As filed with the Securities and Exchange
Commission on June 10, 1997.
Registration No. 333-18465
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
AMENDMENT NO. 1
to
FORM S-3
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
-----------------------------
WINSTAR COMMUNICATIONS, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 4812 13-3585278
(State or other jurisdiction (Primary standard (I.R.S. Employer
of incorporation or industrial classification Identification Number)
organization) code number)
230 Park Avenue
New York, New York 10169
(212) 687-7577
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive office)
-----------------------------
William J. Rouhana, Jr.
Chief Executive Officer and Chairman of the Board
WinStar Communications, Inc.
230 Park Avenue
New York, New York 10169
(212) 687-7577
(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 the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
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<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================================
Proposed Maximum Proposed Maximum
Title of Security Amount to be Aggregate Price Aggregate Amount of
to be Registered Registered Per Share Offering Price Registration Fee
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
6% Series A Cumulative
Convertible Preferred Stock 4,000,000 $25.00(2) $100,000,000 $30,303.03
("Preferred Stock") shares(1)
- ------------------------------------------------------------------------------------------------------------------------------------
Warrants 1,600,000 shares (3) (3) --
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Common Stock, par value
$.01 per share underlying 1,860,119 $13.44(5) $25,399,998 $ 7,696.97
Preferred Stock shares(4)
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock underlying
Warrants 1,600,000 shares $25.00(6) $40,000,000 $12,121.21
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock (underlying
certain options) to be resold 265,000 shares $3.54(7) $938,100 $ 284.27
by certain persons
- ------------------------------------------------------------------------------------------------------------------------------------
Total $166,338,098 $50,405.48(8)
====================================================================================================================================
<FN>
(1) Pursuant to Rule 416(b) promulgated under the Securities Act of 1933,
as amended (the "Act"), this Registration Statement also covers a
presently indeterminable number of additional shares of Preferred Stock
which may be issued in lieu of cash dividends during the term of the
Preferred Stock ("Dividend Shares").
(2) Represents the per-share sales price ($25.00) of the Preferred Stock
sold by the Registrant in an institutional private placement in
February 1997 ("Preferred Stock Placement"), each share having a stated
value of $25.00.
(3) As additional consideration to purchasers in the Preferred Stock
Placement, the Registrant also issued 0.4 Warrants for each share of
Preferred Stock purchased. The Registrant attributed no portion of the
proceeds of the Preferred Stock Placement to the Warrants.
(4) Number of shares estimated based on the last sale price of a share of
Common Stock as reported by Nasdaq on June 4, 1997 ($13.44), based on
Rules 457(c) and 457(i) promulgated under the Act. Pursuant to Rule
416(b), this Registration Statement also covers additional shares of
Common Stock issuable upon conversion of Dividend Shares. Pursuant to
Rule 416, this Registration Statement also covers a presently
indeterminable number of additional shares of Common Stock issuable by
the Company in the event the Preferred Stock is converted in connection
with a change of control of the Company.
(5) Represents the last sale price ($13.44) of a share of Common Stock on June 4, 1997.
(6) Represents the exercise price of each Warrant ($25.00).
(7) Represents the average of the exercise prices of the options based on
the following: (i) 125,000 shares underlying options exercisable at
$4.50 per share, (ii) 50,000 shares underlying options exercisable at
$2.75 per share, (iii) 20,000 shares underlying options exercisable at
$4.41 per share and (iv) 70,000 shares underlying options exercisable
at $2.125 per share.
(8) $6,118.53 was previously paid to the Commission by the Registrant. Accordingly, the balance of $44,286.95 is being
paid herewith.
</FN>
</TABLE>
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
<PAGE>
PRELIMINARY PROSPECTUS DATED JUNE 10, 1997
SUBJECT TO COMPLETION
WINSTAR COMMUNICATIONS, INC.
-------------------------
4,000,000 SHARES OF 6% SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK
-------------------------
1,600,000 COMMON STOCK PURCHASE WARRANTS
-------------------------
3,725,119 SHARES OF COMMON STOCK
-------------------------
This Prospectus relates to offers which may occur from time to time for
the account of certain persons ("Selling Preferred Stockholders") of an
aggregate of 4,000,000 shares of 6% Series A Cumulative Convertible Preferred
Stock ("Preferred Stock") of WinStar Communications, Inc. ("Company"), together
with any and all additional shares of Preferred Stock that may be issued as
dividends on such Preferred Stock in lieu of cash during the term of the
Preferred Stock.
This Prospectus also relates to offers which may occur from time to
time for the account of certain persons ("Selling Warrantholders" and, together
with the Selling Preferred Stockholders and the Selling Stockholders (defined
below), the "Selling Securityholders") of an aggregate of 1,600,000 common stock
purchase warrants ("Warrants"). Each Warrant entitles the holder thereof to
purchase one share of the Company's common stock, par value $.01 per share
("Common Stock), at any time commencing February 11, 1998 and ending February
11, 2002 for a purchase price of $25. The Company may accelerate the expiration
date of the Warrants at any time after February 11, 2000 if the last reported
sales price of the Common Stock is $40 or more per share for a period of 20
consecutive days.
This Prospectus also relates to the issuance by the Company of up to
1,600,000 shares of Common Stock ("Warrant Shares") upon exercise of the
Warrants.
This Prospectus also relates to the issuance by the Company of shares
of Common Stock ("Conversion Shares") to certain holders of Preferred Stock upon
conversion of up to an aggregate of 1,016,000 shares of Preferred Stock and all
additional shares of Preferred Stock issued as dividends during the term of such
Preferred Stock. Commencing August 11, 1997, each share of Preferred Stock is
convertible into a number of shares of Common Stock determined by dividing the
stated value ($25 per share) of such share of Preferred Stock by the "Conversion
Price" (as defined below); provided, however, that from August 11, 1997 through
November 10, 1997, only 50% of the outstanding Preferred Stock may be converted.
Subject to certain adjustments, the "Conversion Price" is: (i) with respect to
any conversion of Preferred Stock occurring prior to February 11, 1998, the
lesser of (x) $25 and (y) the average of the closing bid prices for the
Company's common stock for the 20 consecutive trading days ("20-day Average Bid
Price") immediately preceding the date of conversion, and (ii) with respect to
any conversion of Preferred Stock occurring on or after February 11, 1998, the
lesser of (x) $25 and (y) the 20-day Average Bid Price immediately preceding
February 11, 1998. Notwithstanding the foregoing, if a holder of Preferred Stock
requests conversion at a time when the Conversion Price is less than $15.00,
then the Company may elect (subject to certain notice requirements and to
contractual restrictions contained in certain of the Company's debt instruments
("Indentures")), in lieu of converting such shares of Preferred Stock into
Conversion Shares, to pay such holder or holders in cash, an amount equal to
110% of the Liquidation Preference (as defined below), for each share of
Preferred Stock requested to be converted. It is the Company's current intention
to pay cash in lieu of shares of Common Stock if the conversion price at the
time of any such conversion is less than $15.00, assuming such cash payments
would be allowable under then existing law and the terms of all agreements to
which the Company is then a party. On February 11, 2002 ("Mandatory Conversion
Date"), any shares of Preferred Stock still outstanding shall be automatically
converted into Conversion Shares, unless the Company determines to pay cash
therefor, in an amount equal to the stated value thereof, plus all accrued and
unpaid dividends thereon (the "Liquidation Preference"). With a Conversion Price
of $13.44 (the last sale price of a share of Common Stock on June 4, 1997), the
1,016,000 shares of Preferred Stock (having an aggregate stated value of $25.4
million) would be
<PAGE>
convertible into 1,860,119 Conversion Shares. Pursuant to Rule 416, this
Registration Statement also covers a presently indeterminable number of
additional shares of Common Stock issuable by the Company in the event the
Preferred Stock is converted in connection with a change of control of the
Company.
This Prospectus also relates to offers which may occur from time to
time for the account of certain persons ("Selling Stockholders") of an aggregate
of 265,000 shares of Common Stock ("Option Shares") issuable by the Company to
them upon exercise of options ("Options"). The Options were granted in
consideration of services rendered to the Company, but due to the type of
services or nature of the grantee, registration of the issuance or resale of the
Option Shares was not permitted on the Registration Statements on Form S-8
previously filed by the Company.
There is no public market for the Preferred Stock or Warrants and such
a market is not expected to develop. The Common Stock is traded on the Nasdaq
National Market under the symbol "WCII." The last sale price of the Common Stock
on the Nasdaq National Market on June 4, 1997 was $13.44 per share.
The Company will not receive any cash proceeds from the sale of the
Preferred Stock, Warrants or Option Shares by the Selling Securityholders or
from its issuance of the Conversion Shares. The Company will receive aggregate
gross proceeds of $40,938,100 upon exercise of the Warrants and Options,
assuming all of the Warrants and Options are exercised. Such proceeds will be
used for working capital and general corporate purposes. All costs, expenses and
fees in connection with the registration of the securities offered by this
Prospectus will be borne by the Company. Such expenses are estimated to be
approximately $
.
SEE "RISK FACTORS" BEGINNING ON PAGE 12 OF THIS PROSPECTUS FOR INFORMATION
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR 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 , 1997
2
<PAGE>
TABLE OF CONTENTS
Page
Incorporation of Certain Documents by
Reference.................................... 4
Prospectus Summary............................. 5
Risk Factors................................... 12
Use of Proceeds................................ 21
Dividend Policy................................ 21
Description of Capital Stock................... 23
Selling Securityholders and Plan of
Distribution................................... 26
Legal Matters.................................. 28
Experts........................................ 28
Available Information.......................... 28
3
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents or information have been filed by the Company
with the Securities and Exchange Commission (the "Commission") pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and are
incorporated herein by reference:
(1) Annual Report on Form 10-K for the year ended December 31, 1996;
(2) Current Report on Form 8-K filed January 17, 1997;
(3) Current Report on Form 8-K filed February 14, 1997;
(4) Current Report on Form 8-K filed February 27, 1997;
(5) Current Report on Form 8-K filed March 27, 1997;
(6) Quarterly Report on Form 10-Q for the three-month period ended March 31,
1997, as amended on June 10, 1997;
(7) Proxy Statement, dated May 15, 1997;
(8) Current Report on Form 8-K filed June 10, 1997; and
(9) The description of the Company's Common Stock contained in the Company's
registration statement on Form 8-A under the Exchange Act (File No.
1-10726).
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, New
York, New York 10169 (telephone 212-584-4000), Attention: Investor Relations
(extension 4053), 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.
4
<PAGE>
PROSPECTUS SUMMARY
This summary is qualified in its entirety by the detailed information
and financial statements and notes thereto appearing elsewhere or incorporated
by reference in this Prospectus. Unless otherwise indicated, references herein
to the "Company" or "WinStar" refer to WinStar Communications, Inc. and, where
appropriate, its subsidiaries. Effective January 1, 1996, the Company changed
its fiscal year end from the last day in February to December 31. Wireless
FiberSM is a service mark and WinStar(R) is a trademark of WinStar
Communications, Inc.
The Company
The Company provides a full range of telecommunications services,
including local, long distance and Internet access services, as a competitive
local exchange carrier ("CLEC"). By exploiting its fiber-quality digital
capacity in the 38 GHz portion of the radio spectrum ("Wireless Fiber") and a
switch-based infrastructure, the Company seeks to distinguish itself as a
facilities-based, value-added provider of high-capacity telecommunications
services to small and medium-sized businesses and an attractive alternative to
established providers, such as the regional Bell operating companies ("RBOCs").
The Company introduced its switch-based local exchange services to end users in
New York City in October 1996, is currently also offering such switch-based
local exchange service in Boston, Chicago and Los Angeles and offering local
exchange services on a resale basis in Atlanta, Newark, Philadelphia, San Diego,
San Francisco and Washington, D.C. The Company's local exchange services include
the provision of PBX trunks, individual business lines and Centrex and Internet
access, and provides customers with full-feature services such as custom
calling, caller ID, conference calling and voice mail. During the next several
years, the Company intends to introduce its local exchange services in each of
the other major metropolitan areas where it is licensed to provide 38 GHz
services over four or more 100 MHz channels. Over time, the Company intends to
carry a substantial majority of its local telecommunications service traffic
over Wireless Fiber and its own switched networks, unlike most fiber-based
CLECs, which typically do not carry the majority of their customer traffic over
their own networks. The Company also offers a variety of facilities-based
broadband, high-capacity local access and digital network services ("Carrier
Services") to other telecommunications service providers on a wholesale basis.
As of June 4, 1997, the Company had more than 40 carrier customers, including,
among others, Ameritech Cellular Services, MCI Communications, Pacific Bell and
Teleport Communications.
The Company is the holder of the largest amount of 38 GHz spectrum in
the United States and is utilizing this asset to build local telephone networks
for the transmission of voice, data and video traffic in the major metropolitan
areas covered by the Company's 38 GHz licenses (the "Wireless Licenses"). The
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 47 of the 50 most populated Metropolitan Statistical
Areas ("MSAs") in the United States. In addition to new 38 GHz licenses that the
Company may receive if pending applications are approved by the FCC, the Company
has agreed to acquire an aggregate of 47 additional 38 GHz licenses in a series
of transactions, in each case 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 49 of the 50
most populated MSAs and will cover cities encompassing an aggregate population
of 180 million. Many of the Company's Wireless Licenses allow for the provision
of Wireless Fiber services over four or more channels in a single market. The
Company believes that the utilization of multiple 38 GHz channels in a single
licensed area provides it with advantages over 38 GHz service providers that
possess fewer channels, by allowing it to build out city-wide networks of
broadband capacity.
The 38 GHz portion of the radio spectrum has characteristics well
suited for the provision of local telecommunications services, including:
Rapid Deployment of Alternative Local Infrastructure. 38 GHz technology
generally can be deployed considerably more rapidly than wireline (because of
permit procedures and construction time required for wireline buildout) and many
other wireless technologies (because of their infrastructure requirements and,
in many instances, the need to follow FCC frequency coordination procedures in
connection with wireless facilities).
5
<PAGE>
Broad Bandwidth. The total amount of bandwidth for each 38 GHz channel
is 100 MHz, which exceeds the bandwidth of any other present terrestrial
wireless channel allotment and supports full broadband capability. For example,
one 38 GHz DS-3 channel at 45 Mbps can transfer data at a rate which is over
1,500 times the rate of the fastest dial-up modem currently in general use (28.8
Kbps) and over 350 times the rate of the fastest ISDN line currently in general
use (128 Kbps). Data transfer rates of a 38 GHz DS-3 channel even exceed the
data transfer rates of cable modems (30 Mbps). The broadband capacity of 38 GHz
provides improved speed and quality in transmissions, as compared to
transmissions that are carried over copper wire. In addition to accommodating
standard voice and data requirements, 45 Mbps data transmission rates allow end
users to receive full-motion video and 3-D graphics and to use highly
interactive applications on the Internet and other networks.
Ease of Installation. The equipment used for point-to-point
applications in 38 GHz (i.e., antennae, transceivers and digital interface
units) is typically smaller, less obtrusive and less expensive, and uses less
power than equipment used for similar applications at lower frequencies. These
characteristics make it relatively easier to obtain the roof rights ("Roof
Rights") required to install 38 GHz transceivers and less costly to initiate 38
GHz-based services as compared to most other wireless services.
Efficient Channel Reuse. Certain characteristics of 38 GHz, including
the small amount of dispersion (i.e., scattering) of the radio beam as compared
to the more dispersed radio beams produced at lower frequencies, allow for the
reuse of bandwidth capacity in a licensed area. The ability to reuse capacity
allows the 38 GHz license holder to densely deploy its 38 GHz services in a
given geographic area, provide services to multiple customers over the same 38
GHz channel, and conserve bandwidth capacity, thereby enhancing the types of
services that can be provided and increasing the number of customers to which
such services can be provided.
Business Strategy
The Company's objective is to become the full-service
telecommunications provider of choice to small and medium-sized business
customers and a provider of high-quality alternative and broadband facilities to
its Carrier Services customers. Key elements of the Company's strategy are to:
Expand Network Infrastructure. The Company is creating an
infrastructure on a city-by-city basis using its Wireless Fiber capabilities,
switches acquired by the Company from equipment vendors and facilities leased
from other carriers to originate and terminate traffic. Pursuant to its
building-centric network plan, the Company is identifying strategically located
sites in each metropolitan area to serve as hubs for its network. These hub
sites will be connected via Wireless Fiber links to end users. The Company
believes that a limited number of hub sites (generally less than a dozen) in
each metropolitan area will allow it to address more than 70% of its targeted
customers' buildings and to carry the majority of its customers' traffic on its
own network instead of the higher cost facilities of other carriers.
Exploit First-to-Market Advantages. The Company seeks to capitalize on
the significant opportunities emerging in the industry as a result of the
Telecommunications Act of 1996 (the "Telecommunications Act") by exploiting a
"first-to-market" advantage as one of the few holders of 38 GHz licenses with an
established operating and management infrastructure. The Company believes that
its early entrance into its markets provides it with advantages over many
potential competitors by allowing it to: (i) establish a customer base prior to
widespread competition from other CLECs; (ii) develop a proven, reliable network
infrastructure using its own switching capacity ahead of many other CLECs; (iii)
develop pioneering expertise in the utilization of 38 GHz for the delivery of
telecommunications services and the design and management of 38 GHz-based
networks; and (iv) acquire Roof Rights to place its 38 GHz antennae on a large
number of buildings on favorable terms and in advance of other wireless service
providers.
Focus on Small and Medium-Sized Business Customers. The Company
believes there exists a substantial opportunity to attract a base of small and
medium-sized business customers by providing superior customer service and sales
support. The customer base initially targeted by the Company consists of
businesses typically located in buildings that have more than 100,000 square
feet of commercial space and which, in many instances, are not served by CLECs
or competitive access providers ("CAPs"). The Company estimates that there are
more than 8,000 buildings in this target group, populated by approximately 9.7
million workers using more than 2.1 million phone lines. Over time, the Company
intends to expand its target customer
6
<PAGE>
base to include the majority of small and medium-sized businesses in the
metropolitan areas covered by the Wireless Licenses, which the Company estimates
contain approximately 60% of all such businesses in the United States and
represent a market opportunity in excess of $30 billion per year.
Market Wireless Fiber to Other Carriers. The Company markets its
Carrier Services to other carriers such as the RBOCs and other local exchange
carriers ("LECs"), interexchange carriers ("IXCs"), other CAPs and CLECs,
providers of personal communications services ("PCS") and cellular and
specialized mobile radio services ("CMRS") providers. The Company believes that
its Carrier Services present an attractive, economical method for
telecommunications service providers to add a high-capacity extension to their
own networks and service territories, especially as they seek to rapidly
penetrate new markets opening as a result of the Telecommunications Act. The
Company's Carrier Services can also provide cost-efficient route diversity where
network reliability concerns require multiple telecommunications paths.
Since the commercial introduction of the Company's Carrier Services in
October 1995, the number of carrier customers has increased significantly. Such
customers include Ameritech Cellular Services, AT&T Wireless, Bell
Atlantic/NYNEX Mobile, Brooks Fiber, Cellular One, PrimeCo Personal
Communications, Siemens Stromberg-Carlson, Teleport Communications and Western
Wireless. In addition, the Company has entered into multi-year master service
agreements with American Communications Services, Electric Lightwave, IntelCom,
MCI Communications and Pacific Bell. These agreements establish the framework
under which such companies may effect the integration of Wireless Fiber services
into their own telecommunications networks. The Company is in the process of
negotiating additional master service agreements with other large
telecommunications providers, including AT&T.
Market Wireless Fiber Services as a Solution to Growing Capacity
Shortages. The Company believes that demand for its Wireless Fiber-based CLEC
and Carrier Services will grow because of the expanding volume of data
communications traffic resulting from increasing Internet usage and other
high-volume data transmission requirements. This type of traffic increasingly
requires high-capacity, end-to-end networks that are often difficult to provide
economically with older RBOC and LEC infrastructure.
Provide Information and Content Services. The Company believes that the
ability to deliver information and other content will become an increasingly
important factor in the choice of a telecommunications provider by businesses as
competition increases and the markets covered by the Wireless Licenses mature.
Accordingly, the Company actively seeks opportunities to utilize its information
and content services to enhance the marketability of the Company's
telecommunications services.
Development of Core Assets
The Company believes that in order to effectively compete with
incumbent LECs and other telecommunications service providers in its target
markets, it must develop a core group of assets, capabilities and resources. The
Company has made substantial progress in acquiring and developing these core
assets, which include:
Transmission and Switching Facilities. In October 1996, the Company
initiated local switched services in New York City, utilizing its first 5ESS
switch, purchased from Lucent Technologies, Inc. ("Lucent"), and facilities
leased from NYNEX. Recently, the Company initiated local switched services in
Boston, Chicago and Los Angeles and is currently deploying switches in Dallas,
San Diego and Washington, D.C. During the next three years, the Company intends
to install Lucent switches to serve most of its major markets. The Company has
acquired the necessary Roof Rights to install its Wireless Fiber transmission
facilities on approximately 1,200 buildings and is acquiring Roof Rights to an
additional 50 to 75 buildings per month. The Company also has developed
monitoring and management systems that will ensure the efficient use of its
networks and provide network reliability and transmission quality equivalent to
that provided by fiber-optic networks. The Company maintains a network operating
center ("NOC"), which is operating 24 hours a day, 7 days a week, and is
currently building a national field service force.
State Authorizations. As of the date of this Prospectus, the Company has
obtained authorization to operate as a CLEC in 22 states 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
7
<PAGE>
Services as a CAP in 34 states and has applications pending for such
authorizations in a number of additional jurisdictions.
Sales and Customer Support Organizations. As of the date of this
Prospectus, 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. As of the date of this Prospectus, the
Company has a direct sales organization for its CLEC services, currently
consisting of more than 300 people located in 13 major cities, and a Carrier
Services sales group, currently consisting of more than 30 people.
Information Systems. The Company is investing significant capital
developing state-of-the-art information systems platforms directed toward the
accurate and flexible handling of the billing and customer satisfaction
requirements of a diverse customer base purchasing a variety of
telecommunications services. The Company believes that its information systems
allow it to provide customers with a level of service and responsiveness that
many other telecommunications service providers do not offer and that such level
of service will become a key factor in customers' choice of telecommunications
service providers as the market matures.
Experienced Management and Operating Personnel. The Company has
assembled a management team and hired operating personnel experienced in all
areas of telecommunications operations, including more than 200 former officers
and employees of MCI Communications and more than 50 former officers and
employees of Sprint Corporation, as well as officers and employees from other
established telecommunications companies. The Company plans to hire additional
experienced telecommunications marketing and operations personnel as
appropriate.
Other Businesses
The Company has historically generated a significant portion of its
revenues from the resale of long distance services to residential customers. As
part of its CLEC service offerings, the Company is focusing on the sale of long
distance services to small and medium-sized businesses and is not currently
marketing such services to residential customers on an active basis, except
through established affinity group and other targeted programs.
Prior to the Company's entry into the telecommunications industry, it
marketed and distributed consumer products, including personal care and bath and
beauty products, through a nonstrategic subsidiary. That subsidiary continues to
sell such products, primarily to large retailers, mass merchandisers, discount
stores, department stores, national and regional drug store chains and other
regional retail chains. The Company expects to divest itself of this subsidiary
during the next 12 months.
Corporate Information
The Company was incorporated under the laws of the State of Delaware in
September 1990 and its principal offices are located at 230 Park Avenue, New
York, New York 10169. Its phone number is (212) 584- 4000.
Private Placement of Preferred Stock and Warrants
On February 6, 1997, the Company and its wholly owned subsidiary
WinStar Credit Corp. ("WCC") entered into a securities purchase agreement
("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 Preferred Stock and 1,600,000 Warrants for an aggregate purchase price
of $100.0 million. The sale of the Preferred Stock and Warrants (together, the
"Securities") was consummated on February 11, 1997. The sale of the Securities
was conducted as an institutional private placement ("Preferred Stock
Placement") through Credit Suisse First Boston Corporation, which acted as
placement agent. The principal purpose of the Preferred Stock Placement was to
raise proceeds to fund the expansion of the Company's telecommunications and
other operations. See "Description of Capital Stock."
8
<PAGE>
The Company and the purchasers also entered into a Registration Rights
Agreement, dated February 6, 1997, pursuant to which the Company is obligated to
file a registration statement under the Securities Act of 1933, as amended (the
"Act"), registering the (i) resale of the Preferred Stock and Warrants and (ii)
the issuance by the Company of the Warrant Shares. Additionally, under the
Registration Rights Agreement, at any time after May 11, 1997, each holder of
the Preferred Shares may demand that the Company file and have declared
effective within 90 days of such demand a registration statement registering the
resale of the Common Shares. Such a demand was made, with respect to 1,016,000
Preferred Shares, effective as of May 11, 1997. The Registration Statement, of
which this Prospectus forms a part, is intended to satisfy the aforementioned
registration obligations.
Risk Factors
See "Risk Factors" commencing on page 12 hereof for a discussion of
certain risks that should be considered in connection with an investment in the
Common Stock, including the risks related to historical and anticipated future
operating losses.
Use of Proceeds
The Company will not receive any cash proceeds from the sale of the
Preferred Stock, Warrants or Option Shares by the Selling Securityholders or
from its issuance of the Conversion Shares. The Company will receive aggregate
gross proceeds of $40,938,100 from the exercise of the Warrants and Options,
assuming all such Warrants and Options are exercised, and will use such proceeds
for working capital and general corporate purposes. See "Use of Proceeds."
9
<PAGE>
Summary Financial Data
The summary financial data presented below for the year ended February
28, 1995, the ten months ended December 31, 1995 and as of and for the year
ended December 31, 1996 have been derived from the Company's audited
Consolidated Financial Statements included in its Annual Report on Form 10-K for
the year ended December 31, 1996, reclassified to reflect the operations of
WinStar Global Products, Inc. ("Global Products"), the Company's merchandising
subsidiary, as a discontinued operation. The summary financial data for the
three months ended March 31, 1996 and 1997 have been derived from the unaudited
Consolidated Financial Statements included in its Quarterly Report on Form 10-Q
for the three months ended March 31, 1997. In the opinion of management, the
unaudited consolidated financial statements have been prepared on the same basis
as the audited Consolidated Financial Statements and includes all adjustments,
which consist only of normal recurring adjustments, necessary for a fair
presentation of the results of operations for the period.
<TABLE>
<CAPTION>
Ten Months
Year Ended Ended Year Ended 1996 Three Months
February 28, December 31, December 31, Pro Ended March 31, Pro
1995 1995 1996 Forma(1) 1996 1997 Forma(1)
-------------- ------------- ------------- ---------- ----- ------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Operating revenues:
Telecommunications(2)............ $14,909 $13,137 $33,969 $32,481 $10,217 $7,063 $7,063
Information services............. 473 2,648 14,650 14,650 771 6,014 6,014
Total net sales........... 15,382 15,785 48,619 47,131 10,988 13,077 13,077
Operating income (loss):
Telecommunications...... (4,984) (7,288) (43,698) (49,805) (3,105) (26,546) (26,546)
Information services.... (157) 217 (1,409) (1,409) (54) (1,105) (1,105)
General corporate....... (944) (3,861) (11,373) (11,373) (1,868) (5,285) (5,285)
Total operating loss......... (6,085) (10,932) (56,480) (62,587) (5,027) (32,936) (32,936)
Interest expense........ (375) (7,186) (36,748) (77,831) (8,463) (10,798) (19,305)
Interest income......... 343 2,890 10,515 8,453 3,108 2,235 2,235
Other expenses, net..... (1,109) (866) -- -- -- -- --
Net loss from continuing operations (7,226) (16,094) (82,713) (131,965) (10,562) (41,499) (50,006)
Net income (loss) from discontinued
operations(3).................... (4) 237 (1,010) (1,010) (137) (477) (477)
------------ ---------- ---------- ----------- ------------ --------- ------------
Net loss........................... (7,230) (15,857) (83,723) (132,975) (10,699) (41,976) (50,843)
Preferred stock dividends -- -- -- (6,000) -- (833) (1,500)
------------ ---------- ---------- ----------- ------------ --------- ------------
Net loss applicable to common
stock............................. $(7,230) $(15,857) $(83,723) $(138,975) (10,699) (42,809) $(51,983)
Net loss per share from continuing
operations....................... $(0.42) $(0.71) $(2.96) $(4.37) $(0.39) $(1.27) $(1.58)
Net (loss) income per share from
discontinued operations.......... -- 0.01 (0.04) (0.04) -- (0.02) (0.02)
------------ -------------- ------------- ------------ ----------- --------- ------------
Net loss per common share
outstanding...................... $(0.42) $(0.70) $(3.00) $(4.41) $(0.39) $(1.29) $(1.60)
Weighted average common
shares outstanding............... 17,122 22,770 27,911 31,506 27,214 32,610 32,610
Other Financial Data:
Combined ratio of earnings to fixed
charges and preferred stock
dividends(4)..................... -- -- -- -- -- -- ---
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
As of March 31, 1997
(in thousands)
Actual
<S> <C>
Balance Sheet Data:
Cash, cash equivalents and short-term investments................................... $413,474
Property and equipment, net......................................................... 93,789
Total assets........................................................................ 748,869
Current portion of long-term debt and capital lease obligations..................... 23,095
Long-term debt and capital lease obligations, less current portion.................. 587,420
Common and preferred stock and additional paid-in capital........................... 247,270
Stockholders' equity (deficit)...................................................... 79,585
-----------
<FN>
(1) Gives effect to the Preferred Stock Placement and the institutional private placement of an aggregate
of $300.0 million of debt by the Company in March 1997 ("1997 Debt Placement") as if they occurred
as of the beginning of the respective periods. Interest expense has been adjusted to include
approximately $8.5 million and $41.1 million of interest on such debt and amortization of debt
offering costs and other related fees in the three months ended March 31, 1997 and the year ended
December 31, 1996, respectively, but not to include interest income earned on additional available
cash.
(2) The Company has generated minimal revenues from its Wireless Fiber services.
(3) Such loss is from the operations of the Company's consumer products subsidiary, Global Products.
On May 13, 1997, a formal plan of disposition for the Company's consumer products subsidiary, Global
Products, was approved by the Board of Directors, and it is anticipated that the disposition will be
completed within the next 12 months. The Company does not expect to incur a loss on the disposition
of Global Products. The disposition of Global Products has been accounted for as a discontinued
operation and, accordingly, its net assets have been segregated from continuing operations in the
balance sheet data, and its operating results are segregated and reported as discontinued operations
in the statements of operations.
(4) For the years ended February 28, 1993, 1994 and 1995, the ten months ended December 31, 1995,
the years ended December 31, 1996 and the three months ended March 31, 1996 and 1997, earnings
were insufficient to cover fixed charges and preferred stock dividends by $4,679,000, $8,622,000,
$7,288,000, $16,210,000, $83,033,000, $10,562,000 and $42,537,000, respectively. On a pro forma
basis, giving effect to the items described in footnote 1 above, earnings were insufficient to cover fixed
charges and preferred stock dividends by $51,711,000 and $138,285,000 for the three months ended
March 31, 1997 and the year ended December 31, 1996, respectively. Fixed charges consist of
interest charges and amortization of debt expense and discount or premium related to indebtedness,
whether expensed or capitalized, and that portion of rent expense (one-third) that the Company
believes to be representative of interest.
</FN>
</TABLE>
11
<PAGE>
RISK FACTORS
An investment in any of the Preferred Stock, Warrants, Conversion
Shares, Warrant Shares and other Shares of Common Stock involves a significant
degree of risk. In determining whether to make an investment in any of the
Securities, prospective investors should consider carefully all of the
information set forth in this Prospectus and, in particular, the following risk
factors.
Historical and Anticipated Future Net and Operating Losses
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, including net losses of
approximately $15.9 million for the ten months ended December 31, 1995, $83.7
million for the year ended December 31, 1996 and $42.0 million for the three
months ended March 31, 1997. The Company has been offering local access and
other Carrier Services only since December 1994, and local exchange services as
a CLEC only since April 1996, and has made and is making significant
expenditures in the development of its local telecommunications operations,
including expenditures associated with establishing an operating infrastructure
and introducing and marketing its telecommunications services. The Company
expects to continue to experience significant and increasing operating losses,
net losses and total and per share amounts of net loss, along with decreasing
net current assets, while it seeks to establish a sufficient revenue-generating
customer base and build the network infrastructure necessary to 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 to the servicing of existing debt, there will continue to be
substantial increases in the Company's net loss and operating loss. There can be
no assurance that the Company will achieve or sustain profitability.
Substantial Indebtedness
The Company has significant indebtedness and interest expense. At
March 31, 1997, the Company had, on a consolidated basis, approximately $610.5
million of indebtedness, including capitalized lease obligations. The accrual of
interest and the accretion of original issue discount on existing indebtedness
will significantly increase the Company's liabilities. The level of the
Company's indebtedness could have important consequences, including the
following: (i) 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; (ii) 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; (iii) the Company's level of indebtedness
could limit its flexibility in planning for, or reacting to changes in, its
business; (iv) the Company is more highly leveraged than many of its
competitors, which may place it at a competitive disadvantage; and (v) 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.
Risks Related to CLEC Strategy; Anticipated Initial Negative Operating Margins
in CLEC Business
The Company is pursuing an accelerated strategy to enter the local
exchange services market as a CLEC in the metropolitan areas in which it has
Wireless Licenses and to develop and obtain the facilities necessary to provide
its own local exchange services. The Company has 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 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 ability of the Company to obtain sufficient Roof Rights to
successfully build out its network; 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
12
<PAGE>
may view the Company as a competitor; and the Company's ability to manage the
simultaneous implementation of its plan in multiple markets. In addition, the
Company is subject to the risk of unforeseen problems inherent in being a new
entrant in a rapidly evolving industry.
Historically, almost all of the Company's telecommunications revenues
have been derived from the resale of long distance services to residential
customers. As part of its CLEC strategy, the Company is marketing its long
distance services to small and medium-sized businesses and is no longer actively
marketing such services to residential customers, except through certain
established affinity and other target programs. As a result, revenues from the
provision of long distance services to residential customers can be expected to
substantially decline through attrition of the Company's long distance
residential customer base.
Although the Company's initial implementation of its CLEC strategy
entails the resale of the facilities and services of other service providers,
which itself is dependent on the negotiation and implementation of satisfactory
resale arrangements, the Company's CLEC strategy will require significant
capital investment related to the purchase and installation of numerous switches
and the interconnection of these facilities to customers' buildings and LEC and
CLEC local networks, including the installation of Wireless Fiber links and the
buildout of other facility infrastructure, in advance of generating material
revenues.
As the Company rolls out its CLEC operations, it will experience
negative operating margins while it develops its facilities. After initial
rollout of its CLEC services in a particular city, the Company expects operating
margins for such operations to improve only when and if: (i) sales efforts
result in sufficiently increased volumes of traffic; (ii) the Company has
installed a switch and a sufficient number of Wireless Fiber links so that a
substantial portion of the Company's traffic in that city can be originated and
terminated over the Company's Wireless Fiber facilities instead of LEC or other
CLEC facilities; and (iii) higher margin-enhanced services are sought by,
provided to and accepted by customers. While the Company believes that the
unbundling and resale of LEC services and the implementation of local telephone
number portability (which will permit customers to retain their telephone
numbers when switching carriers), which are mandated by the Telecommunications
Act, will reduce the Company's costs of providing local exchange services and
facilitate the marketing of such services, there can be no assurance that the
Company's CLEC operations will become profitable due to, among other factors,
lack of customer demand, competition from other CLECs and pricing pressure from
the LECs and other CLECs. The Company's failure to implement its CLEC strategy
successfully would have a material adverse effect on the operations of the
Company.
Negative Operating Margins in the Initial Provision of Wireless Fiber-Based
Carrier Services
The Company has experienced negative operating margins in connection
with the development and initial provision of its Wireless Fiber-based Carrier
Services and expects to continue to experience negative operating margins until
it develops a sufficient revenue-generating customer base for such services. In
order to demonstrate the efficacy of Wireless Fiber, the Company often provides
complimentary service on a trial basis for a limited period. The Company expects
to improve operating margins in the provision of its Carrier Services over time
by: (i) obtaining appropriate Roof Rights; (ii) acquiring and retaining an
adequate customer base; (iii) placing telecommunications traffic of new
customers and additional telecommunications traffic of existing customers across
installed Wireless Fiber links; and (iv) inducing providers of
telecommunications services to utilize and market the Company's Wireless Fiber
services as part of their own networks, systems and services, thereby reducing
the Company's related marketing costs. If the Company fails to accomplish any of
the foregoing, particularly acquiring and retaining an adequate customer base,
it 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.
Risks Associated with Rapid Expansion and Acquisitions
The Company is pursuing a strategy of aggressive and rapid growth,
including the accelerated rollout of its CLEC services, acquisitions of
businesses and assets, including additional spectrum licenses, continued
aggressive marketing of its Carrier Services, and the hiring of additional
management, technical and marketing personnel, all of which will result in
significantly higher operating expenses. Rapid expansion of the Company's
operations may place a significant strain on the Company's management, financial
and other resources. The Company's ability to manage future growth, should it
occur, will depend upon its ability to monitor operations, control costs,
maintain effective quality controls and significantly expand the Company's
internal management,
13
<PAGE>
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.
As part of its strategy, the Company may acquire complementary assets or
businesses. The pursuit of acquisition opportunities could place significant
demands on the time and attention of the Company's senior management and 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 have accelerated as a result of the passage of the
Telecommunications Act, will give rise to significant new or stronger
competitors. The Company currently also faces or anticipates facing competition
from other entities which offer, or are licensed to offer, 38 GHz services and
could face competition in certain aspects of its existing and proposed
businesses from competitors providing wireless services in other portions of the
radio spectrum (including 2 GHz, 18 GHz and 28 GHz, among others). The Company's
Internet services also face significant competition from, among others, cable
television operators deploying cable modems that provide high-speed data
transmission over existing coaxial cable television networks. As competition
increases in the local telecommunications market, the Company anticipates that
general pricing competition and pressures will increase significantly. The
Company has not obtained significant market share in any of the areas where it
offers its services, nor does it expect to do so given the size of the local
telecommunications services market, the intense competition therein and the
diversity of customer requirements. There can be no assurance that the Company
will be able to compete effectively in any of its markets.
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.
14
<PAGE>
Additionally, providers of long distance services, including the major
IXCs, as well as resellers, such as the Company, are coming under intensified
scrutiny for marketing activities by them or their agents which result in
alleged unauthorized switching of customers from one long distance provider to
another. The FCC and a number of state authorities are seeking to introduce more
stringent regulations to curtail the intentional or erroneous switching of
customers, which could include the imposition of fines, penalties and possible
operating restrictions on entities which engage in unauthorized switching
activities. In addition, the Telecommunications Act requires the FCC to
prescribe regulations imposing procedures for verifying the switching of
customers and additional remedies on behalf of carriers for unauthorized
switching of their customers. The effects, if any, the adoption of any such
proposed regulations would have on the long distance industry and the business
practices therein cannot be predicted. Statutes and regulations which are or may
become applicable to the Company as it expands could require the Company to
alter methods of operations, at costs which could be substantial, or otherwise
limit the types of services it offers.
New Media Business. The industry in which the Company's new media
subsidiaries compete 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 subsidiaries compete have significantly greater
presence in the various media markets and greater resources than the Company,
including existing content libraries, financial resources, personnel and
existing distribution channels. There can be no assurance that the Company will
be able to compete successfully in the emerging new media industry.
Consumer Products Business. The consumer products industry is subject
to changes in styles and consumer tastes. An unanticipated change in consumer
preferences inconsistent with the Company's merchandise lines could have a
material adverse effect upon its operations. The Company's product lines are
subject to intense competition with numerous manufacturers and distributors of
hair, beauty and bath products. Mass merchandisers, drug store chains, and other
mass volume retailers typically utilize freestanding pegboard fixtures or
pegboard wall fixtures, as well as in-line shelving and end-cap displays, to
display their products. Competition for shelf and wall space for product
placement is intense, as many companies seek to have their products
strategically placed within the store. Competition also exists with respect to
product name recognition and pricing, since retailers and consumers often choose
products on the basis of name brand, cost and value. Many of the Company's
competitors have greater product and name recognition, as well as much larger
and more sophisticated sales forces, product development, marketing and
advertising programs and facilities. The Company generally competes by
attempting to offer retail customers quality, service and products at reasonable
prices. In May 1997, the Company decided to divest itself of its consumer
products subsidiary, is currently exploring sale opportunities and treats the
operations of such subsidiary as discontinued operations.
Significant Capital Requirements
The expansion of the Company's telecommunications operations and the
continued funding of operating expenses will require substantial capital
investment. Additionally, as part of its strategy, the Company may seek to
acquire complementary assets or businesses (including additional spectrum
licenses, by auction or otherwise), which also could require substantial capital
investment. The Company's decision to accelerate the development of its CLEC
operations in response to the Telecommunications Act has substantially increased
the Company's capital expenditure requirements. Management anticipates, based on
current plans and assumptions relating to its operations, that the Company's
existing financial resources and equipment financing arrangements which the
Company intends to seek, will be sufficient to fund the Company's growth and
operations to 2000. In the event the Company's plans or assumptions change or
prove to be inaccurate, or if the Company consummates any acquisitions of
businesses or assets (including additional spectrum licenses, by auction or
otherwise), or if the Company fails to secure additional equipment financing
arrangements, the Company may be required to seek additional sources of capital
sooner than currently anticipated. Sources of additional capital may include
public and private equity and debt financing, sales of nonstrategic assets and
other financing arrangements. There can be no assurance that the Company will be
able to obtain additional financing or, if such financing is available, that the
Company will be able to obtain it on acceptable terms. Failure to obtain
additional financing, if needed, could result in the delay or abandonment of
some or all of the
15
<PAGE>
Company's development and expansion plans, which would have a material adverse
effect on the Company's operations.
Government Regulation
The Company's telecommunications services are subject to varying
degrees of federal, state and local regulation. Generally, the FCC exercises
jurisdiction over all telecommunications services providers to the extent such
services involve the provision of jurisdictionally interstate or international
telecommunications, including the resale of long distance services, the
provision of local access services necessary to connect callers to long distance
carriers and the use of electromagnetic spectrum (i.e., wireless services). With
the passage of the Telecommunications Act, the FCC's jurisdiction has been
extended to include certain interconnection and related issues that
traditionally have been considered subject primarily to state regulation. The
state regulatory commissions retain nonexclusive jurisdiction over the provision
of telecommunications services to the extent such services involve the provision
of jurisdictionally intrastate telecommunications.
The Telecommunications Act is intended to remove the formal barriers
between the long distance and local telecommunications services markets,
allowing service providers from each market (as well as providers of cable
television and other services) to compete in all communications markets. The
Telecommunications Act will permit the RBOCs eventually to compete in the
provision of long distance services between local access transport areas
("LATAs"). Additionally, the FCC must promulgate new regulations over the next
several years to address mandates contained in the Telecommunications Act, which
will change the regulatory environment significantly. The Telecommunications Act
generally requires LECs to provide competitors with interconnection and
nondiscriminatory access to the LEC network on more favorable terms than have
been available in the past. However, such interconnection and the terms thereof
are subject to negotiations with each LEC, which may involve considerable delays
and may not necessarily be obtained on terms and conditions that are acceptable
to the Company. In such instances, although the Company may petition the proper
regulatory agency to arbitrate disputed issues, there can be no assurance that
the Company will be able to obtain acceptable interconnection agreements. In
addition, the Telecommunications Act requires the promulgation of regulations to
implement universal service reform, to revise the existing subsidy system which
is intended to provide support for the provision of ubiquitous telephone service
and to effect access charge reform to more closely align the access charges
required to be paid by the long distance carriers to the LECs to the actual cost
of providing service. The Company is unable to predict what effect the
Telecommunications Act will have on the telecommunications industry in general
and on the Company in particular. No assurance can be given that any regulation
will broaden the opportunities available to the Company or will not have a
material adverse effect on the Company and its operations. Further, there can be
no assurance that the Company will be able to comply with additional applicable
laws, regulations and licensing requirements or have sufficient resources to
take advantage of the opportunities which may arise from this dynamic regulatory
environment.
As required by the Telecommunications Act, the FCC adopted, in August
1996, new rules implementing the interconnection and resale provisions of the
Telecommunications Act (the "Interconnection Order"). These rules constitute a
pro-competitive, deregulatory national policy framework designed to remove or
minimize the regulatory, economic and operational impediments to full
competition for local services, including switched local exchange service. There
can be no assurance how the Interconnection Order will be implemented or
enforced or as to what effect such implementation or enforcement will have on
competition within the telecommunications industry generally or on the
competitive position of the Company specifically. A number of LECs, the National
Association of Regulatory Utility Consumers and others have filed in Federal
court seeking to appeal aspects of the Interconnection Order and to stay some or
all of the rules adopted therein. In October 1996, the United States Court of
Appeals for the Eighth Circuit granted a stay of effectiveness of certain
provisions of the Interconnection Order, including pricing and the "pick and
choose" provisions, pending court review of the merits of the case. Oral
argument on this appeal of the Interconnection Order was held in January 1997.
As of the date of this Offering Circular, no decision has been rendered with
respect to such appeal. The Company believes that the stay will not adversely
affect its CLEC operations and may positively affect the operations of the
Carrier Services business.
16
<PAGE>
Finite Initial Term of Wireless Licenses; Potential License Renewal Costs;
Fluctuations in the Value of Wireless Licenses; Transfer of Control
The FCC's current policy is to align the expiration dates of all 38 GHz
licenses such that they mature concurrently and, upon expiration, to renew all
such licenses for ten years. The initial term of all currently outstanding 38
GHz licenses, including the Company's licenses, expires in February 2001. While
the Company believes that all of its Wireless Licenses will be renewed based
upon FCC custom and practice establishing a presumption in favor of licensees
that have complied with their regulatory obligations during the initial license
period, there can be no assurance that any Wireless License will be renewed upon
expiration of its initial term.
In a notice of proposed rulemaking ("NPRM"), the FCC proposed
auctioning licenses for currently unallocated 38 GHz channels. Given the current
political climate with respect to balancing the federal budget, there is a risk
that the FCC will require significant payments upon renewal of the Company's
Wireless Licenses. The FCC's failure to renew, or its imposition of significant
charges for renewal of, one or more Wireless Licenses could have a material
adverse effect on the Company and the ability of the Company and its
subsidiaries to make principal and interest payments on their outstanding debt,
including the Notes.
The Wireless Licenses are integral assets of the Company, the value of
which will depend significantly upon the success of the Company's wireless
telecommunications operations and the future direction of the wireless
telecommunications segment of the telecommunications industry. The value of
licenses to provide wireless services also may be affected by fluctuations in
the level of supply and demand for such licenses. Any assignment of a license or
transfer of control by an entity holding a license is subject to certain
limitations relating to the identity and qualifications of the transferee and
requires prior FCC approval (and in some instances state regulatory approval as
it relates to the provision of telecommunications services in that state),
thereby possibly diminishing the value of the Wireless Licenses.
The Company has entered into agreements to acquire a number of
additional 38 GHz licenses. The transfer of licenses issued by the FCC,
including 38 GHz licenses (as well as a change of control of entities holding
licenses), is subject to the prior consent of the FCC, which consent generally
turns on a number of factors including the identity, background and the legal
and financial qualifications of the transferee and the satisfaction of certain
other regulatory requirements. In addition, the existence of proposed channel
limitations in the NPRM, which in at least one licensed area may result in the
Company exceeding the proposed maximum number of licenses for that area, may
result in the FCC denying consent for one or more license transfers. In light of
the foregoing, the newness of this service and the uncertainty of final
regulations to be issued in connection with the NPRM, there can be no assurance
that the FCC will approve all or any of the proposed acquisitions or, if
approved, that the FCC will not impose limitations on the ultimate number of
licenses held in any particular licensed area.
Changes in Technology, Services and Industry Standards
The telecommunications industry has been characterized by rapid
technological change, changing end-user requirements, frequent new service
introductions and evolving industry standards. The Company believes that its
future success will depend on its ability to anticipate or adapt to such changes
and to offer, on a timely basis, services that meet these evolving industry
standards. The extent to which competitors using existing or currently
undeployed methods of delivery of local telecommunications services will compete
with the Company's Wireless Fiber services cannot be anticipated. There can be
no assurance that existing, proposed or as yet undeveloped technologies will not
become dominant in the future and render 38 GHz-based (and other spectrum-based)
systems less profitable or less viable. For example, there are several existing
technologies that may be able to allow the transmission of high bandwidth
traffic over existing copper lines. There can be no assurance that the Company
will have sufficient resources to make the investments necessary to acquire new
technologies or to introduce new services that could compete with future
technologies or that equipment held by the Company in inventory will not be
rendered obsolete, any of which would have an adverse effect on the operations
of the Company.
Certain Financial and Operating Restrictions
The indentures relating to certain of the Company's indebtedness impose
significant operating and financial restrictions on the Company, affecting, and
in certain cases limiting, among other activities, the ability
17
<PAGE>
of the Company to incur additional indebtedness or create liens on its assets,
pay dividends, repurchase or redeem shares, 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.
Dependence on Third Parties for Service and Marketing; Possible Service
Interruptions and Equipment Failures
The Company's long distance resale business is dependent on utilizing
the facilities of major IXCs to carry its customers' long distance telephone
calls and, in many instances, especially during initial market penetrations, the
Company's CLEC business will be dependent on the facilities of the LECs and
other local exchange service providers to carry its customers' local telephone
calls. The Company has agreements with IXCs that provide it with access to such
carriers' networks and has entered or is entering into interconnect agreements
with various LECs, and other CLECs, to access their local exchange facilities.
Although the Company believes that it currently has sufficient access to long
distance networks and will be able to obtain sufficient access to local exchange
facilities, any increase in the rates or access fees charged by the owners of
such facilities or their unwillingness to provide access to such facilities to
the Company, as well as potential reticence of the LECs to honor appropriate
provisioning and service intervals with respect to interconnection arrangements,
could materially adversely affect the Company's operations. Failure to obtain
continuing access to such networks and facilities could require the Company to
significantly curtail or cease its operations and could have an adverse effect
on the ability of the Company and its subsidiaries to make principal and
interest payments on their outstanding debt, including the Notes. See
"Description of Certain Indebtedness and Preferred Stock." Further, the
Company's CLEC operations will rely to some extent upon network elements which
the LECs must provide pursuant to the Telecommunications Act and the
Interconnection Order. These facilities often use copper wire for "last mile"
access to end users. To the extent that the Company relies upon LEC facilities
that use copper wire, the Company may not be able to offer potential customers
the benefits of Wireless Fiber with respect to high transmission capacity and
quality. In addition, the Company's operations require that the networks leased
by it, and any facilities which may be developed by the Company, operate on a
continuous basis. It is not unusual for networks and switching facilities to
experience periodic service interruptions and equipment failures. It is
therefore possible that the networks and facilities utilized by the Company may
from time to time experience service interruptions or equipment failures
resulting in material delays which would adversely affect consumer confidence as
well as the Company's business operations and reputation.
The Company utilizes, in certain cases, third parties for marketing its
Wireless Fiber services and maintaining its operational systems. The Company has
entered into master service agreements with other telecommunications providers
that allow those companies to utilize and resell the Company's Wireless Fiber
services to their own customers. The Company also has an agreement with Lucent
to provide field service for, and network monitoring of, the Company's Wireless
Fiber facilities and another agreement with Lucent for the purchase by the
Company of telecommunications switches and related equipment. The failure of any
of these third parties to perform under their respective agreements or the loss
of any of these agreements could have a material adverse effect on the Company's
results of operations and its ability to service its customers. The Company
plans to enter into master service agreements with other telecommunications
service providers, and the failure to do so could have an adverse effect on the
Company's development and results of operations.
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
18
<PAGE>
reasonable terms. In addition, as no industry standard or uniform protocol
currently exists for 38 GHz equipment, a single manufacturer's equipment must be
used in establishing each wireless link.
Line of Sight; Distance Limitations Imposed by Rainfall Conditions in Certain
Geographic Areas; Roof Rights
In order to provide quality transmission, Wireless Fiber services
require an unobstructed line of sight between two transceivers comprising a
link, with a maximum distance between any two corresponding transceivers of five
miles (or shorter distances in certain areas; weather conditions may necessitate
distances as short as 1.1 miles between transceivers to maintain desired
transmission quality). The areas in which such shorter distances are required
are those where rainfall intensity and the size of the raindrops adversely
impact transmission quality at longer distances. Other weather conditions, such
as snow, electrical storms and high winds, have not, in the Company's
experience, affected the quality or reliability of Wireless Fiber services. The
establishment of Wireless Fiber services may require additional transceivers to
triangulate around obstacles (such as buildings). Similarly, to establish
Wireless Fiber services covering a distance in excess of five miles, additional
transceivers are required to establish a chain with links no more than five
miles apart or to establish a system of interconnected hub sites. The cost of
additional transceivers where required by 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 of Rights it obtains.
Uncertainty of Market Acceptance of Wireless Fiber Services
The Company has been marketing its Wireless Fiber services since
December 1994 and such services currently are generating insignificant revenues.
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.
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.
19
<PAGE>
Lack of Public Market for Preferred Stock and Warrants
There is currently no active trading market for the Preferred Stock and
Warrants and no market is expected to develop, which will adversely affect the
liquidity of such Securities.
Volatility of Market Price of Common Stock
Since the Common Stock has been publicly traded, the market price of
the Common Stock has fluctuated over a wide range and may continue to do so in
the future. The market price of the Common Stock could be subject to significant
fluctuations in response to various factors and events, including, among other
things, the depth and liquidity of the trading market of the Common Stock,
variations in the Company's operating results, press reports, including with
respect to regulation and industry trends, and the difference between actual
results and the results expected by investors and analysts. In addition, the
stock market in recent years has experienced broad price and volume fluctuations
that have often been unrelated to the operating performance of companies,
particularly telecommunications companies. These broad market fluctuations also
may adversely affect the market price of the Common Stock.
Shares Eligible for Future Sale
As of May 31, 1997, the Company had 33,010,038 shares of Common Stock
outstanding. Although a significant number of the outstanding shares of Common
Stock are "restricted securities," as that term is defined in Rule 144 under the
Securities Act ("Restricted Shares"), and may not be sold unless such sale is
registered under the Securities Act or is made pursuant to an exemption from
registration under the Securities Act, including the exemption provided by Rule
144, substantially all of such Restricted Shares either have been registered for
resale under the Securities Act or are currently, or will soon become, available
for sale pursuant to Rule 144. Sales or the expectation of sales of a
substantial number of shares of Common Stock in the public market could
adversely affect the prevailing market price of the Common Stock. See "Shares
Eligible for Future Sale."
Effect of Outstanding Options, Warrants and Other Convertible Securities
As of May 31, 1997, there were outstanding options and warrants with
respect to an aggregate of approximately 10,361,000 shares of Common Stock at
per-share exercise prices ranging from $1.50 to $31.12. Substantially all of the
shares underlying such securities have been or will be registered for resale
under the Securities Act. The Company has two existing stock option plans under
which options to purchase up to an additional 229,000 shares of Common Stock may
be granted. The exercise of outstanding stock options, warrants and other
convertible securities will dilute the percentage ownership of the Company's
stockholders, and any sales in the public market of shares of Common Stock
issuable upon the exercise of such stock options, warrants and convertible
securities may adversely affect prevailing market prices for the Common Stock.
Anti-takeover Provisions
The Company's corporate charter provides that directors serve staggered
three-year terms and authorizes the issuance of up to 15,000,000 preferred
shares with such designations, rights and preferences as may be determined from
time to time by the Company's Board of Directors. The affirmative vote of the
holders of at least two-thirds of the capital stock of the Company is required
to amend the provisions of the charter relating to the classification of the
Board. The staggered board provision could increase the likelihood that, in the
event of a possible takeover of the Company, incumbent directors would retain
their positions and, consequently, may have the effect of discouraging, delaying
or preventing a change in control or management of the Company. While the
Company has no commitments to issue any additional series of preferred stock,
the authorization of preferred shares empowers the Board of Directors, without
further stockholder approval, to issue preferred shares with dividend,
liquidation, conversion, voting or other rights which could adversely affect the
voting power or other rights of the holders of the Common Stock. In the event of
issuance, the preferred shares could be utilized, under certain circumstances,
as a method of discouraging, delaying or preventing a change of control of the
Company. Additionally, certain of the Company's indebtedness (including the
Notes) contains provisions which would allow holders, at their election, to
require prepayment in the event of a change in control of the Company, which
could also serve to delay or prevent such a change in control
20
<PAGE>
from occurring. Moreover, the Company's By-Laws provide that a stockholder
entitled to vote for the election of directors at a meeting may nominate a
person or persons for election as director only if written notice of such
stockholder's intent to make such nomination is given to the Company's Secretary
not later than sixty days in advance of such meeting, and the Company's stock
option plans contain a provision which accelerates the vesting of outstanding
options in the event of certain changes in control of the Company, both of which
could serve to delay or prevent a change in control from occurring. In addition,
the Company is and, subject to certain conditions, will continue to be, subject
to the anti-takeover provisions of the Delaware General Corporation Law, which
could have the effect of delaying or preventing a change of control of the
Company. Furthermore, trans-
fers of control and/or certain assets of telecommunications entities, such as
the Company, may require the approval of the FCC and/or state regulatory
commissions. With respect to 38 GHz licenses such as the Company's Wireless
Licenses, assignments of such licenses and changes of control involving entities
holding licenses require prior FCC and state regulatory approval and are subject
to restrictions and limitations on the identity and status of the assignee or
successor. See "Description of Capital Stock."
Potential Adverse Effects of Issuance of Senior Preferred Stock
The Company is authorized to issue preferred stock in one or more
series, the terms of which may be determined at the time of issuance by the
Board of Directors, without further action by stockholders, and may include
voting rights (including the right to vote as a series on particular matters),
preferences as to dividends and liquidation, conversion and redemption rights
senior to or pari passu with the Preferred Stock and Common Stock. Future
issuance of such preferred stock, depending upon the rights, preferences and
designations thereof, could effectively diminish or supercede the dividends and
liquidation preferences of the Preferred Stock and adversely affect the Common
Stock and the rights of the holders thereof.
Potential Adverse Effect of Acceleration of Warrants
The Company may accelerate the expiration date of the Warrants at any
time after February 11, 2000 if the last sale price of the Common Stock is $40
per share or more for a period of 20 consecutive days. Notice of acceleration of
the Warrants could force the holders to exercise the Warrants and pay the
exercise price at a time when it may be disadvantageous for them to do so, to
sell the Warrants when they might otherwise wish to hold the Warrants, or to
accept the redemption price which would be substantially less than the value of
the Warrants at the time of redemption.
USE OF PROCEEDS
The Company will not receive any cash proceeds from the sale of the
Preferred Stock, Warrants or Option Shares by the Selling Securityholders or
from its issuance of the Conversion Shares. The Company will receive aggregate
gross proceeds of $40,938,100 upon exercise of the Warrants and Options,
assuming all such Warrants and Options are exercised. Such proceeds will be used
for working capital for the Company's telecommunications and
non-telecommunications businesses and to make investments in, acquire, make
loans to, or otherwise enter into business arrangements with, companies which
may or may not be involved in the telecommunications business, and for general
corporate purposes.
DIVIDEND POLICY
The Company has not declared or paid any dividends on the Common Stock.
Each share of 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 to the record holders of the
Preferred Stock as of March 15, June 15, September 15 and December 15,
respectively, of each year. The Company may pay such dividends in either cash or
through the issuance of additional shares of Preferred Stock, at its election.
The Company intends to retain future earnings, if any, to finance the
development and expansion of its business. Accordingly, the Company anticipates
that no dividends will be paid on the Common Stock in the foreseeable future and
that dividends with respect to the Preferred Stock will be paid by the issuance
of additional shares of Preferred Stock. Further, certain covenants in the
Indentures currently effectively prohibit the Company from declaring or paying
cash dividends. The terms
21
<PAGE>
of the Preferred Stock provide that the Preferred Stock ranks senior to the
Common Stock with respect to the payment of dividends. Accordingly, in the event
the Company is no longer restricted from declaring cash dividends under its
Indentures and determines to do so, no holders of Common Stock will receive any
such dividend until such time as all holders of the Preferred Stock have
received payment of the entire dividend to which they are entitled under the
terms of the Preferred Stock, and then only if, and to the extent that, there is
sufficient cash remaining to pay dividends to the holders of the Common Stock.
22
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Common Stock
The authorized capital stock of the Company includes 75,000,000 shares
of Common Stock, $.01 par value. The holders of Common Stock are entitled to one
vote for each share held of record on all matters submitted to a vote of
stockholders. Although the Company has no present intention of paying any
dividends, holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. In the event of a liquidation or dissolution of the Company,
holders of Common Stock are entitled to share ratably in all assets remaining
after payment of liabilities and liquidation preference of preferred shares, if
any.
Holders of Common Stock have no preemptive rights and have no rights to
convert their Common Stock into any other securities. There are no redemption or
sinking fund provisions applicable to the Common Stock. All of the outstanding
shares of Common Stock are fully paid and nonassessable.
The Company's Certificate of Incorporation, as amended, provides (i)
for a Board of Directors divided into three classes, each of which will
generally serve for a term of three years, with only one class of directors
being elected in each year; (ii) that directors may be removed with or without
cause and only by at least a majority in interest of the capital stock of the
Company entitled to vote thereon; and (iii) that an affirmative vote of the
holders of at least two-thirds of the capital stock of the Company entitled to
vote thereon is required to alter, amend or repeal the provisions relating to
the classification of, and the removal of members from, the Board of Directors.
Nominations for the Board of Directors may be made by the Board or by any
stockholder entitled to vote for the election of directors. A stockholder
entitled to vote for the election of directors at a meeting may nominate a
person or persons for election as director only if written notice of such
stockholder's intent to make such nomination is given to the Company's Secretary
not later than sixty days in advance of such meeting. The Company's Certificate
of Incorporation and By-Laws do not provide for cumulative voting rights which
means that holders of more than one-half of the outstanding voting rights,
voting for the election of directors, can elect all of the directors to be
elected, if they so choose and, in such event, the holders of the remaining
shares will not be able to elect any of the Company's directors. A special
meeting of stockholders of the Company may be called by the request of the
holders of at least 10% of the outstanding capital stock of the Company entitled
to vote generally in all matters.
The registrar and transfer agent for the Common Stock of the Company is
Continental Stock Transfer & Trust Company, 2 Broadway, New York, New York
10004.
Preferred Stock
The authorized capital stock of the Company includes 15,000,000 shares
of "blank check" preferred stock, which may be issued from time to time in one
or more series upon authorization by the Company's Board of Directors. The Board
of Directors, without further approval of the stockholders, is authorized to fix
the dividend rights and terms, conversion rights, voting rights, redemption
rights and terms, liquidation preferences, and any other rights, preferences,
privileges and restrictions applicable to each series of preferred stock. The
issuance of preferred stock (and the ability of the Board of Directors to do so
without stockholder approval), while providing flexibility in connection with
possible acquisitions and other corporate purposes could, among other things,
adversely affect the voting power of the holders of Common Stock and, under
certain circumstances, make it more difficult for a third party to gain control
of the Company, discourage bids for the Common Stock at a premium or otherwise
adversely affect the market price of the Common Stock.
On February 6, 1997, the Company issued an aggregate of 4,000,000
shares of the Company's 6% Series A Cumulative Convertible Preferred Stock in
the Preferred Stock Placement. Each share of 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 Preferred Stock. The Company intends to retain
future earnings, if any, to finance the development and expansion of its
business. Accordingly, the Company anticipates that no dividends will be paid on
the Common Stock in the foreseeable future and that dividends with respect to
the Preferred
23
<PAGE>
Stock will be paid by the issuance of additional shares of Preferred Stock.
Further, certain covenants in the Indentures currently effectively prohibit the
Company from declaring or paying cash dividends. The terms of the Preferred
Stock provide that the Preferred Stock ranks senior to the Common Stock with
respect to the payment of dividends. Accordingly, in the event the Company is no
longer restricted from declaring cash dividends under its Indentures and
determines to do so, no holders of Common Stock will receive any such dividend
until such time as all holders of the Preferred Stock have received payment of
the entire dividend to which they are entitled under the terms of the Preferred
Stock, and then only if, and to the extent that, there is sufficient cash
remaining to pay dividends to the holders of the Common Stock.
Commencing August 11, 1997, each share of Preferred Stock is
convertible into a number of shares of Common Stock determined by dividing the
aggregate Stated Value of such share of Preferred Stock by the Conversion Price
(as defined below); provided, however, that from August 11, 1997 through
November 10, 1997, only 50% of the Preferred Stock may be converted. Subject to
certain adjustments, the "Conversion Price" will be: (i) with respect to any
conversion of 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 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 Preferred Stock
requests conversion at a time when the Conversion Price is less than $15, the
Company may elect (subject to certain notice requirements and to contractual
restrictions contained in certain of the Company's debt instruments), in lieu of
converting such Preferred Stock into shares of Common Stock, to pay such holder
or holders in cash an amount equal to 110% of the Liquidation Preference (as
defined below) for each share of Preferred Stock requested to be converted. It
is the Company's current intention to pay cash in lieu of shares of Common Stock
if the conversion price at the time of any such conversion is less than $15.00,
assuming such cash payments would be allowable under then existing law and the
terms of all agreements to which the Company is then a party. On February 11,
2002, any Preferred Stock still outstanding shall be automatically converted
into shares of Common Stock, unless the Company elects to pay cash therefor in
an amount equal to the Stated Value plus all accrued and unpaid dividends
thereon (the "Liquidation Preference"). Unless paid for in cash, such conversion
will be effected by delivery of shares of Common Stock having a value, based
upon the closing bid prices for the Common Stock for the 20 consecutive trading
days ending one trading day prior to such conversion date, equal to the
Liquidation Preference.
Warrants
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.
Statutory Provisions Affecting Stockholders
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law. In general, the statute prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder unless prior to
the date the stockholder became an interested stockholder the board approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder or unless one of the following
two exceptions to the prohibitions are satisfied: (i) upon consummation of the
transaction that resulted in such person becoming an interested stockholder, the
interested stockholder owned at least 85% of the Company's voting stock
outstanding at the time the transaction commenced (excluding, for purposes of
determining the number of shares outstanding, shares owned by certain directors
or certain employee stock plans) or (ii) on or after the date the stockholder
became an interested stockholder, the business combination is approved by the
board of directors and authorized by the affirmative vote (and not by written
consent) of at least two-thirds of the outstanding voting stock, excluding the
stock owned by the interested stockholder. A "business combination" includes a
merger, asset sale or other transaction resulting in a financial benefit to the
interested stockholder. An "interested stockholder" is a person who (other than
the corporation and any direct or indirect majority-owned subsidiary of the
corporation), together with affiliates and associates, owns (or, as an affiliate
or associate, within three
24
<PAGE>
years prior, did own) 15% or more of the corporation's outstanding voting stock.
It is possible that these provisions may have the effect of delaying, deterring
or preventing a change in control of the Company.
25
<PAGE>
SELLING SECURITYHOLDERS AND PLAN OF DISTRIBUTION
This Prospectus relates to the resale by the Selling Securityholders of
the securities listed below. All of the securities being registered under the
Registration Statement of which this Prospectus forms a part are being so
registered pursuant to certain registration rights granted by the Company to the
Selling Securityholders. None of the Selling Securityholders has had a material
relationship with the Company or any of its predecessors or affiliates within
the past three years, except as described in the footnotes below or otherwise in
this Prospectus.
<TABLE>
<CAPTION>
Preferred Stock and Warrants(1) Number of
Beneficial Ownership of Shares of Beneficial Number of
Name of Preferred Stock as Preferred Stock Ownership of Warrants
Selling Securityholder of May 15, 1997 to be Sold Warrants to be Sold
- --------------------- ------------------------- ----------------- ------------- -----------
<S> <C> <C> <C> <C>
Camden Asset Management LP A/C Camden
Non-Enhanced 150,000 150,000 60,000 60,000
Commonwealth Life Insurance Company A/C
Teamsters I 150,000 150,000 60,000 60,000
Credit Suisse First Boston Corporation 1,004,000 1,004,000 401,600 401,600
Credit Suisse First Boston Corporation 12,000 12,000 4,800 4,800
Dean Witter Reynolds A/C TWC/DW Global
Telecom Trust 44,000 44,000 17,600 17,600
JMG Capital Partners LP 40,000 40,000 16,000 16,000
KA Management Ltd. 6,400 6,400 2,560 2,560
KA Trading Ltd. 13,600 13,600 5,440 5,440
Lehman Brothers A/C Palladin Omnibus A/C
Glen Eagles Fund 8,000 8,000 3,200 3,200
Lehman Brothers A/C Palladin Omnibus A/C
Palladin Partners L.P. 8,000 8,000 3,200 3,200
Lehman Brothers AC Palladin Omnibus A/C
Ramius Fund 8,000 8,000 3,200 3,200
List & Co. 131,000 131,0000 52,400 52,400
Och-Ziff Capital Management, L.P. 200,000 200,000 80,000 80,000
Prudential Securities Inc. A/C Oak Tree
Partners 469,000 469,000 187,600 187,600
Mariner Atlantic Limited 20,000 20,000 8,000 8,000
Stark International 100,000 100,000 40,000 40,000
Republic New York Securities Act A/C Palladin
Partners A/C Colonial Penn Insurance
Company 8,000 8,000 3,200 3,200
Republic New York Securities Act A/C Palladin
Partners A/C Colonial Penn Life Insurance 8,000 8,000 3,200 3,200
SBC Warburg Inc. 416,670 416,670 166,668 166,668
SBC Warburg Inc. 183,330 183,330 73,332 73,332
Shepard Investments International Ltd. 100,000 100,000 40,000 40,000
State Street Bank & Trust Co. A/C Presidents
& Fellows of Harvard College 100,000 100,000 40,000 40,000
Triton Holdings 20,000 20,000 8,000 8,000
Tridant Trust Company A/C HBK Cayman LP 80,000 80,000 32,000 32,000
Tridant Trust Company A/C HBK Offshore
Fund, Ltd. 320,000 320,000 128,000 125,000
Ziff Asset Management, L.P. 400,000 400,000 160,000 100,000
- ----------------------
</TABLE>
Footnotes begin on next page
26
<PAGE>
Common Stock
<TABLE>
<CAPTION>
Number of Beneficial
Beneficial Ownership of Shares of Ownership of
Name of Common Stock as Common Stock Common Stock
Selling Securityholder of May 15, 1997 to be Sold After Sale
- ---------------------- ----------------- ------------ ----------
<S> <C> <C> <C>
Steve G. Chrust (2) 533,669(3) 175,000(4) 358,669
ITC Group, Inc. (5) 20,000 20,000(6) 0
Stuart Rekant (7) 175,239(8) 35,000(9) 140,239
Shintex, Inc. (10) 35,000 35,000 0
- -----------
<FN>
(1) All shares of Preferred Stock and Warrants set forth above were sold in
the Preferred Stock Placement. The Selling Stockholders shall also be
entitled to sell, and the Registration Statement of which this
Prospectus forms a part also covers, any and all additional shares of
Preferred Stock that may be issued as dividends on such Preferred Stock
in lieu of cash during the term of the Preferred Stock.
(2) Mr. Chrust is Vice Chairman and a director of the Company.
(3) Includes (i) 12,000 shares of Common Stock owned by the pension plan for SGC Advisory Services,
Inc., a money management firm specializing in the telecommunications sector of which Mr. Chrust is
President and owner, and (ii) 368,333 shares of Common Stock issuable upon exercise of certain
options owned by Mr. Chrust or members of his family. Does not include (A) 360,000 shares of
Common Stock issuable upon exercise of other options which become exercisable in three equal
annual installments commencing in January 1998, (B) 33,335 shares of Common Stock issuable upon
exercise of other options which become exercisable in July 1998 or (C) 35,000 shares of Common
Stock issuable upon exercise of options which become exercisable in five equal annual installments
commencing in April 1998.
(4) Represents 125,000 shares of Common Stock issuable upon exercise of
options exercisable at $4.50 per share and 50,000 shares of Common
Stock issuable upon exercise of options exercisable at $2.75 per share,
which were issued to Mr. Chrust as consideration for financial
consulting services rendered to the Company prior to his employment
with the Company.
(5) ITC Group, Inc. ("ITC") is an entity of which Nathan Kantor, President, Chief Operating Officer and a
director of the Company, is President and a principal stockholder.
(6) Represents shares of Common Stock issuable upon exercise of options
exercisable at $4.41 per share issued to ITC as consideration for
consulting services rendered to the Company prior to Mr. Kantor's
employment with the Company.
(7) Stuart Rekant is the President and Chief Operating Officer of WinStar
New Media Company, Inc., a wholly-owned subsidiary of the Company.
(8) Includes 3,239 shares of Common Stock owned by Mr. Rekant's spouse and
170,000 shares of Common Stock issuable upon exercise of certain
options. Does not include 30,000 shares of Common Stock issuable upon
exercise of options which become exercisable in June 1998.
(9) Represents shares of Common Stock issuable upon exercise of options
exercisable at $2.125 per share issued to Mr. Rekant in connection with
certain financing arrangements prior to his employment with the
Company.
(10) Represents shares of Common Stock issuable upon exercise of options exercisable at $2.125 per
share issued to Shintex, Inc. in connection with certain financing arrangements.
</FN>
</TABLE>
The shares of Preferred Stock and Warrants may be offered and sold from
time to time by the Selling Securityholders, and the Warrant Shares and
Conversion Shares, if and when issued, may be offered and sold from time to time
by the holders thereof, as market conditions permit in the over-the-counter
market, including
27
<PAGE>
the Nasdaq National Market, in negotiated transactions or otherwise, at prices
and terms then prevailing or at prices related to the then-current market price,
or in negotiated transactions. The Securities may be sold by one or more of the
following methods, without limitation: (i) a block trade in which a broker or
dealer so engaged will attempt to sell the shares as agent but may position and
resell a portion of the block as principal to facilitate the transaction; (ii)
purchases by a broker or dealer as principal and resale by such broker or dealer
for its account pursuant to this Prospectus; (iii) ordinary brokerage
transactions and transactions in which the broker solicits purchases; and (iv)
transactions between sellers and purchasers without a broker/dealer; and (v)
underwritten offerings. In effecting sales, brokers or dealers may arrange for
other brokers or dealers to participate. Such brokers or dealers may receive
commissions or discounts from Selling Securityholders in amounts to be
negotiated. Such brokers and dealers and any other participating brokers and
dealers may be deemed to be "underwriters" within the meaning of the Securities
Act, in connection with such sales. Currently, there is no market for the
Preferred Stock and Warrants, and none is expected to develop.
LEGAL MATTERS
The legality of the issuance of the Conversion Shares and Warrant
Shares will be passed upon for the Company by Graubard Mollen & Miller, New
York, New York. Certain partners and employees of Graubard Mollen & Miller own
shares of 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.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Exchange Act, and, in accordance therewith, is required to file reports, proxy
statements and other information with the Commission. Such reports, proxy
statements and other information can be inspected and copied at the Public
Reference Section of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World
Trade Center, Suite 1300, New York, New York 10048. Copies of the reports, proxy
statements and other information can be obtained from the Public Reference
Section of the Commission, Washington, D.C. 20549, at prescribed rates. In
addition, all reports filed by the Company via the Commission's Electronic Data
Gathering and Retrieval System (EDGAR) can be obtained from the Commission's
Internet web site located at http:\\www.sec.gov. The Common Stock of the Company
is traded on the Nasdaq National Market (Symbol: WCII), and such reports, proxy
statements and other information concerning the Company also can be inspected at
the offices of the Nasdaq National Market, 1735 K Street, N.W., Washington, D.C.
20006.
The Company has filed with the Commission a Registration Statement
under the Securities Act on Form S-3 (No. 333-18465) with respect to the
securities offered by the Company pursuant to this Prospectus. As permitted by
the rules and regulations of the Commission, this Prospectus does not contain
all of the information set forth in the Registration Statement. For further
information about the Company and the securities offered hereby, reference is
made to the Registration Statement and to the financial statements, exhibits and
schedules filed therewith. The statements contained in this Prospectus about the
contents of any contract or other document referred to are not necessarily
complete, and in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statements, each such
statement being qualified in all respects by such reference. Copies of each such
document may be obtained from the Commission at its principal office in
Washington, D.C. upon payment of the charges prescribed by the Commission.
28
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. Other Expenses of Issuance and Distribution
The following is an itemized statement of the estimated amounts of all
expenses payable by the Registrant in connection with the registration of the
Common Stock offered hereby, other than underwriting discounts and commissions:
SEC registration fee................................................. 50,405.48
Printing and engraving expenses...................................... *
Legal fees and expenses.............................................. *
Accounting fees and expenses......................................... *
Miscellaneous........................................................ *
--
Total........................................................... *
- ---------------------------
* To be filed by amendment.
ITEM 15. Indemnification of Directors and Officers
The Company's Certificate of Incorporation provides that all directors,
officers, employees and agents of the Registrant shall be entitled to be
indemnified by the Company to the fullest extent permitted by law.
Section 145 of the Delaware General Corporation Law concerning
indemnification of officers, directors, employees and agents is set forth below.
"Section 145. Indemnification of officers, directors, employees and agents;
insurance.
(a) A corporation may indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgement in
its favor by reason of the fact that he is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable for negligence or misconduct in the performance of
his duty to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of
II-1
<PAGE>
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under sections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of this
section. Such determination shall be made (1) by the board of directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even
if obtainable, a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.
(e) Expenses incurred by an officer or director in defending a
civil or criminal action, suite or proceeding may be paid by the corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director or officer, to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the corporation as authorized in this section. Such expenses
incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the board of directors deems appropriate.
(f) The indemnification and advancement of expenses provided by,
or granted pursuant to, the other subsections of this section shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
(g) A corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the corporation would have the power to indemnify him
against such liability under this section.
(h) For purposes of this section, references to "the corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, and employees
or agents, so that any person who is or was a director, officer, employee or
agent of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under this section with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
(i)For purposes of this section, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the corporation"
shall include any service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such director,
officer, employee or agent with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith an in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the corporation" as referred to in
this section.
II-2
<PAGE>
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers, and controlling persons of the Company pursuant to the foregoing
provisions, or otherwise, the Company has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Company of expenses incurred or paid by a director, officer
or controlling person of the Company in a successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to the court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-3
<PAGE>
ITEM 16.
(a) Exhibits
Exhibit
Number Description
5.1 Opinion of Graubard Mollen & Miller
12.1 Ratio of Earnings to Combined Fixed Charges and Preferred
Stock Dividends
23.1 Consent of Grant Thornton LLP
23.2 Consent of Grant Thornton LLP
23.3 Consent of Graubard Mollen & Miller (included in its opinion
filed as Exhibit 5.1)
ITEM 17. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment of this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
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 (1)(i) and (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 Section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual
II-4
<PAGE>
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) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(i) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-5
<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-3 and has duly caused this
Amendment to the 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 6th day of June, 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 June 6, 1997
- ------------------------------------- Executive Officer (and principal executive officer)
William J. Rouhana, Jr.
/s/ Nathan Kantor President, Chief Operating Officer and Director June 6, 1997
- -------------------------------------
Nathan Kantor
/s/ Steven G. Chrust Vice Chairman of the Board of Directors June 6, 1997
- -------------------------------------
Steven G. Chrust
/s/ Fredric E. von Stange Executive Vice President, Chief Financial Officer and June 6, 1997
- ------------------------------------- Director (and principal accounting officer)
Fredric E. von Stange
/s/ Bert W. Wasserman Director June 6, 1997
- -------------------------------------
Bert W. Wasserman
/s/ William J. vanden Heuvel Director June 6, 1997
- -------------------------------------
William J. vanden Heuvel
/s/ William Harvey Director June 6, 1997
- -------------------------------------
William Harvey
/s/ Steven B. Magyar Director June 6, 1997
- -------------------------------------
Steven B. Magyar
/s/ James I. Cash Director June 6, 1997
- -------------------------------------
James I. Cash
/s/ Dennis Patrick Director June 6, 1997
- -------------------------------------
Dennis Patrick
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
5.1 Opinion of Graubard Mollen & Miller
12.1 Ratio of Earnings to Combined Fixed Charges and Preferred
Stock Dividends
23.1 Consent of Grant Thornton LLP
23.2 Consent of Grant Thornton LLP
23.3 Consent of Graubard Mollen & Miller (included in its
opinion filed as Exhibit 5.1)
II-7
<PAGE>
Exhibit 5.1
June 11, 1997
WinStar Communications, Inc.
230 Park Avenue
Suite 2700
New York, New York 10169
Gentlemen:
It is our opinion that the securities being registered for
issuance by the registrant with the Securities and Exchange Commission, pursuant
to the Registration Statement of WinStar Communications, Inc. on Form S-3, as
amended (File No. 18465), when sold and paid for, will be legally issued, fully
paid and non-assessable.
We consent to the filing of this opinion as an exhibit to the
aforesaid Registration Statement and further consent to the reference made to us
under the caption "Legal Matters" in the Prospectus constituting a part of such
Registration Statement.
Very truly yours,
/s/ GRAUBARD MOLLEN & MILLER
<PAGE>
Exhibit 12.1
WINSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The following table sets forth the ratio of earnings to combined fixed
charges and preferred stock dividends for the years ended February 28, 1993,
1994 and 1995, the ten months needed December 31, 1995 and the three months
ended March 31, 1996 and 1997.
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, March 31,
Ten
Months
Ended Pro Pro
Year Ended December Pro Forma as Pro Forma as
February 28, 31, Actual Forma Adjusted Actual Forma Adjusted
-------------- -------- ------ ----- -------- -------- ----- --------
1993 1994 1995 1995 1996 1996(1) 1996(2) 1996 1997 1996(3) 1996(4)
---- ---- ---- ---- ---- ------- ------- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to
combined fixed
charges and preferred
stock dividends... -- -- -- -- -- -- -- -- -- -- --
Deficiency in the
coverage of fixed
charges and preferred
stock dividends by
earnings before fixed
charges and preferred
stock dividends in
thousands........ $4,679 $8,622 $7,288 $16,310 $83,033 $97,208 $138,285 $10,562 $42,537 $43,204 $51,711
- ------------------------------
<FN>
(1) Gives effect to the Company's acquisition of Milliwave Limited
Partnership ("Milliwave") and the Preferred Stock Placement as if they
occurred as of the beginning of the year ended December 31, 1996.
(2) Adjusted to reflect the acquisition and the Preferred Stock Placement
referred to in footnote (1) above and the 1997 Debt Placement as if
they occurred as of the beginning of the year ended December 31, 1996.
Interest expense has been adjusted to include interest on the 1997 Debt
Placement, and related amortization costs, but not to include interest
income earned on additional available cash.
(3) Adjusted to reflect the Preferred Stock Placement referred to in (1) above as if it had occurred at the
beginning of the period ending March 31, 1997.
(4) Adjusted to reflect the Preferred Stock Placement referred to in
footnotes (1) and (3) above and the 1997 Debt Placement as if they had
occurred at the beginning of the period ended March 31, 1997. Interest
expense has been adjusted to include interest on the 1997 Debt
Placement, and related amortization costs, but not to include interest
income earned on additional available cash.
(5) The ratio of earnings to combined fixed charges and preferred stock
dividends equals earnings before combined fixed charges and preferred
stock dividends divided by combined fixed charges and preferred stock
dividends. For purposes of calculating the ratio of earnings to
combined fixed charges and preferred stock dividends earnings before
combined fixed charges and preferred stock dividends consist of
earnings (loss) before income taxes, extraordinary item, and minority
interest in losses of majority owned subsidiaries, plus fixed charges
and preferred stock dividends. Fixed charges consist of interest
charges and amortization of debt expense and discount on premium
related to indebtedness, whether expensed or capitalized, and that
portion of rental expense (one-third) that the Company believes to be
representative of interest.
</FN>
</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 use of the aforementioned reports in the
Registration Statement and Prospectus, and to the use of our name as it appears
under the caption "Experts".
/s/ GRANT THORNTON LLP
GRANT THORNTON LLP
New York, New York
June 10, 1997
<PAGE>
Exhibit 23.2
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 use of the aforementioned report in the
Registration Statement and Prospectus, and to the use of our name as it appears
under the caption "Experts".
/s/ GRANT THORNTON LLP
GRANT THORNTON LLP
New York, New York
June 10, 1997
<PAGE>
