<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 19, 1997.
REGISTRATION NO. 333-____________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM S-4
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
-----------------------
WINSTAR EQUIPMENT II CORP.
WINSTAR COMMUNICATIONS, INC.
(Exact Name of Each Registrant as Specified in its Charter)
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<S> <C> <C>
DELAWARE 4812 13-3585278
(State or other jurisdiction of (Primary standard industrial (I.R.S. Employer
incorporation or organization) classification code number) Identification Number
of WinStar Communications, Inc.)
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-----------------------
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 offices)
-----------------------
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 becomes 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)
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CALCULATION OF REGISTRATION FEE
======================================================================================================================
Proposed Proposed Maximum
Title of Each Class of Amount to be Maximum Offering Aggregate Offering Amount of
Securities to be Registered Registered Price Per Note Price Registration Fee
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
121/2% Guaranteed Senior Secured
Exchange Notes Due 2004 ("New
Equipment Notes")(1) 50,000 $1,000(2) $50,000,000(3) $15,151.52
- ----------------------------------------------------------------------------------------------------------------------
Guarantee of the New Equipment
Notes (4) -- -- -- (5)
- ----------------------------------------------------------------------------------------------------------------------
Total $50,000,000 $15,151.52
======================================================================================================================
(1) The New Equipment Notes being registered hereby are being offered by WinStar Equipment II Corp., a wholly-owned subsidiary of
WinStar Communications, Inc. (the "Company"), in exchange for certain 121/2% guaranteed senior secured notes due 2004 ("Old
Equipment Notes").
(2) Represents the minimum principal amount of each of the Old Equipment Notes for which the New Equipment Notes will be exchanged.
(3) 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 ("Securities Act").
(4) Represents the guaranty of the New Equipment Notes by the Company.
(5) Pursuant to Rule 457(n) under the Act, no separate fee for the guarantees is required.
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.
</TABLE>
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 19, 1997
OFFER TO EXCHANGE
121/2% GUARANTEED SENIOR SECURED EXCHANGE NOTES DUE 2004
(INTEREST PAYABLE ON MARCH 15 AND SEPTEMBER 15,
COMMENCING SEPTEMBER 15, 1997)
FOR
ALL OUTSTANDING
121/2% GUARANTEED SENIOR SECURED NOTES DUE 2004
(INTEREST PAYABLE ON MARCH 15 AND SEPTEMBER 15,
COMMENCING SEPTEMBER 15, 1997)
OF
WINSTAR EQUIPMENT II 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 _____________, 1997,
UNLESS EXTENDED BY WINSTAR EQUIPMENT II CORP.
-----------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 20 HEREOF FOR A DISCUSSION OF CERTAIN
INFORMATION THAT SHOULD BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER AND
AN INVESTMENT IN THE 121/2% 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 SEPTEMBER 19, 1997 (CONTINUED ON NEXT PAGE)
================================================================================
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
================================================================================
<PAGE>
(COVER PAGE CONTINUED)
WinStar Equipment II Corp. ("WinStar Equipment" or the "Issuer"), a
Delaware corporation and wholly-owned subsidiary of WinStar Communications,
Inc., a Delaware corporation ("Company"), hereby offers, upon the terms and
subject to the conditions set forth in this Prospectus and the letter of
transmittal to be delivered to each holder of Old Equipment Notes ("Letter of
Transmittal"), to exchange ("Exchange Offer") $1,000 principal amount of its
121/2% Guaranteed Senior Secured Exchange Notes Due 2004 ("New Equipment Notes")
for each $1,000 principal amount of its outstanding 121/2% Guaranteed Senior
Secured Notes Due 2004 ("Old Equipment 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 Equipment 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, $50.0 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 Issuer in
accordance with the terms of the Purchase Agreement, dated August 8, 1997
("Purchase Agreement"), and Registration Rights Agreement, dated August 8, 1997
("Registration Agreement"), between the Company, the Issuer and Credit Suisse
First Boston Corporation and BT Securities Corporation, the initial purchasers
of the Old Equipment Notes ("Initial Purchasers"). The Exchange Offer is being
made by the Issuer to fulfill certain obligations under the Purchase Agreement
and Registration Agreement. After the consummation of the Exchange Offer, the
Issuer will have no further obligation to make any other such exchange offers.
The Issuer will accept for exchange any and all Old Equipment 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 _____________, 1997,
unless the Exchange Offer is extended by WinStar Equipment in its sole
discretion ("Expiration Date"). Tenders of Old Equipment 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
Equipment Notes being tendered for exchange. However, the Exchange Offer is
subject to certain conditions which may be waived by the Issuer and to the terms
and provisions of the Registration Statement. The Old Equipment 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 Equipment 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 Issuer through a release to the
Dow Jones News Service and as otherwise required by applicable laws or
regulations. See "The Exchange Offer."
The New Equipment Note Guarantee will be the obligation of the Company and
the New Equipment Notes will be the obligations of WinStar Equipment. The New
Equipment Notes will be entitled to the benefits of the indenture under which
the Old Equipment Notes were issued (the "Indenture"). The form of the New
Equipment Notes will be identical to the form of the Old Equipment Notes, except
that the New Equipment Notes will have been registered under the Securities Act
and, therefore, will not bear legends restricting the transfer thereof. The New
Equipment Notes will have the same terms, conditions and rankings as the Old
Equipment Notes. The New Equipment Note Guarantee will be an unsecured,
unsubordinated obligation 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 future
subordinated indebtedness of the Company. The New Equipment Notes will be
secured, senior obligations of WinStar Equipment. WinStar Equipment has no
indebtedness senior to the Equipment Notes.
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 August 8, 1999,
WinStar Equipment has not applied $50.0 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
2
<PAGE>
(COVER PAGE CONTINUED)
amount, plus accrued interest, if any, to the date of redemption. The term "(as
defined)" used after a capitalized term means that the term is defined herein
under the section entitled "Description of Equipment Notes" or in the Indenture.
Based on no-action letters issued by the staff of the Securities and
Exchange Commission ("Commission") to third parties, the Issuer believes that
New Equipment Notes issued pursuant to this Exchange Offer in exchange for Old
Equipment Notes may be offered for resale, resold and otherwise transferred by a
holder thereof (other than a broker-dealer who purchased such Old Equipment
Notes directly from the Issuer 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 Equipment 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 Equipment Notes.
Holders of Old Equipment Notes wishing to accept the Exchange Offer must
represent to the Issuer in the Letter of Transmittal that such conditions have
been met.
Each broker-dealer that receives New Equipment 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 Equipment 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 Equipment Notes received in exchange for Old
Equipment Notes where such Old Equipment Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Issuer has agreed that, for a period of 180 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 September 15, 1997, Cede & Co. ("Cede"), as nominee for The
Depository Trust Company, New York, New York ("DTC"), was the registered holder
of $50.0 million aggregate principal amount of the Old Equipment Notes and held
such Old Equipment Notes for eight of its participants. The Issuer 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 Equipment
Notes. The Old Equipment Notes are, and the New Equipment 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 Equipment Notes or the Old
Equipment Notes. The New Equipment Notes constitute securities for which there
is no established trading market, and the Issuer does not currently intend to
list the New Equipment Notes on any securities exchange. If such a trading
market develops for the New Equipment 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 Equipment Notes may trade at a discount from their face
value. See "Risk Factors -- Absence of Public Market for the New Equipment
Notes."
Any Old Equipment 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 Indenture.
Following the consummation of the Exchange Offer, the holders of Old Equipment
Notes will continue to be subject to the existing restrictions upon transfer
thereof and the Issuer will have no further obligation to such holders to
provide for any other exchange offer with respect to the Old Equipment 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 Equipment 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 Equipment Notes as of September 19, 1997.
The Issuer 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 WINSTAR EQUIPMENT ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD EQUIPMENT NOTES IN ANY
3
<PAGE>
(COVER PAGE CONTINUED)
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 Equipment 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 Equipment 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 Equipment Notes permits the Depository's participants, and
anyone holding a beneficial interest in an Old Equipment Note registered in the
name of such a participant, to transfer interests in the Old Equipment Notes
electronically in accordance with the Depository's established procedures
without the need to transfer a physical certificate. Except as provided below,
the New Equipment 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, any holder of Old Equipment Notes who at any time is not a
qualified institutional buyer under Rule 144A (a "Qualified Institutional
Buyer"), who exchanges Old Equipment Notes in the Exchange Offer, will receive
the New Equipment Notes in certificated form. Any such holder is not, and will
not be, able to trade such securities through the Depository unless the New
Equipment Notes are resold to a Qualified Institutional Buyer. After the initial
issuance of the New Global Notes, New Equipment 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 ISSUER OR THE EXCHANGE AGENT. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE NEW EQUIPMENT 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
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TABLE OF CONTENTS
Page Page
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Available Information.......................... 5 Certain United States Federal
Incorporation of Information by Reference...... 6 Income Tax Considerations..................... 64
Prospectus Summary............................. 7 Description of Certain Indebtedness
Risk Factors................................... 20 and Preferred Stock........................... 68
The Exchange Offer............................. 31 Plan of Distribution........................... 71
Capitalization................................. 38 Legal Matters.................................. 72
Description of Equipment Notes................. 39 Experts........................................ 72
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AVAILABLE INFORMATION
The Issuer has filed with the Commission a Registration Statement on
Form S-4 under the Securities Act with respect to the New Equipment 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 the
Issuer and the New Equipment 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.
The Issuer is not required to, and does not file, reports, proxies or other
information statements under the Securities Exchange Act of 1934, as amended
("Exchange Act"). The Company, however, is subject to the informational
requirements of the 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. The Commission maintains a Web
site that contains certain reports, proxy and information statements and other
information relating to the Company, which the Company has filed via the
Commission's electronic data gathering and retrieval (EDGAR) system. The Web
site can be reached at http://www.sec.gov.
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
Equipment 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 United States Trust Company of New York, as trustee ("Trustee") and
each holder of Equipment 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
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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;
(9) Quarterly Report on Form 10-Q for the six-month period ended June 30,
1997;
(10) Current Report on Form 8-K filed July 2, 1997; and
(11) Current Report on Form 8-K filed September 11, 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
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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 local exchange service on a switched
basis and a resale basis in Boston, Chicago, Dallas, Los Angeles, San Diego and
Washington, D.C. , and offering local exchange services on a resale only basis
in Atlanta, Hartford, Milwaukee, Newark, Orange County (California),
Philadelphia, San Francisco and Stamford (Connecticut). 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 utilizing 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 Group.
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
Wireless Licenses 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 of the 50 most populated MSAs and will cover cities
encompassing an aggregate population of over 180 million. The Company holds one
or more Wireless Licenses in numerous markets which allow it to provide Wireless
Fiber services over four or more channels in such 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).
BROAD BANDWIDTH. The total amount of bandwidth for each 38 GHz channel is
100 MHz, which supports full broadband capability. For example, one 100 MHz 38
GHz channel can support transmission capacity of one DS-3 at
7
<PAGE>
45 Mbps which can transfer data at a rate that 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, 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
effective range of its radio signal and 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 and
other telecommunications equipment 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 where it
provides service to serve as hubs for its network in that metropolitan area.
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 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 and transmission capabilities ahead of
many other CLECs; (iii) develop pioneering expertise in the utilization of 38
GHz for the delivery of telecommunications and multimedia 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 fiber
facilities provided 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 the metropolitan
areas covered by the Wireless Licenses, which the Company estimates
8
<PAGE>
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 Group 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 and has offered to enter into co-exclusive
multi-region network usage agreements with one or more such providers.
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 assets and 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. Since that time, the Company has initiated local switched
services in Boston, Chicago, Los Angeles and San Diego. During the next three
years, the Company intends to install Lucent switches to serve most of its major
markets. The Company has the necessary Roof Rights to install its Wireless Fiber
transmission facilities on approximately 1,550 buildings in its licensed areas.
The Company also has developed business and operational support and network
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 maintains a network
operations 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 25 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 the District of Columbia 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 285 people located in 15 major markets, 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 250 former officers and
employees of MCI Communications and 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 II CORP.
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 is using 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 September 1997, counsel for the Company delivered to the Commission a
letter ("No-Action Request Letter") seeking confirmation from the Commission
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 Request
Letter asks 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 stockholder 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 the Company and
its telecommunications businesses. As of the date of this Prospectus, the
Commission has not yet delivered to counsel for the Company a no-action letter
responding to the No-Action Request Letter.
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.
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
10
<PAGE>
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 was incorporated under the laws of the State of Delaware in
September 1990, its principal office is located at 230 Park Avenue, New York,
New York 10169 and its telephone number is (212) 584-4000. WinStar Equipment was
also incorporated under the laws of the State of Delaware in August 1997, its
principal office is located at 1577 Spring Hill Road, 6th Floor, Vienna,
Virginia 22182 and its telephone number is (703) 645-5000.
11
<PAGE>
SUMMARY OF THE EXCHANGE OFFER
BACKGROUND - THE PRIVATE OFFERING OF DEBT SECURITIES
General . . . . . . . An aggregate of $50.0 million principal amount of
Old Equipment Notes were sold to the Initial
Purchasers by the Issuer in an institutional
private placement in August 1997 ("August 1997
Debt Placement"). The Initial Purchasers, in
turn, sold such Old Equipment Notes to certain
Qualified Institutional Buyers in reliance on Rule
144A under the Securities Act.
Exchange of
Old Equipment Notes. . In connection with the August 1997 Debt Placement,
WinStar Equipment and the Company entered into the
Registration Agreement pursuant to which WinStar
Equipment is obligated to use its best efforts to
consummate this 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
Equipment Notes to be registered under the
Securities Act pursuant to a shelf registration
statement. If (i) by February 4, 1998, 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
Equipment Notes or the applicable New Equipment
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 Equipment Notes will be issued in
exchange for each $1,000 principal amount of
outstanding Old Equipment Notes validly tendered
and not withdrawn. The New Equipment Notes will
be issued to tendering holders of Old Equipment
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 Issuer believes that the New
Equipment Notes issued pursuant to the Exchange
Offer in exchange for Old Equipment 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 Equipment 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 Equipment Notes.
Each broker-dealer that receives New Equipment
Notes for its own account in exchange for Old
Equipment 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 Equipment Notes.
The 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"
12
<PAGE>
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
Equipment Notes received in exchange for Old
Equipment Notes where such New Equipment 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 Equipment 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
Issuer or the Company.
The Exchange Offer is not being made to, nor will
be accepted from, holders of Old Equipment 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. _________ __, 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. WinStar Equipment
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 Equipment Notes being tendered.
Procedures for Tendering
Old Equipment Notes. . Each holder of Old Equipment 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 Equipment
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 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 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
Equipment Notes.
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<PAGE>
Special Procedures for
Beneficial Owners . . Any beneficial owner whose Old Equipment 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 Equipment Notes, either make appropriate
arrangements to register ownership of the Old
Equipment 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 Equipment Notes who wish to tender
such Old Equipment Notes and whose Old Equipment
Notes are not immediately available or who cannot
deliver their Old Equipment 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 Equipment Notes according to
the guaranteed delivery procedures set forth in
"The Exchange Offer -- Procedures for Tendering."
Acceptance of Old Equipment
Notes and Delivery of New
Equipment Notes. . . . Subject to certain conditions (as described more
fully in "The Exchange Offer -- Conditions to the
Exchange Offer"), WinStar Equipment will accept
for exchange any and all Old Equipment 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 Equipment
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 Equipment 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 does
not constitute a taxable exchange for federal
income tax purposes. Each New Equipment Note will
be treated as having been originally issued at the
time the Old Equipment Note exchanged 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 Indenture, 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.
14
<PAGE>
THE NEW EQUIPMENT NOTES
The Exchange Offer applies to $50.0 million aggregate principal amount of
Old Equipment Notes. The form and terms of the New Equipment Notes will be the
same as the form and terms of the Old Equipment Notes, except that the New
Equipment Notes will be registered under the Securities Act and, therefore, will
not bear legends restricting the transfer thereof. The New Equipment Notes will
evidence the same debt as the Old Equipment Notes and the New Equipment Notes
will be entitled to the benefits of the Indenture. Upon consummation of the
Exchange Offer, 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 Equipment Notes will not be entitled to certain
registration rights under the Registration Agreement. See "Description of
Equipment Notes."
SECURITIES OFFERED $50.0 million principal amount of 121/2%
Guaranteed Senior Secured Exchange Notes Due 2004
of WinStar Equipment.
MATURITY DATE March 15, 2004.
INTEREST PAYMENT DATES March 15 and September 15, commencing September
15, 1997.
OPTIONAL REDEMPTION 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
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 In the event that by August 8, 1999, WinStar
Equipment has not applied at least $50.0 million
to fund the Acquisition Costs of Designated
Equipment ($50.0 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 New Equipment Notes may require the Issuer of
such New Equipment Notes to repurchase such New
Equipment Notes at 101% of the principal amount of
such New Equipment Notes, plus accrued interest,
if any, on such amount to the date of repurchase.
RANKING
General At June 30, 1997, after giving effect to the
August 1997 Debt Placement, the Company had (on an
unconsolidated basis) approximately $645.3 million
of indebtedness, $551.0 million of which would
have been senior indebtedness (including the
Company's outstanding 141/2% Senior Deferred
Interest Notes due 2005 ("March 1997 Senior
Notes"), the guarantee by the Company ("March 1997
Equipment Note Guarantee") of WinStar Equipment
Corp.'s ("Original Equipment Corp.") outstanding
121/2% Guaranteed Senior Secured Notes Due 2004
issued in March 1997 ("March 1997 Equipment Notes"
and, together with the March 1997 Senior Notes,
the "March 1997 Notes"), the guarantee by the
Company of WinStar Equipment II Corp.'s Old
Equipment Notes ("Old Equipment Note Guarantee,"
together
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<PAGE>
with the New Equipment Note Guarantee, the
"Equipment Note Guarantee") and the Company's
outstanding 14% Senior Discount Notes due 2005
("1995 Senior Notes")) and $94.3 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
issuance of such notes, the "1995 Debt
Placement")). The Company is a holding company
and, accordingly, the New Equipment Note Guarantee
will be effectively subordinated to all
liabilities of the Company's subsidiaries,
including trade payables. At June 30, 1997, the
total liabilities of the Company's subsidiaries
was approximately $336.9 million, including trade
payables.
New Equipment Note
Guarantee The New Equipment Note Guarantee will be an
unsecured, senior obligation of the Company, will
rank pari passu in right of payment with all
existing and future senior indebtedness of the
Company, including the March 1997 Senior Notes and
the March 1997 Equipment Notes Guarantee and 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 The New Equipment Notes will be secured by liens
on Designated Equipment purchased with the
proceeds of the August 1997 Debt Placement.
RESTRICTIVE COVENANTS The New Equipment Notes will be issued pursuant to
the Indenture, which restricts the incurrence of
additional debt by the Company, the issuance of
debt and preferred stock by the Company's
subsidiaries, dividends on and redemptions of
capital stock of the Company, the redemptions of
certain subordinated obligations of the Company,
the sale of assets and subsidiaries' stock and
transactions with affiliates. The Indenture also
prohibits certain restrictions on distributions
from subsidiaries and will restrict the Company
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 the
Company to designate certain subsidiaries as
unrestricted subsidiaries. The 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 20 hereof for a discussion of certain
risks that should be considered in connection with an investment in the New
Equipment Notes, including the risks related to historical and anticipated
future operating losses and negative EBITDA.
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<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 six months ended
June 30, 1996 and 1997 have been derived from the unaudited Consolidated
Financial Statements and notes thereto incorporated by reference into this
Prospectus. 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>
YEAR ENDED DECEMBER 31, 1996 SIX MONTHS ENDED JUNE 30,
-------------------------------- -------------------------------
TEN MONTHS
ENDED 1997
FEBRUARY DECEMBER PRO FORMA 1997 PRO FORMA
28, 31, PRO AS ADJ- 1996 1997 PRO AS ADJ-
1995 1995 ACTUAL FORMA(1) JUSTED(2) ACTUAL ACTUAL FORMA(1) JUSTED(2)
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Operating revenues:
Telecommunications $14,909 $13,137 $33,969 $32,481 $32,481 $20,573 $14,741 $14,741 $14,741
Information services 473 2,648 14,650 14,650 14,650 3,423 14,676 14,676 14,676
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total net sales 15,382 15,785 48,619 47,131 47,131 23,996 29,417 29,417 29,417
Operating income (loss):
Telecommunications (4,984) (7,288) (43,698) (49,805) (49,805) (9,392) (63,751) (63,751) (63,751)
Information services (157) 217 (1,409) (1,409) (1,409) (473) (2,084) (2,084) (2,084)
General corporate (944) (3,861) (11,373) (11,373) (11,373) (6,409) (10,793) (10,793) (10,793)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total operating loss (6,085) (10,932) (56,480) (62,587) (62,587) (16,274) (76,628) (76,628) (76,628)
Interest expense (375) (7,186) (36,748) (77,831) (84,325) (17,650) (30,992) (39,468) (42,715)
Interest income 343 2,890 10,515 8,453 8,453 5,772 7,325 7,325 7,325
Other expenses, net (1,109) (866) - - - - - - -
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net loss from continuing
operations (7,226) (16,094) (82,713) (131,965) (138,459) (28,152) (100,295) (108,771) (112,018)
Net (loss) income from
discontinued
operations(3) (4) 237 (1,010) (1,010) (1,010) (663) (477) (477) (477)
Net loss (7,230) (15,857) (83,723) (132,975) (139,469) (28,815) (100,772) (109,248) (112,495)
Preferred stock dividends - - - (6,000) (6,000) - (2,346) (3,000) (3,000)
Net loss applicable to
common stock $(7,230) $(15,857) $(83,723) $(138,975) $(145,469) $(28,815) $(103,118) $(112,248) $(115,495)
Net loss per share from
continuing operations $(0.42) $(0.71) $(2.96) $(4.38) $(4.59) $(1.03) $(3.13) $(3.41) $(3.51)
Net (loss) income per
share from discontinued
operations - - 0.01 (0.04) (0.03) (0.03) (0.02) (0.01) (0.01) (0.01)
Net loss per common
share outstanding $(0.42) $(0.70) $(3.00) $(4.41) $(4.62) $(1.05) $(3.14) $(3.42) $(3.52)
Weighted average
common shares
outstanding 17,122 22,770 27,911 31,506 31,506 27,468 32,789 32,789 32,789
Other Financial Data:
Ratio of earnings from
continuing operations to
combined fixed charges
and preferred stock
dividends(4) - - - - - - - - -
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
-----------------------
Actual Pro forma(5)
-------- ------------
(in thousands)
<S> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and short-term investments $343,151 $391,632
Property and equipment, net 119,831 119,831
Total assets 716,004 766,089
Current portion of long-term debt and capital lease obligations 7,896 7,896
Long-term debt and capital lease obligations, less current portion 613,503 663,503
Common and preferred stock and additional paid-in capital 248,670 248,670
Stockholders' equity 22,834 22,834
</TABLE>
___________
(1) Gives effect to the acquisition of Milliwave Limited Partnership
("Milliwave Acquisition") completed in January 1997, an institutional
private placement of $100 million of Units, consisting of preferred stock
and warrants, completed in February 1997 ("Preferred Stock Placement") and
a private placement of $100 million March 1997 Senior Notes and $200
million March 1997 Equipment Notes ("March 1997 Debt Placement"), each 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 six months ended June 30, 1997 and the year
ended December 31, 1996, respectively, but not to include interest income
earned on additional available cash. Since the Milliwave Acquisition was
completed on January 2, 1997, its operations are reflected in the
historical results of the Company for the six month period ended June 30,
1997. See "Description of Certain Indebtedness and Preferred Stock."
(2) Gives effect to the items mentioned in footnote (1) above as well as to the
Offering each as if they occurred at the beginning of the respective
periods. Interest expense has been adjusted to reflect an additional $3.2
million and $6.5 million of interest and amortization of debt offering
costs and other related fees from the Offering for the six months ended
June 30, 1997 and the year ended December 31, 1996, respectively, but not
to include interest income earned on additional available cash.
(3) Such loss or income is from the operations of Global Products, the
Company's consumer products subsidiary. On May 13, 1997, a formal plan of
disposition for Global Products was approved by the Company's 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 through March 31, 1997 are segregated and
reported as discontinued operations in the statement of operations data.
(4) For the year ended February 28, 1995, the ten months ended December 31,
1995, the year ended December 31, 1996 and the six months ended June 30,
1996 and 1997, earnings from continuing operations were insufficient to
cover combined fixed charges and preferred stock dividends by $7,288,000,
$16,310,000, $83,033,000, $28,152,000 and $103,885,000, 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 $113,015,000 and
$138,285,000 for the six months ended June 30, 1997 and the year ended
December 31, 1996, respectively. On a pro forma as adjusted basis, giving
effect to the items described in footnote 1 above as well as the Offering,
earnings from continuing operations were insufficient to cover combined
fixed charges and preferred stock dividends by $116,262,000 and
$144,779,000 for the six months ended June 30, 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.
(5) Gives effect to the Offering as if it occurred at June 30, 1997.
18
<PAGE>
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."
19
<PAGE>
RISK FACTORS
THE NEW EQUIPMENT NOTES OFFERED HEREBY CONTAIN THE SAME TERMS AND
CONDITIONS AS THE OLD EQUIPMENT NOTES AND, ACCORDINGLY, INVOLVE A HIGH DEGREE OF
RISK. EACH PROSPECTIVE INVESTOR SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK
FACTORS RELATING TO BOTH THE OLD EQUIPMENT NOTES AND THE NEW EQUIPMENT NOTES.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE
SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THE FOLLOWING RISK FACTORS:
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 $103.1
million and $68.2 million, respectively, for the six months ended June 30, 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 Equipment Notes.
SUBSTANTIAL INDEBTEDNESS; ABILITY TO SERVICE INDEBTEDNESS
The Company has significant indebtedness and interest expense. At June 30,
1997, the Company had, on a consolidated basis, approximately $679.6 million of
indebtedness, including capitalized lease obligations. The accrual of interest
on the Equipment Notes and on the March 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"), the
indentures pursuant to which the March 1997 Notes were issued (the "March
Indentures") and the Indenture limit, but do not prohibit, the incurrence of
additional indebtedness by the Company and its subsidiaries. Additionally, the
1995 Indentures, the March Indentures and the Indenture 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, the March 1997 Notes and the Equipment Notes could make it more difficult
for the Company to make payments on the New Equipment Notes offered hereby;
(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.
20
<PAGE>
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 acquired with such
proceeds and the leases of Designated Equipment (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 New Equipment Note Guarantee.
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 interest on the Equipment Notes if required under the New Equipment Note
Guarantee. The subsidiaries, however, are legally distinct from the Company and
have no obligation, contingent or otherwise, to pay amounts due pursuant to the
New Equipment Note Guarantee or to make funds available for such payment. The
Company's subsidiaries have not guaranteed the Old Equipment Notes and will not
guarantee the New Equipment 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. Accordingly, the New Equipment Note Guarantee will be effectively
subordinated to all liabilities (including trade payables) of the subsidiaries
of the Company. At June 30, 1997, the subsidiaries of the Company had
approximately $336.9 million of liabilities (excluding intercompany payables to
the Company and each other), including $292.7 million of indebtedness (including
the Equipment Notes). See "Description of the Equipment Notes."
The New Equipment Note Guarantee will be unsecured indebtedness of the
Company. At June 30, 1997, the Company had an aggregate of approximately $629.6
million of indebtedness, including capitalized lease obligations, approximately
$242.7 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 Equipment Note Guarantee, notwithstanding the
existence of any event of default with respect to the Equipment Notes.
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 New Equipment Notes. The
Equipment Notes are not secured by the proceeds from the issuance of the
Equipment Notes, but only by such Designated Equipment. At the time of the
original issuance of the Equipment Notes, WinStar Equipment purchased only $2.7
million worth of Designated Equipment and WinStar Equipment does not expect to
use substantially all the proceeds from the sale of the Equipment Notes until
some time in the second quarter of 1999. As of the date of this Prospectus,
WinStar Equipment has used approximately $2.7 million of the proceeds of the
August 1997 Debt Placement to purchase Designated Equipment. Until WinStar
Equipment uses all such proceeds, the Equipment Notes will not be secured by
Designated Equipment having aggregate Acquisition Costs equal to the principal
amount of the Equipment Notes; and, in any event, the Acquisition Costs 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 as such Designated Equipment is deployed in the business
and equipment manufacturers develop improved products or similar
21
<PAGE>
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 August 1997 Debt Placement on August
8, 1997 and since that date) 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 Equipment Notes."
FAILURE TO MAINTAIN PERFECTED SECURITY INTEREST
Under the 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 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 and the District of Columbia. WinStar Equipment has
covenanted 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, if any,
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, the March Indentures and the Indenture, which may require the
Company to refinance the 1995 Notes and the March 1997 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
switched local exchange services. The Company has limited 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
22
<PAGE>
have 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. As a result, revenues from
the provision of long distance services to residential customers have begun and
are expected to continue 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) continuing to obtain 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
23
<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
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, 24 GHz, 28 GHz and 47 GHz, among
others). The initial perceived success of the Company's business is also likely
to encourage increased competition from other spectrum users. 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.
24
<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.
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.
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 substantially increased the
Company's capital expenditure 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 obtained a $150 million facility from affiliates of the Initial
Purchasers in March 1997. The Company continues to have available $100 million
of such facility (the issuance in August 1997 by WinStar Equipment of Old
Equipment Notes having reduced availability by $50 million), which, subject to
the Company satisfying various operating and financial criteria, may be drawn by
the Company on March 31, 1999. The amount of the commitment may be further
reduced in certain circumstances, including as a result of the issuance of
additional securities by the Company prior to March 31, 1999.
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, if
necessary, 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 Equipment 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
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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 jurisdiction over the provision of
telecommunications services to the extent such services involve the provision of
jurisdictionally intrastate telecommunications in certain instances, and retain
exclusive jurisdiction with respect to the pricing of unbundled elements.
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 is required to 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.
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 generally
constitute a pro-competitive national policy framework designed to remove or
minimize the regulatory, economic and operational impediments to full
competition for local services, including switched local exchange service. 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 agreements. As has been the case
since the Interconnection Order was stayed by the Court of Appeals in October
1996, many states continue to set the prices for interconnection, resale and
unbundled network elements in a similar manner as proposed by the FCC in the
Interconnection Order. 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, although there can be no assurance of this. In addition,
pursuant to the Telecommunications Act, the FCC recently promulgated regulations
to implement universal service reform to provide support for the provision of
ubiquitous national telephone service as well as the provision of
telecommunications services to schools (kindergarten through 12th grade) and to
effect access charge reform to more explicitly align the access charges required
to be paid by the long distance carriers to incumbent LECs to the actual cost of
providing such services. Appeals from these orders have been filed by a number
of parties and these appeals have been consolidated in the Fifth and Eighth
Circuits, respectively. In light of the continued litigation challenging the
Telecommunications Act and the FCC's rules thereunder, and other factors, the
Company is unable to predict with specificity what effect the Telecommunications
Act or recently promulgated FCC regulations 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.
Additionally, providers of telecommunications services, including the major
IXCs, RBOCs, CLECs and others, are coming under intensified scrutiny for
activities by them or their agents which may result in unauthorized switching of
customers from one service provider to another or, in other instances, cause
unfair impediment to customers wishing to switch providers. The FCC and a number
of state authorities are seeking to introduce more stringent regulation 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
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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 regulations would have on the
telecommunications 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.
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 or other changes on the use of spectrums. The FCC's failure to renew,
or its imposition of significant charges for renewal or use 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 Equipment 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 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 or unlicensed spectrum. 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
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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 Equipment Notes.
CERTAIN FINANCIAL AND OPERATING RESTRICTIONS
The Indenture, the March 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 Equipment Notes.
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 an agreement with MCI that provide it with access to such
carrier's 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
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 Equipment 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 has
approached a number of major telecommunications service providers to solicit
interest in entering into a multi-year, multi-region network transaction in
which the Company would build and maintain a co-exclusive network utilizing
Wireless Fiber for providing access to their customer base. Although there can
be no assurance that such a transaction will be entered into, the Company
believes that such a transaction would be attractive to a number of these
provides and is in various stages of discussions with them.
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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 up to 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 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 Equipment Notes.
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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.
ABSENCE OF PUBLIC MARKET FOR THE NEW EQUIPMENT NOTES
There is no public market and only a limited secondary market for the New
Equipment Notes. The Old Equipment Notes are and the New Equipment 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. New
Equipment 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 August 1997 Debt Placement, the Company and
WinStar Equipment had 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 or WinStar Equipment
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 and WinStar Equipment are each 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 or WinStar Equipment is found to be an
investment company, it 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 or WinStar Equipment 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 or WinStar
Equipment would have a material adverse effect on the Company. In addition, if
the Company or WinStar Equipment is an investment company under the 1940 Act,
the Equipment Notes will not be eligible to be resold in reliance on Rule 144A
under the Securities Act and certain holders of the Equipment Notes may not be
able to own the Equipment Notes. In such event, the market price of the
Equipment Notes may be adversely affected.
CONSEQUENCES OF THE EXCHANGE OFFER ON NON-TENDERING HOLDERS OF THE OLD EQUIPMENT
NOTES
After Exchange Offer is consummated, the Company may not be required to
register certain of the Old Equipment Notes not tendered and accepted in the
Exchange Offer. In such event, holders of certain of the Old Equipment Notes
seeking liquidity in their investment would have to rely on exemptions to the
registration requirements under the securities laws, including the Securities
Act. Following the consummation of the Exchange Offer, certain of the Old
Equipment 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.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Equipment Notes were sold by the Issuer in the August 1997 Debt
Placement to the Initial Purchasers who, in turn, sold such Old Equipment Notes
to certain qualified institutional buyers in reliance on Rule 144A under the
Securities Act. In connection with the August 1997 Debt Placement, the Issuer
and the Company entered into the Registration Agreement, pursuant to which the
Issuer is obligated to use its best efforts to consummate this Exchange Offer of
the Old Equipment Notes for the New Equipment Notes pursuant to an effective
registration statement by February 4, 1998. Unless the context requires
otherwise, the term "holder" with respect to the Exchange Offer means any person
in whose name Old Equipment Notes are registered on the books of the Issuer, or
any other person who has obtained a properly completed bond power from the
registered holder, or any person whose Old Equipment Notes are held of record by
DTC (who may deliver such Old Equipment Notes by book-entry transfer at DTC).
The Issuer has not requested, and does not intend to request, an
interpretation by the staff of the Commission with respect to whether the New
Equipment Notes issued pursuant to the Exchange Offer in exchange for the Old
Equipment 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 Issuer
believes that New Equipment Notes issued pursuant to the Exchange Offer in
exchange for Old Equipment Notes may be offered for resale, resold and otherwise
transferred by any holder of such New Equipment 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
Equipment 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 Equipment Notes. Any holder who
tenders in the Exchange Offer for the purpose of participating in a distribution
of the New Equipment 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 Equipment Notes for its own
account in exchange for Old Equipment Notes, where such Old Equipment 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 Equipment Notes. See "Plan of
Distribution."
By tendering in the Exchange Offer, each holder of Old Equipment Notes will
represent to the Issuer, as the case may be, that, among other things, (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 Equipment 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 the distribution of such New Equipment Notes.
Following the consummation of the Exchange Offer, holders of Old Equipment
Notes not tendered will no longer have certain registration rights and the Old
Equipment Notes will continue to be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for the Old Equipment 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, WinStar Equipment will accept any and all Old
Equipment 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 Equipment Notes, 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 Equipment Notes pursuant to the
Exchange Offer. However, Old Equipment Notes may be tendered only in integral
multiples of $1,000 principal amount.
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The forms and terms of the New Equipment Notes will be identical in all
material respects to the forms and terms of the corresponding Old Equipment
Notes, except that the New Equipment 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 Equipment Notes being tendered for exchange.
DTC is the sole registered holder of the Old Equipment 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
September 19, 1997.
Under the Indenture, holders of Old Equipment Notes do not have any
appraisal or dissenters rights in connection with the Exchange Offer. 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.
WinStar Equipment shall be deemed to have accepted validly tendered Old
Equipment 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 Equipment Notes from WinStar
Equipment. If any tendered Old Equipment Notes are not accepted for exchange,
such unaccepted Old Equipment Notes will be returned, without expense, to the
tendering holder thereof as promptly as practicable after the Expiration Date.
Holders who tender Old Equipment 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
Equipment 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
___________ __, 1997 unless the Issuer 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 Issuer has
no current intention to extend the Exchange Offer, the Issuer 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 Equipment 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 Equipment Notes for Old Equipment Notes will be
the first New York Stock Exchange trading day following the Expiration Date.
WinStar Equipment expressly reserves the right to (i) terminate the
Exchange Offer and not accept for exchange any Old Equipment 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 Issuer 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 Equipment Notes, whether before or after
any tender of the Old Equipment Notes.
PROCEDURES FOR TENDERING
The tender to WinStar Equipment of Old Equipment Notes by a holder thereof
pursuant to one of the procedures set forth below will constitute an agreement
between such holder and WinStar Equipment 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 Equipment Notes may tender such Old
Equipment 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 Equipment 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.
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If tendered Old Equipment Notes are registered in the name of the signer of
the Letter of Transmittal and the New Equipment Notes to be issued in exchange
therefor are to be issued (and any untendered Old Equipment 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 Equipment Notes), the signature of such
signer need not be guaranteed. In any other case, the tendered Old Equipment
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
Equipment Notes and/or Old Equipment Notes not exchanged are to be delivered to
an address other than that of the registered holder appearing on the register
for the Old Equipment Notes, the signature in the Letter of Transmittal must be
guaranteed by an Eligible Institution.
THE METHOD OF DELIVERY OF OLD EQUIPMENT 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 EQUIPMENT
NOTES SHOULD BE SENT TO WINSTAR EQUIPMENT.
The Issuer understands that the Exchange Agent will make a request promptly
after the date of this Prospectus to establish accounts with respect to the Old
Equipment 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 Equipment Notes
by causing DTC to transfer such Old Equipment Notes into the Exchange Agent's
account with respect to the Old Equipment Notes in accordance with DTC's
procedure for such transfer. Although delivery of the Old Equipment 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 Equipment 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 Equipment
Notes are registered and the certificate number(s) of the Old Equipment 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 Equipment Notes, in proper form for transfer (or a
confirmation of book-entry transfer of such Old Equipment 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 Equipment 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), the Issuer 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 Equipment Notes (or a confirmation of book-entry transfer
of such Old Equipment 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 Equipment Notes in exchange for Old Equipment Notes tendered pursuant to a
Notice of Guaranteed Delivery or letter, telegram or facsimile transmission
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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 Equipment Notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Old Equipment Notes will
be determined by the Issuer, whose determination will be final and binding. The
Issuer reserves 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 Issuer's
counsel, be unlawful. The Issuer 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 Equipment Notes. None of 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 Equipment 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 Equipment Notes are submitted in a
principal amount greater than the principal amount of Old Equipment Notes being
tendered by such tendering holder, such unaccepted or non-exchanged Old
Equipment 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, the Issuer reserves the right in its sole discretion, to the
extent permitted by the Indenture to (a) purchase or make offers for any Old
Equipment Notes that remain outstanding subsequent to the Expiration Date and
(b) to the extent pertained by applicable law, purchase Old Equipment 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 Equipment Notes for exchange ("Transferor")
exchanges, assigns and transfers the Old Equipment Notes to WinStar Equipment
and irrevocably constitutes and appoints the Exchange Agent as the Transferor's
agent and attorney-in-fact to cause the Old Equipment 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
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, WinStar Equipment 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 Transferor also
warrants that it will, upon request, execute and deliver any additional
documents deemed by the Issuer to be necessary or desirable to complete the
exchange, assignment and transfer of tendered Old Equipment Notes or transfer
ownership of such Old Equipment 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 WinStar
Equipment 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 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, 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 Equipment Notes to be
withdrawn, the certificate numbers and designation of Old Equipment Notes to be
withdrawn, the principal amount of Old Equipment Notes delivered for exchange, a
statement that such holder is
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withdrawing his 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 WinStar Equipment 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. 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 Equipment 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 Issuer 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 Issuer will not be required to issue New Equipment
Notes in exchange for any properly tendered Old Equipment 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 WinStar Equipment's ability to proceed with the Exchange
Offer.
WinStar Equipment expressly reserves the right to terminate the Exchange
Offer and not accept for exchange any Old Equipment Notes upon the occurrence of
either of the foregoing conditions (which represent all of the material
conditions to the acceptance by WinStar Equipment of properly tendered Old
Equipment Notes).
The foregoing conditions are for the sole benefit of the Issuer and may be
waived by the Issuer 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 Issuer 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
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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 Issuer and its affiliates. No additional compensation will be
paid to any such officers and employees who engage in soliciting tenders.
The Issuer has 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 Equipment
Notes and in handling or forwarding tenders for exchange.
The expenses to be incurred by the Issuer 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 Equipment
Notes to the Exchange Agent, underwriting fees, or Commissions or transfer
taxes.
ACCOUNTING TREATMENT
The New Equipment Notes will be recorded at the same carrying value as the
Old Equipment Notes as reflected in the Issuer's accounting records on the date
of the exchange because the exchange of the Old Equipment Notes for the New
Equipment Notes is the completion of the selling process contemplated in the
issuance of the Old Equipment 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 Equipment Notes will be
amortized over the term of the New Equipment Notes.
OTHER MATTERS
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of the Old Equipment 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 WinStar Equipment.
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 or the Issuer since the 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 Equipment 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, WinStar
Equipment may, at its discretion, take such action as it may deem necessary
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to make the Exchange Offer in any such jurisdiction and extend the Exchange
Offer to holders of Old Equipment Notes in such jurisdiction.
As a result of the making of the Exchange Offer, the Issuer will have
fulfilled a covenant contained in the Registration Agreement. Holders of the
Old Equipment Notes who do not tender their Old Equipment Notes in the Exchange
Offer will continue to hold such Old Equipment Notes and will be entitled to all
the rights and limitations applicable thereto under the Equipment Notes
Indenture except for certain rights under the Registration Agreement and except
that certain of the Old Equipment Notes may not be entitled to the contingent
increase in interest rate provided for in the Old Equipment Notes. All
untendered Old Equipment Notes will continue to be subject to the restrictions
on transfer set forth in the Equipment Notes Indenture and the Old Equipment
Notes. To the extent that Old Equipment Notes are tendered and accepted in the
Exchange Offer, the trading market, if any, for untendered Old Equipment Notes
could be adversely affected.
WinStar Equipment will not receive any cash proceeds from the issuance of
the New Equipment Notes offered hereby. In consideration for issuing the New
Equipment Notes as contemplated in this Prospectus, WinStar Equipment will
receive in exchange Old Equipment Notes, in like principal amount, the terms of
which are identical to the New Equipment Notes except that such New Equipment
Notes will be registered under the Securities Act and, therefore, will not bear
legends restricting the transfer thereof. Old Equipment Notes surrendered in
exchange for New Equipment Notes will be retired and canceled and cannot be
reissued. Accordingly, issuance of the New Equipment Notes will not result in a
change in the indebtedness of the Company or WinStar Equipment.
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CAPITALIZATION
The following table sets forth the cash and capitalization of the
continuing operations of the Company as of June 30, 1997: (i) on an historical
basis and (ii) on a pro forma basis that gives effect to the consummation of the
Offering. The following table should be read in conjunction with the audited
Consolidated Financial Statements and related notes thereto incorporated by
reference in this Prospectus.
JUNE 30, 1997
------------------------
HISTORICAL PRO FORMA
---------- ---------
(IN THOUSANDS, EXCEPT
SHARE DATA)
Cash, cash equivalents and short-term investments $343,151 $391,632
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current portion of long-term debt and capital
lease obligations $7,896 $7,896
-------- --------
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS:
Notes -- 50,000
March 1997 Equipment Notes 200,000 200,000
1995 Senior Notes 188,551 188,551
March 1997 Senior Notes 104,142 104,142
Convertible Notes 94,275 94,275
Other notes 551 551
Capital lease obligations, net of current portion 25,984 25,984
-------- --------
Total long-term debt and capital lease obligations 613,503 663,503
-------- --------
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value, 15,000,000
shares authorized, 4,000,000 shares issued and
outstanding (with a liquidation preference
of $100,000,000) 41 41
Common Stock, $.01 par value, 200,000,000 shares
authorized, 33,064,000 shares issued and
outstanding(1) 331 331
Additional paid-in capital 248,298 248,298
Accumulated deficit (225,806) (225,806)
-------- --------
22,864 22,864
Unrealized loss on long-term investments (30) (30)
-------- --------
Total stockholders' equity 22,834 22,834
-------- --------
Total capitalization $644,233 $694,233
======== ========
___________
(1) Does not include (i) an aggregate of 1,078,796 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 7,490,000
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) 6,277,781 shares of Common Stock issuable upon exercise of other
outstanding options and warrants. Also does not include shares issuable
upon the conversion of the Series A Preferred Stock and/or the Convertible
Notes, nor dividends on Series A Preferred Stock which were paid in kind on
March 31, 1997 and June 30, 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.
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DESCRIPTION OF EQUIPMENT NOTES
The Old Equipment Notes were issued in the August 1997 Debt Placement under
the Indenture, dated as of August 1, 1997, between WinStar Equipment, as issuer,
WinStar Communications, Inc. (for the purposed of this Description of Notes,
"WCI"), as guarantor, and U.S. Trust, as Trustee. Copies of the form of
Indenture are available on request from WCI.
The New Equipment Notes will be issued under the Indenture. The form and
terms of the New Equipment Notes are the same as the form and terms of the Old
Equipment Notes, except that the New Equipment Notes will have been registered
under the Securities Act, and therefore, will not bear legends restricting
transfer thereof. The New Equipment Notes will evidence the same debt as the
Old Equipment Notes. Upon consummation of this Exchange Offering, the New
Equipment Notes will be treated as a single class under the Indenture with any
Old Equipment Notes remaining outstanding. Upon the consummation of this
Exchange Offer, holders of Old Equipment Notes may not be entitled to certain
registration rights under, or the contingent increase in interest rate provided
by, the Registration Agreement.
GENERAL
The New Equipment 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. No service charge will be made for any registration of
transfer or exchange of Old Equipment Notes, but the Issuer may require payment
of a sum sufficient to cover any transfer tax or other similar governmental
charge payable in connection therewith. The Old Equipment Notes may be exchanged
or transferred at the office or agency of the Issuer 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).
TERMS OF THE EQUIPMENT NOTES
The Equipment Notes are secured senior obligations of WinStar Equipment,
limited to $50.0 million aggregate principal amount, and will mature on March
15, 2004. Interest on the Equipment Notes accrues at a rate of 121/2% 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
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 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:
EQUIPMENT
NOTE REDEMPTION
YEAR PRICE
- ---- ---------------
2002....................................................... 106.250%
2003 and thereafter........................................ 103.125
SELECTION OF EQUIPMENT NOTES FOR OPTIONAL REDEMPTION
In the case of any partial optional redemption, selection of the Equipment
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which
such
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Equipment Notes are listed or, if such Equipment Notes are not listed on a
national securities exchange, on a pro rata basis, by lot or such other method
as the Trustee, in its sole discretion, shall deem fair and appropriate;
provided, however, that no Equipment Note of $1,000 in principal amount or less
shall be redeemed in part. If any Equipment Note is to be redeemed in part only,
the notice of redemption relating to such Equipment Note shall state the portion
of the principal amount thereof to be redeemed. A replacement 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.
MANDATORY REDEMPTION OF EQUIPMENT NOTES
In the event that by August 8, 1999, WinStar Equipment shall not have
applied at least $50.0 million to fund the Acquisition Costs of Designated
Equipment pursuant to the covenant described below under "--Covenants--Covenants
Relating to WinStar Equipment-Use of Proceeds" ($50.0 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 August 23, 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 Equipment Note is to be
redeemed in part only, an 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 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 Indenture and the
Equipment Notes, whether for principal of or interest on the Equipment Notes,
expenses, indemnifications or otherwise pursuant to the Equipment Note Guarantee
(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
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 Trustee, the Holders of Equipment Notes and their successors,
transferees and assigns.
SECURITY FOR THE EQUIPMENT NOTES
Pursuant to the Indenture and related documents, including the Security
Agreement, between WinStar Equipment and the Trustee, the 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 WinStar Equipment-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 Trustee, on
behalf of the Holders of the Equipment Notes, in addition to any other rights or
remedies available to it under the 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
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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 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 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 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
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 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 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--Limitation on Asset Sales."
RANKING
EQUIPMENT NOTE GUARANTEE
The Equipment Note Guarantee is an unsecured senior obligation of WCI,
ranks pari passu in right of payment with all existing and future senior
indebtedness of WCI, including the March 1997 Senior Notes, the March 1997
Guarantee and 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 June 30, 1997, after giving effect to the issuance of the Old Equipment
Notes, WCI would have had (on an unconsolidated basis) approximately $645.3
million of indebtedness (including the Equipment Note Guarantee), $551.0
million of which would have been senior indebtedness, and there would have been
no indebtedness junior to the Equipment Note Guarantee, 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 Equipment Note Guarantee. The Equipment Note Guarantee,
therefore, would be effectively subordinated to creditors (including trade
creditors) and preferred stockholders (if any) of subsidiaries of WCI (subject,
however, to a Holder's direct claim against WinStar Equipment). At June 30,
1997, after giving effect to the issuance of the Old Equipment Notes, the total
liabilities of WCI's subsidiaries were approximately $336.9 million, including
trade payables. Although the Indenture, the March Indentures and the 1995
Indentures limits 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
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qualifications. Moreover, the Indenture does not impose any limitation on the
incurrence by such subsidiaries of liabilities that are not considered
Indebtedness under the Indenture.
The 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
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 WinStar Equipment
- --Business Activities."
SAME-DAY PAYMENT
The Indenture requires that payments in respect of Equipment Notes
(including principal, premium and interest) be made by wire transfer of
immediately available funds to the accounts specified by the Holders thereof or,
if no such account in specified, by mailing a check to each such Holder's
registered address.
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 Issuer will be entitled to
close the Exchange Offer 30 days after the commencement thereof provided that it
has accepted all Old Equipment Notes theretofore validly tendered in accordance
with the terms of such Exchange Offer. After consummation of the Exchange
Offer, the Issuer will have no further obligation to make any other such
exchange offers.
REPURCHASE OF EQUIPMENT NOTES UPON A CHANGE OF CONTROL
WinStar Equipment must commence, within 30 days of the occurrence of a
Change of Control, and consummate, an Offer to Purchase for all of the Equipment
Notes then outstanding, at a purchase price equal to 101% of the principal
amount of such Equipment Notes, plus accrued and unpaid interest (if any) on
such amount to the date of purchase. Prior to the mailing of the notice to
Holders of Equipment 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 WinStar Equipment that would prohibit the repurchase of
the Equipment Notes pursuant to such Offer to Purchase or (ii) obtain any
requisite consents under instruments governing any such indebtedness of WinStar
Equipment to permit the repurchase of the Equipment Notes. WCI shall first
comply with the covenant in the preceding sentence before it shall repurchase
Equipment Notes pursuant to this "Repurchase of Equipment Notes Upon a Change of
Control" covenant.
If WCI is unable to repay all of WinStar Equipment's indebtedness that
would prohibit repurchase of the Equipment 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
Equipment Notes or otherwise fails to purchase any Equipment Notes validly
tendered, then WCI will have breached such covenant. This breach will constitute
an Event of Default under the Indenture if it continues for a period of 30
consecutive days after written notice is given to WCI by the Trustee or the
Holders of at least 25% in aggregate principal amount of the Equipment Notes
outstanding. In addition, the failure by WCI and WinStar Equipment to repurchase
Equipment 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 Equipment 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 Equipment Notes will, unless the
consents referred to above are obtained, require WCI or WinStar Equipment to
repay all indebtedness then outstanding
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which by its terms would prohibit such Equipment Note repurchase, either prior
to or concurrently with such Equipment Note repurchase.
COVENANTS
LIMITATION ON INDEBTEDNESS
(a) Under the terms of the Indenture, WCI will not, and will not permit
any of its Restricted Subsidiaries to, Incur any Indebtedness (other than the
Equipment 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
Equipment Notes or Indebtedness that is PARI PASSU with, or subordinated in
right of payment to, the Equipment Note Guarantee shall only be permitted under
this clause (iii) if (A) the Equipment Notes are refinanced in part or the
Indebtedness to be refinanced is PARI PASSU with the Equipment Note Guarantee
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
Equipment 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
Equipment Note Guarantee, 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 Equipment
Note Guarantee, at least to the extent that the Indebtedness to be refinanced is
subordinated to the Equipment Note Guarantee 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 not mature prior to the Stated Maturity of the Equipment Notes and has
an Average Life longer than the Equipment Notes and (y) is subordinated to 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
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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 Convertible Notes, 1995 Senior Notes, March 1997 Notes or
Equipment 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 the Indenture, 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 Equipment Note Guarantee 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 Indenture 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 Equipment Notes) plus (3) an
amount equal to the net
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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
Equipment Note Guarantee 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 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 Equipment Notes or
Indebtedness that is PARI PASSU with the Equipment Note Guarantee 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.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES
Under the terms of the Indenture, 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
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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 Indenture 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 "Limitation on Liens" covenant described below.
LIMITATION ON THE ISSUANCE AND SALE OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES
Under the terms of the Indenture, 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 the Indenture, 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 Equipment
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 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 Equipment Note Guarantee then the Guarantee of such
Guaranteed Indebtedness shall be PARI PASSU with, or subordinated to, the
Subsidiary Guarantee or (B) subordinated to the Equipment Note Guarantee 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 Equipment Note Guarantee.
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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 the Indenture, 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 the Indenture, 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 (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."
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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 the principal amount of the Equipment
Notes, plus accrued and unpaid interest (if any) on such amount to the date of
purchase.
Because of similar requirements in the indentures governing the 1995 Senior
Notes, 1997 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 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 Trustee a
security interest in such additional Designated Equipment pursuant to the
covenant described under "--Covenants-Covenants Relating to WinStar Equipment-
Purchase Money Security Interests."
LIMITATION ON LIENS
Under the terms of the Indenture, 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 the Equipment Note Guarantee
and all other amounts due under the Indenture 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 Equipment Note
Guarantee 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.
LIMITATION ON SALE-LEASEBACK TRANSACTIONS
Under the terms of the Indenture, 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
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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 WINSTAR EQUIPMENT
BUSINESS ACTIVITIES
Under the terms of the 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--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
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 Issue Date,
WinStar Equipment acquired Designated Equipment having an Acquisition Cost of
$2.7 million. The gross proceeds not applied on the Issue Date to acquire
Designated Equipment pursuant to this covenant have been 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
Upon the acquisition by WinStar Equipment of Designated Equipment, WinStar
Equipment took such action as was required to vest in the Trustee a security
interest in such Designated Equipment, for the benefit of the Holders of
Equipment Notes, so that all provisions of the Indenture relating to Collateral
shall be deemed to relate to and include such Designated Equipment. On the
Issue Date and from time to time if requested by the Trustee, WinStar Equipment
executed such security instruments and financing statements as was 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 Indenture.
IMPAIRMENT OF SECURITY INTEREST
Under the terms of the Indenture, WinStar Equipment will, and WCI will
cause WinStar Equipment to maintain the effectiveness of the UCC-1s filed in
each state in the United States covering all Designated Equipment acquired by
WinStar Equipment pursuant to the August 1997 Debt Placement by filing 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 Trustee on behalf of Holders of the Equipment Notes) any security
interest in the Collateral.
OWNERSHIP OF WINSTAR EQUIPMENT
Under the terms of the Indenture, WCI will at all times own all the Capital
Stock of WinStar Equipment.
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SEC REPORTS AND REPORTS TO HOLDERS
Whether or not WCI is required to file reports with the SEC, if any
Equipment 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 Equipment Notes, or shall supply to the
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
Under the terms of the Indenture, 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 the Equipment Note
Guarantee and under the 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 Equipment
Note Guarantee 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 Equipment Note
Guarantee could Incur at least $1.00 of Indebtedness under the first paragraph
of the covenant described under "--Covenants--Limitation on Indebtedness;" and
(v) WCI delivers to the 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 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 Trustee, all of the obligations of
WinStar Equipment on all of the Equipment Notes and under the 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 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 the
Indenture: (i) default in the payment of principal of (or premium, if any, on)
any Equipment Note when the same becomes due and payable at maturity, upon
acceleration, redemption or otherwise; (ii) default in the payment of interest
on any Equipment Note 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 Indenture or
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under the Equipment Notes and such default or breach continues for a period of
30 consecutive days after written notice by the Trustee or the Holders of 25% or
more in aggregate principal amount of Equipment Notes; (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 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 Indenture if (i) any of the provisions
of the 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 Equipment Notes then outstanding, by
written notice to WCI (and to the Trustee if such notice is given by the
Holders), may, and the Trustee at the request of such Holders shall, declare the
principal of, premium, if any, and accrued interest, if any, on the Equipment
Notes 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 Equipment Notes then outstanding shall ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder. The Holders of at least a majority in principal
amount of the outstanding Equipment Notes by written notice to WCI and to the
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
Equipment Notes 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 Equipment Notes may direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee or exercising any trust
or power conferred on the Trustee. However, such Trustee may refuse to follow
any direction that conflicts with law or
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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 Equipment Notes 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 Equipment Notes. A Holder may not
pursue any remedy with respect to the Indenture or the Equipment Notes unless:
(i) the Holder gives the Trustee written notice of a continuing Event of
Default; (ii) the Holders of at least 25% in aggregate principal amount of
outstanding Equipment Notes make a written request to the Trustee to pursue the
remedy; (iii) such Holder or Holders offer the 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 Equipment Notes do not give the
Trustee a direction that is inconsistent with the request. However, such
limitations do not apply to the right of any Holder of an Equipment Note to
receive payment of the principal of, premium, if any, or interest on, such
Equipment Note or to bring suit for the enforcement of any such payment, on or
after the due date expressed in the Equipment Notes which right shall not be
impaired or affected without the consent of the Holder.
The Indenture requires 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 Indenture 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 Trustee of any
default or defaults in the performance of any covenants or agreements under the
Indenture.
DEFEASANCE
DEFEASANCE AND DISCHARGE. The Indenture provides that WCI and WinStar
Equipment will be deemed to have paid and will be discharged from any and all
obligations in respect of the Equipment Notes 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 Equipment Notes (except for, among other matters,
certain obligations to register the transfer or exchange of the Equipment Notes
to replace stolen, lost or mutilated Equipment Notes to maintain paying
agencies, to hold monies for payment in trust), including in the case of the
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) WinStar Equipment has deposited with the 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 Equipment Notes on the Stated Maturity of such payments or upon
earlier optional redemption, in each case in accordance with the terms of the
Indenture and the Equipment Notes, (B) WinStar Equipment has delivered to the
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
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 Equipment Notes are listed on a
national securities exchange, WinStar Equipment has delivered to the Trustee an
Opinion of Counsel to the effect that the Equipment Notes will not be delisted
as a result of such deposit, defeasance and discharge.
DEFEASANCE OF CERTAIN COVENANTS AND CERTAIN EVENTS OF DEFAULT. The
Indenture further provides that their provisions will no longer be in effect
with respect to clauses (iii) and (iv) under "Consolidation, Merger and Sale of
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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 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 Equipment Notes on the Stated Maturity of such payments
or upon earlier optional redemption, in each case in accordance with the terms
of the Indenture and the Equipment Notes the satisfaction of the provisions
described in clauses (B)(ii), (C) and (D) of the preceding paragraph and the
delivery by WinStar Equipment to the 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.
DEFEASANCE AND CERTAIN OTHER EVENTS OF DEFAULT. In the event WinStar
Equipment exercises its option to omit compliance with certain covenants and
provisions of the Indenture with respect to the Equipment Notes as described in
the immediately preceding paragraph and the Equipment Notes 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 Trustee will be sufficient to pay amounts due on the Equipment Notes at
the time of their Stated Maturity but may not be sufficient to pay amounts due
on the Equipment Notes at the time of the acceleration resulting from such Event
of Default. However, WinStar Equipment will remain liable for such payments.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by WinStar
Equipment and the Trustee with the consent of the Holders of not less than a
majority in aggregate principal amount of the outstanding Equipment Notes;
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 Equipment Note, (ii) reduce
the principal amount of, or premium, if any, or interest on, any Equipment Note,
(iii) change the place or currency of payment of principal of, or premium, if
any, or interest on, any Equipment 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 Equipment Note,
(v) reduce the above-stated percentage of outstanding Equipment Notes 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 Equipment Notes, (vii) reduce the percentage or aggregate
principal amount of outstanding or Equipment Notes 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) 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 Equipment Notes WinStar Equipment
and the Trustee may modify or amend the 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 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
WinStar Equipment 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 Indenture provides that no recourse for the payment of the principal
of, premium, if any, or interest on any of the Equipment Notes or for any claim
based thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of WinStar Equipment in such Indenture, or in
the Equipment 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 Equipment Notes, waives and releases all such
liability.
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CONCERNING THE TRUSTEE
The Indenture provides 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 the 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 Indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee, should it
become a creditor of WinStar Equipment 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 Trustee is 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 Indenture. Reference is made to the
Indenture for the full definition of all terms as well as any other capitalized
term used herein for which no definition is provided.
"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 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
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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.
"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.
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"Closing Date" means the date on which the Old Equipment Notes were
originally issued under the 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 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.
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"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 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,
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
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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 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
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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 Equipment Notes by 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 Trustee and each Holder stating: (i) the covenant
pursuant to which the offer is being made and that all Equipment Notes 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 Equipment Note not tendered will continue to accrue
interest pursuant to its terms; (iv) that, unless WinStar Equipment defaults in
the payment of the purchase price, any Equipment Note 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 Equipment Note purchased
pursuant to the Offer to Purchase will be required to surrender the Equipment
Note 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
principal amount of Equipment Notes delivered for purchase and a statement that
such Holder is withdrawing his election to have such Equipment Notes purchased;
and (vii) that Holders whose Equipment Notes are being purchased only in part
will be issued new Equipment Notes equal in principal amount (and accrued and
unpaid interest) to the unpurchased portion thereof; PROVIDED, HOWEVER, that
each Equipment Note purchased and each new Equipment Note issued shall be in a
principal amount of $1,000 or integral multiples thereof. On the Payment Date,
WinStar Equipment shall (i) accept for payment on a pro rata basis Equipment
Notes 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 Equipment Notes or portions thereof so accepted; and (iii) deliver, or cause
to be delivered, to the Trustee all Equipment Notes or portions thereof so
accepted together with an Officers' Certificate specifying the Equipment Notes
or portions thereof accepted for payment by WinStar Equipment. The Paying Agent
shall promptly mail to the Holders of Equipment Notes 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 Equipment Note equal in principal
amount to any unpurchased portion of the Equipment Note surrendered; PROVIDED,
HOWEVER, that each Equipment Note purchased and each new Equipment Note issued
shall be in a principal amount of $1,000 or integral multiples thereof. WinStar
Equipment will publicly announce the results of an Offer to Purchase as soon as
practicable after the Payment Date. The 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
Equipment Notes pursuant to an Offer to Purchase.
"1995 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
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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 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.
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"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 August 8,
1997, between WinStar Equipment and United States Trust Company of New York, as
collateral agent.
"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.
"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
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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 Equipment Corp., 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" 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.
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"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.
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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 EQUIPMENT
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 Equipment 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 Equipment Notes for New
Equipment 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 Equipment 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 Equipment 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 EQUIPMENT NOTES FOR NEW EQUIPMENT
NOTES AND PURCHASING, HOLDING AND DISPOSING OF THE NEW EQUIPMENT NOTES,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
EXCHANGE FOR OLD EQUIPMENT NOTES
The exchange by a holder of an Old Equipment Note for a New Equipment Note
does not constitute a taxable exchange because the New Equipment Notes do not
differ materially in kind or extent from the Old Equipment Notes. Each New
Equipment Note will be treated as having been originally issued at the time the
Old Equipment Note exchanged therefor was originally issued. The tax basis and
holding period of each Old Equipment Note will carry over to the New Equipment
Note issued in exchange of each Old Equipment 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.
MARKET DISCOUNT. If a U.S. Holder purchased Old Equipment Notes for an
amount that is less than the revised issue price of the Old Equipment 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"). 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 Equipment 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 Equipment Notes at the time of such payment or
disposition. If a holder makes a gift of a New Equipment 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 Equipment Notes or the earlier
disposition of the New Equipment 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 Equipment Notes.
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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
Equipment Notes, unless a holder elects to accrue market discount on a constant
interest method. A holder of New Equipment 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 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 Internal Revenue Service
(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 Equipment
Note will recognize gain or loss upon the sale, exchange, redemption, or other
taxable disposition of such New Equipment Note measured by the difference
between (i) the amount of cash and the fair market value of property received
(except to the extent attributable to accrued but unpaid interest) and (ii) the
U.S. Holder's adjusted tax basis in the New Equipment Note. A U.S. Holder's
adjusted tax basis for determining gain or loss on the sale or other
disposition of a New Equipment Note will initially equal the cost of the Old
Equipment Note to such U.S. Holder and will be increased by 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 Equipment 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 Equipment Notes have been held for more than one
year. Under the Taxpayer Relief Act of 1997 lower capital gains rates apply
to the sale or exchange of assets held for at least 18 months.
ELECTIONS. A U.S. Holder of New Equipment Notes, subject to certain
limitations, may elect to include all stated and unstated interest and discount
on the New Equipment 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 Equipment Notes.
INFORMATION REPORTING AND BACKUP WITHHOLDING. The Company will report
annually to the Service and to non-corporate record holders of the New Equipment
Notes amounts of interest paid during the calendar year. The "backup"
withholding and information reporting requirements may apply to certain payments
of principal and interest on a New Equipment 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.
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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 on the New Equipment Notes, provided that (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 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 Equipment 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 Equipment 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 Equipment 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 Equipment Note is engaged in a trade or
business in the United States and interest on the New Equipment 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 and on any gain realized on the sale,
exchange or other disposition of a New Equipment 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.
FEDERAL ESTATE TAX
New Equipment 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 Equipment 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.
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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 on the New Equipment Notes.
Payment by the Company of principal on the New Equipment Notes or payment
by a United States office of a broker of the proceeds of a sale of New Equipment
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 Equipment Notes.
In general, backup withholding and information reporting will not apply to
a payment of the gross proceeds of a sale of New Equipment 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 EQUIPMENT 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 EQUIPMENT NOTES FOR NEW EQUIPMENT NOTES AND PURCHASE,
OWNERSHIP AND DISPOSITION OF THE NEW EQUIPMENT 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.
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DESCRIPTION OF CERTAIN INDEBTEDNESS AND PREFERRED STOCK
INDEBTEDNESS
MARCH 1997 DEBT PLACEMENT
In March 1997, the Company and Original Equipment Corp. issued an aggregate
of $300 million of notes in the March 1997 Debt Placement.
The March 1997 Debt Placement consisted of (i) $100 million of the March
1997 Senior Notes, ranking PARI PASSU with the Company's 1995 Senior Notes, and
(ii) $200 million of the March 1997 Equipment Notes. The obligations of
Original Equipment Corp. under the March 1997 Equipment Notes are
unconditionally guaranteed by the Company, and the March 1997 Equipment Notes
are secured by a security interest in the equipment and other property purchased
by Original Equipment Corp. with the proceeds thereof.
Until October 15, 2000, interest on the March 1997 Senior Notes will accrue
and compound semiannually, but will not be payable in cash. Interest on the
Accumulated Amount (as defined in the March Indentures) of the March 1997 Senior
Notes as of October 15, 2000 will be payable semiannually in cash on April 15
and October 15 of each year commencing April 15, 2001. Interest on the March
1997 Equipment Notes is payable semiannually on September 15 and March 15 of
each year, commencing September 15, 1997.
The proceeds of the March 1997 Senior Notes are being used by the Company
for working capital purposes in the development and expansion of its
telecommunications and other business operations. Original Equipment Corp. is
required to use, and is using, the proceeds of the March 1997 Equipment Notes to
acquire telecommunications equipment, inventory and related software and other
property used in the telecommunications business for lease to the Company's
operating subsidiaries and others and to pay certain costs, including
installation costs, related thereto. In the event the $200 million proceeds
from the sale of the March 1997 Equipment Notes have not been so applied by
March 18, 1999, Original Equipment Corp. is required to redeem outstanding March
1997 Equipment Notes having an aggregate principal amount equal to the amount of
such unutilized proceeds, pro rata from the holders thereof, at a price equal to
112.50% of the principal amount thereof as of such date.
Under the March Indentures, the Company and Original Equipment Corp. are
subject to restrictions substantially similar to the restrictions on the Company
contained in the 1995 Indentures. Such restrictions include, among others,
restrictions with respect to the incurrence of additional indebtedness, the
creation of liens or encumbrances, the making of certain restricted payments,
including investments outside the Company's telecommunications operations, and
sales of assets, in each case, of the Company and certain of its subsidiaries,
and changes of control of the Company. Moreover, Original Equipment Corp. is
restricted from engaging in any business other than the ownership and leasing of
the Designated Equipment and related activities.
1995 DEBT PLACEMENT
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
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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.
EQUIPMENT LEASE FINANCINGS AND CREDIT LINES
WinStar Wireless, Inc. ("WinStar Wireless") is a party to 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.
WinStar Gateway is a party to a Loan and Security Agreement ("CIT Loan
Agreement") with The CIT Group/Credit Finance, Inc. ("CIT"), pursuant to which
CIT has 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
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.
WinStar Global Products is a party to an Amended and Restated Credit and
Security Agreement (as amended, the "Credit Agreement") with IBJ Schroder Bank &
Trust Company ("IBJ"), pursuant to which IBJ has agreed to make a $10.0 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
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("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, WinStar Wireless, consummated a $10 million
sale/leaseback of 38 GHZ radios. The Company may enter into additional
financing arrangements for switches, radios and other equipment on similar terms
in the future.
In connection with the March 1997 Debt Placement, in order to provide
additional future liquidity to the Company, the Company obtained a $150 million
facility from affiliates of the Initial Purchasers in March 1997. The Company
continues to have available $100 million of such facility (the August 1997 Debt
Placement by WinStar Equipment having reduced availability by $50 million),
which subject to the Company satisfying various operating and financial
criteria, may be drawn by the Company on March 31, 1999. The amount of the
commitment may be further reduced in certain circumstances, including as a
result of the issuance of additional securities by the Company prior to March
31, 1999.
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 became 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 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
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the Common Stock for the 20 consecutive trading days ending one trading day
prior to such conversion date, equal to the Liquidation Preference. To date, no
shares of Series A Preferred Stock have been converted into shares of Common
Stock.
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.
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 separate from the Common Stock and one not exercisable and will
only separate from the Common Stock and become exercisable 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
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 Equipment Notes for its own account
pursuant to this Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Equipment 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 Equipment Notes received in
exchange for Old Equipment Notes where such Old Equipment Notes were acquired as
a result of market-making activities or other trading activities. The Issuer
has agreed that, for a period of 180 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 all dealers effecting transactions in the New Equipment Notes
may be required to deliver a prospectus.
The Issuer will not receive any proceeds from any sale of New Equipment
Notes by broker-dealers. New Equipment 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 Equipment Notes or a
combination of such methods of resale, at market prices prevailing at the time
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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
Equipment Notes. Any broker-dealer that resells New Equipment 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 Equipment Notes may
be deemed to be an "underwriter" within the meaning of the Securities Act and
any profit on any such resale of New Equipment 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 180 days after the Expiration Date (or such longer period
as required by the terms of the Registration Agreement), the Issuer 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 Equipment Notes to
the Exchange Agent and will indemnify the holders of the Old Equipment Notes
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
The legality of the New Equipment 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.
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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 shall have power to 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 the person 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 the person
in connection with such action, suit or proceeding if the person acted in
good faith and in a manner the person 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 the
person's 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 the person
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 the person's conduct was unlawful.
(b) A corporation shall have power to 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
judgment in its favor by reason of the fact that the person 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
the person in connection with the defense or settlement of such action or suit
if the person acted in good faith and in a manner the person 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 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 the person has
met the applicable standard of conduct set forth in subsections (a) and (b) of
this section. Such determination shall be made (1) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even though
less than a quorum, or (2) if there are no such directors, or if such directors
so direct, by independent legal counsel in a written opinion, or (3) by the
stockholders.
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(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit 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 he is not entitled to be indemnified by
the corporation as authorized in this section. Such expenses (including
attorney's fees) 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 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 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 any 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 and 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.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person."
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 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 of
1933 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 a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
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ITEM 21. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
4.1 Form of New Equipment Note
5.1 Opinion of Graubard Mollen & Miller
12.1 Statements Re: Computation of Ratios
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
99.1 Form of Letter of Transmittal for Exchange of Equipment Notes
99.2 Form of Notice of Guaranteed Delivery
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 to 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. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high and of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
registrant pursuant to Section 13 or 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.
II-3
<PAGE>
(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 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.
(c) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
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 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 19th day of
September, 1997.
WINSTAR COMMUNICATIONS, INC.
By: /s/ William J. Rouhana, Jr.
--------------------------------
William J. Rouhana, Jr.
Chairman of the Board of Directors
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints William J. Rouhana, Jr. and Fredric E. von Stange
his true and lawful attorneys-in-fact and agents, each acting alone, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any or all amendments to this
Registration Statement, including post-effective amendments, and to file the
same, with all exhibits thereto, and all documents in connection therewith, with
the Commission, granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all that said attorneys-in-fact and agents, each acting alone, or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
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.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ William J. Rouhana, Jr. Chairman of the Board of Directors and Chief September 19, 1997
- ----------------------------- Executive Officer (and principal executive officer)
William J. Rouhana, Jr.
/s/ Nathan Kantor President, Chief Operating Officer and Director September 19, 1997
- -----------------------------
Nathan Kantor
/s/ Steven G. Chrust Vice Chairman of the Board of Directors September 19, 1997
- -----------------------------
Steven G. Chrust
/s/ Fredric E. von Stange Executive Vice President, Chief Financial Officer September 19, 1997
- ----------------------------- and Director (and principal accounting officer)
Fredric E. von Stange
/s/ Bert W. Wasserman Director September 19, 1997
- -----------------------------
Bert W. Wasserman
/s/ William J. vanden Heuvel Director September 19, 1997
- -----------------------------
William J. vanden Heuvel
/s/ Steven B. Magyar Director September 19, 1997
- -----------------------------
Steven B. Magyar
/s/ James I. Cash Director September 19, 1997
- -----------------------------
James I. Cash
- ----------------------------- Director September 19, 1997
Dennis Patrick
</TABLE>
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
4.1 Form of New Equipment Note
5.1 Opinion of Graubard Mollen & Miller
12.1 Statements Re: Computation of Ratios
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
99.1 Form of Letter of Transmittal for Exchange of Equipment Notes
99.2 Form of Notice of Guaranteed Delivery
<PAGE>
Exhibit 4.1
WINSTAR EQUIPMENT II CORP.
12 1/2% Guaranteed Senior Secured Exchange Note Due 2004
CUSIP 975518AA9
No. R2-01 $50,000,000
WINSTAR EQUIPMENT II CORP., a Delaware corporation (the "Company",
which term includes any successor under the Indenture hereinafter referred to),
for value received, promises to pay to CEDE & CO., or its registered assigns,
the principal sum of FIFTY MILLION DOLLARS ($50,000,000) on March 15, 2004.
Interest Payment Dates: March 15 and September 15, commencing
September 15, 1997.
Regular Record Dates: March 1 and September 1.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
<PAGE>
2
IN WITNESS WHEREOF, the Company has caused this Note to be signed manually
or by facsimile by its duly authorized officer.
WINSTAR EQUIPMENT II CORP.
By:
-----------------------------------
Name: Kenneth J. Zinghini
Title: Vice President
By:
-----------------------------------
Name: Frederic E. Rubin
Title: Treasurer
This is one of the 12 1/2% Guaranteed Senior Secured Notes Due 2004
described in the within-mentioned Indenture.
Date: ___________ __, 1997 UNITED STATES TRUST COMPANY OF NEW YORK,
as Trustee
By:
-----------------------------------
Authorized Signatory
<PAGE>
3
WINSTAR EQUIPMENT II CORP.
12 1/2% Guaranteed Senior Secured Exchange Note Due 2004
1. Principal and Interest.
The Company will pay the principal of this Note on March 15, 2004.
The Company promises to pay interest on the principal amount of this
Note on each Interest Payment Date, as set forth below, at the rate per annum
shown above.
Interest will be payable semiannually (to the holders of record of
the Notes at the close of business on the March 1 and September 1 immediately
preceding the relevant Interest Payment Date) on each Interest Payment Date,
commencing September 15, 1997.
Interest on the Notes will accrue from the most recent Interest
Payment Date; provided, however, that, if there is no existing default in the
payment of interest and this Note is authenticated between a Regular Record Date
referred to on the face hereof and the next succeeding Interest Payment Date,
interest shall accrue from such Interest Payment Date. Interest will be computed
on the basis of a 360-day year of twelve 30-day months. Notwithstanding the
above, (i) if a Registration Default (as defined in the Registration Rights
Agreement) occurs, additional interest will accrue on this Note at a rate of
0.50% per annum from and including the date on which any such Registration
Default shall occur to but excluding the earlier of (x) the date on which all
Registration Defaults have been cured and (y) the date on which all Notes become
freely transferable by Holders other than Affiliates of the Company without
further registration under the Securities Act.
The Company shall pay interest on overdue principal and premium, if
any, and (to the extent lawful) interest on overdue installments of interest.
2. Method of Payment.
The Company will pay principal as provided above and interest (except
defaulted interest) on the principal amount of the Notes as provided above on
each March 15 and September 15 to the persons who are Holders (as reflected in
the Security Register at the close of business on the March 1 and September 1
immediately preceding the relevant Interest Payment Date), in each case, even if
the Note is canceled on registration of transfer or registration of exchange
after such record date; provided, however, that, with respect to the payment of
principal, the Company will not make payment to the Holder unless this Note is
surrendered to a Paying Agent.
<PAGE>
4
The Company will pay principal and interest in money of the United States
that at the time of payment is legal tender for payment of public and private
debts. Payments in respect of the Notes represented by a global Note (including
principal, premium and interest) will be made by wire transfer of immediately
available funds to the accounts specified by The Depository Trust Company. The
Company will make all payments in respect of a certificated Note (including
principal, premium and interest) by mailing a check to the registered address of
each Holder thereof; provided, however, that payments on a certificated Note
will be made by wire transfer to a U.S. dollar account maintained by the payee
with a bank in the United States if such Holder elects payment by wire transfer
by giving written notice to the Trustee or the Paying Agent to such effect
designating such account no later than 30 days immediately preceding the
relevant due date for payment (or such other date as the trustee may accept in
its discretion).
3. Paying Agent and Registrar.
Initially, United States Trust Company of New York (the "Trustee")
will act as authenticating agent, Paying Agent and Registrar. The Company may
change any authenticating agent, Paying Agent or Registrar without notice. The
Company, any Subsidiary or any Affiliate of any of them may act as Paying Agent,
Registrar or co-Registrar.
4. Indenture.
The Company issued the Notes under an Indenture dated as of August
1, 1997 (the "Indenture"), among the Company, WinStar Communications, Inc., as
guarantor (the "Guarantor") and the Trustee. Capitalized terms herein are used
as defined in the Indenture unless otherwise indicated. The terms of the Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act. The Notes are subject to all such terms,
and Holders are referred to the Indenture and the Trust Indenture Act for a
statement of all such terms. To the extent permitted by applicable law, in the
event of any inconsistency between the terms of this Note and the terms of the
Indenture, the terms of the Indenture shall control.
The Notes are secured senior indebtedness of the Company. The
Indenture limits the original aggregate principal amount of the Notes to
$50,000,000 (subject to Section 2.07 of the Indenture).
5. Optional Redemption.
The Notes will not be redeemable prior to March 15, 2002.
Thereafter, the Notes will be redeemable, at the Company's option, in whole at
any time or in part from time to time on or after March 15, 2002 and prior to
maturity, upon not less than 30 nor more than 60 days' prior notice mailed by
first-class mail to each Holders' last address as it appears in the Security
Register, at the following Redemption Prices (expressed as a percentage of the
principal amount of the Notes, plus accrued and unpaid interest, if any, on such
amount to the
<PAGE>
5
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 on March 15 of the years set forth below:
Year Redemption Price
---- ----------------
2002 106.250%
2003 and thereafter 103.125%
6. Mandatory Redemption.
In the event that by August 8, 1999, the Company shall not have
applied at least $50.0 million to fund the Acquisition Costs of Designated
Equipment pursuant to the Indenture ($50.0 million less the amount so applied
being herein called the "Unused Equipment Amount"), the Company shall redeem
Notes in an aggregate principal amount equal to the Unused Equipment Amount at a
redemption price of 112.5 % 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 Regular Record Date that is on or prior to the Redemption
Date to receive interest due on the relevant Interest Payment Date). The
mandatory redemption shall occur no later than August 23, 1999.
Selection of the Notes for mandatory redemption will be made on a
pro rata basis; provided, however, that no Note of $1,000 in principal amount or
less shall be redeemed in part. If any Notes are to be redeemed in part only, a
new 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 Note.
7. Notice of Redemption.
Notice of any optional redemption will be mailed by the Company at
least 30 days but not more than 60 days before a Redemption Date, and notice of
a mandatory redemption will be mailed by the Company at least 10 Business Days
but not more than 15 Business Days before a Redemption Date, in each case, to
each Holder of Notes to be redeemed at his last address as it appears in the
Security Register. Notes in original denominations larger than $1,000 may be
redeemed in part; provided, however, that Notes will only be issued in
denominations of $1,000 principal amount or integral multiples thereof. On and
after the Redemption Date, interest ceases to accrue on Notes (or portions of
Notes) called for redemption, unless the Company defaults in the payment of the
Redemption Price.
<PAGE>
6
8. Repurchase upon Change in Control.
Upon the occurrence of a Change of Control, each Holder shall have the
right to require the repurchase of its Notes by the Company in cash pursuant to
the offer described in the Indenture at a purchase price equal to 101% of the
principal amount of such Notes on such date of purchase, plus accrued and unpaid
interest, if any, on such amount to the date of purchase (the "Change of Control
Payment").
A notice of such Change of Control will be mailed within 30 days after any
Change of Control occurs to each Holder at his last address as it appears in the
Security Register. Notes in original denominations larger than $1,000 may be
sold to the Company in part; provided, however, that Notes will only be issued
in denominations of $1,000 principal amount at maturity or integral multiples
thereof. On and after the Change of Control Payment Date, interest ceases to
accrue on Notes or portions of Notes surrendered for purchase by the Company,
unless the Company defaults in the payment of the Change of Control Payment.
9. Guarantee.
The Notes are guaranteed on a senior unsubordinated basis by the Guarantor
to the extent provided in the Indenture.
10. Collateral and Security Documents.
To secure the due and punctual payment of the principal of, premium if
any, and interest on the Notes and all other amounts payable by the Company
under the Indenture and the Notes when and as the same shall be due and payable,
whether at maturity, by acceleration or otherwise, the Grantor has granted
security interests in the Collateral to the Collateral Agent for the benefit of
the Holders of Notes pursuant to the Security Documents.
11. Denominations; Transfer; Exchange.
The Notes are in registered form without coupons in denominations of
$1,000 of principal amount and integral multiples thereof. A Holder may register
the transfer or exchange of Notes in accordance with the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not register the transfer
or exchange of any Notes selected for redemption. Also, it need not register the
transfer or exchange of any Notes for a period of 15 days before a selection of
Notes to be redeemed is made.
12. Persons Deemed Owners.
A Holder shall be treated as the owner of a Note for all purposes.
<PAGE>
7
13. Unclaimed Money.
If money for the payment of principal, premium, if any, or interest
remains unclaimed for two years, the Trustee and the Paying Agent will pay the
money back to the Company at its request. After that, Holders entitled to the
money must look to the Company for payment, unless an applicable law designates
another Person, and all liability of the Trustee and such Paying Agent with
respect to such money shall cease.
14. Discharge Prior to Redemption or Maturity.
Subject to certain conditions, the Company at any time may terminate some
or all of its obligations under the Notes, the Indenture and the Security
Documents, and the Guarantor may terminate its obligations under the Equipment
Note Guarantee, if the Company deposits with the Trustee money or U.S.
Government Obligations for payment of principal and interest on the Notes to
redemption or maturity, as the case may be.
15. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture or the Notes may be
amended or supplemented with the consent of the Holders of at least a majority
in principal amount of the Notes then outstanding, and any existing default or
compliance with any provision may be waived with the consent of the Holders of
at least a majority in principal amount of the Notes then outstanding. Without
notice to or the consent of any Holder, the parties thereto may amend or
supplement the Indenture or the Notes to, among other things, cure any
ambiguity, defect or inconsistency and make any change that, in the opinion of
the Board of Directors of the Company, does not materially and adversely affect
the rights of any Holder.
16. Restrictive Covenants.
The Indenture imposes certain limitations on the ability of the
Guarantor and its Restricted Subsidiaries, among other things, 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 make certain other restricted payments; sell assets; issue or
sell stock of Restricted Subsidiaries; enter into transactions with stockholders
or affiliates; or, with respect to the Company, to incur any indebtedness other
than the Notes; engage in any other business activities; apply the gross
proceeds from the sale of the Notes to uses other than the acquisition of
Designated Equipment; fail to take action to vest a security interest in the
Designated Equipment in the Trustee; fail to file proper UCC-ls and UCC-3s;
consolidate, merge or sell all or substantially all of its assets. Within 90
days after the end of the last fiscal quarter of each year, the Company must
report to the Trustee on compliance with such limitations.
<PAGE>
8
17. Successor Persons.
Generally, when a successor person or other entity assumes all the
obligations of its predecessor under the Notes and the Indenture, the
predecessor person will be released from those obligations.
18. Defaults and Remedies.
The following events constitute "Events of Default" under the
Indenture: (a) default in the payment of principal of (or premium, if any, on)
any Note when the same becomes due and payable, upon acceleration, redemption or
otherwise; (b) default in the payment of interest on any Note when the same
becomes due and payable, and such default continues for a period of 30 days; (c)
the Company or WCI defaults in the performance of or breaches any other covenant
or agreement of the Company or WCI in the Indenture or under the Notes or the
Security Documents and such default or breach continues for a period of 30
consecutive days after written notice by the Trustee or the Holders of 25% or
more in aggregate principal amount of the Notes; (d) there occurs with respect
to any issue or issues of Indebtedness of WCI or any Significant Subsidiary
having an outstanding principal amount of $25,000,000 or more in the aggregate
for all such issues of all such Persons, whether such Indebtedness now exists or
shall hereafter be created, (i) 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 (ii) 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; (e) any
final judgment or order (not covered by insurance) for the payment of money in
excess of $25,000,000 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 $25,000,000 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; (f) a court having jurisdiction in the
premises enters a decree or order for (i) 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, (ii) 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 or any Significant Subsidiary or (iii) 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; (g) WCI or any Significant Subsidiary (i)
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, (i) consents to the
appointment of or taking possession by a receiver,
<PAGE>
9
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 (iii) effects any
general assignment for the benefit of creditors; (h) any of the provisions of
the 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, power and privileges purported to be created thereby; or (i)
the Equipment Note Guarantee shall cease to be in full force and effect (other
than in accordance with its terms) or the Guarantor shall deny or disaffirm its
obligations under the Equipment Note Guarantee.
If an Event of Default (other than an Event of Default specified in clause
(f) or (g) above that occurs with respect to the Company or WCI) occurs and is
continuing under the Indenture, the Trustee or the Holders of at least 25% in
aggregate principal amount of the Notes, then outstanding, by written notice to
the Company (and to the Trustee if such notice is given by the Holders), may,
and the Trustee at the request of such Holders shall, declare the principal of,
premium, if any, and accrued interest, if any, on the Notes to be immediately
due and payable. If a bankruptcy or insolvency default with respect to the
Company or any Restricted Subsidiary occurs and is continuing, the principal
amount of the Notes automatically becomes due and payable. Holders may not
enforce the Indenture or the Notes except as provided in the Indenture. The
Trustee may require indemnity satisfactory to it before it enforces the
Indenture or the Notes. Subject to certain limitations, Holders of at least a
majority in principal amount of the Notes then outstanding may direct the
Trustee in its exercise of any trust or power.
19. Trustee Dealings with Company.
The Trustee under the Indenture, in its individual or any other
capacity, may make loans to, accept deposits from and perform services for the
Company or its Affiliates and may otherwise deal with the Company or its
Affiliates as if it were not the Trustee.
20. No Recourse Against Others.
No incorporator, stockholder, officer, director, employee or
controlling person as such, of the Company or of any successor Person thereof in
such capacity, shall have any liability for any obligations of the Company under
the Notes or the Indenture or for any claim based on, in respect of or by reason
of, such obligations or their creation provided, however, that the foregoing
shall not affect the Guarantor's obligations with respect to the Equipment Note
Guarantee. Each Holder by accepting a Note waives and releases all such
liability. Such waiver and release are part of the consideration for the
issuance of the Notes.
21. Authentication.
This Note shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on the other side of this Note.
<PAGE>
10
22. Holders' Compliance with Registration Rights Agreement.
Each Holder of a Note, by acceptance hereof, acknowledges and agrees
to the provisions of the Registration Rights Agreement, including, without
limitation, the obligations of the Holders with respect to a registration and
the indemnification of the Company to the extent provided therein.
23. Abbreviations.
Customary abbreviations may be used in the name of a Holder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).
24. Governing Law.
The Indenture and the Notes shall be governed by the law of the State of
New York, excluding (to the extent permissible by law) any rule of law that
would cause the application of the laws of any jurisdiction other than the State
of New York.
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture. Requests may be made to WinStar Equipment II
Corp., 1577 Spring Hill Road, 6th Floor, Vienna, Virginia 22182, Attention:
General Counsel.
<PAGE>
11
ASSIGNMENT FORM
I or we assign and transfer this Note to:
Please insert social security or other identifying number of assignee
______________________________________________
______________________________________________
Print or type name, address and zip code of assignee and irrevocably appoint
____________ as agent, to transfer this Note on the books of the Company.
The agent may substitute another to act for him.
Dated ____________ Signed__________________
_________________________________________________
(Sign exactly as name appears on the other side of this Note)
Signature Guarantee ___________________________(1)
- ----------
(1) The Holder's signature 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 l7Ad-15 under the Exchange Act.
<PAGE>
12
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY
The following increases or decreases in this Global Security have
been made:
<TABLE>
<CAPTION>
Amount of decrease in Amount of increase in Principal amount of this Signature of authorized
Date of Principal Amount of this Principal Amount of this Global Security following officer of Trustee or
Exchange Global Security Global Security such decrease or increase Securities Custodian
-------- --------------- --------------- ------------------------- --------------------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE>
13
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant
to Section 4.11 or Section 4.12 of the Indenture, check the Box: |_|
If you wish to have a portion of this Note purchased by the
Company pursuant to Section 4.11 or Section 4.12 of the Indenture, state the
amount (in principal amount):
$_____________
Date: _____________
Your Signature:
________________________________________________________________
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee: (2) _______________________________
- ----------
(2) The Holder's signature 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 l7Ad-15 under the Exchange Act.
<PAGE>
Exhibit 5.1
September 19, 1997
WinStar Communications, Inc.
230 Park Avenue
New York, New York 10169
WinStar Equipment II Corp.
230 Park Avenue
New York, New York 10169
Ladies and Gentlemen:
Reference is made to the proposed issuance by WinStar Equipment II
Corp. (the "Company") of 121/2% Guaranteed Senior Secured Exchange Notes
("Exchange Notes") under and pursuant to an indenture (the "Indenture") between
the Company as issuer, WinStar Communications, Inc. ("WinStar") as gurantor and
United States Trust Company of New York ("U.S. Trust") as trustee; and the
proposed exchange of the Company's 121/2% Guaranteed Senior Secured Notes
("Equipment Notes") for the Exchange Notes, pursuant to the Company's
Registration Statement on Form S-4 ("Registration Statement"), filed by the
Company with the Securities and Exchange Commission under the Securities Act of
1933, as amended, and the Trust Indenture Act of 1939, as amended.
We have examined such documents and considered such legal matters as
we have deemed necessary and relevant as the basis for the opinion set forth
below. With respect to such examinations, we have assumed the genuineness of
all signatures, the authenticity of all documents submitted to us as originals,
the conformity to original documents of all documents submitted to us as
reproduced or certified copies, and the authenticity of the originals of those
latter documents. As to questions of fact material to this opinion, we have, to
the extent deemed appropriate, relied upon certain representations of certain
officers and employees of WinStar and its subsidiaries.
Based upon the foregoing, we are of the opinion that:
1. Each of the Company and WinStar is a corporation duly organized
and existing under the laws of the State of Delaware.
<PAGE>
WinStar Communications, Inc.
WinStar Equipment II Corp.
September 19, 1997
Page 2
2. The Exchange Notes have been duly and validly authorized by all
necessary corporate action and will, when issued in accordance with the terms of
the Indenture, constitute valid and binding obligations on the part of each of
the Company and WinStar, enforceable in accordance with its terms, except as may
be limited by (i) bankruptcy, reorganization, insolvency or other similar laws
of general application affecting the rights and remedies of creditors and
secured parties and (ii) the discretion of the courts in applying equitable
principles.
We hereby consent to the use of this opinion as Exhibit 5.1 to the
Registration Statement, to the use of our name as counsel to the Company and
WinStar, and to all references made to us in the Registration Statement and the
Prospectus forming a part thereof. In giving this consent, we do not thereby
admit that we are in the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations promulgated thereunder.
Very truly yours,
GRAUBARD MOLLEN & MILLER
<PAGE>
EXHIBIT 12.1
<TABLE>
<CAPTION>
WinStar Communications, Inc
Ratio of earnings to combined fixed charges and preferred stock dividends
(in thousands)
TEN MONTHS
ENDED YEAR ENDED
YEAR ENDED FEBRUARY 28, DECEMBER 31, DECEMBER 31, 1996
-------------------------------------- ----------------- --------------
1993 1994 1995 1995 ACTUAL
---- ---- ---- ---- ------
EARNINGS:
<S> <C> <C> <C> <C> <C>
Net loss from continuing operations
before income taxes $(4,594) $(8,205) $(7,226) $ (16,094) $ (82,713)
Adjustments to Earnings:
Fixed Charges, as Detailed Below 674 915 900 8,063 38,520
Interest Capitalized - - - - (320)
Extraordinary item - (194) - - -
Minority interest in WinStar
Gateway Network - (155) - - -
----------- ------------ ----------- ------------- --------------
Earnings as Adjusted $(3,920) $(7,639) $(6,326) $ (8,031) $ (44,513)
=========== ============ =========== ============= ==============
FIXED CHARGES:
Interest Expense $ 567 $ 793 $ 733 $ 7,715 $ 36,834
Capitalized Interest - - - - 320
Portion of Rental Expense which is
Representative of Interest 107 122 167 348 1,366
----------- ------------ ----------- ------------- --------------
Total Fixed Charges 674 915 900 8,063 38,520
PREFERRED STOCK DIVIDENDS: 85 68 62 216 -
- -------------------------- ----------- ------------ ----------- ------------- --------------
COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS: $ 759 $ 983 $ 962 $ 8,279 $ 38,520
-------------------------- =========== ============ =========== ============= ==============
DEFICIENCY IN EARNINGS TO COVER COMBINED
FIXED CHARGES AND PREFERRED
STOCK DIVIDENDS: $(4,679) $(8,622) $(7,288) $ (16,310) $ (83,033)
---------------- =========== ============ =========== ============= ==============
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 SIX MONTHS ENDED JUNE 30,
-------------------------------------------------------------------------------
1997 1997
PRO FORMA AS ADJUSTED 1996 1997 PRO FORMA AS ADJUSTED
--------- ----------- ---- ---- --------- -----------
EARNINGS:
<S> <C> <C> <C> <C> <C> <C>
Net loss from continuing operations
before income taxes $ (131,965) $ (138,459) $ (28,152) $ (100,295) $ (108,771) $ (112,018)
Adjustments to Earnings:
Fixed Charges, as Detailed Below 79,603 86,011 18,375 33,314 41,748 45,037
Interest Capitalized (320) (320) - (1,244) (1,244) (1,244)
Extraordinary item - - - - - -
Minority interest in WinStar
Gateway Network - - - - - -
-------------- --------------- --------------------------------------------------
Earnings as Adjusted $ (52,682) $ (52,768) $ (9,777) $ (68,225) $ (68,267) $ (68,225)
============== =============== ==================================================
FIXED CHARGES:
Interest Expense $ 77,917 $ 84,325 $ 17,692 $ 31,034 $ 39,468 $ 42,757
Capitalized Interest 320 320 - 1,244 1,244 1,244
Portion of Rental Expense which is
Representative of Interest 1,366 1,366 683 1,036 1,036 1,036
-------------- --------------- --------------------------------------------------
Total Fixed Charges 79,603 86,011 18,375 33,314 41,748 45,037
PREFERRED STOCK DIVIDENDS: 6,000 6,000 - 2,346 3,000 3,000
- -------------------------- -------------- --------------- --------------------------------------------------
COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS: $ 85,603 $ 92,011 $ 18,375 $ 35,660 $ 44,748 $ 48,037
-------------------------- ============== =============== ==================================================
DEFICIENCY IN EARNINGS TO COVER COMBINED
FIXED CHARGES AND PREFERRED
STOCK DIVIDENDS: $ (138,285) $ (144,779) $ (28,152) $ (103,885) $ (113,015) $ (116,262)
---------------- ============== =============== ==================================================
</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
September 19, 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 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
September 19, 1997
<PAGE>
Exhibit 25.1
FORM T-1
==============================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
__________________
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(B)(2) _______
__________________
UNITED STATES TRUST COMPANY OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-3818954
(Jurisdiction of incorporation (I.R.S. employer
if not a U.S. national bank) identification No.)
114 West 47th Street 10036-1532
New York, NY (Zip Code)
(Address of principal
executive offices)
__________________
UNITED STATES TRUST COMPANY OF NEW YORK
114 W. 47th Street
New York, NY 10036-1532
Telephone Number (212) 852-1000
(Name, address and telephone number of agent for service)
__________________
<PAGE>
- 2 -
__________________
Winstar Equipment II Corp.
(Exact name of obligor as specified in its charter)
Delaware 13-3585278
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
230 Park Avenue
New York, NY 10169
(Address of principal executive offices) (Zip Code)
__________________
12 1/2% Guaranteed Senior Secured Exchange Notes due 2004
(Title of the indenture securities)
==============================================
<PAGE>
- 3 -
GENERAL
1. GENERAL INFORMATION
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Federal Reserve Bank of New York (2nd District), New York, New York
(Board of Governors of the Federal Reserve System)
Federal Deposit Insurance Corporation, Washington, D.C.
New York State Banking Department, Albany, New York
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. AFFILIATIONS WITH THE OBLIGOR
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None
3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15:
Winstar Equipment II Corp. currently is not in default under any of
its outstanding securities for which United States Trust Company of New York is
Trustee. Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13,
14 and 15 of Form T-1 are not required under General Instruction B.
16. LIST OF EXHIBITS
T-1.1 -- Organization Certificate, as amended, issued by the
State of New York Banking Department to transact
business as a Trust Company, is incorporated by
reference to Exhibit T-1.1 to Form T-1 filed on
September 15, 1995 with the Commission pursuant to the
Trust Indenture Act of 1939, as amended by the Trust
Indenture Reform Act of 1990 (Registration No.
33-97056).
T-1.2 -- Included in Exhibit T-1.1.
T-1.3 -- Included in Exhibit T-1.1.
<PAGE>
- 4 -
16. LIST OF EXHIBITS
(CONT'D)
T-1.4 -- The By-Laws of United States Trust Company of New York, as
amended, is incorporated by reference to Exhibit T-1.4 to
Form T-1 filed on September 15, 1995 with the Commission
pursuant to the Trust Indenture Act of 1939, as amended by
the Trust Indenture Reform Act of 1990 (Registration No.
33-97056).
T-1.6 -- The consent of the trustee required by Section 321(b)
of the Trust Indenture Act of 1939, as amended by the
Trust Indenture Reform Act of 1990.
T-1.7 -- A copy of the latest report of condition of the trustee
pursuant to law or the requirements of its supervising
or examining authority.
NOTE
- ----
As of September 9, 1997, the trustee had 2,999,020 shares of Common Stock
outstanding, all of which are owned by its parent company, U.S. Trust
Corporation. The term "trustee" in Item 2, refers to each of United States
Trust Company of New York and its parent company, U. S. Trust Corporation.
In answering Item 2 in this statement of eligibility as to matters peculiarly
within the knowledge of the obligor or its directors, the trustee has relied
upon information furnished to it by the obligor and will rely on information to
be furnished by the obligor and the trustee disclaims responsibility for the
accuracy or completeness of such information.
__________________
Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee,
United States Trust Company of New York, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York, and State of New York, on the 9th day
of September, 1997.
UNITED STATES TRUST COMPANY
OF NEW YORK, Trustee
By: /s/ Margaret Ciesmelewski
-------------------------------
Margaret Ciesmelewski
Assistant Vice President
<PAGE>
EXHIBIT T-1.6
The consent of the trustee required by Section 321(b) of the Act.
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
September 1, 1995
Securities and Exchange Commission
450 5th Street, N.W.
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of 1939,
as amended by the Trust Indenture Reform Act of 1990, and subject to the
limitations set forth therein, United States Trust Company of New York ("U.S.
Trust") hereby consents that reports of examinations of U.S. Trust by Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.
Very truly yours,
UNITED STATES TRUST COMPANY
OF NEW YORK
---------------------------
By: /s/ Gerard F. Ganey
Senior Vice President
<PAGE>
EXHIBIT T-1.7
UNITED STATES TRUST COMPANY OF NEW YORK
CONSOLIDATED STATEMENT OF CONDITION
JUNE 30, 1997
-------------
(IN THOUSANDS)
ASSETS
Cash and Due from Banks $ 83,529
Short-Term Investments 259,746
Securities, Available for Sale 924,165
Loans 1,437,342
Less: Allowance for Credit Losses 13,779
-------------
Net Loans 1,423,563
Premises and Equipment 61,515
Other Assets 122,696
-------------
TOTAL ASSETS $ 2,875,214
=============
LIABILITIES
Deposits:
Non-Interest Bearing $ 763,075
Interest Bearing 1,409,017
-------------
Total Deposits 2,172,092
Short-Term Credit Facilities 404,212
Accounts Payable and Accrued Liabilities 132,213
-------------
TOTAL LIABILITIES $ 2,708,517
=============
STOCKHOLDER'S EQUITY
Common Stock 14,995
Capital Surplus 49,541
Retained Earnings 100,930
Unrealized Gains (Losses) on Securities
Available for Sale, Net of Taxes 1,231
-------------
TOTAL STOCKHOLDER'S EQUITY 166,697
-------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 2,875,214
=============
I, Richard E. Brinkmann, Senior Vice President & Comptroller of the named bank
do hereby declare that this Statement of Condition has been prepared in
conformance with the instructions issued by the appropriate regulatory authority
and is true to the best of my knowledge and belief.
Richard E. Brinkmann, SVP & Controller
August 7, 1997
<PAGE>
Exhibit 99.1
LETTER OF TRANSMITTAL
FOR
TENDER OF ALL OUTSTANDING
121/2% GUARANTEED SENIOR SECURED NOTES DUE 2004
IN EXCHANGE FOR
121/2% GUARANTEED SENIOR SECURED EXCHANGE NOTES DUE 2004
OF
WINSTAR EQUIPMENT II CORP.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON _____________ __, 1997 (THE "EXPIRATION DATE"),
UNLESS EXTENDED BY WINSTAR EQUIPMENT II CORP.
EXCHANGE AGENT:
<TABLE>
<CAPTION>
UNITED STATES TRUST COMPANY OF NEW YORK
BY MAIL: BY OVERNIGHT BY HAND: BY FACSIMILE:
COURIER:
<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 Institutions Only)
P.O. Box 844 770 Broadway, 13th Floor 111 Broadway, Lower Level CONFIRM BY TELEPHONE:
Cooper Station New York, NY 10003 New York, NY 10006 Telephone no. (800) 548-6565
New York, NY 10276-0844 Attn: Corporate Trust Attn: Corporate Trust Services
(registered or certified mail Operations Department
recommended)
</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
September 18, 1997 (the "Prospectus") of WinStar Equipment II 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 121/2% Guaranteed Senior Secured Exchange Notes Due
2004 (the "New Equipment Notes") of the Company for all outstanding 121/2%
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>
<CAPTION>
=====================================================================================================
DESCRIPTION OF OLD EQUIPMENT NOTES TENDERED HEREWITH
=====================================================================================================
<S> <C> <C> <C>
Name(s) and address(es) of Certificate Aggregate Principal Principal Amount
Registered Holder(s) Number(s) Amount Represented Tendered*
(Please fill in) 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
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<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.
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<PAGE>
Exhibit 99.2
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF ALL OUTSTANDING
121/2% GUARANTEED SENIOR SECURED NOTES DUE 2004
IN EXCHANGE FOR
121/2% GUARANTEED SENIOR SECURED EXCHANGE NOTES DUE 2004
OF
WINSTAR EQUIPMENT II CORP.
Registered holders of outstanding 121/2% Guaranteed Senior Secured
Notes Due 2004 (the "Old Equipment Notes") of WinStar Equipment II Corp.
("Company") who wish to tender their Old Equipment Notes in exchange for a like
principal amount of 121/2% Guaranteed Senior Secured Exchange Notes Due 2004
(the "New Equipment Notes") of the Company, in each case, whose Old Equipment
Notes are not immediately available or who cannot deliver their Old Equipment
Notes and Letter of Transmittal (and any other documents required by the Letter
of Transmittal) to United States Trust Company of New York (the "Exchange
Agent"), prior to the Expiration Date, may use this Notice of Guaranteed
Delivery or one substantially equivalent hereto. WinStar Communications, Inc.,
the Company's parent corporation, which has guaranteed the Old Equipment Notes,
has agreed to guarantee the New Equipment Notes on a senior basis. This Notice
of Guaranteed Delivery may be delivered by hand or sent by facsimile
transmission (receipt confirmed by telephone and an original delivered by
guaranteed overnight delivery) or mailed to the Exchange Agent. See "The
Exchange Offer--Procedures for Tendering" in the Prospectus.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
<TABLE>
<CAPTION>
UNITED STATES TRUST COMPANY OF NEW YORK
BY MAIL: BY OVERNIGHT BY HAND: BY FACSIMILE:
COURIER:
<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 Institutions Only)
P.O. Box 844 770 Broadway, 13th Floor 111 Broadway, Lower Level CONFIRM BY TELEPHONE:
Cooper Station New York, NY 10003 New York, NY 10006 Telephone no. (800) 548-6565
New York, NY 10276-0844 Attn: Corporate Trust Attn: Corporate Trust Services
(registered or certified mail Operations Department
recommended)
</TABLE>
Delivery of this Notice of Guaranteed Delivery 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.
This Notice of Guaranteed Delivery is not to be used to guarantee signatures. If
a signature on a Letter of Transmittal is required to be guaranteed by an
Eligible Institution, such signature guarantee must appear in the applicable
space provided on the Letter of Transmittal for Guarantee of Signatures.
<PAGE>
Ladies & Gentlemen:
The undersigned hereby tender(s) to the Company, upon the terms and
subject to the conditions set forth in the Exchange Offer and the Letter of
Transmittal, receipt of which is hereby acknowledged, the aggregate principal
amount of Old Equipment Notes set forth below pursuant to the guaranteed
delivery procedures set forth in the Prospectus.
The undersigned understands that tenders of Old Equipment Notes will
be accepted only in principal amounts equal to $1,000 or integral multiples
thereof. The undersigned understands that tenders of Old Equipment Notes
pursuant to the Exchange Offer may not be withdrawn after 5:00 p.m., New York
City time on the Expiration Date. Tenders of Old Equipment Notes may also be
withdrawn if the Exchange Offer is terminated without any such Old Equipment
Notes being purchased thereunder or as otherwise provided in the Prospectus.
All authority herein conferred or agreed to be conferred by this
Notice of Guaranteed Delivery shall survive the death or incapacity of the
undersigned and every obligation of the undersigned under this Notice of
Guaranteed Delivery shall be binding upon the heirs, personal representatives,
executors, administrators, successors, assigns, trustees in bankruptcy and other
legal representatives of the undersigned.
PLEASE SIGN AND COMPLETE
<TABLE>
<CAPTION>
<S> <C>
Signature(s) of Registered Owner(s) Name(s) of Registered Holder(s)
or Authorized Signatory:___________________________
___________________________________________________
___________________________________________________
___________________________________________________
___________________________________________________
___________________________________________________
Principal Amount of Old Equipment Notes Tendered:__ Address:___________________________________________
___________________________________________________ ___________________________________________________
Area Cose and Telephone No.:_______________________
Certificate No(s). of Old Equipment Notes
(if available):____________________________________ ___________________________________________________
___________________________________________________ Date:______________________________________________
___________________________________________________
</TABLE>
2
<PAGE>
This Notice of Guaranteed Delivery must be signed by the registered
holder(s) of Old Equipment Notes exactly as its (their) name(s) appear on
certificates for Old Equipment Notes or on a security position listing as the
owner of Old Equipment Notes, or by person(s) authorized to become registered
Holder(s) by endorsements and documents transmitted with this Notice of
Guaranteed Delivery. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must provide the following information.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s): ______________________________________________________________________
______________________________________________________________________
Capacity: ______________________________________________________________________
Address(es):____________________________________________________________________
______________________________________________________________________
______________________________________________________________________
DO NOT SEND OLD EQUIPMENT NOTES WITH THIS FORM. OLD EQUIPMENT NOTES SHOULD BE
SENT TO THE EXCHANGE AGENT TOGETHER WITH A PROPERLY COMPLETED AND DULY EXECUTED
LETTER OF TRANSMITTAL.
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member firm of a registered national securities exchange
or of the National Association of Securities Dealers, Inc. or a commercial bank
or trust company having an office or a correspondent in the United States or an
"eligible guarantor institution" as defined by Rule 17Ad-15 under the Exchange
Act, hereby (a) represents that each holder of Old Equipment Notes on whose
behalf this tender is being made "own(s)" the Old Equipment Notes covered hereby
within the meaning of Rule 14e-4 under the Securities Exchange Act of 1934, as
amended, (b) represents that such tender of Old Equipment Notes complies with
such Rule 14e-4, and (c) guarantees that, within three New York Stock Exchange
trading days from the date of this Notice of Guaranteed Delivery, a properly
completed and duly executed Letter of Transmittal (or a facsimile thereof),
together with certificates representing the Old Equipment Notes covered hereby
in proper form for transfer and required documents will be deposited by the
undersigned with the Exchange Agent.
THE UNDERSIGNED ACKNOWLEDGES THAT IT MUST DELIVER THE LETTER OF TRANSMITTAL
AND OLD NOTES TENDERED HEREBY TO THE EXCHANGE AGENT WITHIN THE TIME SET FORTH
ABOVE AND THAT FAILURE TO DO SO COULD RESULT IN FINANCIAL LOSS TO THE
UNDERSIGNED.
Authorized Signature
Name of Firm:_______________________ Name:_______________________________
Address:____________________________
____________________________________ Title:______________________________
Area Code and Telephone No.:________ Date:_______________________________
____________________________________
3
