<PAGE>
As filed with the Securities and Exchange Commission on November 21,1997.
Registration No. 333-
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
ON
FORM S-4
--------------------
WINSTAR COMMUNICATIONS, INC.
(Exact Name of Each Registrant as Specified in its Charter)
Delaware 4812 13-3585278
(State or other jurisdiction (Primary standard (I.R.S. Employer
of incorporation industrial classification Identification Number
or organization) code number) of WinStar
Communications, Inc.)
--------------------
230 Park Avenue
New York, New York 10169
(212) 584-4000
(Address, including zip code, and telephone number, including
area code, of each registrant's principal executive offices)
--------------------
William J. Rouhana, Jr.
Chief Executive Officer and Chairman of the Board
WinStar Communications, Inc.
230 Park Avenue
New York, New York 10169
(212) 584-4000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------
Copies to:
David Alan Miller, Esq.
Graubard Mollen & Miller
600 Third Avenue
New York, New York 10016
Telephone: (212) 818-8800
Fax: (212) 818-8881
Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered
in connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box: / /
<PAGE>
(Cover Page Continued)
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed Maximum
Title of Each Class of Amount to be Maximum Offering Aggregate Offering Amount of
Securities to be Registered Registered Price Per Note Price Registration Fee
- --------------------------- ------------ ---------------- ------------------ ----------------
<S> <C> <C> <C> <C>
15% Senior Subordinated Deferred
Interest Exchange Notes Due 2007
("New Equipment Notes")(1) 100,000 $1,000(2) $100,000,000(3) $30,303.03
------------ ---------------- ------------------ ----------------
Total $100,000,000 $30,303.03
------------------ ----------------
------------------ ----------------
</TABLE>
- -------------------
(1) The New Notes being registered hereby are being offered by WinStar
Communications, Inc. (the "Company"), in exchange for certain 15% senior
subordinated deferred interest notes due 2007 ("Old Notes").
(2) Represents the minimum principal amount of each of the Old Notes for which
the New Notes will be exchanged.
(3) Based on the book value of the notes as of the latest practicable date
pursuant to Rule 457(f)(2) under the Securities Act of 1933 ("Securities
Act").
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>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 21, 1997
Offer to Exchange
15% Senior Subordinated Deferred Interest Exchange Notes Due 2007
(Interest Payable on March 1 and September 1,
Commencing September 1, 2002)
for
all outstanding
15% Senior Subordinated Deferred Interest Notes Due 2007
(Interest Payable on March 1 and September 1,
Commencing September 1, 2002)
of
WinStar Communications, Inc.
--------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME ON JANUARY __, 1998,
UNLESS EXTENDED BY
WINSTAR COMMUNICATIONS, INC.
--------------------
See "Risk Factors" beginning on Page 20 hereof for a discussion of certain
information that should be considered in connection with the Exchange
Offer and an investment in the 15% Senior Subordinated Deferred
Interest Exchange Notes.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
--------------------
The date of this Prospectus is December ___, 1997
(Continued on next page)
<PAGE>
(Cover page continued)
WinStar Communications, Inc., a Delaware corporation ("Company"), hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus and the letter of transmittal ("Letter of Transmittal") to be
delivered to each holder of Old Notes (as defined below), to exchange
("Exchange Offer") $1,000 principal amount of its 15% Senior Subordinated
Deferred Interest Exchange Notes Due 2007 ("New Notes") for each $1,000
principal amount of its outstanding 15% Senior Subordinated Deferred Interest
Notes Due 2007 ("Old Notes"). The Old Notes and the New Notes are referred
to herein collectively as the "Notes."
The New Notes will be registered under the Securities Act of 1933, as
amended ("Securities Act"), pursuant to the registration statement on Form
S-4 ("Registration Statement") of which this Prospectus forms a part. As of
the date hereof, $100.0 million principal amount of the Old Notes were
outstanding. The Registration Statement of which this Prospectus forms a
part has been filed by the Company in accordance with the terms of the
Purchase Agreement, dated as of October 1, 1997 ("Purchase Agreement"), and
Registration Rights Agreement, dated as of October 1, 1997 ("Registration
Agreement"), between the Company and Credit Suisse First Boston Corporation
and BT Alex Brown Incorporated, the initial purchasers of the Old Notes
("Initial Purchasers"). The Exchange Offer is being made by the Company to
fulfill certain obligations under the Purchase Agreement and Registration
Agreement. After the consummation of the Exchange Offer, the Company will
have no further obligation to make any other such exchange offers.
The Company will accept for exchange any and all Old Notes that are
validly tendered and not withdrawn on or prior to 5:00 p.m., New York City
time, on the date the Exchange Offer expires, which will be December __,
1997, unless the Exchange Offer is extended by the Company in its sole
discretion ("Expiration Date"). Tenders of Old Notes may be withdrawn at any
time prior to 5:00 p.m., New York City time, on the Expiration Date. The
Exchange Offer is not conditioned upon any minimum principal amount of Old
Notes being tendered for exchange. However, the Exchange Offer is subject to
certain conditions which may be waived by the Company and to the terms and
provisions of the Registration Statement. The Old Notes may be tendered only
in denominations of $1,000 principal amount and integral multiples thereof.
The Company has agreed to pay all expenses related to the Exchange Offer,
except costs related to the delivery of the Old Notes by each holder of such
notes to the United States Trust Company of New York, the exchange agent
("Exchange Agent" or "U.S. Trust"), and underwriting discounts, commissions
and transfer taxes. Any waiver, extension or termination of the Exchange
Offer will be publicly announced by the Company through a release to the Dow
Jones News Service and as otherwise required by applicable laws or
regulations. See "The Exchange Offer."
The New Notes will be entitled to the benefits of the indenture under
which the Old Notes were issued (the "Indenture"). The form of the New Notes
will be identical to the form of the Old Notes, except that the New Notes
will have been registered under the Securities Act and, therefore, will not
bear legends restricting the transfer thereof. The New Notes will have the
same terms, conditions and rankings as the Old Notes. The Notes are
unsecured, senior subordinated obligations of the Company, rank pari passu in
right of payment with the Company's existing 14% Convertible Senior
Subordinated Discount Notes Due 2005 ("Convertible Notes"), and are junior in
right of payment to all existing and future senior indebtedness of the
Company.
The Notes bear interest at a rate of 15% per annum, payable on March 1
and September 1, commencing September 1, 2002. Until March 1, 2002, interest
on the Notes will accrue and be compounded semiannually on each SemiAnnual
Interest Accrual Date (as defined), but will not be payable in cash.
Interest on the Accumulated Amount (as defined) of the Notes as of March 1,
2002 will be payable semiannually commencing September 1, 2002. The Notes
will mature on March 1, 2007 and are redeemable on or after March 1, 2002, at
the option of the Company, in whole or in part, at the redemption prices set
forth herein.
Based on no-action letters issued by the staff of the Securities and
Exchange Commission ("Commission") to third parties, the Company believes
that New Notes issued pursuant to this Exchange Offer in exchange for Old
Notes may be offered for resale, resold and otherwise transferred by a holder
thereof (other than a broker-dealer who purchased such Old Notes directly
from the Company to resell pursuant to Rule 144A or any other available
exemption under the Securities Act) without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that the
holder is acquiring the New Notes in the ordinary course of its business and
is not participating, and has no arrangement or understanding with any person
to participate, in the distribution of the New Notes. Holders
2
<PAGE>
(Cover page continued)
of Old Notes wishing to accept the Exchange Offer must represent to the
Company in the Letter of Transmittal that such conditions have been met.
Each broker-dealer that receives New Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of 180 days after the Expiration Date, it will make this Prospectus
available to any broker-dealer for use in connection with any such resale.
See "Plan of Distribution."
As of November ___, 1997, Cede & Co. ("Cede"), as nominee for The
Depository Trust Company, New York, New York ("DTC"), was the registered
holder of $100.0 million aggregate principal amount of the Old Notes and held
such Old Notes for _____ of its participants. The Company believes that no
such participant is an affiliate (as such term is defined in Rule 405 of the
Securities Act) of the Company. There has previously been only a limited
secondary market, and no public market, for the Old Notes. The Old Notes are,
and the New Notes will be, eligible for trading in the Private Offering,
Resales and Trading through Automatic Linkages ("PORTAL") market. There can
be no assurance as to the liquidity of the trading market for either the New
Notes or the Old Notes. The New Notes constitute securities for which there
is no established trading market, and the Company does not currently intend
to list the New Notes on any securities exchange. If such a trading market
develops for the New Notes, future trading prices will depend on many
factors, including, among other things, prevailing interest rates, the
Company's results of operations and the market for similar securities.
Depending on such factors, the New Notes may trade at a discount from their
face value. See "Risk Factors -- Absence of Public Market for the New Notes."
Any Old Notes not tendered and accepted in the Exchange Offer will remain
outstanding and will be entitled to all the rights and preferences and will
be subject to the limitations applicable thereto under the Indenture.
Following the consummation of the Exchange Offer, the holders of Old Notes
will continue to be subject to the existing restrictions upon transfer
thereof and the Company will have no further obligation to such holders to
provide for any other exchange offer with respect to the Old Notes held by
such holders. Following the completion of the Exchange Offer in accordance
with the terms hereof and the Registration Agreement, certain of the Old
Notes may not be entitled to the contingent increase in interest rate as
provided in the Registration Agreement. See "The Exchange Offer."
This Prospectus, together with the Letter of Transmittal, is being sent
to all registered holders of Old Notes as of December __, 1997.
The Company will not receive any proceeds from this Exchange Offer. No
dealer-manager is being used in connection with this Exchange Offer. See
"Plan of Distribution."
3
<PAGE>
(Cover page continued)
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
The Old Notes were issued originally in global form (the "Old Global
Notes"). The Old Global Notes were deposited with, or on behalf of, DTC, as
the initial depository with respect to the Old Notes (in such capacity, the
"Depository"). The Old Global Notes are registered in the name of Cede, as
nominee of DTC, and beneficial interests in the Old Global Notes are shown
on, and transfers thereof are effected only through, records maintained by
the Depository and its participants. The use of the Old Global Notes to
represent the Old Notes permits the Depository's participants, and anyone
holding a beneficial interest in an Old Note registered in the name of such a
participant, to transfer interests in the Old Notes electronically in
accordance with the Depository's established procedures without the need to
transfer a physical certificate. Except as provided below, the New Notes
will also be issued initially as a note in global form (the "New Global
Notes", and together with the Old Global Notes, the "Global Notes") and
deposited with, or on behalf of, the Depository. Notwithstanding the
foregoing, any holder of Old Notes who at any time is not a qualified
institutional buyer under Rule 144A (a "Qualified Institutional Buyer"), who
exchanges Old Notes in the Exchange Offer, will receive the New Notes in
certificated form. Any such holder is not, and will not be, able to trade
such securities through the Depository unless the New Notes are resold to a
Qualified Institutional Buyer. After the initial issuance of the New Global
Notes, New Notes in certificated form will be issued in exchange for a
holder's proportionate interest in the New Global Notes only as set forth in
the Indenture.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those
contained in this Prospectus and the Letter of Transmittal and, if given or
made, such information or representation must not be relied upon as having
been authorized by the Company or the Exchange Agent. This Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy the New
Notes in any jurisdiction to any person to whom it is unlawful to make such
offer or solicitation in such jurisdiction. The delivery of this Prospectus
shall not, under any circumstances, create any implication that the
information herein is correct at any time subsequent to its date.
4
<PAGE>
TABLE OF CONTENTS
Page Page
Incorporation of Information by Certain United States Federal
Reference.................... 6 Income Tax Considerations........ 62
Prospectus Summary............. 7 Description of Certain Indebtedness
Risk Factors................... 20 and Preferred Stock.............. 67
The Exchange Offer............. 31 Plan of Distribution............... 71
Capitalization................. 38 Legal Matters...................... 71
Description of Equipment Experts............................ 71
Notes........................ 39 Pro Forma Financial Statements..... F-1
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on
Form S-4 under the Securities Act with respect to the New Notes offered in
the Exchange Offer. For the purposes hereof, the term "Registration
Statement" means the original Registration Statement and any and all
amendments thereto. In accordance with the rules and regulations of the
Commission, this Prospectus does not contain all of the information set forth
in the Registration Statement and the schedules and exhibits thereto. Each
statement made in this Prospectus concerning a document filed as an exhibit
to the Registration Statement is qualified in its entirety by reference to
such exhibit for a complete statement of its provisions. For further
information pertaining to the Company and the New Notes offered in the
Exchange Offer, reference is made to such Registration Statement, including
the exhibits and schedules thereto and the financial statements, notes and
schedules filed as a part thereof. The Registration Statement (and the
exhibits and schedules thereto) may be inspected and copied at the public
reference facilities maintained by the Commission at its principal office at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549
("Washington Office"), or at its regional offices at Citicorp Center, 500
West Madison Street, 14th Floor, Chicago, Illinois 60661 ("Chicago Office"),
and at Seven World Trade Center, 13th Floor, New York, New York 10048 ("New
York Office"). Any interested party may obtain copies of all or any portion
of the Registration Statement and the exhibits thereto at prescribed rates
from the Public Reference Section of the Commission at its Washington Office.
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.
If the Company ceases to be subject to the informational reporting
requirements of the Exchange Act, the Company has agreed that, so long as any
Notes are outstanding, it will file with the Commission all such reports and
other information as it would be required to file with the Commission by
Sections 13(a) or 15(d) under the Exchange Act. The Company will supply the
United States Trust Company of New York, as trustee ("Trustee") and each
holder of Notes, or will supply to the Trustee for forwarding to each such
holder, without cost to such holder, copies of such reports or other
information.
5
<PAGE>
INCORPORATION OF INFORMATION BY REFERENCE
The following documents or information have been filed by the Company
with the Commission pursuant to the Exchange Act and are incorporated herein
by reference:
(1) Annual Report on Form 10-K for the year ended December 31, 1996;
(2) Current Report on Form 8-K filed January 17, 1997.
(3) Current Report on Form 8-K filed February 14, 1997.
(4) Current Report on Form 8-K filed February 27, 1997.
(5) Current Report on Form 8-K filed March 27, 1997;
(6) Quarterly Report on Form 10-Q for the three-month period ended March
31, 1997, as amended on June 10, 1997;
(7) Proxy Statement, dated May 15, 1997;
(8) Current Report on Form 8-K filed June 10, 1997;
(9) Quarterly Report on Form 10-Q for the six-month period ended June 30,
1997;
(10) Current Report on Form 8-K filed July 2, 1997;
(11) Current Report on Form 8-K filed September 11, 1997;
(12) Current Report on Form 8-K filed October 29, 1997;
(13) Current Report on Form 8-K filed October 31, 1997; and
(14) Quarterly Report on Form 10-Q for the nine-month period ended
September 30, 1997.
All documents subsequently filed by the Company with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the
date of this Prospectus and prior to the termination of the offering covered
by this Prospectus shall be deemed incorporated by reference into this
Prospectus and to be a part hereof from the date of filing of such documents.
Any statement contained in a document incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus has been delivered, upon the written or oral
request of such person to WinStar Communications, Inc., 230 Park Avenue,
Suite 2700, New York, New York 10169 (telephone 212-584-4000), Attention:
Investor Relations, a copy of any and all of the documents referred to above
(other than exhibits to such documents) which have been incorporated by
reference in this Prospectus. All such documents can also be retrieved from
the Commission's electronic data gathering and retrieval (EDGAR) system at
www.sec.gov.
6
<PAGE>
PROSPECTUS SUMMARY
This summary is qualified in its entirety by the detailed information and
financial statements and notes thereto appearing elsewhere or incorporated by
reference in this Prospectus. Unless otherwise indicated, references herein
to the "Company" or "WinStar" refer to WinStar Communications, Inc. and,
where appropriate, its subsidiaries. Wireless Fiber-SM- is a service mark and
WinStar-Registered Trademark- is a trademark of WinStar Communications, Inc.
The Company
The Company provides a full range of telecommunications services,
including local, long distance and Internet access services, as a competitive
local exchange carrier ("CLEC"). By exploiting its fiber-quality digital
capacity in the 38 GHz portion of the radio spectrum ("Wireless Fiber") and a
switch-based infrastructure, the Company seeks to distinguish itself as a
facilities-based, value-added provider of high-capacity telecommunications
services to small and medium-sized businesses and an attractive alternative
to established providers, such as the regional Bell operating companies
("RBOCs"). The Company introduced its switch-based local exchange services to
end users in New York City in October 1996. The Company is offering local
exchange services on a switched basis and resale basis in Boston, Chicago,
Dallas, Forth Worth, Los Angeles, Newark, New York City, San Diego and
Washington, D.C., and is offering local exchange services solely on a resale
basis in Atlanta, Hartford, Milwaukee, Orange County (California),
Philadelphia, San Francisco and Stamford (Connecticut). The Company's local
exchange services include the provision of PBX trunks, individual business
lines and Centrex and Internet access, and provide customers with
full-feature services such as custom calling, caller ID, conference calling
and voice mail. During the next several years, the Company intends to
introduce its local exchange services in each of the other major metropolitan
areas where it is licensed to provide 38 GHz services over four or more 100
MHz channels. Over time, the Company intends to carry a substantial majority
of its local telecommunications service traffic utilizing Wireless Fiber and
its own switched networks, unlike most fiber-based CLECs, which typically do
not carry the majority of their customer traffic over their own networks. The
Company also offers a variety of facilities-based broadband, high-capacity
local access and digital network services ("Carrier Services") to other
telecommunications service providers on a wholesale basis. As of September
30, 1997, the Company had more than 40 carrier customers, including, among
others, Ameritech Cellular Services, MCI Communications, Pacific Bell and
Teleport Communications Group.
The Company is the holder of the largest amount of 38 GHz spectrum in the
United States and is utilizing this asset to build local telephone networks
for the transmission of voice, data and video traffic in the major
metropolitan areas covered by the Company's 38 GHz licenses (the "Wireless
Licenses"). The Wireless Licenses cover an aggregate of more than 100 cities
with populations exceeding 100,000 each, and encompass an aggregate
population of approximately 175 million people and address more than 625
million channel pops (population coverage multiplied by the number of 100 MHz
channels). Furthermore, the Wireless Licenses allow the Company to provide
Wireless Fiber services in 49 of the 50 most populated Metropolitan
Statistical Areas ("MSAs") in the United States. The Company has agreed to
acquire an aggregate of certain additional 38 GHz licenses in various
transactions, subject to approval by the Federal Communications Commission
("FCC"). Upon completion of these acquisitions, the Company's Wireless
Licenses will enable the Company to provide services in all of the 50 most
populated MSAs and will cover cities encompassing an aggregate population of
over 185 million people and address more than 775 million channel pops. The
Company holds one or more Wireless Licenses in numerous markets which allow
it to provide Wireless Fiber services over four or more channels in such
markets. 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 densely
deploy its 38 GHz services and build out city-wide networks of broadband
capacity.
The 38 GHz portion of the radio spectrum has characteristics well suited
for the provision of local telecommunications services, including:
Rapid Deployment of Alternative Local Infrastructure. 38 GHz technology
generally can be deployed considerably more rapidly than wireline (because of
permit procedures and construction time required for wireline buildout) and
many other wireless technologies (because of their infrastructure
requirements and, in many instances, the need to follow FCC frequency
coordination procedures in connection with wireless facilities).
7
<PAGE>
Broad Bandwidth. The total amount of bandwidth for each 38 GHz channel
is 100 MHz, which supports full broadband capability. For example, one 100
MHz 38 GHz channel can support transmission capacity of one DS-3 at 45 Mbps
which can transfer data at a rate that is over 1,500 times the rate of the
fastest dial-up modem currently in general use (28.8 Kbps) and over 350 times
the rate of the fastest ISDN line currently in general use (128 Kbps). Data
transfer rates of a 38 GHz DS-3 channel even exceed the data transfer rates
of cable modems (30 Mbps). Further, it is anticipated that the Company's
deployment of multi point facilities, planned to begin this year, will allow
the Company's services to support one OC3 of capacity at 155 Mbps, which
represents data transfer rates that are three times faster than those
provided by currently deployed point-to-point technology. The broadband
capacity of 38 GHz provides improved speed and quality in transmissions, as
compared to transmissions that are carried over a "last mile" consisting of
copper wire. In addition to accommodating standard voice and data
requirements, data transmission rates of 45 Mbps and higher allow end users
to receive full-motion video and 3-D graphics and to use highly interactive
applications on the Internet and other networks.
Ease of Installation. The equipment used for point-to-point applications
in 38 GHz (i.e., antennae, transceivers and digital interface units) is
typically smaller, less obtrusive, less expensive, and uses less power than
equipment used for similar applications at lower frequencies. These
characteristics make it relatively easier to obtain the roof rights ("Roof
Rights") required to install 38 GHz transceivers, and less costly to initiate
38 GHz-based services as compared to most other wireless services.
Efficient Channel Reuse. Certain characteristics of 38 GHz, including
the effective range of its radio signal and the small amount of dispersion
(i.e., scattering) of the radio beam as compared to the more dispersed radio
beams produced at lower frequencies, allow for the reuse of bandwidth
capacity in a licensed area. The ability to reuse capacity allows the 38 GHz
license holder to densely deploy its 38 GHz services in a given geographic
area, provide services to multiple customers over the same 38 GHz channel,
and conserve bandwidth capacity, thereby enhancing the types of services that
can be provided and increasing the number of customers to which such services
can be provided.
Business Strategy
The Company's objective is to become the full-service telecommunications
provider of choice to small and medium-sized business customers and a
provider of high-quality alternative and broadband facilities to its Carrier
Services customers. Key elements of the Company's strategy are to:
Expand Network Infrastructure. The Company is creating an infrastructure
on a city-by-city basis using its Wireless Fiber capabilities, switches and
other telecommunications equipment acquired by the Company from equipment
vendors and facilities leased from other carriers to originate and terminate
traffic. Pursuant to its building-centric network plan, the Company is
identifying strategically located sites in each metropolitan area where it
provides service to serve as hubs for its network in that metropolitan area.
These hub sites will be connected via Wireless Fiber links to end users. The
Company believes that a limited number of hub sites (generally less than a
dozen) in each metropolitan area will allow it to address more than 70% of
its targeted buildings and to carry the majority of its customers' traffic on
its own network instead of the higher cost facilities of other carriers.
Exploit First-to-Market Advantages. The Company seeks to capitalize on
the significant opportunities emerging in the industry as a result of the
Telecommunications Act of 1996 (the "Telecommunications Act") by exploiting a
"first-to-market" advantage as one of the few holders of 38 GHz licenses with
an established operating and management infrastructure. The Company believes
that its early entrance into its markets provides it with advantages over
many potential competitors by allowing it to: (i) establish a customer base
prior to widespread competition from other CLECs; (ii) develop a proven,
reliable network infrastructure using its own switching and transmission
capabilities ahead of many other CLECs; (iii) develop pioneering expertise in
the utilization of 38 GHz for the delivery of telecommunications and
multimedia services and the design and management of 38 GHz-based networks;
and (iv) acquire Roof Rights to place its 38 GHz antennae on a large number
of buildings on favorable terms and in advance of other wireless service
providers.
Focus on Small and Medium-Sized Business Customers. The Company believes
there exists a substantial opportunity to attract a base of small and
medium-sized business customers by providing superior customer service and
sales support. The customer base initially targeted by the Company consists
of businesses typically located in buildings
8
<PAGE>
that have more than 100,000 square feet of commercial space and which, in
many instances, are not served by fiber facilities provided by CLECs or
competitive access providers ("CAPs"). The Company estimates that there are
more than 8,000 buildings in this target group, populated by approximately
9.7 million workers using more than 2.1 million phone lines. Over time, the
Company intends to expand its target customer base to include the majority of
small and medium-sized businesses in the metropolitan areas covered by the
Wireless Licenses, which the Company estimates contain approximately 60% of
all such businesses in the United States and represent a market opportunity
in excess of $30 billion per year.
Market Wireless Fiber to Other Carriers. The Company markets its Carrier
Services to other carriers such as the RBOCs and other local exchange
carriers ("LECs"), interexchange carriers ("IXCs"), other CAPs and CLECs,
providers of personal communications services ("PCS") and cellular and
specialized mobile radio services ("CMRS") providers. The Company believes
that its Carrier Services present an attractive, economical method for
telecommunications service providers to add a high-capacity extension to
their own networks and service territories, especially as they seek to
rapidly penetrate new markets opening as a result of the Telecommunications
Act. The Company's Carrier Services can also provide cost-efficient route
diversity where network reliability concerns require multiple
telecommunications paths.
Since the commercial introduction of the Company's Carrier Services in
October 1995, the number of carrier customers has increased significantly.
Such customers include Ameritech Cellular Services, AT&T Wireless, Bell
Atlantic/NYNEX Mobile, Brooks Fiber, Cellular One, PrimeCo Personal
Communications, Siemens Stromberg-Carlson, Teleport Communications Group and
Western Wireless. In addition, the Company has entered into multi-year master
service agreements with American Communications Services, Electric Lightwave,
IntelCom, MCI Communications and Pacific Bell. These agreements establish the
framework under which such companies may effect the integration of Wireless
Fiber services into their own telecommunications networks. The Company is in
the process of negotiating additional master service agreements with other
large telecommunications providers and has offered to enter into co-exclusive
multi-region network usage agreements with one or more such providers.
Market Wireless Fiber Services as a Solution to Growing Capacity
Shortages. The Company believes that demand for its Wireless Fiber-based
CLEC and Carrier Services will grow because of the expanding volume of data
communications traffic resulting from increasing Internet usage and other
high-volume data transmission requirements. This type of traffic increasingly
requires high-capacity, end-to-end networks that are often difficult to
provide economically with older RBOC and LEC infrastructure.
Provide Information and Content Services. The Company believes that the
ability to deliver information and other content will become an increasingly
important factor in the choice of a telecommunications provider by businesses
as competition increases and the markets covered by the Wireless Licenses
mature. Accordingly, the Company actively seeks opportunities to utilize its
information and content assets and services to enhance the marketability of
the Company's telecommunications services.
Development of Core Assets
The Company believes that in order to effectively compete with incumbent
LECs and other telecommunications service providers in its target markets, it
must develop a core group of assets, capabilities and resources. The Company
has made substantial progress in acquiring and developing these core assets,
which include:
Transmission and Switching Facilities. In October 1996, the Company
initiated local switched services in New York City, utilizing its first 5ESS
switch, purchased from Lucent Technologies, Inc. ("Lucent"), and facilities
leased from NYNEX. Since that time, the Company has initiated local switched
services in Boston, Chicago, Dallas, Fort Worth, Los Angeles, Newark, 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 the necessary Roof Rights to install its Wireless Fiber transmission
facilities on more than 1,900 buildings in its licensed areas. The Company
also has developed business and operational support and network monitoring
and management systems that will ensure the efficient use of its networks and
provide network reliability and transmission quality equivalent to that
provided by fiber-optic networks. The Company maintains a network operations
center ("NOC"), which is operating 24 hours a day, 7 days a week, and is
currently building a national field service force.
9
<PAGE>
In October 1997, the Company purchased (the "US ONE Asset Acquisition and
Financing") from US ONE Communications Corp. and its subsidiaries, entities
in bankruptcy, 12 Lucent switches, leased fiber-optic capacity in the New
York metropolitan area and certain related assets for a purchase price of
approximately $81.25 million in the form of (i) $61.25 million cash, paid at
the closing of the US One Asset Acquisition and Financing and (ii) $20
million, to be paid on the effective date of US ONE's confirmed plan of
reorganization in its pending Chapter 11 bankruptcy case, in either cash or
shares of the Company's common stock, in the Company's discretion. The
Company believes that the US ONE Asset Acquisition and Financing will allow
the Company to accelerate the city-by-city rollout of its Wireless Fiber and
switch based infrastructure, although there can be on assurance of this. See
"Description of Certain Indebtedness and Preferred Stock" for a description
of the $62 million financing utilized by the Company in the US ONE Asset
Acquisition and Financing.
The Company recently entered into an agreement with a manufacturer and is
negotiating with another alternative manufacturer for the initial development
and deployment of equipment for use in local digital multi point 38 GHz
networks. A multi point network, also known as a point-to-multi point or a
multiple point-to-point network, enables a single radio and antenna at a hub
location to send and receive unique transmissions to and from many remote
radios located within a cluster of buildings. The Company believes that the
implementation of multi point network architecture will provide it with (i)
substantially reduced network deployment costs, (ii) more efficient spectrum
utilization and reduced operating and installation costs and (iii) an
improved ability to tailor spectrum allocation to address specific customer
requirements (i.e., "bandwidth on demand"). The Company anticipates initial
deployment of multi point technology during the fourth quarter of 1997 and
general deployment of this technology during 1998.
State Authorizations. The Company has obtained authorization to operate
as a CLEC in 28 states and the District of Columbia and is in the process of
seeking authorization to operate as a CLEC in a number of additional
jurisdictions. The Company is authorized to provide its local access and
other Carrier Services as a CAP in 37 states and the District of Columbia and
has applications pending for such authorizations in a number of additional
jurisdictions.
Sales and Customer Support Organizations. The Company is
expending a significant amount of time and capital to build a
dedicated, responsive sales and customer support organization in order
to ensure that the people and systems necessary to achieve customer
satisfaction keep pace with a growing customer base. The Company has a
direct sales organization for its CLEC services, currently consisting
of approximately 400 people located in 16 major markets, and a Carrier
Services sales group, currently consisting of approximately 40 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 services
providers do not offer and that such level of service will become a key
factor in customers' choice of telecommunications services providers as
the market matures.
Experienced Management and Operating Personnel. The Company has
assembled a management team and hired operating personnel experienced
in all areas of telecommunications operations, including more than 250
former officers and employees of MCI Communications and Sprint
Corporation, as well as officers and employees from other established
telecommunications companies. The Company plans to hire additional
experienced telecommunications marketing and operations personnel as
appropriate.
Other Businesses
The Company has historically generated a significant portion of its
revenues from the resale of long distance services to residential customers.
As part of its CLEC service offerings, the Company is focusing on the sale of
long distance services to small and medium-sized businesses and is not
currently marketing such services to residential customers on an active basis.
Prior to the Company's entry into the telecommunications industry, it
marketed and distributed consumer products, including personal care and bath
and beauty products, through a nonstrategic subsidiary. That subsidiary
continues to sell such products, primarily to large retailers, mass
merchandisers, discount stores, department stores,
10
<PAGE>
national and regional drug store chains and other regional retail chains.
The Company expects to divest itself of this subsidiary during the next 9 to
12 months.
Corporate Information
The Company was incorporated under the laws of the State of Delaware in
September 1990, its principal office is located at 230 Park Avenue, New York,
New York 10169 and its telephone number is (212) 584-4000.
11
<PAGE>
Summary of The Exchange Offer
Background - The Private Offering of Debt Securities
General . . . . . . . . An aggregate of $100.0 million principal
amount of Old Notes were sold to
institutional purchasers ("Initial
Purchasers") by the Company in an
institutional private placement in
October 1997 ("October 1997 Debt
Placement"). The Initial Purchasers, in
turn, sold such Old Notes to certain
Qualified Institutional Buyers in
reliance on Rule 144A under the
Securities Act.
Exchange of Old Notes . In connection with the October 1997 Debt
Placement, the Company entered into the
Registration Agreement pursuant to which
the Company is obligated to use its best
efforts to consummate this Exchange Offer
with respect to the Old Notes pursuant to
the Registration Statement of which this
Prospectus forms a part or, if required
in lieu thereof, cause the Old Notes to
be registered under the Securities Act
pursuant to a shelf registration
statement. If (i) by April 6, 1998,
neither the Exchange Offer is consummated
nor the shelf registration statement is
declared effective; or (ii) after either
the Registration Statement of which this
Prospectus forms a part (or the shelf
registration statement) is declared
effective, such registration statement
thereafter ceases to be effective or
usable (subject to certain exceptions) in
connection with resales of the Old Notes
or the applicable New Notes in accordance
with and during the periods specified in
the Registration Agreement (each such
event referred to in clauses (i) and (ii)
a "Registration Default"), additional
interest of 0.50% will accrue on such
Notes from and including the date on
which any such Registration Default shall
occur, but excluding the date on which
all Registration Defaults have been
cured.
Terms of the Exchange Offer
The Exchange Offer . . Pursuant to the Exchange Offer, $1,000
principal amount of New Notes will be
issued in exchange for each $1,000
principal amount of outstanding Old Notes
validly tendered and not withdrawn. The
New Notes will be issued to tendering
holders of Old Notes as promptly as
practicable after the Expiration Date.
Resale . . . . . . . . Based on an interpretation by the staff
of the Commission set forth in no-action
letters issued to third parties, the
Company believes that the New Notes
issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for
resale, resold and otherwise transferred
by any holder thereof (other than
broker-dealers, as set forth below)
without compliance with the registration
and prospectus delivery provisions of the
Securities Act, provided that such New
Notes are acquired in the ordinary course
of such holder's business and that such
holder has no arrangement or
understanding with any person to
participate in the distribution of such
New Notes. Each broker-dealer that
receives New Notes for its own account in
exchange for Old Notes that were acquired
as a result of market-making or other
trading activity must acknowledge that it
will deliver a prospectus in connection
with any resale of New Notes. The Letter
of Transmittal states that by so
acknowledging and delivering a
prospectus, such broker-dealer will not
be deemed to admit that it is an
"underwriter" within the meaning of the
Securities Act. This Prospectus, as it
may be amended or supplemented from time
to time, may be used by such
broker-dealer in connection with resales
of New Notes received in
12
<PAGE>
exchange for Old Notes where such New
Notes were acquired by such broker-dealer
as a result of market-making activities
or other trading activities. The Company
has agreed that, for a period of 180 days
after the Expiration Date, it will make
this Prospectus available to any such
broker-dealer for use in connection with
any such resale. See "Plan of
Distribution." Any holder who tenders in
the Exchange Offer with the intention to
participate, or for the purpose of
participating, in a distribution of the
New Notes may not rely on the foregoing
position of the staff of the Commission
and, in the absence of an exemption
therefrom, must comply with the
registration and prospectus delivery
requirements of the Securities Act in
connection with a secondary resale
transaction. Failure to comply with such
requirements in such instance may result
in such holder incurring liabilities
under the Securities Act for which the
holder is not indemnified by the Company
or the Company.
The Exchange Offer is not being made to,
nor will be accepted from, holders of Old
Notes in any jurisdiction in which this
Exchange Offer or the acceptance thereof
would not be in compliance with the
securities laws of such jurisdiction.
Expiration Date . . . . 5:00 p.m., New York City time, January
__, 1998, unless the Exchange Offer is
extended, in which case the term
"Expiration Date" means the latest date
and time to which the Exchange Offer is
extended. Any extension, if made, will
be publicly announced through a release
to the Dow Jones News Service and as
otherwise required by applicable law or
regulations. The Company may extend the
Expiration Date in its sole and absolute
discretion.
Conditions to the
Exchange Offer . . . The Exchange Offer is not subject to any
conditions, other than that the Exchange
Offer does not violate applicable law or
any applicable interpretation of the
staff of the Commission. See "The
Exchange Offer -- Conditions to the
Exchange Offer." The Exchange Offer is
not conditioned upon any minimum
principal amount of Old Notes being
tendered.
Procedures for Tendering
Old Notes . . . . . . Each holder of Old Notes wishing to
accept the Exchange Offer must complete,
sign and date the Letter of Transmittal,
or a facsimile thereof, in accordance
with the instructions contained herein
and therein, and mail or otherwise
deliver the Letter of Transmittal, or a
facsimile thereof, together with the Old
Notes to be exchanged and any other
required documentation to U.S. Trust, as
Exchange Agent, at the address set forth
herein and therein. By executing a
Letter of Transmittal, each holder will
represent to the Company that, among
other things, the New Notes acquired
pursuant to the Exchange Offer are being
obtained in the ordinary course of
business of the person receiving such New
Notes, whether or not such person is the
holder, and that neither the holder nor
any such other person has any arrangement
or understanding with any person to
participate in the distribution of such
New Notes.
Special Procedures for
Beneficial Owners . . Any beneficial owner whose Old Notes are
registered in the name of a broker,
commercial bank, trust company or other
nominee, and who wishes to tender in the
Exchange Offer should contact such
registered holder promptly and instruct
such registered holder to tender on such
13
<PAGE>
beneficial owner's behalf. If such
beneficial owner wishes to tender on his
own behalf, such beneficial owner must,
prior to completing and executing the
Letter of Transmittal and delivering his
Old Notes, either make appropriate
arrangements to register ownership of the
Old Notes in such owner's name or obtain
a properly completed bond power from the
registered holder. Beneficial owners
should be aware that the transfer of
registered ownership may take
considerable time and may not be able to
be completed prior to the Expiration
Date.
Guaranteed Delivery
Procedures. . . . . . Holders of Old Notes who wish to tender
such Old Notes and whose Old Notes are
not immediately available or who cannot
deliver their Old Notes and a properly
completed Letter of Transmittal or any
other documents required by the Letter of
Transmittal to the Exchange Agent prior
to the Expiration Date may tender their
Old Notes according to the guaranteed
delivery procedures set forth in "The
Exchange Offer -- Procedures for
Tendering."
Acceptance of Old Notes
and Delivery of New
Notes . . . . . . . . Subject to certain conditions (as
described more fully in "The Exchange
Offer -- Conditions to the Exchange
Offer"), The Company will accept for
exchange any and all Old Notes which are
properly tendered in the Exchange Offer
and not withdrawn, prior to 5:00 p.m.,
New York City time, on the Expiration
Date. The New Notes issued pursuant to
the Exchange Offer will be delivered as
promptly as practicable following the
Expiration Date.
Withdrawal Rights . . . Subject to the conditions set forth
herein, tenders of Old Notes may be
withdrawn at any time prior to 5:00 p.m.,
New York City time on the Expiration
Date. See "The Exchange Offer --
Withdrawal of Tenders."
Certain Federal Income
Tax Considerations. . The exchange pursuant to the Exchange
Offer does not constitute a taxable
exchange for federal income tax purposes.
Each New Note will be treated as having
been originally issued at the time the
Old Note exchanged therefor was
originally issued. However, holders
should consult their own tax advisors.
See "Certain United States Federal Income
Tax Considerations."
Exchange Agent . . . . U.S. Trust, the Trustee under the
Indenture, is serving as Exchange Agent
in connection with the Exchange Offer.
For information with respect to the
Exchange Offer, the telephone number for
the Exchange Agent is (212) 852-1000 and
the facsimile number for the Exchange
Agent is (212) 852-1625.
See "The Exchange Offer," below, for more detailed information
concerning the terms of the Exchange Offer.
14
<PAGE>
The New Notes
The Exchange Offer applies to $100.0 million aggregate principal
amount of Old Notes. The form and terms of the New Notes will be the
same as the form and terms of the Old Notes, except that the New Notes
will be registered under the Securities Act and, therefore, will not
bear legends restricting the transfer thereof. The New Notes will
evidence the same debt as the Old Notes and the New Notes will be
entitled to the benefits of the Indenture. Upon consummation of the
Exchange Offer, the New Notes will be treated as a single class with
any Old Notes that remain outstanding. Upon consummation of the
Exchange Offer, the Old Notes will not be entitled to certain
registration rights under the Registration Agreement. See "Description
of Notes."
Securities Offered . . $100,000,000 principal amount of 15% Senior
Subordinated Deferred Interest Notes Due 2007
of the Company (the "Offering").
Maturity Date . . . . . March 1, 2007.
Interest Payment
Dates . . . . . . . . March 1 and September 1, commencing September
1, 2002. Until March 1, 2002, interest on the
Notes will accrue at a rate of 15% per annum
and be compounded semiannually on each
SemiAnnual Accrual Date with respect to the
Notes, but, other than additional interest
payable upon any Registration Default (as
defined), will not be payable in cash.
Interest on the Accumulated Amount of the
Notes as of March 1, 2002 will be payable
semiannually in cash, commencing September 1,
2002. For a discussion of the federal income
tax treatment of the Notes under the original
issue discount rules, see "Certain United
States Federal Income Tax Considerations."
Optional Redemption . . The Notes are not redeemable prior to March 1,
2002. Thereafter, the Notes are redeemable at
the option of the Company, in whole or in
part, at the redemption prices set forth
herein, plus accrued interest, if any, on the
Accumulated Amount of the Notes to the date of
redemption.
Change of Control . . . Upon a Change of Control, each holder of Notes
may require the Company to repurchase such
Notes at 101% of the Accumulated Amount of
such Notes on the date of repurchase, plus
accrued interest, if any, on such amount to
the date of repurchase.
Ranking . . . . . . . . The Notes are unsecured, senior subordinated
obligations of the Company, rank pari passu
with the Convertible Notes and are junior in
right of payment to all existing and future
senior indebtedness of the Company. At
September 30, 1997, after giving effect to the
October 1997 Debt Placement and the US ONE
Asset Purchase and Financing, the Company
would have had (on an unconsolidated basis)
approximately $820.9 million of indebtedness,
$561.1 million of which would have been senior
indebtedness and $197.5 million of which would
have been senior subordinated indebtedness.
The Company is a holding company and,
accordingly, the Notes are effectively
subordinated to all liabilities of the
Company's subsidiaries, including trade
payables. At September 30, 1997, after giving
effect to the October 1997 Debt Placement and the
US One Asset Purchase and Financing the total
liabilities of the Company's subsidiaries were
approximately $422.0 million, including trade
payables.
15
<PAGE>
Restrictive Covenants . The Indenture restricts the incurrence of
additional debt by the Company, the issuance
of debt and preferred stock by the Company's
subsidiaries, dividends on and redemptions of
capital stock of the Company, the redemption
of certain subordinated obligations of the
Company, the sale of assets and subsidiaries'
stock and transactions with affiliates. The
Indenture also prohibits certain restrictions
on distributions from subsidiaries and
restricts the Company from consolidating or
merging with or transferring all or
substantially all of its assets to another
person. However, all of these restrictions and
prohibitions are subject to a number of
important qualifications, including the
ability of the Company to designate certain
subsidiaries as unrestricted subsidiaries.
16
<PAGE>
Summary Financial Information
(In thousands of dollars, except per share data)
The summary financial data presented below for the year ended
February 28, 1995, the ten months ended December 31, 1995 and the year
ended December 31, 1996 have been derived from the Company's audited
Consolidated Financial Statements included in its Annual Report on Form
10-K for the year ended December 31, 1996, reclassified to reflect the
operations of WinStar Global Products, Inc. ("Global Products"), the
Company's merchandising subsidiary, as a discontinued operation. The
summary financial data for the nine months ended September 30, 1996 and
1997 have been derived from the unaudited Condensed Consolidated
Financial Statements and notes thereto incorporated by reference into
this Prospectus. In the opinion of management, the Unaudited
Consolidated Financial Statements have been prepared on the same basis
as the audited Consolidated Financial Statements and include all
adjustments, which consist only of normal recurring adjustments,
necessary for a fair presentation of the results of operations for the
period.
<TABLE>
<CAPTION>
Year Ended
December 31, 1996 Nine Months Ended September 30,
---------------------- -----------------------------------
Ten Months
Year Ended Ended
February 28, December 31, 1996 1997 1997 Pro
1995 1995 Actual Pro Forma(1) Actual Actual Forma(1)
------------ ------------ ------- ------------ -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Operating revenues:
Telecommunications.............. $14,909 $ 13,137 $ 33,969 $ 32,481 $ 27,957 $ 23,910 $ 23,910
Information services............ 473 2,648 14,650 14,650 7,479 25,693 25,693
------------ ------------ ------- ------------ -------- -------- ----------
Total net sales............... 15,382 15,785 48,619 47,131 35,436 49,603 49,603
Operating income (loss):
Telecommunications.............. (4,984) (7,288) (43,698) (56,199) (21,746) (105,982) (110,778)
Information services............ (157) 217 (1,409) (1,409) (563) (2,632) (2,632)
General corporate............... (944) (3,861) (11,373) (11,373) (8,749) (15,661) (15,661)
------------ ------------ ------- ------------ -------- -------- ----------
Total operating loss.......... (6,085) (10,932) (56,480) (68,981) (31,058) (124,275) (129,071)
Interest expense.................. (375) (7,186) (36,748) (109,230) (26,695) (53,074) (84,107)
Interest income................... 343 2,890 10,515 8,453 8,342 11,052 11,052
Other (expenses) income, net...... (1,109) (866) -- -- -- 2,219 2,219
------------ ------------ ------- ------------ -------- -------- ----------
Net loss from continuing
operations.................... (7,226) (16,094) (82,713) (169,758) (49,411) (164,078) (199,907)
Net (loss) income from
discontinued operations(2).... (4) 237 (1,010) (1,010) (616) (1,977) (1,977)
------------ ------------ ------- ------------ -------- -------- ----------
Net loss.......................... (7,230) (15,857) (83,723) (170,768) (50,027) (166,055) (201,884)
Preferred stock dividends......... -- -- -- (6,000) -- (3,881) (4,535)
------------ ------------ ------- ------------ -------- -------- ----------
Net loss applicable to common
stock......................... $(7,230) $(15,857) $(83,723) $(176,768) $(50,027) $(169,936) $(206,419)
------------ ------------ ------- ------------ -------- -------- ----------
------------ ------------ ------- ------------ -------- -------- ----------
Net loss per share from
continuing operations........... $ (0.42) $ (0.71) $ (2.96) $ (5.58) $ (1.79) $ (5.10) $ (6.21)
Net (loss) income per share from
discontinued operations......... -- 0.01 (0.04) (0.03) (0.02) (0.06) (0.06)
------------ ------------ ------- ------------ -------- -------- ----------
Net loss per common share
outstanding..................... $ (0.42) $ (0.70) $ (3.00) $ (5.61) $ (1.81) $ (5.16) $ (6.27)
Weighted average common shares
outstanding..................... 17,122 22,770 27,911 31,506 27,691 32,923 32,923
Other Financial Data:
Ratio of earnings from continuing
operations to combined fixed
charges and preferred stock
dividends(3).................... -- -- -- -- -- -- --
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
As of September 30, 1997
----------------------------------
Actual Pro forma(4)
-------- --------------
(in thousands)
<S> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and short-term investments... $302,769 $396,782
Property and equipment, net......................... 155,025 206,177
Total assets........................................ 719,964 902,389
Current portion of long-term debt and capital
lease obligations................................. 8,577 70,827
Long-term debt and capital lease obligations,
less current portion.............................. 675,991 775,991
Common and preferred stock and additional paid-in
capital........................................... 253,024 253,024
Stockholders' equity................................ (38,065) (38,065)
</TABLE>
- ------------------
(1) Gives effect to (a) the acquisition of Milliwave Limited Partnership
("Milliwave Acquisition") completed in January 1997, (b) an institutional
private placement of $100 million of Units, consisting of preferred stock
and warrants, completed in February 1997 ("Preferred Stock Placement"),
(c) a private placement in March 1997 ("March 1997 Debt Placement") of
$100 million 141/2 Senior Deferred Interest Notes Due 2005 of the Company
("1997 Senior Notes") and $200 million 121/2% Guaranteed Senior Secured
Notes Due 2004 of WinStar Equipment Corp. ("WEC"), a wholly owned
subsidiary of the Company ("WEC Notes"), (d) a private placement in August
1997 ("August 1997 Debt Placement") by WinStar Equipment II Corp., a
wholly-owned subsidiary of the Company ("WEC II"), of $50.0 million
aggregate principal amount of its 121/2% Guaranteed Senior Secured Notes
Due 2004 (the "WEC II Notes" and, together with the WEC Notes and 1997
Senior Notes, the "1997 Notes"), (e) the October 1997 Debt Placement and
(f) the US ONE Asset Acquisition and Financing, each as if they occurred
as of the beginning of the respective period. Interest expense has been
adjusted to include approximately $31.0 million and $72.5 million of
interest on such debt and amortization of debt offering costs and other
related fees in the nine months ended September 30, 1997 and the year
ended December 31, 1996, respectively, but not to include interest income
earned on additional available cash. Since the Milliwave Acquisition was
completed on January 2, 1997, its operations are reflected in the
historical results of the Company for the nine month period ended
September 30, 1997. See "Description of Certain Indebtedness and Preferred
Stock." Depreciation expense has been adjusted to include approximately
$4.8 million and $6.4 million, respectively, of depreciation on certain of
the assets acquired in the US ONE Asset Acquisition and Financing,
assuming straight line depreciation over the expected useful lives of the
assets which will ultimately be placed in service.
(2) Such loss or income is from the operations of Global Products, the
Company's consumer products subsidiary. On May 13, 1997, a formal plan of
disposition for Global Products was approved by the Company's Board of
Directors, and it is anticipated that the disposition will be completed
within the next 12 months. The disposition of Global Products has been
accounted for as a discontinued operation and, accordingly, its net assets
have been segregated from continuing operations in the balance sheet data,
and its operating results through September 30, 1997 are segregated and
reported as discontinued operations in the statement of operations data.
(3) For the year ended February 28, 1995, the ten months ended December 31,
1995, the year ended December 31, 1996 and the nine months ended September
30, 1996 and 1997, earnings from continuing operations were insufficient
to cover combined fixed charges and preferred stock dividends by $7,288,000,
$16,310,000, $83,033,000, $49,411,000 and $169,172,000, respectively. On
a pro forma basis, giving effect to the items described in footnote 1 above,
earnings from continuing operations were insufficient to cover combined
fixed charges and preferred stock dividends by $205,655,000 and
$176,078,000 for the nine months ended September 30, 1997 and the year
ended December 31, 1996, respectively. Fixed charges consist of interest
charges and amortization of debt expense and discount or premium related
to indebtedness, whether expensed or capitalized, and that portion of rent
expense that the Company believes to be representative of interest.
(4) Gives effect to the October 1997 Debt Placement and the US ONE Asset
Acquisition and Financing, as if each occurred at September 30, 1997.
18
<PAGE>
Forward-Looking Statements
This Prospectus and the documents incorporated by reference herein
contain certain forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 with respect to the financial
condition, results of operations and business of the Company. These
forward-looking statements involve certain risks and uncertainties. No
assurance can be given that any of such matters will be realized. Factors
that may cause actual results to differ materially from those contemplated by
such forward-looking statements include, among others, the following: (a) the
Company's ability to service its debt or to obtain financing for the buildout
of its telecommunications network; (b) the Company's ability to attract and
retain a sufficient revenue-generating customer base; (c) competitive
pressures in the telecommunications industry; and (d) general economic
conditions. For further information and other factors which could affect the
financial results of the Company and such forward-looking statements, see
"Risk Factors."
19
<PAGE>
RISK FACTORS
The New Notes offered hereby contain the same terms and conditions as the
Old Notes and, accordingly, involve a high degree of risk. Each prospective
investor should carefully consider the following risk factors relating to
both the Old Notes and the New Notes. This Prospectus contains
forward-looking statements which involve risks and uncertainties. The
Company's actual results may differ significantly from the results discussed
in the forward-looking statements. Factors that might cause such differences
include, but are not limited to, the following risk factors:
HISTORICAL AND ANTICIPATED FUTURE NET AND OPERATING LOSSES AND NEGATIVE EBITDA
The Company has incurred significant operating and net losses
attributable in substantial part to the development of its telecommunications
businesses. The Company historically has had net losses and negative EBITDA,
including net losses and negative EBITDA of approximately $15.9 million and
$9.0 million, respectively, for the ten months ended December 31, 1995, $83.7
million and $49.6 million, respectively, for the year ended December 31, 1996
and $166.1 million and $108.8 million, respectively, for the nine months
ended September 30, 1997. The Company has been offering local access and
other Carrier Services only since December 1994, and local exchange services
as a CLEC only since April 1996, and has made and is making significant
expenditures in the development of its local telecommunications operations,
including expenditures associated with establishing an operating
infrastructure and introducing and marketing its telecommunications services.
The Company expects to continue to experience significant and increasing
operating losses, net losses and total and per share amounts of net loss,
along with decreasing net current assets, and to generate increasingly
negative EBITDA while it seeks to establish a sufficient revenue-generating
customer base and build its network infrastructure so that it can provide
services over its own facilities. As a result of increased expenses,
principally relating to an increase in the number of employees in connection
with the rollout of CLEC services and expenses relating to the servicing of
debt, there will continue to be substantial increases in the Company's net
loss, operating loss and negative EBITDA. There can be no assurance that the
Company will achieve or sustain positive EBITDA or profitability or at any
time have sufficient financial resources to make principal and interest
payments on its outstanding debt, including the Notes offered hereby.
SUBSTANTIAL INDEBTEDNESS; ABILITY TO SERVICE INDEBTEDNESS
At September 30, 1997, on a pro forma basis giving effect to the
consummation of the October 1997 Debt Placement and the US ONE Asset
Acquisition and Financing, the Company would have had, on a consolidated
basis, approximately $856.0 million of indebtedness, including capitalized
lease obligations. The accrual of interest on the 1997 Senior Notes and the
US ONE Asset Acquisition and Financing and the accretion of original issue
discount on the Convertible Notes and the Company's outstanding 14% Senior
Discount Notes due 2005 (the "1995 Senior Notes" and, together with the
Convertible Notes, the "1995 Notes) will significantly increase the Company's
liabilities (except to the extent that the Convertible Notes are converted
into the Company's Common Stock). The Company has significant indebtedness
and interest expense as a result of the issuance of the Notes, 1995 Notes,
1997 Notes and the consummation of the US ONE Asset Acquisition and
Financing. The Company also may need to incur additional indebtedness in the
future. The indentures pursuant to which the 1995 Notes, 1997 Notes and Notes
were issued (collectively, the "Indentures") limit, but do not prohibit, the
incurrence of additional indebtedness by the Company and its subsidiaries.
Additionally, the Indentures do not limit the amount of indebtedness that may
be incurred by the Company's new media and consumer products subsidiaries.
The level of the Company's indebtedness could have important
consequences, including the following: (i) the combined debt service
requirements of the 1995 Notes, 1997 Notes and US ONE Asset Acquisition and
Financing could make it more difficult for the Company to make payments on
the Notes offered hereby; (ii) the ability of the Company to obtain any
necessary financing in the future for working capital, capital expenditures,
debt service requirements or other purposes may be limited; (iii) a
substantial portion of the Company's cash flow from operations, if any, must
be dedicated to the payment of principal and interest on its indebtedness and
other obligations and will not be available for use in the Company's
business; (iv) the Company's level of indebtedness could limit its
flexibility in planning for, or reacting to changes in, its business; (v) the
Company is more highly leveraged than many of its competitors, which may
place it at a competitive disadvantage; and (vi) the Company's high degree of
indebtedness would make it more vulnerable in the event of a downturn in its
business or if operating cash flow does not significantly increase.
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HOLDING COMPANY STRUCTURE; RANKING OF THE NOTES; UNSECURED INDEBTEDNESS
The Company is a holding company and its only material assets consist of
the common stock of its operating subsidiaries and the proceeds raised from
certain private placements of equity and debt securities, all of which the
Company has loaned or contributed, or intends to loan or contribute, to its
subsidiaries. The Company may have to rely upon dividends and other payments
from its subsidiaries to generate the funds necessary to pay the principal of
and interest on the Notes. The subsidiaries, however, are legally distinct
from the Company and have no obligation, contingent or otherwise, to pay
amounts due pursuant to the Notes or to make funds available for such
payment. The Company's subsidiaries have not guaranteed the Notes. The
ability of the Company's subsidiaries to make such dividends and other
payments to the Company is subject to, among other things, the availability
of funds, the terms of such subsidiaries' indebtedness and applicable state
laws. See "Description of Certain Indebtedness and Preferred Stock." Claims
of creditors of the Company's subsidiaries, including trade creditors, will
generally have priority as to the assets of such subsidiaries over the claims
of the Company and the holders of the Company's indebtedness, including the
Notes. Accordingly, the Notes are effectively subordinated to all liabilities
(including trade payables) of the subsidiaries of the Company. At September
30, 1997, the subsidiaries of the Company had approximately $339.7 million of
liabilities (excluding intercompany payables to the Company and each other),
including $293.4 million of indebtedness.
The Notes are unsecured indebtedness of the Company. At September 30,
1997, after giving effect to the October 1997 Debt Placement and US ONE Asset
Acquisition and Financing, the Company on a consolidated basis had an
aggregate of approximately $856.0 million of indebtedness, including
capitalized lease obligations, $355.7 million of which was secured by liens
on certain of the Company's assets. In the event such secured indebtedness
goes into default and the holders thereof foreclose on the collateral, the
holders of secured indebtedness will be entitled to payment out of the
proceeds of their collateral prior to any holders of general unsecured
indebtedness, including the Notes, notwithstanding the existence of any event
of default with respect to the Notes.
In addition, the Notes are subordinated to all senior indebtedness of the
Company, including indebtedness under the 1995 Senior Notes, the 1997 Senior
Notes, the guarantee by the Company of the WEC Notes (the "WEC Note
Guarantee"), the Company's guarantee of the WEC II Notes (the "WEC II Note
Guarantee" and, together with the WEC Note Guarantee, the "Equipment Note
Guarantees") and the Company's guarantees under the Equipment Lease
Financing, the Finova Lease Financing, the Revolving Credit Facility and the
CIT Credit Facility (all as defined herein). Therefore, in the event of a
bankruptcy, liquidation or reorganization of the Company, the assets of the
Company will be available to pay obligations on the Notes only after all
senior indebtedness has been paid in full and there may not be sufficient
assets remaining to pay amounts due on the Notes. At September 30, 1997,
after giving effect to the October 1997 Debt Placement, and the US ONE Asset
Acquisition and Financing, the amount of outstanding senior indebtedness of
the Company was approximately $596.3 million.
NEED TO REFINANCE SUBSTANTIAL AMOUNT OF INDEBTEDNESS TO REPAY NOTES AT MATURITY
The Notes mature in March 2007. If the Company does not have cash flow
from operations with which to pay the Notes, the Company would be forced to
raise the cash to pay the Notes through equity offerings or additional debt
financings. The Company's ability to raise additional debt financing to repay
the Notes is severely restricted under the terms of the Indentures, which may
require the Company to refinance the 1995 Notes and the 1997 Senior Notes,
WEC Notes and WEC II Notes prior to or simultaneously with any refinancing of
the Notes. Accordingly, the Company may be forced to refinance a substantial
amount of other indebtedness in order for the Notes to be paid when due.
There can be no assurance that the Company will be able to refinance any or
all of such indebtedness at such time.
RISKS RELATED TO CLEC STRATEGY; ANTICIPATED INITIAL NEGATIVE OPERATING
MARGINS IN CLEC BUSINESS
The Company is pursuing an accelerated strategy to enter the local
exchange services market as a CLEC in the metropolitan areas in which it has
Wireless Licenses and to develop and obtain the facilities necessary to
provide its own switched local exchange services. The Company has limited
experience providing local exchange services and there can be no assurance
that the Company's CLEC strategy will be successful. In addition, local
exchange service providers 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
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negotiation and implementation of resale agreements with other local service
providers; the negotiation and implementation of interconnection agreements
with RBOCs and other incumbent LECs; the failure of LECs and RBOCs to honor
the letter and spirit of consummated interconnection agreements; the ability
of third-party equipment providers and installation and maintenance
contractors to meet the Company's rollout schedule; the recruitment of
additional personnel in a timely manner, so as to be able to attract and
service new customers but not incur excessive personnel costs in advance of
the rollout; the Company's ability to attract and retain new customers
through delivery of high-quality services; the potential adverse reaction to
the Company's services by the Company's carrier customers, which may view the
Company as a competitor; and the Company's ability to manage the simultaneous
implementation of its plan in multiple markets. In addition, the Company is
subject to the risk of unforeseen problems inherent in being a new entrant in
a rapidly evolving industry.
Historically, almost all of the Company's telecommunications revenues
have been derived from the resale of long distance services to residential
customers. As part of its CLEC strategy, the Company is marketing its long
distance services to small and medium-sized businesses and is no longer
actively marketing such services to residential customers. As a result,
revenues from the provision of long distance services to residential
customers have begun and are expected to continue to substantially decline
through attrition of the Company's long distance residential customer base.
Although the Company's initial implementation of its CLEC strategy
entails the resale of the facilities and services of other service providers,
which itself is dependent on the negotiation and implementation of
satisfactory resale arrangements, the Company's CLEC strategy will require
significant capital investment related to the purchase and installation of
numerous switches and the interconnection of these facilities to customers'
buildings and LEC and CLEC local networks, including the installation of
Wireless Fiber links and the buildout of other facility infrastructure, in
advance of generating material revenues.
As the Company rolls out its CLEC operations, it will experience negative
operating margins while it develops its facilities. After initial rollout of
its CLEC services in a particular city, the Company expects operating margins
for such operations to improve only when and if: (i) sales efforts result in
sufficiently increased volumes of traffic; (ii) the Company has installed a
switch and a sufficient number of Wireless Fiber links so that a substantial
portion of the Company's traffic in that city can be originated and
terminated over the Company's Wireless Fiber facilities instead of LEC or
other CLEC facilities; and (iii) higher margin-enhanced services are sought
by, provided to and accepted by customers. While the Company believes that
the unbundling and resale of LEC services and the implementation of local
telephone number portability (which will permit customers to retain their
telephone numbers when switching carriers), which are mandated by the
Telecommunications Act, will reduce the Company's costs of providing local
exchange services and facilitate the marketing of such services, there can be
no assurance that the Company's CLEC operations will become profitable due
to, among other factors, lack of customer demand, competition from other
CLECs and pricing pressure from the LECs and other CLECs. The Company's
failure to implement its CLEC strategy successfully would have a material
adverse effect on the operations of the Company and the ability of the
Company and its subsidiaries to make principal and interest payments on their
outstanding debt, including the Notes.
NEGATIVE OPERATING MARGINS IN THE INITIAL PROVISION OF WIRELESS FIBER-BASED
CARRIER SERVICES
The Company has experienced negative operating margins in connection with
the development and initial provision of its Wireless Fiber-based Carrier
Services and expects to continue to experience negative operating margins
until it develops a sufficient revenue-generating customer base for such
services. In order to demonstrate the efficacy of Wireless Fiber, the Company
often provides complimentary service on a trial basis for a limited period.
The Company expects to improve operating margins in the provision of its
Carrier Services over time by: (i) continuing to obtain appropriate Roof
Rights; (ii) acquiring and retaining an adequate customer base; (iii) placing
telecommunications traffic of new customers and additional telecommunications
traffic of existing customers across installed Wireless Fiber links; and (iv)
inducing providers of telecommunications services to utilize and market the
Company's Wireless Fiber services as part of their own networks, systems and
services, thereby reducing the Company's related marketing costs. If the
Company fails to accomplish any of the foregoing, particularly acquiring and
retaining an adequate customer base, it 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
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would have a material adverse effect on the operations of the Company and the
ability of the Company and its subsidiaries to make principal and interest
payments on their outstanding debt, including the Notes.
RISKS ASSOCIATED WITH RAPID EXPANSION AND ACQUISITIONS
The Company intends to pursue a strategy of aggressive and rapid growth,
including the accelerated rollout of its CLEC services, acquisitions of
businesses and assets, including additional spectrum licenses, continued
marketing of its Carrier Services, and the hiring of additional management,
technical and marketing personnel, all of which will result in significantly
higher operating expenses. Rapid expansion of the Company's operations may
place a significant strain on the Company's management, financial and other
resources. The Company's ability to manage future growth, should it occur,
will depend upon its ability to monitor operations, control costs, maintain
effective quality controls and significantly expand the Company's internal
management, technical, information and accounting systems. Any failure to
expand these areas and to implement and improve such systems, procedures and
controls in an efficient manner at a pace consistent with the growth of the
Company's business could have a material adverse effect on the business,
financial condition and results of operations of the Company and the ability
of the Company and its subsidiaries to make principal and interest payments
on their outstanding debt, including the Notes. As part of its strategy, the
Company may acquire complementary assets or businesses. The pursuit of
acquisition opportunities will place significant demands on the time and
attention of the Company's senior management and will involve considerable
financial and other costs with respect to identifying and investigating
acquisition candidates, negotiating acquisition agreements and integrating
the acquired businesses with the Company's existing operations. Employees and
customers of acquired businesses may sever their relationship with such
businesses during or after the acquisition. There can be no assurance that
the Company will be able to successfully consummate any acquisitions or
integrate any business or assets which it may acquire into its operations.
COMPETITION
The Company is subject to intense competition in each of the areas in
which it operates. Many of the Company's competitors have longer-standing
relationships with customers and suppliers in their respective industries,
greater name recognition and significantly greater financial, technical and
marketing resources than the Company. Further, sales of the Company's Carrier
Services are typically made to other telecommunications providers that
compete or may compete in the future with the Company.
LOCAL TELECOMMUNICATIONS MARKET. The local telecommunications market is
intensely competitive for new entrants and currently is dominated by the
RBOCs and other LECs. The LECs have long-standing relationships with their
customers, have the ability to subsidize competitive services with revenues
from a variety of other services and benefit from existing state and federal
regulations that currently favor the LECs over the Company in certain
respects. In addition to competition from the LECs, the Company also faces
competition from a growing number of new market entrants, such as other CLECs
and CAPs. The Company also may face competition in the provision of local
telecommunications services from cable companies, electric utilities, LECs
operating outside their current local service areas and IXCs. Moreover, the
consolidation of telecommunications companies and the formation of strategic
alliances within the telecommunications industry, which have accelerated,
could give rise to significant new or stronger competitors. The Company
currently also faces or anticipates facing competition from other entities
which offer, or are licensed to offer, 38 GHz services and could face
competition in certain aspects of its existing and proposed businesses from
competitors providing wireless services in other portions of the radio
spectrum (including 2 GHz, 18 GHz, 24 GHz, 28 GHz and 47 GHz, among others).
The initial perceived success of the Company's business is also likely to
encourage increased competition from other spectrum users. The Company's
Internet services also face significant competition from, among others, cable
television operators deploying cable modems that provide high-speed data
transmission over existing coaxial cable television networks. As competition
increases in the local telecommunications market, the Company anticipates
that general pricing competition and pressures will increase significantly.
The Company has not obtained significant market share in any of the areas
where it offers its services, nor does it expect to do so given the size of
its local telecommunications services markets, 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
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long distance providers in response to the offering of lower rates or
promotional incentives by competitors. The Company competes for long distance
customers with major IXCs, as well as other national and regional long
distance carriers and resellers, many of whom own substantially all of their
own facilities and are able to provide services at costs lower than the
Company's current costs since the Company generally leases its access
facilities. The Company believes that the RBOCs and CLECs also will become
significant competitors in the long distance telecommunications industry. To
maintain its competitive posture, the Company believes that it must be in a
position to reduce its prices in order to meet reductions in rates, if any,
by competitors. Any such reductions could adversely affect the Company. In
addition, LECs have been obtaining additional pricing and regulatory
flexibility. This may enable LECs to grant volume discounts to larger long
distance companies, which also could put the Company's long distance business
at a disadvantage in competing with larger providers.
NEW MEDIA BUSINESS. The industry in which the Company's new media
subsidiary competes consists of a very large number of entities producing,
owning or controlling news, sports, entertainment, educational and
informational content and services, including telecommunications companies,
television broadcast companies, sports franchises, film and television
studios, record companies, newspaper and magazine publishing companies,
universities and on-line computer services. Competition is intense for timely
and highly marketable or usable information and entertainment content. Almost
all of the entities with which the Company's new media subsidiary competes
have significantly greater presence in the various media markets and greater
resources than the Company, including existing content libraries, financial
resources, personnel and existing distribution channels. There can be no
assurance that the Company will be able to compete successfully in the
emerging new media industry.
SIGNIFICANT CAPITAL REQUIREMENTS
The expansion of the Company's telecommunications operations and the
continued funding of operating expenses will require substantial capital
investment. Additionally, as part of its strategy, the Company may seek to
acquire complementary assets or businesses (including additional spectrum
licenses, by auction or otherwise), which also could require substantial
capital investment. The Company's decision to accelerate the development of
its CLEC operations in response to the Telecommunications Act has
substantially increased the Company's near-term capital expenditure
requirements. The amount of capital required to execute the Company's business
plan is a function of the speed at which its plan is executed. Management
anticipates, based on current plans and assumptions relating to its
operations, that the Company's existing financial resources and additional
financing arrangements which the Company believes are readily available, will
be sufficient to fund the Company's growth and operations for approximately
24 to 30 months from the date of this Prospectus. In the event the Company's
plans or assumptions change or prove to be inaccurate, or if the Company
consummates any acquisitions of businesses or assets (including additional
spectrum licenses, by auction or otherwise), or if the Company fails to
secure additional equipment financing arrangements, if necessary, the Company
may be required to seek additional sources of capital sooner than currently
anticipated. Sources of additional capital may include public and private
equity and debt financing, sales of nonstrategic assets and other financing
arrangements. There can be no assurance that the Company will be able to
obtain additional financing or, if such financing is available, that the
Company will be able to obtain it on acceptable terms. Failure to obtain
additional financing, if needed, could result in the delay or abandonment of
some or all of the Company's development and expansion plans, which would
have a material adverse effect on the Company's business and could adversely
affect the ability of the Company and its subsidiaries to make principal and
interest payments on their outstanding debt, including the Notes.
GOVERNMENT REGULATION
The Company's telecommunications services are subject to varying degrees
of federal, state and local regulation. Generally, the FCC exercises
jurisdiction over all telecommunications services providers to the extent
such services involve the provision of jurisdictionally interstate or
international telecommunications, including the resale of long distance
services, the provision of local access services necessary to connect callers
to long distance carriers and the use of electromagnetic spectrum (i.e.,
wireless services). With the passage of the Telecommunications Act, the FCC's
jurisdiction has been extended to include certain issues that traditionally
have been considered subject primarily to state regulation (e.g., number
portability and carrier discrimination issues). The state regulatory
commissions retain jurisdiction over the provision of telecommunications
services to the extent such services involve the provision of
jurisdictionally intrastate telecommunications in certain instances.
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The Telecommunications Act is intended to remove the formal barriers
between the long distance and local telecommunications services markets,
allowing service providers from each market (as well as providers of cable
television and other services) to compete in all communications markets. The
Telecommunications Act will permit the RBOCs eventually to compete in the
provision of long distance services between local access transport areas
("LATAs"). Additionally, the FCC is required to promulgate new regulations 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 covering each of the market where it
intends to offer services.
As required by the Telecommunications Act, in August 1996, the FCC
adopted new rules implementing the interconnection and resale provisions of
the Telecommunications Act (the "Interconnection Order"). These rules
generally constitute a pro-competitive, national policy framework designed to
remove or minimize the regulatory, economic and operational impediments to
full competition for local services, including switched local exchange
services. The United States Court of Appeals for the Eighth Circuit stayed
the Interconnection Order in October 1996 and, in July 1997, invalidated
certain provisions of the Interconnection Order, including those provisions
in which the FCC asserted jurisdiction over the pricing of interconnection
elements and the "pick and choose" provisions for interconnectors to select
discrete provisions of other carriers' interconnection agreements. Many
states, however, continue to set the prices for interconnection, resale and
unbundled network elements. In October, the Eighth Circuit issued a further
decision with respect to the Interconnection Order that vacated the
obligation of incumbent LECs, under certain circumstances, to provide
combinations of network elements, rather than provide them individually. The
FCC has indicated its intention to appeal the Eighth Circuit's rulings to the
United States Supreme Court. The Company believes that the Eighth Circuit's
rulings will not adversely affect its CLEC operations and may, in certain
instances, positively affect the operations of its Carrier Services business.
In addition, pursuant to the Telecommunications Act, the FCC recently
promulgated regulations to, among other things, implement universal service
reform, provide support for the provision of ubiquitous national telephone
service and effect access charge reform to more explicitly align the access
charges paid by long distance carriers to incumbent LECs to the actual cost
of providing such services. In light of the continued litigation challenging
the validity of the Telecommunications Act and the regulations promulgated
thereunder by the FCC, as well as efforts before Congress to seek
modification of provisions of the Telecommunications Act, the Company is
unable to predict with specificity what effect the Telecommunications Act or
recently promulgated FCC regulations will have on the telecommunications
industry in general and on the Company in particular. No assurance can be
given that any regulation will broaden the opportunities available to the
Company or will not have a material adverse effect on the Company and its
operations. Further, there can be no assurance that the Company will be able
to comply with additional applicable laws, regulations and licensing
requirements or have sufficient resources to take advantage of the
opportunities which may arise from this dynamic regulatory environment.
Providers of telecommunications services, including the major IXCs,
RBOCs, CLECs and others, are coming under intensified regulatory scrutiny for
activities by them or their agents which may result in unauthorized switching
of customers from one service provider to another or, in other instances,
unfairly impeding customers seeking to switch providers. The FCC, the
Federal Trade Commission and a number of state authorities are seeking to
introduce more stringent regulation to curtail the intentional or erroneous
switching of customers, which could include the imposition of fines,
penalties and possible operating restrictions on entities which engage in
unauthorized switching activities. In addition, the 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 regulations would have on the telecommunications industry and the
business practices therein cannot be predicted. Statutes and regulations
which are or may become applicable to the Company as it expands could require
the Company to alter methods of operations, at costs which could be
substantial, or otherwise limit the types of services it offers.
FINITE INITIAL TERM OF WIRELESS LICENSES; POTENTIAL LICENSE RENEWAL COSTS;
FLUCTUATIONS IN THE VALUE OF WIRELESS LICENSES; TRANSFER OF CONTROL
As described in the FCC's Report and Order and Second Notice of Proposed
Rulemaking, released on November 3, 1997 (the "38 GHz Order"), the FCC's
policy is to align the expiration dates of all 38 GHz licenses
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granted before August 1, 1996 such that they mature concurrently on February
1, 2001. Licenses granted on or after August 1, 1996 have terms not to exceed
ten years. In each case, the licensee is entitled to an expectation of
renewal if the Fee's buildout requirements are met. 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 the 38 GHz Order, the FCC also ruled that (i) it would impose no
limits on the accumulation of licenses in the 38GHz band, (ii) the 39.5 -
40.0 GHz portion of this band would not be reserved for use by satellite
operations and that co-primary sharing of the 38 GHz band with satellite
operators is not feasible, (iii) licensees should be permitted great
flexibility in use of this spectrum, including use for point-to-multi point
and mobile services, and (iv) currently unlicensed channels in the 38 GHz
band will be auctioned.
While the Company views the vast majority of the FCC's determinations in
the 38 GHz Order as favorable to its operations and business plan, there can
be no assurance that all or a portion of the 38 GHz Order will not be repealed
or altered as a result of such proceedings.
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 and by valuations placed on
such licenses in any future auction of such spectrum. 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 light of the foregoing, the newness of
this service and possible revisions to the policies and regulations set forth
in the 38 GHz Order as a result of the challenges thereto, 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.
CHANGES IN TECHNOLOGY, SERVICES AND INDUSTRY STANDARDS
The telecommunications industry has been characterized by rapid
technological change, changing end-user requirements, frequent new service
introductions and evolving industry standards. The Company believes that its
future success will depend on its ability to anticipate or adapt to such
changes and to offer, on a timely basis, services that meet these evolving
industry standards. The extent to which competitors using existing or
currently undeployed methods of delivery of local telecommunications services
will compete with the Company's Wireless Fiber services cannot be
anticipated. There can be no assurance that existing, proposed or as yet
undeveloped technologies will not become dominant in the future and render 38
GHz-based (and other spectrum-based) systems less profitable or less viable.
For example, there are several existing technologies that may be able to
allow the transmission of high bandwidth traffic over existing copper lines
or unlicensed spectrum. There can be no assurance that the Company will have
sufficient resources to make the investments necessary to acquire new
technologies or to introduce new services that could compete with future
technologies or that equipment held by the Company in inventory will not be
rendered obsolete, any of which would have an adverse effect on the
operations of the Company and the ability of the Company and its subsidiaries
to make principal and interest payments on their outstanding debt, including
the Notes.
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CERTAIN FINANCIAL AND OPERATING RESTRICTIONS
The indebtedness of the Company and the Indentures impose significant
operating and financial restrictions on the Company, affecting, and in
certain cases limiting, among other activities, the ability of the Company to
incur additional indebtedness or create liens on its assets, pay dividends,
sell assets, engage in mergers or acquisitions or make investments. Failure
to comply with any such restrictions could limit the availability of
borrowings or result in a default under the terms of any such indebtedness,
and there can be no assurance that the Company will be able to comply with
such restrictions. Moreover, these restrictions could limit the Company's
ability to engage in certain business transactions which the Company may
desire to consummate. The Company's inability to consummate any such
transaction could have an adverse effect on the Company's operations and the
ability of the Company and its subsidiaries to make principal and interest
payments on their outstanding debt, including the Notes. See "Description of
Certain Indebtedness and Preferred Stock."
ORIGINAL ISSUE DISCOUNT; POSSIBLE UNFAVORABLE TAX AND OTHER LEGAL
CONSEQUENCES FOR HOLDERS OF NOTES AND THE COMPANY
As there will be no periodic payments in cash of interest on the Notes
prior to September 2002, original issue discount (the difference between the
stated redemption price at maturity and the issue price of the Notes) will
accrue from the issue date of the Notes. Original issue discount must be
included as interest income periodically in a United States noteholder's
gross income for United States federal income tax purposes in advance of
receipt of the cash payments to which the income is attributable.
Further, the Notes will be subject to the high yield discount obligation
rules. Consequently, the Company will not be able to deduct the original
issue discount attributable to the Notes until actually paid. As explained
in, and subject to, the discussion under "Certain United States Federal
Income Tax Consequences--Tax Consequences to U.S. Holders--Applicable High
Yield Discount Rules," the Notes are subject to these rules because their
yield to maturity equals or exceeds the Treasury-based interest rate in
effect for the month of their issuance plus five percentage points. For
mid-term debt instruments issued in October 1997, such Treasury-based
interest rate plus five percentage points is 11.24%, compounded semiannually.
Moreover, because the yield to maturity of the Notes exceeds a Treasury-based
interest rate in effect for the month of their issuance plus six percentage
points, a portion of the original issue discount attributable to the Notes
will not be deductible at all. For mid-term debt instruments issued in
October 1997, such Treasury-based interest rate plus six percentage points is
12.24%, compounded semiannually. As a result of the application of these high
yield discount rules, the Company's after tax cash flow might be less than if
such original issue discount were deductible when accrued. See "Certain
United States Federal Income Tax Considerations" for a more detailed
discussion of the United States federal income tax consequences to holders of
Notes regarding the purchase, ownership and disposition of such Notes.
DEPENDENCE ON THIRD PARTIES FOR SERVICE AND MARKETING; POSSIBLE SERVICE
INTERRUPTIONS AND EQUIPMENT FAILURES
The Company's long distance resale business is dependent on utilizing the
facilities of major IXCs to carry its customers' long distance telephone
calls and, in many instances, especially during initial market penetrations,
the Company's CLEC business will be dependent on the facilities of the LECs
and other local exchange service providers to carry its customers' local
telephone calls. The Company has an agreement with MCI that provide it with
access to such carrier's networks and has entered or is entering into
interconnect agreements with various LECs, and other CLECs, to access their
local exchange facilities. Although the Company believes that it currently
has sufficient access to long distance networks and will be able to obtain
sufficient access to local exchange facilities, any increase in the rates or
access fees charged by the owners of such facilities or their unwillingness
to provide access to such facilities to the Company, as well as potential
reticence of the LECs to honor appropriate provisioning and service intervals
with respect to interconnection arrangements, could materially adversely
affect the Company's operations. Failure to obtain continuing access to such
networks and facilities could require the Company to significantly curtail or
cease its operations and could have an adverse effect on the ability of the
Company and its subsidiaries to make principal and interest payments on their
outstanding debt, including the 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
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for "last mile" access to end users. To the extent that the Company relies
upon LEC facilities that use copper wire, the Company may not be able to
offer potential customers the benefits of Wireless Fiber with respect to high
transmission capacity and quality. In addition, the Company's operations
require that the networks leased by it, and any facilities which may be
developed by the Company, operate on a continuous basis. It is not unusual
for networks and switching facilities to experience periodic service
interruptions and equipment failures. It is therefore possible that the
networks and facilities utilized by the Company may from time to time
experience service interruptions or equipment failures resulting in material
delays which would adversely affect consumer confidence as well as the
Company's business operations and reputation.
The Company utilizes, in certain cases, third parties for marketing its
Wireless Fiber services and maintaining its operational systems. The Company
has entered into master service agreements with other telecommunications
providers that allow those companies to utilize and resell the Company's
Wireless Fiber services to their own customers. The Company also has an
agreement with Lucent to provide field service for, and network monitoring
of, the Company's Wireless Fiber facilities and another agreement with Lucent
for the purchase by the Company of telecommunications switches and related
equipment. The failure of any of these third parties to perform under their
respective agreements or the loss of any of these agreements could have a
material adverse effect on the Company's results of operations and its
ability to service its customers. The Company has approached a number of
major telecommunications service providers to solicit interest in entering
into a multi-year, multi-region network transaction in which the Company
would build and maintain a co-exclusive network utilizing Wireless Fiber for
providing access to their customer base. Although there can be no assurance
that such a transaction will be entered into, the Company believes that such
a transaction would be attractive to a number of these provides and is in
various stages of discussions with them.
RELIANCE ON EQUIPMENT SUPPLIERS
The Company currently purchases substantially all of its wireless
telecommunications equipment, including transceivers and network monitoring
equipment, from a single supplier and its switches and related equipment from
a single supplier even though, in each case, there are other manufacturers of
such equipment. Any reduction or interruption in supply from its suppliers
could have a material adverse effect on the Company until sufficient
alternative supply sources are established. The Company does not manufacture,
nor does it have the capability to manufacture, any of its telecommunications
equipment. Although there are other manufacturers who have, or are
developing, equipment that would satisfy the Company's needs, there can be no
assurance that the Company would be able to replace its current primary
suppliers on commercially reasonable terms. In addition, as no industry
standard or uniform protocol currently exists for 38 GHz equipment, a single
manufacturer's equipment must be used in establishing each wireless link.
LINE OF SIGHT; DISTANCE LIMITATIONS IMPOSED BY RAINFALL CONDITIONS IN CERTAIN
GEOGRAPHIC AREAS; ROOF RIGHTS
In order to provide quality transmission, Wireless Fiber services require
an unobstructed line of sight between two transceivers comprising a link,
with a maximum distance between any two corresponding transceivers of up to
five miles (or shorter distances in certain areas; weather conditions may
necessitate distances as short as 1.1 miles between transceivers to maintain
desired transmission quality). The areas in which such shorter distances are
required are those where rainfall intensity and the size of the raindrops
adversely impact transmission quality at longer distances. Other weather
conditions, such as snow, electrical storms and high winds, have not, in the
Company's experience, affected the quality or reliability of Wireless Fiber
services. The establishment of Wireless Fiber services may require additional
transceivers to triangulate around obstacles (such as buildings). Similarly,
to establish Wireless Fiber services covering a distance in excess of five
miles, additional transceivers are required to establish a chain with links
no more than five miles apart or to establish a system of interconnected hub
sites. The cost of additional transceivers where required by weather,
physical obstacles or distance may render Wireless Fiber uneconomical in
certain instances. The Company must obtain Roof Rights (or rights to access
other locations where lines of sight are available) in each building where a
transceiver will be placed. The Company seeks to prequalify and obtain Roof
Rights at buildings targeted by potential customers in its licensed areas in
advance of anticipated orders. There can be no assurance, however, that the
Company will be successful in obtaining Roof Rights necessary to establish
its Wireless Fiber services in its potential markets. The Company's
prequalification activities often require the payment of option fees to the
owners of buildings that are being prequalified. There can be no assurance
that the Company will receive orders for Wireless Fiber services which allow
the Company to utilize Roof Rights it obtains.
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UNCERTAINTY OF MARKET ACCEPTANCE OF WIRELESS FIBER SERVICES
The Company has been marketing its Wireless Fiber services since December
1994. The Company has not obtained a significant market share in any of the
licensed areas where it offers Wireless Fiber services. The provision of
wireless local telecommunications services over 38 GHz represents an emerging
sector of the telecommunications industry and the demand for and acceptance
of Wireless Fiber services are subject to a high level of uncertainty.
Despite the Company's initial success in attracting customers, there can be
no assurance that substantial markets will develop for wireless local
telecommunications services delivered over 38 GHz or that, even if such
markets develop, the Company will be able to succeed in positioning itself as
a provider of such services or provide such services profitably. The
Company's success in providing wireless broadband services is subject to a
number of factors beyond the Company's control. These factors include,
without limitation, historical perceptions of the unreliability and lack of
security of previous microwave radio technologies, changes in general and
local economic conditions, availability of equipment, changes in
telecommunications service rates charged by other service providers, changes
in the supply and demand for wireless broadband services, competition from
wireline and wireless operators in the same market area and changes in the
federal and state regulatory schemes affecting the operations of
telecommunications service providers in general and wireless broadband
systems in particular (including the enactment of new statutes and the
promulgation of changes in the interpretation or enforcement of existing or
new rules and regulations). In addition, the extent of the potential demand
for wireless broadband services in the Company's target markets cannot be
estimated with certainty. There can be no assurance that one or more of these
factors will not have an adverse effect on the Company's financial condition
and results of operations and the ability of the Company and its subsidiaries
to make principal and interest payments on their outstanding debt, including
the Notes.
ABSENCE OF PUBLIC MARKET FOR THE NEW NOTES
There is no public market and only a limited secondary market for the New
Notes. The Old Notes are and the New Notes will be designated eligible for
trading in The Private Offerings, Resales and Trading through Automated
Linkages (PORTAL) Market of The Nasdaq Stock Market, Inc. New Notes traded
after their initial issuance may trade at a discount from their initial
offering price, depending upon prevailing interest rates, the market for
similar securities and other factors, including general economic conditions
and the financial condition of, performance of, and prospects for the Company.
INVESTMENT COMPANY ACT CONSIDERATIONS
After giving effect to the October 1997 Debt Placement, the Company had
substantial cash, cash equivalents and short-term investments. See
"Capitalization." Such amount may be invested from time to time in investment
securities, which may result in the Company being treated as an "investment
company" under the Investment Company Act of 1940 (the "1940 Act"). The 1940
Act requires the registration of, and imposes various substantive
restrictions on, certain companies ("investment companies") that are, or hold
themselves out as being, engaged primarily, or propose to engage primarily
in, the business of investing, reinvesting or trading in securities, or that
fail certain statistical tests regarding composition of assets and sources of
income and are not primarily engaged in businesses other than investing,
reinvesting, owning, holding or trading securities.
The Company believes that it is primarily engaged in a business other
than investing, reinvesting, owning, holding or trading securities and,
therefore, is not an investment company within the meaning of the 1940 Act.
If the Company is found to be an investment company, it intends to rely upon
an exemption from the 1940 Act for certain "transient" or temporary
investment companies. However, such exemption is only available for one year.
If the Company was required to register as an investment company under
the 1940 Act, it would become subject to substantial regulation with respect
to its capital structure, management, operations, transactions with
affiliated persons (as defined in the 1940 Act) and other matters.
Application of the provisions of the 1940 Act to the Company would have a
material adverse effect on the Company. In addition, if the Company is an
investment company under the 1940 Act, the Notes will not be eligible to be
resold in reliance on Rule 144A under the Securities Act and certain holders
of the Notes may not be able to own the Notes. In such event, the market
price of the Notes may be adversely affected.
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CONSEQUENCES OF THE EXCHANGE OFFER ON NON-TENDERING HOLDERS OF THE OLD NOTES
After Exchange Offer is consummated, the Company may not be required to
register certain of the Old Notes not tendered and accepted in the Exchange
Offer. In such event, holders of certain of the Old Notes seeking liquidity
in their investment would have to rely on exemptions to the registration
requirements under the securities laws, including the Securities Act.
Following the consummation of the Exchange Offer, certain of the Old Notes
may not be entitled to the contingent increase in interest rate provided for
in the event of a failure to consummate the Exchange Offer in accordance with
the terms of the Registration Agreement.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were sold by the Company in the October 1997 Debt Placement
to the Initial Purchasers who, in turn, sold such Old Notes to certain
qualified institutional buyers in reliance on Rule 144A under the Securities
Act. In connection with the October 1997 Debt Placement, the Company entered
into the Registration Agreement, pursuant to which the Company is obligated
to use its best efforts to consummate this Exchange Offer of the Old Notes
for the New Notes pursuant to an effective registration statement by April 6,
1998. Unless the context requires otherwise, the term "holder" with respect
to the Exchange Offer means any person in whose name Old Notes are registered
on the books of the Company, or any other person who has obtained a properly
completed bond power from the registered holder, or any person whose Old
Notes are held of record by DTC (who may deliver such Old Notes by book-entry
transfer at DTC).
The Company has not requested, and does not intend to request, an
interpretation by the staff of the Commission with respect to whether the New
Notes issued pursuant to the Exchange Offer in exchange for the Old Notes may
be offered for sale, resold or otherwise transferred by any holder without
compliance with the registration and prospectus delivery provisions of the
Securities Act. Based on interpretations by the staff of the Commission set
forth in no-action letters issued to third parties, the Company believes that
New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may
be offered for resale, resold and otherwise transferred by any holder of such
New Notes (except in the case of broker-dealers, as set forth below) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such New Notes are acquired in the ordinary
course of such holder's business and such holder has no arrangement or
understanding with any person to participate in the distribution of such New
Notes. Any holder who tenders in the Exchange Offer for the purpose of
participating in a distribution of the New Notes may not rely on such
interpretation by the staff of the Commission and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transaction. Each broker-dealer that
receives New Notes for its own account in exchange for Old Notes, where such
Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver
a prospectus in connection with any resale of such New Notes. See "Plan of
Distribution."
By tendering in the Exchange Offer, each holder of Old Notes will
represent to the Company that, among other things, (i) the New Notes acquired
pursuant to the Exchange Offer are being obtained in the ordinary course of
business of the person receiving such New Notes, whether or not such person
is such holder, (ii) neither the holder of Old Notes nor any such other
person has an arrangement or understanding with any person to participate in
the distribution of New Notes, and (iii) if the holder is not a
broker-dealer, or is a broker-dealer but will not receive New Notes for its
own account in exchange for Old Notes, neither the holder nor any such other
person is engaged in or intends to participate in the distribution of such
New Notes.
Following the consummation of the Exchange Offer, holders of Old Notes
not tendered will no longer have certain registration rights and the Old
Notes will continue to be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for the Old Notes could be adversely
affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old
Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on the Expiration Date. Subject to the minimum denomination
requirements of the New Notes, The Company will issue $1,000 principal amount
of New Notes in exchange for each $1,000 principal amount of outstanding Old
Notes accepted in the Exchange Offer. Holders may tender some or all of
their Old Notes pursuant to the Exchange Offer. However, Old Notes may be
tendered only in integral multiples of $1,000 principal amount.
The forms and terms of the New Notes will be identical in all material
respects to the forms and terms of the corresponding Old Notes, except that
the New Notes will have been registered under the Securities Act and,
therefore, will not bear legends restricting the transfer thereof. The
Exchange Offer is not conditioned upon any minimum aggregate principal amount
at maturity of Old Notes being tendered for exchange. DTC is the sole
registered holder
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of the Old Notes, and holds such notes on behalf of numerous participants.
This Prospectus, together with the Letter of Transmittal, is being sent to
all such registered holders as of December ___, 1997.
Under the Indenture, holders of Old Notes do not have any appraisal or
dissenters rights in connection with the Exchange Offer. The Company intends
to conduct the Exchange Offer in accordance with the applicable requirements
of the Exchange Act and the applicable rules and regulations of the
Commission thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if it has given oral or written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering holders for
the purpose of receiving the New Notes from The Company. If any tendered Old
Notes are not accepted for exchange, such unaccepted Old Notes will be
returned, without expense, to the tendering holder thereof as promptly as
practicable after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain applicable taxes, in connection with the
Exchange Offer. See " -- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
January __, 1998 unless the Company in its sole discretion extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the
latest date and time to which the Exchange Offer is extended. Although the
Company has no current intention to extend the Exchange Offer, the Company
reserves the right to extend the Exchange Offer at any time and from time to
time by giving oral or written notice to the Exchange Agent and by timely
public announcement communicated, unless otherwise required by applicable law
or regulation, by making a release to the Dow Jones News Service. During any
extension of the Exchange Offer, all Old Notes previously tendered pursuant
to the Exchange Offer and not withdrawn will remain subject to the Exchange
Offer. The date of the exchange of the New Notes for Old Notes will be the
first New York Stock Exchange trading day following the Expiration Date.
The Company expressly reserves the right to (i) terminate the Exchange
Offer and not accept for exchange any Old Notes if any of the events set
forth below under " -- Conditions to the Exchange Offer" shall have occurred
and shall not have been waived by the Company and (ii) amend the terms of the
Exchange Offer in any manner which, in its good faith judgment, is
advantageous to the holders of the Old Notes, whether before or after any
tender of the Old Notes.
PROCEDURES FOR TENDERING
The tender to the Company of Old Notes by a holder thereof pursuant to
one of the procedures set forth below will constitute an agreement between
such holder and The Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal signed by such
holder. A holder of the Old Notes may tender such Old Notes by (i) properly
completing and signing a Letter of Transmittal or a facsimile thereof (all
references in this Prospectus to a Letter of Transmittal shall be deemed to
include a facsimile thereof) and delivering the same, together with any
corresponding certificate or certificates representing the Old Notes being
tendered (if in certificated form) and any required signature guarantees, to
the Exchange Agent at its address set forth in the Letter of Transmittal on
or prior to the Expiration Date (or complying with the procedure for
book-entry transfer described below) or (ii) complying with the guaranteed
delivery procedures described below.
If tendered Old Notes are registered in the name of the signer of the
Letter of Transmittal and the New Notes to be issued in exchange therefor are
to be issued (and any untendered Old Notes are to be reissued) in the name of
the registered holder (which term, for the purposes described herein, shall
include any participant in DTC whose name appears on a security listing as
the owner of Old Notes), the signature of such signer need not be guaranteed.
In any other case, the tendered Old Notes must be endorsed or accompanied by
written instruments of transfer in form satisfactory to the Company and duly
executed by the registered holder and the signature on the endorsement or
instrument of transfer must be guaranteed by a member firm of a registered
national securities exchange or of the
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National Association of Securities Dealers, Inc., a commercial bank or trust
company having an office or correspondent in the United States or an
"eligible guarantor institution" as defined by Rule 17Ad-15 under the
Exchange Act (any of the foregoing hereinafter referred to as an "Eligible
Institution"). If the New Notes and/or Old Notes not exchanged are to be
delivered to an address other than that of the registered holder appearing on
the register for the Old Notes, the signature in the Letter of Transmittal
must be guaranteed by an Eligible Institution.
THE METHOD OF DELIVERY OF OLD NOTES, LETTER OF TRANSMITTAL AND ALL OTHER
DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER. IF SUCH DELIVERY IS BY
MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN
RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED
TO ASSURE TIMELY DELIVERY. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE
SENT TO THE COMPANY.
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect
to the Old Notes at DTC for the purpose of facilitating the Exchange Offer,
and subject to the establishment thereof, any financial institution that is a
participant in DTC's system may make book-entry delivery of Old Notes by
causing DTC to transfer such Old Notes into the Exchange Agent's account with
respect to the Old Notes in accordance with DTC's procedure for such
transfer. Although delivery of the Old Notes may be effected through
book-entry transfer into the Exchange Agent's account at DTC, an appropriate
Letter of Transmittal with any required signature guarantee and all other
required documents must in each case be transmitted to and received or
confirmed by the Exchange Agent at the address set forth in the Letter of
Transmittal on or prior to the Expiration Date, or, if the guaranteed
delivery procedures described below are complied with, within the time period
provided under such procedures.
If the holder desires to accept the Exchange Offer and time will not
permit a Letter of Transmittal or Old Notes to reach the Exchange Agent
before the Expiration Date or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if the Exchange Agent
has received at its office, on or prior to the Expiration Date, a letter,
telegram or facsimile transmission from an Eligible Institution setting forth
the name and address of the tendering holder, the name(s) in which the Old
Notes are registered and the certificate number(s) of the Old Notes to be
tendered, and stating that the tender is being made thereby and guaranteeing
that, within three New York Stock Exchange trading days after the date of
execution of such letter, telegram or facsimile transmission by the Eligible
Institution, such Old Notes, in proper form for transfer (or a confirmation
of book-entry transfer of such Old Notes into the Exchange Agent's account at
DTC), will be delivered by such Eligible Institution together with a properly
completed and duly executed Letter of Transmittal (and any other required
documents). Unless Old Notes being tendered by the above-described method
are deposited with the Exchange Agent within the time period set forth above
(accompanied or preceded by a properly completed Letter of Transmittal and
any other required documents), the Company may, at its option, reject the
tender. Copies of a Notice of Guaranteed Delivery which may be used by
Eligible Institutions for the purposes described in this paragraph are
available from the Exchange Agent.
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Old Notes (or a confirmation of book-entry transfer of
such Old Notes into the Exchange Agent's account at DTC) is received by the
Exchange Agent or (ii) a Notice of Guaranteed Delivery or letter, telegram or
facsimile transmission to similar effect (as provided above) from an Eligible
Institution is received by the Exchange Agent. Issuances of New Notes in
exchange for Old Notes tendered pursuant to a Notice of Guaranteed Delivery
or letter, telegram or facsimile transmission to similar effect (as provided
above) by an Eligible Institution will be made only against submission of a
duly signed Letter of Transmittal (and any other required documents) and
deposit of the tendered Old Notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Old Notes will be
determined by the Company, whose determination will be final and binding.
The Company reserves the absolute right to reject any or all tenders not in
proper form or the acceptance for exchange of which may, in the opinion of
the Company's counsel, be unlawful. The Company also reserve the absolute
right to waive any of the conditions of the Exchange Offer or any defect or
irregularity in the tender of any Old Notes. None of The Company, the
Exchange Agent or any other person will be under any duty to give
notification of any defects or irregularities in tenders or incur any
liability for failure to give any such notification. If any Old Notes
received by the
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Exchange Agent are not validly tendered and as to which the defects or
irregularities have not been cured or waived, or if Old Notes are submitted
in a principal amount greater than the principal amount of Old Notes being
tendered by such tendering holder, such unaccepted or non-exchanged Old Notes
will be returned by the Exchange Agent to the tendering holders, unless
otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
In addition, the Company reserves the right in its sole discretion, to
the extent permitted by the Indenture to (a) purchase or make offers for any
Old Notes that remain outstanding subsequent to the Expiration Date and (b)
to the extent pertained by applicable law, purchase Old Notes in the open
market, in privately negotiated transactions or otherwise. The terms of any
such purchases or offers will differ from the terms of the Exchange Offer.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following
terms and conditions, which are part of the Exchange Offer.
The party tendering Old Notes for exchange ("Transferor") exchanges,
assigns and transfers the Old Notes to the Company and irrevocably
constitutes and appoints the Exchange Agent as the Transferor's agent and
attorney-in-fact to cause the Old Notes to be assigned, transferred and
exchanged. The Transferor represents and warrants that it has full power and
authority to tender, exchange, assign and transfer the Old Notes and to
acquire New Notes issuable upon the exchange of such tendered Old Notes, and
that, when the same are accepted for exchange, the Company will acquire good
and unencumbered title to the tendered Old Notes, free and clear of all
liens, restrictions, charges and encumbrances and not subject to any adverse
claim. The Transferor also warrants that it will, upon request, execute and
deliver any additional documents deemed by the Company to be necessary or
desirable to complete the exchange, assignment and transfer of tendered Old
Notes or transfer ownership of such Old Notes on the account books maintained
by DTC. All authority conferred by the Transferor will survive the death,
bankruptcy or incapacity of the Transferor and every obligation of the
Transferor shall be binding upon the heirs, legal representatives,
successors, assigns, executors and administrators of such Transferor.
By executing a Letter of Transmittal, each holder will make to the
Company the representations set forth above in the third paragraph under the
heading " -- Purpose and Effect of the Exchange Offer."
WITHDRAWAL OF TENDERS
Tenders of Old Notes pursuant to the Exchange Offer are irrevocable,
except that Old Notes tendered pursuant to the Exchange Offer may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the
Expiration Date.
To be effective, a written, telegraphic, or facsimile transmission notice
of withdrawal must be timely received by the Exchange Agent at the address
set forth in the Letter of Transmittal prior to 5:00 p.m., New York City time
on the Expiration Date. Any such notice of withdrawal must specify the
holder named in the Letter of Transmittal as having tendered Old Notes to be
withdrawn, the certificate numbers and designation of Old Notes to be
withdrawn, the principal amount of Old Notes delivered for exchange, a
statement that such holder is withdrawing his election to have such Old Notes
exchanged, and the name of the registered holder of such Old Notes, and must
be signed by the holder in the same manner as the original signature on the
Letter of Transmittal (including any required signature guarantees) or be
accompanied by evidence satisfactory to The Company that the person
withdrawing the tender has succeeded to the beneficial ownership of the Old
Notes being withdrawn. The Exchange Agent will return the properly withdrawn
Old Notes promptly following receipt of notice of withdrawal. If Old Notes
have been tendered pursuant to the procedure for book-entry transfer, any
notice of withdrawal must specify the name and number of the account at DTC
to be credited with the withdrawn Old Notes or otherwise comply with DTC
procedure. All questions as to the validity of notices of withdrawal,
including time of receipt, will be determined by the Company and such
determination will be final and binding on all parties.
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CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, or any
extension of the Exchange Offer, the Company will not be required to issue
New Notes in exchange for any properly tendered Old Notes not theretofore
accepted and may terminate the Exchange Offer, or, at their option, modify
or otherwise amend the Exchange Offer, if either of the following events
occur:
(a) any statute, rule or regulation shall have been enacted, or any
action shall have been taken by any court or governmental authority
which, in the sole judgment of the Company, would prohibit, restrict or
otherwise render illegal the consummation of the Exchange Offer, or
(b) there shall occur a change in the current interpretation by the
staff of the Commission which, in the Company's sole judgment, might
materially impair The Company's ability to proceed with the Exchange
Offer.
The Company expressly reserves the right to terminate the Exchange Offer
and not accept for exchange any Old Notes upon the occurrence of either of
the foregoing conditions (which represent all of the material conditions to
the acceptance by The Company of properly tendered Old Notes).
The foregoing conditions are for the sole benefit of the Company and may
be waived by the Company if it is legally permitted to do so, in whole or in
part, in its sole discretion. The foregoing conditions must be either
satisfied or waived prior to termination of the Exchange Offer. Any
determination made by the Company concerning an event, development or
circumstance described or referred to above will be final and binding on all
parties.
EXCHANGE AGENT
U.S. Trust has been appointed as Exchange Agent for the Exchange Offer.
Questions and requests for assistance, requests for additional copies of this
Prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
BY MAIL (REGISTERED OR CERTIFIED MAIL RECOMMENDED):
United States Trust Company of New York
P.O. Box 844
Cooper Station
New York, New York 10276-0844
BY OVERNIGHT COURIER:
United States Trust Company of New York
770 Broadway - 13th Floor
Corporate Trust Operations Department
New York, New York 10003
Attn: Corporate Trust Operations Department
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BY HAND DELIVERY:
United States Trust Company of New York
111 Broadway, Lower Level
New York, New York 10006
Attn: Corporate Trust Services
BY FACSIMILE (FOR ELIGIBLE INSTITUTIONS ONLY):
(212) 420-6152
Confirm by telephone (800) 548-6565
FEES AND EXPENSES
The expense of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional
solicitations may be made by telegraph, telephone or in person by officers
and regular employees of the Company and its affiliates. No additional
compensation will be paid to any such officers and employees who engage in
soliciting tenders.
The Company has not retained any dealer-manager or other soliciting agent
in connection with the Exchange Offer and will not make any payments to
brokers, dealers or others soliciting acceptances of the Exchange Offer. The
Company, however, will pay the Exchange Agent reasonable and customary fees
for its services and will reimburse it for its reasonable out-of-pocket
expenses in connection therewith. The Company may also pay brokerage houses
and other custodians, nominees and fiduciaries the reasonable out-of-pocket
expenses incurred by them in forwarding copies of this Prospectus, the Letter
of Transmittal and related documents to the beneficial owners of the Old
Notes and in handling or forwarding tenders for exchange.
The expenses to be incurred by the Company in connection with the
Exchange Offer, including fees and expenses of the Exchange Agent and Trustee
and accounting and legal fees, will be paid by the Company. The Company will
not, however, pay the costs incurred by a holder in delivering its Old Notes
to the Exchange Agent, underwriting fees, or Commissions or transfer taxes.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old
Notes as reflected in the Company's accounting records on the date of the
exchange because the exchange of the Old Notes for the New Notes is the
completion of the selling process contemplated in the issuance of the Old
Notes. Accordingly, no gain or loss for accounting purposes will be
recognized. The expenses of the Exchange Offer and the unamortized expenses
related to the issuance of the Old Notes will be amortized over the term of
the New Notes.
OTHER MATTERS
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of the Old Notes are urged to
consult their financial and tax advisors in making their own decisions on
what action to take.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those
contained in this Prospectus. If given or made, such information or
representations should not be relied upon as having been authorized by the
Company. Neither the delivery of this Prospectus nor any exchange made
hereunder shall, under any circumstances, create any implication that there
has been no change in the affairs of the Company since the dates as of which
information is given herein. The Exchange Offer is not being made to (nor
will tenders be accepted from or on behalf of) holders of Old Notes in any
jurisdiction in which the making of the Exchange Offer or the acceptance
thereof would not be in compliance with the laws of such jurisdiction.
However, the Company may, at its discretion, take such action as it may deem
necessary to make the Exchange Offer in any such jurisdiction and extend the
Exchange Offer to holders of Old Notes in such jurisdiction.
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As a result of the making of the Exchange Offer, the Company will have
fulfilled a covenant contained in the Registration Agreement. Holders of the
Old Notes who do not tender their Old Notes in the Exchange Offer will
continue to hold such Old Notes and will be entitled to all the rights and
limitations applicable thereto under the Indenture except for certain rights
under the Registration Agreement and except that certain of the Old Notes may
not be entitled to the contingent increase in interest rate provided for in
the Old Notes. All untendered Old Notes will continue to be subject to the
restrictions on transfer set forth in the Indenture and the Old Notes. To
the extent that Old Notes are tendered and accepted in the Exchange Offer,
the trading market, if any, for untendered Old Notes could be adversely
affected.
The Company will not receive any cash proceeds from the issuance of the
New Notes offered hereby. In consideration for issuing the New Notes as
contemplated in this Prospectus, the Company will receive in exchange Old
Notes, in like principal amount, the terms of which are identical to the New
Notes except that such New Notes will be registered under the Securities Act
and, therefore, will not bear legends restricting the transfer thereof. Old
Notes surrendered in exchange for New Notes will be retired and canceled and
cannot be reissued. Accordingly, issuance of the New Notes will not result in
a change in the indebtedness of the Company.
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CAPITALIZATION
The following table sets forth the cash and capitalization of the
continuing operations of the Company as of September 30, 1997: (i) on an
historical basis and (ii) on a pro forma basis that gives effect to the
October 1997 Debt Placement and the US ONE Asset Acquisition and Financing.
The following table should be read in conjunction with the audited
Consolidated Financial Statements and related notes thereto incorporated by
reference in this Prospectus.
September 30, 1997
--------------------------------
Historical Pro Forma
---------- ---------
(in thousands, except share data)
Cash, cash equivalents and short-term
investments........................... $302,769 $396,782
---------- ---------
---------- ---------
Liabilities and stockholders' equity:
Current portion of long-term debt and
capital lease obligations (including
the US ONE Asset Acquisition and
Financing)............................ $ 8,577 $ 70,827
---------- ---------
Long-term debt and capital lease
obligations:
October 1997 Notes...................... -- 100,000
March 1997 Equipment Notes.............. 200,000 200,000
August 1997 Equipment Notes............. 50,000 50,000
Old Senior Notes........................ 195,007 195,007
March 1997 Senior Notes................. 107,806 107,806
Convertible Notes....................... 97,504 97,504
Other notes............................. 502 502
Capital lease obligations, net of
current portion....................... 25,172 25,172
---------- ---------
Total long-term debt and capital
lease obligations................... 675,991 775,991
---------- ---------
Stockholders' equity:
Preferred Stock, $0.1 par value,
15,000,000 shares authorized,
4,000,000 shares issued and
outstanding (with a liquidation
preference of $103,881,000).......... 42 42
Common Stock, $.01 par value,
200,000,000 shares authorized,
33,493,000 shares issued and
outstanding(1)....................... 335 335
Additional paid-in capital............. 252,647 252,647
Accumulated deficit.................... (291,089) (291,089)
---------- ---------
Total stockholders' equity............. (38,065) (38,065)
---------- ---------
Total capitalization................. $646,503 $808,753
---------- ---------
---------- ---------
___________
(1) Does not include (i) an aggregate of 1,056,000 shares of Common Stock
issuable upon exercise of options granted or which may be granted under
the 1992 Performance Equity Plan ("1992 Plan"), (ii) an aggregate of
7,462,000 shares of Common Stock issuable upon exercise of options
granted or which may be granted under the 1995 Performance Equity Plan
("1995 Plan") and (iii) 5,876,000 shares of Common Stock issuable upon
exercise of other outstanding options and warrants. Also does not include
shares issuable upon the conversion of the Series A Preferred Stock
and/or the Convertible Notes, nor dividends on Series A Preferred Stock
which were paid in kind on March 31, 1997, June 30, 1997 and September
30, 1997. See "Description of Certain Indebtedness and Preferred Stock."
Also does not include certain shares issuable upon the consummation of
certain agreements to acquire licenses, which are subject to the approval
of the FCC and which, under certain circumstances, could be settled, at
the Company's option, for cash. The exercise and conversion prices of
certain of the foregoing securities are below the current market price of
the Common Stock as of the date of this Prospectus.
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DESCRIPTION OF THE NOTES
The Old Notes were issued in the October 1997 Debt Placement under the
Indenture, dated as of October 1, 1997, between WinStar (for the purposed of
this Description of Notes, "WCI"), and United States Trust Company of New
York, as trustee (in such capacity, the "Trustee"). Copies of the form of
Indenture are available on request from WCI.
The New Notes will be issued under the Indenture. The form and terms of
the New Notes are the same as the form and terms of the Old Notes, except
that the New Notes will have been registered under the Securities Act, and
therefore, will not bear legends restricting transfer thereof. The New Notes
will evidence the same debt as the Old Notes. Upon consummation of this
Exchange Offering, the New Notes will be treated as a single class under the
Indenture with any Old Notes remaining outstanding. Upon the consummation
of this Exchange Offer, holders of Old Notes may not be entitled to certain
registration rights under, or the contingent increase in interest rate
provided by, the Registration Agreement.
GENERAL
The Notes will be issued only in fully registered form, without coupons,
in denominations of $1,000 of principal amount and any integral multiple of
$1,000. See "--Book-Entry, Delivery and Form." No service charge will be made
for any registration of transfer or exchange of Notes, but WCI may require
payment of a sum sufficient to cover any transfer tax or other similar
governmental charge payable in connection therewith. The Notes may be
exchanged or transferred at the office or agency of WCI in the Borough of
Manhattan, The City of New York (which initially will be the corporate trust
office of the Trustee at 114 West 47th Street, New York, New York
10036-1532).
Although for United States federal income tax purposes a significant
amount of original issue discount, taxable as ordinary income, will be
recognized by a Holder of Notes as such discount is amortized from the date
of issuance of the Notes, Holders of Notes will not receive any payments on
the Notes until September 1, 2002. For a description of certain tax matters
related to an investment in the Notes, see "Certain United States Federal
Income Tax Considerations."
TERMS OF THE NOTES
The Notes are unsecured, senior subordinated obligations of WCI, limited
to $100.0 million aggregate principal amount, and will mature on March 1,
2007. Until March 1, 2002, interest on the Notes will accrue at a rate of 15%
per annum and be compounded semiannually on each SemiAnnual Interest Accrual
Date with respect to the Notes, but, except as described herein, will not be
payable in cash. Interest on the Accumulated Amount of each Note as of March
1, 2002 will be paid semiannually, commencing September 1, 2002, to Holders
of record at the close of business on the February 15 or August 15
immediately preceding the interest payment date of March 1 and September 1 of
each year. Interest on the Notes will be paid on a 360-day year, twelve
30-day month basis.
OPTIONAL REDEMPTION
The Notes are not redeemable prior to March 1, 2002. Thereafter, the
Notes will be redeemable, at WCI's option, in whole at any time, or in part
from time to time, upon not less than 30 nor more than 60 days' prior notice
mailed by first-class mail to each Holder's registered address, at the
following redemption prices (expressed as a percentage of the Accumulated
Amount of the Notes), plus accrued and unpaid interest, if any, on such
Accumulated Amount to the redemption date (subject to the right of Holders of
record on the relevant regular record date that is on or prior to the
redemption date to receive interest due on the relevant interest payment
date), if redeemed during the 12-month period commencing March 1 of the years
set forth below:
Note
Year Redemption Price
- ---- -----------------
2002....................................................... 107.500%
2003....................................................... 103.750
2004 and thereafter........................................ 100.000
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Selection of Notes for Optional Redemption
In the case of any partial optional redemption, selection of the Notes
for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which
the Notes are listed or, if the Notes are not listed on a national securities
exchange, on a pro rata basis, by lot or such other method as the Trustee, in
its sole discretion, shall deem fair and appropriate; provided, however, that
no Note of $1,000 in principal amount or less shall be redeemed in part. If
any Note is to be redeemed in part only, the notice of redemption relating to
such Note shall state the portion of the principal amount thereof to be
redeemed. A new Note in principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the original Note.
WCI's ability to redeem the Notes at its option is severely limited under
the terms of WCI's outstanding indebtedness. WCI may not be able to redeem
the Notes at its option unless it simultaneously redeems or repays such other
indebtedness.
Ranking
The indebtedness evidenced by the Notes represents unsecured senior
subordinated obligations of WCI. The payment of the Senior Subordinated
Obligations will, to the extent set forth in the Indenture, be subordinated
in right of payment to the prior payment in full, in cash or cash
equivalents, of all Senior Indebtedness of WCI, including, without
limitation, WCI's obligations under the 1995 Senior Notes, the 1997 Senior
Notes and the Equipment Note Guarantees, as well as WCI's guarantees under
the Equipment Lease Financing, the CIT Credit Facility, the Revolving Credit
Facility and the Finova Lease Financing. As of the Issue Date, there was no
indebtedness of WCI outstanding pari passu with or junior to the Notes,
except for the Convertible Notes, which rank pari passu with the Notes. See
"Risk Factors--Substantial Indebtedness; Ability to Service Indebtedness" and
"--Holding Company Structure; Ranking of the Notes; Unsecured Indebtedness"
and "Capitalization."
"Senior Subordinated Obligations" is defined in the Indenture to mean any
principal of, premium, if any, or interest on the Notes payable pursuant to
the terms of the Notes or upon acceleration, to the extent relating to the
purchase of Notes or amounts corresponding to such principal, premium, if
any, or interest on the Notes.
At September 30, 1997, after giving effect to the October 1997 Debt
Placement and the US ONE Asset Acquisition and Financing, WCI had (on an
unconsolidated basis) approximately $820.9 million of indebtedness (including
the Equipment Note and US ONE Financing Guarantees), $561.1 million of which
would have been senior indebtedness and $197.5 million of which would have
been senior subordinated indebtedness.
WCI is a holding company. Substantially all the operations of WCI are
conducted through its subsidiaries. Claims of creditors of such subsidiaries,
including trade creditors, secured creditors and creditors holding
indebtedness and guarantees issued by such subsidiaries, and claims of
preferred stockholders (if any) of such subsidiaries, generally will have
priority with respect to the assets and earnings of such subsidiaries over
the claims of creditors of WCI, including holders of the Notes. The Notes,
therefore, are effectively subordinated to creditors (including trade
creditors) and preferred stockholders (if any) of subsidiaries of WCI. At
September 30, 1997, the total liabilities of WCI's subsidiaries was
approximately $395.6 million, including trade payables. Although the
Indentures limit the incurrence of Indebtedness and the issuance of preferred
stock of certain of WCI's subsidiaries, such limitations are subject to a
number of significant qualifications. Moreover, the Indentures do not impose
any limitation on the incurrence by such subsidiaries of liabilities that are
not considered Indebtedness under the Indentures.
To the extent any payment of Senior Indebtedness of WCI (whether by or on
behalf of WCI, as proceeds of security or enforcement of any right of setoff
or otherwise) is declared to be fraudulent or preferential, set aside or
required to be paid to any receiver, trustee in bankruptcy, liquidating
trustee, agent or other similar Person under any bankruptcy, insolvency,
receivership, fraudulent conveyance or similar law, then if such payment is
recovered by, or paid over to, such receiver, trustee in bankruptcy,
liquidating trustee, agent or other similar Person, the Senior Indebtedness
of WCI or part thereof originally intended to be satisfied shall be deemed to
be reinstated and outstanding as if such payment had not occurred. To the
extent the obligation to repay any Senior Indebtedness of WCI is declared to
be fraudulent, invalid, or otherwise set aside under any bankruptcy,
insolvency, receivership, fraudulent conveyance or similar law, then the
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<PAGE>
obligation so declared fraudulent, invalid or otherwise set aside (and all
other amounts that would come due with respect thereto had such obligation
not been so affected) shall be deemed to be reinstated and outstanding as
Senior Indebtedness of WCI for all purposes of the Indenture as if such
declaration, invalidity or setting aside had not occurred. Upon any payment
or distribution of assets or securities of WCI of any kind or character,
whether in cash, property or securities, upon any dissolution or winding up
or total or partial liquidation or reorganization of WCI, whether voluntary
or involuntary or in bankruptcy, insolvency, receivership or other
proceedings, all amounts due or to become due upon all Senior Indebtedness of
WCI (including any interest accruing subsequent to an event of bankruptcy,
whether or not such interest is an allowed claim enforceable against the
debtor under the Bankruptcy Code) shall first be paid in full, in cash or
cash equivalents, before the Holders of the Notes or the Trustee, on behalf
of the Holders of the Notes, shall be entitled to receive any payment by WCI
on account of Senior Subordinated Obligations, or any payment to acquire any
of the Notes for cash, property or securities, or any distribution with
respect to the Notes of any cash, property or securities. Before any payment
may be made by, or on behalf of, WCI of any Notes upon any such dissolution,
winding up, liquidation or reorganization, any payment or distribution of
assets or securities of WCI of any kind or character, whether in cash,
property or securities, to which the Holders of the Notes or the Trustee, on
behalf of the Holders of the Notes, would be entitled, but for the
subordination provisions of the Indenture, shall be made by WCI or by any
receiver, trustee in bankruptcy, liquidating trustee, agent or other similar
Person making such payment or distribution or by the Holders of the Notes or
the Trustee if received by them or it, directly to the holders of the Senior
Indebtedness of WCI (pro rata to such holders on the basis of the respective
amounts of Senior Indebtedness of WCI held by such holders) or their
representatives as their respective interests appear, to the extent necessary
to pay all such Senior Indebtedness in full, in cash or cash equivalents,
after giving effect to any concurrent payment, distribution or provision
therefor to or for the holders of such Senior Indebtedness.
No direct or indirect payment by or on behalf of WCI of Senior
Subordinated Obligations, whether pursuant to the terms of the Notes or upon
acceleration or otherwise, shall be made if, at the time of such payment,
there exists a default in the payment of all or any portion of the
obligations on any Senior Indebtedness of WCI, and such default shall not
have been cured or waived or the benefits of this sentence waived by or on
behalf of the holders of such Senior Indebtedness. In addition, during the
continuance of any other event of default with respect to any Designated
Senior Indebtedness of WCI pursuant to which the maturity thereof may be
accelerated, upon receipt by the Trustee of written notice from the trustee
or other representative for the holders of such Designated Senior
Indebtedness (or the holders of at least a majority in principal amount of
such Designated Senior Indebtedness then outstanding), no payment of Senior
Subordinated Obligations may be made by or on behalf of WCI upon or in
respect of the Notes for a period (a "Payment Blockage Period") commencing on
the date of receipt of such notice and ending 159 days thereafter (unless, in
each case, such Payment Blockage Period shall be terminated by written notice
to the Senior Subordinated Notes Trustee for such trustee of, or other
representatives for, such holders). Not more than one Payment Blockage Period
may be commenced with respect to the Notes during any period of 360
consecutive days. Notwithstanding anything in the Indenture to the contrary,
there must be 180 consecutive days in any 360-day period in which no Payment
Blockage Period is in effect. No event of default that existed or was
continuing (it being acknowledged that any subsequent action that would give
rise to an event of default pursuant to any provision under which an event of
default previously existed or was continuing shall constitute a new event of
default for this purpose) on the date of the commencement of any Payment
Blockage Period with respect to the Designated Senior Indebtedness of WCI
initiating such Payment Blockage Period shall be, or shall be made, the basis
for the commencement of a second Payment Blockage Period by the
representative for, or the holders of, such Designated Senior Indebtedness,
whether or not within a period of 360 consecutive days, unless such event of
default shall have been cured or waived for a period of not less than 90
consecutive days.
By reason of the subordination provisions described above, in the event
of liquidation or insolvency, creditors of WCI who are not holders of Senior
Indebtedness of WCI may recover less, ratably, than holders of Senior
Indebtedness of WCI and may recover more, ratably, than Holders of the Notes.
"Senior Indebtedness" as defined under the Indenture means the following
obligations of WCI, whether outstanding on the Issue Date or thereafter
Incurred: (i) all Indebtedness and all other monetary obligations of WCI
under the 1995 Senior Notes, the 1997 Senior Notes and the Equipment Note
Guarantees, (ii) all other Indebtedness of WCI (other than the Notes and the
Convertible Notes), including principal and interest on such Indebtedness,
unless such Indebtedness, by its terms or by the terms of any agreement or
instrument pursuant to which such Indebtedness is issued, is pari passu with,
or subordinated in right of payment to, the Notes and (iii) all fees,
expenses and indemnities payable in connection with the 1995 Senior Notes,
the 1997 Senior Notes and the Equipment Note Guarantees (including any
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agreements pursuant to which the 1995 Senior Notes, the 1997 Senior Notes or
the Equipment Note Guarantees were issued); provided, however, that the term
"Senior Indebtedness" as defined in the Indenture shall not include (a) any
Indebtedness of WCI that, when Incurred and without respect to any election
under Section 1111(b) of the Bankruptcy Code, was without recourse to WCI,
(b) any Indebtedness of WCI to a Subsidiary of WCI or to a joint venture in
which WCI has an interest, (c) any Indebtedness of WCI, to the extent not
permitted pursuant to the covenants described under "--Covenants--Limitation
on Indebtedness" or "--Covenants--Limitation on Senior Subordinated
Indebtedness", (d) any repurchase, redemption or other obligation in respect
of Redeemable Stock, (e) any Indebtedness to any employee of WCI or any of
its Subsidiaries, (f) any liability for federal, state, local or other taxes
owed or owing by WCI or (g) any trade payables of WCI. Senior Indebtedness of
WCI will also include interest accruing subsequent to events of bankruptcy of
WCI and its Subsidiaries at the rate provided for in the document governing
such Senior Indebtedness, whether or not such interest is an allowed claim
enforceable against the debtor in a bankruptcy case under federal bankruptcy
law.
"Designated Senior Indebtedness" as defined under the Indenture means the
1995 Senior Notes, the 1997 Senior Notes, the Equipment Note Guarantees and
any Indebtedness constituting Senior Indebtedness of WCI that, at the date of
determination, has an aggregate principal amount of at least $25.0 million
and that is specifically designated by WCI in the instrument creating or
evidencing such Senior Indebtedness as "Designated Senior Indebtedness."
The Indenture specifically designates that the Notes rank pari passu with
the Convertible Notes.
Same-Day Payment
The Indenture requires that payments in respect of Notes (including
principal, premium and interest) be made by wire transfer of immediately
available funds to the accounts specified by the Holders thereof or, if no
such account is specified, by mailing a check to each such Holder's
registered address.
Registration Rights
The Registration Statement of which this Prospectus forms a part, has
been filed by WCI pursuant to the Registration Agreement. Under the terms of
the Registration Agreement, the Company will be entitled to close the
Exchange Offer 30 days after the commencement thereof provided that it has
accepted all Old Notes theretofore validly tendered in accordance with the
terms of such Exchange Offer. After consummation of the Exchange Offer, the
Company will have no further obligation to make any other such exchange
offers.
Repurchase of Notes Upon a Change of Control
WCI must commence, within 30 days of the occurrence of a Change of
Control, and consummate an Offer to Purchase for all the Notes then
outstanding, at a purchase price equal to 101% of the Accumulated Amount of
such Notes on the date of purchase, plus accrued and unpaid interest (if any)
on such Accumulated Amount to the date of purchase. Prior to the mailing of
the notice to Holders of Notes commencing such Offer to Purchase, but in any
event within 30 days following any Change of Control, WCI covenants to (i)
repay in full all indebtedness of WCI that would prohibit the repurchase of
the Notes pursuant to such Offer to Purchase or (ii) obtain any requisite
consents under instruments governing any such indebtedness of WCI to permit
the repurchase of the Notes. WCI shall first comply with the covenant in the
preceding sentence before it shall purchase Notes pursuant to the "Repurchase
of Notes upon a Change of Control" covenant.
Under the terms of the Indenture, WCI may not repurchase any Notes or any
other subordinated indebtedness, including the Convertible Notes, pursuant to
this covenant until WCI has repurchased all of the 1995 Senior Notes and the
1997 Senior Notes and has caused each of WEC and WEC II to repurchase all of
the WEC Notes and WEC II Notes, respectively, tendered pursuant to any Offer
to Purchase as a result of such Change of Control. However, if WCI is unable
to repay or cause repayment of all of the indebtedness that would prohibit
repurchase of the Notes or is unable to obtain the consents of the holders of
indebtedness, if any, outstanding at the time of a Change of Control whose
consent would be so required to permit the repurchase of Notes or otherwise
fails to purchase any Notes validly tendered, then WCI will have breached
such covenant. This breach will constitute an Event of Default under the
Indenture if it continues for a period of 30 consecutive days after written
notice is given to WCI by the Trustee or the Holders of at least 25% in
aggregate principal amount of the outstanding Notes, the 1995 Senior Notes,
the 1997 Senior Notes, the WEC Notes or
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the WEC II Notes, as the case may be. In addition, the failure by WCI to
repurchase Notes at the conclusion of the Offer to Purchase will constitute
an Event of Default without any waiting period or notice requirements.
There can be no assurance that WCI, WEC and/or WEC II will have
sufficient funds available at the time of any Change of Control to make any
debt payment (including repurchases of Notes) required by the foregoing
covenant (as well as may be contained in other securities of WCI, WEC and WEC
II which might be outstanding at the time). The above covenant requiring WCI
to repurchase the Notes will, unless the consents referred to above are
obtained, require WCI, WEC and WEC II to repay all indebtedness then
outstanding which by its terms would prohibit such Note repurchase, either
prior to or concurrently with such Note repurchase.
Covenants
The Indenture contains covenants including, among others, the following:
Limitation on Indebtedness
(a) WCI will not, and will not permit any of its Restricted Subsidiaries
to, Incur any Indebtedness (other than the Notes and Indebtedness existing on
the Issue Date); provided, however, that WCI may Incur Indebtedness if, after
giving effect to the Incurrence of such Indebtedness and the receipt and
application of the proceeds therefrom, the Indebtedness to EBITDA Ratio would
be greater than zero and less than 5:1.
Notwithstanding the foregoing, WCI and any Restricted Subsidiary (except
as specified below) may Incur each and all of the following: (i) Indebtedness
of WCI outstanding at any time in an aggregate principal amount not to exceed
$125.0 million, less any amount of Indebtedness Incurred pursuant to this
clause (i) and permanently repaid as provided under "--Limitation on Asset
Sales" below; (ii) Indebtedness (A) to WCI evidenced by an unsubordinated
promissory note or (B) to any of its Restricted Subsidiaries; provided,
however, that any event which results in any such Restricted Subsidiary
ceasing to be a Restricted Subsidiary or any subsequent transfer of such
Indebtedness (other than to WCI or another Restricted Subsidiary) shall be
deemed, in each case, to constitute an Incurrence of such Indebtedness not
permitted by this clause (ii); (iii) Indebtedness issued in exchange for, or
the net proceeds of which are used to refinance or refund, then outstanding
Indebtedness, other than Indebtedness Incurred under clause (i), (ii), (v),
(vi) or (viii) of this paragraph, and any refinancings thereof in an amount
not to exceed the amount so refinanced or refunded (plus premiums, accrued
interest, fees and expenses); provided, however, that Indebtedness the
proceeds of which are used to refinance or refund the Notes or Indebtedness
that is pari passu with, or subordinated in right of payment to, the Notes
shall only be permitted under this clause (iii) if (A) in case the Notes are
refinanced in part or the Indebtedness to be refinanced is pari passu with
the Notes, such new Indebtedness, by its terms or by the terms of any
agreement or instrument pursuant to which such new Indebtedness is
outstanding, is expressly made pari passu with, or subordinate in right of
payment to, the remaining Notes, (B) in case the Indebtedness to be
refinanced is subordinated in right of payment to the Notes, such new
Indebtedness, by its terms or by the terms of any agreement or instrument
pursuant to which such new Indebtedness is outstanding, is expressly made
subordinate in right of payment to the Notes, at least to the extent that the
Indebtedness to be refinanced is subordinated to the Notes, and (C) such new
Indebtedness, determined as of the date of Incurrence of such new
Indebtedness, does not mature prior to the Stated Maturity of the
Indebtedness to be refinanced or refunded, and the Average Life of such new
Indebtedness is at least equal to the remaining Average Life of the
Indebtedness to be refinanced or refunded; provided further, however, that in
no event may Indebtedness of WCI be refinanced by means of any Indebtedness
of any Restricted Subsidiary of WCI pursuant to this clause (iii); (iv)
Indebtedness (A) in respect of performance, surety or appeal bonds provided
in the ordinary course of business, (B) under Currency Agreements and
Interest Rate Agreements; provided, however, that such agreements do not
increase the Indebtedness of the obligor outstanding at any time other than
as a result of fluctuations in foreign currency exchange rates or interest
rates or by reason of fees, indemnities and compensation payable thereunder,
and (C) arising from agreements providing for indemnification, adjustment of
purchase price or similar obligations, or from Guarantees or letters of
credit, surety bonds or performance bonds securing any obligations of WCI or
any of the Restricted Subsidiaries pursuant to such agreements, in any case
Incurred in connection with the disposition of any business, assets or
Restricted Subsidiary of WCI (other than Guarantees of Indebtedness Incurred
by any Person acquiring all or any portion of such business, assets or
Restricted Subsidiary of WCI for the purpose of financing such acquisition),
in a principal amount not to exceed the gross proceeds actually received by
WCI or any Restricted Subsidiary in connection with such disposition; (v)
Indebtedness of WCI not to exceed, at any one time outstanding, two times the
Net Cash Proceeds received by WCI from and after October 23,
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1995 from the issuance and sale of its Capital Stock (other than Redeemable
Stock and Preferred Stock that provides for the payment of dividends in
cash); provided, however, that such Indebtedness (x) does not mature prior to
the Stated Maturity of the Notes and has an Average Life longer than the
Notes and (y) is pari passu with or subordinated to the Notes at least to the
extent that the Notes are subordinated to Senior Indebtedness; (vi)
Indebtedness of any Restricted Subsidiary Incurred pursuant to any credit
agreement of such Restricted Subsidiary in effect on the Issue Date (and
refinancings thereof), up to the amount of the commitment under such credit
agreement on the Issue Date; (vii) Indebtedness to the extent such
Indebtedness is secured by Liens which are purchase money or other Liens upon
equipment or inventory acquired or held by WCI or any of its Restricted
Subsidiaries taken or obtained by (A) the seller or lessor of such equipment
or inventory to secure all or a part of the purchase price or lease payments
therefor or (B) the person who makes advances or incurs obligations, thereby
giving value to WCI to enable it to purchase or acquire rights in such
equipment or inventory, to secure the repayment of all or a part of the
advances so made or obligations so incurred; provided, however, that such
Liens do not extend to or cover any property or assets of WCI or any
Restricted Subsidiary other than the equipment or inventory acquired; (viii)
Indebtedness of any Restricted Subsidiary not to exceed, at any one time
outstanding, 80% of the accounts receivable net of reserves and allowances
for doubtful accounts, determined in accordance with GAAP, of such Restricted
Subsidiary and its Restricted Subsidiaries (without duplication); provided,
however, that such Indebtedness is not Guaranteed by WCI or any of its
Restricted Subsidiaries; and (ix) Indebtedness of WCI, to the extent the
proceeds thereof are immediately used to purchase the 1995 Notes or the 1997
Notes or the Notes tendered in an Offer to Purchase made as a result of a
Change of Control.
(b) For purposes of determining any particular amount of Indebtedness
under this "Limitation on Indebtedness" covenant, Guarantees, Liens or
obligations with respect to letters of credit supporting Indebtedness
otherwise included in the determination of such particular amount shall not
be included. For purposes of determining compliance with this "Limitation on
Indebtedness" covenant, in the event that an item of Indebtedness meets the
criteria of more than one of the types of Indebtedness described in the above
clauses, WCI, in its sole discretion, shall classify such item of
Indebtedness and only be required to include the amount and type of such
Indebtedness in one of such clauses.
(c) WCI will not, and will not permit any Restricted Subsidiary to,
Incur any Guarantee of Indebtedness of any Unrestricted Subsidiary.
Limitation on Senior Subordinated Indebtedness
WCI will not (i) Incur any Indebtedness, other than the Notes, that is
expressly made subordinated in right of payment to any Senior Indebtedness of
WCI unless such Indebtedness, by its terms and by the terms of any agreement
or instrument pursuant to which such Indebtedness is outstanding is expressly
made pari passu with, or subordinate in right of payment to, the Notes
pursuant to provisions substantially similar to those contained in the
Indenture; provided, however, that the foregoing limitation shall not apply
to distinctions between categories of Senior Indebtedness of WCI that exist
by reason of any Liens or Guarantees arising or created in respect of some
but not all Senior Indebtedness of WCI or (ii) Incur any Indebtedness secured
by a Lien if such Indebtedness is not Senior Indebtedness of WCI, unless
contemporaneously therewith effective provision is made to secure the Notes
equally and ratably with such secured Indebtedness for so long as such
secured Indebtedness is secured by a Lien. The Indenture provides that the
Notes are pari passu with the Convertible Notes.
Limitation on Restricted Payments
WCI will not, and will not permit any Restricted Subsidiary to, directly
or indirectly, (i) declare or pay any dividend or make any distribution on
its Capital Stock (other than dividends or distributions payable solely in
shares of its or such Restricted Subsidiary's Capital Stock (other than
Redeemable Stock) held by such holders or in options, warrants or other
rights to acquire such shares of Capital Stock) other than such Capital Stock
held by WCI or any of its Restricted Subsidiaries (and other than pro rata
dividends or distributions on Common Stock of Restricted Subsidiaries), (ii)
repurchase, redeem, retire or otherwise acquire for value any shares of
Capital Stock of WCI (including options, warrants or other rights to acquire
such shares of Capital Stock) held by Persons other than any Wholly Owned
Restricted Subsidiaries of WCI, (iii) make any voluntary or optional
principal payment, or voluntary or optional redemption, repurchase,
defeasance, or other acquisition or retirement for value, of Indebtedness of
WCI that is subordinated in right of payment to the Note Guarantee or (iv)
make any Investment, other than a Permitted Investment, in any Person (such
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payments or any other actions described in clauses (i) through (iv) being
collectively "Restricted Payments") if, at the time of, and after giving
effect to, the proposed Restricted Payment: (A) a Default or Event of Default
shall have occurred and be continuing, (B) except with respect to any
Investment (other than an Investment consisting of the designation of a
Restricted Subsidiary as an Unrestricted Subsidiary), WCI could not Incur at
least $1.00 of Indebtedness under the first paragraph of the "Limitation on
Indebtedness" covenant or (C) the aggregate amount expended for all
Restricted Payments (the amount so expended, if other than in cash, to be
determined in good faith by the Board of Directors, whose determination shall
be conclusive and evidenced by a Board Resolution) after the Closing Date
shall exceed the sum of (1) 50% of the aggregate amount of the Adjusted
Consolidated Net Income (or, if the Adjusted Consolidated Net Income is a
loss, minus 100% of such amount) (determined by excluding income resulting
from transfers of assets by WCI or a Restricted Subsidiary to an Unrestricted
Subsidiary) accrued on a cumulative basis during the period (taken as one
accounting period) beginning on the first day of the fiscal quarter
immediately following the Closing Date and ending on the last day of the last
fiscal quarter preceding the Transaction Date for which reports have been
filed pursuant to "--SEC Reports and Reports to Holders" plus (2) the
aggregate Net Cash Proceeds received by WCI after the Closing Date from the
issuance and sale permitted by the Indentures of its Capital Stock (other
than Redeemable Stock) to a Person who is not a Subsidiary of WCI, or from
the issuance to a Person who is not a Subsidiary of WCI of any options,
warrants or other rights to acquire Capital Stock of WCI (in each case,
exclusive of any convertible Indebtedness, Redeemable Stock or any options,
warrants or other rights that are redeemable at the option of the holder, or
are required to be redeemed, prior to the Stated Maturity of the 1997 Senior
Notes and the Notes) plus (3) an amount equal to the net reduction in
Investments (other than reductions in Permitted Investments and other than
reductions in Investments made pursuant to clauses (vi) or (vii) of the
second paragraph of this "Limitation on Restricted Payments" covenant) in any
Person resulting from payments of interest on Indebtedness, dividends,
repayments of loans or advances, or other transfers of assets, in each case
to WCI or any Restricted Subsidiary (except to the extent any such payment is
included in the calculation of Adjusted Consolidated Net Income), or from
redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries
(valued in each case as provided in the definition of "Investments"), not to
exceed the amount of Investments previously made by WCI and its Restricted
Subsidiaries in such Person.
The foregoing provision shall not be violated by reason of: (i) the
payment of any dividend within 60 days after the date of declaration thereof
if, at said date of declaration, such payment would comply with the foregoing
paragraph; (ii) the redemption, repurchase, defeasance or other acquisition
or retirement for value of Indebtedness that is subordinated in right of
payment to the Note Guarantee, including premium, if any, and accrued and
unpaid interest, with the proceeds of, or in exchange for, Indebtedness
Incurred under clause (iii) of the second paragraph of the covenant described
under "--Limitation on Indebtedness;" (iii) the repurchase, redemption or
other acquisition of Capital Stock of WCI (or options, warrants or other
rights to acquire such Capital Stock) in exchange for, or out of the proceeds
of a substantially concurrent sale of, shares of Capital Stock or options,
warrants or other rights to acquire such Capital Stock (in each case other
than Redeemable Stock) of WCI; (iv) the making of any other Restricted
Payment made by exchange for, or out of the proceeds of, a substantially
concurrent sale of, shares of the Capital Stock or options, warrants or other
rights to acquire such Capital Stock (in each case other than Redeemable
Stock) of WCI; (v) payments or distributions, in the nature of satisfaction
of dissenters' rights, pursuant to or in connection with a consolidation,
merger or transfer of assets that complies with the provisions of the
Indenture applicable to mergers, consolidations and transfers of all or
substantially all of the property and assets of WCI; (vi) Investments, not to
exceed $15 million at any one time outstanding; (vii) Investments, not to
exceed $15 million at any one time outstanding, in entities, substantially
all of the assets of which consist of Telecommunications Assets; (viii) (A)
cash payments in lieu of the issuance of fractional shares of Common Stock
upon conversion (including mandatory conversion) of the Convertible Notes
provided for in the Convertible Notes Indenture and (B) cash payments on the
Convertible Notes required to be made under the provisions of the Convertible
Notes Indenture that relate to repurchases of Convertible Notes upon a change
of control and that relate to limitations on sales of assets; (ix) cash
payments in lieu of the issuance of fractional shares of Common Stock of WCI
upon conversion of any class of Preferred Stock of WCI; provided, however,
that this exception shall not be available with respect to more than two such
conversions with respect to any such class of Preferred Stock by any given
Affiliate of WCI; and (x) Investments in entities that directly (or
indirectly through subsidiaries) own licenses granted by the FCC or any other
governmental entity with authority to grant telecommunications licenses;
provided, however, that, in each case WCI or a Restricted Subsidiary shall,
at the time of making such Investment, have an active role in the management
or operation of such entity and in the provision of telecommunications
services by such entity; provided, however, that, except in the case of
clauses (i) and (iii) of this paragraph, no Default or Event of Default shall
have occurred and be continuing or occur as a consequence of the actions or
payments set forth herein. Any Investments made other than in cash shall be
valued, in good faith, by the Board of Directors. Any Investment made
pursuant to clause (vi) or (vii) of this paragraph shall be deemed
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to be no longer outstanding (and repaid in full) if and when the Person in
which such Investment is made becomes a Restricted Subsidiary of WCI.
Each Restricted Payment permitted pursuant to the preceding paragraph
(other than the Restricted Payment referred to in clause (ii) thereof), and
the Net Cash Proceeds from any issuance and sale of Capital Stock referred to
in clauses (iii) or (iv) shall be included in calculating whether the
conditions of clause (C) of the first paragraph of this "Limitation on
Restricted Payments" covenant have been met with respect to any subsequent
Restricted Payments. In the event the proceeds of an issuance of Capital
Stock of WCI are used for the redemption, repurchase or other acquisition of
the Notes or Indebtedness that is pari passu with the Notes, then the Net
Cash Proceeds of such issuance shall be included in clause (C) of the first
paragraph of this "Limitation on Restricted Payments" covenant only to the
extent such proceeds are not used for such redemption, repurchase or other
acquisition of Indebtedness.
Limitation on Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries
WCI will not, and will not permit any Restricted Subsidiary to, create or
otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any Restricted
Subsidiary to (i) pay dividends or make any other distributions permitted by
applicable law on any Capital Stock of such Restricted Subsidiary owned by
WCI or any other Restricted Subsidiary, (ii) pay any Indebtedness owed to WCI
or any other Restricted Subsidiary that owns, directly or indirectly, any
Capital Stock of such Restricted Subsidiary, (iii) make loans or advances to
WCI or any other Restricted Subsidiary that owns, directly or indirectly, any
Capital Stock of such Restricted Subsidiary or (iv) transfer any of its
property or assets to WCI or any other Restricted Subsidiary that owns,
directly or indirectly, any Capital Stock of such Restricted Subsidiary.
The foregoing provisions shall not prohibit any encumbrances or
restrictions: (i) existing on the Issue Date in any agreement in effect on
the Issue Date, and any extensions, refinancings, renewals or replacements of
such agreements; provided, however, that the encumbrances and restrictions in
any such extensions, refinancings, renewals or replacements are no less
favorable in any material respect to the Holders than those encumbrances or
restrictions that are then in effect and that are being extended, refinanced,
renewed or replaced; (ii) existing under or by reason of applicable law;
(iii) existing with respect to any Person or the property or assets of such
Person acquired by WCI or any Restricted Subsidiary, at the time of such
acquisition and not incurred in contemplation thereof, which encumbrances or
restrictions are not applicable to any Person or the property or assets of
any Person other than such Person or the property or assets of such Person so
acquired; (iv) in the case of clause (iv) of the first paragraph of this
"Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries" covenant, (A) that restrict in a customary manner the
subletting, assignment or transfer of any property or asset that is a lease,
license, conveyance or contract or similar property or asset, (B) existing by
virtue of any transfer of, agreement to transfer, option or right with
respect to, or Lien on, any property or assets of WCI or any Restricted
Subsidiary not otherwise prohibited by the Indenture or (C) arising or agreed
to in the ordinary course of business, not relating to any Indebtedness, and
that do not, individually or in the aggregate, detract from the value of
property or assets of WCI or any Restricted Subsidiary in any manner material
to WCI or any Restricted Subsidiary; or (v) with respect to a Restricted
Subsidiary and imposed pursuant to an agreement that has been entered into
for the sale or disposition of all or substantially all of the Capital Stock
of, or property and assets of, such Restricted Subsidiary. Nothing contained
in this "Limitation on Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries" covenant shall prevent WCI or any Restricted
Subsidiary from (i) restricting the sale or other disposition of property or
assets of WCI or any of its Restricted Subsidiaries that secure Indebtedness
of WCI or any of its Restricted Subsidiaries or (ii) creating, incurring,
assuming or suffering to exist any Liens otherwise permitted pursuant to the
1997 Senior Notes Indenture as in effect on the Closing Date.
Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries
WCI will not sell, and will not permit any Restricted Subsidiary,
directly or indirectly, to issue or sell any shares of Capital Stock of a
Restricted Subsidiary (including options, warrants or other rights to
purchase shares of such Capital Stock) except (i) to WCI or a Wholly Owned
Restricted Subsidiary, (ii) issuances or sales to foreign nationals of shares
of Capital Stock of foreign Restricted Subsidiaries, to the extent required
by applicable law, (iii) if, immediately after giving effect to such issuance
or sale, such Restricted Subsidiary would no longer constitute a Restricted
Subsidiary or (iv) issuances or sales of Common Stock of Restricted
Subsidiaries, other than the Telecommunications Subsidiaries, if within six
months of each such issuance or sale, WCI or such Restricted Subsidiary
applies an amount not less than the
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Net Cash Proceeds thereof (if any) in accordance with clause (A) or (B) of
the first paragraph of the "Limitation on Asset Sales" covenant described
below.
Limitation on Issuances of Guarantees by Restricted Subsidiaries
WCI will not permit any Restricted Subsidiary, directly or indirectly, to
Guarantee any Indebtedness of WCI ("Guaranteed Indebtedness"), unless (i)
such Restricted Subsidiary simultaneously executes and delivers a
supplemental indenture to the Indenture providing for a Guarantee (a
"Subsidiary Guarantee") of payment of the Notes by such Restricted Subsidiary
and (ii) such Restricted Subsidiary waives and will not in any manner
whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against WCI or
any other Restricted Subsidiary as a result of any payment by such Restricted
Subsidiary under its Subsidiary Guarantee; provided, however, that this
paragraph shall not be applicable to any Guarantee of any Restricted
Subsidiary that (x) existed at the time such Person became a Restricted
Subsidiary and (y) was not Incurred in connection with, or in contemplation
of, such Person becoming a Restricted Subsidiary. If the Guaranteed
Indebtedness is (A) pari passu with the Notes, then the Guarantee of such
Guaranteed Indebtedness shall be pari passu with, or subordinated to, the
Subsidiary Guarantee or (B) subordinated to the Notes, then the Guarantee of
such Guaranteed Indebtedness shall be subordinated to the Subsidiary
Guarantee at least to the extent that the Guaranteed Indebtedness is
subordinated to the Notes.
Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted
Subsidiary shall provide by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or
transfer, to any Person not an Affiliate of WCI of all of WCI's and each
Restricted Subsidiary's Capital Stock in, or all or substantially all the
assets of, such Restricted Subsidiary (which sale, exchange or transfer is
not prohibited by the Indenture) or (ii) the release or discharge of the
Guarantee which resulted in the creation of such Subsidiary Guarantee, except
a discharge or release by or as a result of payment under such Guarantee.
Limitation on Transactions with Shareholders and Affiliates
WCI will not, and will not permit any Restricted Subsidiary to, directly
or indirectly, enter into, renew or extend any transaction (including,
without limitation, the purchase, sale, lease or exchange of property or
assets, or the rendering of any service) with any holder (or any Affiliate of
such holder) of 5% or more of any class of Capital Stock of WCI or with any
Affiliate of WCI or any Restricted Subsidiary, except upon fair and
reasonable terms no less favorable to WCI or such Restricted Subsidiary than
could be obtained, at the time of such transaction or, if such transaction is
pursuant to a written agreement, at the time of the execution of the
agreement providing therefor, in a comparable arm's-length transaction with a
Person that is not such a holder or an Affiliate.
The foregoing limitation does not limit, and shall not apply to (i)
transactions (A) approved by a majority of the disinterested members of the
Board of Directors or (B) for which WCI or a Restricted Subsidiary delivers
to the Trustee a written opinion of a nationally recognized investment
banking firm stating that the transaction is fair to WCI or such Restricted
Subsidiary from a financial point of view; (ii) any transaction solely
between WCI and any of its Wholly Owned Restricted Subsidiaries or solely
between Wholly Owned Restricted Subsidiaries; (iii) the payment of reasonable
fees to directors of WCI who are not employees of WCI; (iv) any payments or
other transactions pursuant to any tax-sharing agreement between WCI and any
other Person with which WCI files a consolidated tax return or with which WCI
is part of a consolidated group for tax purposes; or (v) any Restricted
Payments not prohibited by the covenant described under "--Limitation on
Restricted Payments" (other than pursuant to clause (iv) of the definition of
"Permitted Investment" or clause (vi) of the second paragraph of such
covenant). Notwithstanding the foregoing, any transaction covered by the
first paragraph of this "Limitation on Transactions with Shareholders and
Affiliates" covenant and not covered by clauses (ii) through (iv) of this
paragraph, the aggregate amount of which exceeds $250,000 in value, must be
approved or determined to be fair in the manner provided for in clause (i)(A)
or (B) above.
Limitation on Asset Sales
WCI will not, and will not permit any Restricted Subsidiary to,
consummate any Asset Sale, unless (i) the consideration received by WCI or
such Restricted Subsidiary is at least equal to the fair market value of the
assets sold or disposed of and (ii) at least 85% of the consideration
received consists of cash or Temporary Cash Investments. In the event and to
the extent that the Net Cash Proceeds received by WCI or its Restricted
Subsidiaries from one or more Asset
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Sales occurring on or after the Closing Date in any period of 12 consecutive
months exceed 10% of Adjusted Consolidated Net Tangible Assets (determined as
of the date closest to the commencement of such 12-month period for which a
consolidated balance sheet of WCI and its Subsidiaries has been prepared),
then WCI shall or shall cause the relevant Restricted Subsidiary to (i)
within six months after the date Net Cash Proceeds so received exceed 10% of
Adjusted Consolidated Net Tangible Assets (A) apply an amount equal to such
excess Net Cash Proceeds to permanently repay unsubordinated Indebtedness of
WCI, or Indebtedness of any Restricted Subsidiary, in each case owing to a
Person other than WCI or any of its Restricted Subsidiaries or (B) invest an
equal amount, or the amount not so applied pursuant to clause (A) (or enter
into a definitive agreement committing to so invest within six months after
the date of such agreement), in property or assets of a nature or type or
that are used in a business (or in a company having property and assets of a
nature or type, or engaged in a business) similar or related to the nature or
type of the property and assets of, or the business of, WCI and its
Restricted Subsidiaries existing on the date of such investment (as
determined in good faith by the Board of Directors, whose determination shall
be conclusive and evidenced by a Board Resolution) and (ii) apply (no later
than the end of the six-month period referred to in clause (i)) such excess
Net Cash Proceeds (to the extent not applied pursuant to clause (i)) as
provided in the following paragraph of this "Limitation on Asset Sales"
covenant. The amount of such excess Net Cash Proceeds required to be applied
(or to be committed to be applied) during such six-month period as set forth
in clause (i) of the preceding sentence and not applied as so required by the
end of such period shall constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to
this "Limitation on Asset Sales" covenant totals at least $10.0 million, WCI
must commence, not later than the 15th Business Day after the first day of
such month, and consummate an Offer to Purchase from the Holders on a pro
rata basis an aggregate principal amount of Notes equal to the Excess
Proceeds on such date, at a purchase price equal to 101% of the Accumulated
Amount of such Notes on the date of purchase, plus accrued and unpaid
interest (if any) on such amount to the date of purchase; provided, however,
that no Offer to Purchase shall be required to be commenced with respect to
the Notes until the Business Day following the payment date with respect to
the Offer to Purchase any 1997 Notes and need not be commenced if the Excess
Proceeds remaining after application thereof to the 1997 Notes purchased in
such Offer to Purchase applicable thereto are less than $10,000,000; provided
further, however, that no Notes may be purchased under this covenant unless
WCI shall have purchased all 1997 Notes tendered pursuant to the Offer to
Purchase applicable thereto.
Because of similar requirements in the Indentures governing the 1995
Notes and the 1997 Notes, WCI may not have Excess Proceeds from an Asset Sale
to be able to comply with the foregoing requirements.
SEC Reports and Reports to Holders
Whether or not WCI is required to file reports with the SEC, if any Notes
are outstanding, WCI shall file with the SEC all such reports and other
information as it would be required to file with the SEC by Sections 13(a) or
15(d) under the Exchange Act. See "Available Information." WCI shall supply
the Trustee and each Holder of Notes, as the case may be, or shall supply to
the relevant Trustee for forwarding to each such Holder, without cost to such
Holder, copies of such reports or other information.
Consolidation, Merger and Sale of Assets
Under the terms of the Indenture, WCI shall not consolidate with, merge
with or into, or sell, convey, transfer, lease or otherwise dispose of all or
substantially all of its property and assets (as an entirety or substantially
an entirety in one transaction or a series of related transactions) to, any
Person (other than a consolidation or merger with or into a Wholly Owned
Restricted Subsidiary with a positive net worth; provided, however, that, in
connection with any such merger or consolidation, no consideration (other
than Common Stock in the surviving Person or WCI) shall be issued or
distributed to the stockholders of WCI) or permit any Person to merge with or
into WCI unless: (i) WCI shall be the continuing Person, or the Person (if
other than WCI) formed by such consolidation or into which WCI is merged or
that acquired or leased such property and assets of WCI shall be a
corporation organized and validly existing under the laws of the United
States of America or any jurisdiction thereof and shall expressly assume, by
a supplemental indenture, executed and delivered to the Trustee, all of the
obligations of WCI on the Notes and under the Indenture; (ii) immediately
after giving effect to such transaction, no Default or Event of Default shall
have occurred and be continuing; (iii) immediately after giving effect to
such transaction on a pro forma basis, WCI or any Person becoming the
successor
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obligor of the Notes shall have a Consolidated Net Worth equal to or greater
than the Consolidated Net Worth of WCI immediately prior to such transaction;
(iv) immediately after giving effect to such transaction on a pro forma basis
WCI, or any Person becoming the successor obligor of the Notes, could Incur
at least $1.00 of Indebtedness under the first paragraph of the covenant
described under "--Covenants--Limitation on Indebtedness;" and (v) WCI
delivers to the Trustee an Officers' Certificate (attaching the arithmetical
computations to demonstrate compliance with clauses (iii) and, if applicable,
(iv)) and Opinion of Counsel, in each case stating that such consolidation,
merger or transfer and such supplemental indenture complies with this
provision and that all conditions precedent provided for herein relating to
such transaction have been complied with; provided, however, that clauses
(iii) and (iv) above do not apply if, in the good faith determination of the
Board of Directors of WCI, whose determination shall be evidenced by a Board
Resolution, the principal purpose of such transaction is to change the state
of incorporation of WCI; provided further, however, that any such transaction
shall not have as one of its purposes the evasion of the foregoing
limitations.
Events of Default
The following events will be defined as "Events of Default" in the
Indenture: (i) default in the payment of principal of (or premium, if any,
on) any Note when the same becomes due and payable at maturity, upon
acceleration, redemption or otherwise, whether or not such payment is
prohibited by the provisions described above under "Ranking"; (ii) default in
the payment of interest on any Note when the same becomes due and payable,
and such default continues for a period of 30 days, whether or not such
payment is prohibited by the provisions described above under "Ranking";
(iii) WCI defaults in the performance of or breaches any other covenant or
agreement of WCI in the Indenture, or under the Notes, and such default or
breach continues for a period of 30 consecutive days after written notice by
the Trustee or the Holders of 25% or more in aggregate principal amount of
the Notes; (iv) there occurs with respect to any issue or issues of
Indebtedness of WCI or any Significant Subsidiary having an outstanding
principal amount of $25.0 million or more in the aggregate for all such
issues of all such Persons, whether such Indebtedness now exists or shall
hereafter be created, (a) an event of default that has caused the holder
thereof to declare such Indebtedness to be due and payable prior to its
Stated Maturity and such Indebtedness has not been discharged in full or such
acceleration has not been rescinded or annulled within 30 days of such
acceleration and/or (b) the failure to make a principal payment at the final
(but not any interim) fixed maturity and such defaulted payment shall not
have been made, waived or extended within 30 days of such payment default;
(v) any final judgment or order (not covered by insurance) for the payment of
money in excess of $25.0 million in the aggregate for all such final
judgments or orders against all such Persons (treating any deductibles,
self-insurance or retention as not so covered) shall be rendered against WCI
or any Significant Subsidiary and shall not be paid or discharged, and there
shall be any period of 60 consecutive days following entry of the final
judgment or order that causes the aggregate amount for all such final
judgments or orders outstanding and not paid or discharged against all such
Persons to exceed $25.0 million during which a stay of enforcement of such
final judgment or order, by reason of a pending appeal or otherwise, shall
not be in effect; (vi) a court having jurisdiction in the premises enters a
decree or order for (a) relief in respect of WCI or any Significant
Subsidiary in an involuntary case under any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect, (b) appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official of WCI or any Significant Subsidiary or for all or substantially all
of the property and assets of WCI or any Significant Subsidiary or (c) the
winding up or liquidation of the affairs of WCI or any Significant Subsidiary
and, in each case, such decree or order shall remain unstayed and in effect
for a period of 60 consecutive days; or (vii) WCI or any Significant
Subsidiary (a) commences a voluntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or consents to
the entry of an order for relief in an involuntary case under any such law,
(b) consents to the appointment of or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official of
WCI or any Significant Subsidiary or for all or substantially all of the
property and assets of WCI or any Significant Subsidiary or (c) effects any
general assignment for the benefit of creditors.
If an Event of Default (other than an Event of Default specified in
clause (vi) or (vii) above that occurs with respect to WCI and is continuing
under the Indenture, the Trustee or the Holders of at least 25% in aggregate
principal amount of the Notes then outstanding, by written notice to WCI (and
to the Trustee if such notice is given by the Holders), may, and the Trustee
at the request of such Holders shall, declare the principal of, premium, if
any, and accrued interest, if any, on the Notes, to be immediately due and
payable. Upon a declaration of acceleration, such principal, premium, if any,
and accrued interest, if any, shall be immediately due and payable. In the
event of a declaration of acceleration because an Event of Default set forth
in clause (iv) above has occurred and is continuing, such declaration of
acceleration shall be automatically rescinded and annulled if the event of
default triggering such Event of Default pursuant to clause
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(iv) shall be remedied or cured by WCI or the relevant Significant Subsidiary
or waived by the holders of the relevant Indebtedness within 60 days after
the declaration of acceleration with respect thereto. If an Event of Default
specified in clause (vi) or (vii) above occurs with respect to WCI, the
principal of, premium, if any, and accrued interest, if any, on the Notes
then outstanding shall ipso facto become and be immediately due and payable
without any declaration or other act on the part of Trustee or any Holder.
The Holders of at least a majority in principal amount of the outstanding
Notes, by written notice to WCI and to the Trustee, may waive all past
defaults and rescind and annul a declaration of acceleration and its
consequences if (A) all existing Events of Default, other than the nonpayment
of the principal of, premium, if any, and interest on the Notes that have
become due solely by such declaration of acceleration, have been cured or
waived and (B) the rescission would not conflict with any judgment or decree
of a court of competent jurisdiction. For information as to the waiver of
defaults, see "--Modification and Waiver."
The Holders of at least a majority in aggregate principal amount of the
outstanding Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee. However, the Trustee may refuse to follow any
direction that conflicts with law or the Indenture, that may involve the
Trustee in personal liability, or that the Trustee determines in good faith
may be unduly prejudicial to the rights of Holders of Notes not joining in
the giving of such direction and may take any other action it deems proper
that is not inconsistent with any such direction received from Holders of
Notes. A Holder may not pursue any remedy with respect to the Indenture or
the Notes unless: (i) the Holder gives the Trustee written notice of a
continuing Event of Default; (ii) the Holders of at least 25% in aggregate
principal amount of outstanding Notes make a written request to the Trustee
to pursue the remedy; (iii) such Holder or Holders offer the Trustee
indemnity satisfactory to the Trustee against any costs, liability or
expense; (iv) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer of indemnity; and (v) during such
60-day period, the Holders of a majority in aggregate principal amount of the
outstanding Notes do not give the Trustee a direction that is inconsistent
with the request. However, such limitations do not apply to the right of any
Holder of a Note to receive payment of the principal of, premium, if any, or
interest on, such Note or to bring suit for the enforcement of any such
payment, on or after the due date expressed in the Notes, which right shall
not be impaired or affected without the consent of the Holder.
The Indenture will require certain officers of WCI to certify, on or
before a date not more than 90 days after the end of each fiscal year, that a
review has been conducted of the activities of WCI and its Restricted
Subsidiaries' performance under the Indenture and that, to the best knowledge
of such officer, WCI has fulfilled all obligations thereunder, or, if there
has been a default in the fulfillment of any such obligation, specifying each
such default and the nature and status thereof. WCI will also be obligated to
notify the Trustee of any default or defaults in the performance of any
covenants or agreements under the Indenture.
Defeasance
Defeasance and Discharge. The Indenture will provide that WCI be deemed
to have paid and will be discharged from any and all obligations in respect
of the Notes on the 123rd day after the deposit referred to below, and the
provisions of the Indenture will no longer be in effect with respect to the
Notes (except for, among other matters, certain obligations to register the
transfer or exchange of the Notes, to replace stolen, lost or mutilated
Notes, to maintain paying agencies, to hold monies for payment in trust), if,
among other things, (A) WCI has deposited with the Trustee, in trust, money
and/or U.S. Government Obligations that through the payment of interest and
principal in respect thereof in accordance with their terms will provide
money in an amount sufficient to pay the principal of, premium, if any, and
accrued interest on the Notes on the Stated Maturity of such payments or upon
earlier optional redemption, in each case in accordance with the terms of the
Indenture and the Notes, (B) WCI has delivered to the Trustee (i) either (x)
an Opinion of Counsel to the effect that Holders will not recognize income,
gain or loss for federal income tax purposes as a result of WCI's exercise of
its option under this "Defeasance" provision and will be subject to federal
income tax on the same amount and in the same manner and at the same times as
would have been the case if such deposit, defeasance and discharge had not
occurred, which Opinion of Counsel must be based upon (and accompanied by a
copy of) a ruling of the Internal Revenue Service to the same effect unless
there has been a change in applicable federal income tax law after the Issue
Date such that a ruling is no longer required or (y) a ruling directed to the
Trustee received from the Internal Revenue Service to the same effect as the
aforementioned Opinion of Counsel and (ii) an Opinion of Counsel to the
effect that the creation of the defeasance trust does not violate the
Investment Company Act of 1940 and after the passage of 123 days following
the deposit, the trust fund will not be subject to the effect of Section 547
of the Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law,
(C) immediately after giving effect to such deposit on a pro forma basis, no
Event of
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Default, or event that after the giving of notice or lapse of time or both
would become an Event of Default, shall have occurred and be continuing on
the date of such deposit or during the period ending on the 123rd day after
the date of such deposit, and such deposit shall not result in a breach or
violation of, or constitute a default under, any other agreement or
instrument to which WCI is a party or by which WCI is bound, and (D) if at
such time the Notes are listed on a national securities exchange, WCI has
delivered to the Trustee an Opinion of Counsel to the effect that the Notes
will not be delisted as a result of such deposit, defeasance and discharge.
Defeasance of Certain Covenants and Certain Events of Default. The
Indenture further provides that its provisions will no longer be in effect
with respect to clauses (iii) and (iv) under "Consolidation, Merger and Sale
of Assets" and all the covenants described herein under "Covenants," clause
(c) under "--Events of Default" with respect to such covenants and clauses
(iii) and (iv) under "Consolidation, Merger and Sale of Assets," and clauses
(d) and (e) and, if applicable, (i) and (ii) under "--Events of Default"
shall be deemed not to be Events of Default, the provisions described under
"--Ranking" with respect to the assets held by the Trustee referred to below
shall not apply, upon, among other things, the deposit with the Trustee, in
trust, of money and/or U.S. Government Obligations that through the payment
of interest and principal in respect thereof in accordance with their terms
will provide money in an amount sufficient to pay the principal of, premium,
if any, and accrued interest on the Notes on the Stated Maturity of such
payments or upon earlier optional redemption, in each case in accordance with
the terms of the Indenture and the Notes, the satisfaction of the provisions
described in clauses (B)(ii), (C) and (D) of the preceding paragraph and the
delivery by WCI to the Trustee of an Opinion of Counsel to the effect that,
among other things, the Holders will not recognize income, gain or loss for
federal income tax purposes as a result of such deposit and defeasance of
certain covenants and Events of Default and will be subject to federal income
tax on the same amount and in the same manner and at the same times as would
have been the case if such deposit and defeasance had not occurred.
Defeasance and Certain Other Events of Default. In the event WCI
exercises its option to omit compliance with certain covenants and provisions
of the Indenture with respect to the Notes as described in the immediately
preceding paragraph and the Notes are declared due and payable because of the
occurrence of an Event of Default that remains applicable, the amount of
money and/or U.S. Government Obligations on deposit with the Trustee will be
sufficient to pay amounts due on the Notes at the time of their Stated
Maturity but may not be sufficient to pay amounts due on the Notes at the
time of the acceleration resulting from such Event of Default. However, WCI
will remain liable for such payments.
Modification and Waiver
Modifications and amendments of the Indenture may be made by WCI and the
Trustee with the consent of the Holders of not less than a majority in
aggregate principal amount of the outstanding Notes; provided, however, that
no such modification or amendment may, without the consent of each Holder
affected thereby, (i) change the Stated Maturity of the principal of, or any
installment of interest on, any Note, (ii) reduce the principal amount of, or
premium, if any, or interest on, any Note, (iii) change the place or currency
of payment of principal of, or premium, if any, or interest on, any Note,
(iv) impair the right to institute suit for the enforcement of any payment on
or after the Stated Maturity (or, in the case of a redemption, on or after
the Redemption Date) of any Note, (v) reduce the above-stated percentage of
outstanding Notes the consent of whose Holders is necessary to modify or
amend the Indenture, (vi) waive a default in the payment of principal of,
premium, if any, or interest on the Notes or (vii) reduce the percentage or
aggregate principal amount of outstanding Notes the consent of whose Holders
is necessary for waiver of compliance with certain provisions of the
Indenture or for waiver of certain defaults.
Without the consent of any Holder of the Notes, WCI and the Trustee may
modify or amend the Indenture to cure any ambiguity, defect or inconsistency,
to provide for the assumption by a successor company of WCI's obligations
under the Indenture, to comply with the requirements of the Trust Indenture
Act, to appoint a successor Trustee or to make any change that, in the
opinion of the Board of Directors of WCI evidenced by a Board Resolution,
does not materially and adversely affect the rights of any Holder.
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No Personal Liability of Incorporators, Stockholders, Officers, Directors or
Employees
The Indenture provides that no recourse for the payment of the principal
of, premium, if any, or interest on any of the Notes or for any claim based
thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of WCI in the Indenture, or in any of the
Notes or because of the creation of any Indebtedness represented thereby,
shall be had against any incorporator, stockholder, officer, director,
employee or controlling person of WCI or of any successor Person thereof in
such capacity. Each Holder, by accepting the Notes, waives and releases all
such liability.
Concerning the Trustee
The Indenture provides that, except during the continuance of a Default,
the Trustee will not be liable, except for the performance of such duties as
are specifically set forth in such Indenture. If an Event of Default has
occurred and is continuing, the Trustee will use the same degree of care and
skill in its exercise as a prudent person would exercise under the
circumstances in the conduct of such person's own affairs.
The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee, should it
become a creditor of WCI to obtain payment of claims in certain cases or to
realize on certain property received by it in respect of any such claims, as
security or otherwise. The Trustee is permitted to engage in other
transactions; provided, however, that if the Trustee acquires any conflicting
interest, it must eliminate such conflict or resign.
Certain Definitions
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indenture. Reference is made to the
Indenture for the full definition of all terms as well as any other
capitalized term used herein for which no definition is provided.
"1995 Notes" means the 1995 Senior Notes and the Convertible Notes.
"1997 Notes" means the 1997 Senior Notes and the Notes.
"1995 Senior Notes" means the 14% Senior Discount Notes due 2005 of WCI.
"1997 Senior Notes" means the 14 1 2% Senior Deferred Interest Notes Due
2005 of WCI.
"Accumulated Amount" means, as of any date (the "Specified Date"), the
amount provided below for each $1,000 principal amount of Notes.
(i) if the Specified Date occurs on one of the following dates
(each, a "SemiAnnual Interest Accrual Date"), the Accumulated Amount will
equal the amount set forth below for such SemiAnnual Interest Accrual
Date:
SemiAnnual Interest Accrual Date Accumulated Amount
- -------------------------------- ------------------
March 1, 1998........................................$1060.000
September 1, 1998.....................................1139.500
March 1, 1999.........................................1224.963
September 1, 1999.....................................1316.835
March 1, 2000.........................................1415.597
September 1, 2000.....................................1521.767
March 1, 2001.........................................1635.900
September 1, 2001.....................................1758.592
March 1, 2002.........................................1890.486
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(ii) if the Specified Date occurs before the first SemiAnnual
Interest Accrual Date, the Accumulated Amount will equal the sum of (A)
$1,000 and (B) an amount equal to the product of (1) the Accumulated
Amount for the first SemiAnnual Interest Accrual Date less $1,000
multiplied by (2) a fraction, the numerator of which is the number of
days elapsed from the Closing Date to the Specified Date, using a 360-day
year of twelve 30-day months, and the denominator of which is the number
of days from the Closing Date to the first SemiAnnual Interest Accrual
Date, using a 360-day year of twelve 30-day months;
(iii) if the Specified Date occurs between two SemiAnnual Interest
Accrual Dates, the Accumulated Amount will equal the sum of (A) the
Accumulated Amount for the SemiAnnual Interest Accrual Date immediately
preceding such Specified Date and (B) an amount equal to the product of
(1) the Accumulated Amount for the immediately following SemiAnnual
Interest Accrual Date less the Accumulated Amount for the immediately
preceding SemiAnnual Interest Accrual Date multiplied by (2) a fraction,
the numerator of which is the number of days elapsed from the immediately
preceding SemiAnnual Interest Accrual Date to the Specified Date, using a
360-day year of twelve 30-day months, and the denominator of which is
180; or
(iv) if the Specified Date occurs after the last SemiAnnual Interest
Accrual Date, the Accumulated Amount will equal $1890.486.
"Adjusted Consolidated Net Income" means, for any period, the aggregate
net income (or loss) of WCI and its Restricted Subsidiaries for such period
determined in conformity with GAAP; provided, however, that the following
items shall be excluded in computing Adjusted Consolidated Net Income
(without duplication): (i) the net income of any Person (other than net
income attributable to a Restricted Subsidiary) in which any Person (other
than WCI or any of its Restricted Subsidiaries) has a joint interest and the
net income of any Unrestricted Subsidiary, except to the extent of the amount
of dividends or other distributions actually paid to WCI or any of its
Restricted Subsidiaries by such other Person, including, without limitation,
an Unrestricted Subsidiary during such period; (ii) solely for the purposes
of calculating the amount of Restricted Payments that may be made pursuant to
clause (C) of the first paragraph of the covenant described under
"--Covenants--Limitation on Restricted Payments" (and in such case, except to
the extent includable pursuant to clause (i) above), the net income (or loss)
of any Person accrued prior to the date it becomes a Restricted Subsidiary or
is merged into or consolidated with WCI or any of its Restricted Subsidiaries
or all or substantially all of the property and assets of such Person are
acquired by WCI or any of its Restricted Subsidiaries; (iii) the net income
of any Restricted Subsidiary to the extent that the declaration or payment of
dividends or similar distributions by such Restricted Subsidiary of such net
income is not at the time permitted by the operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to such Restricted Subsidiary; (iv) any
gains or losses (on an after-tax basis) attributable to Asset Sales; (v)
except for purposes of calculating the amount of Restricted Payments that may
be made pursuant to clause (C) of the first paragraph of the covenant
described under "--Covenants--Limitation on Restricted Payments," any amount
paid as, or accrued for, cash dividends on Preferred Stock of WCI or any
Restricted Subsidiary owned by Persons other than WCI and any of its
Restricted Subsidiaries; and (vi) all extraordinary gains and extraordinary
losses.
"Adjusted Consolidated Net Tangible Assets" means the total amount of
assets of WCI and its Restricted Subsidiaries (less applicable depreciation,
amortization and other valuation reserves), except to the extent resulting
from write-ups of capital assets (excluding write-ups in connection with
accounting for acquisitions in conformity with GAAP), after deducting
therefrom (i) all current liabilities of WCI and its Restricted Subsidiaries
(excluding intercompany items) and (ii) all goodwill, trade names,
trademarks, patents, unamortized debt discount and expense and other like
intangibles (other than licenses issued by the FCC), all as set forth on the
quarterly or annual consolidated balance sheet of WCI and its Restricted
Subsidiaries, prepared in conformity with GAAP and most recently filed with
the Commission pursuant to "--SEC Reports and Reports to Holders;" provided,
however, that the value of any licenses issued by the FCC shall, in the event
of an auction for similar licenses, be equal to the fair market value
ascribed thereto in good faith by the Board of Directors and evidenced by a
Board Resolution. As used in the Indenture, references to financial
statements of WCI and its Restricted Subsidiaries shall be adjusted to
exclude Unrestricted Subsidiaries if the context requires.
"Affiliate" means, as applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled
by" and "under common control with"), as applied to any
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Person, means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise.
"Asset Acquisition" means (i) an investment by WCI or any of its
Restricted Subsidiaries in any other Person pursuant to which such Person
shall become a Restricted Subsidiary of WCI or shall be merged into or
consolidated with WCI or any of its Restricted Subsidiaries or (ii) an
acquisition by WCI or any of its Restricted Subsidiaries of the property and
assets of any Person other than WCI or any of its Restricted Subsidiaries
that constitute substantially all of a division or line of business of such
Person.
"Asset Sale" means any sale, transfer or other disposition (including by
way of merger, consolidation or sale-leaseback transactions) in one
transaction or a series of related transactions by WCI or any of its
Restricted Subsidiaries to any Person other than WCI or any of its Restricted
Subsidiaries of (i) all or any of the Capital Stock of any Restricted
Subsidiary, (ii) all or substantially all of the property and assets of an
operating unit or business of WCI or any of its Restricted Subsidiaries or
(iii) any other property or assets of WCI or any of its Restricted
Subsidiaries outside the ordinary course of business of WCI or such
Restricted Subsidiary and, in each case, that is not governed by the
provisions of the Indenture applicable to mergers, consolidations and sales
of assets of WCI; provided, however, that the following shall not be included
within the meaning of "Asset Sale": (A) sales or other dispositions of
inventory, receivables and other current assets; (B) sales or other
dispositions of equipment that has become worn out, obsolete or damaged or
otherwise unsuitable for use in connection with the business of WCI or its
Restricted Subsidiaries; (C) a substantially simultaneous exchange of, or a
sale or disposition (other than 85% or more for cash or cash equivalents) by
WCI or any of its Restricted Subsidiaries of, licenses issued by the FCC or
applications or bids therefor; provided, however, that the consideration
received by WCI or any such Restricted Subsidiary in connection with such
exchange, sale or disposition shall be equal to the fair market value of
licenses so exchanged, sold or disposed of, as determined by the Board of
Directors; and (D) except for purposes of the definition of "Indebtedness to
EBITDA Ratio," any sale or other disposition of securities of an Unrestricted
Subsidiary. The Indenture also provides that, notwithstanding anything to the
contrary in this definition, any sale, transfer or other disposition (other
than a lease in the ordinary course of business but including the receipt of
insurance proceeds in respect of Collateral) of any Collateral shall be
deemed to be an Asset Sale of such Collateral.
"Average Life" means, at any date of determination with respect to any
debt security, the quotient obtained by dividing (i) the sum of the products
of (a) the number of years from such date of determination to the dates of
each successive scheduled principal payment of such debt security and (b) the
amount of such principal payment by (ii) the sum of all such principal
payments.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in The City of New York, or in the city of the
Corporate Trust Office of the Trustee, are authorized by law to close.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) in equity of such Person, whether now outstanding or
issued after the date of the Indenture, including, without limitation, all
Common Stock and Preferred Stock.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present
value of the rental obligations of such Person as lessee, in conformity with
GAAP, is required to be capitalized on the balance sheet of such Person; and
"Capitalized Lease Obligations" means the discounted present value of the
rental obligations under such lease.
"Change of Control" means such time as (i) a "person" or "group" (within
the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act of
1934, as amended ("Exchange Act")), other than the Permitted Investor,
becomes the ultimate "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) of Voting Stock representing more than 50% of the total voting
power of the Voting Stock of WCI on a fully diluted basis or (ii) individuals
who on the Closing Date constituted the Board of Directors (together with any
new directors whose election by the Board of Directors or whose nomination
for election by WCI's stockholders was approved by a vote of at least
two-thirds of the members of the Board of Directors then in office who either
were members of the Board of Directors on the Closing Date or whose election
or nomination for election was previously so approved) cease for any reason
to constitute a majority of the members of the Board of Directors then in
office.
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"Closing Date" means March 18, 1997.
"Consolidated EBITDA" means, for any period, the sum of the amounts for
such period of (i) Adjusted Consolidated Net Income, (ii) Consolidated
Interest Expense, to the extent such amount was deducted in calculating
Adjusted Consolidated Net Income, (iii) income taxes, to the extent such
amount was deducted in calculating Adjusted Consolidated Net Income (other
than income taxes (either positive or negative) attributable to extraordinary
and nonrecurring gains or losses or sales of assets), (iv) depreciation
expense, to the extent such amount was deducted in calculating Adjusted
Consolidated Net Income, (v) amortization expense, to the extent such amount
was deducted in calculating Adjusted Consolidated Net Income and (vi) all
other noncash items reducing Adjusted Consolidated Net Income (other than
items that will require cash payments and for which an accrual or reserve is,
or is required by GAAP to be, made), less all noncash items increasing
Adjusted Consolidated Net Income, all as determined on a consolidated basis
for WCI and its Restricted Subsidiaries in conformity with GAAP; provided,
however, that, if any Restricted Subsidiary is not a Wholly Owned Restricted
Subsidiary, Consolidated EBITDA shall be reduced (to the extent not otherwise
reduced in accordance with GAAP) by an amount equal to (A) the amount of the
Adjusted Consolidated Net Income attributable to such Restricted Subsidiary
multiplied by (B) the quotient of (1) the number of shares of outstanding
Common Stock of such Restricted Subsidiary not owned on the last day of such
period by WCI or any of its Restricted Subsidiaries divided by (2) the total
number of shares of outstanding Common Stock of such Restricted Subsidiary on
the last day of such period.
"Consolidated Interest Expense" means, for any period, the aggregate
amount of interest in respect of Indebtedness (including amortization of
original issue discount on any Indebtedness and the interest portion of any
deferred payment obligation, calculated in accordance with the effective
interest method of accounting; all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing; the net costs associated with Interest Rate Agreements; and
Indebtedness that is Guaranteed or secured by WCI or any of its Restricted
Subsidiaries) and all but the principal component of rentals in respect of
Capitalized Lease Obligations paid, accrued or scheduled to be paid or to be
accrued by WCI and its Restricted Subsidiaries during such period; excluding,
however, (i) any amount of such interest of any Restricted Subsidiary if the
net income of such Restricted Subsidiary is excluded in the calculation of
Adjusted Consolidated Net Income pursuant to clause (iii) of the definition
thereof (but only in the same proportion as the net income of such Restricted
Subsidiary is excluded from the calculation of Adjusted Consolidated Net
Income pursuant to clause (iii) of the definition thereof) and (ii) any
premiums, fees and expenses (and any amortization thereof) payable in
connection with the offering of the Notes and the offering of the 1997 Notes
in the March 1997 Debt Placement and August 1997 Debt Placement, all as
determined on a consolidated basis (without taking into account Unrestricted
Subsidiaries) in conformity with GAAP.
"Consolidated Net Worth" means, at any date of determination,
stockholders' equity as set forth on the most recently available quarterly or
annual consolidated balance sheet of WCI and its Restricted Subsidiaries
(which shall be as of a date not more than 90 days prior to the date of such
computation, and which shall not take into account Unrestricted
Subsidiaries), less any amounts attributable to Redeemable Stock or any
equity security convertible into or exchangeable for Indebtedness, the cost
of treasury stock and the principal amount of any promissory notes receivable
from the sale of the Capital Stock of WCI or any of its Restricted
Subsidiaries, each item to be determined in conformity with GAAP (excluding
the effects of foreign currency exchange adjustments under Financial
Accounting Standards Board Statement of Financial Accounting Standards No.
52).
"Convertible Notes" means the 14% Convertible Senior Subordinated
Discount Notes of WCI due 2005.
"Convertible Notes Indenture" means the Indenture dated as of October 23,
1995, between WCI and United States Trust Company of New York pursuant to
which the Convertible Notes were issued.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Equipment Notes" means the $200.0 million of 121/2% Guaranteed Senior
Secured Notes Due 2004 of WEC and the $50.0 million of 121/2% Guaranteed
Senior Secured Notes Due 2004 of WEC II.
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"fair market value" means the price that would be paid in an arm's-length
transaction between an informed and willing seller under no compulsion to
sell and an informed and willing buyer under no compulsion to buy, as
determined in good faith by the Board of Directors (whose determination shall
be conclusive) and evidenced by a Board Resolution.
"FCC" means the United States Federal Communications Commission and any
state or local telecommunications authority, department, commission or agency
(and any successors thereto).
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of the date of the Indenture, including,
without limitation, those set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as approved
by a significant segment of the accounting profession. All ratios and
computations contained in the Indenture shall be computed in conformity with
GAAP applied on a consistent basis, except that calculations made for
purposes of determining compliance with the terms of the covenants and with
other provisions of the Indentures shall be made without giving effect to (i)
the amortization of any expenses incurred in connection with the Offering of
the Notes, the March 1997 Debt Placement or the August 1997 Debt Placement
and (ii) except as otherwise provided, the amortization of any amounts
required or permitted by Accounting Principles Board Opinion Nos. 16 and 17.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of
any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i)
to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness or other obligation of such other Person (whether
arising by virtue of partnership arrangements, or by agreements to keep-well,
to purchase assets, goods, securities or services, to take-or-pay, or to
maintain financial statement conditions or otherwise) or (ii) entered into
for purposes of assuring in any other manner the obligee of such Indebtedness
or other obligation of the payment thereof or to protect such obligee against
loss in respect thereof (in whole or in part); provided, however, that the
term "Guarantee" shall not include endorsements for collection or deposit in
the ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
"Holder" means the Person in whose name a Note is registered on the books
of the registrar for the Notes.
"Incur" means, with respect to any Indebtedness, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to, or
become responsible for, the payment of, contingently or otherwise, such
Indebtedness, including, with respect to the Company and its Restricted
Subsidiaries, an "incurrence" of Indebtedness by reason of a Person becoming
a Restricted Subsidiary of the Company; provided, however, that neither the
accrual of interest nor the accretion of original issue discount shall be
considered an Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments (whether negotiable or
non-negotiable), (iii) all obligations of such Person in respect of letters
of credit or other similar instruments (including reimbursement obligations
with respect thereto), (iv) all obligations of such Person to pay the
deferred and unpaid purchase price of property or services, which purchase
price is due more than six months after the date of placing such property in
service or taking delivery and title thereto or the completion of such
services, except trade payables, (v) all obligations of such Person as lessee
under Capitalized Leases, (vi) all Indebtedness of other Persons secured by a
Lien on any asset of such Person, whether or not such Indebtedness is assumed
by such Person; provided, however, that the amount of such Indebtedness shall
be the lesser of (A) the fair market value of such asset at such date of
determination and (B) the amount of such Indebtedness, (vii) all Indebtedness
of other Persons Guaranteed by such Person to the extent such Indebtedness is
Guaranteed by such Person and (viii) to the extent not otherwise included in
this definition, obligations under Currency Agreements and Interest Rate
Agreements. The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as
described above and, with respect to contingent obligations that are included
in any of clauses (i) through (viii) above, the maximum liability upon the
occurrence of the contingency giving rise to the obligation; provided,
however, that (A) the amount outstanding at any time of any Indebtedness
issued with original issue discount is (1) for purposes of determining the
Indebtedness to EBITDA Ratio, the face amount of such Indebtedness less the
remaining unamortized portion of the original issue discount of such
Indebtedness at such time as determined in conformity with GAAP and
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(2) for all other purposes, the amount determined in clause (1) on the date
such Indebtedness is originally Incurred and (B) Indebtedness shall not
include any liability for federal, state, local or other taxes.
"Indebtedness to EBITDA Ratio" means, as at any date of determination,
the ratio of (i) the aggregate amount of Indebtedness of WCI and its
Restricted Subsidiaries on a consolidated basis ("Consolidated Indebtedness")
as at the date of determination (the "Transaction Date") to (ii) the
Consolidated EBITDA of WCI for the then most recent four full fiscal quarters
for which reports have been filed pursuant to "--SEC Reports and Reports to
Holders" (such four full fiscal quarter period being referred to herein as
the "Four Quarter Period"); provided, however, that (x) pro forma effect
shall be given to any Indebtedness Incurred from the beginning of the Four
Quarter Period through the Transaction Date (including any Indebtedness
Incurred on the Transaction Date), to the extent outstanding on the
Transaction Date, (y) if during the period commencing on the first day of
such Four Quarter Period through the Transaction Date (the "Reference
Period"), WCI or any of the Restricted Subsidiaries shall have engaged in any
Asset Sale, Consolidated EBITDA for such period shall be reduced by an amount
equal to the EBITDA (if positive), or increased by an amount equal to the
EBITDA (if negative), directly attributable to the assets which are the
subject of such Asset Sale and any related retirement of Indebtedness as if
such Asset Sale and related retirement of Indebtedness had occurred on the
first day of such Reference Period or (z) if during such Reference Period WCI
or any of the Restricted Subsidiaries shall have made any Asset Acquisition,
Consolidated EBITDA of WCI shall be calculated on a pro forma basis as if
such Asset Acquisition and any Incurrence of Indebtedness to finance such
Asset Acquisition had taken place on the first day of such Reference Period.
"Investment" in any Person means any direct or indirect advance, loan or
other extension of credit (including, without limitation, by way of Guarantee
or similar arrangement; but excluding advances to customers in the ordinary
course of business that are, in conformity with GAAP, recorded as accounts
receivable on the balance sheet of WCI or its Restricted Subsidiaries) or
capital contribution to (by means of any transfer of cash or other property
to others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, bonds, notes,
debentures or other similar instruments issued by, such Person and shall
include (i) the designation of a Restricted Subsidiary as an Unrestricted
Subsidiary and (ii) the fair market value of the Capital Stock held by WCI
and the Restricted Subsidiaries of any Person that has ceased to be a
Restricted Subsidiary by reason of any transaction permitted by clause (iii)
of the covenant described under "--Covenants--Limitation on the Issuance and
Sale of Capital Stock of Restricted Subsidiaries." For purposes of the
definition of "Unrestricted Subsidiary" and the covenant described under
"--Covenants--Limitation on Restricted Payments," (i) "Investment" shall
include the fair market value of the assets (net of liabilities) of any
Restricted Subsidiary of WCI at the time that such Restricted Subsidiary of
WCI is designated an Unrestricted Subsidiary and shall exclude the fair
market value of the assets (net of liabilities) of any Unrestricted
Subsidiary at the time that such Unrestricted Subsidiary is designated a
Restricted Subsidiary of WCI and (ii) any property transferred to or from an
Unrestricted Subsidiary shall be valued at its fair market value at the time
of such transfer, in each case as determined by the Board of Directors in
good faith.
"Issue Date" means the date on which the Notes are originally issued
under the Indenture.
Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including, without limitation, any conditional sale or
other title retention agreement or lease in the nature thereof, any sale with
recourse against the seller or any Affiliate of the seller, or any agreement
to give any security interest).
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the
proceeds of such Asset Sale in the form of cash or cash equivalents,
including payments in respect of deferred payment obligations (to the extent
corresponding to the principal, but not interest, component thereof) when
received in the form of cash or cash equivalents (except to the extent such
obligations are financed or sold with recourse to WCI or any Restricted
Subsidiary of WCI) and proceeds from the conversion of other property
received when converted to cash or cash equivalents, net of (i) brokerage
commissions and other fees and expenses (including fees and expenses of
counsel and investment bankers) related to such Asset Sale, (ii) provisions
for all taxes (whether or not such taxes will actually be paid or are
payable) as a result of such Asset Sale without regard to the consolidated
results of operations of WCI and its Restricted Subsidiaries, taken as a
whole, (iii) payments made to repay Indebtedness or any other obligation
outstanding at the time of such Asset Sale that either (A) is secured by a
Lien on the property or assets sold or (B) is required to be paid as a result
of such sale and (iv) appropriate amounts to be provided by WCI or any
Restricted Subsidiary of WCI as a reserve against any liabilities associated
with such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset
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Sale, all as determined in conformity with GAAP and (b) with respect to any
issuance or sale of Capital Stock, the proceeds of such issuance or sale in
the form of cash or cash equivalents, including payments in respect of
deferred payment obligations (to the extent corresponding to the principal,
but not interest, component thereof) when received in the form of cash or
cash equivalents (except to the extent such obligations are financed or sold
with recourse to WCI or any Restricted Subsidiary of WCI) and proceeds from
the conversion of other property received when converted to cash or cash
equivalents, net of attorneys' fees, accountants' fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage, consultant
and other fees incurred in connection with such issuance or sale and net of
taxes paid or payable by WCI or any of its subsidiaries as a result thereof.
"Notes" means in either case, the 15% Senior Subordinated Deferred
Interest Notes Due 2007 or 15% Senior Subordinated Deferred Interest Exchange
Notes due 2007 of WCI.
"Offer to Purchase" means an offer to purchase Notes by WCI from the
Holders that is required by the covenant described under "--Repurchase of
Notes upon a Change of Control" or "--Covenants --Limitation on Asset Sales"
and which is commenced by mailing a notice to the Trustee and each Holder
stating: (i) the covenant pursuant to which the offer is being made and that
all Notes validly tendered will be accepted for payment on a pro rata basis;
(ii) the purchase price and the date of purchase (which shall be a Business
Day no earlier than 30 days nor later than 60 days from the date such notice
is mailed) (the "Payment Date"); (iii) that any Note not tendered will
continue to accrue interest pursuant to its terms; (iv) that, unless WCI
defaults in the payment of the purchase price, any Note accepted for payment
pursuant to the Offer to Purchase shall cease to accrue interest on and after
the Payment Date; (v) that Holders electing to have a Note purchased pursuant
to the Offer to Purchase will be required to surrender the Note together with
the form entitled "Option of the Holder to Elect Purchase" on the reverse
side thereof completed, to the Paying Agent at the address specified in the
notice prior to the close of business on the Business Day immediately
preceding the Payment Date; (vi) that Holders will be entitled to withdraw
their election if the Paying Agent receives, not later than the close of
business on the third Business Day immediately preceding the Payment Date, a
telegram, facsimile transmission or letter setting forth the name of such
Holder, the Accumulated Amount of Notes delivered for purchase and a
statement that such Holder is withdrawing his election to have such Notes
purchased; and (vii) that Holders whose Notes are being purchased only in
part will be issued new Notes equal in Accumulated Amount (and accrued and
unpaid interest) to the unpurchased portion thereof; provided, however, that
each Note purchased and each new Note issued shall be in a principal amount
of $1,000 or integral multiples thereof. On the Payment Date, WCI shall (i)
accept for payment on a pro rata basis Notes or portions thereof tendered
pursuant to an Offer to Purchase; (ii) deposit with the Paying Agent money
sufficient to pay the purchase price of all Notes or portions thereof so
accepted; and (iii) deliver, or cause to be delivered, to the Trustee all
Notes or portions thereof so accepted together with an Officers' Certificate
specifying the Notes or portions thereof accepted for payment by WCI. The
Paying Agent shall promptly mail to the Holders of Notes so accepted for
payment in an amount equal to the purchase price, and the Trustee shall
promptly authenticate and mail to such Holders a new Note equal in principal
amount to any unpurchased portion of the Note surrendered; provided, however,
that each Note purchased and each new Note issued shall be in a principal
amount of $1,000 or integral multiples thereof. WCI will publicly announce
the results of an Offer to Purchase as soon as practicable after the Payment
Date. The Trustee shall act as the Paying Agent for an Offer to Purchase. WCI
will comply with Rule 14e-1 under the Exchange Act and any other securities
laws and regulations thereunder to the extent such laws and regulations are
applicable, in the event that WCI is required to repurchase Notes pursuant to
an Offer to Purchase.
"Permitted Investment" means (i) an Investment in a Restricted Subsidiary
or a Person which will, upon the making of such Investment, become a
Restricted Subsidiary or be merged or consolidated with or into or transfer
or convey all or substantially all its assets to, WCI or a Restricted
Subsidiary; (ii) Temporary Cash Investments; (iii) payroll, travel and
similar advances to cover matters that are expected at the time of such
advances ultimately to be treated as expenses in accordance with GAAP; (iv)
loans or advances to employees in a principal amount not to exceed $1.0
million at any one time outstanding; (v) stock, obligations or securities
received in satisfaction of judgments; (vi) Investments, to the extent that
the consideration provided by WCI or any of its Restricted Subsidiaries
consists solely of Capital Stock (other than Redeemable Stock) of WCI; (vii)
notes payable to WCI that are received by WCI as payment of the purchase
price for Capital Stock (other than Redeemable Stock) of WCI; and (viii)
acquisitions of a minority equity interest in entities engaged in the
telecommunications business; provided, however, that (A) the acquisition of a
majority equity interest in such entities is not permitted under U.S. law
without FCC consent, (B) the Company or one of its Restricted Subsidiaries
has the right to acquire Capital Stock representing a majority of the voting
power of the Voting Stock of such entity upon receipt of FCC consent and (C)
in the event that such consent has not been obtained within 18 months of
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funding such Investment, the Company or one of its Restricted Subsidiaries
has the right to sell such minority equity interest in the seller thereof for
consideration consisting of the consideration originally paid by the Company
and its Restricted Subsidiaries for such minority equity interest.
"Permitted Investor" means Mr. William J. Rouhana, Jr.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization, government or any agency or political
subdivision thereof or any other entity.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of such Person's preferred or preference stock, whether
now outstanding or issued after the Closing Date, including, without
limitation, all series and classes of such preferred or preference stock.
"Redeemable Stock" means any class or series of Capital Stock of any
Person that by its terms or otherwise is (i) required to be redeemed prior to
the Stated Maturity of the Notes, (ii) redeemable at the option of the holder
of such class or series of Capital Stock at any time prior to the Stated
Maturity of the Notes (unless the redemption price is, at WCI's option,
without conditions precedent, payable solely in Common Stock (other than
Redeemable Stock) of WCI) or (iii) convertible into or exchangeable for
Capital Stock referred to in clause (i) or (ii) above or Indebtedness having
a scheduled maturity prior to the Stated Maturity of the Notes; provided,
however, that any Capital Stock that would not constitute Redeemable Stock
but for provisions thereof giving holders thereof the right to require such
Person to repurchase or redeem such Capital Stock upon the occurrence of an
"asset sale" or "change of control" occurring prior to the Stated Maturity of
the Notes shall not constitute Redeemable Stock if the "asset sale" or
"change of control" provisions applicable to such Capital Stock are no more
favorable to the holders of such Capital Stock than the provisions contained
in "--Repurchase of Notes Upon a Change of Control" and
"--Covenants--Limitation on Asset Sales" and such Capital Stock specifically
provides that such Person will not repurchase or redeem any such stock
pursuant to such provision prior to WCI's repurchase of such Notes as are
required to be repurchased pursuant to "--Repurchase of Notes Upon a Change
of Control" and "--Covenants--Limitation on Asset Sales."
"Restricted Subsidiary" means any Subsidiary of WCI other than an
Unrestricted Subsidiary.
"SEC" means the Securities and Exchange Commission and any successor
agency.
"Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary of WCI that, together with its Subsidiaries, (i) for
the most recent fiscal year of WCI, accounted for more than 10% of the
consolidated revenues of WCI and its Restricted Subsidiaries or (ii) as of
the end of such fiscal year, was the owner of more than 10% of the
consolidated assets of WCI and its Restricted Subsidiaries, all as set forth
on the most recently available consolidated financial statements of WCI for
such fiscal year.
"Stated Maturity" means, (i) with respect to any debt security, the date
specified in such debt security as the fixed date on which the final
installment of principal of such debt security is due and payable and (ii)
with respect to any scheduled installment of principal of or interest on any
debt security, the date specified in such debt security as the fixed date on
which such installment is due and payable.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which Voting Stock representing more
than 50% of the voting power of the outstanding Voting Stock is owned,
directly or indirectly, by such Person and one or more other Subsidiaries of
such Person.
"Telecommunications Assets" means any (i) entity or business
substantially all the revenues of which are derived from (a) providing
transmission of sound, data or video; (b) the sale or provision of phone
cards, "800" services, voice mail, switching, enhanced telecommunications
services, telephone directory or telephone number information services or
telecommunications network intelligence; or (c) any business ancillary or
directly related to the businesses referred to in clause (a) or (b) above and
(ii) any assets used primarily to effect such transmission or provide the
products or services referred to in clause (a) or (b) above and any directly
related or ancillary assets including, without limitation, licenses and
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applications, bids and agreements to acquire licenses, or other authority to
provide transmission services previously granted, or to be granted, by the
FCC.
"Telecommunications Subsidiary" means (i) WinStar Gateway Network, Inc.,
WinStar Wireless, Inc., WinStar Telecommunications, Inc., WinStar Milliwave,
Inc., WinStar Locate, Inc. and WinStar Wireless Fiber Corp., and, in each
case, its successors and (ii) any other Restricted Subsidiary of WCI that
holds more than a de minimis amount of Telecommunications Assets.
"Temporary Cash Investment" means any of the following: (i) direct
obligations of the United States or any agency thereof or obligations fully
and unconditionally guaranteed by the United States or any agency thereof;
(ii) time deposit accounts, certificates of deposit and money market deposits
maturing within 180 days of the date of acquisition thereof issued by a bank
or trust company which is organized under the laws of the United States, any
state thereof or any foreign country recognized by the United States, and
which bank or trust company has capital, surplus and undivided profits
aggregating in excess of $50.0 million (or the foreign currency equivalent
thereof) and has outstanding deposits or debt which is rated "A" (or such
similar equivalent rating) or higher by at least one nationally recognized
statistical rating organization (as defined in Rule 436 under the Securities
Act) or any money-market fund sponsored by a registered broker dealer or
mutual fund distributor; (iii) repurchase obligations with a term of not more
than 30 days for underlying securities of the types described in clause (i)
above entered into with a bank meeting the qualifications described in clause
(ii) above; (iv) commercial paper, maturing not more than six months after
the date of acquisition, issued by a corporation (other than an Affiliate of
WCI) organized and in existence under the laws of the United States, any
state thereof or any foreign country recognized by the United States with a
rating at the time as of which any investment therein is made of "P-1" (or
higher) according to Moody's Investors Service, Inc. or "A-1" (or higher)
according to Standard & Poor's Ratings Group; and (v) securities with
maturities of six months or less from the date of acquisition issued or fully
and unconditionally guaranteed by any state, commonwealth or territory of the
United States, or by any political subdivision or taxing authority thereof,
and rated at least "A" by Standard & Poor's Ratings Group or Moody's
Investors Service, Inc.
"Transaction Date" means, with respect to the Incurrence of any
Indebtedness by WCI or any of its Restricted Subsidiaries, the date such
Indebtedness is to be Incurred and, with respect to any Restricted Payment,
the date such Restricted Payment is to be made.
"Unrestricted Subsidiary" means (i) any Subsidiary of WCI that at the
time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Restricted
Subsidiary of WCI (including any newly acquired or newly formed Subsidiary of
WCI), other than a guarantor of the Notes, to be an Unrestricted Subsidiary
unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien
on any property of, WCI or any Restricted Subsidiary; provided, however, that
neither WCI nor its Restricted Subsidiaries has any Guarantee of any
Indebtedness of such Subsidiary outstanding at the time of such designation
and either (A) the Subsidiary to be so designated has total assets of $1,000
or less or (B) if such Subsidiary has assets greater than $1,000, such
designation would be permitted under the covenant described under
"--Covenants--Limitation on Restricted Payments." Notwithstanding the
foregoing, WinStar New Media Company Inc., Non Fiction Films Inc. and WinStar
Global Products, Inc. and their Subsidiaries are Unrestricted Subsidiaries.
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary of WCI; provided, however, that immediately after
giving effect to such designation (x) WCI could Incur $1.00 of additional
Indebtedness under the first paragraph of the covenant described under
"--Covenants--Limitation on Indebtedness" and (y) no Default or Event of
Default shall have occurred and be continuing. Any such designation by the
Board of Directors shall be evidenced to the Trustee by promptly filing with
the Trustee a copy of the Board Resolution giving effect to such designation
and an Officers' Certificate certifying that such designation complied with
the foregoing provisions. Anything to the contrary contained in the
Indentures notwithstanding, no Telecommunications Subsidiary may be
designated an Unrestricted Subsidiary.
"U.S. Government Obligations" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States
of America the payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States of America, which, in either case,
are not callable or redeemable at the option of the Company thereof at any
time prior to the Stated Maturity of the Notes, and shall also include a
depositary receipt issued by a bank or trust company as custodian with
respect to any such U.S. Government Obligation
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or a specific payment of interest on or principal of any such custodian for
the account of the holder of a depositary receipt; provided, however, that
(except as required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such depositary receipt
from any amount received by the custodian in respect of the U.S. Government
Obligation or the specific payment of interest on or principal of the U.S.
Government Obligation evidenced by such depositary receipt.
"Voting Stock" means with respect to any Person, Capital Stock of any
class or kind ordinarily having the power to vote for the election of
directors, managers or other voting members of the governing body of such
Person.
"Wholly Owned" means, with respect to any Subsidiary of any Person, such
Subsidiary if all of the outstanding Capital Stock in such Subsidiary (other
than any director's qualifying shares or Investments by foreign nationals
mandated by applicable law) is owned by such Person or one or more Wholly
Owned Subsidiaries of such Person.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material United States federal income
tax consequences of the acquisition, ownership and disposition of the New
Notes. This summary is based on the Internal Revenue Code of 1986, as
amended (the "Code"), existing and proposed Treasury regulations promulgated
thereunder, and administrative and judicial interpretations thereof, all as
in effect or proposed on the date hereof and all of which are subject to
change, possibly with retroactive effect, or different interpretations. This
summary assumes that all of the New Notes will be held as capital assets
(i.e., generally assets that are held for investment), within the meaning of
Section 1221 of the Code, and will not be part of a straddle, a hedge or a
conversion transaction, within the meaning of Section 1258 of the Code. The
discussion is for general information only, and does not address all of the
tax consequences that may be relevant to particular purchasers in light of
their personal circumstances, or to certain types of purchasers (such as
certain financial institutions, insurance companies, tax-exempt entities or
dealers in securities). Persons considering the exchange of Old Notes for New
Notes should consult their tax advisors with regard to the application of the
United States federal income tax laws to their particular situations, as well
as any tax consequences arising under the laws of any state, local, or
foreign taxing jurisdictions.
As used in the summary which follows, the term "U.S. Holder" means a
beneficial owner of New Notes that for United States federal income tax
purposes is (i) a citizen or resident of the United States, (ii) a
corporation, partnership or other entity created or organized in or under the
laws of the United States or of any political subdivision thereof, or (iii)
otherwise subject to United States federal income taxation on a net income
basis with respect to worldwide income. The term "Non-U.S. Holder" means a
holder of New Notes, that is, for United States federal income tax purposes,
not a U.S. Holder.
HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX
CONSEQUENCES TO THEM OF EXCHANGING THE Old Notes FOR New Notes AND
PURCHASING, HOLDING AND DISPOSING OF THE New Notes, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
Exchange for Old Notes
The exchange by a holder of an Exchange Act Note for a New Note does not
constitute a taxable exchange because the New Notes do not differ materially
in kind or extent from the Old Notes. Each New Note will be treated as
having been originally issued at the time the Exchange Act Note exchanged
therefor was originally issued. The tax basis and holding period of each
Exchance Act Note will carry over to the New Note issued in exchange of each
Exchance Act Note.
Tax Consequences to U.S. Holders
Original Issue Discount. The Notes are being issued with original issue
discount, as defined in the Code. The amount of original issue discount on a
debt instrument, within the meaning of Section 1273 of the Code, is the
excess (if any) of its "stated redemption price at maturity" over its issue
price. The issue price of each of the Notes will be the respective offering
price to the purchasers (not including any sales to a bond house, broker, or
similar person or organization acting in the capacity of an underwriter,
placement agent or wholesaler) at which a substantial amount of each of the
Notes is sold. According to the Treasury Regulations, the issue price of the
Notes does not change even if part of the issue is subsequently sold at a
different price. The "stated redemption price at maturity" of a debt
instrument is the sum of its principal amount plus all other payments
required thereunder, other than payments of "qualified stated interest"
(defined generally as stated interest that is unconditionally payable in cash
or in property (other than the debt instruments of the Company) at least
annually at a single fixed rate that appropriately takes into account the
length of intervals between payments). Because interest on the Notes is not
payable in cash until 2002, the stated interest on the Notes will not be
treated as qualified stated interest, but will, for United States federal
income tax purposes, be added to the stated redemption price at maturity of
the Notes. As a result, the Notes will be treated as having been issued with
original issue discount equal to the excess of their stated redemption price
at maturity over their issue price.
Each U.S. Holder of a Note (regardless of whether such U.S. Holder is a
cash or an accrual basis taxpayer) will be required to include in such U.S.
Holder's gross income in each taxable year, in advance of the receipt of cash
payments
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attributable to such income, that portion of the original issue discount,
computed on a constant yield basis, attributable to each day during such
taxable year on which the U.S. Holder held the Note. In general, under
Section 1272 of the Code, the amount of original issue discount that a holder
of a debt instrument must include in gross income for United States federal
income tax purposes will be the sum of the daily portions of original issue
discount with respect to such debt instrument for each day during the taxable
year or portion of a taxable year in which such holder holds the debt
instrument. The daily portion is determined under a constant yield method by
allocating to each day of an accrual period a pro rata portion of an amount
equal to the "adjusted issue price" of the debt instrument at the beginning
of the accrual period multiplied by the yield to maturity of the debt
instrument (stated in a manner appropriately taking into account the length
of the accrual period). Accrual periods with respect to a Note may be of any
length selected by the U.S. Holder and may vary in length over the term of
the Note as long as (i) no accrual period is longer than one year and (ii)
each scheduled payment of interest or principal on the Note occurs on either
the final or first day of an accrual period. The yield to maturity of a debt
instrument is the discount rate that, when applied to all payments due under
the debt instrument produces a present value equal to the issue price of the
debt instrument. The "adjusted issue price" is the issue price of the debt
instrument increased by the accrued original issue discount for all prior
accrual periods (and decreased by the amount of cash payments made in all
prior accrual periods).
The Company will report annually to the Service and to record holders of
the Notes the original issue discount accrued and the amount of interest paid
during the calendar year.
U.S. Holders of Notes should be aware that, because of the above original
issue discount rules, a U.S. Holder of a Note will be required for United
States federal income tax purposes to include amounts in ordinary income in
advance of the receipt of the cash attributable to such income.
Acquisition Premium. If a U.S. Holder acquires a Note at a cost in
excess of its "adjusted issue price" (as defined above) but less than its
stated redemption price at maturity, such Note will have an acquisition
premium to the extent of such excess. Under the acquisition premium rules of
the Code and the Treasury Regulations promulgated thereunder, the amount of
the original issue discount which such U.S. Holder must include in its gross
income with respect to such Note for any taxable year will be reduced by the
portion of such acquisition premium properly allocable to such year.
Market Discount. If a U.S. Holder purchases Notes for an amount that is
less than the "revised issue price" of the Notes at the time of acquisition,
the amount of such difference will be treated as "market discount" for United
States federal income tax purposes, unless such difference is less than a
specified de minimis amount ("de minimis market discount"). The "revised
issue price" is the original issue price of a Note plus the aggregate amount
of previously accrued original issue discount without regard to any
reductions for acquisition premium, less payments other than qualified stated
interest. Under the market discount rules, a holder will be required to treat
any principal payment on or any gain on the sale, exchange, retirement or
other disposition of, Notes as ordinary income to the extent of the market
discount which has not previously been included in income and is treated as
having accrued on such Notes at the time of such payment or disposition. If a
holder makes a gift of a Note, accrued market discount, if any, will be
recognized as if such holder had sold such Note for a price equal to its fair
market value. In addition, the holder may be required to defer, until the
maturity of the Notes or the earlier disposition of the Notes in a taxable
transaction, the deduction of a portion of the interest expense on any
indebtedness incurred or continued to purchase or carry such Notes.
Any market discount will be considered to accrue on a straight-line basis
during the period from the date of acquisition to the maturity date of the
Notes, unless a holder elects to accrue market discount on a constant
interest method. A holder of Notes may elect to include market discount in
income currently as it accrues (on either a straight-line basis or constant
interest method), in which the case rules described above regarding the
deferral of interest deductions and ordinary income treatment of gain on
disposition will not apply. This election to include market discount in
income currently, once made, applies to all market discount obligations
acquired on or after the first day of the first taxable year to which the
election applies and may not be revoked without the consent of the Service.
Additional Interest or Payment on Notes. Failure of the Company to
register the Notes pursuant to an effective registration statement as
described under "Description of the Notes--Registration Rights" will cause
additional interest to accrue on the Notes in the manner described therein.
In addition, upon a Change of Control, an additional amount would be payable
in the event that a holder requires the Company to repurchase such holder's
Notes, in the manner described under "Description of the Notes--Change of
Control." Under Treasury Regulations, the possibility of any such additional
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interest or payment will not affect the accrual of original issue discount or
the yield to maturity on the Notes unless, based on all the facts and
circumstances as of the issue date, it is more likely than not that such
additional interest or payment will be paid. The Company does not intend to
treat the possibility of such additional interest or payment as affecting the
computation of original issue discount or yield to maturity. If a holder of a
Note becomes entitled to additional interest or payment, for purposes of
determining the accrual of original issue discount, the yield to maturity of
the Notes will be redetermined by treating the Notes as reissued on the date
it is determined that such additional interest or payment will be required to
be paid, for an amount equal to its adjusted issue price on such date.
Exchange Offer. The exchange of Notes for Exchange Notes pursuant to the
Registered Exchange Offer should not be a taxable exchange. Consequently, a
U.S. Holder should not recognize taxable income or loss as a result of
exchanging a Note for an Exchange Note pursuant to the Registered Exchange
Offer. The holding period of an Exchange Note will include the holding period
of the Note and the basis of the Exchange Note will be the same as the basis
of the Note immediately before the exchange.
The Company will be required to pay additional cash interest on the Notes
if it fails to comply with certain of its obligations under the Registration
Rights Agreement. See "Description of the Notes--Registration Rights." Such
additional interest should be taxable to a U.S. Holder as ordinary income at
the time it accrues or is received, in accordance with each such U.S.
Holder's method of tax accounting. It is possible, however, that the Service
may take a different position, in which case a U.S. Holder might be required
to include such additional interest in income as its accrues or becomes fixed
(regardless of such holder's usual method of tax accounting).
Sale or Other Disposition. In general, a U.S. Holder of Notes will
recognize gain or loss upon the sale, exchange, redemption, or other taxable
disposition of such Notes measured by the difference between (i) the amount
of cash and the fair market value of property received and (ii) the U.S.
Holder's adjusted tax basis in the Notes. A U.S. Holder's adjusted tax basis
for determining gain or loss on the sale or other disposition of a Note will
initially equal the cost of the Note to such U.S. Holder and will be
increased by any accrued original issue discount (net of all amortized
acquisition premium) and any market discount includable in such U.S. Holder's
gross income and decreased by the amount of any cash payments received by
such U.S. Holder regardless of whether such payments are denominated as
principal or interest (other than payments of qualified stated interest) and
amortizable bond premium, if any, deducted over the term of the Notes.
Subject to the market discount rules discussed above, any such gain or loss
will generally be long-term capital gain or loss, provided the Notes have
been held for more than one year. Under the Taxpayer Relief Act of 1997,
lower capital gains rates apply to the sale or exchange of Notes held by an
individual taxpayer for more than 18 months.
Elections. A U.S. Holder of Notes, subject to certain limitations, may
elect to include all stated and unstated interest and discount on the Notes
in gross income under the constant yield method. For this purpose, interest
includes original issue discount, de minimis market discount and market
discount, as adjusted by any amortizable bond premium or acquisition premium.
Any such election, if made in respect of a market discount bond, will
constitute an election to include market discount in income currently on all
market discount bonds acquired by such U.S. Holder on or after the first day
of the first taxable year to which the election applies. See "--Market
Discount." U.S. Holders should consult with their tax advisors regarding any
tax elections they intend to make with respect to any Notes.
Applicable High Yield Discount Rules. Generally, under Section 163(e)(5)
of the Code, original issue discount is not deductible until paid in cash or
property (other than the Company debt or stock) with respect to any
"applicable high yield discount obligations" ("AHYDOs") issued by a
corporation. A Note will constitute an AHYDO since it (i) has a maturity date
which is more than five years from the date of issue, (ii) has a yield to
maturity which equals or exceeds the sum of five percentage points plus the
"applicable federal rate" ("AFR") for the calendar month in which the
obligation is issued and (iii) has "significant original issue discount" (as
defined in Section 163(i)(2) of the Code). (The AFR for the month of October
1997 is 6.24% for instruments with a weighted average maturity in excess of
three years but not in excess of nine years providing semiannual
compounding.) Since the Notes are AHYDOs, (i) the product of the total
original issue discount under the Notes times the ratio of (a) the excess of
the yield to maturity over the sum of the AFR plus six percentage points to
(b) the yield to maturity will not be deductible by the Company and will be
treated for some purposes as dividends to corporate holders of the Notes (to
the extent that the Company has sufficient current or accumulated earnings
and profits for federal income tax purposes that such non-deductible amounts
would have been treated as dividends if they had been distributions with
respect to the Company's stock), and (ii) any original issue discount for
which the Company's deductions are not disallowed under clause (i) above will
not be deductible by the Company until
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actually paid. Amounts treated as dividends under clause (i) will be
non-deductible by the Company, and may qualify for the dividends received
deduction for corporate holders, but should be treated as original issue
discount and must be included in income, as described above. The Company
believes that it does not presently have any current or accumulated earnings
and profits and it cannot predict whether it will have any earnings and
profits for future years. As such, in any year in which the Company has no
earnings and profits, the non-deductible portion in clause (i) relating to
such year would not be eligible for the dividends received deduction in the
case of corporate holders.
Information Reporting and Backup Withholding. The "backup" withholding
and information reporting requirements may apply to certain payments of
principal and interest (including original issue discount) on a Note and to
certain payments of proceeds on the sale or retirement of a Note. The
Company, its agent, a broker, the Trustee or any paying agent, as the case
may be, will be required to withhold tax from any payment that is subject to
backup withholding at a rate of 31% if the U.S. Holder, among other things,
(i) fails to furnish his or her social security number or other taxpayer
identification number ("TIN") to the payor responsible for backup
withholding, (ii) furnishes to such payor an incorrect TIN, (iii) fails to
provide such payor with a certified statement, signed under penalties of
perjury, that the TIN provided to the payor is correct and that the U.S.
Holder is not subject to backup withholding or (iv) fails to report properly
interest and dividends on his or her tax return. A holder who does not
provide the Company or the applicable reporting entity with his or her
correct TIN may be subject to penalties under the Code. Certain holders,
including corporations, are not subject to backup withholding if their exempt
status is properly established.
Backup withholding is not an additional tax. The amount of any backup
withholding from a payment to a U.S. Holder will be allowed as a credit
against such holder's United States federal income tax liability and may
entitle such holder to a refund, provided that the required information is
furnished to the Service.
Tax Consequences to Non-U.S. Holders
Portfolio Interest Exemption
A Non-U.S. Holder will generally, under the portfolio interest exemption
of the Code, not be subject to United States federal income taxes and/or
United States federal withholding tax, on payments of principal, premium, if
any, and interest (including original issue discount) on the Notes, provided
that (in the case of interest, including original issue discount) (i) the
Non-U.S. Holder does not actually or constructively own 10% or more of the
total combined voting power of all classes of stock of the Company entitled
to vote, (ii) the Non-U.S. Holder is not a controlled foreign corporation
that is related to the Company through stock ownership, (iii) such original
issue discount or interest is not effectively connected with a United States
trade or business of the Non-U.S. Holder and (iv) either (a) the beneficial
owner of the Notes certifies to the Company or its agent, under penalties of
perjury, that it is a Non-U.S. Holder and provides a completed IRS Form W-8
("Certificate of Foreign Status") or (b) a securities clearing organization,
bank or other financial institution which holds customers' securities in the
ordinary course of its trade or business (a "financial institution") and
holds the Notes, certifies to the Company or its agent, under penalties of
perjury, that it has received Form W-8 from the beneficial owner or that it
has received from another financial institution a Form W-8 and furnishes the
payor with a copy thereof. If any of the situations described in proviso (i),
(ii) or (iv) of the preceding sentence do not exist, interest on the Notes
when received is subject to United States withholding tax at the rate of 30%
unless an income tax treaty between the United States and the country of
which the Non-U.S. Holder is a tax resident provides for the elimination or
reduction in the rate of United States federal withholding tax. Final
Treasury Regulations (the "Regulations") issued October 6, 1997 will provide
alternative methods for satisfying the certification requirement described in
clause (iv)(a) and (b). The Regulations are proposed to be effective for
payments made after December 31, 1998.
If a Non-U.S. Holder of a Note is engaged in a trade or business in the
United States and interest (including original issue discount) on the Note is
effectively connected with the conduct of such trade or business, such
holder, although exempt from United States federal withholding tax by reason
of the delivery of a properly completed Form 4224, will be subject to United
States federal income tax on such interest (including original issue
discount) and on any gain realized on the sale, exchange or other disposition
of a Note in the same manner as if it were a U.S. Holder. In addition, if
such Non-U.S. Holder is a foreign corporation, it may be subject to a branch
profits tax equal to 30% of its effectively connected earnings and profits
for that taxable year, unless it qualifies for a lower rate under an
applicable income tax treaty.
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Federal Estate Tax
Notes owned or treated as owned by an individual who is neither a United
States citizen nor a United States resident (as defined for United States
federal estate tax purposes) at the time of death will be excluded from the
individual's gross estate for the United States federal estate tax purposes
and will not be subject to United States federal estate tax if the
nonresident qualifies for the portfolio interest exemption (without regard to
the certification requirements) discussed above.
Sale of Notes
A Non-U.S. Holder generally will not be subject to United States federal
income tax on any gain realized in connection with the sale, exchange or
retirement of Notes, unless (i) (a) the gain is effectively connected with a
trade or business carried on by the Non-U.S. Holder within the United States
or, (b) if a tax treaty applies, the gain is attributable to the United
States permanent establishment maintained by the Non-U.S. Holder, (ii) in the
case of a Non-U.S. Holder who is an individual, such holder is present in the
United States for 183 days or more in the taxable year of disposition and
certain other conditions are satisfied, or (iii) the Non-U.S. Holder is
subject to tax pursuant to provisions of the Code applicable to United States
expatriates.
Information Reporting and Backup Withholding
In general, there is no United States information reporting requirement
or backup withholding tax on payments to Non-U.S. Holders who provide the
appropriate certification described above regarding qualification for the
portfolio interest exemption from United States federal income tax for
payments of principal or interest (including original interest discount) on
the Notes.
Payment by the Company of principal on the Notes or payment by a United
States office of a broker of the proceeds of a sale of Notes is subject to
both backup withholding and information reporting unless the beneficial owner
provides a completed IRS Form W-8 which certifies under penalties of perjury
that such owner is a Non-U.S. Holder who meets all the requirements for
exemption from United States federal income tax on any gain from the sale,
exchange or retirement of the Notes.
In general, backup withholding and information reporting will not apply
to a payment of the gross proceeds of a sale of Notes effected at a foreign
office of a broker. If, however, such broker is, for United States federal
income tax purposes, a U.S. person, a controlled foreign corporation or a
foreign person 50% or more of whose gross income for certain periods is
derived from activities that are effectively connected with the conduct of a
trade or business in the United States, such payments will not be subject to
backup withholding, but will be subject to information reporting unless (i)
such broker has documentary evidence in its records that the beneficial owner
is a Non-U.S. Holder and certain other conditions are met, or (ii) the
beneficial owner otherwise establishes an exemption, provided such broker
does not have actual knowledge that the payee is a United States person.
Non-U.S. Holders should consult their tax advisors regarding the application
of these rules to their particular situations, the availability of an
exemption therefrom and the procedure for obtaining such an exemption, if
available.
Backup withholding is not an additional tax. Any amounts withheld under
the backup withholding rules will be allowed as a credit against such
holder's United States federal income tax liability and may entitle such
holder to a refund, provided the required information is furnished to the
Service.
THE FOREGOING SUMMARY DOES NOT DISCUSS ALL ASPECTS OF UNITED STATES
FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO A PARTICULAR HOLDER OF NOTES
IN LIGHT OF ITS PARTICULAR CIRCUMSTANCES AND INCOME TAX SITUATION. HOLDERS
SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO
THEM FROM THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES, INCLUDING THE
APPLICATION AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE
POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
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DESCRIPTION OF CERTAIN INDEBTEDNESS AND PREFERRED STOCK
Indebtedness
Debt Placements
March 1997 and August 1997
In March 1997, the Company and WEC issued an aggregate of $300 million of
notes in the March 1997 Debt Placement, consisting of (i) $100 million of the
1997 Senior Notes, ranking pari passu with the 1995 Senior Notes, and (ii)
$200 million of the WEC Notes. In order to provide additional future
liquidity to the Company, the Company also obtained a $150 million facility
("Facility") from affiliates of the Initial Purchasers. In August 1997, WEC
II issued, pursuant to the Facility, $50.0 million of the WEC II Equipment
Notes, thereby reducing the amount available under the Facility by $50.0
million. In October 1997, the Company utilized the remaining $100 million
available under the Facility, issuing an aggregate of $100 million principal
amount of the Notes in the October 1997 Debt Placement.
The obligations of WEC and WEC II under the WEC Notes and the WEC II
Notes are unconditionally guaranteed by the Company and are secured by a
security interest in the equipment and other property purchased by WEC and
WEC II, as the case may be, with the proceeds thereof.
The WEC Notes bear interest at a rate of 121/2% per annum, payable on
March 15 and September 15, commencing September 15, 1997. The WEC Notes will
mature on March 15, 2004 and are redeemable on or after March 15, 2002, at
the option of the Company, in whole or in part, at the redemption prices set
forth herein. Additionally, in the event that by March 18, 1999, the Company
has not applied $200.0 million to fund the acquisition costs of Designated
Equipment (as defined), the Company is required to redeem the WEC Notes in an
aggregate principal amount equal to such shortfall at a redemption price of
112.50% of such principal amount, plus accrued interest, if any, to the date
of redemption.
The WEC II Notes bear interest at a rate of 121/2% per annum, payable on
March 15 and September 15, commencing September 15, 1997. The WEC II Notes
mature on March 15, 2004 and are redeemable on or after March 15, 2002, at
the option of The Company, in whole or in part, at certain prices.
Additionally, in the event that by August 8, 1999, the Company has not
applied $50.0 million to fund the acquisition costs of Designated Equipment,
the Company is required to redeem August 1997 Equipment Notes in an aggregate
principal amount equal to such shortfall at a redemption price of 112.50% of
such principal amount, plus accrued interest, if any, to the date of
redemption.
The 1997 Senior Notes are unsecured, senior indebtedness of the Company,
rank pari passu in right of payment with all existing and future senior
indebtedness of the Company, and are senior in right of payment to all
existing and future subordinated indebtedness of the Company. Until October
15, 2000, interest on the 1997 Senior Notes will accrue and compound
semiannually, but will not be payable in cash. Interest on the Accumulated
Amount (as defined in the 1997 Senior Notes Indenture) of the 1997 Senior
Notes as of October 15, 2000 will be payable semiannually in cash on April 15
and October 15 of each year commencing April 15, 2001. The Senior Notes
mature on October 15, 2005 and are redeemable on or after October 15, 2000,
at the option of the Company, in whole or in part, at certain prices.
1995 Debt Placement
In October 1995, the Company raised net proceeds of $214.5 million from
the 1995 Debt Placement. The 1995 Notes will not accrue interest prior to
October 15, 2000, nor pay cash interest prior to April 15, 2001; however, the
principal value of such 1995 Notes have accreted since issuance and at
maturity the 1995 Senior Notes and the Convertible Notes will have aggregate
principal amounts of $294.2 million and $147.1 million, respectively. From
and after October 15, 2000, the 1995 Notes will accrue interest at the rate
of 14% per annum, payable semiannually in cash commencing April 15, 2001. The
1995 Notes mature on October 15, 2005.
The Convertible Notes are convertible, at any time, at the option of the
holder, into that number of shares of Common Stock derived by dividing the
principal amount of the Convertible Notes being converted by $20.625. In
addition, if the closing sale price of the Common Stock on the Nasdaq
National Market during any twelve-month period
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from October 15, 1995 through October 15, 1999 (each a "Market Criteria
Period") has exceeded the Market Criteria (as defined in the Indenture
governing the Convertible Notes) and a registration statement with respect to
Common Stock issuable upon conversion of the Convertible Notes ("Conversion
Shares") is effective and available, all of the Convertible Notes
automatically will be converted into Conversion Shares at the close of
business on the last day of the Market Criteria Period. The Company has
caused to be declared effective a registration statement registering the
issuance or resale of the Conversion Shares.
Indentures
The Indentures relating to the 1995 Notes and 1997 Notes contain certain
covenants which, among other things, restrict the ability of the Company and
certain of its subsidiaries to: incur additional indebtedness; create liens;
engage in sale-leaseback transactions; pay dividends or make distributions in
respect of their capital stock; make investments or certain other restricted
payments; sell assets; issue or sell stock of such subsidiaries; enter into
transactions with stockholders or affiliates; acquire assets or businesses
not constituting "telecommunications assets" (as defined in the Indentures
relating to the 1995 Notes); or consolidate, merge or sell all or
substantially all of their assets. The covenants contained in the Indentures
are subject to exceptions and the Company's new media and consumer products
subsidiaries are not subject to many of the covenants contained therein,
although the Company's ability to make additional investments in such
subsidiaries is limited.
Equipment Lease Financings and Credit Lines
In September 1995, the Company's wholly owned subsidiary, WinStar
Wireless, Inc. ("WinStar Wireless") entered into an equipment lease financing
arrangement (the "Equipment Lease Financing") with ML Investors Services,
Inc. ("ML"), pursuant to which ML has made available $7.0 million in
equipment financing. Pursuant to a master lease agreement between WinStar
Wireless and ML entered into in connection with the Equipment Lease
Financing, WinStar Wireless has leased transceivers and related network
equipment from ML or its assignee at the rate of 2.2753% of the equipment
value per month (a return of approximately 13% per annum to the lessor),
which lease payment obligations are non-cancelable for sixty months. After
twelve months WinStar Wireless may purchase the equipment at scheduled rates
which decline over the term of the lease and provide for a return of
approximately 15% per annum to the lessor. WinStar Wireless' obligations
under the lease are guaranteed by the Company. As additional consideration
for providing the Equipment Lease Financing, the Company has issued to ML
options to purchase 55,000 shares of Common Stock at an exercise price of
$17.125 per share and options to purchase 15,000 shares of Common Stock at an
exercise price of $18.0625 per share.
In November 1994, WinStar Gateway entered into a Loan and Security
Agreement ("CIT Loan Agreement") with The CIT Group/Credit Finance, Inc.
("CIT"), pursuant to which CIT agreed to make a $5.0 million revolving credit
facility (the "CIT Credit Facility") available to WinStar Gateway until
November 1998 as extended. Pursuant to the terms of the CIT Loan Agreement,
borrowings are limited to 90% of the most eligible accounts receivable with
eligibility of certain types of accounts receivable limited to 80% and 50%
(less appropriate reserves as determined by CIT). In addition, WinStar
Gateway is prohibited from paying dividends to the Company. The Company also
is party to a keepwell agreement requiring the Company to make a monthly
contribution to WinStar Gateway in an amount equal to the amount by which
WinStar Gateway's net income (loss) before depreciation and amortization
minus its capital expenditures is less than zero for a particular month.
Borrowings bear interest at a rate of 1.75% in excess of the prime commercial
lending rate of The Chase Manhattan Bank, N.A. subject to increase if WinStar
Gateway's or the Company's net worth (as defined) drops below specified
amounts, and are secured by a lien on all of WinStar Gateway's assets as well
as a guarantee by the Company as to the first $2.2 million in borrowings. The
CIT Loan Agreement also provides for certain underutilization fees and
subordinates a $5 million revolving credit facility made by the Company to
WinStar Gateway. As additional consideration for providing the CIT Credit
Facility, the Company issued to CIT warrants to purchase 50,000 shares of
Common Stock, which warrants have been exercised.
In August 1996, WinStar Global Products entered into an Amended and
Restated Credit and Security Agreement (as amended, the "Credit Agreement")
with IBJ Schroder Bank & Trust Company ("IBJ"), pursuant to which IBJ agreed
to make a $10.0 million revolving credit facility (the "Revolving Credit
Facility") and a $250,000 Letter of Credit facility (included within the
Revolving Credit Facility) available to WinStar Global Products until
August 8, 1999. Pursuant to the terms of the Credit Agreement, borrowings are
limited to an amount equal to the sum of (a) 85% of eligible accounts
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receivable plus (b) the lesser of 50% of eligible inventory or $4,500,000
plus (c) for the period commencing March 1 of each year through January 31 of
the following year, $3.0 million (the "Overadvance"). Borrowings bear
interest at a rate of 0.75% in excess of the base lending rate of IBJ and are
secured by a lien on all of the assets of WinStar Global Products as well as
a guaranty by the Company of any amounts borrowed as an Overadvance. The
Credit Agreement also requires the payment of certain periodic fees by
WinStar Global Products, contains certain affirmative and negative covenants
including restrictions upon WinStar Global Products' ability to pay dividends
or make other payments to the Company and subordinates a $3.1 million loan
made by the Company to WinStar Global Products. The Credit Agreement amends
and restates a loan agreement providing a $6.0 million credit facility from
Century Business Credit Corporation ("Century") which was established in 1994
and assigned (including all security interests and a $3.0 million guaranty
given by the Company) by Century to IBJ.
In October 1997, WinStar Switch Acquisition Corp. ("WSAC"), a wholly
owned subsidiary of the Company, consummated a purchase ("US ONE Asset
Acquisition and Financing") of certain telecommunications assets (the
"Assets") from US ONE Communications Corp. ("US ONE"), US ONE Communications
Services Corp. and US ONE Communications of New York, Inc. (each individually
a "Seller" and collectively, the "Sellers"). The Assets included 12 Lucent
class 5 switching systems and other non-switch assets. The transaction
required and received the approval of the United States Bankruptcy Court,
District of Delaware ("Court"), because the Sellers are debtors in possession
under Chapter 11 of the United States Bankruptcy Code of 1978, as amended.
The aggregate purchase price paid for the Assets was approximately $81.1
million, of which approximately $61.1 million was paid in cash at the
closing and $20 million of which is payable by the Company and WSAC in cash
and/or shares of the common stock of the Company, at the Company's's
discretion, on the effective date of Sellers' confirmed plan of
reorganization. In order to finance the cash portion of the purchase price
and to pay certain expenses, on the Closing Date, WSAC borrowed $62.25
million (the "Loan") from certain institutions (together, the "Lenders").
The Loan maturity date is April 22, 1998; provided, however, that WSAC must
prepay the Loan (or portions thereof) with the proceeds of any sale by it of
the purchased Assets and with proceeds obtained from certain financings. The
Loan is guaranteed by the Company and is secured by the telecommunications
switches and related equipment, inventory and software included in the Assets.
The Company's subsidiaries have entered into, and will continue
to seek, financing arrangements with respect to equipment, including
telecommunications switches, 38 GHz radios and other related equipment. The
Company's subsidiary, WinStar Telecommunications, Inc., consummated a $3.1
million sale/leaseback of its New York City switch in December 1996 and a
$3.8 million sale/leaseback of its Los Angeles switch in April 1997 and
borrowed approximately $3.3 million from a third party lender in connection
with its purchase of its Chicago switch in March 1997. In May 1997, the
Company's subsidiary, WinStar Wireless, Inc., consummated a $10 million
sale/leaseback of 38 GHZ radios. The Company may enter into additional
financing arrangements for switches, radios and other equipment on similar
terms in the future.
Preferred Stock
Series A Preferred Stock
On February 6, 1997, the Company and its wholly owned subsidiary, WinStar
Credit Corp. ("WCC"), entered into a Securities Purchase Agreement with
certain purchasers, pursuant to which the Company and WCC agreed to sell to
such purchasers an aggregate of 4,000,000 shares of the Company's Series A
Preferred Stock ("Series A Preferred Stock") and warrants to purchase
1,600,000 shares of the Company's Common Stock (the "Warrants") for an
aggregate purchase price of $100.0 million. The Preferred Stock Placement was
consummated on February 11, 1997. The Preferred Stock Placement was conducted
through Credit Suisse First Boston Corporation, which acted as placement
agent and received customary fees for acting in such capacity. The principal
purpose of the Preferred Stock Placement was to raise proceeds to fund the
expansion of the Company's telecommunications and other operations.
Each share of Series A Preferred Stock has a stated value of $25 ("Stated
Value") and entitles the holder thereof to receive from the Company dividends
at a rate per annum equal to 6% of the Stated Value. Dividends accrue and are
cumulative from the date of issuance and are payable in arrears quarterly as
of March 31, June 30, September 30 and December 31 of each year. The Company
may, at its election, pay such dividends in cash or through the issuance of
additional shares of Series A Preferred Stock.
69
<PAGE>
The shares of Series A Preferred Stock are convertible into shares of
Common Stock by dividing the aggregate Stated Value of the Series A Preferred
Stock being converted by the Conversion Price (as defined below). Subject to
certain adjustments, the "Conversion Price" will be: (i) with respect to any
conversion of Series A Preferred Stock occurring prior to February 11, 1998,
the lesser of (x) $25 and (y) the average of the closing bid prices for the
Common Stock for the 20 consecutive trading days immediately preceding the
date of conversion and (ii) with respect to any conversion of the Series A
Preferred Stock occurring on or after February 11, 1998, the lesser of (x)
$25 and (y) the average of the closing bid prices for the 20 consecutive
trading days immediately preceding February 11, 1998. Notwithstanding the
foregoing, if a holder of Series A Preferred Stock requests conversion at a
time when the Conversion Price is less than $15, the Company may (subject to
certain notice requirements), in lieu of converting such Series A Preferred
Stock into shares of Common Stock, pay such holder in cash an amount equal to
110% of the Liquidation Preference (as defined below) for each share of
Series A Preferred Stock requested to be converted. On February 11, 2002, any
Series A Preferred Stock still outstanding shall be automatically converted
into shares of Common Stock, unless the Company elects to pay cash therefor
in an amount equal to the Stated Value plus all accrued and unpaid dividends
thereon (the "Liquidation Preference"). Unless paid for in cash, such
conversion will be effected by delivery of shares of Common Stock having a
value, based upon the closing bid prices for the Common Stock for the 20
consecutive trading days ending one trading day prior to such conversion
date, equal to the Liquidation Preference.
The Warrants entitle the holders thereof to purchase an aggregate of
1,600,000 shares of Common Stock for $25 per share at any time commencing
February 11, 1998 and ending February 11, 2002. The Company may accelerate
the expiration date at any time after February 11, 2000 if Common Stock
trades at $40 or more for a period of 20 consecutive days.
The Company and the purchasers of the Series A Preferred Stock also
entered into a Registration Rights Agreement, dated February 6, 1997 (the
"Preferred Stock Registration Rights Agreement"), pursuant to which the
Company currently maintains an effective registration statement under the
Securities Act, registering (i) the resale of the Series A Preferred Stock
and Warrants and (ii) the issuance by the Company of the shares of Common
Stock issuable upon exercise of the Series A Preferred Stock and Warrants.
Rights to Purchase Series B Preferred Stock
The following is a summary of the Rights Agreement dated as of July 2,
1997 (the "Rights Plan"), between the Company and Continental Stock Transfer
& Trust Company, as Rights Agent, which was adopted by the Board of Directors
of the Company on July 2, 1997. This summary of the Rights Plan does not
purport to be complete and is qualified in its entirety by reference to the
provisions of the Rights Plan.
Under the Rights Plan, holders of Common Stock of the Company received,
as a dividend, preferred stock purchase rights (the "Rights") at the rate of
one Right for each share of Common Stock held as of the close of business on
July 14, 1997. One Right will also attach to each share of Common Stock
issued thereafter. Currently the Rights are not separate from the Common
Stock and are not exercisable, and the Rights will only separate from the
Common Stock and become exercisable if a person or group acquires 10% or more
of the Company's outstanding Common Stock (an "Acquiring Person") or launches
a tender or exchange offer that would result in ownership of 10% or more the
Company's outstanding Common Stock. Each Right that is not owned by an
Acquiring Person entitles the holder of the Right to buy one one-thousandth
of one share (a "Unit") of Series B Preferred Stock which will be issued by
the Company. If any person becomes an Acquiring Person, or if an Acquiring
Person engages in certain transactions involving conflicts of interest or in
a business combination in which the Company's Common Stock remains
outstanding, then the Rights Plan provides that each Right, other than any
Right held by the Acquiring Person, entitles the holder to purchase, for $70,
Units with a market value of $140. However, if the Company is involved in a
business combination in which the Company itself is not the survivor, or if
the Company sells 50% or more of its assets or earning power to another
person, then the Rights Plan provides that each Right entitled the holder to
purchase, for $70, shares of the common stock of the Acquiring Person's
ultimate parent having a market value of $140.
At any time until ten days following the date on which a person acquires
10% or more of the Company's Common Stock, the Company may redeem all (but
not less than all) of the Rights for $0.0001 per Right. The Rights expire in
ten years. The Series B Preferred Stock will be junior, with respect to
dividends and liquidation rights, to any other
70
<PAGE>
series of preferred stock of the Company. The Series B Preferred Stock has
dividend and liquidation preferences over the Common Stock of the Company.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant
to this Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Company has agreed that, for a period of 180 days
after the Expiration Date (or such longer period as required by the terms of
the Registration Rights Agreement), it will make this Prospectus, as amended
or supplemented, available to any broker-dealer for use in connection with
any such resale. In addition, until _______ __, 1998 all dealers effecting
transactions in the New Notes may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to an Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any
such resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer or the purchasers of any such New
Notes. Any broker-dealer that resells New Notes that were received by it for
is own account pursuant to an Exchange Offer and any broker or dealer that
participates in a distribution of such New Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of New Notes and any commission or concessions received by any
such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that, by acknowledging that
it will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
For a period of 180 days after the Expiration Date (or such longer period
as required by the terms of the Registration Agreement), the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such
documents in the Letter of Transmittal. The Company has agreed to pay all
expenses incidental to the Exchange Offers (including the reasonable expenses
of one counsel for the Holders of the Notes) other than commissions or
concessions of any brokers or dealers and will indemnify the Holders of the
Notes (including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
The Company has agreed to pay all expenses incident to the Exchange Offer
other than commissions or concessions of any brokers or dealers and transfer
taxes and costs incurred by a holder in transmitting its Old Notes to the
Exchange Agent and will indemnify the holders of the Old Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
The legality of the New Notes offered hereby and certain tax matters are
being passed upon for the Company by Graubard Mollen & Miller, New York, New
York. Certain partners and employees of Graubard Mollen & Miller own shares
of the Company's Common Stock.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1995 and 1996, and for the years ended February 28, 1995, December 31, 1996
and the ten months ended December 31, 1995 incorporated by reference into
this Prospectus and the financial statements of Milliwave Limited Partnership
as of December 31, 1995 and 1996 and for the period April 25, 1995
(inception) through December 31, 1995 and for the year ended December 31,
1996
71
<PAGE>
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.
72
<PAGE>
WINSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated statement of
operations for the year ended December 31, 1996 gives effect to the Company's
acquisition (the "Milliwave Acquisition") of Milliwave Limited Partnership
("Milliwave") and the Preferred Stock Placement, the issuance of the March
1997 Notes in the 1997 Debt Placement, the WEC II Equipment Notes, issued in
the August 1997 Debt Placement and the Senior Subordinated Notes issued in
the October 1997 Debt Placement and the US ONE Asset Acquisition and
Financing (the "Financing Transactions" and, together with the Milliwave
Acquisition, the "Transactions") as if they occurred as of the beginning of
the year ended December 31, 1996. The revenues and results of operations
included in the following unaudited pro forma condensed consolidated
statements of operations are not indicative of anticipated results of
operations for periods subsequent to the Transactions nor are they considered
necessarily to be indicative of the results of operations for the year ended
December 31, 1996 had the Transactions actually been completed at the
beginning of the year ended December 31, 1996.
The following unaudited pro forma condensed consolidated statement of
operations for the nine months ended September 30, 1997 gives effect to the
Financing Transactions as if they occurred as of the beginning of the nine
months ended September 30, 1997. The revenues and results of operations
included in the following unaudited pro forma condensed consolidated
statement of operations are not indicative of anticipated results of
operations for periods subsequent to the Financing Transactions nor are they
considered necessarily to be indicative of the results of operations for the
nine months ended September 30, 1997 had the Financing Transactions actually
been completed at the beginning of the nine months ended September 30, 1997.
The following unaudited pro forma condensed consolidated balance sheet as of
September 30, 1997 gives effect to the issuance of the Senior Subordinated Notes
issued in the October 1997 Debt Placement and the US ONE Asset Acquisition and
Financing as if the issuance of the Senior Subordinated Notes issued in the
October 1997 Debt Placement and the US ONE Asset Acquisition and Financing had
occurred on September 30, 1997. The unaudited pro forma condensed consolidated
balance sheet has been prepared for information purposes only and does not
purport to be indicative of the financial condition that necessarily would have
resulted had the issuance of the Senior Subordinated Notes issued in the October
1997 Debt Placement and the US ONE Asset Acquisition and Financing taken place
on September 30, 1997.
These financial statements should be read in conjunction with the notes to
the unaudited pro forma condensed consolidated financial statements, which
follow, the consolidated financial statements of the Company and the related
notes thereto, the condensed consolidated financial statements of the Company
for the nine months ended September 30, 1997 and the related notes thereto and
the financial statements of Milliwave, and the related notes thereto, in each
case incorporated by reference into this registration statement.
F-1
<PAGE>
WINSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Pro Forma
Pro Forma Adjustments
Adjustments Increase/
Increase/ Pro Forma (Decrease)
(Decrease) for the for the US One
For The October October Asset
The Company, 1997 Debt 1997 Debt Acquisition
Historical Placement Placement and Financing Pro Forma
------------- ----------------- -------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents..... $ 273,537 $ 93,915(a) $ 367,452 $ 98(b) $ 367,550
Short term investments........ 29,232 29,232 29,232
------------- -------------- -------------- --------- -----------
Cash, cash equivalents and
short term investments.... 302,769 93,915 396,684 98 396,782
Investments in marketable
equity securities........... -- -- --
Accounts receivable, net...... 26,196 26,196 26,196
Inventories................... 4,954 4,954 4,954
Prepaid expenses and other
current assets.............. 19,683 19,683 19,683
Assets held for sale.......... -- -- 30,000(b) 30,000
Net assets of discontinued
operations.................. 5,015 5,015 5,015
------------- -------------- -------------- --------- -----------
Total current assets........ 358,617 93,915 452,532 30,098 482,630
Property and equipment, net..... 155,025 155,025 51,152(b) 206,177
Licenses, net................... 168,679 168,679 168,679
Intangible assets, net.......... 14,998 14,998 14,998
Deferred financing costs........ 21,315 6,185(a) 27,500 1,075(b) 28,575
Other assets.................... 1,330 1,330 1,330
------------- -------------- -------------- --------- -----------
Total assets.................... $ 719,964 $ 100,100 $ 820,064 $ 82,325 $ 902,389
------------- -------------- -------------- --------- -----------
------------- -------------- -------------- --------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long term
debt........................ $ 1,910 $ $ 1,910 $ 62,250(b) $ 64,160
Accounts payable and accrued
expenses.................... 46,961 100(a) 47,061 20,075(b) 67,136
Current portion of capitalized
lease obligations........... 6,667 6,667 6,667
------------- -------------- -------------- --------- -----------
Total current liabilities... 55,538 100 55,638 82,325 137,963
Capitalized lease obligations,
less current portion.......... 25,172 25,172 25,172
Long-term debt, less current
portion....................... 650,819 100,000(a) 750,819 750,819
Deferred income taxes........... 26,500 26,500 26,500
------------- -------------- -------------- --------- -----------
Total liabilities........... 758,029 100,100 858,129 82,325 940,454
------------- -------------- -------------- --------- -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock............... 42 42 42
Common stock, $.01 par value;
authorized 200,000 shares,
issued and outstanding
33,064 shares, pro forma
issued and outstanding
33,064 shares and pro forma
as adjusted issued and
outstanding 33,064 shares... 335 335 335
Additional paid-in capital...... 252,647 252,647 252,647
Accumulated deficit............. (291,089) (291,089) (291,089)
------------- -------------- -------------- --------- -----------
Total stockholders'
equity.................... (38,065) -- (38,065) -- (38,065)
------------- -------------- -------------- --------- -----------
Total liabilities and
stockholders' equity...... $ 719,964 $ 100,100 $ 820,064 $ 82,325 $ 902,389
------------- -------------- -------------- --------- -----------
------------- -------------- -------------- --------- -----------
</TABLE>
F-2
<PAGE>
WINSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Pro Forma
Adjustments Pro Forma Pro Forma for Pro Forma
Increase/ Adjustments the Preferred Adjustments
(Decrease) for Pro Forma for Increase/ Stock Increase/
the Issuance the Issuance (Decrease) for Placement and (Decrease) for
The Company, of Preferred of Preferred the March 1997 the March 1997 the August 1997
Historical Stock Stock Debt Placement Debt Placement Debt Placement
------------- --------------- ------------- --------------- -------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues
Telecommunications
services............. $ 23,910 $ $ 23,910 $ $ 23,910 $
Information services... 25,693 25,693 25,693
------------- ------ ------------- ------ -------------- ------
Total operating
revenues............... 49,603 -- 49,603 -- 49,603 --
------------- ------ ------------- ------ -------------- ------
Operating expenses
Cost of services and
products............. 48,488 48,488 48,488
Selling, general and
administrative
expenses............. 109,916 109,916 109,916
Depreciation and
amortization......... 15,474 15,474 15,474
------------- ------ ------------- ------ -------------- ------
Total operating
expenses............. 173,878 -- 173,878 -- 173,878 --
------------- ------ ------------- ------ -------------- ------
Operating loss......... (124,275) -- (124,275) -- (124,275) --
Other expense
Interest expense....... (53,074) (53,074) (8,476)(f) (61,550) (4,018)(g)
Interest income........ 11,052 11,052 11,052
Other income........... 2,219 2,219 2,219
------------- ------ ------------- ------ -------------- ------
Net loss from continuing
operations............. (164,078) -- (164,078) (8,476) (172,554) (4,018)
Loss from discontinued
operations............. (1,977) (1,977) (1,977)
------------- ------ ------------- ------ -------------- ------
Net loss................. (166,055) -- (166,055) (8,476) (174,531) (4,018)
Less preferred stock
dividends.............. (3,881) (654)(e) (4,535) (4,535)
------------- ------ ------------- ------ -------------- ------
Net loss applicable to
common stock........... $(169,936) $ (654) $(170,590) $ (8,476) $ (179,066) $ (4,018)
------------- ------ ------------- ------ -------------- ------
------------- ------ ------------- ------ -------------- ------
Net loss applicable to
common stock per share
from continuing
operations............. $ (5.10) $ (5.12) $ (5.38)
Net loss per share from
discontinued
operations............. (0.06) (0.06) (0.06)
------------- ------------- -------------- ------
Net loss applicable to
common stock per
share.................. $ (5.16) $ (5.18) $ (5.44)
------------- ------------- -------------- ------
------------- ------------- -------------- ------
Weighted average shares
outstanding............ 32,923 32,923 32,923 32,923 32,923 32,923
------------- ------ ------------- ------ -------------- ------
------------- ------ ------------- ------ -------------- ------
<CAPTION>
Pro Forma for the
the Preferred Pro Forma
Pro Forma for the Stock Placement, Adjustments
the Preferred Pro Forma the March 1997 Increase/
Stock Placement, Adjustments Debt Placement, (Decrease) for
the March 1997 Increase/ the August 1997 the
Debt Placement (Decrease) for Debt Placement US One Asset
and the August 1997 the October 1997 and the October 1997 Acquisition and
Debt Placement Debt Placement Debt Placement Financing Pro Forma
------------------- ---------------- -------------------- ----------------- -----------
<S> <C> <C> <C> <C> <C>
Operating revenues
Telecommunications
services............. $ 23,910 $ $ 23,910 $ $ 23,910
Information services... 25,693 25,693 25,693
---------- -------- ---------- -------- -----------
Total operating
revenues............... 49,603 -- 49,603 -- 49,603
---------- -------- ---------- -------- -----------
Operating expenses
Cost of services and
products............. 48,488 48,488 48,488
Selling, general and
administrative
expenses............. 109,916 109,916 109,916
Depreciation and
amortization......... 15,474 15,474 4,796(i) 20,270
---------- -------- ---------- -------- -----------
Total operating
expenses............. 173,878 -- 173,878 4,796 178,674
---------- -------- ---------- -------- -----------
Operating loss......... (124,275) -- (124,275) (4,796) (129,071)
Other expense
Interest expense....... (65,568) (12,024)(h) (77,592) (6,515)(i) (84,107)
Interest income........ 11,052 11,052 11,052
Other income........... 2,219 2,219 2,219
---------- -------- ---------- -------- -----------
Net loss from continuing
operations............. (176,572) (12,024) (188,596) (11,311) (199,907)
Loss from discontinued
operations............. (1,977) (1,977) (1,977)
---------- -------- ---------- -------- -----------
Net loss................. (178,549) (12,024) (190,573) (11,311) (201,884)
Less preferred stock
dividends.............. (4,535) (4,535) (4,535)
---------- -------- ---------- -------- -----------
Net loss applicable to
common stock........... $ (183,084) $ (12,024) $ (195,108) $ (11,311) $(206,419)
---------- -------- ---------- -------- -----------
---------- -------- ---------- -------- -----------
Net loss applicable to
common stock per share
from continuing
operations............. $ (5.50) $ (5.87) $ (6.21)
Net loss per share from
discontinued
operations............. (0.06) (0.06) (0.06)
---------- ---------- -----------
Net loss applicable to
common stock per
share.................. $ (5.56) $ (5.93) $ (6.27)
---------- ---------- -----------
---------- ---------- -----------
Weighted average shares
outstanding............ 32,923 32,923 32,923 32,923 32,923
---------- -------- ---------- -------- -----------
---------- -------- ---------- -------- -----------
</TABLE>
F-3
<PAGE>
WINSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Pro Forma for
Pro Forma the
Pro Forma Adjustment Acquisition Pro Forma
Adjustments Pro Forma Increase/ of Milliwave Adjustments
Increase/ for (Decrease) for and for the Increase/
(Decrease) for the the Issuance Preferred (Decrease) for
The Company, Milliwave LP, the Acquisition Acquisition of Preferred Stock the March 1997
Historical Historical of Milliwave of Milliwave Stock Placement Debt Placement
------------- ------------- --------------- -------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues
Telecommunications
services...... $ 33,969 $ 4 $ (1,492)(a) $ 32,481 $ $ 32,481 $
Information
services...... 14,650 -- -- 14,650 14,650
------------- ------------- ------- -------------- ------- -------------- ---------------
Total operating
revenues........ 48,619 4 (1,492) 47,131 -- 47,131 --
------------- ------------- ------- -------------- ------- -------------- ---------------
Operating expenses
Cost of services
and products.. 38,233 -- (686)(a) 37,547 37,547
Selling, general
and
administrative
expenses...... 62,365 1,634 -- 63,999 63,999
Depreciation and
amortization... 4,501 201 3,470(b) 8,172 8,172
------------- ------------- ------- -------------- ------- -------------- ---------------
Total operating
expenses........ 105,099 1,835 2,784 109,718 -- 109,718 --
------------- ------------- ------- -------------- ------- -------------- ---------------
Operating
loss.......... (56,480) (1,831) (4,276) (62,587) -- (62,587) --
Other expense
Interest
expense....... (36,748) (6) -- (36,754) (36,754) (41,077)(f)
Interest
income........ 10,515 93 (2,155)(c) 8,453 8,453
------------- ------------- ------- -------------- ------- -------------- ---------------
Net loss from
continuing
operations...... (82,713) (1,744) (6,431) (90,888) -- (90,888) (41,077)
Loss from
discontinued
operations...... (1,010) -- -- (1,010) (1,010)
------------- ------------- ------- -------------- ------- -------------- ---------------
Net loss.......... (83,723) (1,744) (6,431) (91,898) -- (91,898) (41,077)
Less preferred
stock
dividends....... -- -- -- -- (6,000)(e) (6,000)
------------- ------------- ------- -------------- ------- -------------- ---------------
Net loss
applicable to
common stock.... $ (83,723) $ (1,744) $ (6,431) $ (91,898) $ (6,000) $ (97,898) $ (41,077)
------------- ------------- ------- -------------- ------- -------------- ---------------
------------- ------------- ------- -------------- ------- -------------- ---------------
Net loss
applicable to
common stock per
share from
continuing
operations...... $ (2.96) $ (2.89) $ (3.08)
Net loss per share
from
discontinued
operations...... (0.04) (0.03) (0.03)
------------- -------------- --------------
Net loss
applicable to
common stock per
share........... $ (3.00) $ (2.92) $ (3.11)
------------- -------------- --------------
------------- -------------- --------------
Weighted average
shares
outstanding..... 27,911 3,595(d) 31,506 31,506
------------- ------- -------------- --------------
------------- ------- -------------- --------------
<CAPTION>
Pro Forma for the
Acquisition of
Pro Forma for Pro Forma for the Milliwave,
the Acquisition of the Preferred
Acquisition Milliwave, Stock Placement,
of Milliwave, Pro Forma the Preferred Pro Forma the March 1997
the Preferred Adjustments Stock Placement, Adjustments Debt Placement,
Stock Increase/ the March 1997 Increase/ the August 1997
Placement and (Decrease) for Debt Placement (Decrease) for Debt Placement and
the March 1997 the August 1997 and the August 1997 the October 1997 the October 1997
Debt Placement Debt Placement Debt Placement Debt Placement Debt Placement
-------------- --------------- ---------------------- ---------------- ----------------------
<S> <C> <C> <C> <C> <C>
Operating revenues
Telecommunications
services...... $ 32,481 $ $ 32,481 $ $ 32,481
Information
services...... 14,650 14,650 14,650
----------- ------------ ----------- ----------- ------------
Total operating
revenues........ 47,131 -- 47,131 -- 47,131
----------- ------------ ----------- ----------- ------------
Operating expenses
Cost of services
and products.. 37,547 37,547 37,547
Selling, general
and
administrative
expenses...... 63,999 63,999 63,999
Depreciation and
amortization... 8,172 8,172 8,172
----------- ------------ ----------- ----------- ------------
Total operating
expenses........ 109,718 -- 109,718 -- 109,718
----------- ------------ ----------- ----------- ------------
Operating
loss.......... (62,587) -- (62,587) -- (62,587)
Other expense
Interest
expense....... (77,831) (6,494)(g) (84,325) (16,219)(h) (100,544)
Interest
income........ 8,453 8,453 8,453
----------- ------------ ----------- ----------- ------------
Net loss from
continuing
operations...... (131,965) (6,494) (138,459) (16,219) (154,678)
Loss from
discontinued
operations...... (1,010) (1,010) (1,010)
----------- ------------ ----------- ----------- ------------
Net loss.......... (132,975) (6,494) (139,469) (16,219) (155,688)
Less preferred
stock
dividends....... (6,000) (6,000) (6,000)
----------- ------------ ----------- ----------- ------------
Net loss
applicable to
common stock.... $ (138,975) $ (6,494) $ (145,469) $ (16,219) $ (161,688)
----------- ------------ ----------- ----------- ------------
----------- ------------ ----------- ----------- ------------
Net loss
applicable to
common stock per
share from
continuing
operations...... $ (4.38) $ (4.59) $ (5.10)
Net loss per share
from
discontinued
operations...... (0.03) (0.03) (0.03)
----------- ----------- ------------
Net loss
applicable to
common stock per
share........... $ (4.41) $ (4.62) $ (5.13)
----------- ----------- ------------
----------- ----------- ------------
Weighted average
shares
outstanding..... 31,506 31,506 31,506
----------- ----------- ------------
----------- ----------- ------------
<CAPTION>
Pro Forma
Adjustments
Increase/
(Decrease) for
the
US One Asset
Acquisition and
Financing Pro Forma
----------------- -----------
<S> <C> <C>
Operating revenues
Telecommunications
services...... $ $ 32,481
Information
services...... 14,650
----------- ----------
Total operating
revenues........ -- 47,131
----------- ----------
Operating expenses
Cost of services
and products.. 37,547
Selling, general
and
administrative
expenses...... 63,999
Depreciation and
amortization... 6,394(i) 14,566
----------- ----------
Total operating
expenses........ 6,394 116,112
----------- ----------
Operating
loss.......... (6,394) (68,981)
Other expense
Interest
expense....... (8,686)(i) (109,230)
Interest
income........ 8,453
----------- ----------
Net loss from
continuing
operations...... (15,080) (169,758)
Loss from
discontinued
operations...... (1,010)
----------- ----------
Net loss.......... (15,080) (170,768)
Less preferred
stock
dividends....... (6,000)
----------- ----------
Net loss
applicable to
common stock.... $ (15,080) $(176,768)
----------- ----------
----------- ----------
Net loss
applicable to
common stock per
share from
continuing
operations...... $ (5.58)
Net loss per share
from
discontinued
operations...... (0.03)
Net loss
applicable to
common stock per
share........... $ (5.61)
----------
----------
Weighted average
shares
outstanding..... 31,506
-----------
-----------
</TABLE>
F-4
<PAGE>
WINSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
The adjustments below were prepared based on data currently available
and in some cases are based on estimates or approximations. It is possible
that the actual amounts to be recorded may have an impact on the results of
operations and the balance sheet different from that reflected in the
accompanying unaudited pro forma condensed consolidated financial statements.
It is therefore possible that the entries presented below will not be the
amounts that were actually recorded.
BALANCE SHEET AT SEPTEMBER 30, 1997
a) To record the issuance of the Senior Subordinated Notes in the October 1997
Debt Placement and related fees and expenses.
b) To record the acquisition of the US ONE assets and the related financing and
related fees and expenses.
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE NINE MONTHS
ENDED SEPTEMBER 30, 1997
a) To eliminate sales, management fees, and cost of sales recorded by the
Company pursuant to management and other agreements with Milliwave.
b) To record amortization on the licenses acquired in the acquisition of
Milliwave.
c) To eliminate interest income, at an assumed rate of 5.3% per annum, on $40.6
million cash, assuming such cash was paid at the beginning of the year in
connection with the acquisition of Milliwave.
d) To record 3,594,620 shares of the Company's Common Stock issued in
connection with the acquisition of Milliwave at $20.87 per share.
e) To record Preferred Stock dividends on the 4,000,000 shares of Preferred
Stock issued by the Company, at 6% of the stated value of $25.00 per share.
f) To record interest expense on the debt issued in the March 1997 Debt
Placement, including amortization of debt offering costs and other related
fees, as if the debt were issued at the beginning of the respective period,
but not to include interest income earned on additional available cash.
g) To record interest expense on the debt issued in the August 1997 Debt
Placement, including amortization of debt offering costs and other related
fees, as if the debt were issued at the beginning of the respective period,
but not to include interest income earned on additional available cash.
h) To record interest expense on the Senior Subordinated Notes issued in the
October 1997 Debt Placement, including amortization of debt offering costs
and other related fees, as if the debt were issued at the beginning of the
respective period, but not to include interest income earned on additional
available cash.
i) To record depreciation expense on the assets acquired in the US ONE Asset
Acquisition, and the interest expense on the related financing, including
amortization of financing costs and other related fees, as if the
acquisition and financing had occurred at the beginning of the respective
period.
F-5
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. Indemnification of Directors and Officers
The Company's Certificate of Incorporation provides that all directors,
officers, employees and agents of the Registrant shall be entitled to be
indemnified by the Company to the fullest extent permitted by law.
Section 145 of the Delaware General Corporation Law concerning
indemnification of officers, directors, employees and agents is set forth below.
"Section 145. Indemnification of officers, directors, employees and
agents; insurance.
(a) A corporation shall have power to indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the corporation) by reason of the fact that the person is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by the person in
connection with such action, suit or proceeding if the person acted in good
faith and in a manner the person reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe the person's conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed to
be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had reasonable cause to believe
that the person's conduct was unlawful.
(b) A corporation shall have power to indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred
by the person in connection with the defense or settlement of such action or
suit if the person acted in good faith and in a manner the person reasonably
believed to be in or not opposed to the best interests of the corporation and
except that no indemnification shall be made in respect of any claim, issue
or matter as to which such person shall have been adjudged to be liable to
the corporation unless and only to the extent that the Court of Chancery or
the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled
to indemnity for such expenses which the Court of Chancery or such other
court shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
(d) Any indemnification under sections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of
the director, officer, employee or agent is proper in the circumstances
because the person has met the applicable standard of conduct set forth in
subsections (a) and (b) of this section. Such determination shall be made
(1) by a majority vote of the directors who are not parties to such action,
suit or proceeding, even though less than a quorum, or (2) if there are no
such directors, or if such directors so direct, by independent legal counsel
in a written opinion, or (3) by the stockholders.
II-1
<PAGE>
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount
if it shall ultimately be determined that he is not entitled to be
indemnified by the corporation as authorized in this section. Such expenses
(including attorney's fees) incurred by other employees and agents may be so
paid upon such terms and conditions, if any, as the board of directors deems
appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be
deemed exclusive of any other rights to which those seeking indemnification
or advancement of expenses may be entitled under any bylaw, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action in
his official capacity and as to action in another capacity while holding such
office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not the corporation would have the power to
indemnify him against such liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, and
employees or agents, so that any person who is or was a director, officer,
employee or agent of such constituent corporation, or is or was serving at
the request of such constituent corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under this section with respect
to the resulting or surviving corporation as he would have with respect to
such constituent corporation if its separate existence had continued.
(i) For purposes of this section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to any employee benefit plan;
and references to "serving at the request of the corporation" shall include
any service as a director, officer, employee or agent of the corporation
which imposes duties on, or involves services by, such director, officer,
employee or agent with respect to an employee benefit plan, its participants
or beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the corporation" as referred to
in this section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person."
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons
of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Company of expenses incurred or paid by a director, officer or
controlling person of the Company in a successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
II-2
<PAGE>
ITEM 21. Exhibits
Exhibit
Number Description
- ------- -----------
4.1 Form of New Note
5.1 Opinion of Graubard Mollen & Miller
12.1 Calculation of Ratio of Earnings from Continuing Operations
to Combined Fixed Charges and Preferred Stock Dividends
23.1 Consent of Grant Thornton LLP
23.2 Consent of Graubard Mollen & Miller (included in its opinion
filed as Exhibit 5.1)
23.3 Consent of Grant Thornton LLP
24.1 Powers of Attorney (included on the signature pages of this
Registration Statement)
25.1 Statement of Eligibility of United States Trust Company of
New York on Form T-1
99.1 Form of Letter of Transmittal for Exchange of Notes
99.2 Form of Notice of Guaranteed Delivery
II-3
<PAGE>
ITEM 22. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the registration statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(c) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11 or 13 of this form, within one business day of
receipt of such request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on this 21st day of
November, 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 Timothy R. Graham
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>
<S> <C> <C>
/s/ William J. Rouhana, Jr.
- ---------------------------- Chairman of the Board of Directors and Chief November 21, 1997
William J. Rouhana, Jr. Executive Officer (and principal executive officer)
/s/ Nathan Kantor
- ---------------------------- President, Chief Operating Officer and Director November 21, 1997
Nathan Kantor
/s/ Steven G. Chrust
- ---------------------------- Vice Chairman of the Board of Directors November 21, 1997
Steven G. Chrust
/s/ Fredric E. von Stange
- ---------------------------- Director, Executive Vice President and Chief Financial November 21, 1997
Fredric E. von Stange Officer (and principal accounting officer)
/s/ Bert W. Wasserman
- ---------------------------- Director November 21, 1997
Bert W. Wasserman
/s/ William J. vanden Heuvel
- ---------------------------- Director November 21, 1997
William J. vanden Heuvel
/s/ Steven B. Magyar
- ---------------------------- Director November 21, 1997
Steven B. Magyar
/s/ James I. Cash
- ---------------------------- Director November 21, 1997
James I. Cash
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
4.1 Form of New Note
5.1 Opinion of Graubard Mollen & Miller
12.1 Calculation of Ratio of Earnings from Continuing Operations
to Combined Fixed Charges and Preferred Stock Dividends
23.1 Consent of Grant Thornton LLP
23.2 Consent of Graubard Mollen & Miller (included in its opinion
filed as Exhibit 5.1)
23.3 Consent of Grant Thornton LLP
24.1 Powers of Attorney (included on the signature pages of this
Registration Statement)
25.1 Statement of Eligibility of United States Trust Company of
New York on Form T-1
99.1 Form of Letter of Transmittal for Exchange of Notes
99.2 Form of Notice of Guaranteed Delivery
II-6
<PAGE>
EXHIBIT 4.1
[FACE OF EXCHANGE NOTE OR PRIVATE EXCHANGE NOTE]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY (AS
DEFINED BELOW) OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH
OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE REGISTERED FORM, THIS CERTIFICATE MAY NOT BE TRANSFERRED EXCEPT AS A
WHOLE BY DTC TO A NOMINEE OF DTC OR BY A NOMINEE OF DTC TO DTC OR ANOTHER
NOMINEE OF DTC OR BY DTC OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A
NOMINEE OF SUCH SUCCESSOR DEPOSITARY.
FOR PURPOSES OF SECTION 1273 OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED (THE "CODE"), THIS SECURITY HAS ORIGINAL ISSUE DISCOUNT. FOR PURPOSES
OF SECTION 1273 OF THE CODE, THE ISSUE PRICE IS $1,000 AND THE AMOUNT OF
ORIGINAL ISSUE DISCOUNT IS $____, IN EACH CASE PER $1,000 PRINCIPAL AMOUNT OF
THIS SECURITY. THE AMOUNT OF THE ORIGINAL ISSUE DISCOUNT ATTRIBUTABLE TO THE
PERIOD COMMENCING OCTOBER 7, 1997 AND ENDING ON MARCH 1, 1998 IS $60.00. FOR
PURPOSES OF SECTION 1275 OF THE CODE, THE ISSUE DATE OF THIS SECURITY IS OCTOBER
7, 1997. FOR PURPOSES OF SECTION 1272 OF THE CODE, THE YIELD TO MATURITY
(COMPOUNDED SEMIANNUALLY ON MARCH 1 AND SEPTEMBER 1) IS 15%, CALCULATED BASED ON
THE APPROXIMATE METHOD.
WINSTAR COMMUNICATIONS, INC.
15% Senior Subordinated Deferred Interest Note Due 2007
CUSIP _________
No. $_________
WINSTAR COMMUNICATIONS, INC., a Delaware corporation (the "Company",
which term includes any successor under the Indenture hereinafter referred to),
for value received, promises to pay to __________ , or its registered assigns,
the principal sum of ___________________ ($__________) on March 1, 2007.
<PAGE>
EA-2
SemiAnnual Interest Accrual Date: March 1 and September 1, commencing
March 1, 1998.
Interest Payment Dates: March 1 and September 1, commencing
September 1, 2002.
Regular Record Dates: February 15 and August 15.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
__________________
*/ If the Security is to be issued in global form add the Global Securities
Legend from Exhibit 1 to the Rule 144A/Regulation S Appendix and the attachment
from such Exhibit 1 caption "[TO BE ATTACHED TO GLOBAL SECURITIES]--SCHEDULE OF
INCREASES OR DECREASES IN GLOBAL SECURITY".
***/ Add the Original Issue Discount Legend from Exhibit 1 to the Rule
144A/Regulation S Appendix..
IN WITNESS WHEREOF, the Company has caused this Note to be signed manually
or by facsimile by its duly authorized officer.
Date: WINSTAR COMMUNICATIONS, INC.
By:_____________________________
Name:
Title:
(Form of Trustee's Certificate of Authentication)
This is one of the 15% Senior Subordinated Deferred Interest Notes Due 2007
described in the within-mentioned Indenture.
UNITED STATES TRUST COMPANY OF NEW YORK, as
Trustee
Date:
By:__________________________________________
Authorized Signatory
<PAGE>
EA-3
[REVERSE SIDE OF EXCHANGE NOTE OR PRIVATE EXCHANGE NOTE]
WINSTAR COMMUNICATIONS, INC.
15% Senior Subordinated Deferred Interest Note Due 2007
1. Principal and Interest.
The Company will pay the principal of this Note on March 1, 2007.
The Company promises to pay interest on the Accumulated Amount of this Note
on each Interest Payment Date, as set forth below, at the rate per annum shown
above.
Until March 1, 2002, interest on the Notes will accrue at a rate of 15% per
annum and be compounded semiannually on each SemiAnnual Interest Accrual Date,
but (except as provided below) will not be payable in cash. From and after
March 1, 2002, interest on the Accumulated Amount of each Note will be payable
semiannually (to the holders of record of the Notes at the close of business on
the February 15 or August 15 immediately preceding the relevant Interest Payment
Date) on each Interest Payment Date, commencing September 1, 2002.
"Accumulated Amount" means, as of any date (the "Specified Date"), the
amount provided below for each $1,000 principal amount of Notes.
(i) If the Specified Date occurs on one of the following dates
(each, a "SemiAnnual Interest Accrual Date"), the Accumulated Amount of
this Note will equal the amount set forth below for such Note for such
SemiAnnual Interest Accrual Date:
SemiAnnual Interest Accrual Date Accumulated Amount
-------------------------------- ------------------
March 1, 1998........................... $1060.000
September 1, 1998....................... 1139.500
March 1, 1999........................... 1224.963
September 1, 1999....................... 1316.835
March 1, 2000........................... 1415.597
September 1, 2000....................... 1521.767
March 1, 2001........................... 1635.900
September 1, 2001....................... 1758.592
March 1, 2002........................... 1890.486
(ii) if the Specified Date occurs before the first SemiAnnual
Interest Accrual Date, the Accumulated Amount will equal the sum of (A)
$1,000 and (B) an amount equal to the product of (1) the Accumulated
Amount for the first SemiAnnual Interest Accrual Date less $1,000
multiplied by (2) a fraction, the numerator of which is the number of
days elapsed from the Issue Date to the Specified Date, using a 360-day
<PAGE>
EA-4
year of twelve 30-day months, and the denominator of which is the number
of days from the Issue Date to the first SemiAnnual Interest Accrual
Date, using a 360-day year of twelve 30-day months;
(iii) if the Specified Date occurs between two SemiAnnual
Interest Accrual Dates, the Accumulated Amount will equal the sum of (A)
the Accumulated Amount for the SemiAnnual Interest Accrual Date
immediately preceding such Specified Date and (B) an amount equal to the
product of (1) the Accumulated Amount for the immediately following
SemiAnnual Interest Accrual Date less the Accumulated Amount for the
immediately preceding SemiAnnual Interest Accrual Date multiplied by (2)
a fraction, the numerator of which is the number of days elapsed from the
immediately preceding SemiAnnual Interest Accrual Date to the Specified
Date, using a 360-day year or twelve 30-day months, and the denominator
of which is 180; or
(iv) if the Specified Date occurs after the last SemiAnnual
Interest Accrual Date, the Accumulated Amount of this Note will equal
$1890.486.
Notwithstanding anything to the contrary above, (i) if a Registration
Default (as defined in the Registration Rights Agreement) occurs, additional
interest will accrue on this Note from and including the date on which any such
Registration Default shall occur to but excluding the earlier of (x) the date on
which all Registration Defaults have been cured and (y) the date on which all
Notes become freely transferable by Holders other than Affiliates of the Company
without further registration under the Securities Act. Such additional interest
will be payable in cash semiannually in arrears, at a rate per annum equal to
.50% of the Accumulated Amount of the Notes on the relevant additional interest
payment date. Such additional interest will be payable on each SemiAnnual
Interest Accrual Date or Interest Payment Date, as the case may be, commencing
with the first SemiAnnual Interest Accrual Date following the applicable
Registration Default. Payments of additional interest on the Notes will be made
to the Holders of Notes on the Regular Record Date (or, if there is no Regular
Record Date, the date 15 days prior to such SemiAnnual Interest Accrual Date)
immediately preceding such SemiAnnual Interest Accrual Date or Interest Payment
Date.
The Company shall pay interest on overdue principal and premium, if any,
and (to the extent lawful) interest on overdue installments of interest.
2. Method of Payment.
The Company will pay principal as provided above and interest (except
defaulted interest) on the Accumulated Amount of the Notes as provided above on
each March 1 and September 1, commencing September 1, 2002, to the persons who
are Holders (as reflected in the Security Register) at the close of business on
the February 15 or August 15 immediately preceding the relevant Interest
Payment Date, in each case, even if the Note is cancelled on registration of
transfer or registration of exchange after such record date; provided, however,
that, with respect to the payment of principal, the Company will not make
payment to the Holder unless this Note is surrendered to a Paying Agent.
<PAGE>
EA-5
The Company will pay principal and interest in money of the United States
that at the time of payment is legal tender for payment of public and private
debts. Payments in respect of the Notes represented by a global Note (including
principal, premium and interest) will be made by wire transfer of immediately
available funds to the accounts specified by The Depository Trust Company. The
Company will make all payments in respect of a certificated Note (including
principal, premium and interest) by mailing a check to the registered address of
each Holder thereof; provided, however, that payments on a certificated Note
will be made by wire transfer to a U.S. dollar account maintained by the payee
with a bank in the United States if such Holder elects payment by wire transfer
by giving written notice to the Trustee or the Paying Agent to such effect
designating such account no later than 30 days immediately preceding the
relevant due date for payment (or such other date as the trustee may accept in
its discretion).
3. Paying Agent and Registrar.
Initially, United States Trust Company of New York (the "Trustee") will act
as authenticating agent, Paying Agent and Registrar. The Company may change any
authenticating agent, Paying Agent or Registrar without notice. The Company,
any Subsidiary or any Affiliate of any of them may act as Paying Agent,
Registrar or co-Registrar.
4. Indenture.
The Company issued the Notes under an Indenture dated as of October 1, 1997
(the "Indenture"), between the Company and the Trustee. Capitalized terms
herein are used as defined in the Indenture unless otherwise indicated. The
terms of the Notes include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act. The Notes are subject to
all such terms, and Holders are referred to the Indenture and the Trust
Indenture Act for a statement of all such terms. To the extent permitted by
applicable law, in the event of any inconsistency between the terms of this Note
and the terms of the Indenture, the terms of the Indenture shall control.
The Indenture limits the original aggregate principal amount of the Notes
to $100,000,000 (subject to Section 2.07 of the Indenture).
5. Redemption.
The Notes will not be redeemable prior to March 1, 2002. Thereafter, the
Notes will be redeemable, at the Company's option, in whole at any time or in
part from time to time upon not less than 30 nor more than 60 days' prior notice
mailed by first-class mail to each Holders' last address as it appears in the
Security Register, at the following Redemption Prices (expressed as a percentage
of the Accumulated Amount of the Notes), plus accrued and unpaid interest, if
any, on such Accumulated Amount to the Redemption Date (subject to the right of
Holders of record on the relevant Regular Record Date that is on or prior to the
Redemption Date to receive interest due on the relevant Interest Payment Date),
<PAGE>
EA-6
if redeemed during the 12-month period commencing March 1 of the years set forth
below:
Year Redemption Price
----- -----------------
2002..................... 107.500%
2003..................... 103.750
2004 and thereafter...... 100.000
6. Notice of Redemption.
Notice of any optional redemption will be mailed by the Company at least 30
days but not more than 60 days before a Redemption Date to each Holder of Notes
to be redeemed at his last address as it appears in the Security Register.
Notes in original denominations larger than $1,000 may be redeemed in part;
provided, however, that Notes will only be issued in denominations of $1,000
principal amount or integral multiples thereof. On and after the Redemption
Date, interest ceases to accrue on Notes (or portions of Notes) called for
redemption, unless the Company defaults in the payment of the Redemption Price.
7. Repurchase upon Change in Control.
Upon the occurrence of a Change of Control, each Holder shall have the
right to require the repurchase of its Notes by the Company in cash pursuant to
the offer described in the Indenture at a purchase price equal to 101% of the
Accumulated Amount of such Notes on such date of purchase, plus accrued and
unpaid interest, if any, on such Accumulated Amount to the date of purchase (the
"Change of Control Payment").
A notice of such Change of Control will be mailed within 30 days after any
Change of Control occurs to each Holder at his last address as it appears in the
Security Register. Notes in original denominations larger than $1,000 may be
sold to the Company in part; provided, however, that Notes will only be issued
in denominations of $1,000 principal amount at maturity or integral multiples
thereof. On and after the Change of Control Payment Date, interest ceases to
accrue on Notes or portions of Notes surrendered for purchase by the Company,
unless the Company defaults in the payment of the Change of Control Payment.
8. Denominations; Transfer; Exchange.
The Notes are in registered form without coupons in denominations of $1,000
of principal amount and integral multiples thereof. A Holder may register the
transfer or exchange of Notes in accordance with the Indenture. The Registrar
may require a Holder, among other things, to furnish appropriate endorsements
and transfer documents and to pay any taxes and fees required by law or
permitted by the Indenture. The Registrar need not register the transfer or
exchange of any Notes selected for redemption. Also, it need not register the
transfer or exchange of any Notes for a period of 15 days before a selection of
Notes to be redeemed is made.
<PAGE>
EA-7
9. Persons Deemed Owners.
A Holder shall be treated as the owner of a Note for all purposes.
10. Unclaimed Money.
If money for the payment of principal, premium, if any, or interest remains
unclaimed for two years, the Trustee and the Paying Agent will pay the money
back to the Company at its request. After that, Holders entitled to the money
must look to the Company for payment, unless an applicable law designates
another Person, and all liability of the Trustee and such Paying Agent with
respect to such money shall cease.
11. Discharge Prior to Redemption or Maturity.
Subject to certain conditions, the Company at any time may terminate some
or all of its obligations under the Notes and the Indenture if the Company
deposits with the Trustee money or U.S. Government Obligations for the payment
of principal and interest on the Notes to redemption or maturity, as the case
may be.
12. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture or the Notes may be amended or
supplemented with the consent of the Holders of at least a majority in principal
amount of the Notes then outstanding, and any existing default or compliance
with any provision may be waived with the consent of the Holders of at least a
majority in principal amount of the Notes then outstanding. Without notice to
or the consent of any Holder, the parties thereto may amend or supplement the
Indenture or the Notes to, among other things, cure any ambiguity, defect or
inconsistency and make any change that, in the opinion of the Board of Directors
of the Company, does not materially and adversely affect the rights of any
Holder.
13. Restrictive Covenants.
The Indenture imposes certain limitations on the ability of the Company and
its Restricted Subsidiaries, among other things, to incur additional
indebtedness; pay dividends or make distributions in respect of their capital
stock; make investments or make certain other restricted payments; sell assets;
issue or sell stock of Restricted Subsidiaries; enter into transactions with
stockholders or affiliates; or, with respect to the Company, consolidate, merge
or sell all or substantially all of its assets. Within 90 days after the end of
the last fiscal quarter of each year, the Company must report to the Trustee on
compliance with such limitations.
<PAGE>
EA-8
14. Successor Persons.
Generally, when a successor person or other entity assumes all the
obligations of its predecessor under the Notes and the Indenture, the
predecessor person will be released from those obligations.
15. Defaults and Remedies.
The following events constitute "Events of Default" under the Indenture:
(a) default in the payment of principal of (or premium, if any, on) any Note
when the same becomes due and payable, upon acceleration, redemption or
otherwise whether or not such payment is prohibited by the subordination
provisions of the Indenture; (b) default in the payment of interest on any Note
when the same becomes due and payable, and such default continues for a period
of 30 days whether or not such payment is prohibited by the subordination
provisions of the Indenture; (c) the Company defaults in the performance of or
breaches any other covenant or agreement of the Company in the Indenture or
under the Notes and such default or breach continues for a period of 30
consecutive days after written notice by the Trustee or the Holders of 25% or
more in aggregate principal amount of the Notes; (d) there occurs with respect
to any issue or issues of Indebtedness of the Company or any Significant
Subsidiary having an outstanding principal amount of $25,000,000 or more in the
aggregate for all such issues of all such Persons, whether such Indebtedness now
exists or shall hereafter be created, (i) an event of default that has caused
the holder thereof to declare such Indebtedness to be due and payable prior to
its Stated Maturity and such Indebtedness has not been discharged in full or
such acceleration has not been rescinded or annulled within 30 days of such
acceleration and/or (ii) the failure to make a principal payment at the final
(but not any interim) fixed maturity and such defaulted payment shall not have
been made, waived or extended within 30 days of such payment default; (e) any
final judgment or order (not covered by insurance) for the payment of money in
excess of $25,000,000 in the aggregate for all such final judgments or orders
against all such Persons (treating any deductibles, self-insurance or retention
as not so covered) shall be rendered against the Company or any Significant
Subsidiary and shall not be paid or discharged, and there shall be any period of
60 consecutive days following entry of the final judgment or order that causes
the aggregate amount for all such final judgments or orders outstanding and not
paid or discharged against all such Persons to exceed $25,000,000 during which a
stay of enforcement of such final judgment or order, by reason of a pending
appeal or otherwise, shall not be in effect; (f) a court having jurisdiction in
the premises enters a decree or order for (i) relief in respect of the Company
or any Significant Subsidiary in an involuntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect,
(ii) appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Company or any Significant Subsidiary or
for all or substantially all of the property and assets of the Company or any
Significant Subsidiary or (iii) the winding up or liquidation of the affairs of
the Company or any Significant Subsidiary and, in each case, such decree or
order shall remain unstayed and in effect for a period of 60 consecutive days;
or (g) the Company or any Significant Subsidiary (i) commences a voluntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or consents to the entry of an order for relief in an
involuntary case under any such law, (ii) consents to the appointment of or
<PAGE>
EA-9
taking possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Company or any Significant Subsidiary or
for all or substantially all of the property and assets of the Company or any
Significant Subsidiary or (iii) effects any general assignment for the benefit
of creditors.
If an Event of Default (other than an Event of Default specified in clause
(f) or (g) above that occurs with respect to the Company) occurs and is
continuing under the Indenture, the Trustee or the Holders of at least 25% in
aggregate principal amount of the Notes, then outstanding, by written notice to
the Company (and to the Trustee if such notice is given by the Holders), may,
and the Trustee at the request of such Holders shall, declare the principal of,
premium, if any, and accrued interest, if any, on the Notes to be immediately
due and payable. If a bankruptcy or insolvency default with respect to the
Company or any Restricted Subsidiary occurs and is continuing, the principal
amount of the Notes automatically becomes due and payable. Holders may not
enforce the Indenture or the Notes except as provided in the Indenture. The
Trustee may require indemnity satisfactory to it before it enforces the
Indenture or the Notes. Subject to certain limitations, Holders of at least a
majority in principal amount of the Notes then outstanding may direct the
Trustee in its exercise of any trust or power.
16. Subordination.
The payment of the Notes is, to the extent set forth in the Indenture,
subordinated in right of payment in full, in cash or cash equivalents, of all
Senior Indebtedness of the Company. To the extent provided in the Indenture,
Senior Indebtedness of the Company must be paid before the Notes may be paid.
The Company agrees, and each Holder by accepting a Note agrees, to the
subordination provisions contained in the Indenture and authorizes the Trustee
to give it effect and appoints the Trustee as attorney-in-fact for such
purposes.
17. Trustee Dealings with Company.
The Trustee under the Indenture, in its individual or any other capacity,
may make loans to, accept deposits from and perform services for the Company or
its Affiliates and may otherwise deal with the Company or its Affiliates as if
it were not the Trustee.
18. No Recourse Against Others.
No incorporator, stockholder, officer, director, employee or controlling
person as such, of the Company or of any successor Person thereof in such
capacity, shall have any liability for any obligations of the Company under the
Notes or the Indenture or for any claim based on, in respect of or by reason of,
such obligations or their creation. Each Holder by accepting a Note waives and
releases all such liability. Such waiver and release are part of the
consideration for the issuance of the Notes.
<PAGE>
EA-10
19. Authentication.
This Note shall not be valid until the Trustee or authenticating agent
signs the certificate of authentication on the other side of this Note.
20. Holders' Compliance with Registration Rights Agreement.
Each Holder of a Note, by acceptance hereof, acknowledges and agrees to the
provisions of the Registration Rights Agreement, including, without limitation,
the obligations of the Holders with respect to a registration and the
indemnification of the Company to the extent provided therein.
21. Abbreviations.
Customary abbreviations may be used in the name of a Holder or an assignee,
such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties),
JT TEN (= joint tenants with right of survivorship and not as tenants in
common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors Act).
22. Governing Law.
The Indenture and the Notes shall be governed by the laws of the State of
New York, excluding (to the extent permissible by law) any rule of law that
would cause the application of the laws of any jurisdiction other than the State
of New York.
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture. Requests may be made to WinStar Communications,
Inc., 230 Park Avenue, Suite 2700, New York, NY 10169, Attention: General
Counsel.
<PAGE>
EA-11
ASSIGNMENT FORM
I or we assign and transfer this Note to:
Please insert social security or other identifying number of assignee
Print or type name, address and zip code of assignee and irrevocably appoint
, as agent, to transfer this Note on the books of the Company.
The agent may substitute another to act for him.
Dated Signed
(Sign exactly as name appears on the other side of this Note)
Signature Guarantee *
_____________________
* The Holder's signature must be guaranteed by a member firm of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution" as
defined by Rule 17Ad-15 under the Exchange Act.
<PAGE>
EA-12
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to
Section 4.10 or Section 4.11 of the Indenture, check the Box: / /
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 4.10 or Section 4.11 of the Indenture, state the amount (in
principal amount): $_____________
Date:
Your Signature:
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee:
<PAGE>
EXHIBIT 5.1
November 21, 1997
WinStar Communications, Inc.
230 Park Avenue
New York, New York 10169
Gentlemen:
Reference is made to the proposed issuance by WinStar
Communications, Inc. ("Company") of 15% Senior Subordinated Deferred Interest
Exchange Notes ("Exchange Notes") under and pursuant to an indenture
("Indenture") between the Company and United States Trust Company of New York
("U.S. Trust"); and the proposed exchange of the Company's 15% Senior
Subordinated Deferred Interest Notes ("Notes") for the Exchange Notes,
pursuant to the Company's Registration Statement on Form S-4 ("Registration
Statement"), filed by the Company with the Securities and Exchange Commission
under the Securities Act of 1933, as amended, and the Trust Indenture Act of
1939, as amended.
We have examined such documents and considered such legal matters as
we have deemed necessary and relevant as the basis for the opinion set forth
below. with respect to such examinations, we have assumed the genuineness of
all signatures, the authenticity of all documents submitted to us as
originals, the conformity to original documents of all documents submitted to
us as reproduced or certified copies, and the authenticity of the originals
of those latter documents. As to questions of fact material to this opinion,
we have, to the extent deemed appropriate, relied upon certain
representations of certain officers and employees of the Company and its
subsidiaries.
Based upon the foregoing, we are of the opinion that:
1. The Company is a corporation duly organized and existing
under the laws of the State of Delaware.
2. The Exchange Notes have been duly and validly authorized by
all necessary corporate action and will, when issued in accordance with the
terms of the Indenture, constitute valid and binding obligations on the part
of the Company and enforceable in accordance with their respective terms,
except as may be limited by bankruptcy, reorganization, insolvency or other
similar laws of general application affecting the rights and remedies of
creditors and secured parties and the discretion of the courts in applying
equitable principles.
We hereby consent to the use of this opinion as Exhibit 5.1 to the
Registration Statement, to the use of our name as counsel to the Company, and
to all references made to us in the
<PAGE>
WinStar Communications, Inc.
November 21, 1997
Page 2
Registration Statement and the Prospectus forming a part thereof. In giving
this consent, we do not thereby admit that we are in the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations promulgated thereunder.
Very truly yours,
GRAUBARD MOLLEN & MILLER
<PAGE>
Exhibit 12.1
WINSTAR COMMUNICATIONS, INC
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Ten months
ended
Year Ended February 28, December 31, Year Ended December 31, 1996
------------------------------- ------------- -----------------------------
1993 1994 1995 1995 Actual Pro Forma
---- ---- ---- ---- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS:
Net loss from continuing operations
before income taxes $(4,594) $(8,205) $(7,226) $(16,094) $(82,713) $(169,758)
Adjustments to Earnings:
Fixed Charges, as Detailed Below 674 915 900 8,063 38,520 111,002
Interest Capitalized - - - - (320) (320)
Extraordinary Item - (194) - - - -
Minority interest in WinStar Gateway Network - (195) - - - -
------- ------- ------- -------- -------- ---------
Earnings as Adjusted $(3,920) $(7,639) $(6,326) $ (8,031) $(44,513) $ (59,076)
------- ------- ------- -------- -------- ---------
------- ------- ------- -------- -------- ---------
FIXED CHARGES:
Interest Expense $ 567 $ 793 $ 733 $ 7,715 $ 38,834 $ 109,316
Capitalized Interest - - - - 320 320
Portion of Rental Expense which is
Representative of Interest 107 122 167 348 1,366 1,366
------- ------- ------- -------- -------- ---------
Total Fixed Charges 674 915 900 8,063 38,520 111,002
PREFERRED STOCK DIVIDENDS: 85 68 62 216 - 6,000
------- ------- ------- -------- -------- ---------
COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS: $ 759 $ 983 $ 962 $ 8,279 $ 38,520 $ 117,002
------- ------- ------- -------- -------- ---------
------- ------- ------- -------- -------- ---------
DEFICIENCY IN EARNINGS TO COVER COMBINED
FIXED CHARGES AND PREFERRED
STOCK DIVIDENDS: $(4,679) $(8,622) $(7,288) $(16,310) $(83,033) $(176,078)
------- ------- ------- -------- -------- ---------
------- ------- ------- -------- -------- ---------
<CAPTION>
Nine Months Ended September 30,
--------------------------------------------
1997
1996 1997 Pro Forma
---- ---- ---------
<S> <C> <C> <C>
EARNINGS:
Net loss from continuing operations
before income taxes $(49,411) $(164,078) $(199,907)
Adjustments to Earnings:
Fixed Charges, as Detailed Below 27,783 56,358 87,391
Interest Capitalized - (1,213) (1,213)
Extraordinary Item - - -
Minority interest in WinStar Gateway Network - - -
-------- --------- ---------
Earnings as Adjusted $(21,628) $(108,933) $(113,729)
-------- --------- ---------
-------- --------- ---------
FIXED CHARGES:
Interest Expense $ 26,758 $ 53,137 $ 84,170
Capitalized Interest - 1,213 1,213
Portion of Rental Expense which is
Representative of Interest 1,025 2,008 2,008
-------- --------- ---------
Total Fixed Charges 27,783 56,358 87,391
PREFERRED STOCK DIVIDENDS - 3,881 4,535
-------- --------- ---------
COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS: $ 27,783 $ 60,239 $ 91,926
-------- --------- ---------
-------- --------- ---------
DEFICIENCY IN EARNINGS TO COVER COMBINED
FIXED CHARGES AND PREFERRED
STOCK DIVIDENDS: $(49,411) $(169,172) $(205,655)
-------- --------- ---------
-------- --------- ---------
</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 date is May 13, 1997,
accompanying the consolidated financial statements and schedules included in
the Annual Report of WinStar Communications, Inc. and Subsidiaries on Form
10-K for the year ended December 31, 1996 and in Form 8-K filed June 10,
1997, respectively, which are incorporated by reference in the Registration
Statement and Prospectus. We consent to the incorporation by reference of
the aforementioned reports in the Registration Statement and Prospectus and
to the use of our name as it appears under the caption "Experts."
GRANT THORNTON LLP
New York, New York
November 17, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
We have issued our report dated January 9, 1997, accompanying the financial
statements of Milliwave Limited Partnership included in Form 8-K filed June
10, 1997, which is incorporated by reference in the Registration Statement
and Prospectus. We consent to the incorporation by reference of the
aforementioned reports in the Registration Statement and Prospectus and to
the use of our name as it appears under the caption "Experts."
GRANT THORNTON LLP
New York, New York
November 17, 1997
<PAGE>
EXHIBIT 25.1
FORM T-1
==============================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
__________________
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(B)(2) _______
__________________
UNITED STATES TRUST COMPANY OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-3818954
(Jurisdiction of incorporation (I.R.S. employer
if not a U.S. national bank) identification No.)
114 West 47th Street 10036-1532
New York, NY (Zip Code)
(Address of principal
executive offices)
__________________
UNITED STATES TRUST COMPANY OF NEW YORK
114 W. 47th Street
New York, NY 10036-1532
Telephone Number (212) 852-1000
(Name, address and telephone number of agent for service)
__________________
<PAGE>
-2-
__________________
Winstar Communications, Inc.
(Exact name of obligor as specified in its charter)
Delaware 13-3585278
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
230 Park Avenue
New York, NY 10169
(Address of principal executive offices) (Zip Code)
__________________
15% Senior Subordinated Deferred Interest Exchange Notes due 2007
(Title of the indenture securities)
==============================================
<PAGE>
-3-
GENERAL
1. General Information
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Federal Reserve Bank of New York (2nd District), New York, New York
(Board of Governors of the Federal Reserve System)
Federal Deposit Insurance Corporation, Washington, D.C.
New York State Banking Department, Albany, New York
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. Affiliations with the Obligor
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None
3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15:
Winstar Communications, Inc. currently is not in default under any of its
outstanding securities for which United States Trust Company of New York
is Trustee. Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11,
12, 13, 14 and 15 of Form T-1 are not required under General Instruction B.
16. List of Exhibits
T-1.1 -- Organization Certificate, as amended, issued by the State of New
York Banking Department to transact business as a Trust Company,
is incorporated by reference to Exhibit T-1.1 to Form T-1 filed
on September 15, 1995 with the Commission pursuant to the Trust
Indenture Act of 1939, as amended by the Trust Indenture Reform
Act of 1990 (Registration No. 33-97056).
T-1.2 -- Included in Exhibit T-1.1.
T-1.3 -- Included in Exhibit T-1.1.
<PAGE>
-4-
16. List of Exhibits
(cont'd)
T-1.4 -- The By-Laws of United States Trust Company of New York, as
amended, is incorporated by reference to Exhibit T-1.4 to
Form T-1 filed on September 15, 1995 with the Commission
pursuant to the Trust Indenture Act of 1939, as amended by the
Trust Indenture Reform Act of 1990 (Registration No. 33-97056).
T-1.6 -- The consent of the trustee required by Section 321(b) of the
Trust Indenture Act of 1939, as amended by the Trust Indenture
Reform Act of 1990.
T-1.7 -- A copy of the latest report of condition of the trustee pursuant
to law or the requirements of its supervising or examining
authority.
NOTE
As of October 31, 1997, the trustee had 2,999,020 shares of Common Stock
outstanding, all of which are owned by its parent company, U.S. Trust
Corporation. The term "trustee" in Item 2, refers to each of United States
Trust Company of New York and its parent company, U. S. Trust Corporation.
In answering Item 2 in this statement of eligibility as to matters peculiarly
within the knowledge of the obligor or its directors, the trustee has relied
upon information furnished to it by the obligor and will rely on information to
be furnished by the obligor and the trustee disclaims responsibility for the
accuracy or completeness of such information.
__________________
Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee,
United States Trust Company of New York, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York, and State of New York, on the 19th day
of November, 1997.
UNITED STATES TRUST COMPANY
OF NEW YORK, Trustee
By:
Margaret Ciesmelewski
Assistant Vice President
<PAGE>
Exhibit T-1.6
The consent of the trustee required by Section 321(b) of the Act.
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
September 1, 1995
Securities and Exchange Commission
450 5th Street, N.W.
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of 1939,
as amended by the Trust Indenture Reform Act of 1990, and subject to the
limitations set forth therein, United States Trust Company of New York ("U.S.
Trust") hereby consents that reports of examinations of U.S. Trust by Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.
Very truly yours,
UNITED STATES TRUST COMPANY
OF NEW YORK
By: Gerard F. Ganey
Senior Vice President
<PAGE>
EXHIBIT T-1.7
UNITED STATES TRUST COMPANY OF NEW YORK
CONSOLIDATED STATEMENT OF CONDITION
DECEMBER 31, 1996
(IN THOUSANDS)
ASSETS
Cash and Due from Banks $ 75,754
Short-Term Investments 276,399
Securities, Available for Sale 925,886
Loans 1,638,516
Less: Allowance for Credit Losses 13,168
-------------
Net Loans 1,625,348
Premises and Equipment 61,278
Other Assets 120,903
-------------
Total Assets $3,085,568
-------------
-------------
LIABILITIES
Deposits:
Non-Interest Bearing $ 645,424
Interest Bearing 1,694,581
-------------
Total Deposits 2,340,005
Short-Term Credit Facilities 449,183
Accounts Payable and Accrued Liabilities 139,261
-------------
Total Liabilities $2,928,449
-------------
-------------
STOCKHOLDER'S EQUITY
Common Stock 14,995
Capital Surplus 42,394
Retained Earnings 98,926
Unrealized Gains (Losses) on Securities
Available for Sale, Net of Taxes 804
-------------
Total Stockholder's Equity 157,119
-------------
Total Liabilities and
Stockholder's Equity $3,085,568
-------------
-------------
I, Richard E. Brinkmann, Senior Vice President & Comptroller of the named
bank do hereby declare that this Statement of Condition has been prepared in
conformance with the instructions issued by the appropriate regulatory
authority and is true to the best of my knowledge and belief.
Richard E. Brinkmann, SVP & Controller
April 9, 1997
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
for
Tender of all Outstanding
15% Senior Subordinated Deferred Interest Notes Due 2007
in Exchange for
15% Senior Subordinated Deferred Interest Exchange Notes Due 2007
of
WinStar Communications, Inc.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON JANUARY ___, 1998 (THE "EXPIRATION DATE"),
UNLESS EXTENDED BY WINSTAR COMMUNICATIONS, INC.
EXCHANGE AGENT:
UNITED STATES TRUST COMPANY OF NEW YORK
<TABLE>
By Mail: By Overnight Courier: By Hand: By Facsimile:
<S> <C> <C> <C>
United States Trust United States Trust United States Trust Fax No. (212) 420-6152
Company of New York Company of New York Company of New York (For Eligible Institutions Only)
P.O. Box 844 770 Broadway, 13th Floor 111 Broadway, Lower Level Confirm by telephone:
Cooper Station New York, NY 10003 New York, NY 10006 Telephone no. (800) 548-6565
New York, NY 10276-0844 Attn: Corporate Trust Attn: Corporate Trust Services
(registered or certified mail Operations Department
recommended)
</TABLE>
Delivery of this Letter of Transmittal to an address other than as set
forth above or transmission of instructions via a facsimile transmission to a
number other than as set forth above will not constitute a valid delivery.
The undersigned acknowledges receipt of the Prospectus dated November
___, 1997 (the "Prospectus") of WinStar Communications, Inc. ("Company") which,
together with this Letter of Transmittal (the "Letter of Transmittal"),
constitute the Company's offer (the "Exchange Offer") to exchange a new series
of 15% Senior Subordinated Deferred Interest Exchange Notes Due 2007 (the "New
Notes") of the Company for all outstanding 15% Senior Subordinated Deferred
Interest Notes Due 2007 (the "Old Notes") of the Company. The terms of the New
Notes are identical to the terms of the Old Notes for which they may be
exchanged pursuant to the Exchange Offer, except that the New Notes will have
been registered under the Securities Act of 1933, as amended, and, therefore,
will not bear legends restricting the transfer thereof.
The undersigned has checked the appropriate boxes below and signed
this Letter of Transmittal to indicate the action the undersigned desires to
take with respect to the Exchange Offer.
<PAGE>
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS
CAREFULLY BEFORE CHECKING ANY BOX BELOW.
THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE
FOLLOWED. QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE
PROSPECTUS AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
List below the Old Notes to which this Letter of Transmittal relates.
If the space provided below is inadequate, the Certificate Numbers and Principal
Amounts should be listed on a separate signed schedule affixed hereto.
DESCRIPTION OF OLD NOTES TENDERED HEREWITH
Name(s) and address(es) Certificate Aggregate Principal Amount
of Registered Holder(s) Number(s) Principal Amount Tendered*
(Please fill in) Represented by
Notes
Total
* Unless otherwise indicated, the holder will be deemed to have tendered the
full aggregate principal amount represented by Old Notes. See
Instruction 2.
This Letter of Transmittal is to be used if certificates for Old Notes
are to be forwarded herewith.
Unless the context requires otherwise, the term "Holder" for purposes
of this Letter of Transmittal means any person in whose name Old Notes are
registered or any other person who has obtained a properly completed bond power
from the registered holder.
<PAGE>
Holders whose Old Notes are not immediately available or who cannot
deliver their Old Notes and all other documents required hereby to the Exchange
Agent on or prior to the Expiration Date may tender their Old Notes according to
the guaranteed delivery procedure set forth in the Prospectus under the caption
"The Exchange Offer--Procedures for Tendering."
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s):
------------------------------------------
Name of Eligible Institution that Guaranteed Delivery:
------------------
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
-------------------------------------------------------------------
Address:
---------------------------------------------------------------
3
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer,
the undersigned hereby tenders to the Company the above-described principal
amount of Old Notes. Subject to, and effective upon, the acceptance for exchange
of the Old Notes tendered herewith, the undersigned hereby exchanges, assigns
and transfers to, or upon the order of, the Company all right, title and
interest in and to such Old Notes. The undersigned hereby irrevocably
constitutes and appoints the Exchange Agent as the true and lawful agent and
attorney-in-fact of the undersigned (with full knowledge that said Exchange
Agent acts as the agent of the undersigned in connection with the Exchange
Offer) to cause the Old Notes to be assigned, transferred and exchanged. The
undersigned represents and warrants that it has full power and authority to
tender, exchange, assign and transfer the Old Notes and to acquire New Notes
issuable upon the exchange of such tendered Old Notes, and that, when the same
are accepted for exchange, the Company will acquire good and unencumbered title
to the tendered Old Notes, free and clear of all liens, restrictions, charges
and encumbrances and not subject to any adverse claim. The undersigned also
warrants that it will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or the Company to be necessary or
desirable to complete the exchange, assignment and transfer of tendered Old
Notes.
The Exchange Offer is subject to certain conditions as set forth in
the Prospectus under the caption "Exchange Offer--Conditions to the Exchange
Offer". The undersigned recognizes that as a result of these conditions (which
may be waived, in whole or in part, by the Company) as more particularly set
forth in the Prospectus, the Company may not be required to exchange any of the
Old Notes tendered hereby and, in such event, the Old Notes not exchanged will
be returned to the undersigned at the address shown below the signature of the
undersigned.
By tendering, each Holder of Old Notes represents to the Company that
(i) the New Notes acquired pursuant to the Exchange Offer are being obtained in
the ordinary course of business of the person receiving such New Notes, whether
or not such person is such Holder, (ii) neither the Holder of Old Notes nor any
such other person has an arrangement or understanding with any person to
participate in the distribution of such New Notes, and (iii) if the Holder is
not a broker-dealer or is a broker-dealer but will not receive New Notes for its
own account in exchange for Old Notes, neither the Holder nor any such other
person is engaged in or intends to participate in a distribution of the New
Notes. If the tendering Holder is a broker-dealer that will receive New Notes
for its own account in exchange for Old Notes, it represents that the Old Notes
to be exchanged for the New Notes were acquired by it as a result of
market-making activities or other trading activities, and acknowledges that it
will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Notes. By acknowledging that it will
deliver and by delivering a prospectus meeting the requirements of the
Securities Act in connection with any resale of such New Notes, the undersigned
is not deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
4
<PAGE>
All authority herein conferred or agreed to be conferred shall survive
the death, bankruptcy or incapacity of the undersigned and every obligation of
the undersigned hereunder shall be binding upon the heirs, personal
representatives, successors and assigns of the undersigned. Tendered Old Notes
may be withdrawn at any time prior to 5:00 p.m., New York City Time on the
Expiration Date.
Certificates for all New Notes delivered in exchange for tendered Old
Notes and any Old Notes delivered herewith but not exchanged, in each case
registered in the name of the undersigned, shall be delivered to the undersigned
at the address shown below the signature of the undersigned.
5
<PAGE>
TENDERING HOLDER(S) SIGN HERE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Signature(s) of Holder(s)
Dated: , 199__
(Must be signed by registered Holder(s) exactly as name(s) appear(s) on
certificate(s) for Old Notes or by any person(s) authorized to become
registered Holder(s) by endorsements and documents transmitted herewith. If
signature by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or other person acting in a fiduciary or representative
capacity, please set forth the full title of such person.) See Instruction 3.
Name(s):
-----------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Please Print)
Capacity (full title):
---------------------------------------------------------
Address:
-----------------------------------------------------------------------
(Including Zip Code)
Area Code and Telephone No.:
------------------------------
- -------------------------------------------------------------------------------
Tax Identification No.
6
<PAGE>
GUARANTEE OF SIGNATURE(S)
(If Required -- See Instruction 3)
Authorized Signature:
----------------------------------------------------------
Name:
--------------------------------------------------------------------------
Title:
-------------------------------------------------------------------------
Address:
------------------------------------------------------------------------
Name of Firm:
------------------------------------------------------------------
Area Code and Telephone No.:
---------------------------------------------------
Dated: , 199__
-----------------
7
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions
of the Exchange Offer
1. Delivery of this Letter of Transmittal and Certificates.
Certificates for all physically delivered Old Notes, as well as a properly
completed and duly executed copy of this Letter of Transmittal or facsimile
thereof, and any other documents required by this Letter of Transmittal, must be
received by the Exchange Agent at any of its addresses set forth herein on or
prior to the Expiration Date.
The method of delivery of this Letter of Transmittal, the Old Notes
and any other required documents is at the election and risk of the Holder and,
except as otherwise provided below, the delivery will be deemed made only when
actually received by the Exchange Agent. Instead of delivery by mail, it is
recommended that Holders use an overnight or hand delivery service.
Holders whose Old Notes are not immediately available or who cannot
deliver their Old Notes and all other required documents to the Exchange Agent
on or prior to the Expiration Date may tender their Old Notes pursuant to the
guaranteed delivery procedure set forth in the Prospectus under "Exchange
Offer--Procedures for Tendering." Pursuant to such procedure: (i) such tender
must be made by or through an Eligible Institution (as defined in the
Prospectus); (ii) on or prior to the Expiration Date, the Exchange Agent must
have received from such Eligible Institution a letter, telegram or facsimile
transmission setting forth the name and address of the tendering Holder, the
names in which such Old Notes are registered, and, if possible, the certificate
numbers of the Old Notes to be tendered; and (iii) all tendered Old Notes as
well as this Letter of Transmittal and all other documents required by this
Letter of Transmittal must be received by the Exchange Agent within three New
York Stock Exchange trading days after the date of execution of such letter,
telex, telegram or facsimile transmission, all as provided in the Prospectus
under the caption "Exchange Offer--Procedures for Tendering".
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering Holders, by execution of this Letter of Transmittal (or
facsimile thereof), shall waive any right to receive notice of the acceptance of
the Old Notes for exchange.
2. Partial Tenders; Withdrawals. Tenders of Old Notes will be
accepted in denominations of $1,000 and integral multiples in excess thereof.
If less than the entire principal amount of Old Notes evidenced by a submitted
certificate is tendered, the tendering Holder must fill in the principal amount
tendered in the box entitled "Principal Amount Tendered." A newly issued
certificate for the principal amount of Old Notes submitted but not tendered
will be sent to such Holder as soon as practicable after the Expiration Date.
All Old Notes delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise indicated.
8
<PAGE>
Tenders of Old Notes pursuant to the Exchange Offer are irrevocable,
except that Old Notes tendered pursuant to the Exchange Offer may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date. To
be effective, a written, telegraphic, telex or facsimile transmission notice of
withdrawal must be timely received by the Exchange Agent. Any such notice of
withdrawal must specify the person named in the Letter of Transmittal as having
tendered Old Notes to be withdrawn, the certificate numbers and designation of
the Old Notes to be withdrawn, the principal amount of Old Notes delivered for
exchange, a statement that such a Holder is withdrawing its election to have
such Old Notes exchanged, and the name of the registered Holder of such Old
Notes, and must be signed by the Holder in the same manner as the original
signature on the Letter of Transmittal (including any required signature
guarantees) or be accompanied by evidence satisfactory to the Company that the
person withdrawing the tender has succeeded to the beneficial ownership of the
Old Notes being withdrawn. The Exchange Agent will return the properly withdrawn
Old Notes promptly following receipt of notice of withdrawal.
3. Signature on this Letter of Transmittal; Written Instruments and
Endorsements; Guarantee of Signatures. If this Letter of Transmittal is signed
by the registered Holder(s) of the Old Notes tendered hereby, the signature must
correspond with the name(s) as written on the face of certificates without
alteration, enlargement or any change whatsoever.
If any of the Old Notes tendered hereby are owned of record by two or
more joint owners, all such owners must sign this Letter of Transmittal.
If a number of Old Notes registered in different names are tendered,
it will be necessary to complete, sign and submit as many separate copies of
this Letter of Transmittal as there are different registrations of Old Notes.
When this Letter of Transmittal is signed by the registered Holder or
Holders of Old Notes listed and tendered hereby, no endorsements of certificates
or separate written instruments of transfer or exchange are required.
If this Letter of Transmittal is signed by a person other than the
registered Holder or Holders of the Old Notes listed, such Old Notes must be
endorsed or accompanied by separate written instruments of transfer or exchange
in form satisfactory to the Company and duly executed by the registered Holder
or Holders, in either case signed exactly as the name or names of the registered
Holder or Holders appear(s) on the Old Notes.
If this Letter of Transmittal, any certificates or separate written
instruments of transfer or exchange are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and, unless waived by the Company, proper evidence
satisfactory to the Company of their authority so to act must be submitted.
9
<PAGE>
Endorsements on certificates or signatures on separate written
instruments of transfer or exchange required by this Instruction 3 must be
guaranteed by an Eligible Institution.
Signatures on this Letter of Transmittal need not be guaranteed by an
Eligible Institution, provided the Old Notes are tendered: (i) by a registered
Holder of such Old Notes; or (ii) for the account of any Eligible Institution.
4. Transfer Taxes. The Company shall pay all transfer taxes, if
any, applicable to the exchange of Old Notes pursuant to the Exchange Offer.
If, however, certificates representing New Notes, or Old Notes for principal
amounts not tendered or accepted for exchange, are to be delivered to, or are to
be issued in the name of, any person other than the registered Holder of the Old
Notes tendered hereby, or if a transfer tax is imposed for any reason other than
the exchange of Old Notes pursuant to the Exchange Offer, then the amount of any
such transfer taxes (whether imposed on the registered Holder or any other
person) will be payable by the tendering Holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted herewith, the
amount of such transfer taxes will be billed directly to such tendering Holder.
Except as provided in this Instruction 4, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes listed in this Letter of
Transmittal.
5. Waiver of Conditions. The Company reserves the absolute right to
waive, in whole or in part, any of the conditions to the Exchange Offer set
forth in the Prospectus.
6. Mutilated, Lost, Stolen or Destroyed Notes. Any Holder whose Old
Notes have been mutilated, lost, stolen or destroyed should contact the Exchange
Agent at the address indicated above for further instructions.
7. Requests for Assistance or Additional Copies. Questions relating
to the procedure for tendering, as well as requests for additional copies of the
Prospectus and this Letter of Transmittal, may be directed to the Exchange Agent
at the address and telephone number set forth above. In addition, all questions
relating to the Exchange Offer, as well as requests for assistance or additional
copies of the Prospectus and this Letter of Transmittal, may be directed to the
Exchange Agent at the address specified in the Prospectus.
8. Irregularities. All questions as to the validity, form,
eligibility (including time of receipt), and acceptance of Letters of
Transmittal or Old Notes will be resolved by the Company, whose determination
will be final and binding. The Company reserves the absolute right to reject
any or all Letters of Transmittal or tenders that are not in proper form or the
acceptance of which would, in the opinion of the Company's counsel, be unlawful.
The Company also reserves the right to waive any irregularities or conditions of
tender as to the particular Old Notes covered by any Letter of Transmittal or
tendered pursuant to such Letter of Transmittal.
10
<PAGE>
None of the Company, the Exchange Agent or any other person will be under any
duty to give notification of any defects or irregularities in tenders or
incur any liability for failure to give any such notification. The
Company's interpretation of the terms and conditions of the Exchange Offer
shall be final and binding.
9. Definitions. Capitalized terms used in this Letter of
Transmittal and not otherwise defined have the meanings given in the Prospectus.
IMPORTANT: This Letter of Transmittal or a facsimile thereof
(together with certificates for Old Notes and all other required documents) or a
Notice of Guaranteed Delivery must be received by the Exchange Agent on or prior
to the Expiration Date.
11
<PAGE>
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
for
Tender of all Outstanding
15% Senior Subordinated Deferred Interest Notes Due 2007
in Exchange for
15% Senior Subordinated Deferred Interest Exchange Notes Due 2007
of
WinStar Communications, Inc.
Registered holders of outstanding 15% Senior Subordinated Deferred
Interest Notes Due 2007 (the "Old Notes") of WinStar Communications, Inc.
("Company") who wish to tender their Old Notes in exchange for a like principal
amount of 15% Senior Subordinated Deferred Interest Exchange Notes Due 2007 of
the Company, in each case, whose Old Notes are not immediately available or who
cannot deliver their Old Notes and Letter of Transmittal (and any other
documents required by the Letter of Transmittal) to United States Trust Company
of New York (the "Exchange Agent"), prior to the Expiration Date, may use this
Notice of Guaranteed Delivery or one substantially equivalent hereto. This
Notice of Guaranteed Delivery may be delivered by hand or sent by facsimile
transmission (receipt confirmed by telephone and an original delivered by
guaranteed overnight delivery) or mail to the Exchange Agent. See "The Exchange
Offer--Procedures for Tendering" in the Prospectus.
The Exchange Agent for the Exchange Offer is:
UNITED STATES TRUST COMPANY OF NEW YORK
<TABLE>
<CAPTION>
By Mail: By Overnight Courier: By Hand: By Facsimile:
<S> <C> <C> <C>
United States Trust United States Trust United States Trust Fax No. (212)420-6152
Company of New York Company of New York Company of New York (For Eligible Institutions Only)
P.O. Box 844 770 Broadway,13th Floor 111 Broadway,Lower Level Confirm by telephone:
Cooper Station New York, NY 10003 New York, NY 10006 Telephone no.(800) 548-6565
New York, NY 10276-0844 Attn: Corporate Trust Attn: Corporate Trust Services
(registered or certified Operations Department
mail recommended)
</TABLE>
Delivery of this Notice of Guaranteed Delivery to an address other than as
set forth above or transmission of instructions via a facsimile transmission
to a number other than as set forth above will not constitute a valid
delivery.
This Notice of Guaranteed Delivery is not to be used to guarantee signatures.
If a signature on a Letter of Transmittal is required to be guaranteed by an
Eligible Institution, such signature guarantee must appear in the applicable
space provided on the Letter of Transmittal for Guarantee of Signatures.
<PAGE>
Ladies & Gentlemen:
The undersigned hereby tender(s) to the Company, upon the terms and
subject to the conditions set forth in the Exchange Offer and the Letter of
Transmittal, receipt of which is hereby acknowledged, the aggregate principal
amount of Old Notes set forth below pursuant to the guaranteed delivery
procedures set forth in the Prospectus.
The undersigned understands that tenders of Old Notes will be
accepted only in principal amounts equal to $1,000 or integral multiples
thereof. The undersigned understands that tenders of Old Notes pursuant to
the Exchange Offer may not be withdrawn after 5:00 p.m., New York City time
on the Expiration Date. Tenders of Old Notes may also be withdrawn if the
Exchange Offer is terminated without any such Old Notes being purchased
thereunder or as otherwise provided in the Prospectus.
All authority herein conferred or agreed to be conferred by this
Notice of Guaranteed Delivery shall survive the death or incapacity of the
undersigned and every obligation of the undersigned under this Notice of
Guaranteed Delivery shall be binding upon the heirs, personal
representatives, executors, administrators, successors, assigns, trustees in
bankruptcy and other legal representatives of the undersigned.
PLEASE SIGN AND COMPLETE
<TABLE>
<CAPTION>
<S> <C>
Signature(s) of Registered Owner(s) or Authorized Name(s) of Registered Holder(s):
Signatory: ______________________________________ ______________________________________________
_________________________________________________ ______________________________________________
_________________________________________________ ______________________________________________
Principal Amount of Old Notes Tendered: _________ Address: _____________________________________
_________________________________________________ ______________________________________________
Certificate No(s). of Old Notes (if available): Area Code and Telephone No.: _________________
_________________________________________________ Date: ________________________________________
_________________________________________________
</TABLE>
2
<PAGE>
This Notice of Guaranteed Delivery must be signed by the registered
holder(s) of Old Notes exactly as its (their) name(s) appear on certificates
for Old Notes or on a security position listing as the owner of Old Notes, or
by person(s) authorized to become registered Holder(s) by endorsements and
documents transmitted with this Notice of Guaranteed Delivery. If signature
is by a trustee, executor, administrator, guardian, attorney-in-fact, officer
or other person acting in a fiduciary or representative capacity, such person
must provide the following information.
Please print name(s) and address(es)
Name(s): _________________________________________________________________
_________________________________________________________________
Capacity: _________________________________________________________________
Address(es): _________________________________________________________________
_________________________________________________________________
_________________________________________________________________
Do not send Old Notes with this form. Old Notes should be sent to the
Exchange Agent together with a properly completed and duly executed Letter of
Transmittal.
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc. or a
commercial bank or trust company having an office or a correspondent in the
United States or an "eligible guarantor institution" as defined by Rule
17Ad-15 under the Exchange Act, hereby (a) represents that each holder of Old
Notes on whose behalf this tender is being made "own(s)" the Old Notes
covered hereby within the meaning of Rule 14e-4 under the Securities Exchange
Act of 1934, as amended, (b) represents that such tender of Old Notes
complies with such Rule 14e-4, and (c) guarantees that, within three New York
Stock Exchange trading days from the date of this Notice of Guaranteed
Delivery, a properly completed and duly executed Letter of Transmittal (or a
facsimile thereof), together with certificates representing the Old Notes
covered hereby in proper form for transfer and required documents will be
deposited by the undersigned with the Exchange Agent.
The undersigned acknowledges that it must deliver the Letter of
Transmittal and Old Notes tendered hereby to the Exchange Agent within the
time set forth above and that failure to do so could result in financial loss
to the undersigned.
Name of Firm: _________________________ Authorized Signature
Address: ______________________________
_______________________________________ Name: _____________________________
Area Code and Telephone No.: __________ Title:_____________________________
_______________________________________ Date: _____________________________
3
<PAGE>
