<PAGE>
As filed with the Securities and Exchange Commission on September 30, 1999
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
AMENDMENT NO. 1 TO
REGISTRATION STATEMENT ON FORM S-3
UNDER THE
SECURITIES ACT OF 1933
--------------------
WINSTAR COMMUNICATIONS, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
Delaware 4812 13-3585278
(State or other jurisdiction of (Primary standard industrial (I.R.S. Employer
incorporation or organization) classification code number) Identification Number)
</TABLE>
230 Park Avenue
New York, New York 10169
(212) 584-4000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive office)
--------------------
Timothy R. Graham
Executive Vice President and General Counsel
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 the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
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<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==============================================================================================================
Proposed Maximum Proposed Maximum
Title of Security Amount to be Aggregate Price Aggregate Amount of
to be Registered Registered Per Share Offering Price Registration Fee
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<S> <C> <C> <C> <C>
Series F 7 1/4% Cumulative
Convertible Preferred Stock 300,000 shares (1) (1) (1)
("Preferred Stock")
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Common Stock, par value $.01
per share underlying Preferred 4,900,000 shares(2) $61.96(3) $303,604,000.00 $84,401.91*
Stock
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Common Stock to be resold by
certain persons 296,727 shares $51.97(4) $15,420,902.19 $4,287.01*
- --------------------------------------------------------------------------------------------------------------
Total $88,688.92*
==============================================================================================================
</TABLE>
* Previously paid.
(1) Filing fee being paid with respect to underlying shares of Common Stock.
(2) Pursuant to Rule 416(b) promulgated under the Securities Act of 1933, as
amended, this Registration Statement also covers a presently
indeterminable number of additional shares of Common Stock which may be
issued in lieu of cash dividends during the term of the Preferred Stock.
Pursuant to Rule 416, this Registration Statement also covers a presently
indeterminable number of additional shares of Common Stock issuable by the
Company in the event the Preferred Stock is converted in connection with a
change of control of the Company.
(3) Represents the conversion price ($61.96) for a share of Common Stock.
(4) Based on the average of the high and low prices of a share of Common Stock
as reported by Nasdaq on August 25, 1999, based on Rule 457(c).
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
<PAGE>
Preliminary Prospectus dated September 30, 1999
Subject to Completion
WINSTAR COMMUNICATIONS, INC.
-------------------------
300,000 Shares of Series F 7 1/4% Senior Cumulative Convertible Preferred Stock
(Liquidation Preference of $1,000 Per Share)
and 5,196,727 shares of Common Stock
This prospectus covers the sale by certain persons from time to time of an
aggregate of 300,000 shares of our outstanding Series F 7 1/4% Senior Cumulative
Convertible Preferred Stock. Our Series F preferred stock:
o is redeemable at our option commencing June 24, 2002;
o pays an annual dividend per share of $72.50, which will be paid by
us through the issuance of shares of our common stock. We are
required to pay the dividend through the issuance of these dividend
shares until our currently outstanding indebtedness has been repaid,
after which time we may pay these dividends in common stock or in
cash, at our election;
o is convertible, at the option of the holders, into shares of our
common stock. We will issue 16.13912 of these conversion shares for
each share of Series F preferred stock converted, which represents a
conversion price of approximately $61.96 per share; and
o is convertible, at our option, into shares of our common stock on
the same basis as above, under certain circumstances commencing June
24, 2002.
This prospectus also covers:
o the sale by holders of an indeterminable number of shares of common
stock that may be issued in lieu of cash dividends on the Series F
preferred stock;
o our issuance of up to approximately 4,900,000 conversion shares to
holders of Series F preferred stock upon conversion of the Series F
preferred stock; and
o the resale by holders of an aggregate of 296,727 shares of our
common stock that we previously issued in connection with various
transactions.
Our Series F preferred stock is eligible for trading in The Portal(Service
Mark) Market, a subsidiary of The Nasdaq Stock Market, Inc. Our common stock is
traded on the Nasdaq National Market under the symbol "WCII." The last sale
price of our common stock on the Nasdaq National Market on September 27, 1999
was $54.00 per share.
See "Risk Factors" beginning on page 9 of this prospectus for information
that should be considered by prospective investors.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The information in this prospectus is not complete and may be changed. No holder
may sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
The date of this prospectus is , 1999
<PAGE>
TABLE OF CONTENTS
Page
----
Summary.......................................................................3
Risk Factors..................................................................9
Price Range of Common Stock..................................................20
Dividend Policy..............................................................20
Capitalization...............................................................21
Certain United States Federal Income Tax Considerations......................22
Description of the Series F Preferred Stock..................................31
Description of Certain Indebtedness and Capital Stock........................48
Selling and Plan of Distribution ............................................58
Legal Matters................................................................61
Experts......................................................................62
Where You Can Find More Information..........................................62
Unaudited Pro Forma Condensed Consolidated Financial Statements.............F-1
------------------------------
This prospectus contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 with respect to our
financial condition, results of operations and business. The words "anticipate,"
"believe," "estimate," "expect," "plan," "intend," "predict," "project," "will,"
"could" and similar terms and expressions, as they relate to us, are intended to
identify forward-looking statements. These statements reflect our current views
with respect to future events and are subject to numerous risks, uncertainties
and assumptions. We cannot assure you that any of our expectations will be
realized. Factors that may cause actual results to differ materially from those
contemplated by forward-looking statements include, without limitation:
o our ability to service our debt or to obtain financing for the
buildout of our domestic and international telecommunications
networks;
o our ability to attract and retain a sufficient revenue-generating
customer base;
o competitive pressures in the telecommunications and technology
industries;
o general economic conditions; and
o the other risks described in this prospectus under the caption "Risk
Factors."
We do not undertake to update our forward-looking statements or risk
factors to reflect future events or circumstances.
2
<PAGE>
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SUMMARY
This summary is qualified in its entirety by the detailed information and
financial statements (and notes thereto) incorporated by reference into this
prospectus. Unless otherwise stated in this prospectus, references to "we,"
"us," "our" or "WinStar" refer to WinStar Communications, Inc. and, where
appropriate, our subsidiaries. Wireless Fibersm and Office.com(Service Mark) are
service marks, and WinStar(Registered), WinStar for Business(Trademark) and
WinStar Business Info Center(Trademark) are trademarks, of WinStar.
General
WinStar is a facilities-based provider of telecommunications services
primarily to businesses in a growing number of major markets throughout the
United States. Through our local broadband (i.e., high-capacity) networks, we
offer our customers a variety of individual and bundled services, including
local and long distance voice services, high-speed data transport, Internet
access and other enhanced communications services. We also provide
Internet-based information content and services, such as online business
resources. We provide our services with a high degree of customer care and at
competitive prices, which affords our customers an attractive alternative to the
incumbent local exchange carriers and other service providers. As of June 30,
1999, we had approximately 453,000 installed lines serving more than 16,000
business customers. We currently provide service in more than 30 major U.S.
markets, including Atlanta, Boston, Chicago, Dallas, Los Angeles, New York City,
San Diego, San Francisco and Washington, D.C. Revenues from our core
telecommunications services for the six months ended June 30, 1999 were $145.4
million compared to $51.1 million for the six months ended June 30, 1998.
In order to take advantage of the benefits derived from early market
entry, in December 1998 we announced a plan to accelerate the growth of our
business by expanding into 60 U.S. markets by the end of 2000, rather than the
40 U.S. markets previously announced. Additionally, we are expanding
internationally and intend to enter into up to 50 foreign markets by the end of
2004. We intend to serve each of our markets primarily with our local broadband
network.
An integral part of our network buildout is the interconnection of our
local broadband networks in the United States with long-haul fiber to create a
national end-to-end broadband network. This seamless national network will
operate as a true broadband alternative to the existing public telephone
networks that are owned and controlled by the incumbent service providers. Our
national broadband network will enable us to carry a substantial portion of our
customers' voice, data and video transmissions, from point of origination to
point of termination. Since this network will reduce our reliance on the
facilities of other providers, we will be able to substantially reduce our costs
and have greater control over the quality of service we provide.
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3
<PAGE>
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WinStar Local Broadband Networks
Our local broadband networks are based on our wireless transmission
capability, which we call "Wireless Fiber." Our Wireless Fiber services use the
38 GHz, 28 GHz and other portions of the radio spectrum to carry voice, data and
video transmissions. Our Wireless Fiber services can provide fiber-quality
transmission at speeds more than 350 times faster than ISDN, the fastest service
currently in general use on legacy networks. We believe that in order to
effectively use wireless spectrum for the commercial provision of broadband
communications services, a provider must have access to a large amount of
spectrum in each of the markets where it operates. We hold licenses that provide
us with the largest amount of 38 GHz radio spectrum in the country, as well as a
large amount of 28 GHz spectrum and other various spectrum rights. Our spectrum
holdings cover markets encompassing more than 200 million people and more than
80% of the business market in the United States.
We use our Wireless Fiber to establish connections between buildings in
which our customers are located and our hub site buildings. Transmissions are
carried between these locations using wireless connections between antennas
placed on the roof of each building. We select hub site buildings to maximize
the number of customer buildings which will have line of sight to the hub.
Connections between our hub sites and our switching facilities are made using
fiber or, in some instances, a second wireless link. Our switches seamlessly
deliver voice, data and video traffic to customers directly connected to our
network, the public switched telephone network or the Internet.
Business Strategy and Strengths
Our goal is to create one of the first national broadband networks and to
drive a high volume of customer traffic across this network. We believe that our
Wireless Fiber and switch-based infrastructure provides us with significant
competitive advantages, particularly over service providers that rely on
wireline connection for the last mile. Our strategy is to exploit these
advantages in order to attain our goal. Key elements of our strategy include:
o Rapidly and cost-effectively deploying our local infrastructure;
o Interconnecting our local networks to create a national broadband
network;
o Targeting customers located in "on-net" buildings;
o Offering attractive pricing and superior customer care; and
o Providing integrated voice and data telecommunications and
information services.
Corporate Information
WinStar was incorporated under the laws of the State of Delaware in
September 1990. Our principal office is located at 230 Park Avenue, New York,
New York 10169 and our telephone number is (212) 584-4000.
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4
<PAGE>
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Risk Factors
See "Risk Factors" commencing on page 9 hereof for a discussion of certain
risks that should be considered in connection with an investment in our Series F
preferred stock and our common stock.
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5
<PAGE>
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Summary Financial Information
The summary historical financial data presented below for the years ended
December 31, 1996, 1997 and 1998 have been derived from our audited consolidated
financial statements incorporated by reference into this Prospectus. The summary
historical financial data for the six months ended June 30, 1998 and 1999 have
been derived from our unaudited condensed consolidated financial statements
incorporated by reference into this Prospectus. In our opinion, the unaudited
condensed consolidated financial statements have been prepared on the same basis
as the audited consolidated financial statements and include all adjustments,
which consist of only normal recurring accrual adjustments, necessary for a fair
presentation of the results of operations for the periods presented.
The summary as adjusted data presented below for the year ended December
31, 1998 and for the six months ended June 30, 1999 have been derived from the
unaudited pro forma condensed consolidated financial statements included
elsewhere in this Prospectus. The pro forma adjustments are based upon available
information and certain assumptions that we believe are reasonable.
The pro forma financial statements and summary data do not purport to
represent what our results of operations would actually have been had the
financing transactions and our recent private placement in fact occurred on the
dates discussed in footnotes (a) through (c) below, or to project our results of
operations or financial condition for any future period or date. The financial
data below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the unaudited pro
forma condensed consolidated financial statements included elsewhere in this
Prospectus and the consolidated and condensed consolidated financial statements
incorporated by reference into this Prospectus from our Annual Report on Form
10-K and Quarterly Report on Form 10-Q set forth under the "Where You Can Find
More Information" section of this Prospectus.
<TABLE>
<CAPTION>
Year Ended Six Six Months Ended
Year Ended December 31, 1998 Months June 30, 1999
December 31, ----------------------- Ended ----------------------
---------------------- As June 30, As
1996 1997 Actual Adjusted(a) 1998 Actual Adjusted(b)
---- ---- ------ ----------- -------- ------ -----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Operating revenues:
Telecommunications services:
Core ...................... $ 604 $ 22,653 $ 141,466 $ 141,466 $ 51,117 $ 145,443 $ 145,443
Other ..................... 3,883 7,143 49,643 49,643 26,621 14,305 14,305
-------- --------- --------- --------- --------- --------- ---------
Total telecommunications services 4,487 29,796 191,109 191,109 77,738 159,748 159,748
Information services ............ 14,650 41,354 53,338 53,338 24,470 24,850 24,850
-------- --------- --------- --------- --------- --------- ---------
Total operating revenues .. 19,137 71,150 244,447 244,447 102,208 184,598 184,598
Operating loss:
Telecommunications services .. (40,731) (147,134) (231,017) (231,017) (109,985) (200,899) (200,899)
Information services ......... (1,409) (4,092) (10,167) (10,167) (95) (7,773) (7,773)
General corporate ............ (11,373) (27,312) (57,225) (57,225) (14,114) (17,464) (17,464)
-------- --------- --------- --------- --------- --------- ---------
Total operating loss ...... (53,513) (178,538) (298,409) (298,409) (124,194) (226,136) (226,136)
Interest expense ................ (36,748) (77,257) (156,599) (167,356) (69,105) (101,334) (101,334)
Interest income ................. 10,515 17,577 29,758 29,758 15,185 9,980 9,980
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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6
<PAGE>
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<TABLE>
<CAPTION>
Year Ended Year Ended Six Six Months Ended
December 31, December 31, 1998 Months June 30, 1999
------------------ ---------------------- Ended ----------------------
As June 30, As
1996 1997 Actual Adjusted(a) 1998 Actual Adjusted(b)
---- ---- ------ ----------- ---- ------ -----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Other income, net(c) ............ -- 4,719 5,500 5,500 2,500 2,000 2,000
------- --------- --------- --------- --------- --------- ---------
Loss from continuing operations . (79,746) (233,499) (419,750) (430,507) (175,614) (315,490) (315,490)
Loss from discontinued operations (3,977) (15,985) (24,974) (24,974) (3,643) -- --
-------- --------- --------- --------- --------- --------- ---------
Net loss ........................ (83,723) (249,484) (444,724) (455,481) (179,257) (315,490) (315,490)
Preferred stock dividends ....... -- (5,879) (42,968) (67,712) (19,485) (24,992) (35,367)
-------- --------- --------- --------- --------- --------- ---------
Net loss applicable to common
stockholders .................... $(83,723) $(255,363) $(487,692) $(523,193) $(198,742) $(340,482) $(350,857)
======== ========= ========= ========= ========= ========= =========
</TABLE>
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7
<PAGE>
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<TABLE>
<CAPTION>
Year Ended Year Ended Six Six Months Ended
December 31, December 31, 1998 Months June 30, 1999
------------------------ ------------------------ Ended ----------------------
As June 30, As
1996 1997 Actual Adjusted(a) 1998 Actual Adjusted(b)
---- ---- ------ ----------- ---- ------ -----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Basic and Diluted Loss per Share:
Actual and Pro Forma:
Loss per share from continuing
operations .............. $ (2.86) $ (7.20) $ (11.96) $ (12.70) $ (5.27) $ (7.23) $ (7.42)
Loss per share from discounted
operations .............. (0.14) (0.48) (0.65) (0.64) (0.10) -- --
---------- ----------- ----------- ----------- ----------- --------- ---------
Loss per share ............... $ (3.00) $ (7.68) $ (12.61) $ (13.34) $ (5.37) $ (7.23) $ (7.42)
========== =========== =========== =========== =========== ========= =========
Weighted average common shares
outstanding ............. 27,911 33,249 38,681 39,213 37,000 47,068 47,298
========== =========== =========== =========== =========== ========= =========
Other Financial Data:
Capital expenditures .............. $ 46,651 $ 222,196 $ 402,206 $ 402,206 $ 119,569 $ 327,995 $ 327,995
Depreciation and amortization ..... 3,764 25,102 74,953 74,953 28,294 63,276 63,276
</TABLE>
June 30, 1999
-------------
(in thousands)
Balance Sheet Data:
Cash, cash equivalent and short-term investments ................. $ 610,867
Property and equipment, net ...................................... 1,140,818
Total assets ..................................................... 2,569,527
Current portion of long-term debt and capital lease obligations .. 141,400
Long-term debt and capital lease obligations, less current portion 1,804,270
Total debt ....................................................... 1,945,670
Series C cumulative exchangeable redeemable preferred stock ...... 215,834
Series D senior cumulative convertible redeemable preferred stock 200,000
Common and other preferred stock and additional paid-in capital .. 1,005,513
Stockholders' deficit ............................................ (141,280)
- ----------
(a) Gives effect to (1) a private placement in March 1998 of (A) $200.0
million of our 10% Senior Subordinated Notes Due 2008, (B) $250.0 million
of our 11% Senior Subordinated Deferred Interest Notes Due 2008 and (C)
$200.0 million principal amount of our 7% Senior Cumulative Convertible
Preferred Stock Due 2010 ((A)-(C) collectively, the "March 1998 Financing
Transactions") and (2) the June 1999 Private Placement, each as if they
had occurred on January 1, 1998. Interest expense has been increased to
include approximately $10.8 million of interest on such debt and
amortization of deferred debt offering costs and other related fees for
the year ended December 31, 1998, but does not include interest income
earned on additional available cash.
(b) Gives effect to the June 1999 Private Placement as if it had occurred on
January 1, 1999.
(c) The years ended December 31, 1997 and 1998 and the six months ended June
30, 1998 and 1999 include a deferred income tax benefit of $2.5 million,
$5.5 million, $2.5 million and $2.0 million, respectively.
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8
<PAGE>
RISK FACTORS
Prospective purchasers of the securities offered hereby should carefully
consider the risk factors set forth below, as well as the other information
appearing in or incorporated by reference into this prospectus, before making an
investment in any such securities.
We have a history of losses and expect that losses will continue in the future.
Since our inception, we have incurred significant and growing net losses
and significant negative EBITDA. EBITDA means earnings, and negative EBITDA
means losses, in each case before interest, income taxes, depreciation and
amortization, other income (expense) and discontinued operations. Our net losses
and negative EBITDA will continue to increase substantially as a result of the
growth of our telecommunications business in some of our existing markets, our
expansion into additional domestic and international markets and expenses
relating to the servicing of our debt. We cannot assure you that we will ever
achieve or, if achieved, maintain, profitability or positive EBITDA.
Our substantial level of indebtedness could adversely affect our financial
health and prevent us from fulfilling our outstanding debt obligations.
Our high level of indebtedness and other payment obligations could have
important consequences for holders of our securities as well as our business in
general, including:
o limiting our ability to obtain additional financing;
o limiting our flexibility in planning for, or reacting to, changes in
our business; and
o placing us at a competitive disadvantage to less leveraged
competitors, which could have more free cash flow to invest in their
operations.
In addition to our current level of indebtedness, we and our subsidiaries have
the ability to incur substantially more debt. This additional debt could further
exacerbate the risks described above.
Although the agreements governing our indebtedness place certain
limitations on the incurrence of additional indebtedness by us and certain of
our subsidiaries, under certain circumstances we can incur substantial amounts
of additional indebtedness. For example, we may be able to borrow up to $2.0
billion under our Lucent credit agreement and engage in other equipment
financings, all of which will be secured by equipment and will be senior to the
Series F preferred stock. At June 30, 1999, we had borrowed $362.7 million under
this financing agreement. Additionally, the agreements governing our
indebtedness do not limit the amount of debt that our New Media or certain other
subsidiaries may incur. If we or our subsidiaries incur additional debt, the
related risks discussed above could intensify.
9
<PAGE>
We will require a significant amount of cash to service our indebtedness and
outstanding preferred stock. Our ability to generate cash depends on many
factors, some of which are beyond our control.
A substantial portion of our indebtedness requires cash interest payments
commencing in 2001 and will begin to mature in 2004. In addition, certain of our
preferred stock may require mandatory redemption payments in cash. We may not
have sufficient cash flow to make these payments. If we are unable to make the
required payments, we may be in default under the terms of substantially all of
our outstanding indebtedness and certain of our preferred stock. Also, under
certain circumstances, holders of such indebtedness may be able to accelerate
payments owed them under such indebtedness. In this event, it is unlikely that
all of our obligations would be paid in full. We expect that we will need to
refinance certain of our indebtedness on or prior to maturity. However, our
ability to obtain any such additional financing may be limited by our financial
condition, our operating results or the condition of the financial markets. We
cannot assure you that we will be able to refinance these obligations or, if
refinanced, what the terms of such refinancing will be.
We require significant capital to expand our operations and make acquisitions.
The expansion of our telecommunications operations domestically and abroad
and the continued funding of operating expenses require substantial capital
investment. Additionally, as part of our strategy, we may seek to acquire
complementary assets or businesses (including additional spectrum licenses),
which also could require substantial capital investment. Under our current
business plan, we plan to spend approximately $600.0 million in 1999 for capital
equipment. We anticipate, based on this plan and related assumptions (including
an assumption of full availability of the $2.0 billion under our Lucent credit
agreement), that our existing financial resources, payments to be received from
Williams and additional accounts receivable and equipment financings that we
intend to seek, will be sufficient to fund our operations and capital
requirements for approximately 18 to 24 months from the date of this prospectus.
We may, however, be required to seek additional sources of capital sooner than
we anticipate.
Our quarterly results of operations are not always indicative of our results of
operations for the full year or otherwise.
Our quarterly results of operations may vary significantly, depending on
factors such as timing of substantial capacity sales, the purchase of intercity
or intracity fiber backbones (in place of temporary leased circuits), the
acquisition of additional businesses or the reduction of vendor costs through
the renegotiation of term contracts or receipt of refunds or credits resulting
from volume or performance standards. Accordingly, results of operations for any
quarter are not necessarily indicative of the results of operations for a full
year or otherwise.
10
<PAGE>
We are subject to extensive federal and state laws, rules and regulations. These
laws, rules and regulations could change at any time in an unpredictable manner.
The telecommunications services business is highly regulated domestically
at the federal, state and local levels, and abroad by foreign governments. Our
continued ability to acquire and maintain wireless licenses, which are extremely
important to our success, is also subject to extensive regulation. This
regulatory environment directly affects the breadth of services we are able to
offer, the rates, terms and conditions of those services and the rates, terms
and conditions of necessary underlying services we must secure from other
telecommunications providers. We also are affected indirectly by such regulatory
environment's effect on companies that offer competing services. This regulatory
environment is subject to continual change as a result of new legislation,
regulations adopted from time to time by applicable regulatory authorities and
judicial interpretation of these laws and regulations. We are not able to
predict the extent to which any such change in the regulatory environment would
affect our business. We cannot assure you that changes in legislation,
regulations and interpretations would not have a significant adverse impact on
our ability to operate and achieve our business objectives.
We operate our business in a highly competitive industry. Many of our
competitors are better established and have significantly more resources.
We face strong competition in each of the markets where we operate.
Competitors include regional, national and global companies. Moreover, the
growing consolidation of companies and formation of strategic alliances within
the telecommunications and media industries could give rise to significant new
or stronger competitors. Most of our competitors are well-established and have
larger and better developed networks and systems, longer-standing relationships
with customers and suppliers, greater name recognition and significantly greater
financial, technical and marketing resources. Many of these companies have the
ability to subsidize competing services with revenues from a variety of their
other services. As competition increases in domestic and international
telecommunications markets, we anticipate a significant increase in general
pricing pressures. We have not obtained significant market share in any of the
markets where we offer services, nor do we expect to do so given the size of
these markets, the intense competition in these markets and the diversity of
customer requirements. We cannot assure you that we will be able to compete
effectively in any of our markets.
Our rapid growth will place a significant strain on us. Many factors will affect
our ability to manage our future growth.
We are pursuing a strategy of aggressive and rapid growth. Our rapid
growth has in the past placed, and may in the future place, a significant strain
on our business resources. Our failure to manage our growth in an efficient
manner could have an adverse effect on our business, financial condition,
results of operations, the value of our securities (including the Series F
preferred stock) or our subsidiaries' abilities to make principal and interest
payments on outstanding indebtedness or dividends or distributions on our common
and preferred stock, including the Series F preferred stock.
11
<PAGE>
As part of our strategy, we may acquire complementary assets or
businesses. The pursuit of acquisition opportunities will place significant
demands on the time and attention of our 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 our existing operations. We cannot
assure you that we will be able to successfully consummate any acquisitions or
integrate any business or assets which we may acquire.
We plan on entering additional foreign markets. We will be subject to many
additional risks as we seek to enter such markets and as they become
operational.
We are expanding the offering of our telecommunications services into
parts of Europe, Asia and South America. Certain risks inherent in our seeking
to enter foreign markets and doing business within such markets include:
o regulatory limitations delaying, restricting or prohibiting us from
providing our services, including the inability to acquire spectrum
rights or other licenses;
o difficulties in staffing and managing our foreign operations;
o unanticipated changes in regulatory requirements, tariffs, customs,
duties and other trade barriers;
o limitations on our flexibility in structuring our foreign
investments imposed by the agreements governing our outstanding
indebtedness;
o longer payment cycles and problems in collecting accounts
receivable;
o political risks;
o fluctuations in exchange rates of international currencies; and
o potentially adverse tax consequences resulting from operating in
multiple countries with different laws and regulations.
We must obtain access rights to buildings on which we wish to place our
antennas. Furthermore, our Wireless Fiber services operate by linking these
antennas via a wireless signal, but there is a limit on how far any two of our
linked antennas can be apart.
We must obtain rights to access each building or structure where our
antennas will be placed. We will not be able to implement our expansion at the
rate currently planned if we do not obtain these access rights in a timely
manner. We cannot assure you that we will be successful in obtaining the access
rights necessary to expand our Wireless Fiber services as planned or in
obtaining any construction, zoning, franchises or other governmental permits
that may be necessary for us to provide Wireless Fiber service to our customers
at reasonable costs or on
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favorable terms, or at all. Further, we cannot assure you that we will receive
orders for Wireless Fiber services which allow us to utilize access rights we do
obtain.
As fixed wireless telecommunications services are not yet widely used, we are
uncertain how successful we will be in marketing our Wireless Fiber services.
The provision of fixed wireless telecommunications services over 38 GHz
and 28 GHz spectrum is an emerging sector of the telecommunications industry and
has not yet been widely accepted. Historically, this sector has been associated
with the reputation of previous microwave radio technologies for unreliability
and lack of security. We have not yet obtained a significant market share in any
of the licensed areas where we offer our Wireless Fiber services, although we
have been marketing them since December 1994. We cannot assure you that a
substantial market will develop for fixed wireless telecommunications services
or that we will be able to successfully market our Wireless Fiber services.
We must respond to the rapid changes in technology, services and standards which
characterize our industry.
The telecommunications and related technology industries are subject to
rapid technological change, frequent new service introductions and evolving
industry standards. We believe that our future success will depend largely on
our ability to anticipate or adapt to such changes and to offer, on a timely
basis, services that meet evolving standards. We cannot predict the extent to
which competitors using existing or currently undeployed methods of delivery of
telecommunications services will compete with our Wireless Fiber services.
Furthermore, we cannot be certain that existing, proposed or as yet undeveloped
technologies will not render 38 GHz-based (and other spectrum-based) systems
less profitable or less viable. There are several existing and evolving
technologies, including coaxial cable, unlicensed spectrum and digital
subscriber line technology, that allow broadband transmission over existing
copper lines. We cannot assure you that we will have the resources to acquire
new technologies or to introduce new services that could compete with future
technologies or that equipment held in our inventory will not be rendered
obsolete.
We rely in large part on third parties with whom we have business arrangements.
Our success depends on the abilities of these parties to provide reliable
services to us.
To operate our growing business, we have negotiated business arrangements
with unrelated third parties. The failure of any of these third parties to
perform under their respective agreements or the termination or discontinuance
of any of these agreements could have an adverse effect on our results of
operations or our ability to service our customers. Examples of these
arrangements include:
o Our use of the facilities of incumbent local exchange carriers,
fiber providers, such as Williams and Metromedia Fiber, and major
long distance companies to carry some or all of our customers'
traffic.
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o Our use of third parties to market our Wireless Fiber services and
maintain our operational systems.
o Our agreement with Lucent to provide extensive services in
connection with the buildout of our broadband network. Our expansion
and the buildout of our network could be delayed if Lucent does not
adequately perform these services or if we are required to find an
alternative to Lucent.
The agreements governing our indebtedness and preferred stock impose significant
restrictions on our business and financing activities.
The agreements and other instruments governing our indebtedness and
certain of our preferred stock impose significant operating and financial
restrictions on us, including certain limitations on our ability to incur
additional indebtedness, create liens on our assets, pay dividends, sell assets,
engage in mergers or acquisitions or make investments. Our failure to comply
with any such restrictions could limit the availability of borrowings or result
in a default under the terms of our indebtedness. Moreover, these restrictions
could limit our ability to engage in certain business transactions which we may
wish to consummate, including joint ventures or similar arrangements with
foreign partners in connection with our expansion abroad. Our inability to
consummate any such transaction could have an adverse effect on our operations,
the value of our securities, including the Series F preferred stock, or on our
subsidiaries' abilities to make principal and interest payments on outstanding
indebtedness or dividends or distributions on our common and preferred stock.
We must hire and retain qualified personnel to operate our growing business and
competition for these employees is intense.
We believe that our growth and future success will depend in large part on
our continued ability to attract and retain highly skilled and qualified
personnel. The failure to recruit additional qualified personnel in the future
could significantly impede our ability to expand our business domestically and
abroad, to complete the integration of acquired businesses or to otherwise
implement our strategy. Largely due to deregulation and the significant increase
in the number of companies providing telecommunications services, competition
for qualified personnel in the telecommunications industry is intense. We cannot
assure you that we will be able to hire or retain necessary personnel.
Computer programs and microprocessors that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000, or not
recognize the date at all, which could result in major system failures or
miscalculations.
We are currently addressing the issue of whether or to what extent our
systems will be vulnerable to potential errors and failures as a result of the
"Year 2000" problem, which is the result of certain computer programs being
written using two digits, rather than four digits, to define the applicable
year. Computer programs and microprocessors that have time-sensitive software
may recognize a date using "00" as the year 1900 rather than the year 2000, or
not recognize the date at all, which could result in major system failures or
miscalculations. If we or
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<PAGE>
our suppliers or vendors experience Year 2000 problems, these problems could
adversely impact our ability to service our customers or otherwise carry on our
business, including causing interruptions in the operation of our network,
traffic data, customer order processing and provisioning systems, customer
billing and invoicing and data interfaces to and from these systems.
Emissions from our antennas may be a health risk.
The use of wireless equipment, such as antennas, has been alleged to pose
health risks due to radio frequency emissions. Any allegations of health risks,
if proven, could result in liability on our part. In addition, we could be
required to reduce power in our transmissions or otherwise change the way we
operate in order to reduce emissions to acceptable levels. Any of these results
could reduce public acceptance of wireless systems and adversely affect our
financial condition or results of operations. The FCC recently adopted new
guidelines and methods for evaluating the environmental effects of such
emissions from FCC-regulated transmitters, including wireless antennas. The
updated guidelines and methods generally are more stringent than those
previously in effect. We expect that all of our equipment and operations will
comply with applicable FCC guidelines.
Certain provisions of our certificate of incorporation could have effects that
conflict with the interests of our stockholders.
Certain provisions of our certificate of incorporation could make it more
difficult for a third party to acquire control of us, even if such change in
control would be beneficial to our stockholders. For example, our certificate of
incorporation allows us to issue preferred stock without stockholder approval.
We also have adopted a rights plan that grants certain of our stockholders the
right to buy shares of preferred stock if a person acquires 10% or more of our
outstanding common stock. Any such issuances of preferred stock could make it
more difficult for a third party to acquire us.
We are restricted from paying cash dividends and from redeeming the Series F
preferred stock. We also could be prevented from paying dividends in shares of
our common stock.
The terms of the instruments governing our indebtedness and certain of our
preferred stock restrict our ability to pay cash dividends and to redeem the
Series F preferred stock. Our ability to pay cash dividends and redeem our
Series F preferred stock will depend on our meeting certain financial criteria,
which in turn will require significant improvements in the Company's EBITDA and
consolidated net worth. Even if the terms of the instruments governing our
indebtedness and preferred stock allow us to pay cash dividends and to redeem
the Series F preferred stock, we can make such payments only from our "surplus"
(the excess of our total assets over the sum of our liabilities plus the par
value of our outstanding capital stock) and we cannot assure you that we will
have any surplus. Moreover, without surplus, we cannot pay dividends in shares
of our common stock.
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<PAGE>
Our ability to issue senior preferred stock in the future could adversely affect
the rights of holders of Series F preferred stock and our common stock.
We are authorized to issue preferred stock in one or more series on terms
that may be determined at the time of issuance by our board of directors. In
certain instances, a series of preferred stock could include voting rights,
preferences as to dividends and liquidation, conversion and redemption rights
senior to the Series F preferred stock, and in all instances, senior to our
common stock. The future issuance of preferred stock could effectively diminish
or supersede the dividends and liquidation preferences of the Series F preferred
stock and adversely affect our common stock.
The exercise or conversion of our outstanding options, warrants and other
convertible securities into common stock will dilute the percentage ownership of
our stockholders. The sale of such common stock in the open market could
adversely affect the market price of our common stock.
As of September 27, 1999, there were outstanding options and warrants to
purchase approximately 18,000,000 shares of our common stock and more options
will be granted in the future under our employee benefit plans. Additionally,
certain of our outstanding securities, including the Series F preferred stock,
are currently convertible into approximately 13,315,000 shares of our common
stock. Substantially all of the shares of common stock underlying such
securities are or will be registered for resale under the Securities Act. The
exercise or conversion of outstanding stock options, warrants or other
convertible securities will dilute the percentage ownership of our other
stockholders. In addition, any sales in the public market of shares of our
common stock issuable upon the exercise or conversion of such stock options,
warrants or convertible securities, or the perception that such sales could
occur, may adversely affect the prevailing market price of our common stock.
The sale of a substantial number of shares of our common stock in the public
market could adversely affect the market price of our common stock.
Substantially all of our currently outstanding shares of common stock have
been registered for sale under the Securities Act, are eligible for sale under
an exemption from the registration requirements or are subject to registration
rights pursuant to which holders may require us to register such shares in the
future. Sales or the expectation of sales of a substantial number of shares of
our common stock in the public market could adversely affect the prevailing
market price of our common stock.
Your right to receive liquidation and dividend payments on the Series F
preferred stock is junior to our existing and future senior indebtedness and to
all of the liabilities of our subsidiaries.
Our obligations with respect to the Series F preferred stock do not
constitute indebtedness for borrowed money and with respect to liquidation and
dividend payments rank:
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o junior to all present and future indebtedness and other payment
obligations of ours and of our subsidiaries and all future Senior
Stock (as defined);
o on parity with our Series C preferred stock, Series D preferred
stock and all future capital stock designated as on parity; and
o senior to our Series A preferred stock, Series E preferred stock and
all classes of common stock.
Further, the claims of creditors of our subsidiaries will be effectively
senior to all payments, including liquidation and dividend payments on the
Series F preferred stock. As of June 30, 1999, we had approximately $2,295.0
million of indebtedness and other liabilities (including capitalized lease
obligations and trade payables of our subsidiaries), all of which are senior in
right of payment to the Series F preferred stock. We currently have no senior
stock outstanding. In the event of our bankruptcy, liquidation or
reorganization, our assets will be available to pay obligations on the Series F
preferred stock only after all of our indebtedness and all Senior Stock, if any,
has been paid, and there may not be sufficient assets remaining to pay amounts
due on any or all of the Series F preferred stock then outstanding and any
preferred stock ranking on parity with the Series F preferred stock.
Because we are a holding company, we have no significant assets other than stock
of our subsidiaries and the proceeds generated from sales of our securities.
Once these proceeds are spent, we will depend on our subsidiaries to generate
the funds needed to operate our business.
We are a holding company with no business operations. Our only material
assets consist of the stock of our subsidiaries and the proceeds raised from the
sale of our equity and debt securities, all of which we have loaned or
contributed, or intend to loan or contribute, to our subsidiaries. We will have
to rely upon dividends and other payments from our subsidiaries to generate the
funds necessary to repurchase the Series F preferred stock or make cash dividend
payments, if any. Our subsidiaries, however, are legally distinct from us and
have no obligation, contingent or otherwise, to pay amounts due pursuant to the
Series F preferred stock or to make funds available for these payments. Our
subsidiaries have not guaranteed the Series F preferred stock. The ability of
our subsidiaries to make dividend and other payments to us is subject to, among
other things, the availability of funds, the terms of our subsidiaries'
indebtedness and applicable state laws.
We cannot assure you that an active trading market will develop for the Series F
preferred stock.
We have been informed by the initial purchasers of the Series F preferred
stock in the June 1999 Private Placement that they intend to make a market in
the Series F preferred stock; however, they are not obligated to do so and may
cease their market-making activities at any time. In addition, the liquidity of
any trading market in the Series F preferred stock, and the market price quoted
for the Series F preferred stock, may be adversely affected by changes in the
overall market for convertible securities and by changes in our financial
performance or prospects or in
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<PAGE>
the prospects for companies in our industry generally. As a result, we cannot
assure you that an active trading market will develop or be maintained for the
Series F preferred stock.
Restrictions applicable to the conversion shares and the dividend shares.
With respect to shares of Series F preferred stock that are "restricted
securities" on a record date for the payment of dividends or issuance of
conversion shares, the dividend shares and the conversion shares issued thereon
will also be treated as "restricted securities" as defined in Rule 144, will
bear a legend to such effect and will not be transferable by the recipient
thereof except pursuant to an effective registration statement (such as the
registration statement of which this prospectus forms a part) or an exemption
from registration.
All the conversion shares and dividend shares issued with respect to
restricted shares of Series F preferred stock will be issued in physical
certificated form and will not be eligible for receipt in global form through
the facilities of the Depositary. As a result of the requirement for the
physical delivery of such dividend shares, holders who have not made
arrangements with the Depositary, the transfer agent and WinStar prior to a
dividend payment date for the delivery of the physical certificates on such
dividend payment date may not receive physical delivery until several days after
the dividend payment date. See "Description of the Series F Preferred
Stock-Registration Rights."
With respect to shares of Series F preferred stock that are no longer
"restricted securities" on a record date for the payment of dividends or on a
conversion date, either as a result of a resale of the Series F preferred stock
pursuant to the registration statement or otherwise, all dividend shares
distributed on the related dividend payment date and all conversion shares on
the conversion date will be freely transferable without restriction under the
Securities Act (other than by affiliates), and such shares will be eligible for
receipt in global form through the facilities of the Depositary.
Certain tax considerations relating to the Series F preferred stock.
Distributions on the Series F preferred stock will be taxable for United
States federal income tax purposes as ordinary dividend income (and eligible for
the dividends-received deduction for certain United States corporate holders)
only to the extent paid out of our current or accumulated earnings and profits
as determined for federal income tax purposes and otherwise will be treated in
the manner described under "Certain United States Federal Income Tax
Considerations-Tax Considerations for U.S. Holders of Series F preferred
stock-Distributions in General." However, we do not currently have any current
or accumulated earnings and profits and cannot accurately predict at what point
we will have current or accumulated earnings and profits. Absent current or
accumulated earnings and profits, we anticipate that distributions on the Series
F preferred stock will constitute tax-free returns of capital to the extent of
the holder's tax basis in the Series F preferred stock and thereafter capital
gain and will not be eligible for the dividends-received deduction.
In the case of a distribution on the Series F preferred stock that is paid
in the form of shares of common stock, the fair market value of the distributed
shares on the distribution date
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will be taxable for United States federal income tax purposes in the same manner
as a cash distribution on the distribution date notwithstanding that the cash
deemed attributable to such distribution will not be received by the holder
until such holder disposes of such stock at a later time. In addition, the
amount realized in connection with such disposition may differ from the amount
of cash deemed attributable to such aforementioned distribution. See "Certain
United States Federal Income Tax Considerations."
The market price of our common stock has fluctuated significantly, sometimes in
a manner unrelated to our performance.
The market price of our common stock could vary widely in response to
various factors and events, including:
o the number of shares of our common stock being sold and purchased in
the marketplace;
o variations in our operating results;
o press reports;
o regulation and industry trends;
o rumors of significant events which can circulate quickly in the
marketplace, particularly over the Internet; and
o the difference between our actual results and the results expected
by investors and analysts.
Since our common stock has been publicly traded, its market price has
fluctuated over a wide range and we expect it to continue to do so in the
future. In addition, the stock market in recent years has experienced broad
price and volume fluctuations that have often been unrelated to the operating
performance of companies, particularly telecommunications and technology
companies. These broad market fluctuations also may adversely affect the market
price of our common stock. We cannot assure you that the market price of the
common stock will exceed the effective conversion price of the Series F
preferred stock.
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PRICE RANGE OF COMMON STOCK
Our common stock has been quoted on the Nasdaq National Market since June
1994 under the symbol "WCII."
The following table sets forth, for the fiscal periods indicated, the high
and low last sale prices of our common stock as reported on the Nasdaq National
Market. The quotes represent "inter-dealer" prices without adjustment or
mark-ups, mark-downs or commissions and may not necessarily represent actual
transactions.
Period Ended High Low
- ------------ ---- ---
March 31, 1997 ....................................... $20.25 $11.63
June 30, 1997 ........................................ 14.63 10.13
September 30, 1997 ................................... 19.19 14.25
December 31, 1997 .................................... 29.25 21.25
March 31, 1998 ....................................... 44.81 24.63
June 30, 1998 ........................................ 47.38 36.63
September 30, 1998 ................................... 41.75 18.25
December 31, 1998 .................................... 39.00 13.00
March 31, 1999 ....................................... 44.44 29.75
June 30, 1999 ........................................ 59.00 37.00
July 1, 1999 through September 27, 1999 .............. 64.44 42.06
The last sale price of our common stock on September 27, 1999 was $54.00
per share. As of September 27, 1999, 54,680,026 shares of our common stock were
held by more than 1,000 beneficial holders.
DIVIDEND POLICY
We never have paid any dividends on our common stock and we do not intend
to pay any dividends in the foreseeable future. In addition, the terms of the
instruments governing our indebtedness and preferred stock restrict our ability
to pay cash dividends. We intend to retain our cash for the continued expansion
of our business.
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CAPITALIZATION
The following table sets forth our cash and capitalization as of June 30,
1999 and should be read in conjunction with the consolidated and condensed
consolidated financial statements incorporated by reference into this
Prospectus.
<TABLE>
<CAPTION>
(in thousands,
except share data)
------------------
<S> <C>
Cash, cash equivalents and short-term investments .................................. $ 610,867
===========
Long term debt and capital lease obligations:
12 1/2% Guaranteed Senior Secured Notes Due 2004 of WEC ...................... $ 200,000
12 1/2% Guaranteed Senior Secured Notes Due 2004 of WEC II ................... 50,000
14% Senior Discount Notes Due 2005 ........................................... 247,148
14 1/2 Senior Deferred Interest Notes Due 2005 ............................... 137,788
15% Senior Subordinated Deferred Interest Notes Due 2007 ..................... 128,672
10% Senior Subordinated Notes Due 2008 ....................................... 200,000
11% Senior Subordinated Deferred Interest Notes Due 2008 ..................... 286,851
Lucent financing agreement ................................................... 362,738
Capital lease obligations and other notes (including current portion) ........ 332,473
-----------
Total long term debt and capital lease obligations .................... 1,945,670
-----------
Series C 14 1/4% Senior Cumulative Exchangeable Preferred Stock Due 2007(a) ........ 215,834
-----------
Series D 7% Senior Cumulative Convertible Preferred Stock Due 2010(a) .............. 200,000
-----------
Stockholders' equity (deficit):
Series F 7 1/4% Senior Cumulative Convertible Preferred Stock, $.01 par value,
300,000 shares authorized, 300,000 issued and outstanding ................. 3
Series A 6% Cumulative Convertible Preferred Stock, $.01 par value,
6,000,000 shares authorized, 4,212,000 issued and outstanding(a) .......... 42
Series E Non-Redeemable Junior Convertible Preferred Stock, $.01 par value,
75,100 shares authorized, issued and outstanding(a) ....................... 1
Common stock, $.01 par value, 200,000,000 shares authorized, 54,326,000
shares issued and outstanding(b) .......................................... 543
Additional paid-in-capital ................................................... 1,004,924
Accumulated deficit .......................................................... (1,134,732)
Accumulated other comprehensive loss ......................................... (12,061)
-----------
Total stockholders' deficit ........................................... (141,280)
-----------
Total capitalization .......................................... $ 2,220,224
===========
</TABLE>
- ----------
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(a) See "Description of Certain Indebtedness and Capital Stock--Preferred
Stock" for a description of our Series A preferred stock, Series C
preferred stock, Series D preferred stock, Series E preferred stock and
existing rights to purchase Series B preferred stock.
(b) Does not include (i) 837,000 shares of common stock issuable upon exercise
of options granted or which may be granted under the 1992 Performance
Equity Plan, (ii) 13,840,000 shares of common stock issuable upon exercise
of options granted or which may be granted under the 1995 Performance
Equity Plan, (iii) 8,533,000 shares of common stock issuable upon exercise
of other outstanding options and warrants, (iv) 658,000 shares of common
stock issuable under the Employee Stock Purchase Plan and (v)
approximately 13,465,000 shares of common stock issuable upon conversion
of our preferred stock. Also does not include shares of common stock
issuable under commitments to pay approximately $1.8 million in common
stock in connection with the acquisition of additional spectrum licenses.
The exercise and conversion prices of a substantial majority of the
foregoing are below the current market price of our common stock as of the
date of this Prospectus.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of the material United States
federal income tax consequences applicable to holders of our Series F preferred
stock resulting from their purchase, ownership, conversion and disposition of
our Series F preferred stock. This discussion is based on the Internal Revenue
Code of 1986, regulations of the Treasury Department, administrative rulings and
pronouncements of the IRS and judicial decisions, all of which are subject to
change, possibly with retroactive effect. This discussion does not purport to
address all the United States federal income tax consequences that may be
applicable to particular holders, including dealers in securities, financial
institutions, insurance companies, persons that hold our Series F preferred
stock or common stock as part of a straddle or conversion transaction and
tax-exempt organizations.
Except as provided below with respect to non-U.S. holders, this discussion
is limited to U.S. persons who hold our Series F preferred stock and the common
stock as a "capital asset" within the meaning of Section 1221 of the Code. As
used in the discussion which follows, the term "U.S. Holder" means any person or
entity which is (a) a citizen or resident (as defined in Section 7701(b)(1) of
the Code) of the United States, (b) a corporation or other entity taxable as a
corporation created or organized in or under the laws of the United States or of
any state thereof (including the District of Columbia) or (c) an estate or trust
that is described in Section 7701(a) (30) of the Code, and a "Non-U.S. Holder"
means any holder of the Series F preferred stock and the common stock that is
not a U.S. Holder.
Prospective holders should consult their own tax advisors as to any
federal, state, local, foreign or other tax consequences to them of purchasing,
owning and disposing of Series F preferred stock.
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<PAGE>
Tax Considerations for U.S. Holders of Series F Preferred Stock
Distributions in general
Distributions with respect to our Series F preferred stock, whether paid
in cash or dividend shares, will be treated as dividends (taxable as ordinary
income) to the extent of our current and accumulated earnings and profits as
calculated for United States Federal income tax purposes. The amount of any
distribution with respect to our Series F preferred stock will be equal to the
amount of cash distributed or, in the case of a distribution in the form of
common stock, the fair market value of the shares of common stock on the date of
the distribution. We do not anticipate paying cash dividends on our Series F
preferred stock in the foreseeable future. To the extent that the amount of a
distribution with respect to our Series F preferred stock exceeds our current
and accumulated earnings and profits, it will be treated first as a tax-free
return of capital to the extent of the holder's basis in the Series F preferred
stock, and thereafter as capital gain from the sale of our Series F preferred
stock (taxable as described below under "Sale, Redemption or Other Taxable
Disposition of Series F preferred stock"). We do not currently have any current
or accumulated earnings and profits, and cannot accurately predict when we will
have earnings and profits. A holder's tax basis in dividend shares will be the
fair market value of such shares on the date of the distribution. A holder's
holding period for dividend shares will commence on the day following the date
of distribution and will not include such holder's holding period for the shares
of Series F preferred stock with respect to which the dividend shares were
distributed.
Dividends to corporate holders
A U.S. Holder that is a corporation otherwise entitled to the
dividends-received deduction as provided in Section 243 of the Code will be
entitled to that deduction (generally at a 70% rate) with respect to amounts
treated as dividends on the Series F preferred stock but will not be entitled to
that deduction with respect to amounts treated as a return of capital or capital
gain. In addition, the benefit of a dividends-received deduction may be reduced
by the corporate alternative minimum tax. In determining entitlement to the
dividends-received deduction, corporate holders should also consider the
provisions of Sections 246(c), 246A and 1059 of the Code and Treasury
Regulations promulgated thereunder, and IRS rulings and administrative
pronouncements relating to such Code provisions.
Under current law as amended by the Taxpayer Relief Act of 1997, Section
246(c) of the Code disallows the dividends-received deduction in its entirety if
the holder does not satisfy the applicable holding period requirement for the
dividend-paying stock for a period immediately before or immediately after such
holder becomes entitled to receive each dividend on the stock. Section 246(c)(4)
of the Code provides that a holder may not count toward this minimum holding
period any period in which the holder:
o has, among other things, an option to sell Series F preferred stock
which it owns;
o is under a contractual obligation to sell Series F preferred stock
which it owns;
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o has made (and not closed) a short sale of substantially identical
stock or securities, or
o has diminished its risk of loss by holding one or more positions
with respect to substantially similar or related property.
For purposes of the second bulletpoint above, the obligation to sell upon
our exercise of our option to redeem Series F preferred stock is not considered
a contractual obligation to sell by a corporate holder. Under certain
circumstances, Section 1059 of the Code (a) reduces the tax basis of stock by a
portion of any "extraordinary dividends" that are eligible for the
dividends-received deduction and (b) to the extent that the basis reduction
would otherwise reduce the tax basis of the Series F preferred stock below zero,
requires immediate recognition of gain, which is treated as gain from the sale
or exchange of the stock. In the case of the Series F preferred stock, an
"extraordinary dividend" would include any amount treated as a dividend with
respect to a redemption that is not pro rata to all stockholders (or meets
certain other requirements), without regard to either the relative amount of the
dividend or the holder's holding period for the Series F preferred stock.
Section 246A of the Code contains the "debt-financed portfolio stock"
rules, under which the dividends-received deduction could be reduced to the
extent that a holder incurs indebtedness directly attributable to its investment
in the Series F preferred stock.
Receipt of conversion shares upon conversion of the Series F preferred
stock
Gain or loss will not be recognized by a holder upon the conversion of the
Series F preferred stock into conversion shares if no cash is received. A holder
who receives cash in lieu of a fractional share of common stock will in general
be treated as having received such fractional share and having exchanged it for
cash in a redemption, which would be treated in the manner described under
"Sale, Redemption or other Taxable Disposition of the Series F preferred stock."
As discussed therein, a holder who cannot qualify for sale or exchange treatment
under the rules applicable to redemptions will generally be taxable on the cash
received in lieu of a fractional share as a distribution described in
"Distributions in General" above.
Generally, a holder's basis in the conversion shares will equal the
adjusted tax basis of the converted Series F preferred stock (other than the
portion of such Series F preferred stock, the conversion of which resulted in
the recognition of gain or loss due to the receipt of cash in lieu of fractional
shares). The holding period of such conversion shares will include the holding
period of the converted Series F preferred stock.
Adjustment of conversion ratio in respect of Series F preferred stock
Adjustments to the conversion ratio to take into account a stock dividend
or stock split will not be taxable. However, an adjustment to the conversion
ratio to reflect our issuance of certain rights, warrants, evidences of
indebtedness, securities or other assets to holders of common stock may result
in constructive distributions to the holders of the Series F preferred stock.
The amount of any such constructive distribution would be the fair market value
on the date of the
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adjustment of the number of shares of common stock which, if actually
distributed to holders of Series F preferred stock, would produce the same
increase in the proportionate interests of such holders in the assets or
earnings and profits of the Company as that produced by the adjustment. The
distribution would be treated in the manner described above under "Distributions
in General" and "Dividends to Corporate Holders."
Excessive redemption price
Under Section 305 of the Code and Treasury Regulations authorized
thereunder, if the redemption price of Series F preferred stock exceeds its
issue price (i.e., its fair market value at its date of original issue) by more
than a de minimis amount, such excess may be treated as a constructive
distribution that will be treated in the same manner as distributions described
above under "Distributions in General." A holder of such Series F preferred
stock would be required to treat such excess as a constructive distribution
received by the holder over the life of such stock under a constant interest
(economic yield) method that takes into account the compounding of yield. It is
anticipated that the mandatory redemption price of the Series F preferred stock
will not exceed its issue price by more than a de minimis amount.
Accrued dividends on the Series F preferred stock
Any unpaid dividends on the Series F preferred stock will accrue and will
be payable upon the optional or mandatory redemption of the Series F preferred
stock. The tax treatment of such accruing dividends is not free from doubt.
Under current law, it appears that accrued dividends would not be treated as
having been received by holders of the Series F preferred stock until such
accrued dividends were actually paid in cash, at which time such amounts would
be taxable for United States federal income tax purposes in the same manner as
distributions described above under "Distributions in General." We intend to
take this position and will report to the IRS on that basis.
In addition, to the extent of available funds therefor, we will be
obligated under the Certificate of Designation to declare a dividend on the
Series F preferred stock prior to an optional or mandatory redemption thereof in
an amount equal to any accrued dividends on the Series F preferred stock.
Prospective purchasers of Series F preferred stock are urged to consult
their own tax advisors as to the tax treatment of accrued dividends.
Sale, redemption or other taxable disposition of the Series F preferred
stock
Upon a sale or other taxable disposition a holder generally (except upon
certain redemptions as discussed below) will recognize capital gain or loss for
United States Federal income tax purposes in an amount equal to the difference
between (i) the sum of the amount of cash and the fair market value of any
property received upon such sale or other taxable disposition and (ii) the
holder's adjusted tax basis in the Series F preferred stock being disposed. Such
gain or loss will be long-term capital gain or loss if the Series F preferred
stock has been held by the holder for more than one year at the time of
disposition.
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A holder's initial tax basis in the Series F preferred stock generally
will be the price such holder paid for such Series F preferred stock.
Gain or loss recognized by a holder on a redemption of the Series F
preferred stock would be treated as a sale or exchange and therefore qualify for
the treatment described above if, taking into account stock that is actually or
constructively owned under the constructive ownership rules of Section 318 of
the Code by such holder, either (i) the holder's interest in our stock is
completely terminated as a result of the redemption, (ii) such holder's
percentage ownership of our voting stock immediately after the redemption is
less than 80% of such holder's percentage ownership immediately before the
redemption or (iii) the redemption is "not essentially equivalent to a
dividend." Under Section 318 of the Code, a person generally will be treated as
the owner of our stock owned by certain related parties or certain entities in
which the person owns an interest and stock that a holder could acquire through
exercise of an option. For this purpose, an option would include the conversion
right under the Series F preferred stock. Whether a redemption is not
essentially equivalent to a dividend depends on each holder's facts and
circumstances, but in any event requires a "meaningful reduction" in such
holder's equity interest in WinStar. A holder of the Series F preferred stock
who sells some or all of the stock owned by it may be able to take such sales
into account to satisfy one of the foregoing conditions. Conversely, a holder
who purchases additional shares of our stock may be required to take such shares
into account in determining whether any of the foregoing conditions are
satisfied.
If none of the above conditions is satisfied to qualify for sale or
exchange treatment, the entire amount of the cash (or property) received on a
redemption will be treated as a distribution (without offset by the holder's tax
basis in the redeemed shares), which will be treated in the same manner as
distributions described above under "Distributions in General." In such case,
the holder's basis in the redeemed the Series F preferred stock would be
transferred to the holder's remaining shares of our stock (if any).
If the holder does not retain any shares of our stock, but dividend
treatment arises because of the constructive ownership rules, such basis will be
entirely lost to the holder.
Information reporting and backup withholding on U.S. Holders
Information reporting and backup withholding may apply with respect to our
payments of dividends on the Series F preferred stock and to certain payments of
proceeds on the sale or redemption of the Series F preferred stock. Such
payments will be subject to backup withholding at a rate of 31 percent unless
the beneficial owner of such security furnishes the payor or its agent with a
taxpayer identification number, certified under penalties of perjury, and
certain other information, or otherwise establishes, in the manner prescribed by
law, an exemption from backup withholding. In addition, if the Series F
preferred stock is sold to (or through) a "broker," the broker may be required
to withhold 31 percent of the entire sales price, unless either (i) the broker
determines that the seller is a corporation or other exempt recipient or (ii)
the seller provides, in the required manner, certain identifying information.
Such a sale must also be reported by the broker to the IRS, unless the broker
determines that the seller is an exempt recipient. The term "broker" as defined
by Treasury regulations includes all persons who, in the ordinary course of
their business, stand ready to effect sales made by others.
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Any amount withheld under the backup withholding rules from a payment to a
holder is allowable as a credit against the holder's United States Federal
income tax, which may entitle the holder to a refund, provided that the holder
furnishes the required information to the IRS. In addition, certain penalties
may be imposed by the IRS on a holder who is required to supply information but
does not do so in the proper manner.
Tax Considerations for Non-U.S. Holders of Series F Preferred Stock
Dividends
Dividends paid to a Non-U.S. Holder of Series F preferred stock will be
subject to withholding of United States Federal income tax at a 30% rate or such
lower rate as may be provided by an income tax treaty between the United States
and the country of which the Non-U.S. Holder is a tax resident, unless (i) the
dividends are effectively connected with the conduct of a trade or business of
the Non-U.S. Holder within the United States and the Non-U.S. Holder provides
the payor with proper documentation or (ii) if a tax treaty applies, are
attributable to a U.S. permanent establishment maintained by the Non-U.S.
Holder. In order to claim the benefit of an applicable tax treaty rate, a
Non-U.S. Holder may have to file with the Company or its dividend paying agent
an exemption or reduced treaty rate certificate or letter in accordance with the
terms of such treaty. Dividends that are effectively connected with the conduct
of a trade or business within the United States or, if a tax treaty applies, are
attributable to such a United States permanent establishment, are subject to
United States Federal income tax on a net income basis (that is, after allowance
for applicable deductions) at applicable graduated individual or corporate
rates. Any such effectively connected dividends received by a foreign
corporation may, under certain circumstances, be subject to an additional
"branch profits tax" at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty.
Under current Treasury Regulations, dividends paid to an address outside
the United States are presumed to be paid to a resident of such country for
purposes of the withholding discussed above (unless the payor has knowledge to
the contrary) and, under the current interpretation of Treasury Regulations, for
purposes of determining the applicability of a tax treaty. However, under final
Treasury Regulations issued October 6, 1997, in the case of dividends paid after
December 31, 2000, a Non-U.S. Holder generally would be subject to United States
withholding tax at a 31% rate under the backup withholding rules described
below, rather than at a 30% rate or a reduced rate under an income tax treaty,
unless certain certification procedures (or, in the case of payments made
outside the United States with respect to an offshore account, certain
documentary evidence procedures) are complied with, directly or through an
intermediary. Certain certification and disclosure requirements must be complied
with in order to be exempt from withholding under the effectively connected
income exemption.
A Non-U.S. Holder of common stock eligible for a reduced rate of United
States withholding tax pursuant to an income tax treaty may obtain a refund of
any excess amounts withheld by filing an appropriate claim for refund with the
IRS, provided that the required information is furnished to the IRS.
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See above "Tax Consequences to U.S. Holders of Series F preferred stock"
for when distributions will be treated as dividends.
Gain on disposition of Series F preferred stock
A Non-U.S. Holder generally will not be subject to United States Federal
income tax with respect to gain recognized on a sale or other taxable
disposition of Series F preferred stock unless:
o the gain is effectively connected with a trade or business conducted
by the Non- U.S. Holder within the United States or, if a tax treaty
applies, the gain is attributable to a United States permanent
establishment maintained by the Non- U.S. Holder;
o in the case of a Non-U.S. Holder who is an individual and holds the
Series F preferred stock as a capital asset, such holder is present
in the United States for 183 or more days in the taxable year of the
sale or other disposition and certain other conditions are met;
o the Non-U.S. Holder is subject to tax pursuant to certain provisions
of the Code applicable to United States expatriates and former
residents; or
o the Company is or has been a "U.S. real property holding
corporation" for United States Federal income tax purposes at any
time within the shorter of the five-year period preceding such
disposition or the period such Non-U.S. Holder held the Series F
preferred stock.
If we currently are, or were to become, a U.S. real property holding
corporation, gains realized upon a disposition of Series F preferred stock by a
Non-U.S. Holder which did not directly or indirectly own more than 5% of the
Series F preferred stock during the shorter of the periods described above
generally would not be subject to United States Federal income tax so long as
the Series F preferred stock is "regularly traded" on an established securities
market within the meaning of the applicable Treasury Regulation. It is not clear
whether the Series F preferred stock will qualify as regularly traded for
purposes of the aforementioned rule. We believe that we are not currently, and
do not anticipate becoming, a "U.S. real property holding corporation" for
United States Federal income tax purposes.
If an individual Non-U.S. Holder falls under the first bulletpoint above,
such individual generally will be taxed on the net gain derived from a sale
under regular graduated United States Federal income tax rates. If an individual
Non-U.S. Holder falls under the second bulletpoint above, such individual
generally will be subject to a flat 30% tax on the gain derived from a sale,
which may be offset by certain United States capital losses (notwithstanding the
fact that such individual is not considered a resident of the United States).
Thus, individual Non-U.S. Holders who have spent (or expect to spend) 183 days
or more in the United States in the taxable year in which they contemplate a
sale of Series F preferred stock are urged to consult their tax advisors as to
the tax consequences of such sale.
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If a Non-U.S. Holder that is a foreign corporation falls under the first
bulletpoint above, it generally will be taxed on its net gain under regular
graduated United States Federal income tax rates and, in addition, will be
subject to the branch profits tax equal to 30% of its "effectively connected
earnings and profits" within the meaning of the Code for the taxable year, as
adjusted for certain items, unless it qualifies for a lower rate under an
applicable income tax treaty.
No United States Federal income tax will be imposed on a Non-U.S. Holder
upon receipt of conversion shares if no cash is received. "Tax Consequences to
U.S. Holders of Series F preferred stock--Receipt of Common Stock Upon
Conversion of the Series F preferred stock."
Federal estate tax
Series F preferred stock 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 included
the individual's gross estate for the United States Federal estate tax purposes,
unless an applicable estate tax treaty provides otherwise and, therefore, may be
subject to United States Federal estate tax.
Information reporting and backup withholding tax
Under Treasury Regulations, the Company must report annually to the IRS
and to each Non-U.S. Holder the amount of dividends paid to such holder and the
tax withheld with respect to such dividends. These information reporting
requirements apply even if withholding was not required because the dividends
were effectively connected with a trade or business in the United States of the
Non-U.S. Holder or withholding was reduced or eliminated by an applicable income
tax treaty. Copies of the information returns reporting such dividends and
withholding may also be made available to the tax authorities in the country in
which the Non-U.S. Holder is a resident under the provisions of an applicable
income tax treaty or agreement.
United States backup withholding (which generally is a withholding tax
imposed at the rate of 31% on certain payments to persons that fail to furnish
certain information under the United States information reporting requirements)
generally will not apply to (i) dividends paid to Non-U.S. Holders that are
subject to the 30% withholding discussed above (or that are not so subject
because a tax treaty applies that reduces or eliminates such 30% withholding) or
(ii) under current law, dividends paid to a Non-U.S. Holder at an address
outside of the United States. However, under final Treasury Regulations issued
October 6, 1997, in the case of dividends paid after December 31, 2000, a
Non-U.S. Holder generally would be subject to backup withholding at 31% rate,
unless certain certification procedures (or, in the case of payments made
outside the United States with respect to an offshore account, certain
documentary evidence procedures) are complied with, directly or through an
intermediary.
Backup withholding and information reporting generally will apply to
dividends paid to addresses inside the United States on shares of Series F
preferred stock to beneficial owners that are not "exempt recipients" and that
fail to provide in the manner required certain identifying information.
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Payment by a United States office of a broker of the proceeds of a sale of
Series F preferred stock, or the proceeds of a redemption of Series F preferred
stock that are not treated as a dividend is subject to both backup withholding
and information reporting unless the beneficial owner certifies under penalties
of perjury that it is a Non-U.S. Holder, or otherwise establishes an exemption.
Backup withholding and information reporting generally will not apply to payment
of the proceeds of a sale 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
certification 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.
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, which may entitle such holder to a
refund, provided the required information is furnished to the IRS.
The foregoing summary is included herein for general information only and
does not discuss all aspects of United States Federal income taxation that may
be relevant to a particular purchaser or holder of Series F preferred stock in
light of its particular circumstances and income tax situation. Accordingly,
each purchaser or holder of the Series F preferred stock should consult with its
own tax advisor as to the specific tax consequences to such purchaser or holder
from the purchase, ownership and disposition of the Series F preferred stock,
including the application and effect of state, local and foreign income and
other tax laws.
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DESCRIPTION OF THE SERIES F PREFERRED STOCK
The following is a summary of certain provisions of the Certificate of
Designations and the Series F preferred stock. A copy of the Certificate of
Designations and the form of Series F preferred stock share certificate is
available upon request to WinStar at the address set forth under "Where You Can
Find More Information." The following summary of certain provisions of the
Certificate of Designations does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, all the provisions of the
Certificate of Designations. The definitions of certain capitalized terms used
in the following summary that are not defined herein are defined in the
Certificate of Designations. As used in this section, the term "the Company"
refers to WinStar Communications, Inc. and not any of its subsidiaries.
General
We have outstanding 300,000 shares of our Series F preferred stock. The
holders of the Series F preferred stock have no preemptive or preferential right
to purchase or subscribe to stock, obligations, warrants or buy other of our
securities. The Series F preferred stock is eligible for trading in the PORTAL
Market.
Ranking
The Series F preferred stock, with respect to dividend rights and rights
on liquidation, winding-up and dissolution, ranks:
o senior to all classes of common stock and to the Company's Series A
preferred stock and Series E preferred stock and to each other class
of Capital Stock or series of preferred stock established hereafter
by the Board of Directors the terms of which do not expressly
provide that it ranks senior to, or on a parity with, the Series F
preferred stock as to dividend rights and rights on liquidation,
winding-up and dissolution of the Company (collectively referred to,
together with all classes of common stock of the Company, as "Junior
Stock");
o on a parity with the Company's Series C preferred stock and Series D
preferred stock and each class of Capital Stock or series of
preferred stock established hereafter by the Board of Directors, the
terms of which expressly provide that such class or series will rank
on a parity with the Series F preferred stock as to dividend rights
and rights of liquidation, winding-up and dissolution (collectively
referred to as "Parity Stock"); and
o junior to each class of Capital Stock or series of preferred stock
established hereafter by the Board of Directors, the terms of which
expressly provide that such class or series will rank senior to the
Series F preferred stock as to dividend rights and rights upon
liquidation, winding-up and dissolution of the Company (collectively
referred to as "Senior Stock").
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While any shares of Series F preferred stock are outstanding, the Company
may not authorize, create or increase the authorized amount of any class or
series of stock that ranks senior to the Series F preferred stock with respect
to the payment of dividends or amounts upon liquidation, dissolution or
winding-up without the consent of the holders of at least 66 2/3% of the
outstanding shares of Series F preferred stock. However, without the consent of
any holder of Series F preferred stock, the Company may create additional
classes of stock, increase the authorized number of shares of preferred stock or
issue series of a stock that ranks on a parity with, or junior to, the Series F
preferred stock with respect, in each case, to the payment of dividends and
amounts upon liquidation, dissolution and winding-up. See "--Voting Rights."
Dividends
Holders of shares of Series F preferred stock are entitled to receive,
when, as and if declared by the Board of Directors of the Company out of funds
of the Company legally available for payment, cumulative dividends at the rate
per annum of 7 1/4% per share on the liquidation preference thereof of $1,000
per share of Series F preferred stock (equivalent to $72.50 per annum per
share). Dividends on the Series F preferred stock are payable quarterly on March
15, June 15, September 15 and December 15 of each year commencing December 15,
1999, at such annual rate and shall accrue from the most recent date as to which
dividends shall have been paid or, if no dividends have been paid, from the date
of the original issuance of the Series F preferred stock. Each such dividend is
payable to holders of record as they appear on the stock records of the Company
at the close of business on the Business Day next preceding such quarterly
dividend payment date. Dividends are cumulative from such date, whether or not
in any dividend period or periods there are funds of the Company legally
available for the payment of such dividends. Accumulations of dividends on
shares of Series F preferred stock do not bear interest. Dividends payable on
the Series F preferred stock for any period greater or less than a full
quarterly dividend period are computed on the basis of a 360-day year consisting
of twelve 30-day months.
Any dividend on the Series F preferred stock is, at our option, payable
(i) in cash or (ii) through the issuance of a number of dividend shares (rounded
up or down to the nearest whole share) equal to the dividend amount divided by
the Discounted Current Market Value (as defined below) of our common stock;
provided, however, that we will not pay any dividends on the Series F preferred
stock in cash prior to the date all obligations under each of the Specified
Indentures (as defined below) and the Lucent credit agreement have been
satisfied in full (the "Specified Debt Satisfaction Date"). With respect to
shares of Series F preferred stock that are "restricted securities" as defined
in Rule 144 under the Securities Act ("Rule 144") on a record date for the
payment of dividends, all dividend shares distributed on the related dividend
payment date in payment of dividends on the Series F preferred stock will be
treated as "restricted securities," will bear a legend to such effect and are
not transferable by the recipient thereof except pursuant to an effective
registration statement or pursuant to an exemption from the registration
requirements of the Securities Act. All such dividend shares will be issued in
physical certificated form and are not eligible for receipt in global form
through the facilities of the Depositary. Certificates for such dividend shares
are mailed or made available at the office of the transfer agent for the Series
F preferred stock on or as soon as possible after the relevant dividend payment
date to those beneficial holders of Series F preferred stock shown on the
records of the Depositary which are delivered to the Company at the close of
business on the relevant record date. As a result of the
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requirement for physical delivery of such dividend shares, holders who have not
made arrangements with the Depositary, the transfer agent and the Company prior
to a dividend payment date for the delivery of such physical certificates on
such dividend payment date may not receive such physical delivery until several
days after such dividend payment date. See "--Registration Rights." With
respect to shares of Series F preferred stock that are no longer "restricted
securities" on a record date for the payment of dividends, either as a result of
a resale of the Series F preferred stock pursuant to the Shelf Registration
Statement or otherwise, all dividend shares distributed on the related dividend
payment date in payment of dividends are freely transferable without restriction
under the Securities Act (other than by affiliates), and such shares are
eligible for receipt in global form through the facilities of the Depositary.
Notwithstanding the foregoing, if, on any record date occurring prior to
June 17, 2001 for the payment of dividends that are to be paid in dividend
shares, a Shelf Registration Statement has not been declared effective or is not
usable for the resale of the dividend shares to be received on the related
dividend payment date, payment of such dividends will be deferred and will be
paid on a subsequent payment date determined by the Company, together with
dividends on the Series F preferred stock at an increased dividend rate which
shall accrue from the regular dividend payment date as to which dividends were
not paid until such subsequent payment date. See "-Registration Rights."
The "Discounted Current Market Value" of our common stock with respect to
a dividend payment date means the product of (x) 97% and (y) the closing bid
price for the common stock as reported by the Nasdaq National Market, or the
principal securities exchange or other securities market on which the common
stock is then being traded, on the fourth Trading Day (as defined) preceding
such dividend payment date. "Trading Day" means any day on which the common
stock is traded for any period on the Nasdaq National Market (or on the
principal securities exchange or other securities market on which the common
stock is then being traded).
"Specified Indentures" means each of the following:
o the Indenture dated October 23, 1995 governing the 14% Senior
Discount Notes Due 2005 of WinStar;
o the Indenture dated as of March 1, 1997, governing the 14 1/2%
Senior Deferred Interest Notes Due 2005 of WinStar;
o the Indenture dated as of March 1, 1997, governing the 12 1/2%
Senior Secured Notes Due 2004 of WinStar Equipment Corp.;
o the Indenture dated as of August 1, 1997, governing the 12 1/2%
Senior Secured Notes Due 2004 of WinStar Equipment II Corp.;
o the Indenture dated as of October 1, 1997, governing the 15% Senior
Subordinated Deferred Interest Notes Due 2007 of WinStar;
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o the Indenture dated as of March 15, 1998, governing the 10% Senior
Subordinated Notes Due 2008 of WinStar;
o the Indenture dated as of March 15, 1998, governing the 11% Senior
Subordinated Deferred Interest Notes Due 2008 of WinStar; and
o the Indenture to be entered into with respect to the 14 1/4% Senior
Subordinated Deferred Interest Notes Due 2007 of WinStar that may be
issued upon exchange for the Series C 14 1/4% Senior Cumulative
Exchangeable Preferred Stock Due 2007 of WinStar.
No dividend whatsoever will be declared or paid upon, or any sum set apart
for the payment of dividends upon, any outstanding share of the Series F
preferred stock with respect to any dividend period unless all dividends for all
preceding dividend periods have been declared and paid or declared and a
sufficient sum set apart for the payment of such dividend, upon all outstanding
shares of Series F preferred stock.
The Company will not (i) declare, pay or set apart funds for the payment
of any dividend or other distribution with respect to any Junior Stock or (ii)
redeem, purchase or otherwise acquire for consideration any Junior Stock through
a sinking fund or otherwise, unless (A) all accrued and unpaid dividends with
respect to the Series F preferred stock and any Parity Stock at the time such
dividends are payable have been paid or funds have been set apart for payment of
such dividends and (B) sufficient funds have been paid or set apart for the
payment of the dividend for the current dividend period with respect to the
Series F preferred stock and any Parity Stock.
No dividend will be declared or paid on any Parity Stock unless full
cumulative dividends have been paid on the Series F preferred stock for all
prior dividend periods; provided, however, if accrued dividends on the Series F
preferred stock for all prior dividend periods have not been paid in full then
any dividend declared for any dividend period on the Series F preferred stock
and on any Parity Stock will be declared ratably in proportion to accrued and
unpaid dividends on the Series F preferred stock and such Parity Stock.
Notwithstanding anything herein to the contrary, the Company may declare
and pay dividends on Parity Stock or Junior Stock which are payable solely in
shares of Parity Stock or Junior Stock (in the case of Parity Stock) or of
Junior Stock (in the case of Junior Stock) or by the increase in the liquidation
value of Parity Stock or Junior Stock, as applicable, or repurchase, redeem or
otherwise acquire Junior Stock in exchange for Junior Stock and Parity Stock in
exchange for Parity Stock or Junior Stock.
The Company's ability to pay cash dividends with respect to the Series F
preferred stock is limited by the terms of our outstanding indebtedness and by
certain preferred stock. Even if the terms of the instruments governing our
indebtedness and preferred stock allow us to pay cash dividends and to redeem
the Series F preferred stock, we can make such payments only from our "surplus"
(the excess of our total assets over the sum of our liabilities plus the par
value of our outstanding capital stock our capital) and we cannot assure you
that we will have any surplus. Moreover, without surplus, we cannot pay
dividends in shares of our common stock. See "Risk
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Factors--We are restricted from paying cash dividends and from redeeming the
Series F preferred stock. We also could be prevented from paying dividends in
shares of our common stock."
Optional Redemption
The Series F preferred stock is not redeemable at the option of the
Company prior to June 24, 2002. Thereafter, each share of the Series F preferred
stock will be redeemable, at the Company's option, in whole or in part, at any
time or 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, payable in cash, plus accumulated and unpaid
dividends, if any (including a prorated dividend for any partial dividend
period).
If redeemed during the 12-month period commencing on June 15 (or, if such
date is a Saturday, Sunday or business holiday, then on the next business day
immediately thereafter) of the years set forth below, the redemption prices
shall be:
Period Redemption Price
- ------ ----------------
2002...................................................... $1,018.13
2003...................................................... 1,012.08
2004...................................................... 1,006.04
2005 and thereafter....................................... 1,000.00
In the case of any partial optional redemption, selection of the Series F
preferred stock for redemption will be made by the Company in compliance with
the requirements of the principal national securities exchange, if any, on which
the Series F preferred stock is listed, or if the Series F preferred stock is
not listed on a national securities exchange, on a pro rata basis, by lot or
such other method as the Company, in its sole discretion, shall deem fair and
appropriate; provided, however, that the Company may redeem all the shares held
by holders of fewer than five shares (or all of the shares held by the holders
who would hold fewer than five shares as a result of such redemption) as may be
determined by the Company.
In the case of a redemption date falling after a dividend payment record
date and prior to the related payment date, the holders of the Series F
preferred stock at the close of business on such record date will be entitled to
receive the dividend payable on such shares on the corresponding dividend
payment date, notwithstanding the redemption of such shares following such
dividend payment record date. Except as provided for in the preceding sentence,
no payment or allowance will be made for accrued dividends on any shares of
Series F preferred stock called for redemption.
The Company's ability to redeem the Series F preferred stock at its option
is limited by the terms of the Company's outstanding indebtedness. The Company
may not be able to redeem the Series F preferred stock at its option unless it
simultaneously redeems or repays such indebtedness. See "Risk Factors--We are
restricted from paying cash dividends and from redeeming the Series F preferred
stock. We also could be prevented from paying dividends in shares of our common
stock."
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Liquidation Preference
Upon any voluntary or involuntary liquidation, dissolution or winding-up
of the Company, each holder of Series F preferred stock is entitled to be paid,
out of the assets of the Company available for distribution to stockholders, an
amount equal to the liquidation preference of $1,000 per share of Series F
preferred stock held by such holder, plus accumulated and unpaid dividends
thereon to the date fixed for liquidation, dissolution or winding-up before any
distribution is made on any Junior Stock, including common stock of the Company.
If, upon any voluntary or involuntary liquidation, dissolution or winding-up of
the Company, the amounts payable with respect to the Series F preferred stock
and all other Parity Stock are not paid in full, the holders of the Series F
preferred stock and the Parity Stock will share equally and ratably in any
distribution of assets of the Company in proportion to the full liquidation
preference and accumulated and unpaid dividends to which they are entitled, the
holders of shares of Series F preferred stock are not entitled to any further
participation in any distribution of assets of the Company. However, neither the
sale, conveyance, exchange or transfer (for cash, shares of stock, securities or
other consideration) of all or substantially all the property or assets of the
Company nor the consolidation or merger of the Company with one or more entities
shall be deemed to be a liquidation, dissolution or winding-up of the Company.
The Certificate of Designations will not contain any provision requiring
funds to be set aside to protect the liquidation preference of the Series F
preferred stock even though it is substantially in excess of the par value
thereof.
Voting Rights
The holders of Series F preferred stock, except as otherwise required
under Delaware law or as provided in the Certificate of Designations, are not
entitled or permitted to vote on any matter required or permitted to be voted
upon by the stockholders of the Company.
The Certificate of Designations provide that if dividends on the Series F
preferred stock are in arrears and unpaid for six or more dividend periods
(whether or not consecutive) then the holders of the outstanding shares of
Series F preferred stock, voting together as a class with the holders of any
other series of preferred stock upon which like rights have been conferred and
are exercisable, will be entitled to elect to serve on the Board of Directors
the lesser of (x) two additional members to the Board of Directors or (y) that
number of directors constituting at least 25% of the members of the Board of
Directors, and the number of members of the Board of Directors will be
immediately and automatically increased by such number. Such voting rights of
the Series F preferred stock will continue until such time as all dividends in
arrears on the Series F preferred stock are paid in full at which time the term
of any directors elected pursuant to the provisions of this paragraph (subject
to the right of holders of any other preferred stock to elect such directors)
shall terminate.
The Certificate of Designations also provide that, except as expressly set
forth above under "-Ranking," (a) the creation, authorization or issuance of
any shares of Junior Stock, Parity Stock or Senior stock, including the
designation of a series thereof within the existing class of Series F preferred
stock, or (b) the increase or decrease in the amount of authorized capital stock
of any
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class, including any preferred stock, does not require the consent of the
holders of Series F preferred stock and shall not be deemed to affect adversely
the rights, preferences, privileges or voting rights of shares of Series F
preferred stock.
Conversion Rights
Shares of Series F preferred stock are convertible, in whole or in part,
at any time after the issue date, at the option of the holders thereof, into
conversion shares at the conversion price of $61.96, subject to adjustment as
described below ("Conversion Price"). The right to convert shares of Series F
preferred stock called for redemption terminates at the close of business on the
relevant redemption date.
We have the option to convert all of the shares of Series F preferred
stock into conversion shares at the Conversion Price if, on or after June 24,
2002, the closing price of our common stock has equaled or exceeded 130% of the
Conversion Price for at least 20 out of 30 consecutive days on which the Nasdaq
National Market is open for the transaction of business.
Conversion of shares of Series F preferred stock, or a specified portion
thereof, may be effected by delivering certificates evidencing such shares,
together with written notice of conversion and a proper assignment of such
certificates to the Company or in blank, to the office or agency to be
maintained by the Company for that purpose. Initially such office will be
located at 230 Park Avenue, New York, N.Y.
Each conversion will be deemed to have been effected immediately prior to
the close of business on the date on which the certificates for shares of Series
F preferred stock shall have been surrendered and notice (and if applicable,
payment of an amount equal to the dividends payable on such shares) received by
the Company as aforesaid. The Company will issue a certificate evidencing the
common stock distributed upon conversion as soon as reasonably practical after
the conversion date.
With respect to any shares of Series F preferred stock that are
"restricted securities" on the conversion date, the conversion shares
distributed upon conversion will be treated as "restricted securities," will
bear a legend to such effect and will not be transferable by the recipient
thereof except pursuant to an effective registration statement or pursuant to an
exemption from the registration requirements of the Securities Act. All such
conversion shares will be issued in physical certificated form and will not be
eligible for receipt in global form through the facilities of the Depositary.
With respect to shares of Series F preferred stock that are no longer
"restricted securities" on a conversion date, either as a result of a resale of
the Series F preferred stock pursuant to the Shelf Registration Statement or
otherwise, all conversion shares distributed upon conversion will be freely
transferable without restriction under the Securities Act (other than by
affiliates), and such conversion shares will be eligible for receipt in global
form through the facilities of the Depositary.
Holders of shares of Series F preferred stock at the close of business on
a dividend payment record date are entitled to receive the dividend payable on
such shares on the corresponding dividend payment date notwithstanding the
conversion of such shares following the
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dividend payment record date and prior to such dividend payment date. However,
shares of Series F preferred stock surrendered for conversion during the period
between the close of business on any dividend payment record date and the
opening of business on the corresponding dividend payment date (except shares
converted after the issuance of a notice of redemption with respect to a
redemption date during such period, which will be entitled to such dividend)
must be accompanied by payment of an amount equal to the dividend payable on
such shares on such dividend payment date. A holder of shares of Series F
preferred stock on a dividend payment record date who (or whose transferee)
tenders any such shares for conversion into conversion shares on such dividend
payment date will receive the dividend payable by the Company on such shares of
Series F preferred stock on such date, and the converting holder need not
include payment of the amount of such dividend upon surrender of shares of
Series F preferred stock for conversion. Except as provided above, the Company
will make no payment or allowance for unpaid dividends, whether or not in
arrears, on converted shares or the dividends on the conversion shares issued
upon such conversion.
Fractional shares of common stock need not be issued upon conversion but,
in lieu thereof, the Company may pay a cash adjustment based on the current
market price of the common stock on the date prior to such conversion date.
The Conversion Price is subject to adjustment, under certain
circumstances, upon the occurrence of certain events, including:
o the payment of dividends (and other distributions) of common stock
on outstanding shares of common stock;
o the issuance to all holders of common stock of rights, warrants or
options entitling them to subscribe for or purchase common stock at
less than the current market price (as defined) thereof;
o the subdivision or combination of our common stock;
o distributions to all holders of common stock of evidences of
indebtedness of the Company, shares of capital stock, securities,
cash or property (excluding any rights, warrants or options referred
to in the second bulletpoint above and any dividend or distribution
paid exclusively of cash to all holders of common stock in an
aggregate amount that, together with (A) other all-cash
distributions made within the preceding 12 months and (B) any cash
and the fair market value, as of the expiration of the tender or
exchange offer referred to below, of consideration payable in
respect of any tender or exchange offer by the Company or a
subsidiary of the common stock concluded within the preceding 12
months, exceeds 12.5% of the Company's aggregate market
capitalization (such aggregate market capitalization being the
product of the current market price of the common stock multiplied
by the number of shares of common stock then outstanding) on the
date of such distribution; and
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o the successful completion of a tender or exchange offer made by the
Company or any subsidiary for the common stock which involves an
aggregate consideration that, together with (X) any cash and the
fair market value of other consideration payable in respect of any
preceding 12 months and (Y) the aggregate amount of any all-cash
distribution to all holders of the Company's common stock made
within the preceding 12 months, exceeds 12.5% of the Company's
aggregate market capitalization on the expiration of such tender or
exchange offer.
No adjustment of the Conversion Price is required to be made until
cumulative adjustments amount to 1% or more of the Conversion Price as last
adjusted.
Notwithstanding any other provision in the preceding paragraphs to the
contrary, if any Change in Control (as defined) occurs, then the Conversion
Price in effect will be adjusted immediately after such Change in Control as
described below. In addition, in the event of a Common Stock Change in Control
(as defined), each share of the Series F preferred stock shall be convertible
solely into common stock of the kind received by holders of common stock as the
result of such Common Stock Change in Control.
A "Change in Control" shall be deemed to have occurred at such time as (i)
the sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all the assets of the Company and its subsidiaries taken as a
whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange
Act), (ii) the adoption of a plan relating to the liquidation or dissolution of
the Company, (iii) the consummation or any transaction (including any merger or
consolidation) the result of which is that any "person" (as defined above) other
than William J. Rouhana, Jr., becomes the beneficial owner (as such term is
defined in Rules 13d-3 and 13d-5 promulgated under the Exchange Act, except that
a person will be deemed to have beneficial ownership of all shares that such
person has the right to acquire whether such right is exercisable immediately or
only after the passage of time), directly or indirectly, of more than 50% of the
voting stock of the Company or (iv) the first day on which a majority of the
members of the board of directors are not Continuing Directors (as defined in
the Certificate of Designations).
The term "Common Stock Change in Control" means any Change in Control in
which more than 50% of the value (as determined in good faith by the Board of
Directors of the Company) or the consideration received by holders of common
stock consists of common stock of another company that for each of the 10
consecutive Trading Days referred to in the definition of "Applicable Price"
below has been admitted for listing or admitted for listing subject to notice of
issuance on a national securities exchange or quoted on the Nasdaq National
Market; provided, however, that a Change in Control shall not be a Common Stock
Change in Control unless either (i) the Company continues to exist after the
occurrence of such Change in Control and the outstanding shares of Series F
preferred stock continue to exist as outstanding shares of Series F preferred
stock, or (ii) not later than the occurrence of such Change in Control, the
outstanding shares of Series F preferred stock are converted into or exchanged
for shares of Series F preferred stock of a corporation succeeding to the
business of the Company, which convertible preferred stock has powers
preferences and relative, participating, optional or other rights, and
qualification, limitations and restrictions, substantially similar to those of
the Series F preferred stock.
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The term "Non-Stock Change in Control" means any Change in Control other
than a Common Stock Change in Control.
The term "Applicable Price" means (i) in the event of a Non-Stock Change
in Control in which the holders of the common stock receive only cash, the
amount of cash received by the holder of one share of common stock and (ii) in
the event of any other Non-Stock Change in Control or any Common Stock Change in
Control, the average of the closing bid prices for the common stock during the
10 Trading Days prior to and including the record date for the determination of
the holders of common stock entitled to receive cash, securities, property or
other assets in connection with such Non-Stock Change in Control or Common Stock
Change in Control or, if there is no such cash, securities, property or other
assets or the date upon which such Non-Stock Change in Control is deemed to have
occurred, as the case may be, in each case as adjusted in good faith by the
Board of Directors to appropriately reflect any of the events referred to in
clauses (i) through (vi) of the sixth paragraph of this subsection.
For purposes of calculating any adjustment to be made in the event of a
Change of Control, immediately after such Change in Control:
o in the case of a Non-Stock Change in Control, the Conversion Price
will thereupon become the lower of (A) the Conversion Price in
effect immediately prior to such Non-Stock Change in Control, but
after giving effect to any other prior adjustments, and (B) the
results obtained by multiplying the greater of the Applicable Price
and the then applicable Reference Market Price (as defined) by a
fraction of which the numerator will be $1,000.00 and the
denominator will be the then current redemption price per share or,
prior to June 24, 2002, an amount per share of Series F preferred
stock determined by the Company in its sole discretion, after
consultation with an investment banking firm, to be the equivalent
of the hypothetical redemption price that would have been applicable
if the Series F preferred stock had been redeemable during such
period; provided, however, that if, as a result of the operation of
this clause, the cumulative number of shares of common stock issued
or issuable upon conversion of the Series F preferred stock, after
giving effect to the adjustment described in this clause and all
prior conversions for Series F preferred stock, would exceed a
number (the "Threshold Number") equal to 20% of the outstanding
shares of common stock as of the issue date of the Series F
preferred stock, then until and unless the Company obtains the
approval of its common stockholders for the issuance of any shares
of common stock in excess of the Threshold Number, the Conversion
Price shall be adjusted pursuant to this clause to that price that
would entitle the holders of Series F preferred stock to receive in
the aggregate, upon conversion for all the Series F preferred stock
(including all prior conversions of Series F preferred stock), no
more than the Threshold Number of shares of common stock; and
o in the case of a Common Stock Change in Control, the Conversion
Price in effect immediately prior to such Common Stock Change in
Control, but after giving effect to any other prior adjustments,
will thereupon be adjusted by multiplying such Conversion Price by a
fraction, of which the numerator will be the Purchaser
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Stock Price (as defined) and the denominator will be the Applicable
Price; provided, however, that in the event of a Common Stock Change
in Control in which (A) 100% of the value of the consideration
received by a holder of common stock is common stock of the
successor, acquiror or other third party (and cash, if any, is paid
with respect to any fractional interests is such common stock
resulting from such Common Stock Change in Control) and (B) all the
common stock of the Company will have been exchanged for, converted
into, or acquired for, common stock (and cash with respect to
fractional interests) of the successor, acquiror or other third
party, the Conversion Price in effect immediately prior to such
Common Stock Change in Control will thereupon be adjusted by
multiplying such Conversion Price by a fraction, of which the
numerator will be one (1.0) and the denominator will be the number
of shares of common stock of the successor, acquiror, or other third
party received by a holder of one share of common stock of the
Company as a result of such Common Stock Change in Control.
The foregoing Conversion Price adjustments in the event of a Non-Stock
Change in Control apply in situations whereby a Change in Control not involving
a change in beneficial ownership of the common stock has occurred or whereby all
or substantially all of the common stock of the Company is acquired in a
transaction in which 50% or less of the value received by holders of such common
stock consists of common stock that has been admitted for listing on a national
securities exchange or quoted on the Nasdaq National Market. If the market price
of the common stock of the Company immediately prior to a Non-Stock Change in
Control is lower that the applicable Conversion Price then in effect, the
Conversion Price will be adjusted as described in (i) above and the holders of
the Series F preferred stock will be entitled to received the amount and kind of
consideration that would have been received if the Series F preferred stock had
been converted into common stock prior to the Non-Stock Change in Control after
giving effect to such adjustment.
The foregoing Conversion Price adjustments in the event of a Common Stock
Change in Control apply in situations whereby more than 50% of the value
received by holders of common stock of the Company consists of common stock of
another company that has been admitted for listing on a national securities
exchange or quoted on the Nasdaq National Market, in which case the Series F
preferred stock will become convertible into shares of common stock of the other
company. If consideration for the common stock of the Company consists partly of
common stock of another company and partly of other securities, cash or
property, each share of Series F preferred stock will be convertible solely into
a number of shares of such common stock determined so that the initial value of
such shares (measured as described in the definition of Purchaser Stock Price)
equals the value of the shares of common stock into which such share of Series F
preferred stock was convertible immediately before the transaction (measured as
described in the definition of Purchase Stock Price) equal the value of the
shares of common stock into which such share of Series F preferred stock was
convertible immediately before the transaction (measured as described in the
definition of Applicable Price). If consideration for common stock of the
Company is solely common stock of another company, each share of Convertible
Preferred is convertible into the same number of shares of such common stock of
another company receivable by a holder of the number of shares of common stock
of the
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Company into which such share of Series F preferred stock was convertible
immediately before such transaction.
The term "Purchaser Stock Price" means, with respect to any Common Stock
Change in Control, the product of (i) the number of shares of common stock
received as consideration in such Common Stock Change of Control for each share
of common stock of the Company, and (ii) the average of the per share closing
prices for the common stock received as consideration in such Common Stock
Change in Control for the 10 consecutive trading days prior to and including the
record date for the determination of the holders of common stock entitled to
received such common stock of the Company shall have the right to receive such
common stock, in each case, as adjusted in good faith by the Board of Directors
to appropriately reflect any of the events referred to in the six bulletpoints
above; provided, however, that if no such closing prices exist, then the
Purchaser Stock Price shall be set at a price determined in good faith by the
Board of Directors of the Company.
The term "Reference Market Price" shall initially mean $33.58 (which is an
amount equal to 66 2/3% of the reported last sale price for the common stock on
the Nasdaq National Market on June 16, 1999, the date immediately preceding the
date of issuance of the Series F preferred stock), and in the event of any
adjustment to the Conversion Prices other than as a result of a Change in
Control, the Reference Market Price shall also be adjusted so that the ratio of
the Reference Market Price to the Conversion Price after giving effect to any
such adjustment shall always be the same as the ratio of $33.58 to the initial
Conversion Price set forth on the cover page of this Prospectus.
Depending upon whether the Change in Control is a Non-Stock Change in
Control or Common Stock Change in Control, a holder may receive significantly
different consideration upon conversion. In the event of a Non-Stock change in
Control, the holder has the right to convert each share of the Series F
preferred stock into the kind and amount of the shares of stock and other
securities or property or assets receivable by a holder of the number of shares
of common stock issuable upon conversion of such share of the Series F preferred
stock immediately prior to such Non-Stock Change in Control, but after giving
effect to the adjustment described above. However, in the event of a Common
Stock Change in Control in which less than 100% of the value of the
consideration received by a holder of common stock is common stock of the
acquiror or other third party, a holder of a share of Series F preferred stock
who converts a share following the Common Stock Change in Control will receive
consideration in the form of such common stock only, whereas a holder who has
converted their shares prior to the Common Stock Change in Control will receive
consideration in the form of common stock as well as any other securities or
assets (which may include cash) receivable thereupon by a holder of the number
of shares of common stock issuable upon conversion of such share of Series F
preferred stock immediately prior to such Common Stock Change in Control.
In the case of certain reclassifications, consolidations, mergers, sales
or transfers of assets or other transactions pursuant to which the common stock
is converted into the right to receive other securities, cash or other property,
each share of Series F preferred stock then outstanding, without the consent of
any holders of Series F preferred stock, becomes convertible only into the kind
and amount of securities, cash and other property receivable upon the
transaction by a holder
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immediately prior to such transaction if such holder had converted its share of
Series F preferred stock.
If at any such time the Company makes a distribution of property to its
stockholders that is taxable to such stockholders as a dividend for federal
income tax purposes (for example, distributions or evidences of indebtedness or
assets of the Company, but generally not stock dividends or rights to subscribe
for capital stock) and, pursuant to the antidilution provisions described above,
the Conversion Price of the Series F preferred stock is reduced, such reduction
would be deemed to be the receipt of taxable income by holders of the Series F
preferred stock.
Consolidation, Merger and Sale of Assets
The Certificate of Designations will provide that the Company, without the
consent of the holders of any of the outstanding Series F preferred stock, may
consolidate with or merge into any other Person or convey, transfer or lease its
properties and assets substantially as an entirety to any Person or may permit
any Person to consolidate with or merge into, or transfer or lease its
properties substantially as an entirety to, the Company; provided, however, that
(a) the successor, transferee or lessee is organized under the laws of a United
States jurisdiction; (b) the shares of Series F preferred stock shall become
shares of such successor, transferee or lessee, having in respect of such
successor, transferee or lessee the same powers, preferences and relative
participating, optional or other special rights and the qualification,
limitations or restrictions thereon, the Series F preferred stock had
immediately prior to such transaction; and (c) certain other conditions are met.
Under any consolidation by the Company with, or merger by the Company
into, any other Person or any conveyance, transfer or lease of the properties
and assets of the Company substantially as an entirety as described in the
preceding paragraph, the successor resulting from such consolidation or into
which the Company is merged or the transferee or lessee to which such
conveyance, transfer or lease is made, will succeed to, and be substituted for,
and may exercise every right and power of, the Company under the shares of
Series F preferred stock, and thereafter, except in the case of a lease, the
predecessor (if still in existence) will be released from its obligations and
covenants with respect to the Series F preferred stock.
Restrictions on Transfer
The Series F preferred stock, and any shares of common stock distributed
pursuant to a dividend payment on or conversion of the Series F preferred stock
may not be sold or otherwise transferred until the expiration of two years
following the date of payment for and delivery of the Series F preferred stock,
except pursuant to registration under the Securities Act or in accordance with
Rule 144 (if available), Rule 144A (if available) or Rule 904 thereunder, and
will bear a legend to this effect.
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SEC Reports and Reports to Holders
Whether or not the Company is required to file reports with the SEC, if
any shares of Series F preferred stock are outstanding, the Company 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 "Where
You Can Find More Information." The Company shall supply each Holder of Series F
preferred stock, upon request, without cost to such Holders, copies of such
reports or other information.
Transfer Agent, Registrar and Dividend Disbursing Agent
The transfer agent, registrar, dividend disbursing agent and redemption
agent for the shares of Series F preferred stock will be Continental Stock
Transfer & Trust Company.
Registration Rights
The Company has agreed pursuant to the Registration Rights Agreement, for
the benefit of the holders of the Series F preferred stock, the dividend shares
and the conversion shares (collectively, the "Restricted Securities") that the
Company will, at its cost:
o on or prior to September 1, 1999, file a Registration Statement (a
"Shelf Registration Statement") covering resales and/or issuances of
the Restricted Securities pursuant to Rule 415 under the Securities
Act;
o on or prior to November 15, 1999, cause the Shelf Registration
Statement to be declared effective under the Securities Act; and
o use its best efforts to keep the Shelf Registration Statement
effective until such time as the Restricted Securities are eligible
to be sold under Rule 144(k) under the Securities Act or until all
the Restricted Securities have been sold pursuant to such Shelf
Registration Statement.
The Company will, in the event a Shelf Registration Statement is filed, among
other things, provide to each holder for whom such Shelf Registration Statement
was filed, copies of the Prospectus which is a part of the Shelf Registration
Statement, notify each such holder when the Shelf Registration Statement has
become effective and take certain other actions as are required to permit
unrestricted resales of such Restricted Securities. A holder selling such
securities pursuant to the Shelf Registration Statement generally would be
required to be named as a selling securityholder in the related prospectus and
to deliver a prospectus to purchasers, will be subject to certain of the civil
liability provisions under the Securities Act in connection with such sales and
will be bound by the provisions of the Registration Rights Agreement which are
applicable to such holder (including certain indemnification obligations).
If (i) by November 15, 1999 (or the next business day), the Shelf
Registration Statement has not been declared effective by the SEC; or (ii) after
the Shelf Registration Statement has been declared effective, such Registration
Statement ceases to be effective or usable (subject to certain
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exceptions) in connection with resales of the Restricted Securities in
accordance with and during the periods specified in the Registration Rights
Agreement (each such event referred to in clauses (i) and (ii) a "Registration
Default"), dividends will accrue on the Series F preferred stock at the rate of
9 1/4% per annum (200 basis points above the rate shown on the cover page of
this Prospectus), from and including the date on which any such Registration
Default shall occur to but excluding the date on which all Registration Defaults
have been cured. At all other times, dividends accrue on the Series F preferred
stock at a rate of 7 1/4% per annum.
If a Registration Default occurs and is continuing on a record date in
respect of a dividend payment date on which dividends are to be paid in dividend
shares, then such dividends shall not be paid on such dividend payment date but
shall be paid on a subsequent payment date, determined by the Company, which
shall be a date after all Registration Defaults have been cured or all the
common stock to be paid in respect of such deferred dividends are eligible to be
sold under Rule 144(k) under the Securities Act. The Discounted Current Market
Value of the common stock with respect to such subsequent payment date shall be
determined on the fourth Trading Day prior to such subsequent payment date, and
dividends accrued from the last date as to which dividends have been paid until
such subsequent payment date (including dividends at the higher rate described
above for the period during which a Registration Default was continuing) shall
be paid to the holders of record on the Business Day next preceding such
subsequent payment date.
THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS FORMS PART HAS BEEN
FILED BY US PURSUANT TO THE FORGOING REGISTRATION OBLIGATION.
The following summary of some of the provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy which is available upon request to the Company.
Book-Entry, Delivery and Form
The Series F preferred stock sold is issued in the form of one or more
global securities. The global securities are deposited with, or on behalf of,
the Depositary and registered in the name of the Depositary or its nominee.
Except as set forth below, the global securities may be transferred, in whole
and not in part, only to the Depositary or another nominee of the Depositary.
Investors may hold their beneficial interests in the global securities directly
through the Depositary if they have an account with the Depositary or indirectly
through organizations which have accounts with the Depositary.
Shares of Series F preferred stock that are issued as described below
under "Certificated Series F preferred stock" will be issued in definitive form.
Upon the transfer of Series F preferred stock in definitive form, such Series F
preferred stock will, unless the global securities has previously been exchanged
for Series F preferred stock in definitive form, be exchanged for an interest in
the global securities representing the liquidation preference of Series F
preferred stock being transferred.
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The Depositary has advised the Company as follows: The Depositary is a
limited-purpose trust company organized under the laws of the State of New York,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. The
Depositary was created to hold securities of institutions that have accounts
with the Depositary ("participants") and to facilitate the clearance and
settlement of securities transactions among its participants in such securities
through electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. The
Depositary's participants include securities brokers and dealers (which may
include the initial purchasers), banks, trust companies, clearing corporations
and certain other organizations. Access to the Depositary's book-entry system is
also available to others such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a participant,
whether directly or indirectly.
Upon the issuance of the global securities, the Depositary will credit, on
its book-entry registrations and transfer system, the liquidation preference of
the Series F preferred stock represented by such global securities to the
accounts of participants. The accounts to be credited shall be designated by the
Initial Purchasers of such Series F preferred stock. Ownership of beneficial
interests in the global securities will be limited to participants or persons
that may hold interests through participants. Ownership of beneficial interests
in the global securities will be shown on, and the transfer of those ownership
interests will be effected only through, records maintained by the Depositary
(with respect to participants' interest) and such participants (with respect to
the owners of beneficial interests in the global securities other than
participants). The laws of some jurisdictions may require that certain
purchasers of securities take physical delivery of such securities in definitive
form. Such limits and laws may impair the ability to transfer or pledge
beneficial interests in the global securities.
So long as the Depositary, or its nominee, is the registered holder and
owner of the global securities, the Depositary or such nominee, as the case may
be, will be considered the sole legal owner and holder of the related Series F
preferred stock for all purposes of such Series F preferred stock and the
Certificate of Designations. Except as set forth below, owners of beneficial
interest in the global securities will not be entitled to have the Series F
preferred stock represented by the global securities registered in their names,
will not receive or be entitled to receive physical delivery of certificated
Series F preferred stock in definitive form and will not be considered to be the
owners or holders of any Series F preferred stock under the global securities.
The Company understands that under existing industry practice, in the event an
owner of a beneficial interest in the global securities desires to take any
action that the Depositary, as the holder of the global securities, is entitled
to take, the Depositary will authorize the participants to take such action, and
that the participants will authorize beneficial owners owning through such
participants to take such action, or would otherwise act upon the instructions
of beneficial owners owning through them.
Payment in respect of dividends and redemption payments on Series F
preferred stock represented by the global securities registered in the name of
and held by the Depositary or its nominee will be made to the Depositary or its
nominee, as the case may be, as the registered owner and holder of the global
securities.
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The Company expects that the Depositary or its nominee, upon receipt of
any payment in respect of dividends and redemption payments on the global
securities, will credit participants' accounts with payments in amount
proportionate to their respective beneficial interests in the liquidation
preference of the global securities as shown on the records of the Depositary or
its nominee. The Company also expects that payments by participants to owners of
beneficial interest in the global securities held through such participants will
be governed by standing instructions and customary practices and will be the
responsibility of such participants. The Company will not have any
responsibility or liability for any aspect of the records relating to, or
payments made on account of, beneficial ownership interests in the global
securities for any Series F preferred stock or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interest or for any
other aspect of the relationship between the Depositary and its participants or
the relationship between such participants and the owners of beneficial interest
in the global securities owning through such participants.
Unless and until it is exchanged in whole or in part for certificated
Series F preferred stock in definitive form, the global securities may not be
transferred except as a whole (a) by the Depositary to a nominee of the
Depositary, (b) by a nominee of the Depositary to the Depositary or (c) by a
nominee of the Depositary to another nominee of the Depositary.
Although the Depositary has agreed to the foregoing procedures in order to
facilitate transfers of interests in the global securities among participants of
the Depositary, it is under no obligations to perform or continue to perform
such procedures, and such procedures may be discontinued at any time. Neither
the transfer agent nor the Company will have any responsibility for the
performance by the Depositary or its participants or indirect participants of
their respective obligations under the rules and procedures governing their
operations.
Certificated Series F Preferred Stock
The Series F preferred stock represented by the global securities is
exchangeable for certificated Series F preferred stock in definitive form of
like tenor as such Series F preferred stock if (i) the Depositary notifies the
Company that it is unwilling or unable to continue as Depositary for the global
securities and a successor is not promptly appointed or if at any time the
Depositary ceases to be a clearing agency registered under the Exchange Act or
(ii) the Company in its discretion at any time determines not to have all of the
Series F preferred stock represented by the global securities. Any Series F
preferred stock that is exchangeable pursuant to the preceding sentence is
exchangeable for certificated Series F preferred stock issuable in authorized
denominations and registered in such names as the Depositary shall direct.
Subject to the foregoing, the global securities are not exchangeable, except for
global securities of the same aggregate denominations to be registered in the
name of the Depositary or its nominee. In addition, such certificates will bear
the legend referred to under "Description of the Series F Preferred
Stock-Restrictions on Transfer" (unless the Company determines otherwise in
accordance with applicable law) and subject to the provisions of such legend.
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DESCRIPTION OF CERTAIN INDEBTEDNESS AND CAPITAL STOCK
Indebtedness
1995 Debt Placement
In October 1995, we issued an aggregate of $225.0 million of notes
consisting of (1) $150.0 million of 14% Senior Discount Notes due 2005 (the
"1995 Senior Notes") and (2) $75.0 million of 14% Convertible Senior
Subordinated Discount Notes due 2005 (the "Convertible Notes"). On June 2, 1999,
all of the Convertible Notes automatically converted into approximately
5,928,000 shares of our common stock pursuant to their terms.
The 1995 Senior Notes are unsecured, senior indebtedness, rank in parity
in right of payment with all of our existing and future senior indebtedness and
are senior in right of payment to all existing and future subordinated
indebtedness. The 1995 Senior Notes will not accrue interest prior to October
15, 2000, nor pay cash interest prior to April 15, 2001; however, the principal
value of the 1995 Senior Notes has accreted since issuance and, at October 15,
2000, the 1995 Senior Notes will have an aggregate principal amount of $294.2
million. From and after October 15, 2000, the 1995 Senior Notes will accrue
interest at the rate of 14% per annum, payable semiannually in cash commencing
April 15, 2001. The 1995 Senior Notes mature on October 15, 2005.
1997 Debt Placements
In March 1997, we and WinStar Equipment Corp. ("WEC"), one of our
subsidiaries formed to facilitate the purchase of equipment, issued an aggregate
of $300.0 million of notes, consisting of (1) $100.0 million of our 14 1/2%
Senior Deferred Interest Notes Due 2005 (the "1997 Senior Notes"), ranking pari
passu with the 1995 Senior Notes, and (2) $200.0 million of WEC's 12 1/2%
Guaranteed Senior Secured Notes Due 2004 (the "WEC Notes"). In August 1997,
WinStar Equipment II Corp. ("WEC II"), another of our subsidiaries formed to
purchase equipment, issued $50.0 million of its 12 1/2% Guaranteed Senior
Secured Notes Due 2004 (the "WEC II Notes"). In October 1997, we issued an
aggregate of $100.0 million principal amount of our 15% Senior Subordinated
Deferred Interest Notes Due 2007 (the "1997 Senior Subordinated Notes" and,
together with the 1997 Senior Notes, the WEC Notes and the WEC II Notes, the
"1997 Notes").
The 1997 Senior Notes are unsecured senior indebtedness, rank in parity in
right of payment with all of our existing and future unsecured senior
indebtedness, and are senior in right of payment to all our existing and future
subordinated indebtedness. Until October 15, 2000, interest on the 1997 Senior
Notes will accrue and compound semiannually at a rate of 14 1/2%, but will not
be payable in cash. Interest on the Accumulated Amount (as defined in the
indenture governing the 1997 Senior Notes) 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 1997 Senior Notes mature on October
15, 2005 and are redeemable on or after October 15, 2000, at our option, in
whole or in part, at specified prices.
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The WEC Notes bear interest at a rate of 12 1/2% 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 our
option, in whole or in part, at specified prices.
The WEC II Notes bear interest at a rate of 12 1/2% 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 our
option, in whole or in part, at specified prices.
We have unconditionally guaranteed the obligations of WEC and WEC II under
the WEC Notes and the WEC II Notes and such obligations are secured by security
interests in the equipment and other property purchased by WEC and WEC II, as
the case may be, with the proceeds thereof.
The 1997 Senior Subordinated Notes are unsecured senior subordinated
obligations, rank in parity in right of payment with the 1998 Notes (as defined
below), and are junior in right of payment to all of our existing and future
senior indebtedness. The 1997 Senior Subordinated 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 1997 Senior Subordinated Notes will
accrue and be compounded semiannually, but will not be payable in cash. Interest
on the Accumulated Amount (as defined in the indenture governing the 1997 Senior
Subordinated Notes) of the 1997 Senior Subordinated Notes as of March 1, 2002
will be payable semiannually commencing September 1, 2002. The 1997 Senior
Subordinated Notes will mature on March 1, 2007 and are redeemable on or after
March 1, 2002, at our option, in whole or in part, at specified prices.
1998 Debt Placement
In March 1998, we issued $200.0 million in aggregate principal amount of
our 10% Senior Subordinated Notes Due 2008 (the "1998 Cash-Pay Notes") and
$250.0 million in aggregate principal amount of our 11% Senior Subordinated
Deferred Interest Notes Due 2008 (the "1998 Deferred Interest Notes" and,
together with the 1998 Cash-Pay Notes, the "1998 Notes"). The 1998 Notes are
unsecured, senior subordinated obligations, rank in parity in right of payment
with the 1997 Senior Subordinated Notes, and are junior in right of payment to
all of our existing and future senior indebtedness.
The 1998 Cash-Pay Notes bear interest at a rate of 10% per annum, payable
on March 15 and September 15, commencing September 15, 1998. The 1998 Cash-Pay
Notes will mature on March 15, 2008 and are redeemable on or after March 15,
2003, at our option, in whole or in part, at specified prices, plus accrued
interest, if any, to the date of redemption.
The 1998 Deferred Interest Notes bear interest at a rate of 11% per annum,
payable on March 15 and September 15, commencing September 15, 2003. Until March
15, 2003, interest on the 1998 Deferred Interest Notes will accrue and be
compounded semiannually, but will not be
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payable in cash. Interest on the Accumulated Amount (as defined in the indenture
governing the 1998 Deferred Interest Notes) of the 1998 Deferred Interest Notes
as of March 15, 2003 will be payable semiannually commencing September 15, 2003.
The 1998 Deferred Interest Notes will mature on March 15, 2008 and are
redeemable on or after March 15, 2003, at our option, in whole or in part, at
specified prices, plus accrued and unpaid interest, if any, to the date of
redemption.
Indentures
The indentures relating to the 1995 Senior Notes, the 1997 Notes and the
1998 Notes contain certain covenants which, among other things, restrict our
ability and that of certain of our subsidiaries to: incur additional
indebtedness; create liens; engage in sale-leaseback transactions; pay dividends
or make distributions in respect of 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 indenture relating to the 1995 Senior Notes); or consolidate, merge or sell
assets. The covenants contained in these indentures are subject to exceptions
and our new media subsidiaries are not subject to many of the covenants
contained therein, although our ability to make additional investments in such
subsidiaries is limited.
Lucent Credit Agreement
In October 1998, we and WinStar Network Expansion, LLC, a limited
liability company wholly owned by us and formed to facilitate the financing of
equipment purchases, entered into a supply agreement with Lucent. Also in
October 1998, WinStar, WinStar Network Expansion, Lucent, as administrative
agent and lender, and State Street Bank and Trust Company, as collateral agent,
entered into a credit agreement which sets forth the terms and conditions under
which Lucent (or its assignee lenders) will provide us with purchase money
financing (the "Credit Commitments") in an aggregate amount of up to $2.0
billion in connection with the buildout of our domestic and international
broadband network. The Credit Commitments may be drawn by WinStar Network
Expansion as and when needed during the buildout of the network. The credit
agreement allows for aggregate borrowings of up to $2.0 billion; provided,
however, that Lucent is not required to have outstanding at any one time
aggregate loans and commitments in excess of $500.0 million.
During the six months ended June 30, 1999, we incurred approximately
$285.2 million in indebtedness under our financing agreement with Lucent. As of
June 30, 1999, the total amount outstanding under the Lucent financing agreement
was approximately $362.7 million. Under the terms of this five year agreement,
Lucent will provide up to $2.0 billion to finance the purchase of equipment and
related services, not to exceed $500.0 million at any one time held by Lucent.
In July 1999, a commercial bank purchased from Lucent, for syndication, $350.0
million of WinStar's borrowings under the financing agreement, thereby creating
additional availability in such amount.
Additional amounts of the Credit Commitments become available on a
dollar-for-dollar basis as the loans or unfunded commitments are syndicated by
Lucent to other lenders. WinStar Network Expansion may draw against the
available Credit Commitments until they have been
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fully drawn or the fifth anniversary of the credit agreement, whichever is
earlier. The credit agreement provides that borrowings will fall into one of
five annual tranches. The tranche under which a loan is drawn will determine
when such loan is to be repaid. Borrowings made during the first year, second
year, third year, fourth year and fifth year would be considered Tranche 1,
Tranche 2, Tranche 3, Tranche 4 and Tranche 5 borrowings, respectively.
Interest on each loan made under the Credit Commitments will accrue at a
floating rate equal to, at WinStar Network Expansions' election, either a base
rate (determined in relation to the then current prime rate) or at the London
Inter-Bank Offered Rate, in each case plus a margin which may vary over the life
of the facility. Interest will be payable quarterly in arrears for base rate
advances and at the end of each interest period (which can be one, three or six
months in length, at WinStar Network Expansions' election) for LIBOR advances;
provided, however, that interest on loans accruing during the first year of the
tranche of which such loan is a part may, at WinStar Network Expansions'
election, be deferred and the deferred interest shall accrue interest at the
same rates as the principal of the loans.
The principal of any tranche as well as any deferred interest thereon will
be repaid in sixteen equal installments, payable on the last day of each
calendar quarter, commencing on the last day of the first quarter following the
fourth anniversary of the date the applicable tranche first becomes available.
Loans made under the credit agreement are also subject to mandatory
prepayment upon the occurrence of certain events, including (1) receipt by us or
our Restricted Subsidiaries (as defined in the credit agreement) of proceeds of
certain asset sales or casualty events which are not reinvested in our business
and (2) the generation of Excess Cash Flow (as defined in the credit agreement),
if any, by us. WinStar Network Expansion will also be entitled to prepay the
loans at its option at any time.
Loans made under the credit agreement will be secured by a purchase money
security interest in the equipment comprising the network, to the extent the
purchase of such equipment is financed under the credit agreement. Additionally,
WinStar Network Expansions' obligations under the credit agreement are
guaranteed by us and certain of our subsidiaries.
The credit agreement contains significant covenants of WinStar Network
Expansion, WinStar and certain of our subsidiaries, including, but not limited
to:
o affirmative covenants with respect to compliance with laws,
inspection rights, performance of other obligations, delivery of
financial statements and other information, interest rate cap
arrangements and maintenance of licenses and certain other assets;
o negative covenants restricting the ability to incur or create (with
certain exceptions) liens, debt and capitalized lease obligations,
and otherwise restricting (with customary exceptions) mergers or
consolidations, disposal of assets, investments, payments of
dividends and distributions, modification of tax-sharing or
management or servicing fee agreements, changes in the nature of the
business
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conducted, prepayment or redemption of debt, creation of
partnerships and new subsidiaries and transactions with affiliates;
and
o financial covenants.
WinStar currently is in compliance with these covenants, including such
financial covenants as are presently applicable.
Equipment Lease Financings and Credit Lines
Our subsidiaries have entered into, and will continue to seek, financing
arrangements, including sale/leaseback transactions, with respect to equipment,
including telecommunications switches, radios and other related equipment. As of
June 30, 1999, we owed an aggregate of $322.1 million under such financing
arrangements, all of which are on terms we consider customary in the
telecommunications industry. In addition, WinStar New Media and certain of its
subsidiaries are parties to a $6.6 million term loan facility which they used to
finance a portion of their capital needs. Principal on the term loan is payable
on a quarterly basis through December 31, 2000. Interest accrues and is payable
quarterly based on the lower of the LIBOR or prime rate plus a margin.
Accounts Receivable Financing
In June 1999, we completed a $35.0 million accounts receivable
securitization financing arrangement. Under this financing, we may borrow up to
the lesser of the maximum amount of the facility (which has been initially set
at $25.0 million, increasing to $35.0 million when certain conditions are met)
and the amount determined under a borrowing base formula. Borrowings under this
facility will bear interest at the London Inter-Bank Offered Rate, plus 1.5%. As
of June 30, 1999, the Company had no outstanding balance under this financing.
Common Stock
Our authorized capital stock includes 200,000,000 shares of common stock,
$.01 par value. The holders of common stock are entitled to one vote for each
share held of record on all matters submitted to a vote of stockholders.
Although we are restricted from paying cash dividends under the terms of the
agreements governing our indebtedness (and, even if we were not so restricted,
we do not currently intend to pay any dividends), holders of common stock are
entitled to receive ratably such dividends as may be declared by our Board of
Directors out of funds legally available therefor. In the event of a liquidation
or dissolution, holders of common stock are entitled to share ratably in all
assets remaining after payment of liabilities and liquidation preference of
preferred stock.
Holders of common stock have no preemptive rights and have no rights to
convert their common stock into any other securities. There are no redemption or
sinking fund provisions applicable to the common stock. All of the outstanding
shares of common stock are fully paid and nonassessable.
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Our certificate of incorporation:
o provides for a board of directors divided into three classes, each
of which generally serves for a term of three years, with only one
class of directors being elected in each year;
o provides that directors may be removed with or without cause and
only by an affirmative vote of holders of at least a majority of our
capital stock entitled to vote thereon; and
o requires an affirmative vote of holders of at least two-thirds of
our capital stock entitled to vote to alter, amend or repeal the
provisions relating to the classification of, and the removal of
members from, the Board of Directors.
Nominations for our Board of Directors may be made by our Board or by any
stockholder entitled to vote for the election of directors. A stockholder
entitled to vote for the election of directors may nominate a person or persons
for election as director only if written notice of such stockholder's intent to
make such nomination is given to our Secretary not later than sixty days in
advance of the meeting. Our certificate of incorporation and by-laws do not
provide for cumulative voting rights. This means that holders of a majority of
our capital stock who vote in the election of directors can elect all of the
directors and, in such event, the holders of the remaining shares will not be
able to elect any of our directors. A special meeting of our stockholders may be
called at the request of the holders of at least 10% of our outstanding capital
stock entitled to vote generally in all matters.
Preferred Stock
Our certificate of incorporation and Delaware General Corporation Law give
our Board of Directors the authority, without further stockholder action, to
issue a maximum of 15,000,000 shares of preferred stock. Our Board of Directors
has the authority to fix the following terms with respect to shares of any
series of preferred stock:
o the designation of the series;
o the number of shares to comprise the series;
o the dividend rate or rates payable with respect to the shares of the
series;
o the redemption price or prices, if any, and the terms and conditions
of any redemption;
o the voting rights;
o any sinking fund provisions for the redemption or purchase of the
shares of the series;
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o the terms and conditions upon which the shares are convertible or
exchangeable, if they are convertible or exchangeable; and
o any other relative rights, preferences and limitations pertaining to
the series.
Series A Preferred Stock
In February 1997, we and one of our wholly owned subsidiaries sold in a
private placement an aggregate of 4,000,000 shares of Series A 6% preferred
stock and warrants to purchase 1,600,000 shares of our common stock for an
aggregate purchase price of $100.0 million.
Each share of Series A preferred stock has a stated value of $25 and
entitles the holder thereof to receive dividends from us at a rate per annum
equal to 6% of this 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. We may, at our election, pay such dividends in
cash or through the issuance of additional shares of Series A preferred stock.
The shares of Series A preferred stock are convertible into that number of
shares of our common stock derived by dividing the aggregate Stated Value of the
Series A preferred stock being converted by $25 (subject to adjustment). On
February 11, 2002, any Series A preferred stock still outstanding will be
automatically converted into shares of our common stock, unless we elect to pay
cash therefor in an amount equal to the stated value plus all accrued and unpaid
dividends thereon (the "Liquidation Preference").
The warrants entitle the holders thereof to purchase an aggregate of
1,600,000 shares of our common stock for $25 per share (subject to adjustment)
at any time until February 11, 2002. We may accelerate the expiration date at
any time after February 11, 2000 if our common stock trades at $40 or more for a
period of 20 consecutive days.
As of June 30, 1999, after giving effect to conversions of Series A
preferred stock into our common stock and the issuance of shares of Series A
preferred stock as dividends, there were approximately 4,275,000 shares of
Series A preferred stock outstanding.
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 us and Continental Stock Transfer & Trust
Company, as rights agent, which was adopted by our Board of Directors on July 2,
1997. This summary of the Rights Plan does not purport to be complete and is not
a substitute for the complete discussion contained in the Rights Plan.
Under the Rights Plan, holders of our common stock received, as a
dividend, preferred stock purchase rights (the "Rights") at the rate of one
Right for each share of our common stock held as of the close of business on
July 14, 1997. One Right will also attach to each share of our common stock
issued thereafter. Currently, the Rights are not separate from our common stock
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and are not exercisable, and the Rights will only separate from our common stock
and become exercisable if a person or group acquires 10% or more of our
outstanding common stock (an "Acquiring Person") or launches a tender or
exchange offer that would result in ownership of 10% or more of our 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 we will issue. 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 our 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
$225, Units with a market value of $450. However, if we are involved in a
business combination in which we are not the survivor, or if we sell 50% or more
of our assets or earning power to another person, then the Rights Plan provides
that each Right entitles the holder to purchase, for $225, shares of the common
stock of the Acquiring Person's ultimate parent having a market value of $450.
At any time until ten days following the date on which a person acquires
10% or more of our common stock, we may redeem all (but not less than all) of
the Rights for $0.0001 per Right. The Rights expire in July 2002. The Series B
preferred stock will have dividend and liquidation preferences over our common
stock, but junior to any other series of our preferred stock.
Series C Preferred Stock
On December 17, 1997, we and one of our wholly owned subsidiaries sold in
a private placement an aggregate of 175,000 shares of our Series C 14 1/4%
Senior Cumulative Preferred Stock Due 2007 for an aggregate purchase price of
$175.0 million.
Dividends on the Series C preferred stock accrue from December 22, 1997 at
the rate per share of 14 1/4% of the Accumulated Amount (as defined in the
certificate of designations governing the Series C preferred stock) per annum,
compounded semiannually on each June 15 and December 15, but will not be payable
in cash, except as set forth in the next sentence. Commencing on the first June
15 or December 15 (each a "Dividend Payment Date") which is at least six months
after the later of December 15, 2002, and the Specified Debt Satisfaction Date
(as defined in the certificate of designations governing the Series C preferred
stock) (the "Cash Payment Date"), dividends on the Series C preferred stock will
be payable in cash at a rate per annum equal to 14 1/4% of the Accumulated
Amount as of the Dividend Payment Date preceding such date. In the event that
the Specified Debt Satisfaction Date has not occurred before December 15, 2002,
the rate otherwise applicable to the Series C preferred stock will be increased
by 150 basis points from December 15, 2002, until the Dividend Payment Date
falling on or after the Specified Debt Satisfaction Date.
The Series C preferred stock ranks: (1) senior to all existing and future
Junior Stock (as defined in the certificate of designations governing the Series
C preferred stock), including the Series A preferred stock; (2) in parity with
all existing and future Parity Stock (as defined in the certificate of
designations governing the Series C preferred stock), including the Series D
preferred stock and Series F preferred stock; and (3) junior to all future
Senior Stock (as defined).
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In addition, as equity, the Series C preferred stock ranks junior in right of
payment to all of our indebtedness and that of our subsidiaries.
The Series C preferred stock will not be redeemable prior to December 15,
2002. On or after December 15, 2002, the Series C preferred stock will be
redeemable at our option, in whole or in part, at specified redemption prices
plus accumulated and unpaid dividends, if any, to the date of redemption. On
December 15, 2007, we will be required to redeem the Series C preferred stock at
a price equal to the Accumulated Amount thereof plus accumulated and unpaid
dividends, if any, out of funds legally available therefor.
On any scheduled Dividend Payment Date following the Specified Debt
Satisfaction Date, we may, at our option, exchange all but not less than all of
the shares of Series C Preferred Stock then outstanding for 14 1/4% Senior
Subordinated Deferred Interest Notes Due 2007 ("Exchange Debentures") in an
aggregate Accumulated Amount equal to the aggregate Accumulated Amount of the
shares of Series C preferred stock outstanding at the time of such exchange,
plus accumulated and unpaid dividends to the date of exchange. Until the Cash
Payment Date, interest on the Exchange Debentures will accrue at a rate of 14
1/4% of the Accumulated Amount per annum and will be compounded semiannually on
each June 15 and December 15 (each an "Interest Payment Date") but will not be
payable in cash except as set forth in the next sentence. Commencing on the
first Interest Payment Date following the later of the Exchange Date (as defined
in the indenture governing the Exchange Debentures) or the Cash Payment Date,
interest will be payable in cash at a rate per annum equal to 14 1/4% of the
Accumulated Amount as of the Exchange Date. The Exchange Debentures, if issued,
will be unsecured, senior subordinated obligations, subordinated in right of
payment to all of our senior indebtedness and to all indebtedness and other
liabilities (including trade payables) of our subsidiaries, and will rank pari
passu with the 1997 Senior Subordinated Notes. The Exchange Debentures, if
issued, will not be redeemable prior to December 15, 2002. On or after December
15, 2002, the Exchange Debentures are redeemable at our option, in whole or in
part, at certain redemption prices plus accrued and unpaid interest, if any, to
the date of redemption.
Series D Preferred Stock
On March 17, 1998, we and one of our subsidiaries sold an aggregate of
$200.0 million of our Series D 7% Senior Cumulative Convertible Preferred Stock
Due 2010 in a private placement.
Dividends at the rate of 7% per annum on the Series D preferred stock are
cumulative from the date of issuance and are payable quarterly in arrears on
each March 15, June 15, September 15 and December 15, commencing September 15,
1998, out of funds legally available therefor. Dividends shall be, at our
option, payable (1) in cash or (2) through the issuance of shares of our common
stock. The Series D preferred stock is convertible at any time after the issue
date, at the option of the holders thereof, into shares of our common stock at a
rate (subject to adjustment in certain events) of 1.0079 shares of our common
stock for each share of Series D preferred stock, equivalent to a conversion
price of $49.61 for each share of our common stock.
The Series D preferred stock ranks (1) senior to all existing and future
Junior Stock (as defined in the certificate of designations governing the Series
D preferred stock), including the
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Series A preferred stock; (2) pari passu with all existing and future Parity
Stock (as defined in the certificate of designations governing the Series D
preferred stock), including the Series C preferred stock and Series F preferred
stock; and (3) junior to all future Senior Stock (as defined). In addition, as
equity, the Series D preferred stock will rank junior in right of payment to all
of our indebtedness and that of our subsidiaries.
The Series D preferred stock is not redeemable prior to March 20, 2001. On
or after such date, the Series D preferred stock will be redeemable at our
option, in whole or in part, at any time or from time to time, at specified
redemption prices plus accrued and unpaid dividends, if any. The Series D
preferred stock is subject to mandatory redemption on March 15, 2010, at a
redemption price of $50.00 per share plus accrued and unpaid dividends, if any.
Upon the occurrence of a Change in Control (as defined in the Certificate of
Designations governing the Series D preferred stock), we will be obligated to
adjust the conversion price as provided in the Certificate of Designations
relating to the Series D preferred stock.
Series E Preferred Stock
In connection with an acquisition we consummated in August 1998, we issued
an aggregate of 75,100 shares of our Series E preferred stock. The Series E
preferred stock is non-voting, non-redeemable and does not earn dividends. Each
share of Series E preferred stock has a liquidation preference of $59.93 per
share, but is junior in right to receive distributions in liquidation to all
other currently existing preferred stock and any other class of preferred stock
authorized in the future unless such new class is expressly made junior or equal
to the Series E preferred stock. The holders of the Series E preferred stock may
convert all, but not less than all, of their stock into shares of our common
stock on a one-for-one basis any time on or after August 28, 1999. Under certain
conditions, WinStar may require these holders to convert.
Registrar and Transfer Agent
The registrar and transfer agent for the Series A preferred stock, Series
C preferred stock, Series D preferred stock, Series F preferred stock and Common
Stock is Continental Stock Transfer & Trust Company, 2 Broadway, New York, New
York 10004.
57
<PAGE>
SELLING AND PLAN OF DISTRIBUTION
This Prospectus relates to the resale by the selling securityholders of
the securities listed below. All of the securities being registered under the
registration statement of which this prospectus forms a part are being so
registered pursuant to registration rights granted by us to the selling
securityholders. None of the selling securityholders has had a material
relationship with us or any of our predecessors or affiliates within the past
three years, except as described in the footnotes below or otherwise in this
prospectus.
Series F Preferred Stock*
<TABLE>
<CAPTION>
Number of shares of Number of shares of
Series F preferred stock Series F preferred stock
Name of Selling Securityholder owned as of August 1, 1999 to be Sold
- ------------------------------ -------------------------- ------------------------
<S> <C> <C>
The Bank of New York 2,250(1) 2,250(1)
Bear, Stearns Securities Corp. 41,950(1) 41,950(1)
Boston Safe Deposit & Trust
Company 4,649(1) 4,649(1)
Brown Brothers Harriman & Co. 15,400(1) 15,400(1)
Chase Manhattan Bank 200(1) 200(1)
Chase Manhattan Bank 1,500(1) 1,500(1)
CIBC World Markets Corp. 6,750(1) 6,750(1)
Credit Suisse First Boston
Corporation 10,550(1) 10,550(1)
Custodial Trust Company 3,000(1) 3,000(1)
Deutsche Bank Securities Inc. 7,500(1) 7,500(1)
First Options of Chicago, Inc. 750(1) 750(1)
Goldman, Sachs & Co. 11,250(1) 11,250(1)
Goldman Sachs International 4,000(1) 4,000(1)
Investors Fiduciary Trust
Company/SSB 600(1) 600(1)
J.P. Morgan Securities Inc. 7,500(1) 7,500(1)
Kellner, Dileo & Co. 1,000(1) 1,000(1)
Lehman Brothers, Inc. 31,480(1) 31,480(1)
Morgan Stanley & Co. Incorporated 30,300(1) 30,300(1)
The Northern Trust Company 25(1) 25(1)
PNC Bank, National Association 3,085(1) 3,085(1)
Prudential Securities Incorporated 28,000(1) 28,000(1)
Salomon Smith Barney Inc. 29,100(1) 29,100(1)
State Street Bank & Trust Company 46,111(1) 46,111(1)
Suntrust Bank, Atlanta 2,000(1) 2,000(1)
Union Bank of California, N.A 50(1) 50(1)
Warburg Dillon Read LLC 9,500(1) 9,500(1)
Weiss, Peck & Greer, L.L.C 1,500(1) 1,500(1)
</TABLE>
- ----------
(footnotes on next page)
58
<PAGE>
Common Stock
<TABLE>
<CAPTION>
Number of shares of
common stock Number of shares of
Name of Selling Securityholder owned as of August 1, 1999 common stock to be Sold
- ------------------------------ -------------------------- -----------------------
<S> <C> <C>
Glenn Anderson 181(2) 181(2)
Mark Chestnut 226(2) 226(2)
Dale Dennis 46(2) 46(2)
Barry Fingerhut (3) (3)
Gregory Green 973(2) 973(2)
Irwin Leiber (3) (3)
William Lonergan 2,669(4) 2,669(4)
Jared Miller 973(2) 973(2)
Edward A. Morin, Jr. 94,129(2) 94,129(2)
Trevor Parkinson 181(2) 181(2)
Ed Piersma 90(2) 90(2)
Angela Quinn 253(2) 253(2)
Raptor Global Fund, L.P. (3) (3)
Raptor Global Fund Ltd. (3) (3)
Reservoir New Media LLC (3) (3)
Barry Rubenstein (3) (3)
Seneca Ventures (3) (3)
Ralph Sims 94,129(2) 94,129(2)
Chad Skidmore 973(2) 973(2)
Walter Sonnenfeldt 535(4) 535(4)
Michael Stan 43,444(2) 43,444(2)
Tudor Private Equity Fund, L.P. (3) (3)
Wheatley Foreign Partners, L.P. (3) (3)
Wheatley Partners, L.P. (3) (3)
Leonard Whitwer 57,925(2) 57,925(2)
Woodland Venture Fund (3) (3)
Brian Clark (2) (2)
Orlando Saez (2) (2)
Brian Vargyas (2) (2)
Arthur Zards (2) (2)
</TABLE>
- ----------
* The Series F Preferred Stock table sets forth the record holders of our
Series F preferred stock. Generally, these record holders hold these
shares for other beneficial holders. This prospectus therefor also relates
to and covers sales and transfers by all beneficial holders of our Series
F preferred stock, including, but not limited to:
o Argent Classic Convertible Arbitrage Fund L.P.
o Argent Classic Convertible Arbitrage Fund (Bermuda) L.P.
59
<PAGE>
o Argent Convertible Arbitrage Fund Ltd.
o Fidelity Advisor Series VII: Fidelity Advisors Utilities Growth
Fund. The entity is either an investment company or a portfolio of
an investment company registered under Section 8 of the Investment
Company Act of 1940, as amended, or a private investment account
advised by Fidelity Management & Research Company ("FMR Co."). FMR
Co. is a Massachusetts corporation and an investment advisor
registered under Section 203 of the Investment Advisers Act of 1940,
as amended, and provides investment advisory services to each of
such Fidelity entities identified above, and to other registered
investment companies and to certain other funds which are generally
offered to a limited group of investors. FMR Co. is a wholly owned
subsidiary of FMR Corp. ("FMR"), a Massachusetts corporation.
o Goldman Sachs and Company
o HBK Cayman L.P.
o HBK Investments L.P.
o HBK Offshore Fund Ltd.
o JMG Convertible Investments, L.P.
o Log Limited
o McMahon Securities Company, L.P.
o SoundShore Opportunity Holding Fund Ltd.
o TQA Leverage Fund, L.P.
o TQA Vantage Fund, Ltd.
o TQA Vantage Plus Fund, Ltd.
o Triton Capital Investments Ltd.
(1) The shares of Series F preferred stock set forth above were sold in the
June 1999 Private Placement. The selling preferred stockholders shall also
be entitled to sell, and the Registration Statement of which this
Prospectus forms a part also covers, any and all dividend shares that may
be issued in lieu of cash dividends on such Series F preferred stock
during the term of the Series F preferred stock and any and all conversion
shares issued upon conversion of the Series F preferred stock.
(2) The shares were issued in connection with acquisitions.
(3) The shares to be resalable under this prospectus for this selling
stockholder will be those shares issuable to him under certain
circumstances in connection with his ownership of equity of WinStar New
Media Company, Inc., a subsidiary of our company. The number of shares so
issuable shall be determined prior to effectiveness of the registration
statement of which this prospectus forms a part and shall be provided by
amendment thereto prior to such effectiveness.
(4) The shares of common stock set forth above were issued in connection with
certain transactions pursuant to which we acquired 38 GHz licenses.
The sale or distribution of the securities may be effected directly to
purchasers by the selling stockholders or by any donee or pledgee or transferee
of any such selling stockholders as
60
<PAGE>
principals or through one or more underwriters, brokers, dealers or agents from
time to time in one or more transactions (which may involve crosses or block
transactions) (i) or on any exchange or in the over-the-counter market, (ii) in
transactions otherwise than in the over-the-counter market, (iii) through the
writing of put or call options (whether such options are listed on an options
exchange or otherwise) relating to the securities, the short sales of the
securities, (iv) through the distribution of the securities by any selling
stockholder to its partners, members or shareholders, or (v) through a
combination of any of the above. Any of such transactions may be effected at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices, at varying prices determined at the time of sale or at
negotiated or fixed prices, in each case as determined by the selling
stockholder or by agreement between the selling stockholder and underwriters,
brokers, dealers or agents, or purchasers. If the selling stockholders effect
such transactions by selling securities to or through underwriters, brokers,
dealers or agents, such underwriters, brokers, dealers or agents may receive
compensation in the form of discounts, concessions or commissions from the
selling stockholders or commissions from purchasers of securities for whom they
may act as agent (which discounts, concessions or commissions as to particular
underwriters, brokers, dealers or agents may be in excess of those customary in
the types of transactions involved). The selling stockholders and any brokers,
dealers or agents that participate in the distribution of the securities may be
deemed to be underwriters, and any profit on the sale of securities by them and
any discounts, concessions or commissions received by any such underwriters,
brokers, dealers or agents may be deemed to be underwriting discounts and
commissions under the Securities Act.
Under the securities laws of certain states, the securities may be sold in
such states only through registered or licensed brokers or dealers. In addition,
in certain states the securities may not be sold unless the securities have been
registered or qualified for sale in such state or an exemption from registration
or qualification is available and is complied with.
Selling stockholders may also resell all or a portion of the securities in
open market transactions in reliance upon Rule 144 under the Securities Act,
provided they meet the criteria and conform to the requirements of such Rule.
We will pay all of the costs, expenses and fees incident to the
registration, offering and sale of the securities to the public hereunder other
than commissions, fees and discounts of underwriters, brokers, dealers and
agents. We have agreed to indemnify the selling stockholders and any
underwriters against certain liabilities, including liabilities under the
Securities Act. The Company will not receive any of the proceeds from the sale
of any of the securities by the selling stockholders.
LEGAL MATTERS
The legality of the issuance of the dividend shares and conversion shares
will be passed upon for the Company by Graubard Mollen & Miller, New York, New
York. Certain partners and employees of Graubard Mollen & Miller own shares of
common stock.
61
<PAGE>
EXPERTS
The consolidated financial statements of WinStar as of December 31, 1997
and 1998 and for the years ended December 31, 1996, 1997 and 1998 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.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-3 under the Securities
Act of 1933, as amended, with the SEC. This prospectus is part of that
registration statement and does not contain all of the information included in
the registration statement. For further information about us and our securities
you may refer to the registration statement and its exhibits and schedules as
well as the documents described below. You can review and copy these documents
at the public reference facilities maintained by the SEC or on the SEC's website
as described below.
We also file annual, quarterly and special reports, proxy statements and
other information with the SEC. Our SEC filings are available to the public over
the Internet at the SEC's web site at http://www.sec.gov. You may also read and
copy any document we file at the SEC's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. These documents are also available at the
public reference rooms at the SEC's regional offices in New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available at the offices
of the Nasdaq National Market in Washington, D.C.
The SEC allows us to "incorporate by reference" the information we file
with it, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus, and information that we file later with
the SEC will automatically update and supersede this information. This
prospectus incorporates by reference our documents listed below and any future
filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934:
o Annual Report on Form 10-K (as amended) for the year ended December
31, 1998;
o Quarterly Report on Form 10-Q for the quarter ended March 31, 1999;
o Quarterly Report on Form 10-Q for the quarter ended June 30, 1999;
o Proxy Statement regarding the Annual Meeting of Stockholders held on
July 1, 1999, filed May 7, 1999;
o Current Report on Form 8-K, filed June 3, 1999;
o Current Report on Form 8-K, filed June 24, 1999;
o Current Report on Form 8-K, filed July 16, 1999; and
o The description of our common stock contained in our registration
statement on Form 8-A (as amended) under the Exchange Act (File No.
1-10726).
We will provide any person to whom a prospectus is delivered a copy of any
and all of the documents incorporated in this prospectus by reference upon their
written or oral request. If you desire any of these documents, please contact us
as at WinStar Communications, Inc., 230 Park Avenue, New York, New York, 10169,
Attention: Investor Relations, 212-584-4000.
62
<PAGE>
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma as adjusted condensed consolidated
statement of operations for the six months ended June 30, 1999 gives effect to
the June 1999 Private Placement as if it had occurred on January 1, 1999.
The following unaudited pro forma condensed consolidated statement of
operations for the year ended December 31, 1998 gives effect to the March 1998
Financing Transactions, as if they occurred on January 1, 1998. The following
unaudited pro forma as adjusted condensed consolidated statement of operations
for the year ended December 31, 1998 gives effect to the March 1998 Financing
Transactions and the June 1999 Private Placement as if they had occurred on
January 1, 1998.
The pro forma financing statements do not purport to represent what our
results of operations or financial condition would actually have been had the
March 1998 Financing Transactions and June 1999 Private Placement in fact
occurred on the dates referenced above or to project our results of operations
for any future period.
These pro forma financial statements should be read in conjunction with
the notes to the unaudited pro forma condensed consolidated financial statements
included herein and our consolidated financial statements and condensed
consolidated financial statements which are incorporated by reference into this
prospectus.
F-1
<PAGE>
WINSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Adjustments
for the June
1999 Private
Historical Placement As Adjusted
--------- ------------ -----------
<S> <C> <C> <C>
Operating revenues:
Telecommunications services
Core $ 145,443 $ $ 145,443
Other 14,305 14,305
--------- --------- ---------
Total telecommunications services 159,748 159,748
Information services 24,850 24,850
--------- --------- ---------
Total operating revenues 184,598 184,598
--------- --------- ---------
Operating expenses
Cost of services and products 141,295 141,295
Selling, general and administrative
expenses 206,163 206,163
Depreciation and amortization 63,276 63,276
--------- --------- ---------
Total operating expenses 410,734 410,734
--------- --------- ---------
Operating loss (226,136) (226,136)
Other expense
Interest expense (101,334) (101,334)
Interest income 9,980 9,980
--------- --------- ---------
Loss from continuing operations
before income tax benefit (317,490) (317,490)
Income tax benefit 2,000 2,000
--------- --------- ---------
Net loss (315,490) (315,490)
Less preferred stock dividends (24,992) (10,375)(a) (35,367)
--------- --------- ---------
Net loss applicable to common stock $(340,482) $ (10,375) $(350,857)
Net loss applicable to common stock
per share $ (7.23) $ (7.42)
========= ========= =========
Weighted average shares outstanding 47,068 230(a) 47,298
========= ========= =========
</TABLE>
F-2
<PAGE>
WINSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Pro Forma
Adjustments
for the March Adjustments
1998 for the June
Financing 1999 Private
Historical Transactions Pro Forma Placement As Adjusted
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Operating revenues:
Telecommunications services
Core $ 141,466 $ $ 141,466 $ $ 141,466
Other 49,643 49,643 49,643
--------- --------- --------- --------- ---------
Total telecommunications services 191,109 191,109 191,109
Information services 53,338 53,338 53,338
--------- --------- --------- --------- ---------
Total operating revenues 244,447 244,447 244,447
--------- --------- --------- --------- ---------
Operating expenses
Cost of services and products 204,748 204,748 204,748
Selling, general and administrative expenses 263,155 263,155 263,155
Depreciation and amortization 74,953 74,953 74,953
--------- --------- --------- --------- ---------
Total operating expenses 542,856 542,856 542,856
--------- --------- --------- --------- ---------
Operating loss (298,409) (298,409) (298,409)
Other expenses
Interest expense (156,599) (10,757)(a) (167,356) (167,356)
Interest income 29,758 29,758 29,758
--------- --------- --------- --------- ---------
Loss from continuing operations before income
tax benefit (425,250) (10,757) (436,007) (436,007)
Income tax benefit 5,500 5,500 5,500
--------- --------- --------- --------- ---------
Net loss from continuing operations (419,750) (10,757) (430,507) (430,507)
Loss from discontinued operations (24,974) (24,974) (24,974)
--------- --------- --------- --------- ---------
Net loss (444,724) (10,757) (455,481) (455,481)
Less preferred stock dividends (42,968) (2,994)(a) (45,962) (21,750)(b) (67,712)
--------- --------- --------- --------- ---------
Net loss applicable to common stock $(487,692) $ (13,751) $(501,443) $ (21,750) $(523,193)
========= ========= ========= ========= =========
Net loss applicable to common stock per share
from continuing operations $ (11.96) $ (12.30) $ (12.70)
Net loss per share from discontinued operations (0.65) (0.64) (0.64)
--------- --------- ---------
Net loss applicable to common stock per share $ (12.61) $ (12.94) $ (13.34)
========= ========= =========
Weighted average shares outstanding 38,681 72(a) 38,753 460(b) 39,213
========= ========= ========= ========= =========
</TABLE>
F-3
<PAGE>
Notes to Unaudited Pro Forma Condensed Consolidated
Financial Statements
(in thousands, except share data)
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
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.
Statement of Operations for the Six Months Ended June 30, 1999
(a) To record the dividends on the Series F convertible preferred stock
as if the June 1999 Private Placement had occurred on January 1,
1999.
Statement of Operations for the Year Ended December 31, 1998
(a) To record the March 1998 Financing Transactions as if they occurred
as of January 1, 1998, including preferred stock dividends, interest
expense and amortization of deferred debt offering costs and other
related fees, but not including interest income earned on unused
cash, as follows:
Dividends on the Series D preferred stock issued in March 1998
($2,994).
Interest expense, including amortization of debt offering costs, on
the 1998 Notes issued in March 1998 ($10,757).
(b) To record the dividends on the Series F convertible preferred stock
as if the June 1999 Private Placement had occurred on January 1,
1998.
F-4
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. Other Expenses of Issuance and Distribution
The estimated expenses in connection with the sale of the securities being
registered hereby, are as follows:
SEC registration fee........................................... $ 88,688.92
Legal fees and expenses........................................ 75,000.00
Listing fees................................................... 30,000.00
Accounting fees and expenses................................... 75,000.00
Miscellaneous.................................................. 20,000.00
-------------
Total..................................................... $ 288,688.92
=============
ITEM 15. Indemnification of Directors and Officers
Our certificate of incorporation provides that all of our directors,
officers, employees and agents shall be entitled to be indemnified by us to the
fullest extent permitted by law.
Section 145 of the Delaware General Corporation Law concerning
indemnification of officers, directors, employees and agents is set forth below.
"Section 145. Indemnification of officers, directors, employees and
agents; insurance.
(a) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation, and with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
II-1
<PAGE>
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under sections (a) and (b) of this section (unless
ordered by a court) shall be made by the corporation only as authorized in the
specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of this
section. Such determination shall be made (1) by the board of directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even
if obtainable, a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.
(e) Expenses incurred by an officer or director in defending a civil or
criminal action, suite or proceeding may be paid by the corporation in advance
of the final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer, to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the corporation as authorized in this section. Such expenses incurred by other
employees and agents may be so paid upon such terms and conditions, if any, as
the board of directors deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote
II-2
<PAGE>
of stockholders or disinterested directors or otherwise, both as to action in
his official capacity and as to action in another capacity while holding such
office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith an in a manner he reasonably
believed to be in the interest of the participants and beneficiaries of an
employee benefit plan shall be deemed to have acted in a manner "not opposed to
the best interests of the corporation" as referred to in this section.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to our directors, officers, and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by us of expenses incurred or paid by a
director, officer or controlling person 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, we will, unless in the
opinion of our counsel the matter has been settled by controlling precedent,
submit to the court of appropriate jurisdiction the question whether such
indemnification by us is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-3
<PAGE>
ITEM 16. Exhibits
Exhibit
Number Description
- ------- -----------
5.1 Opinion of Graubard Mollen & Miller*
12.1 Ratio of Earnings to Combined Fixed Charges and Preferred Stock
Dividends*
23.1 Consent of Grant Thornton LLP
23.2 Consent of Graubard Mollen & Miller (included in its opinion filed
as Exhibit 5.1)*
*To be filed by Amendment.
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ITEM 17. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment of this registration statement;
(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.
(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.
(e) The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report, to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
(h) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than
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the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(i) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on form and has duly caused this to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, on September 30, 1999.
WINSTAR COMMUNICATIONS, INC.
By: *
--------------------------------
William J. Rouhana, Jr.
Chairman of the Board and
Chief Executive Officer
* Chairman of the Board and September , 1999
- ------------------------ Chief Executive Officer (and
William J. Rouhana, Jr. principal executive officer)
* President, Chief Operating September , 1999
- ------------------------ Officer and Director
Nathan Kantor
/s/ Timothy R. Graham Executive Vice President, September 30, 1999
- ------------------------ General Counsel and Director
Timothy R. Graham
* Executive Vice President and September , 1999
- ------------------------ Chief Financial Officer
Charles T. Dickson
* Director September , 1999
- ------------------------
Bert W. Wasserman
* Director September , 1999
- ------------------------
William J. vanden Heuvel
* Director September , 1999
- ------------------------
Steven B. Magyar
* Director September , 1999
- ------------------------
James I. Cash
* Senior Vice President-Finance September , 1999
- ------------------------ (Principal Accounting Officer)
Joseph P. Dwyer
- ----------
* By power of attorney
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Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our reports dated March 25, 1999 accompanying the
consolidated financial statements of WinStar Communications, Inc. and
subsidiaries appearing in the 1998 Annual Report of the Company to its
shareholders and accompanying the schedule included in the Annual Report on Form
10-K/A for the year ended December 31, 1998 which are incorporated by reference
in this Registration Statement and Prospectus. We consent to the incorporation
by reference in the Registration Statement and Prospectus of the aforementioned
reports and to the use of our name as it appears under the caption "Experts."
/s/ GRANT THORNTON LLP
New York, New York
September 28, 1999
