Incurred on the Transaction Date), to the
extent outstanding on the Transaction Date, (y) if during the period commencing
on the first day of such Four Quarter Period through the Transaction Date (the
"Reference Period"), WCI or any of the Restricted Subsidiaries shall have
engaged in any Asset Sale, Consolidated EBITDA for such period shall be reduced
by an amount equal to the EBITDA (if positive), or increased by an amount equal
to the EBITDA (if negative), directly attributable to the assets which are the
subject of such Asset Sale and any related retirement of Indebtedness as if such
Asset Sale and related retirement of Indebtedness had occurred on the first day
of such Reference Period or (z) if during such Reference Period WCI or any of
the Restricted Subsidiaries shall have made any Asset Acquisition, Consolidated
EBITDA of WCI shall be calculated on a pro forma basis as if such Asset
Acquisition and any Incurrence of Indebtedness to finance such Asset Acquisition
had taken place on the first day of such Reference Period.
"Investment" in any Person means any direct or indirect advance, loan or
other extension of credit (including, without limitation, by way of Guarantee or
similar arrangement; but excluding advances to customers in the ordinary course
of business that are, in conformity with GAAP, recorded as accounts receivable
on the balance sheet of WCI or its Restricted Subsidiaries) or capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase or acquisition of Capital Stock, bonds, notes, debentures or other
similar instruments issued by, such Person and shall include (i) the designation
of a Restricted Subsidiary as an Unrestricted Subsidiary and (ii) the fair
market value of the Capital Stock held by WCI and the Restricted Subsidiaries of
any Person that has ceased to be a Restricted Subsidiary by reason of any
transaction permitted by clause (iii) of the covenant described under
"--Covenants--Covenants Relating to All the Notes--Limitation on the Issuance
and Sale of Capital Stock of Restricted Subsidiaries." For purposes of the
definition of "Unrestricted Subsidiary" and the covenant described under
"--Covenants--Covenants Relating to All the Notes--Limitation on Restricted
Payments," (i) "Investment" shall include the fair market value of the assets
(net of liabilities) of any Restricted Subsidiary of WCI at the time that such
Restricted Subsidiary of WCI is designated an Unrestricted Subsidiary and shall
exclude the fair market value of the assets (net of liabilities) of any
Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is
designated a Restricted
60
<PAGE>
Subsidiary of WCI and (ii) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its fair market value at the time of such
transfer, in each case as determined by the Board of Directors in good faith.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including, without limitation, any conditional sale or other
title retention agreement or lease in the nature thereof, any sale with recourse
against the seller or any Affiliate of the seller, or any agreement to give any
security interest).
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the proceeds
of such Asset Sale in the form of cash or cash equivalents, including payments
in respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or cash equivalents (except to the extent such obligations are financed or
sold with recourse to WCI or any Restricted Subsidiary of WCI) and proceeds from
the conversion of other property received when converted to cash or cash
equivalents, net of (i) brokerage commissions and other fees and expenses
(including fees and expenses of counsel and investment bankers) related to such
Asset Sale, (ii) provisions for all taxes (whether or not such taxes will
actually be paid or are payable) as a result of such Asset Sale without regard
to the consolidated results of operations of WCI and its Restricted
Subsidiaries, taken as a whole, (iii) payments made to repay Indebtedness or any
other obligation outstanding at the time of such Asset Sale that either (A) is
secured by a Lien on the property or assets sold or (B) is required to be paid
as a result of such sale and (iv) appropriate amounts to be provided by WCI or
any Restricted Subsidiary of WCI as a reserve against any liabilities associated
with such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as determined in conformity with GAAP and (b) with respect
to any issuance or sale of Capital Stock, the proceeds of such issuance or sale
in the form of cash or cash equivalents, including payments in respect of
deferred payment obligations (to the extent corresponding to the principal, but
not interest, component thereof) when received in the form of cash or cash
equivalents (except to the extent such obligations are financed or sold with
recourse to WCI or any Restricted Subsidiary of WCI) and proceeds from the
conversion of other property received when converted to cash or cash
equivalents, net of attorneys' fees, accountants' fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage, consultant and
other fees incurred in connection with such issuance or sale and net of taxes
paid or payable by WCI or any of its subsidiaries as a result thereof.
"Offer to Purchase" means an offer to purchase Senior Notes or Equipment
Notes by WCI or WinStar Equipment from the Holders that is required by the
covenant described under "--Repurchase of Notes upon a Change of Control" or
"--Covenants--Covenants Relating to All the Notes--Limitation on Asset Sales"
and which is commenced by mailing a notice to the relevant Trustee and each
Holder stating: (i) the covenant pursuant to which the offer is being made and
that all Senior Notes or Equipment Notes, as the case may be, validly tendered
will be accepted for payment on a pro rata basis; (ii) the purchase price and
the date of purchase (which shall be a Business Day no earlier than 30 days nor
later than 60 days from the date such notice is mailed) (the "Payment Date");
(iii) that any Senior Note or Equipment Note, as the case may be, not tendered
will continue to accrue interest pursuant to its terms; (iv) that, unless WCI or
WinStar Equipment, as the case may be, defaults in the payment of the purchase
price, any Senior Note or Equipment Note, as the case may be, accepted for
payment pursuant to the Offer to Purchase shall cease to accrue interest on and
after the Payment Date; (v) that Holders electing to have a Senior Note or
Equipment Note, as the case may be, purchased pursuant to the Offer to Purchase
will be required to surrender the Senior Note or Equipment Note, as the case may
be, together with the form entitled "Option of the Holder to Elect Purchase" on
the reverse side thereof completed, to the Paying Agent at the address specified
in the notice prior to the close of business on the Business Day immediately
preceding the Payment Date; (vi) that Holders will be entitled to withdraw their
election if the Paying Agent receives, not later than the close of business on
the third Business Day immediately preceding the Payment Date, a telegram,
facsimile transmission or letter setting forth the name of such Holder, the
Accumulated Amount of Senior Notes or the principal amount of Equipment Notes,
as the case may be, delivered for purchase and a statement that such Holder is
withdrawing his election to have such Senior Notes or Equipment Notes, as the
case may be, purchased; and (vii) that Holders whose Senior Notes or Equipment
Notes, as the case may be, are being purchased only in part will be issued new
Senior Notes or Equipment Notes, as the case may be, equal in Accumulated Amount
or principal amount (and accrued and unpaid interest) to the unpurchased portion
thereof; provided, however, that each Senior Note or Equipment Note, as the case
may be, purchased and each new Senior Note or Equipment Note, as the case may
be, issued shall be in a principal amount of $1,000 or integral multiples
thereof. On the Payment Date, WCI and WinStar Equipment shall (i) accept for
payment on a pro rata basis Senior Notes or Equipment Notes, as the case may be,
or portions thereof tendered pursuant to an Offer to Purchase; (ii) deposit with
the Paying Agent money sufficient to pay the purchase price of all Senior Notes
or Equipment Notes, as
61
<PAGE>
the case may be, or portions thereof so accepted; and (iii) deliver, or cause to
be delivered, to the relevant Trustee all Senior Notes or Equipment Notes, as
the case may be, or portions thereof so accepted together with an Officers'
Certificate specifying the Senior Notes or Equipment Notes, as the case may be,
or portions thereof accepted for payment by WCI. The Paying Agent shall promptly
mail to the Holders of Senior Notes or Equipment Notes, as the case may be, so
accepted for payment in an amount equal to the purchase price, and the Trustee
shall promptly authenticate and mail to such Holders a new Senior Note or
Equipment Note, as the case may be, equal in principal amount to any unpurchased
portion of the Senior Note or Equipment Note, as the case may be, surrendered;
PROVIDED, HOWEVER, that each Senior Note or Equipment Note, as the case may be,
purchased and each new Senior Note or Equipment Note, as the case may be, issued
shall be in a principal amount of $1,000 or integral multiples thereof. WCI will
publicly announce the results of an Offer to Purchase as soon as practicable
after the Payment Date. The relevant Trustee shall act as the Paying Agent for
an Offer to Purchase. WCI will comply with Rule 14e-1 under the Exchange Act and
any other securities laws and regulations thereunder to the extent such laws and
regulations are applicable, in the event that WCI is required to repurchase
Senior Notes or Equipment Notes, as the case may be, pursuant to an Offer to
Purchase.
"Old Senior Notes" means the 14% Senior Discount Notes due 2005 of WCI.
"Permitted Investment" means (i) an Investment in a Restricted Subsidiary
or a Person which will, upon the making of such Investment, become a Restricted
Subsidiary or be merged or consolidated with or into or transfer or convey all
or substantially all its assets to, WCI or a Restricted Subsidiary;
(ii) Temporary Cash Investments; (iii) payroll, travel and similar advances to
cover matters that are expected at the time of such advances ultimately to be
treated as expenses in accordance with GAAP; (iv) loans or advances to employees
in a principal amount not to exceed $1.0 million at any one time outstanding;
(v) stock, obligations or securities received in satisfaction of judgments;
(vi) Investments, to the extent that the consideration provided by WCI or any of
its Restricted Subsidiaries consists solely of Capital Stock (other than
Redeemable Stock) of WCI; (vii) notes payable to WCI that are received by WCI as
payment of the purchase price for Capital Stock (other than Redeemable Stock) of
WCI; and (viii) acquisitions of a minority equity interest in entities engaged
in the telecommunications business; PROVIDED, HOWEVER, that (A) the acquisition
of a majority equity interest in such entities is not permitted under U.S. law
without FCC consent, (B) the Company or one of its Restricted Subsidiaries has
the right to acquire Capital Stock representing a majority of the voting power
of the Voting Stock of such entity upon receipt of FCC consent and (C) in the
event that such consent has not been obtained within 18 months of funding such
Investment, the Company or one of its Restricted Subsidiaries has the right to
sell such minority equity interest in the seller thereof for consideration
consisting of the consideration originally paid by the Company and its
Restricted Subsidiaries for such minority equity interest.
"Permitted Investor" means Mr. William J. Rouhana, Jr.
"Permitted Liens" means (i) Liens for taxes, assessments, governmental
charges or claims that are being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a reserve
or other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made; (ii) statutory or common law Liens of landlords and
carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or other
similar Liens arising in the ordinary course of business and with respect to
amounts not yet delinquent or being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a reserve
or other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made; (iii) Liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance and other types of social security; (iv) Liens incurred or deposits
made to secure the performance of tenders, bids, leases, statutory or regulatory
obligations, bankers' acceptances, surety and appeal bonds, government
contracts, performance and return-of-money bonds and other obligations of a
similar nature incurred in the ordinary course of business (exclusive of
obligations for the payment of borrowed money) and a bank's unexercised right of
set-off with respect to deposits made in the ordinary course; (v) easements,
rights-of-way, municipal and zoning ordinances and similar charges,
encumbrances, title defects or other irregularities that do not materially
interfere with the ordinary course of business of WCI or any of its Restricted
Subsidiaries; (vi) Liens (including extensions and renewals thereof) upon real
or personal property acquired after the Closing Date; provided, however, that
(a) such Lien is created solely for the purpose of securing Indebtedness
Incurred, in accordance with the "Limitation on Indebtedness" covenant described
above, (1) to finance the cost (including the cost of improvement or
construction) of the item of property or assets subject thereto and such Lien is
created prior to, at the time of or within six months after the later of the
acquisition, the completion of construction or the commencement of full
operation of such property or (2) to refinance any Indebtedness
62
<PAGE>
previously so secured, (b) the principal amount of the Indebtedness secured by
such Lien does not exceed 100% of such cost and (c) any such Lien shall not
extend to or cover any property or assets other than such item of property or
assets and any improvements on such item; (vii) leases or subleases granted to
others that do not materially interfere with the ordinary course of business of
WCI and its Restricted Subsidiaries, taken as a whole; (viii) Liens encumbering
property or assets under construction arising from progress or partial payments
by a customer of WCI or its Restricted Subsidiaries relating to such property or
assets; (ix) any interest or title of a lessor in the property subject to any
Capitalized Lease or operating lease; (x) Liens arising from filing Uniform
Commercial Code financing statements regarding leases; (xi) Liens on property
of, or on shares of stock or Indebtedness of, any corporation existing at the
time such corporation becomes, or becomes a part of, any Restricted Subsidiary;
provided, however, that such Liens do not extend to or cover any property or
assets of WCI or any Restricted Subsidiary other than the property or assets
acquired; (xii) Liens in favor of WCI or any Restricted Subsidiary; (xiii) Liens
arising from the rendering of a final judgment or order against WCI or any
Restricted Subsidiary of WCI that does not give rise to an Event of Default;
(xiv) Liens securing reimbursement obligations with respect to letters of credit
that encumber documents and other property relating to such letters of credit
and the products and proceeds thereof; (xv) Liens in favor of customs and
revenue authorities arising as a matter of law to secure payment of customs
duties in connection with the importation of goods; (xvi) Liens encumbering
customary initial deposits and margin deposits, and other Liens that are either
within the general parameters customary in the industry and incurred in the
ordinary course of business, in each case, securing Indebtedness under Interest
Rate Agreements and Currency Agreements and forward contracts, options, future
contracts, futures options or similar agreements or arrangements designed to
protect WCI or any of its Restricted Subsidiaries from fluctuations in the price
of commodities; (xvii) Liens arising out of conditional sale, title retention,
consignment or similar arrangements for the sale of goods entered into by WCI or
any of its Restricted Subsidiaries in the ordinary course of business in
accordance with the past practices of WCI and its Restricted Subsidiaries prior
to the Closing Date; and (xviii) Liens on or sales of receivables.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of such Person's preferred or preference stock, whether
now outstanding or issued after the Closing Date, including, without limitation,
all series and classes of such preferred or preference stock.
"Redeemable Stock" means any class or series of Capital Stock of any Person
that by its terms or otherwise is (i) required to be redeemed prior to the
Stated Maturity of the Notes, (ii) redeemable at the option of the holder of
such class or series of Capital Stock at any time prior to the Stated Maturity
of the Notes (unless the redemption price is, at WCI's option, without
conditions precedent, payable solely in Common Stock (other than Redeemable
Stock) of WCI) or (iii) convertible into or exchangeable for Capital Stock
referred to in clause (i) or (ii) above or Indebtedness having a scheduled
maturity prior to the Stated Maturity of the Notes; provided, however, that any
Capital Stock that would not constitute Redeemable Stock but for provisions
thereof giving holders thereof the right to require such Person to repurchase or
redeem such Capital Stock upon the occurrence of an "asset sale" or "change of
control" occurring prior to the Stated Maturity of the Notes shall not
constitute Redeemable Stock if the "asset sale" or "change of control"
provisions applicable to such Capital Stock are no more favorable to the holders
of such Capital Stock than the provisions contained in "--Repurchase of Notes
Upon a Change of Control" and "--Covenants--Covenants Relating to All the
Notes--Limitation on Asset Sales" and such Capital Stock specifically provides
that such Person will not repurchase or redeem any such stock pursuant to such
provision prior to WCI's repurchase of such Notes as are required to be
repurchased pursuant to "--Repurchase of Notes Upon a Change of Control" and
"--Covenants--Covenants Relating to All the Notes--Limitation on Asset Sales."
"Restricted Subsidiary" means any Subsidiary of WCI other than an
Unrestricted Subsidiary.
"SEC" means the Securities and Exchange Commission and any successor
agency.
"Security Agreement" means the Security Agreement dated as of March 1,
1997, between WinStar Equipment and United States Trust Company of New York, as
collateral agent.
63
<PAGE>
"Security Documents" means the Security Agreement and any other agreements,
instruments or documents entered into or delivered in connection with any of the
foregoing, as such agreements, instruments or documents may from time to time be
amended in accordance with the terms hereof and thereof.
"Senior Notes" means the 141/2% Senior Deferred Interest Notes of WCI Due
2005.
"Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary of WCI that, together with its Subsidiaries, (i) for the
most recent fiscal year of WCI, accounted for more than 10% of the consolidated
revenues of WCI and its Restricted Subsidiaries or (ii) as of the end of such
fiscal year, was the owner of more than 10% of the consolidated assets of WCI
and its Restricted Subsidiaries, all as set forth on the most recently available
consolidated financial statements of WCI for such fiscal year. For purposes of
the Equipment Notes Indenture, WinStar Equipment will be deemed to be a
Significant Subsidiary.
"Stated Maturity" means, (i) with respect to any debt security, the date
specified in such debt security as the fixed date on which the final installment
of principal of such debt security is due and payable and (ii) with respect to
any scheduled installment of principal of or interest on any debt security, the
date specified in such debt security as the fixed date on which such installment
is due and payable.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which Voting Stock representing more
than 50% of the voting power of the outstanding Voting Stock is owned, directly
or indirectly, by such Person and one or more other Subsidiaries of such Person.
"Telecommunications Assets" means any (i) entity or business substantially
all the revenues of which are derived from (a) providing transmission of sound,
data or video; (b) the sale or provision of phone cards, "800" services, voice
mail, switching, enhanced telecommunications services, telephone directory or
telephone number information services or telecommunications network
intelligence; or (c) any business ancillary or directly related to the
businesses referred to in clause (a) or (b) above and (ii) any assets used
primarily to effect such transmission or provide the products or services
referred to in clause (a) or (b) above and any directly related or ancillary
assets including, without limitation, licenses and applications, bids and
agreements to acquire licenses, or other authority to provide transmission
services previously granted, or to be granted, by the FCC.
"Telecommunications Subsidiary" means (i) WinStar Gateway Network, Inc.,
WinStar Wireless, Inc., WinStar Telecommunications, Inc., WinStar Milliwave,
Inc., WinStar Locate, Inc. and WinStar Wireless Fiber Corp., and, in each case,
its successors and (ii) any other Restricted Subsidiary of WCI that holds more
than a de minimis amount of Telecommunications Assets.
"Temporary Cash Investment" means any of the following: (i) direct
obligations of the United States or any agency thereof or obligations fully and
unconditionally guaranteed by the United States or any agency thereof; (ii) time
deposit accounts, certificates of deposit and money market deposits maturing
within 180 days of the date of acquisition thereof issued by a bank or trust
company which is organized under the laws of the United States, any state
thereof or any foreign country recognized by the United States, and which bank
or trust company has capital, surplus and undivided profits aggregating in
excess of $50.0 million (or the foreign currency equivalent thereof) and has
outstanding deposits or debt which is rated "A" (or such similar equivalent
rating) or higher by at least one nationally recognized statistical rating
organization (as defined in Rule 436 under the Securities Act) or any
money-market fund sponsored by a registered broker dealer or mutual fund
distributor; (iii) repurchase obligations with a term of not more than 30 days
for underlying securities of the types described in clause (i) above entered
into with a bank meeting the qualifications described in clause (ii) above;
(iv) commercial paper, maturing not more than six months after the date of
acquisition, issued by a corporation (other than an Affiliate of WCI) organized
and in existence under the laws of the United States, any state thereof or any
foreign country recognized by the United States with a rating at the time as of
which any investment therein is made of "P-1" (or higher) according to Moody's
Investors Service, Inc. or "A-1" (or higher) according to Standard & Poor's
Ratings Group; and (v) securities with maturities of six months or less from the
date of acquisition issued or fully and unconditionally guaranteed by any state,
commonwealth or territory of the United States, or by any political subdivision
or taxing authority thereof, and rated at least "A" by Standard & Poor's Ratings
Group or Moody's Investors Service, Inc.; provided, however, that,
notwithstanding the foregoing, the maturity of any of the foregoing that is
applied to provide security in favor of the Indebtedness referred to in clause
(v) of the second paragraph of the "Limitation on Liens"
64
<PAGE>
covenant may occur as late as the earliest date that such Indebtedness may be
redeemed at the option of the obligor with respect to such Indebtedness;
provided further, however, that WCI shall cause such Liens referred to in such
clause (v) to be incurred no later than the first anniversary of the Closing
Date.
"Transaction Date" means, with respect to the Incurrence of any
Indebtedness by WCI or any of its Restricted Subsidiaries, the date such
Indebtedness is to be Incurred and, with respect to any Restricted Payment, the
date such Restricted Payment is to be made.
"Unrestricted Subsidiary" means (i) any Subsidiary of WCI that at the time
of determination shall be designated an Unrestricted Subsidiary by the Board of
Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Restricted
Subsidiary of WCI (including any newly acquired or newly formed Subsidiary of
WCI), other than a guarantor of the Notes, to be an Unrestricted Subsidiary
unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on
any property of, WCI or any Restricted Subsidiary; provided, however, that
neither WCI nor its Restricted Subsidiaries has any Guarantee of any
Indebtedness of such Subsidiary outstanding at the time of such designation and
either (A) the Subsidiary to be so designated has total assets of $1,000 or less
or (B) if such Subsidiary has assets greater than $1,000, such designation would
be permitted under the covenant described under "--Covenants--Covenants Relating
to All the Notes--Limitation on Restricted Payments." Notwithstanding the
foregoing, WinStar New Media Company Inc., Non Fiction Films Inc. and WinStar
Global Products, Inc. and their Subsidiaries are Unrestricted Subsidiaries. The
Board of Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary of WCI; provided, however, that immediately after giving effect to
such designation (x) WCI could Incur $1.00 of additional Indebtedness under the
first paragraph of the covenant described under "--Covenants--Covenants Relating
to All the Notes--Limitation on Indebtedness" and (y) no Default or Event of
Default shall have occurred and be continuing. Any such designation by the Board
of Directors shall be evidenced to the Trustee by promptly filing with the
Trustee a copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing provisions. Anything to the contrary contained in the Indentures
notwithstanding, no Telecommunications Subsidiary may be designated an
Unrestricted Subsidiary.
"U.S. Government Obligations" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case, are
not callable or redeemable at the option of the issuer thereof at any time prior
to the Stated Maturity of the Notes, and shall also include a depositary receipt
issued by a bank or trust company as custodian with respect to any such U.S.
Government Obligation or a specific payment of interest on or principal of any
such custodian for the account of the holder of a depositary receipt; provided,
however, that (except as required by law) such custodian is not authorized to
make any deduction from the amount payable to the holder of such depositary
receipt from any amount received by the custodian in respect of the U.S.
Government Obligation or the specific payment of interest on or principal of the
U.S. Government Obligation evidenced by such depositary receipt.
"Voting Stock" means with respect to any Person, Capital Stock of any class
or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
"Wholly Owned" means, with respect to any Subsidiary of any Person, such
Subsidiary if all of the outstanding Capital Stock in such Subsidiary (other
than any director's qualifying shares or Investments by foreign nationals
mandated by applicable law) is owned by such Person or one or more Wholly Owned
Subsidiaries of such Person.
65
<PAGE>
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
THE FOLLOWING IS A summary OF the MATERIAL United States federal income
tax consequences of the acquisition, ownership and disposition of the New Notes.
This summary is based on the Internal Revenue Code of 1986, as amended (the
"Code"), existing and proposed Treasury regulations promulgated thereunder, and
administrative and judicial interpretations thereof, all as in effect or
proposed on the date hereof and all of which are subject to change, possibly
with retroactive effect, or different interpretations. This summary assumes
that all of the New Notes will be held as capital assets (I.E., generally assets
that are held for investment), within the meaning of Section 1221 of the Code,
and will not be part of a straddle, a hedge or a conversion transaction, within
the meaning of Section 1258 of the Code. The discussion is for general
information only, and does not address all of the tax consequences that may be
relevant to particular purchasers in light of their personal circumstances, or
to certain types of purchasers (such as certain financial institutions,
insurance companies, tax-exempt entities or dealers in securities). Persons
considering the exchange of Old Notes for New Notes should consult their tax
advisors with regard to the application of the United States federal income tax
laws to their particular situations, as well as any tax consequences arising
under the laws of any state, local, or foreign taxing jurisdictions.
As used in the summary which follows, the term "U.S. Holder" means a
beneficial owner of New Notes that for United States federal income tax purposes
is (i) a citizen or resident of the United States, (ii) a corporation,
partnership or other entity created or organized in or under the laws of the
United States or of any political subdivision thereof, or (iii) otherwise
subject to United States federal income taxation on a net income basis with
respect to worldwide income. The term "Non-U.S. Holder" means a holder of New
Notes, that is, for United States federal income tax purposes, not a
U.S. Holder.
HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX
CONSEQUENCES TO THEM OF EXCHANGING THE OLD NOTES FOR NEW NOTES AND PURCHASING,
HOLDING AND DISPOSING OF THE NEW NOTES, INCLUDING THE APPLICABILITY AND EFFECT
OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
EXCHANGE FOR OLD NOTES
The exchange by a holder of an Old Note for a New Note DOES not
constitute a taxable exchange because the New Notes DO not differ materially
in kind or extent from the Old Notes. Each New Note WILL be treated as having
been originally issued at the time the Old Note exchanged therefor was
originally issued. The tax basis and holding period of each Old Note WILL
carry over to the New Note issued in exchange of each Old Note.
TAX CONSEQUENCES TO U.S. HOLDERS
PAYMENTS OF INTEREST ON EQUIPMENT NOTES. A U.S. Holder of a New Equipment
Note will be required to include interest payable on a New Equipment Note as
ordinary income as such interest accrues or is received in accordance with such
U.S. Holder's regular method of tax accounting.
ORIGINAL ISSUE DISCOUNT ON SENIOR NOTES. The Old Senior Notes were issued
with original issue discount, as defined in the Code. The New Senior Notes will
similarly be treated as issued with original issue discount. The amount of
original issue discount on a debt instrument, within the meaning of Section 1273
of the Code, is the excess (if any) of its "stated redemption price at maturity"
over its issue price. The issue price of the Old Senior Notes was the respective
offering price to the purchasers (not including any sales to a bond house,
broker, or similar person or organization acting in the capacity of an
underwriter, placement agent or wholesaler) at which a substantial amount of the
Senior Notes was sold. According to the Treasury Regulations, the issue price of
the Senior Notes does not change even if part of the issue is subsequently sold
at a different price. The "stated redemption price at maturity" of a debt
instrument is the sum of its principal amount plus all other payments required
thereunder, other than payments of "qualified stated interest" (defined
generally as stated interest that is unconditionally payable in cash or in
property (other than the debt instruments of the issuer), at least annually at a
single fixed rate that appropriately takes into account the length of intervals
between payments). Because interest on the New Senior Notes is not payable in
cash until April 15, 2001, the stated interest on the New Senior Notes will not
be treated as qualified stated interest, but will, for United States federal
income tax purposes, be added to the stated redemption price at maturity of the
New Senior Notes. As a result, the New Senior Notes
66
<PAGE>
will be treated as having been issued with original issue discount equal to the
excess of their stated redemption price at maturity over their issue price.
Each U.S. Holder of a New Senior Note (regardless of whether such U.S.
Holder is a cash or an accrual basis taxpayer) will be required to include in
such U.S. Holder's gross income in each taxable year, in advance of the receipt
of cash payments attributable to such income, that portion of the original issue
discount, computed on a constant yield basis, attributable to each day during
such taxable year on which the U.S. Holder held the New Senior Note. In general,
under Section 1272 of the Code, the amount of original issue discount that a
holder of a debt instrument must include in gross income for United States
federal income tax purposes will be the sum of the daily portions of original
issue discount with respect to such debt instrument for each day during the
taxable year or portion of a taxable year in which such holder holds the debt
instrument. The daily portion is determined under a constant yield method by
allocating to each day of an accrual period a pro rata portion of an amount
equal to the "adjusted issue price" of the debt instrument at the beginning of
the accrual period multiplied by the yield to maturity of the debt instrument
(stated in a manner appropriately taking into account the length of the accrual
period). Accrual periods with respect to a New Senior Note may be of any length
selected by the U.S. Holder and may vary in length over the term of the New
Senior Note as long as (i) no accrual period is longer than one year and (ii)
each scheduled payment of interest or principal on the New Senior Note occurs on
either the final or first day of an accrual period. The yield to maturity of a
debt instrument is the discount rate that, when applied to all payments due
under the debt instrument produces a present value equal to the issue price of
the debt instrument. The "adjusted issue price" is the issue price of the debt
instrument increased by the accrued original issue discount for all prior
accrual periods (and decreased by the amount of cash payments made in all prior
accrual periods).
U.S. Holders of New Senior Notes should be aware that, because of the above
original issue discount rules, a U.S. Holder of a New Senior Note will be
required for United States federal income tax purposes to include amounts in
ordinary income in advance of the receipt of the cash attributable to such
income.
The New Equipment Notes were not issued with original issue discount as
stated interest is unconditionally payable in cash semiannually throughout the
life of the instrument.
ACQUISITION PREMIUM. If a U.S. Holder of a New Senior Note
acquired the Old Senior Note at a cost in excess of its "adjusted issue price"
(as defined above) but less than its stated redemption price at maturity, such
New Senior Note will continue to have an acquisition premium to the extent of
such excess. Under the acquisition premium rules of the Code and the Treasury
Regulations promulgated thereunder, the amount of the original issue discount
which such U.S. Holder must include in its gross income with respect to such New
Senior Note for any taxable year will be reduced by the portion of such
acquisition premium properly allocable to such year.
MARKET DISCOUNT. If a U.S. Holder purchased Old Notes for an amount that
is less than the "revised issue price" of the Old Notes at the time of
acquisition, the amount of such difference will be treated as "market discount"
for United States federal income tax purposes, unless such difference is less
than a specified de minimis amount ("de minimis market discount"). The "revised
issue price" is the original issue price of an Old Note plus the aggregate
amount of previously accrued original issue discount (in the case of a Senior
Note), without regard to any reductions for acquisition premium, less payments
other than qualified stated interest. Under the market discount rules, a holder
will be required to treat any principal payment on, or any gain on the sale,
exchange, retirement or other disposition of, New Notes as ordinary income to
the extent of the market discount which has not previously been included in
income and is treated as having accrued on such New Notes at the time of such
payment or disposition. If a holder makes a gift of a New Note, accrued market
discount, if any, will be recognized as if such holder had sold such New Note
for a price equal to its fair market value. In addition, the holder may be
required to defer, until the maturity of the New Notes or the earlier
disposition of the New Notes in a taxable transaction, the deduction of a
portion of the interest expense on any indebtedness incurred or continued to
purchase or carry such New Notes.
Any market discount will be considered to accrue on a straight-line basis
during the period from the date of acquisition to the maturity date of the New
Notes, unless a holder elects to accrue market discount on a constant interest
method. A holder of New Notes may elect to include market discount in income
currently as it accrues (on either a straight-line basis or constant interest
method), in which case the rules described above regarding the deferral of
interest deductions and ordinary income treatment of gain on disposition will
not apply. This election to include market discount
67
<PAGE>
in income currently, once made, applies to all market discount obligations
acquired on or after the first day of the first taxable year to which the
election applies and may not be revoked without the consent of the Service.
AMORTIZABLE BOND PREMIUM. Generally, if the tax basis (generally, the
purchase price) of an Old Equipment Note held as a capital asset exceeds the
amount payable at maturity of the obligation, such excess will constitute
amortizable bond premium that the holder may elect, under Section 171 of the
Code, to amortize under the constant yield method over the period from its
acquisition date to the obligation's maturity date. A holder of a New Equipment
Note who elects to amortize bond premium must reduce its tax basis in the
related New Equipment Note by the amount of the aggregate amortization allowable
for amortizable bond premium. Amortizable bond premium will be treated under the
Code as an offset to interest income on the New Equipment Note for United States
federal income tax purposes. An election to amortize bond premium on a New
Equipment Note generally applies to all bonds held by the holder at the
beginning of the first taxable year to which the election applies or thereafter
acquired, and may not be revoked without the consent of the Service.
SALE OR OTHER DISPOSITION. In general, a U.S. Holder of a New Note will
recognize gain or loss upon the sale, exchange, redemption, or other taxable
disposition of such New Note measured by the difference between (i) the amount
of cash and the fair market value of property received (except, in the case of
Equipment Notes, to the extent attributable to accrued but unpaid interest) and
(ii) the U.S. Holder's adjusted tax basis in the New Note. A U.S. Holder's
adjusted tax basis for determining gain or loss on the sale or other disposition
of a New Note will initially equal the cost of the Old Note to such U.S. Holder
and will be increased by any accrued original issue discount (net of all
amortized acquisition premium) and any market discount includable in such U.S.
Holder's gross income and decreased by the amount of any cash payments received
by such U.S. Holder regardless of whether such payments are denominated as
principal or interest (other than payments of qualified stated interest) and
amortizable bond premium, if any, deducted over the term of the New Notes.
Subject to the market discount rules discussed above, any such gain or loss will
generally be long-term capital gain or loss, provided the New Notes have been
held for more than one year.
ELECTIONS. A U.S. Holder of New Notes, subject to certain limitations,
may elect to include all stated and unstated interest and discount on the New
Notes in gross income under the constant yield method. For this purpose,
interest includes original issue discount, de minimis market discount and market
discount, as adjusted by any amortizable bond premium or acquisition premium.
Any such election, if made in respect of a market discount bond, will constitute
an election to include market discount in income currently on all market
discount bonds acquired by such U.S. Holder on or after the first day of the
first taxable year to which the election applies. See "--Market Discount." U.S.
Holders should consult with their tax advisors regarding any tax elections they
intend to make with respect to any Notes.
APPLICABLE HIGH YIELD DISCOUNT RULES. Generally, under Section
163(e)(5) of the Code, original issue discount is not deductible until paid in
cash or property (other than issuer debt or stock) with respect to any
"applicable high yield discount obligations" ("AHYDOs") issued by a corporation.
A New Senior Note will continue to constitute an AHYDO since the Old Senior Note
it is replacing (i) had a maturity date which is more than five years from the
date of issue, (ii) had a yield to maturity which equals or exceeds the sum of
five percentage points plus the "applicable federal rate" ("AFR") for the
calendar month in which the obligation was issued and (iii) had "significant
original issue discount" (as defined in Section 163(i)(2) of the Code). (The AFR
for the month of March 1997 was 6.32% for instruments with a weighted average
maturity in excess of three years but not in excess of nine years providing
semiannual compounding.) Since the New Senior Notes continue to be AHYDOs,
(i) the product of the total original issue discount under the New Senior Notes
times the ratio of (a) the excess of the yield to maturity over the sum of the
AFR plus six percentage points to (b) the yield to maturity will not be
deductible by the Company and will be treated for some purposes as dividends to
corporate holders of the New Senior Notes (to the extent that the Company has
sufficient current or accumulated earnings and profits for federal income tax
purposes that such nondeductible amounts would have been treated as dividends if
they had been distributions with respect to the Company's stock), and (ii) any
original issue discount for which the Company's deductions are not disallowed
under clause (i) above will not be deductible by the Company until actually
paid. Amounts treated as dividends under clause (i) will be nondeductible by the
Company, and may qualify for the dividends received deduction for corporate
holders, but should be treated as original issue discount and must be included
in income, as described above. The Company believes that it does not presently
have any current or accumulated earnings and profits and it cannot predict
whether it will have any earnings and profits for future years. As such, in any
year in which the Company has no earnings and profits, the nondeductible portion
in clause (i) relating to such year would not be eligible for the dividends
received deduction in the case of corporate holders.
68
<PAGE>
INFORMATION REPORTING AND BACKUP WITHHOLDING. The Company will report
annually to the Service and to non-corporate record holders of the New Notes
amounts of interest paid and original issue discount accrued during the calendar
year. The "backup" withholding and information reporting requirements may apply
to certain payments of principal and interest (including original issue
discount) on a New Note and to certain payments of proceeds on the sale or
retirement of a New Note. The Company, its agent, a broker, the Trustee or any
paying agent, as the case may be, will be required to withhold tax from any
payment that is subject to backup withholding at a rate of 31% if the U.S.
Holder, among other things, (i) fails to furnish his or her social security
number or other taxpayer identification number ("TIN") to the payor responsible
for backup withholding, (ii) furnishes to such payor an incorrect TIN,
(iii) fails to provide such payor with a certified statement, signed under
penalties of perjury, that the TIN provided to the payor is correct and that the
U.S. Holder is not subject to backup withholding or (iv) fails to report
properly interest and dividends on his or her tax return. A holder who does not
provide the Company or the applicable reporting entity with his or her correct
TIN may be subject to penalties under the Code. Certain holders, including
corporations, are not subject to backup withholding if their exempt status is
properly established.
Backup withholding is not an additional tax. The amount of any backup
withholding from a payment to a U.S. Holder will be allowed as a credit against
such holder's United States federal income tax liability and may entitle such
holder to a refund, provided that the required information is furnished to the
Service.
TAX CONSEQUENCES TO NON-U.S. HOLDERS
PORTFOLIO INTEREST EXEMPTION
A Non-U.S. Holder will generally, under the portfolio interest exemption of
the Code, not be subject to United States federal income taxes and/or United
States federal withholding tax, on payments of principal, premium, if any, and
interest (including original issue discount) on the New Notes, provided that (in
the case of interest, including original issue discount) (i) the Non-U.S. Holder
does not actually or constructively own 10% or more of the total combined voting
power of all classes of stock of the Company entitled to vote, (ii) the Non-U.S.
Holder is not a controlled foreign corporation that is related to the Company
through stock ownership, (iii) such original issue discount or interest is not
effectively connected with a United States trade or business of the Non-U.S.
Holder and (iv) either (a) the beneficial owner of the New Notes certifies to
the Company or its agent, under penalties of perjury, that it is a Non-U.S.
Holder and provides a completed IRS Form W-8 ("Certificate of Foreign Status")
or (b) a securities clearing organization, bank or other financial institution
which holds customers' securities in the ordinary course of its trade or
business (a "financial institution") and holds the New Notes, certifies to the
Company or its agent, under penalties of perjury, that it has received Form W-8
from the beneficial owner or that it has received from another financial
institution a Form W-8 and furnishes the payor with a copy thereof. If any of
the situations described in proviso (i), (ii) or (iv) of the preceding sentence
do not exist, interest on the New Notes when received is subject to United
States withholding tax at the rate of 30% unless an income tax treaty between
the United States and the country of which the Non-U.S. Holder is a tax resident
provides for the elimination or reduction in the rate of United States federal
withholding tax. Recently proposed Treasury Regulations (the "Proposed
Regulations") would provide alternative methods for satisfying the certification
requirement described in clause (iv)(a) and (b). The Proposed Regulations are
proposed to be effective for payments made after December 31, 1997. There can be
no assurance that the Proposed Regulations will be adopted or as to the
provisions they will include if and when adopted in temporary or final form.
If a Non-U.S. Holder of a New Note is engaged in a trade or business in the
United States and interest (including original issue discount) on the New Note
is effectively connected with the conduct of such trade or business, such
holder, although exempt from United States federal withholding tax by reason of
the delivery of a properly completed Form 4224, will be subject to United States
federal income tax on such interest (including original issue discount) and on
any gain realized on the sale, exchange or other disposition of a New Note in
the same manner as if it were a U.S. Holder. In addition, if such Non-U.S.
Holder is a foreign corporation, it may be subject to a branch profits tax equal
to 30% of its effectively connected earnings and profits for that taxable year,
unless it qualifies for a lower rate under an applicable income tax treaty.
69
<PAGE>
FEDERAL ESTATE TAX
New Notes owned or treated as owned by an individual who is neither a
United States citizen nor a United States resident (as defined for United States
federal estate tax purposes) at the time of death will be excluded from the
individual's gross estate for the United States federal estate tax purposes and
will not be subject to United States federal estate tax if the nonresident
qualifies for the portfolio interest exemption (without regard to the
certification requirements) discussed above.
SALE OF NOTES
A Non-U.S. Holder generally will not be subject to United States federal
income tax on any gain realized in connection with the sale, exchange or
retirement of New Notes, unless (i) (a) the gain is effectively connected with a
trade or business carried on by the Non-U.S. Holder within the United States or
(b) if a tax treaty applies, the gain is attributable to the United States
permanent establishment maintained by the Non-U.S. Holder, (ii) in the case of a
Non-U.S. Holder who is an individual, such holder is present in the United
States for 183 days or more in the taxable year of disposition and certain other
conditions are satisfied, or (iii) the Non-U.S. Holder is subject to tax
pursuant to provisions of the Code applicable to United States expatriates.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, there is no United States information reporting requirement or
backup withholding tax on payments to Non-U.S. Holders who provide the
appropriate certification described above regarding qualification for the
portfolio interest exemption from United States federal income tax for payments
of principal or interest (including original interest discount) on the New
Notes.
Payment by the Company of principal on the New Notes or payment by a United
States office of a broker of the proceeds of a sale of New Notes is subject to
both backup withholding and information reporting unless the beneficial owner
provides a completed IRS Form W-8 which certifies under penalties of perjury
that such owner is a Non-U.S. Holder who meets all the requirements for
exemption from United States federal income tax on any gain from the sale,
exchange or retirement of the New Notes.
In general, backup withholding and information reporting will not apply to
a payment of the gross proceeds of a sale of New Notes effected at a foreign
office of a broker. If, however, such broker is, for United States federal
income tax purposes, a U.S. person, a controlled foreign corporation or a
foreign person 50% or more of whose gross income for certain periods is derived
from activities that are effectively connected with the conduct of a trade or
business in the United States, such payments will not be subject to backup
withholding, but will be subject to information reporting unless (i) such broker
has documentary evidence in its records that the beneficial owner is a Non-U.S.
Holder and certain other conditions are met, or (ii) the beneficial owner
otherwise establishes an exemption, provided such broker does not have actual
knowledge that the payee is a United States person. Non-U.S. Holders should
consult their tax advisors regarding the application of these rules to their
particular situations, the availability of an exemption therefrom and the
procedure for obtaining such an exemption, if available.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules will be allowed as a credit against such holder's
United States federal income tax liability and may entitle such holder to a
refund, provided the required information is furnished to the Service.
THE FOREGOING SUMMARY DOES NOT DISCUSS ALL ASPECTS OF UNITED STATES FEDERAL
INCOME TAXATION THAT MAY BE RELEVANT TO A PARTICULAR HOLDER OF NOTES IN LIGHT OF
ITS PARTICULAR CIRCUMSTANCES AND INCOME TAX SITUATION. HOLDERS SHOULD CONSULT
THEIR OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM FROM THE
EXCHANGE OF OLD NOTES FOR NEW NOTES AND PURCHASE, OWNERSHIP AND DISPOSITION OF
THE NEW NOTES, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL, FOREIGN AND
OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
70
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS AND PREFERRED STOCK
INDEBTEDNESS
In October 1995, the Company raised net proceeds of $214.5 million from the
1995 Debt Placement. The 1995 Notes will not accrue interest prior to
October 15, 2000, nor pay cash interest prior to April 15, 2001; however, the
principal value of the 1995 Notes have accreted since issuance and at maturity
the 1995 Senior Notes and the Convertible Notes will have aggregate principal
amounts of $294.2 million and $147.1 million, respectively. From and after
October 15, 2000, the 1995 Notes will accrue interest at the rate of 14% per
annum, payable semiannually in cash commencing April 15, 2001. The 1995 Notes
mature on October 15, 2005.
The Convertible Notes are convertible, at any time, at the option of the
holder, into that number of shares of Common Stock derived by dividing the
principal amount of the Convertible Notes being converted by $20.625. In
addition, if the closing sale price of the Common Stock on the Nasdaq National
Market during any twelve-month period from October 15, 1995 through October 15,
1999 (each a "Market Criteria Period") has exceeded the Market Criteria (as
defined in the Indenture governing the Convertible Notes) and a registration
statement with respect to Common Stock issuable upon conversion of the
Convertible Notes ("Conversion Shares") is effective and available, all of the
Convertible Notes automatically will be converted into Conversion Shares at the
close of business on the last day of the Market Criteria Period. The Company has
caused to be declared effective a registration statement registering the
issuance or resale of the Conversion Shares.
The 1995 Indentures contain certain covenants which, among other things,
restrict the ability of the Company and certain of its subsidiaries to: incur
additional indebtedness; create liens; engage in sale-leaseback transactions;
pay dividends or make distributions in respect of their capital stock; make
investments or certain other restricted payments; sell assets; issue or sell
stock of such subsidiaries; enter into transactions with stockholders or
affiliates; acquire assets or businesses not constituting "telecommunications
assets" (as defined in the 1995 Indentures); or consolidate, merge or sell all
or substantially all of their assets. The covenants contained in the Indentures
are subject to exceptions and the Company's new media and consumer products
subsidiaries are not subject to many of the covenants contained therein,
although the Company's ability to make additional investments in such
subsidiaries is limited.
In September 1995, the Company's wholly owned subsidiary, WinStar Wireless,
Inc. ("WinStar Wireless") entered into an equipment lease financing arrangement
(the "Equipment Lease Financing") with ML Investors Services, Inc. ("ML"),
pursuant to which ML has made available $7.0 million in equipment financing.
Pursuant to a master lease agreement between WinStar Wireless and ML entered
into in connection with the Equipment Lease Financing, WinStar Wireless has
leased transceivers and related network equipment from ML or its assignee at the
rate of 2.2753% of the equipment value per month (a return of approximately 13%
per annum to the lessor), which lease payment obligations are non-cancelable for
sixty months. After twelve months WinStar Wireless may purchase the equipment at
scheduled rates which decline over the term of the lease and provide for a
return of approximately 15% per annum to the lessor. WinStar Wireless'
obligations under the lease are guaranteed by the Company. As additional
consideration for providing the Equipment Lease Financing, the Company has
issued to ML options to purchase 55,000 shares of Common Stock at an exercise
price of $17.125 per share and options to purchase 15,000 shares of Common Stock
at an exercise price of $18.0625 per share.
In November 1994, WinStar Gateway entered into a Loan and Security
Agreement ("CIT Loan Agreement") with The CIT Group/Credit Finance, Inc.
("CIT"), pursuant to which CIT agreed to make a $5.0 million revolving credit
facility (the "CIT Credit Facility") available to WinStar Gateway until
November 1998 as extended. Pursuant to the terms of the CIT Loan Agreement,
borrowings are limited to 90% of the most eligible accounts receivable with
eligibility of certain types of accounts receivable limited to 80% and 50% (less
appropriate reserves as determined by CIT). In addition, WinStar Gateway is
prohibited from paying dividends to the Company. The Company also is party to a
keepwell agreement requiring the Company to make a monthly contribution to
WinStar Gateway in an amount equal to the amount by which WinStar Gateway's net
income (loss) before depreciation and amortization minus its capital
expenditures is less than zero for a particular month. Borrowings bear interest
at a rate of 1.75% in excess of the prime commercial lending rate of The Chase
Manhattan Bank, N.A. subject to increase if WinStar Gateway's or the Company's
net worth (as defined) drops below specified amounts, and are secured by a lien
on all of WinStar Gateway's assets as well as a guarantee by the Company as to
the first $2.2 million in borrowings. The CIT Loan Agreement also provides for
certain underutilization
71
<PAGE>
fees and subordinates a $5 million revolving credit facility made by the Company
to WinStar Gateway. As additional consideration for providing the CIT Credit
Facility, the Company issued to CIT warrants to purchase 50,000 shares of Common
Stock, which warrants have been exercised.
In August 1996, WinStar Global Products entered into an Amended and
Restated Credit and Security Agreement (as amended, the "Credit Agreement") with
IBJ Schroder Bank & Trust Company ("IBJ"), pursuant to which IBJ agreed to make
a $12.0 million revolving credit facility (the "Revolving Credit Facility") and
a $250,000 Letter of Credit facility (included within the Revolving Credit
Facility) available to WinStar Global Products until August 8, 1999. Pursuant to
the terms of the Credit Agreement, borrowings are limited to an amount equal to
the sum of (a) 85% of eligible accounts receivable plus (b) the lesser of 50% of
eligible inventory or $4,500,000 plus (c) for the period commencing March 1 of
each year through January 31 of the following year, $3.0 million (the
"Overadvance"). Borrowings bear interest at a rate of 0.75% in excess of the
base lending rate of IBJ and are secured by a lien on all of the assets of
WinStar Global Products as well as a guaranty by the Company of any amounts
borrowed as an Overadvance. The Credit Agreement also requires the payment of
certain periodic fees by WinStar Global Products, contains certain affirmative
and negative covenants including restrictions upon WinStar Global Products'
ability to pay dividends or make other payments to the Company and subordinates
a $3.1 million loan made by the Company to WinStar Global Products. The Credit
Agreement amends and restates a loan agreement providing a $6.0 million credit
facility from Century Business Credit Corporation ("Century") which was
established in 1994 and assigned (including all security interests and a $3.0
million guaranty given by the Company) by Century to IBJ.
The Company's subsidiaries have entered into, and will continue to seek,
financing arrangements with respect to equipment, including telecommunications
switches, 38 GHz radios and other related equipment. The Company's subsidiary,
WinStar Telecommunications, Inc., consummated a $3.1 million sale/leaseback of
its New York City switch in December 1996 and a $3.8 million sale/leaseback of
its Los Angeles switch in April 1997 and borrowed approximately $3.3 million
from a third party lender in connection with its purchase of its Chicago switch
in March 1997. In May 1997, the Company's subsidiary, WinStar Wireless, Inc.,
consummated a $10 million sale leaseback of 38 GHZ radios. The Company
anticipates negotiating additional financing arrangements for switches, radios
and other equipment on similar terms in the future.
PREFERRED STOCK
SERIES A PREFERRED STOCK
On February 6, 1997, the Company and its wholly owned subsidiary, WinStar
Credit Corp. ("WCC"), entered into a Securities Purchase Agreement with certain
purchasers, pursuant to which the Company and WCC agreed to sell to such
purchasers an aggregate of 4,000,000 shares of the Company's Series A
Convertible Preferred Stock ("Series A Preferred Stock") and warrants to
purchase 1,600,000 shares of the Company's Common Stock (the "Warrants") for an
aggregate purchase price of $100.0 million. The Preferred Stock Placement was
consummated on February 11, 1997. The Preferred Stock Placement was conducted
through Credit Suisse First Boston Corporation, which acted as placement agent
and received customary fees for acting in such capacity. The principal purpose
of the Preferred Stock Placement was to raise proceeds to fund the expansion of
the Company's telecommunications and other operations.
Each share of Series A Preferred Stock has a stated value of $25 ("Stated
Value") and entitles the holder thereof to receive from the Company dividends at
a rate per annum equal to 6% of the Stated Value. Dividends accrue and are
cumulative from the date of issuance and are payable in arrears quarterly as of
March 31, June 30, September 30 and December 31 of each year. The Company may,
at its election, pay such dividends in cash or through the issuance of
additional shares of Series A Preferred Stock. To date, the Company has issued
93,836 shares of Preferred stock in payment of in-kind dividends on such stock.
The Company has not paid any cash dividends on the Preferred Stock.
The shares of Series A Preferred Stock are convertible into shares of
Common Stock commencing August 11, 1997 by dividing the aggregate Stated Value
of the Series A Preferred Stock being converted by the Conversion Price (as
defined below); provided, however, that from August 11, 1997 through
November 10, 1997, only 50% of the Series A Preferred Stock may be converted.
Subject to certain adjustments, the "Conversion Price" will be: (i) with respect
to any conversion of Series A Preferred Stock occurring prior to February 11,
1998, the lesser of (x) $25 and (y) the average of the closing bid prices for
the Common Stock for the 20 consecutive trading days immediately preceding the
date of
72
<PAGE>
conversion and (ii) with respect to any conversion of the Series A Preferred
Stock occurring on or after February 11, 1998, the lesser of (x) $25 and (y) the
average of the closing bid prices for the 20 consecutive trading days
immediately preceding February 11, 1998. Notwithstanding the foregoing, if a
holder of Series A Preferred Stock requests conversion at a time when the
Conversion Price is less than $15, the Company may (subject to certain notice
requirements), in lieu of converting such Series A Preferred Stock into shares
of Common Stock, pay such holder in cash an amount equal to 110% of the
Liquidation Preference (as defined below) for each share of Series A Preferred
Stock requested to be converted. On February 11, 2002, any Series A Preferred
Stock still outstanding shall be automatically converted into shares of Common
Stock, unless the Company elects to pay cash therefor in an amount equal to the
Stated Value plus all accrued and unpaid dividends thereon (the "Liquidation
Preference"). Unless paid for in cash, such conversion will be effected by
delivery of shares of Common Stock having a value, based upon the closing bid
prices for the Common Stock for the 20 consecutive trading days ending one
trading day prior to such conversion date, equal to the Liquidation Preference.
The Warrants entitle the holders thereof to purchase an aggregate of
1,600,000 shares of Common Stock for $25 per share at any time commencing
February 11, 1998 and ending February 11, 2002. The Company may accelerate the
expiration date at any time after February 11, 2000 if Common Stock trades at
$40 or more for a period of 20 consecutive days.
The Company and the purchasers of the Series A Preferred Stock also entered
into a Registration Rights Agreement, dated February 6, 1997 (the "Preferred
Stock Registration Rights Agreement"), pursuant to which the Company is
obligated to file a registration statement under the Securities Act, registering
(i) the resale of the Series A Preferred Stock and Warrants and (ii) the
issuance by the Company of the shares of Common Stock issuable upon exercise of
the Warrants, and to have such registration statement declared effective by the
Securities and Exchange Commission ("SEC") on or prior to August 15, 1997. If
such registration statement is not declared effective by the SEC by August 15,
1997, the dividend rate of the Series A Preferred Stock shall increase to 6.5%
per annum until the default under the Preferred Stock Registration Rights
Agreement is cured. Additionally, at any time after May 11, 1997, each holder of
the Series A Preferred Stock may demand that the Company file and have declared
effective within 90 days of such demand a registration statement registering the
resale of the shares of Common Stock issuable upon conversion of the Series A
Preferred Stock; provided, however, that the Company will not be required to
file more than two such registration statements. If such later registration
statement is not declared effective by the SEC within the applicable 90-day
period, the Company will be required to pay to the holders of the Series A
Preferred Stock who made the demand an amount equal to 2% of the Liquidation
Preference of their shares of Series A Preferred Stock for each month until the
default is cured. Such penalty is payable at the Company's election in cash or
through the issuance of additional shares of Series A Preferred Stock.
RIGHTS TO PURCHASE SERIES B PREFERRED STOCK
THE FOLLOWING IS A SUMMARY OF THE RIGHTS AGREEMENT DATED AS OF JULY 2,
1997 (THE "RIGHTS PLAN") BETWEEN COMPANY AND CONTINENTAL STOCK TRANSFER & TRUST
COMPANY AS RIGHTS AGENT, WHICH WAS ADOPTED BY the Board of Directors of the
Company ON JULY 2, 1997. THIS SUMMARY OF THE RIGHTS PLAN DOES NOT PURPORT TO
BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE PROVISIONS OF
THE RIGHTS PLAN.
UNDER THE RIGHTS PLAN, HOLDERS OF COMMON STOCK OF THE COMPANY RECEIVED,
AS A DIVIDEND, PREFERRED STOCK PURCHASE RIGHTS (THE "RIGHTS") AT THE RATE of
one Right for each share of Common Stock HELD AS OF the close of business on
July 14, 1997. ONE RIGHT WILL ALSO ATTACH TO EACH SHARE OF COMMON STOCK
ISSUED THEREAFTER (INCLUDING SHARES ISSUED PURSUANT TO THIS PROSPECTUS).
CURRENTLY THE RIGHTS ARE NOT EXERCISABLE AND ARE NOT SEPARATE FROM THE COMMON
STOCK AND WILL ONLY BECOME EXERCISABLE AND SEPARATE FROM THE COMMON STOCK IF
A PERSON OR GROUP ACQUIRES 10% OR MORE OF THE COMPANY'S OUTSTANDING COMMON
STOCK (AN "ACQUIRING PERSON") OR LAUNCHES A TENDER OR EXCHANGE OFFER THAT
WOULD RESULT IN OWNERSHIP OF 10% OR MORE THE COMPANY'S OUTSTANDING COMMON
STOCK. EACH RIGHT THAT IS NOT OWNED BY AN ACQUIRING PERSON ENTITLES THE
HOLDER OF THE RIGHT TO BUY one one-thousandth of ONE share (a "Unit") of
Series B Preferred Stock WHICH WILL BE ISSUED BY THE COMPANY. IF ANY PERSON
BECOMES AN ACQUIRING PERSON, OR IF AN ACQUIRING PERSON ENGAGES IN CERTAIN
TRANSACTIONS INVOLVING CONFLICTS OF INTEREST OR IN A BUSINESS COMBINATION IN
WHICH THE COMPANY'S COMMON STOCK REMAINS OUTSTANDING, THEN THE RIGHTS PLAN
PROVIDES THAT EACH RIGHT, OTHER THAN ANY RIGHT HELD BY THE ACQUIRING PERSON,
ENTITLES THE HOLDER TO PURCHASE, FOR $70, UNITS WITH A MARKET VALUE OF $140.
HOWEVER, IF THE COMPANY IS INVOLVED IN A BUSINESS COMBINATION IN WHICH THE
COMPANY ITSELF IS NOT THE SURVIVOR, OR IF THE COMPANY
73
<PAGE>
SELLS 50% OR MORE OF ITS ASSETS OR EARNING POWER TO ANOTHER PERSON, THEN THE
RIGHTS PLAN PROVIDES THAT EACH RIGHT ENTITLED THE HOLDER TO PURCHASE, FOR $70,
SHARES OF THE COMMON STOCK OF THE ACQUIRING PERSON'S ULTIMATE PARENT HAVING A
MARKET VALUE OF $140.
AT ANY TIME UNTIL TEN DAYS FOLLOWING THE DATE ON WHICH A PERSON ACQUIRES
10% OR MORE OF THE COMPANY'S COMMON STOCK, THE COMPANY MAY REDEEM ALL (BUT NOT
LESS THAN ALL) OF THE RIGHTS FOR $0.0001 PER RIGHT. THE RIGHTS EXPIRE IN TEN
YEARS. THE SERIES B PREFERRED STOCK WILL BE JUNIOR, WITH RESPECT TO DIVIDENDS
AND LIQUIDATION RIGHTS, TO ANY OTHER SERIES OF PREFERRED STOCK OF THE COMPANY.
THE SERIES B PREFERRED STOCK HAS DIVIDEND AND LIQUIDATION PREFERENCES OVER THE
COMMON STOCK OF THE COMPANY.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
an Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Issuers have agreed that, for a period of 90 days after
the Expiration Date (or such longer period as required by the terms of the
Registration Rights Agreement), it will make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale. In addition, until ___________, 1997 [DATE OF PROSPECTUS PLUS 90 DAYS]
all dealers effecting transactions in the New Notes may be required to deliver a
prospectus.
The Issuers will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to an Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such New Notes. Any broker-dealer that
resells New Notes that were received by it for is own account pursuant to an
Exchange Offer and any broker or dealer that participates in a distribution of
such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any commission
or concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that,
by acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
For a period of 90 days after the Expiration Date (or such longer period as
required by the terms of the Registration Rights Agreement), the Issuers will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incidental to the Exchange Offers (including the reasonable expenses of one
counsel for the Holders of the Notes) other than commissions or concessions of
any brokers or dealers and will indemnify the Holders of the Notes (including
any broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
The Company has agreed to pay all expenses incident to the Exchange Offer
other than commissions or concessions of any brokers or dealers and transfer
taxes and costs incurred by a holder in transmitting its Old Notes to the
Exchange Agent and will indemnify the holders of the Old Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
74
<PAGE>
LEGAL MATTERS
The legality of the New Notes offered hereby and certain tax matters are
being passed upon for the Company by Graubard Mollen & Miller, New York, New
York. Certain partners and employees of Graubard Mollen & Miller own shares of
the Company's Common Stock.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1995 and 1996, and for the years ended February 28, 1995, December 31, 1996 and
the ten months ended December 31, 1995 incorporated by reference into this
Prospectus and the financial statements of Milliwave Limited Partnership as of
December 31, 1995 and 1996 and for the period April 25, 1995 (inception) through
December 31, 1995 and for the year ended December 31, 1996 incorporated by
reference into this Prospectus have been audited by Grant Thornton LLP,
independent certified public accountants, to the extent and for the periods
indicated in their reports thereon.
75
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation provides that all directors,
officers, employees and agents of the Registrant shall be entitled to be
indemnified by the Company to the fullest extent permitted by law.
Section 145 of the Delaware General Corporation Law concerning
indemnification of officers, directors, employees and agents is set forth below.
"Section 145. Indemnification of officers, directors, employees and
agents; insurance.
(a) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgement in its favor
by reason of the fact that he is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under sections (a) and (b) of this section (unless
ordered by a court) shall be made by the corporation only as authorized in the
specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of this
section. Such determination shall be made (1) by the board of directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even
if obtainable, a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.
(e) Expenses incurred by an officer or director in defending a civil or
criminal action, suite or proceeding may be paid by the corporation in advance
of the final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer, to repay such amount if
it shall ultimately be determined that
II-1
<PAGE>
he is not entitled to be indemnified by the corporation as authorized in this
section. Such expenses incurred by other employees and agents may be so paid
upon such terms and conditions, if any, as the board of directors deems
appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith an in a manner he reasonably
believed to be in the interest of the participants and beneficiaries of an
employee benefit plan shall be deemed to have acted in a manner "not opposed to
the best interests of the corporation" as referred to in this section.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers, and controlling persons of the Company pursuant to the foregoing
provisions, or otherwise, the Company has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Company of expenses incurred or paid by a director, officer
or controlling person of the Company in a successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to the court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-2
<PAGE>
ITEM 21. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
* 4.7 Form of New Senior Note
* 4.8 Form of New Equipment Note
* 5.1 Opinion of Graubard Mollen & Miller
12.1 Statements Re: Computation of Ratios, AS AMENDED
23.1 Consent of Grant Thornton LLP
*23.2 Consent of Graubard Mollen & Miller (included in its opinion
filed as Exhibit 5.1)
23.3 Consent of Grant Thornton LLP
* 24.1 Powers of Attorney (included on the signature pages of this
Registration Statement)
* 25.1 Statement of Eligibility of United States Trust Company of
New York on Form T-1 (New Senior Notes)
* 25.2 Statement of Eligibility of United States Trust Company of
New York on Form T-1 (New Equipment Notes)
^ 99.1 Form of Letter of Transmittal for Exchange of Senior Notes, AS
AMENDED
^ 99.2 Form of Letter of Transmittal for Exchange of Equipment Notes, AS
AMENDED
* 99.3 Form of Notice of Guaranteed Delivery (Senior Notes)
* 99.4 Form of Notice of Guaranteed Delivery (Equipment Notes)
_____________________________
* Previously filed.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment of this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement of any
material change to such information in the registration statement;
PROVIDED, HOWEVER, that paragraphs (1)(i) and (1)(ii) do not apply if
the registration statement is on Form S-3 or Form S-8 and the information
required to be included in a post-effective amendment by those paragraphs
II-3
<PAGE>
is contained in periodic reports filed by the registrant pursuant to Section 13
or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(e) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy expressed in
the Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-4 and has duly caused this Amendment
No. 1 to Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, State of New York, on this ^
4TH day of AUGUST, 1997.
WINSTAR COMMUNICATIONS, INC.
By: /s/ William J. Rouhana, Jr.
---------------------------------
William J. Rouhana, Jr.
Chairman of the Board of Directors
and Chief Executive Officer
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
/s/ William J. Rouhana, Jr. Chairman of the Board of AUGUST 4, 1997
- ----------------------------- Directors and Chief
William J. Rouhana, Jr. Executive Officer
(and principal executive
officer)
*
- -----------------------------
Nathan Kantor President, Chief Operating AUGUST 4, 1997
Officer and Director
*
- -----------------------------
Steven G. Chrust Vice Chairman of the Board AUGUST 4, 1997
of Directors
*
- -----------------------------
Fredric E. von Stange Executive Vice President, AUGUST 4, 1997
Chief Financial Officer
and Director (and principal
accounting officer)
*
- -----------------------------
Bert W. Wasserman Director AUGUST 4, 1997
*
- -----------------------------
William J. vanden Heuvel Director AUGUST 4, 1997
AUGUST 4, 1997
*
- -----------------------------
Steven B. Magyar Director AUGUST 4, 1997
*
- -----------------------------
James I. Cash Director AUGUST 4, 1997
*
- -----------------------------
Dennis Patrick Director AUGUST 4, 1997
__________________________
* By power of attorney
II-5
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
12.1 Statements Re: Computation of Ratios, AS AMENDED
23.1 Consent of Grant Thornton LLP
23.3 Consent of Grant Thornton LLP
99.1 FORM OF LETTER OF TRANSMITTAL FOR EXCHANGE OF SENIOR NOTES (AS
AMENDED)
99.2 FORM OF LETTER OF TRANSMITTAL FOR EXCHANGE OF EQUIPMENT NOTES
(AS AMENDED)
II-6
<PAGE>
EXHIBIT 12.1
<TABLE>
<CAPTION>
WinStar Communications, Inc
Ratio of earnings to combined fixed charges and preferred stock dividends
(in thousands)
Year ended
---------------------------------------------------------
December 31,
--------------------
February 28, 1996
---------------------------- --------------------
1993 1994 1995 Actual Pro forma
---- ---- ---- ------ ---------
EARNINGS:
<S> <C> <C> <C> <C> <C>
Net loss from continuing operations
before income taxes $(4,594) $(8,205) $(7,226) $(82,713) $(131,965)
Adjustments to Earnings:
Fixed Charges, as Detailed Below 674 915 900 38,520 79,603
Interest Capitalized - - - (320) (320)
Extraordinary item - (194) - - -
Minority interest in WinStar Gateway Network - (155) - - -
------- -------- ------- -------- ---------
Earnings as Adjusted $(3,920) $(7,639) $(6,326) $(44,513) $ (52,682)
------- -------- ------- -------- ---------
------- -------- ------- -------- ---------
FIXED CHARGES:
Interest Expense $ 567 $ 793 $ 733 $ 36,834 $ 77,917
Capitalized Interest - - - 320 320
Interest Portion of Rent Expense 107 122 167 1,366 1,366
------- -------- ------- -------- ---------
Total Fixed Charges 674 915 900 38,520 79,603
PREFERRED STOCK DIVIDENDS: 85 68 62 0 6,000
------- -------- ------- -------- ---------
COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS: $ 759 $ 983 $ 962 $ 38,520 $ 85,603
------- -------- ------- -------- ---------
------- -------- ------- -------- ---------
DEFICIENCY IN EARNINGS TO COVER COMBINED
FIXED CHARGES AND PREFERRED
STOCK DIVIDENDS: $(4,679) $(8,622) $(7,288) $(83,033) $(138,285)
------- -------- ------- -------- ---------
------- -------- ------- -------- ---------
<CAPTION>
Ten months
ended
December 31, Three months ended March 31,
------------ -----------------------------
1997
1995 1996 1997 Pro Forma
---- ---- ---- ---------
EARNINGS:
<S> <C> <C> <C> <C>
Net loss from continuing operations
before income taxes $(16,094) $(10,562) $(41,499) $(50,006)
Adjustments to Earnings:
Fixed Charges, as Detailed Below 8,063 9,006 11,528 20,035
Interest Capitalized 0 (205) (205)
Extraordinary item -
Minority interest in WinStar Gateway Network -
--------- -------- ------- ---------
Earnings as Adjusted $ (8,031) $ (1,556) $(30,176) $(30,176)
--------- -------- ------- ---------
--------- -------- ------- ---------
FIXED CHARGES:
Interest Expense $ 7,715 $ 8,664 $ 10,819 $ 19,326
Capitalized Interest - - 205 205
Interest Portion of Rent Expense 348 342 504 504
--------- -------- ------- ---------
Total Fixed Charges 8,063 9,006 11,528 20,035
PREFERRED STOCK DIVIDENDS: 216 0 833 1,500
--------- -------- ------- ---------
COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS: $ 8,279 $ 9,006 $ 12,361 $ 21,535
-------- -------- -------- ---------
--------- -------- ------- ---------
DEFICIENCY IN EARNINGS TO COVER COMBINED
FIXED CHARGES AND PREFERRED
STOCK DIVIDENDS: $(16,310) $(10,562) $(42,537) $ (51,711)
--------- -------- -------- ---------
--------- -------- -------- ---------
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
We have issued our reports dated January 24, 1997 and January 24, 1997,
except for the last paragraph of Note 19 as to which the date is May 13,
1997, accompanying the consolidated financial statements and schedules
included in the Annual Report of WinStar Communications, Inc. and
Subsidiaries on Form 10-K for the year ended December 31, 1996 and in Form
8-K filed June 10, 1997, respectively, which are incorporated by reference in
the Registration Statement and Prospectus. We consent to the incorporation by
reference of the aforementioned reports in the Registration Statement and
Prospectus, and to the use of our name as it appears under the caption
"Experts."
GRANT THORNTON LLP
New York, New York
August 4, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
We have issued our report dated January 9, 1997, accompanying the financial
statements of Milliwave Limited Partnership included in Form 8-K filed
June 10, 1997, which is incorporated by reference in the Registration
Statement and Prospectus. We consent to the incorporation by reference of the
aforementioned report in the Registration Statement and Prospectus, and to
the use of our name as it appears under the caption "Experts."
GRANT THORNTON LLP
New York, New York
August 4, 1997
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
FOR
TENDER OF ALL OUTSTANDING
14 1/2% SENIOR DEFERRED INTEREST NOTES DUE 2005
IN EXCHANGE FOR
14 1/2% SENIOR DEFERRED INTEREST EXCHANGE NOTES DUE 2005
OF
WINSTAR COMMUNICATIONS, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON SEPTEMBER 12, 1997 (THE "EXPIRATION DATE"),
UNLESS EXTENDED BY WINSTAR COMMUNICATIONS, INC.
EXCHANGE AGENT:
UNITED STATES TRUST COMPANY OF NEW YORK
<TABLE>
<CAPTION>
BY MAIL: BY OVERNIGHT COURIER: BY HAND: BY FACSIMILE:
<S> <C> <C> <C>
United States Trust United States Trust United States Trust Fax No. (212) 420-6152
Company of New York Company of New York Company of New York (For Eligible
P.O. Box 844 770 Broadway, 13th 111 Broadway, Lower Institutions Only)
Cooper Station Floor Level CONFIRM BY TELEPHONE:
New York, NY 10276-0844 New York, NY 10003 New York, NY 10006 Telephone no. (800)
(registered or Attn: Corporate Trust Attn: Corporate Trust 548-6565
certified mail Operations Services
recommended) Department
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN
AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE TRANSMISSION
TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges receipt of the Prospectus dated
August __, 1997 (the "Prospectus") of WinStar Communications, Inc. ("Company")
which, together with this Letter of Transmittal (the "Letter of Transmittal"),
constitute the Company's offer (the "Exchange Offer") to exchange a new series
of 14 1/2% Senior Deferred Interest Exchange Notes Due 2005 (the "New Senior
Notes") of the Company for all outstanding 14 1/2% Senior Deferred Interest
Notes Due 2005 (the "Old Senior Notes") of the Company. The terms of the New
Senior Notes are identical to the terms of the Old Senior Notes for which they
may be exchanged pursuant to the Exchange Offer, except that the New Senior
Notes will have been registered under the Securities Act of 1933, as amended,
and, therefore, will not bear legends restricting the transfer thereof.
The undersigned has checked the appropriate boxes below and
signed this Letter of Transmittal to indicate the action the undersigned desires
to take with respect to the Exchange Offer.
<PAGE>
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS
CAREFULLY BEFORE CHECKING ANY BOX BELOW.
THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE
FOLLOWED. QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE
PROSPECTUS AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
List below the Old Senior Notes to which this Letter of
Transmittal relates. If the space provided below is inadequate, the Certificate
Numbers and Principal Amounts should be listed on a separate signed schedule
affixed hereto.
<TABLE>
===============================================================================================
DESCRIPTION OF OLD SENIOR NOTES TENDERED HEREWITH
===============================================================================================
<S> <C> <C> <C>
Name(s) and address(es) of Certificate Aggregate Principal Amount
Registered Holder(s) Number(s) Principal Amount Tendered*
(Please fill in) Represented by
Notes
Total
- -----------------------------------============================================================
* Unless otherwise indicated, the holder will be deemed to have tendered
the full aggregate principal amount represented by Old Senior Notes. See
Instruction 2.
===============================================================================================
</TABLE>
This Letter of Transmittal is to be used if certificates for Old
Senior Notes are to be forwarded herewith.
Unless the context requires otherwise, the term "Holder" for
purposes of this Letter of Transmittal means any person in whose name Old Senior
Notes are registered or any other person who has obtained a properly completed
bond power from the registered holder.
<PAGE>
Holders whose Old Senior Notes are not immediately available or
who cannot deliver their Old Senior Notes and all other documents required
hereby to the Exchange Agent on or prior to the Expiration Date may tender their
Old Senior Notes according to the guaranteed delivery procedure set forth in the
Prospectus under the caption "The Exchange Offer--Procedures for Tendering."
/ / CHECK HERE IF TENDERED OLD SENIOR NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s): _____________________________________
Name of Eligible Institution that Guaranteed Delivery: ____________
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name: ____________________________
Address: _________________________
3
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange
Offer, the undersigned hereby tenders to the Company the above-described
principal amount of Old Senior Notes. Subject to, and effective upon, the
acceptance for exchange of the Old Senior Notes tendered herewith, the
undersigned hereby exchanges, assigns and transfers to, or upon the order of,
the Company all right, title and interest in and to such Old Senior Notes. The
undersigned hereby irrevocably constitutes and appoints the Exchange Agent as
the true and lawful agent and attorney-in-fact of the undersigned (with full
knowledge that said Exchange Agent acts as the agent of the undersigned in
connection with the Exchange Offer) to cause the Old Senior Notes to be
assigned, transferred and exchanged. The undersigned represents and warrants
that it has full power and authority to tender, exchange, assign and transfer
the Old Senior Notes and to acquire New Senior Notes issuable upon the exchange
of such tendered Old Senior Notes, and that, when the same are accepted for
exchange, the Company will acquire good and unencumbered title to the tendered
Old Senior Notes, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim. The undersigned also warrants
that it will, upon request, execute and deliver any additional documents deemed
by the Exchange Agent or the Company to be necessary or desirable to complete
the exchange, assignment and transfer of tendered Old Senior Notes.
The Exchange Offer is subject to certain conditions as set forth
in the Prospectus under the caption "Exchange Offer--Conditions to the Exchange
Offer". The undersigned recognizes that as a result of these conditions (which
may be waived, in whole or in part, by the Company) as more particularly set
forth in the Prospectus, the Company may not be required to exchange any of the
Old Senior Notes tendered hereby and, in such event, the Old Senior Notes not
exchanged will be returned to the undersigned at the address shown below the
signature of the undersigned.
By tendering, each Holder of Old Senior Notes represents to the
Company that (i) the New Senior Notes acquired pursuant to the Exchange Offer
are being obtained in the ordinary course of business of the person receiving
such New Senior Notes, whether or not such person is such Holder, (ii) neither
the Holder of Old Senior Notes nor any such other person has an arrangement or
understanding with any person to participate in the distribution of such New
Notes, and (iii) if the Holder is not a broker-dealer or is a broker-dealer but
will not receive New Senior Notes for its own account in exchange for Old Senior
Notes, neither the Holder nor any such other person is engaged in or intends to
participate in a distribution of the New Senior Notes. If the tendering Holder
is a broker-dealer that will receive New Senior Notes for its own account in
exchange for Old Senior Notes, it represents that the Old Senior Notes to be
exchanged for the New Senior Notes were acquired by it as a result of
market-making activities or other trading activities, and acknowledges that it
will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Senior Notes. By acknowledging that it
will deliver and by delivering a prospectus meeting the requirements of the
Securities Act in connection with any resale of such New Senior Notes, the
undersigned is not deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
4
<PAGE>
All authority herein conferred or agreed to be conferred shall
survive the death, bankruptcy or incapacity of the undersigned and every
obligation of the undersigned hereunder shall be binding upon the heirs,
personal representatives, successors and assigns of the undersigned. Tendered
Old Senior Notes may be withdrawn at any time prior to 5:00 p.m., New York City
Time on the Expiration Date.
Certificates for all New Senior Notes delivered in exchange for
tendered Old Senior Notes and any Old Senior Notes delivered herewith but not
exchanged, in each case registered in the name of the undersigned, shall be
delivered to the undersigned at the address shown below the signature of the
undersigned.
5
<PAGE>
TENDERING HOLDER(S) SIGN HERE
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Signature(s) of Holder(s)
Dated: , 1997
(Must be signed by registered Holder(s) exactly as name(s) appear(s) on
certificate(s) for Old Notes or by any person(s) authorized to become registered
Holder(s) by endorsements and documents transmitted herewith. If signature by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
please set forth the full title of such person.) See Instruction 3.
Name(s): _____________________________________________________________________
______________________________________________________________________________
(Please Print)
Capacity (full title): _______________________________________________________
Address: _____________________________________________________________________
(Including Zip Code)
Area Code and Telephone No.: _________________________________________________
Tax Identification No.
6
<PAGE>
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED -- SEE INSTRUCTION 3)
Authorized Signature: _______________________________________________________
Name: _______________________________________________________________________
Title: ______________________________________________________________________
Address: ____________________________________________________________________
Name of Firm: _______________________________________________________________
Area Code and Telephone No.: ________________________________________________
Dated: _________________________ , 1997
7
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES.
Certificates for all physically delivered Old Senior Notes, as well as a
properly completed and duly executed copy of this Letter of Transmittal or
facsimile thereof, and any other documents required by this Letter of
Transmittal, must be received by the Exchange Agent at any of its addresses set
forth herein on or prior to the Expiration Date.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, THE OLD
SENIOR NOTES AND ANY OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE
HOLDER AND, EXCEPT AS OTHERWISE PROVIDED BELOW, THE DELIVERY WILL BE DEEMED MADE
ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. INSTEAD OF DELIVERY BY MAIL,
IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE.
Holders whose Old Senior Notes are not immediately available or
who cannot deliver their Old Senior Notes and all other required documents to
the Exchange Agent on or prior to the Expiration Date may tender their Old
Senior Notes pursuant to the guaranteed delivery procedure set forth in the
Prospectus under "Exchange Offer--Procedures for Tendering." Pursuant to such
procedure: (i) such tender must be made by or through an Eligible Institution
(as defined in the Prospectus); (ii) on or prior to the Expiration Date, the
Exchange Agent must have received from such Eligible Institution a letter,
telegram or facsimile transmission setting forth the name and address of the
tendering Holder, the names in which such Old Senior Notes are registered, and,
if possible, the certificate numbers of the Old Senior Notes to be tendered; and
(iii) all tendered Old Senior Notes as well as this Letter of Transmittal and
all other documents required by this Letter of Transmittal must be received by
the Exchange Agent within three New York Stock Exchange trading days after the
date of execution of such letter, telex, telegram or facsimile transmission, all
as provided in the Prospectus under the caption "Exchange Offer--Procedures for
Tendering".
No alternative, conditional, irregular or contingent tenders will
be accepted. All tendering Holders, by execution of this Letter of Transmittal
(or facsimile thereof), shall waive any right to receive notice of the
acceptance of the Old Senior Notes for exchange.
2. PARTIAL TENDERS; WITHDRAWALS. Tenders of Old Senior Notes will
be accepted in denominations of $1,000 and integral multiples in excess thereof.
If less than the entire principal amount of Old Senior Notes evidenced by a
submitted certificate is tendered, the tendering Holder must fill in the
principal amount tendered in the box entitled "Principal Amount Tendered." A
newly issued certificate for the principal amount of Old Senior Notes submitted
but not tendered will be sent to such Holder as soon as practicable after the
Expiration Date. All Old Senior Notes delivered to the Exchange Agent will be
deemed to have been tendered unless otherwise indicated.
8
<PAGE>
Tenders of Old Senior Notes pursuant to the Exchange Offer are
irrevocable, except that Old Senior Notes tendered pursuant to the Exchange
Offer may be withdrawn at any time prior to 5:00 p.m., New York City time, on
the Expiration Date. To be effective, a written, telegraphic, telex or facsimile
transmission notice of withdrawal must be timely received by the Exchange Agent.
Any such notice of withdrawal must specify the person named in the Letter of
Transmittal as having tendered Old Senior Notes to be withdrawn, the certificate
numbers and designation of the Old Senior Notes to be withdrawn, the principal
amount of Old Senior Notes delivered for exchange, a statement that such a
Holder is withdrawing its election to have such Old Senior Notes exchanged, and
the name of the registered Holder of such Old Senior Notes, and must be signed
by the Holder in the same manner as the original signature on the Letter of
Transmittal (including any required signature guarantees) or be accompanied by
evidence satisfactory to the Company that the person withdrawing the tender has
succeeded to the beneficial ownership of the Old Senior Notes being withdrawn.
The Exchange Agent will return the properly withdrawn Old Senior Notes promptly
following receipt of notice of withdrawal.
3. SIGNATURE ON THIS LETTER OF TRANSMITTAL; WRITTEN INSTRUMENTS
AND ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter of Transmittal is
signed by the registered Holder(s) of the Old Senior Notes tendered hereby, the
signature must correspond with the name(s) as written on the face of
certificates without alteration, enlargement or any change whatsoever.
If any of the Old Senior Notes tendered hereby are owned of
record by two or more joint owners, all such owners must sign this Letter of
Transmittal.
If a number of Old Senior Notes registered in different names are
tendered, it will be necessary to complete, sign and submit as many separate
copies of this Letter of Transmittal as there are different registrations of Old
Senior Notes.
When this Letter of Transmittal is signed by the registered
Holder or Holders of Old Senior Notes listed and tendered hereby, no
endorsements of certificates or separate written instruments of transfer or
exchange are required.
If this Letter of Transmittal is signed by a person other than
the registered Holder or Holders of the Old Senior Notes listed, such Old Senior
Notes must be endorsed or accompanied by separate written instruments of
transfer or exchange in form satisfactory to the Company and duly executed by
the registered Holder or Holders, in either case signed exactly as the name or
names of the registered Holder or Holders appear(s) on the Old Senior Notes.
If this Letter of Transmittal, any certificates or separate
written instruments of transfer or exchange are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and, unless waived by the Company, proper evidence
satisfactory to the Company of their authority so to act must be submitted.
Endorsements on certificates or signatures on separate written
instruments of transfer or exchange required by this Instruction 3 must be
guaranteed by an Eligible Institution.
9
<PAGE>
Signatures on this Letter of Transmittal need not be guaranteed
by an Eligible Institution, provided the Old Senior Notes are tendered: (i) by a
registered Holder of such Old Senior Notes; or (ii) for the account of any
Eligible Institution.
4. TRANSFER TAXES. The Company shall pay all transfer taxes, if
any, applicable to the exchange of Old Senior Notes pursuant to the Exchange
Offer. If, however, certificates representing New Senior Notes, or Old Senior
Notes for principal amounts not tendered or accepted for exchange, are to be
delivered to, or are to be issued in the name of, any person other than the
registered Holder of the Old Senior Notes tendered hereby, or if a transfer tax
is imposed for any reason other than the exchange of Old Senior Notes pursuant
to the Exchange Offer, then the amount of any such transfer taxes (whether
imposed on the registered Holder or any other person) will be payable by the
tendering Holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted herewith, the amount of such transfer taxes will be
billed directly to such tendering Holder.
Except as provided in this Instruction 4, it will not be
necessary for transfer tax stamps to be affixed to the Old Senior Notes listed
in this Letter of Transmittal.
5. WAIVER OF CONDITIONS. The Company reserves the absolute right
to waive, in whole or in part, any of the conditions to the Exchange Offer set
forth in the Prospectus.
6. MUTILATED, LOST, STOLEN OR DESTROYED NOTES. Any Holder whose
Old Notes have been mutilated, lost, stolen or destroyed should contact the
Exchange Agent at the address indicated above for further instructions.
7. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions
relating to the procedure for tendering, as well as requests for additional
copies of the Prospectus and this Letter of Transmittal, may be directed to the
Exchange Agent at the address and telephone number set forth above. In addition,
all questions relating to the Exchange Offer, as well as requests for assistance
or additional copies of the Prospectus and this Letter of Transmittal, may be
directed to the Exchange Agent at the address specified in the Prospectus.
8. IRREGULARITIES. All questions as to the validity, form,
eligibility (including time of receipt), and acceptance of Letters of
Transmittal or Old Senior Notes will be resolved by the Company, whose
determination will be final and binding. The Company reserves the absolute right
to reject any or all Letters of Transmittal or tenders that are not in proper
form or the acceptance of which would, in the opinion of the Company's counsel,
be unlawful. The Company also reserves the right to waive any irregularities or
conditions of tender as to the particular Old Senior Notes covered by any Letter
of Transmittal or tendered pursuant to such Letter of Transmittal. None of the
Company, the Exchange Agent or any other person will be under any duty to give
notification of any defects or irregularities in tenders or incur any liability
for failure to give any such notification. The Company's interpretation of the
terms and conditions of the Exchange Offer shall be final and binding.
10
<PAGE>
9. DEFINITIONS. Capitalized terms used in this Letter of
Transmittal and not otherwise defined have the meanings given in the Prospectus.
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE THEREOF
(TOGETHER WITH CERTIFICATES FOR OLD SENIOR NOTES AND ALL OTHER REQUIRED
DOCUMENTS) OR A NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE EXCHANGE
AGENT ON OR PRIOR TO THE EXPIRATION DATE.
11
<PAGE>
EXHIBIT 99.2
LETTER OF TRANSMITTAL
FOR
TENDER OF ALL OUTSTANDING
12 1/2% GUARANTEED SENIOR SECURED NOTES DUE 2004
IN EXCHANGE FOR
12 1/2% GUARANTEED SENIOR SECURED EXCHANGE NOTES DUE 2004
OF
WINSTAR EQUIPMENT CORP.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON SEPTEMBER 12, 1997 (THE "EXPIRATION DATE"),
UNLESS EXTENDED BY WINSTAR EQUIPMENT CORP.
EXCHANGE AGENT:
UNITED STATES TRUST COMPANY OF NEW YORK
<TABLE>
<CAPTION>
BY MAIL: BY OVERNIGHT COURIER: BY HAND: BY FACSIMILE:
<S> <C> <C> <C>
United States Trust United States Trust United States Trust Fax No. (212) 420-6152
Company of New York Company of New York Company of New York (For Eligible
P.O. Box 844 770 Broadway, 13th 111 Broadway, Lower Institutions Only)
Cooper Station Floor Level CONFIRM BY TELEPHONE:
New York, NY 10276-0844 New York, NY 10003 New York, NY 10006 Telephone no. (800)
(registered or Attn: Corporate Trust Attn: Corporate Trust 548-6565
certified mail Operations Services
recommended) Department
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN
AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE TRANSMISSION
TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges receipt of the Prospectus dated
August __, 1997 (the "Prospectus") of WinStar Equipment Corp. ("Company") which,
together with this Letter of Transmittal (the "Letter of Transmittal"),
constitute the Company's offer (the "Exchange Offer") to exchange a new series
of 12 1/2% Guaranteed Senior Secured Exchange Notes Due 2004 (the "New Equipment
Notes") of the Company for all outstanding 12 1/2% Guaranteed Senior Secured
Notes Due 2004 (the "Old Equipment Notes") of the Company. The terms of the New
Equipment Notes are identical to the terms of the Old Equipment Notes for which
they may be exchanged pursuant to the Exchange Offer, except that the New
Equipment Notes will have been registered under the Securities Act of 1933, as
amended, and, therefore, will not bear legends restricting the transfer thereof.
WinStar Communications, Inc., the Company's parent corporation, which has
guaranteed the Old Equipment Notes on a senior basis, has agreed to guarantee
the New Equipment Notes on a senior basis.
The undersigned has checked the appropriate boxes below and
signed this Letter of Transmittal to indicate the action the undersigned desires
to take with respect to the Exchange Offer.
<PAGE>
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS
CAREFULLY BEFORE CHECKING ANY BOX BELOW.
THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE
FOLLOWED. QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE
PROSPECTUS AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
List below the Old Equipment Notes to which this Letter of
Transmittal relates. If the space provided below is inadequate, the Certificate
Numbers and Principal Amounts should be listed on a separate signed schedule
affixed hereto.
<TABLE>
===============================================================================================
DESCRIPTION OF OLD EQUIPMENT NOTES TENDERED HEREWITH
===============================================================================================
<S> <C> <C> <C>
Name(s) and address(es) of Certificate Aggregate Principal Amount
Registered Holder(s) Number(s) Principal Amount Tendered*
(Please fill in) Represented by
Notes
Total
- -----------------------------------============================================================
* Unless otherwise indicated, the holder will be deemed to have tendered
the full aggregate principal amount represented by Old Equipment Notes.
See Instruction 2.
===============================================================================================
</TABLE>
This Letter of Transmittal is to be used if certificates for Old
Equipment Notes are to be forwarded herewith.
Unless the context requires otherwise, the term "Holder" for
purposes of this Letter of Transmittal means any person in whose name Old
Equipment Notes are registered or any other person who has obtained a properly
completed bond power from the registered holder.
<PAGE>
Holders whose Old Equipment Notes are not immediately available
or who cannot deliver their Old Equipment Notes and all other documents required
hereby to the Exchange Agent on or prior to the Expiration Date may tender their
Old Equipment Notes according to the guaranteed delivery procedure set forth in
the Prospectus under the caption "The Exchange Offer--Procedures for Tendering."
/ / CHECK HERE IF TENDERED OLD EQUIPMENT NOTES ARE BEING DELIVERED PURSUANT
TO A NOTICE OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s): _____________________________________
Name of Eligible Institution that Guaranteed Delivery: ___________
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR
SUPPLEMENTS THERETO.
Name: ________________________________
Address: _____________________________
3
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange
Offer, the undersigned hereby tenders to the Company the above-described
principal amount of Old Equipment Notes. Subject to, and effective upon, the
acceptance for exchange of the Old Equipment Notes tendered herewith, the
undersigned hereby exchanges, assigns and transfers to, or upon the order of,
the Company all right, title and interest in and to such Old Equipment Notes.
The undersigned hereby irrevocably constitutes and appoints the Exchange Agent
as the true and lawful agent and attorney-in-fact of the undersigned (with full
knowledge that said Exchange Agent acts as the agent of the undersigned in
connection with the Exchange Offer) to cause the Old Equipment Notes to be
assigned, transferred and exchanged. The undersigned represents and warrants
that it has full power and authority to tender, exchange, assign and transfer
the Old Equipment Notes and to acquire New Equipment Notes issuable upon the
exchange of such tendered Old Equipment Notes, and that, when the same are
accepted for exchange, the Company will acquire good and unencumbered title to
the tendered Old Equipment Notes, free and clear of all liens, restrictions,
charges and encumbrances and not subject to any adverse claim. The undersigned
also warrants that it will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or the Company to be necessary or
desirable to complete the exchange, assignment and transfer of tendered Old
Equipment Notes.
The Exchange Offer is subject to certain conditions as set forth
in the Prospectus under the caption "Exchange Offer--Conditions to the Exchange
Offer". The undersigned recognizes that as a result of these conditions (which
may be waived, in whole or in part, by the Company) as more particularly set
forth in the Prospectus, the Company may not be required to exchange any of the
Old Equipment Notes tendered hereby and, in such event, the Old Equipment Notes
not exchanged will be returned to the undersigned at the address shown below the
signature of the undersigned.
By tendering, each Holder of Old Equipment Notes represents to
the Company that (i) the New Equipment Notes acquired pursuant to the Exchange
Offer are being obtained in the ordinary course of business of the person
receiving such New Equipment Notes, whether or not such person is such Holder,
(ii) neither the Holder of Old Equipment Notes nor any such other person has an
arrangement or understanding with any person to participate in the distribution
of such New Notes, and (iii) if the Holder is not a broker-dealer or is a
broker-dealer but will not receive New Equipment Notes for its own account in
exchange for Old Equipment Notes, neither the Holder nor any such other person
is engaged in or intends to participate in a distribution of the New Equipment
Notes. If the tendering Holder is a broker-dealer that will receive New
Equipment Notes for its own account in exchange for Old Equipment Notes, it
represents that the Old Equipment Notes to be exchanged for the New Equipment
Notes were acquired by it as a result of market-making activities or other
trading activities, and acknowledges that it will deliver a prospectus meeting
the requirements of the Securities Act in connection with any resale of such New
Equipment Notes. By acknowledging that it will deliver and by delivering a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such New
4
<PAGE>
Equipment Notes, the undersigned is not deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
All authority herein conferred or agreed to be conferred shall
survive the death, bankruptcy or incapacity of the undersigned and every
obligation of the undersigned hereunder shall be binding upon the heirs,
personal representatives, successors and assigns of the undersigned. Tendered
Old Equipment Notes may be withdrawn at any time prior to 5:00 p.m., New York
City Time on the Expiration Date.
Certificates for all New Equipment Notes delivered in exchange
for tendered Old Equipment Notes and any Old Equipment Notes delivered herewith
but not exchanged, in each case registered in the name of the undersigned, shall
be delivered to the undersigned at the address shown below the signature of the
undersigned.
5
<PAGE>
TENDERING HOLDER(S) SIGN HERE
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Signature(s) of Holder(s)
Dated: , 1997
(Must be signed by registered Holder(s) exactly as name(s) appear(s) on
certificate(s) for Old Notes or by any person(s) authorized to become registered
Holder(s) by endorsements and documents transmitted herewith. If signature by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
please set forth the full title of such person.) See Instruction 3.
Name(s): ___________________________________________________________________
____________________________________________________________________________
(Please Print)
Capacity (full title): _____________________________________________________
Address: ___________________________________________________________________
(Including Zip Code)
Area Code and Telephone No.: ________________________________________
____________________________________________________________________________
Tax Identification No.
6
<PAGE>
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED -- SEE INSTRUCTION 3)
Authorized Signature: _______________________________________________________
Name: _______________________________________________________________________
Title: ______________________________________________________________________
Address: ____________________________________________________________________
Name of Firm: _______________________________________________________________
Area Code and Telephone No.: __________________________________________
Dated: ____________________________ , 1997
7
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES.
Certificates for all physically delivered Old Equipment Notes, as well as a
properly completed and duly executed copy of this Letter of Transmittal or
facsimile thereof, and any other documents required by this Letter of
Transmittal, must be received by the Exchange Agent at any of its addresses set
forth herein on or prior to the Expiration Date.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, THE OLD
EQUIPMENT NOTES AND ANY OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF
THE HOLDER AND, EXCEPT AS OTHERWISE PROVIDED BELOW, THE DELIVERY WILL BE DEEMED
MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. INSTEAD OF DELIVERY BY
MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE.
Holders whose Old Equipment Notes are not immediately available
or who cannot deliver their Old Equipment Notes and all other required documents
to the Exchange Agent on or prior to the Expiration Date may tender their Old
Equipment Notes pursuant to the guaranteed delivery procedure set forth in the
Prospectus under "Exchange Offer--Procedures for Tendering." Pursuant to such
procedure: (i) such tender must be made by or through an Eligible Institution
(as defined in the Prospectus); (ii) on or prior to the Expiration Date, the
Exchange Agent must have received from such Eligible Institution a letter,
telegram or facsimile transmission setting forth the name and address of the
tendering Holder, the names in which such Old Equipment Notes are registered,
and, if possible, the certificate numbers of the Old Equipment Notes to be
tendered; and (iii) all tendered Old Equipment Notes as well as this Letter of
Transmittal and all other documents required by this Letter of Transmittal must
be received by the Exchange Agent within three New York Stock Exchange trading
days after the date of execution of such letter, telex, telegram or facsimile
transmission, all as provided in the Prospectus under the caption "Exchange
Offer--Procedures for Tendering".
No alternative, conditional, irregular or contingent tenders will
be accepted. All tendering Holders, by execution of this Letter of Transmittal
(or facsimile thereof), shall waive any right to receive notice of the
acceptance of the Old Equipment Notes for exchange.
2. PARTIAL TENDERS; WITHDRAWALS. Tenders of Old Equipment Notes
will be accepted in denominations of $1,000 and integral multiples in excess
thereof. If less than the entire principal amount of Old Equipment Notes
evidenced by a submitted certificate is tendered, the tendering Holder must fill
in the principal amount tendered in the box entitled "Principal Amount
Tendered." A newly issued certificate for the principal amount of Old Equipment
Notes submitted but not tendered will be sent to such Holder as soon as
practicable after the Expiration Date. All Old Equipment Notes delivered to the
Exchange Agent will be deemed to have been tendered unless otherwise indicated.
8
<PAGE>
Tenders of Old Equipment Notes pursuant to the Exchange Offer are
irrevocable, except that Old Equipment Notes tendered pursuant to the Exchange
Offer may be withdrawn at any time prior to 5:00 p.m., New York City time, on
the Expiration Date. To be effective, a written, telegraphic, telex or facsimile
transmission notice of withdrawal must be timely received by the Exchange Agent.
Any such notice of withdrawal must specify the person named in the Letter of
Transmittal as having tendered Old Equipment Notes to be withdrawn, the
certificate numbers and designation of the Old Equipment Notes to be withdrawn,
the principal amount of Old Equipment Notes delivered for exchange, a statement
that such a Holder is withdrawing its election to have such Old Equipment Notes
exchanged, and the name of the registered Holder of such Old Equipment Notes,
and must be signed by the Holder in the same manner as the original signature on
the Letter of Transmittal (including any required signature guarantees) or be
accompanied by evidence satisfactory to the Company that the person withdrawing
the tender has succeeded to the beneficial ownership of the Old Equipment Notes
being withdrawn. The Exchange Agent will return the properly withdrawn Old
Equipment Notes promptly following receipt of notice of withdrawal.
3. SIGNATURE ON THIS LETTER OF TRANSMITTAL; WRITTEN INSTRUMENTS
AND ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter of Transmittal is
signed by the registered Holder(s) of the Old Equipment Notes tendered hereby,
the signature must correspond with the name(s) as written on the face of
certificates without alteration, enlargement or any change whatsoever.
If any of the Old Equipment Notes tendered hereby are owned of
record by two or more joint owners, all such owners must sign this Letter of
Transmittal.
If a number of Old Equipment Notes registered in different names
are tendered, it will be necessary to complete, sign and submit as many separate
copies of this Letter of Transmittal as there are different registrations of Old
Equipment Notes.
When this Letter of Transmittal is signed by the registered
Holder or Holders of Old Equipment Notes listed and tendered hereby, no
endorsements of certificates or separate written instruments of transfer or
exchange are required.
If this Letter of Transmittal is signed by a person other than
the registered Holder or Holders of the Old Equipment Notes listed, such Old
Equipment Notes must be endorsed or accompanied by separate written instruments
of transfer or exchange in form satisfactory to the Company and duly executed by
the registered Holder or Holders, in either case signed exactly as the name or
names of the registered Holder or Holders appear(s) on the Old Equipment Notes.
If this Letter of Transmittal, any certificates or separate
written instruments of transfer or exchange are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and, unless waived by the Company, proper evidence
satisfactory to the Company of their authority so to act must be submitted.
9
<PAGE>
Endorsements on certificates or signatures on separate written
instruments of transfer or exchange required by this Instruction 3 must be
guaranteed by an Eligible Institution.
Signatures on this Letter of Transmittal need not be guaranteed
by an Eligible Institution, provided the Old Equipment Notes are tendered: (i)
by a registered Holder of such Old Equipment Notes; or (ii) for the account of
any Eligible Institution.
4. TRANSFER TAXES. The Company shall pay all transfer taxes, if
any, applicable to the exchange of Old Equipment Notes pursuant to the Exchange
Offer. If, however, certificates representing New Equipment Notes, or Old
Equipment Notes for principal amounts not tendered or accepted for exchange, are
to be delivered to, or are to be issued in the name of, any person other than
the registered Holder of the Old Equipment Notes tendered hereby, or if a
transfer tax is imposed for any reason other than the exchange of Old Equipment
Notes pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered Holder or any other person) will be payable
by the tendering Holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted herewith, the amount of such transfer taxes
will be billed directly to such tendering Holder.
Except as provided in this Instruction 4, it will not be
necessary for transfer tax stamps to be affixed to the Old Equipment Notes
listed in this Letter of Transmittal.
5. WAIVER OF CONDITIONS. The Company reserves the absolute right
to waive, in whole or in part, any of the conditions to the Exchange Offer set
forth in the Prospectus.
6. MUTILATED, LOST, STOLEN OR DESTROYED NOTES. Any Holder whose
Old Notes have been mutilated, lost, stolen or destroyed should contact the
Exchange Agent at the address indicated above for further instructions.
7. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions
relating to the procedure for tendering, as well as requests for additional
copies of the Prospectus and this Letter of Transmittal, may be directed to the
Exchange Agent at the address and telephone number set forth above. In addition,
all questions relating to the Exchange Offer, as well as requests for assistance
or additional copies of the Prospectus and this Letter of Transmittal, may be
directed to the Exchange Agent at the address specified in the Prospectus.
8. IRREGULARITIES. All questions as to the validity, form,
eligibility (including time of receipt), and acceptance of Letters of
Transmittal or Old Equipment Notes will be resolved by the Company, whose
determination will be final and binding. The Company reserves the absolute right
to reject any or all Letters of Transmittal or tenders that are not in proper
form or the acceptance of which would, in the opinion of the Company's counsel,
be unlawful. The Company also reserves the right to waive any irregularities or
conditions of tender as to the particular Old Equipment Notes covered by any
Letter of Transmittal or tendered pursuant to such Letter of Transmittal. None
of the Company, the Exchange Agent or any other person will be under any duty to
give notification of any defects or irregularities in tenders or incur any
liability
10
<PAGE>
for failure to give any such notification. The Company's interpretation of the
terms and conditions of the Exchange Offer shall be final and binding.
9. DEFINITIONS. Capitalized terms used in this Letter of
Transmittal and not otherwise defined have the meanings given in the Prospectus.
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE THEREOF
(TOGETHER WITH CERTIFICATES FOR OLD EQUIPMENT NOTES AND ALL OTHER REQUIRED
DOCUMENTS) OR A NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE EXCHANGE
AGENT ON OR PRIOR TO THE EXPIRATION DATE.
11
