<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _____________________ to _______________________
Commission File Number: 1-10726
WINSTAR COMMUNICATIONS, INC.
----------------------------
(Exact name of Registrant as specified in its charter)
Delaware 13-3585278
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
685 Third Avenue, Suite 3100, New York, NY 10017
------------------------------------------------
(Address of principal executive offices)
(212) 792-9800
--------------
(Registrant's telephone number)
230 Park Avenue, Suite 2700, New York, NY 10169
-----------------------------------------------
(Former address, changed since last report)
Indicate by checkmark whether the registrant: (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /x/ No / /
The number of shares outstanding of the issuer's common stock, as of November
11, 1999, was 54,934,842.
<PAGE>
FORM 10-Q
WINSTAR COMMUNICATIONS, INC.
TABLE OF CONTENTS
PAGE
PART I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
September 30, 1999 (unaudited) and December 31, 1998.............3
Unaudited Condensed Consolidated Statements
of Operations - three and nine months ended
September 30, 1999 and 1998 .....................................4
Unaudited Condensed Consolidated Statement of
Stockholders' Equity (Deficit) - nine months ended
September 30, 1999...............................................5
Unaudited Condensed Consolidated Statements
of Cash Flows - nine months ended
September 30, 1999 and 1998......................................6
Notes to Condensed Consolidated
Financial Statements.........................................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...............16
Item 3. Quantitative and Qualitative Disclosures........................31
PART II. Other Information..................................................32
Item 2. Changes in Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures ............................................................34
<PAGE>
Winstar Communications, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
----------- -----------
(unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 202,468 $ 208,257
Short term investments 274,453 104,773
----------- -----------
Cash, cash equivalents and short term investments 476,921 313,030
Accounts receivable, net of allowance for doubtful
accounts 124,852 70,939
Inventories 23,242 14,880
Prepaid expenses and other current assets 82,589 28,402
----------- -----------
Total current assets 707,604 427,251
Investments in marketable equity securities 41,838 26,400
Property and equipment, net 1,415,464 639,673
Licenses, net 317,046 310,649
Other intangible assets, net 172,893 178,050
Deferred financing costs, net 56,721 53,308
Other assets 55,839 27,851
----------- -----------
Total assets $ 2,767,405 $ 1,663,182
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Current portion of long-term debt $ 15,555 $ 6,487
Current portion of capitalized lease obligations 133,816 59,021
Accounts payable and accrued expenses 234,002 159,252
Deferred revenues - current 11,436 2,105
Net liabilities of discontinued operations 4,287 7,254
----------- -----------
Total current liabilities 399,096 234,119
Capitalized lease obligations, less current portion 193,580 49,354
Long-term debt, less current portion 1,885,013 1,396,635
Deferred revenues - non current 143,744 --
Other liabilities 15,919 12,588
Deferred income taxes 15,500 18,500
----------- -----------
Total liabilities 2,652,852 1,711,196
----------- -----------
Series C cumulative exchangeable redeemable preferred stock 223,477 201,478
Series D senior cumulative convertible redeemable preferred stock 200,000 200,000
Stockholders' deficit
Series F preferred stock 3 --
Series A preferred stock 42 41
Series E preferred stock 1 1
Common stock, par value $.01; authorized 200,000 shares,
issued and outstanding 54,771 and 41,403, respectively 548 414
Additional paid-in-capital 1,003,569 404,112
Accumulated deficit (1,295,227) (819,242)
Accumulated other comprehensive loss (17,860) (34,818)
----------- -----------
Total stockholders' deficit (308,924) (449,492)
----------- -----------
Total liabilities, redeemable preferred stock
and stockholders' deficit $ 2,767,405 $ 1,663,182
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
3
<PAGE>
Winstar Communications, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
------------------------- -------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Operating revenues
Telecommunications services
Core $ 97,618 $ 37,221 $ 243,061 $ 85,858
Other 7,064 11,175 21,369 40,276
--------- --------- --------- ---------
Total telecommunications services 104,682 48,396 264,430 126,134
Information services 14,853 12,750 39,703 37,220
--------- --------- --------- ---------
Total operating revenues 119,535 61,146 304,133 163,354
--------- --------- --------- ---------
Operating expenses
Cost of services and products 83,555 45,722 224,850 132,199
Selling, general and administrative expenses 108,601 63,764 314,764 175,395
Depreciation and amortization 42,976 20,372 106,252 48,666
--------- --------- --------- ---------
Total operating expenses 235,132 129,858 645,866 356,260
--------- --------- --------- ---------
Operating loss (115,597) (68,712) (341,733) (192,906)
Other (expense) income
Interest expense (52,677) (42,599) (154,011) (111,704)
Interest income 6,779 8,805 16,759 24,043
--------- --------- --------- ---------
Loss from continuing operations before income
tax benefit (161,495) (102,506) (478,985) (280,567)
Income tax benefit 1,000 1,500 3,000 4,000
--------- --------- --------- ---------
Loss from continuing operations (160,495) (101,006) (475,985) (276,567)
Loss from discontinued operations -- (21,335) -- (25,031)
--------- --------- --------- ---------
Net loss (160,495) (122,341) (475,985) (301,598)
Preferred stock dividends (18,372) (11,710) (43,364) (31,195)
--------- --------- --------- ---------
Net loss applicable to common stockholders $(178,867) $(134,051) $(519,349) $(332,793)
========= ========= ========= =========
Basic and diluted loss per share:
From continuing operations $ (3.28) $ (2.83) $ (10.47) $ (8.10)
From discontinued operations -- (0.53) -- (0.66)
--------- --------- --------- ---------
Net loss per share $ (3.28) $ (3.36) $ (10.47) $ (8.76)
========= ========= ========= =========
Weighted average shares outstanding 54,580 39,876 49,606 37,970
========= ========= ========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
4
<PAGE>
Winstar Communications, Inc.
Condensed Consolidated Statement of Stockholders' Deficit
For the Nine Months Ended September 30, 1999
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Preferred Stock F Preferred Stock A
-------------------------------- ---------------------------------
Shares Amount Shares Amount
---------------- ------------- ---------------- -------------
<S> <C> <C> <C> <C>
Balances at December 31, 1998 - $ - 4,150 $ 41
Issuances of common stock:
For stock option exercises and other
For acquisitions and licenses
February 1999 Common Stock Equity Offering
For conversion of debentures
For conversion of preferred stock
Issuance of Series F Cumulative Convertible
Preferred Stock 300 3
Dividends declared on Series A preferred stock
Dividends declared on Series C preferred stock
Dividends on Series D preferred stock
Dividends on Series F preferred stock
Issuances of Series A preferred stock as
dividends in kind 125 1
Issuances of common stock as dividends
on Series D preferred stock
Comprehensive loss:
Net loss
Unrealized gain on investments in marketable
equity securities
Total comprehensive loss
---------------- ------------- ---------------- -------------
Balances at September 30, 1999 300 $ 3 4,275 $ 42
================ ============= ================ =============
<CAPTION>
Preferred Stock E Common Stock Additional
-------------------------------- --------------------------- Paid-in
Shares Amount Shares Amount Capital
---------------- ------------ ---------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1998 75 $ 1 41,403 $ 414 $ 404,112
Issuances of common stock:
For stock option exercises and other 2,923 29 43,082
For acquisitions and licenses 150 2 6,978
February 1999 Common Stock Equity Offering 4,200 42 167,412
For conversion of debentures 5,920 59 119,417
For conversion of preferred stock 8 - 158
Issuance of Series F Cumulative Convertible
Preferred Stock 290,537
Dividends declared on Series A preferred stock (4,739)
Dividends declared on Series C preferred stock (21,999)
Dividends on Series D preferred stock (10,500)
Dividends on Series F preferred stock (6,125)
Issuances of Series A preferred stock as
dividends in kind 4,738
Issuances of common stock as dividends
on Series D preferred stock 167 2 10,498
Comprehensive loss:
Net loss
Unrealized gain on investments in marketable
equity securities
Total comprehensive loss
---------------- ------------ ---------- ------------- ----------------
Balances at September 30, 1999 75 $ 1 54,771 $ 548 $ 1,003,569
================ ============ ========== ============= ================
<CAPTION>
Accumulated
Other Total
Accumulated Comprehensive Stockholders'
Deficit Loss Deficit
------------------- ------------ -------------
<S> <C> <C> <C>
Balances at December 31, 1998 $ (819,242) $ (34,818) $ (449,492)
Issuances of common stock:
For stock option exercises and other 43,111
For acquisitions and licenses 6,980
February 1999 Common Stock Equity Offering 167,454
For conversion of debentures 119,476
For conversion of preferred stock 158
Issuance of Series F Cumulative Convertible
Preferred Stock 290,540
Dividends declared on Series A preferred stock (4,739)
Dividends declared on Series C preferred stock (21,999)
Dividends on Series D preferred stock (10,500)
Dividends on Series F preferred stock (6,125)
Issuances of Series A preferred stock as
dividends in kind 4,739
Issuances of common stock as dividends
on Series D preferred stock 10,500
Comprehensive loss:
Net loss (475,985) (475,985)
Unrealized gain on investments in marketable
equity securities 16,958 16,958
-------------
Total comprehensive loss (459,027)
=============
------------------- ------------ -------------
Balances at September 30, 1999 $ (1,295,227) $ (17,860) $ (308,924)
=================== ============ =============
</TABLE>
See Notes to Condensed Consolidated Financial Statements
5
<PAGE>
Winstar Communications, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the nine months ended
September 30,
-------------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(475,985) $(301,598)
Adjustments to reconcile net loss to net cash
used in operating activities:
Net loss from discontinued operations -- 25,031
Depreciation and amortization 106,252 48,666
Deferred income tax benefit (3,000) (4,000)
Provision for doubtful accounts 18,641 8,150
Non cash interest expense 103,049 75,938
(Increase) decrease in operating assets:
Accounts receivable (72,335) (29,848)
Inventories (8,362) (3,911)
Prepaid expenses and other current assets (54,145) (17,799)
Other assets (14,998) (8,475)
Increase (decrease) in accounts
payable and accrued expenses 68,327 (37,292)
Increase in deferred revenues 152,761 --
Net cash used in discontinued operations (2,967) (12,269)
--------- ---------
Net cash used in operating activities (182,762) (257,407)
--------- ---------
Cash flows from investing activities:
Decrease (increase) in short-term investments, net (168,134) (145,140)
Purchase of property and equipment, net (367,004) (200,518)
Acquisitions, net of cash acquired, including licenses (18,547) (177,380)
--------- ---------
Net cash used in investing activities (553,685) (523,038)
--------- ---------
Cash flows from financing activities:
Proceeds from long-term debt, net 305,111 437,451
Net proceeds from preferred stock offerings 290,540 192,008
Net proceeds from common stock offering 167,454 --
Net proceeds from other equity transactions 43,111 15,314
Proceeds from sale of minority equity interest -- 10,000
Proceeds from equipment lease financing -- 41,629
Payment of capital lease obligations (76,275) (4,671)
Other, net 717 (1,982)
--------- ---------
Net cash provided by financing activities 730,658 689,749
--------- ---------
Net decrease in cash and cash equivalents (5,789) (90,696)
Cash and cash equivalents at beginning of period 208,257 402,559
--------- ---------
Cash and cash equivalents at end of period 202,468 311,863
Short-term investments at end of period 274,453 162,043
--------- ---------
Cash, cash equivalents and short-term investments
at end of period $ 476,921 $ 473,906
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
6
<PAGE>
Winstar Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Nature of Business
Winstar helps companies around the globe engage in frictionless business through
the use of seamless communications and technology. Winstar provides its
customers with a comprehensive set of high-quality, digital-age broadband
communications services including high-speed Internet access and data transport,
Web-based information and local and long distance services.
Winstar offers its services in more than 70 markets throughout the U.S. and in
Europe, Asia and South America. It is the largest holder of broadband fixed
wireless spectrum, with licenses in the top 60 U.S. markets and in 10
international markets. Winstar's broadband fixed wireless capabilities
complement and extend the reach of its extensive fiber network. The Company's
long-haul fiber network, which supports IP (Internet Protocol), ATM
(Asynchronous Transfer Mode) and frame relay, will extend more than 16,000 route
miles and connect the top 60 U.S. markets. Winstar's intracity fiber network
will consist of nearly 6,000 route miles in over 60 major domestic and
international markets.
Winstar's Tier 1 Internet backbone and enhanced Web service offerings, including
Web hosting and design, make Winstar one of the largest Internet companies in
the U.S. The Company's innovative applications enable businesses to take
advantage of the new Internet economy. Recently, the Company launched
Office.com, A Service From Winstar(Service Mark), and a premier Internet
destination site designed to bring the best of the business Web to the desktop.
The Company classifies telecommunications revenues into two categories: Core
telecommunications services and other telecommunications services. Core
telecommunications revenues primarily include local and long distance voice
services, data transmission services, internet connectivity, capacity and
equipment sales, professional and enhanced services including network design and
implementation, equipment selection, procurement and installation, and web
design and web hosting services. Other telecommunications services revenues are
those derived from that portion of the acquired MidCom long distance customer
base which is located in markets in which the Company does not have current
plans to provide Wireless Fiber(Service Mark) service. Additionally, the Company
markets and distributes information content and services in both traditional
media (such as television, video, cable and radio) and over the Internet.
Revenue from these services are classified as Information Services, even though
they are increasingly related to Core services.
2. Basis of Presentation
The condensed consolidated financial statements presented herein include the
accounts of Winstar Communications, Inc. and its subsidiaries (collectively,
"Winstar" or the "Company"). All material inter-company transactions and
accounts have been eliminated in consolidation. The accounts have been prepared
by the Company without audit. The foregoing statements contain all adjustments
(consisting only of normal recurring accrual adjustments) which are, in the
opinion of the Company's management, necessary to present fairly the financial
position of the Company as of September 30, 1999, the statements of operations
for the three and the nine
7
<PAGE>
Winstar Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
2. Basis of Presentation (Continued)
months ended September 30, 1999 and 1998, the statements of cash flows for the
nine months ended September 30, 1999 and 1998, and the statement of
stockholders' equity for the nine months ended September 30, 1999.
Certain information and footnote disclosures normally included in financial
statements have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission. These condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's annual report
on Form 10-K for the year ended December 31, 1998. The unaudited financial
statements and related footnotes for the three and nine month periods ended
September 30, 1998 reflect certain reclassifications such that they conform to
the current period presentation. The results of operations for the three and
nine months ended September 30, 1999 are not necessarily indicative of the
results of operations for the year ending December 31, 1999.
Telecommunications services revenues are recorded upon placing of calls or as a
monthly recurring usage charge. The Company entered into a 25 year Indefeasible
Right of Use ("IRU") to provide local Wireless Fiber(Service Mark) capacity to
another telecommunications company. Revenues from this transaction will be
recognized over the life of the agreement. Revenues from the sale of network
capacity that qualify under generally accepted accounting principles as sales
are recognized in the period that the rights and obligations of ownership
transfer to the purchaser. Revenue from operating leases of private line
circuits is recognized on a straight-line basis over the life of the lease.
Revenue from equipment sales is recognized when the equipment is delivered to
the customer. Professional service revenues are recognized under the percentage
of completion method. Information services revenues from film productions are
recognized when a program is accepted by the licensee and is available for
broadcast. Revenues from the licensing of film productions are recognized when
the license period begins and the film is available for broadcast. Revenues from
advertising sales are recognized when the related advertising is broadcast.
3. Deferred Revenues
Deferred revenues principally relate to the Company's sale of Wireless
Fiber(Service Mark) Capacity to Williams Communications, Inc. ("Williams") under
a 25 year IRU. Under the terms of this agreement, Williams will pay the Company
approximately $400.0 million as hubs are delivered, which is expected to occur
by December 31, 2001, of which approximately $139.3 million has been received
through September 30, 1999. The related revenue will be recognized over 25
years.
8
<PAGE>
Winstar Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
4. Basic and Diluted Loss Per Share
Basic and diluted loss per share have been calculated by dividing the net loss,
after consideration of preferred stock accretion and dividends, by the weighted
average number of shares of common stock outstanding during each period
presented. Stock options and warrants have been excluded from the calculation of
diluted loss per share as their effect would have been antidilutive.
5. Condensed Financial Information of Winstar Equipment Corp. and Winstar
Equipment II Corp.
The Company's wholly-owned subsidiaries, Winstar Equipment Corp. and Winstar
Equipment II Corp. ("WEC" and "WEC II", respectively), each of which is a
special purpose corporation which was formed to facilitate the financing and
purchase of telecommunications equipment and related property ("Designated
Equipment"), received $200.0 million and $50.0 million in gross proceeds,
respectively, from the issuance and sale of 12.5% Guaranteed Senior Secured
Notes ("the WEC and WEC II Notes") in placements of debt in March and August of
1997, respectively. All of the proceeds of the WEC and WEC II Notes were used to
purchase Designated Equipment. Both the interest and principal of the WEC and
WEC II notes are guaranteed by the Company.
WEC and WEC II have no independent operations other than to hold Designated
Equipment and to lease same to the Company's other telecommunications
subsidiaries. Given this operating environment, it is unlikely, in the opinion
of management, that WEC or WEC II will generate sufficient income, after the
payment of interest on the WEC and WEC II Notes, to pay dividends or make other
distributions to the Company.
Summary financial information for WEC and WEC II, which are included in the
condensed consolidated financial statements of the Company, are as follows (in
thousands):
Balance sheet information as of September 30, 1999 is as follows:
WEC WEC II
--------- ---------
Current assets $ 16,758 $ 3,787
Long-term assets 213,179 39,083
Current liabilities (1,524) (278)
Long-term debt (200,000) (50,000)
Due to parent (66,846) (1,900)
--------- ---------
Stockholders' deficit $ (38,433) $ (9,308)
========= =========
9
<PAGE>
Winstar Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
5. Condensed Financial Information of Winstar Equipment Corp. and Winstar
Equipment II Corp. (Continued)
Statements of operations information for WEC and WEC II for the periods
presented below are as follows (in thousands):
<TABLE>
<CAPTION>
WEC WEC II
-------------------------------------------- --------------------------------------------
Three Months Ended Nine Months Ended Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998 1999 1998 1999 1998
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rental revenues from other
Winstar subsidiaries $ 1,041 $ 714 $ 3,271 $ 1,728 $ 126 $ -- $ 376 $ --
Interest income from other
Winstar subsidiaries 3,128 1,790 9,745 3,482 675 -- 1,842 --
Interest income - investments -- 597 -- 3,045 -- 567 -- 2,092
Selling, general and
Administrative expenses (1,635) (1,168) (4,908) (2,807) (234) (16) (712) (16)
Interest expense (6,505) (5,981) (19,495) (17,477) (1,630) (1,562) (4,889) (4,687)
-------- -------- -------- -------- -------- -------- -------- --------
Net loss $ (3,971) $ (4,048) $(11,387) $(12,029) $ (1,063) $ (1,011) $ (3,383) $ (2,611)
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
Separate financial statements for WEC or WEC II are not presented because
management of the Company has determined that such information would not provide
any material information that is not already presented in the condensed
consolidated financial statements of the Company.
6. Discontinued Operations
Winstar Gateway Network
In November 1998, a formal plan of disposal for the Company's Residential Long
Distance Business, Winstar Gateway Network, Inc. ("Gateway"), was approved by
management of the Company, and it is anticipated that the disposal will be
completed by December 31, 1999. All residential phone service (other than to
employees) was terminated prior to September 30, 1999. The disposal of Gateway
has been accounted for as a discontinued operation and accordingly, its net
liabilities have been segregated from the net assets of continuing operations in
the accompanying condensed consolidated balance sheets and its operating results
are segregated from continuing operations and are reported as discontinued
operations in the accompanying condensed consolidated statements of operations
and cash flows. Cumulative losses from the measurement date through September
30, 1999 were $2.4 million, compared to an accrued phase out loss of $4.8
million.
10
<PAGE>
Winstar Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
6. Discontinued Operations (Continued)
Net liabilities of the discontinued operations of Gateway are composed of the
following (in thousands of dollars):
<TABLE>
<CAPTION>
As of September 30, As of December 31,
1999 1998
------------------- ------------------
<S> <C> <C>
Cash and cash equivalents $ -- $ 665
Other current assets -- 2
Property, plant and equipment -- 38
------------------- ------------------
Total assets -- 705
Accounts payable and accrued expenses 806 1,262
Capitalized lease obligations -- 277
------------------- ------------------
Total liabilities 806 1,539
------------------- ------------------
Net liabilities $ (806) $ (834)
=================== ==================
</TABLE>
7. Marketable Securities
The Company has recorded "other comprehensive income" (representing a recovery
of unrealized losses on 3.3 million shares of Advanced Radio Telecom Corp.) of
$17.0 million in the Statement of Stockholders' Deficit.
8. Capital Lease Obligations
During 1999, the Company took delivery of certain dark fiber assets, as well as
certain specified fixed circuits from Williams under the terms of its long haul
dark fiber IRU dated December 17, 1998 ("December IRU"). On April 1, 1999, the
Company and Williams amended the December IRU ("Amended IRU") to include an
additional exclusive 20 year indefeasible right to use additional specified
fixed circuits which extended Winstar's long haul telecommunications network.
Pursuant to this amendment, the Company will pay $100.0 million over the next
seven years and account for the Amended IRU as a capitalized lease. Accordingly,
capitalized lease obligations of approximately $233.0 million under the December
IRU and $100.0 million under the Amended IRU have been recorded by the Company
as of September 30, 1999.
11
<PAGE>
Winstar Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
9. Long-Term Debt
During the nine months ended September 30, 1999, the Company drew down
approximately $522.3 million under its financing agreement with Lucent
Technologies. As of September 30, 1999, the total amount outstanding under the
Lucent financing agreement was approximately $599.8 million. Under the terms of
the financing agreement, the Company has access to up to $2.0 billion to finance
the purchase of equipment and related services, of which approximately $1.4
billion has not been drawn down at September 30, 1999. The agreement further
provides that Lucent will not hold more than $500.0 million of such debt at any
one time.
On June 2, 1999, the Company's 14% Convertible Senior Subordinated Discount
Notes due in 2005 automatically converted into 5.9 million shares of the
Company's common stock. At the time of the conversion, the notes had an
aggregate accreted value of approximately $122.1 million and the Company had
unamortized deferred financing costs of approximately $2.6 million. Under the
terms of the indenture governing these notes, the notes automatically converted
at a fixed conversion rate of $20.625 per share on the thirtieth consecutive
trading day on which the closing price of the Company's common stock was above
$42.375.
In June 1999, the Company completed a $35.0 million accounts receivable
securitization financing. Under this financing, the Company 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 ("LIBOR"),
plus 1.5%. As of September 30, 1999, the Company had $7.5 million outstanding
under this financing.
10. Equity Offerings
In June 1999, the Company sold 300,000 shares of its Series F 7 1/4% Senior
Cumulative Convertible Preferred Stock (Liquidation Preference $1,000 per share)
("Convertible Preferred Stock") for net proceeds of approximately $290.5
million. The shares of Convertible Preferred Stock are convertible, at the
option of the holder, into shares of the Company's common stock, at a conversion
rate of 16.13912 shares of common stock for each share of Convertible Preferred
Stock (representing a conversion price of $61.96 per share of common stock),
subject to adjustment in certain events. The Convertible Preferred Stock ranks
senior to the Company's common stock and Series A and E Preferred Stock and on a
parity with the Company's Series C and D Preferred Stock. Dividends at the rate
of 7 1/4% per annum are payable quarterly in cash or, at the Company's election,
through the issuance of common stock.
In February 1999, the Company issued 4.2 million shares of its common stock in a
registered public offering pursuant to which it received net proceeds of $167.5
million.
12
<PAGE>
Winstar Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
11. Sale of Equity Interest in Subsidiary
In April 1999, the Company sold a one-third equity interest in Office.com, Inc.,
a subsidiary of the Company which operates an online business service
destination site for small and medium-sized businesses, to CBS Corporation for
$42.0 million of promotion and advertising across the full range of CBS media
properties, which will be provided over a term of six years.
12. Events Subsequent to Quarter End
Subsequent to September 30, 1999, the Company announced that it had entered into
a second agreement with Metromedia Fiber Network ("MFN") to obtain dark fiber
capacity in 38 major markets in the United States, including Atlanta, Boston,
Dallas/Fort Worth, Houston, Los Angeles, and Seattle, and three major
international markets - London, Amsterdam, and Cologne. The Company will pay
approximately $300 million over 20 years, including interest, beginning upon
delivery of the dark fiber.
13
<PAGE>
Winstar Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
13. Segments
The Company is an integrated communications provider, and as such has two
reportable operating segments: Telecommunications and Interactive Services, and
Traditional Media Services. International activities, including joint ventures,
as of September 30, 1999 were not material. Information relating to the
Company's reportable operating segments is as follows (in thousands of dollars):
<TABLE>
<CAPTION>
Telecommunications Traditional Total for Corporate
and Interactive Media Reportable Expenses Discontinued
Services Services Segments and Assets Operations Total
-------- -------- -------- ---------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
For the three months ended
September 30, 1999
External revenue $ 106,717 $ 12,818 $ 119,535 $ -- $ -- $ 119,535
Segment operating loss (104,255) (619) (104,874) (10,723) -- (115,597)
EBITDA (1) (61,902) (34) (61,936) (10,685) -- (72,621)
Segment assets 2,190,677 50,055 2,240,732 526,673 -- 2,767,405
For the three months ended
September 30, 1998
External revenue $ 50,110 $ 11,036 $ 61,146 $ -- $ -- $ 61,146
Segment operating (loss) profit (61,970) (490) (62,460) (6,252) -- (68,712)
EBITDA (1) (41,957) (141) (42,098) (6,242) -- (48,340)
Segment assets 975,257 63,099 1,038,356 517,417 1,053 1,556,826
For the nine months ended
September 30, 1999
External revenue $ 269,942 $ 34,191 $ 304,133 $ -- $ -- $ 304,133
Segment operating loss (312,153) (1,394) (313,547) (28,186) -- (341,733)
EBITDA (1) (207,724) 338 (207,386) (28,095) -- (235,481)
For the nine months ended
September 30, 1998
External revenue $ 130,621 $ 32,733 $ 163,354 $ -- $ -- $ 163,354
Segment operating (loss) profit (173,509) 969 (172,540) (20,366) -- (192,906)
EBITDA (1) (125,811) 1,907 (123,904) (20,336) -- (144,240)
</TABLE>
(1) EBITDA represents losses before interest, income taxes, depreciation and
amortization, other income (expense) and discontinued operations.
14
<PAGE>
Winstar Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
13. Segments (Continued)
As the Company pursues its broadband bundled services strategy it will offer
more traditional media services over its network. Over time, the Company
believes it will operate under one segment.
15
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Company Overview
Winstar helps companies around the globe engage in frictionless business through
the use of seamless communications and technology. We provide our customers with
a comprehensive set of high-quality, digital-age broadband communications
services, including high-speed Internet access and data transport, Web-based
information and local and long distance services.
We offer our services in more than 70 markets throughout the U.S. and in Europe,
Asia and South America. We are the largest holder of broadband fixed wireless
spectrum, with licenses in the top 60 U.S. markets and in 10 international
markets. Our broadband fixed wireless capabilities complement and extend the
reach of our extensive fiber network. Our long-haul fiber network, which
supports IP (Internet Protocol), ATM (Asynchronous Transfer Mode) and frame
relay, will extend more than 16,000 route miles and connect the top 60 U.S.
markets. Our intracity fiber network will consist of nearly 6,000 route miles in
over 60 major domestic and international markets.
Our Tier 1 Internet backbone and enhanced Web service offerings, including Web
hosting and design, make us one of the largest Internet companies in the U.S.
Our innovative applications enable businesses to take advantage of the new
Internet economy. Recently, we launched Office.com, A Service From
Winstar(Service Mark), and a premier Internet destination site designed to bring
the best of the business Web to the desktop.
We classify telecommunications revenues into two categories: Core
telecommunications services and other telecommunications services. Core
telecommunications revenues primarily include local and long distance voice
services, data transmission services, internet connectivity, capacity and
equipment sales, professional and enhanced services including network design and
implementation, equipment selection, procurement and installation, web design
and web hosting services. Other telecommunications services revenues are those
derived from that portion of the acquired MidCom long distance customer base
which is located in markets in which we do not have current plans to provide
Wireless Fiber(Service Mark) service. Additionally, we market and distribute
information content and services in both traditional media (such as television,
video, cable and radio) and over the Internet. Revenue from these services are
classified as Information Services, even though they are increasingly related to
Core services.
16
<PAGE>
Three Months Ended September 30, 1999 Compared to Three Months Ended September
30, 1998
Revenues from our operating business lines are as follows (in millions):
Three Months Ended
September 30,
-------------
1999 1998
---- ----
Telecommunications Services:
Core Services $ 97.6 $ 37.2
Other Services 7.1 11.2
------ ------
104.7 48.4
Information Services 14.8 12.7
------ ------
Total Revenues $119.5 $ 61.1
====== ======
Total revenues increased by $58.4 million, or 95.6%, for the three months ended
September 30, 1999, to $119.5 million, from $61.1 million for the three months
ended September 30, 1998. This increase was principally attributable to the
growth in revenues generated by our Core telecommunications operations.
Revenues from Core telecommunications services increased by $60.4 million, or
162.4%, for the three months ended September 30, 1999, to $97.6 million, from
$37.2 million, for the three months ended September 30, 1998. The revenue growth
was primarily attributable to continued growth in existing markets, the addition
of new domestic markets, and from new services including broadband data and
enhanced services, which include our provision of end-to-end products and
services to our customers. These include internet connectivity, data transport,
and network integration services to an increasing number of customers. The run
rate from this customer base has increased over 114% on a year-over-year basis.
The total number of customers we provide service to increased from approximately
12,000 at September 30, 1998 to approximately 21,600 at September 30, 1999.
Last year, we primarily sold voice services to small and medium-sized
businesses. We continue to experience significant success selling these services
to this customer base, as evidenced by increasing revenue from this group of
customers, the increase in the total number of our customers and in the
percentage of our customers who purchase more than one service. Moreover, the
average revenue we derive from each customer has continued to increase and we
have been successful penetrating buildings on our network, achieving 16% average
building penetration rates at September 30, 1999. As the technology we use to
deliver services evolves and as our network continues to grow through the
installation of local bandwidth, installation of
17
<PAGE>
data and voice switching infrastructure and the addition of our local and long
haul fiber, voice and data services have increasingly converged and we have been
successful selling data and voice related products and services to larger
accounts. We have begun to realize increased revenue especially from these data
related products and services including end to end broadband connectivity,
equipment and network deployment solutions to our larger customers. We are also
continuing to see an increasing demand for data related enhanced
telecommunications solutions, and since the end of 1998 have sold such services
to many large account customers, including AboveNet Communications, Inc., Cignal
Global Communications, Inc., Lucent Technologies, Inc., Mindspring Enterprises,
Inc., VoCall Communications Corp. and Williams Communications, Inc. Revenues
from primarily data related telecommunications services, products and solutions
for the quarter ended September 30, 1999 were $47.2 million, up from $5.0
million in the third quarter of 1998. Included in this enhanced revenue stream
are revenue from the sales of large account data related telecommunications
products aggregating $36.0 million for the three months ended September 30,
1999, compared to no revenue from these data related telecommunications products
for the three months ended September 30, 1998. Revenues from these large account
data related telecommunications products may vary from period to period, but
overall we expect this trend of increasing data related revenue and increasing
large account revenue to continue. At September 30, 1999, we had contractual
commitments and related anticipated orders for these primarily data related
telecommunications solutions services of approximately $815.0 million, of which
approximately $86.0 million we expect to fulfill and recognize into revenue over
the next twelve months.
Revenues from other telecommunications services, which consist of MidCom long
distance voice services, decreased by $4.1 million, or 36.8%, for the three
months ended September 30, 1999, to $7.1 million, from $11.2 million for the
three months ended September 30, 1998. The decrease, which was anticipated,
resulted primarily from the attrition of this customer base.
Revenues from information services were $14.8 million for the three months ended
September 30, 1999, compared to revenues of $12.7 million for the three months
ended September 30, 1998, for an increase of $2.1 million, or 16.5%. The
increase was due primarily to growth in Interactive service revenues and
improved radio advertising sales, as well as expansion of our direct marketing
and DVD (Digital Video Disc) sales in the TV & Video division.
Traditional media revenues were $12.8 million for the three months ended
September 30, 1999 as compared to $11.0 million for the three months ended
September 30, 1998. Interactive service revenues were $2.0 million for the three
months ended September 30, 1999 as compared to $1.7 million for the three months
ended September 30, 1998. Management anticipates that Interactive service
revenues will grow at an increasing pace as we launch our Office.com business
and continue to grow Interactive advertising sales for Office.com and others.
Cost of services and products increased by $37.9 million, or 82.8%, for the
three months ended September 30, 1999, to $83.6 million, from $45.7 million for
the three months ended September 30, 1998. As a percentage of revenues, cost of
services and products for the three months ended September 30, 1999 was 69.9%,
compared with 74.8% for the three months ended September 30,
18
<PAGE>
1998. Various items impact our cost of revenue each quarter, including revenue
mix, control over internal costs and our rate of expansion. Our on-net
percentage has continued to increase, from approximately 18% at September 30,
1998 to approximately 30% at September 30, 1999, resulting in a decreased cost
of revenue percentage. Our cost of revenue related to primarily data related
large account telecommunications services, products and solutions has also
decreased as our network has expanded and was approximately 54% of corresponding
revenue for the three months ended September 30, 1999. While we believe that our
gross profit margin will continue to improve as increased volumes and larger
percentages of traffic are provisioned over our own network facilities, the rate
of improvement may be slower during periods when we expand into new markets, but
could accelerate as these markets mature. In fact, if many new markets are added
or the Company's other cost control efforts are not as successful as in the
current quarter, the cost of revenue percentage could increase.
Selling, general and administrative expense increased by $44.8 million to $108.6
million for the three months ended September 30, 1999, from $63.8 million for
the three months ended September 30, 1998. We continued to hire sales,
marketing, network and related support personnel in connection with the
expansion of our domestic and international markets. We had approximately 2,500
employees at September 30, 1998 and approximately 3,600 at September 30, 1999.
As a percentage of revenues, selling, general and administrative expenses
improved from 104.3% for the three months ended September 30, 1998 to 90.9% for
the three months ended September 30, 1999. With the rapid expansion of our
domestic and international markets, we expect selling, general and
administrative expenses to continue to grow in absolute dollars, but to be a
declining percentage of revenues over time.
Depreciation and amortization expense increased by $22.6 million for the three
months ended September 30, 1999, to $43.0 million, from $20.4 million for the
three months ended September 30, 1998, principally resulting from our
acquisition and deployment of telecommunications equipment in connection with
our telecommunications network buildout and amortization relating to goodwill,
purchased customer lists and spectrum licenses from our 1998 acquisitions.
For the reasons noted above, the operating loss for the three months ended
September 30, 1999, was $115.6 million, compared with an operating loss of $68.7
million for the three months ended September 30, 1998.
Interest expense increased by $10.1 million, or 23.7%, for the three months
ended September 30, 1999, to $52.7 million, from $42.6 million for the three
months ended September 30, 1998. This increase was principally attributable to
aggregate draw-downs of $599.8 million under the Lucent financing agreement, as
well as the creation of $333.0 million in new capital lease obligations under
the Williams IRU, offset by the conversion of $122.1 million of 14% Convertible
Senior Subordinated Discount Notes ("14% Notes") into 5.9 million shares of
common stock in June 1999. Of the $52.7 million of interest expense incurred for
the quarter, $38.6 million represents amortization of deferred financing costs
and deferred interest which will be paid in future periods.
19
<PAGE>
For the reasons noted above, we reported a loss from continuing operations
before preferred stock dividends of $160.5 million for the three months ended
September 30, 1999, compared to a loss from continuing operations before
preferred stock dividends of $101.0 million for the three months ended September
30, 1998.
For the three months ended September 30, 1999, we incurred dividend obligations
of $18.4 million relative to our Series A, C, D and F Preferred Stock, none of
which were paid in cash. For the three months ended September 30, 1998, such
obligations amounted to $11.7 million. The increase is primarily due to the
issuance of 300,000 shares of Series F Convertible Preferred Stock in June 1999.
Nine Months Ended September 30, 1999 Compared to Nine Months Ended September 30,
1998
Revenues of our operating business lines are as follows (in millions):
Nine Months Ended
September 30,
1999 1998
---- ----
Telecommunications Services:
Core Services $243.0 $ 85.9
Other Services 21.4 40.3
------ ------
264.4 126.2
Information Services 39.7 37.2
------ ------
Total Revenues $304.1 $163.4
====== ======
Total revenues increased by $140.7 million, or 86.1% for the nine months ended
September 30, 1999, to $304.1 million, from $163.4 million for the nine months
ended September 30, 1998. This increase was attributable to the growth in
revenues generated by our Core telecommunications operations.
Revenues from Core telecommunications services increased by $157.1 or 183.0%, to
$243.0 million for the nine months ended September 30, 1999, from $85.9 million
for the nine months ended September 30, 1998. The revenue growth was primarily
attributable to continued growth in existing markets, the addition of new
domestic markets, and the expansion of our broadband data and enhanced service
offerings, which include our provision of end-to-end products and services to
our customers. These include internet connectivity, data transport, and network
integration services to an increasing number of customers. The run rate from
this customer base has increased over 114% on a year-over-year basis. The total
number of customers we provide service to increased from approximately 12,000 at
September 30, 1998 to approximately 21,600 at September 30, 1999.
20
<PAGE>
Last year, we primarily sold voice services to small and medium-sized
businesses. We continue to experience significant success selling these services
to this customer base, as evidenced by increasing revenue from this group of
customers, the increase in the total number of our customers and in the
percentage of our customers who purchase more than one service. Moreover, the
average revenue we derive from each customer has continued to increase and we
have been successful penetrating buildings on our network, achieving 16% average
building penetration rates at September 30, 1999. As the technology we use to
deliver services evolves and as our network continues to grow through the
installation of local bandwidth, installation of data and voice switching
infrastructure and the addition of our local and long haul fiber, voice and data
services have increasingly converged and we have been successful selling data
and voice related products and services to larger accounts. We have begun to
realize increased revenue especially from these data related products and
services including end to end broadband connectivity, equipment and network
deployment solutions to our larger customers. We are also continuing to see an
increasing demand for data related enhanced telecommunications solutions, and
since the end of 1998 have sold such services to many large account customers,
including AboveNet Communications, Inc., Cignal Global Communications, Inc.,
Lucent Technologies, Inc., Mindspring Enterprises, Inc., VoCall Communications
Corp. and Williams Communications, Inc. Revenues from primarily data related
telecommunications services, products and solutions for the nine months ended
September 30, 1999 were $100.0 million compared to $5.2 million for the
comparable period in 1998. Included in this enhanced revenue stream are sales of
large account data related telecommunications products aggregating $67.0 million
for the nine months ended September 30, 1999 compared to no revenue from these
data related telecommunications products for the corresponding period in the
prior year. Revenues from these large account data related telecommunications
products may vary from period to period, but overall we expect this trend of
increasing data related revenue and increasing large account revenue to
continue. At September 30, 1999, we had contractual commitments and related
anticipated orders for these primarily data related telecommunications solutions
services of approximately $815.0 million, of which approximately $86.0 million
we expect to fulfill and recognize into revenue over the next twelve months.
Revenues from other telecommunications services decreased $18.9 million to $21.4
million for the nine months ended September 30, 1999, as compared to $40.3
million for the nine months ended September 30, 1998. The decrease, which was
anticipated, resulted primarily from attrition of the MidCom customer base.
Revenues from information services were $39.7 million for the nine months ended
September 30, 1999, compared to $37.2 million for the nine months ended
September 30, 1998. The 6.7% increase was due primarily to growth in Interactive
service revenue and improved radio advertising sales resulting from expanded
programming offerings, as well as a strong marketplace in the current year.
Traditional media revenues were $34.2 million for the nine months ended
September 30, 1999 as compared to $32.7 million for the nine months ended
September 30, 1998. Interactive service revenues were $5.5 million for the nine
months ended September 30, 1999 as compared to $4.5
21
<PAGE>
million for the nine months ended September 30, 1998. Management anticipates
that Interactive service revenues will continue to grow at an increasing pace as
we launch our Office.com business and continue to grow Interactive advertising
sales for Office.com and others.
Cost of services and products increased by $92.7 million, or 70.1%, for the nine
months ended September 30, 1999, to $224.9 million, from $132.2 million for the
nine months ended September 30, 1998. As a percentage of revenues, cost of
services and products for the nine months ended September 30, 1999 was 73.9%,
compared with 80.9% for the nine months ended September 30, 1998. Cost of
revenue related to primarily data related large account telecommunications
services, products and solutions was approximately 63% of corresponding revenue
for the nine months ended September 30, 1999. The decrease in the overall cost
of revenue percentage is the result of increased volumes and larger percentages
of traffic being provisioned on our local and long haul networks.
Selling, general and administrative expense increased by $139.4 million to
$314.8 million for the nine months ended September 30, 1999, from $175.4 million
for the nine months ended September 30, 1998. We continued to hire sales,
marketing, network and related support personnel in connection with the
expansion of our Core markets. We had approximately 2,500 employees at September
30, 1998, as compared with 3,600 employees at September 30, 1999. As a
percentage of revenues, selling, general and administrative expenses improved
from 107.3% for the nine months ended September 30, 1998 to 103.5% for the nine
months ended September 30, 1999. With the rapid expansion of our domestic and
international markets, we expect our selling, general and administrative
expenses to continue to grow in absolute dollars, but to be a steadily declining
percentage of revenues.
Depreciation and amortization expense increased by $57.6 million for the nine
months ended September 30, 1999, to $106.3 million, from $48.7 million for the
nine months ended September 30, 1998, principally resulting from our acquisition
and deployment of telecommunications equipment in connection with our network
buildout and amortization relating to goodwill, purchased customer lists and
spectrum licenses.
For the reasons noted above, the operating loss for the nine months ended
September 30, 1999, was $341.7 million, compared with an operating loss of
$192.9 million for the nine months ended September 30, 1998.
Interest expense increased by $42.3 million, or 37.9%, for the nine months ended
September 30, 1999, to $154.0 million, from $111.7 million for the nine months
ended September 30, 1998. This increase was principally attributable to the
issuance of $450.0 million of debt in the first quarter of 1998, aggregate draw
downs of $599.8 million under the Lucent financing agreement and capital lease
obligations of $333.0 million under the Williams' IRUs, offset by the conversion
of $122.1 million of the 14% Notes into 5.9 million shares of common stock in
June 1999. Of the $154.0 million of interest expense incurred for the nine
months ended September 30, 1999, $103.0 million represents amortization of
deferred financing costs and deferred interest which will be paid in future
periods.
22
<PAGE>
For the reasons noted above, we reported a loss from continuing operations
before preferred stock dividends of $476.0 million for the nine months ended
September 30, 1999, compared to a loss from continuing operations before
preferred stock dividends of $276.6 million for the nine months ended September
30, 1998.
For the nine months ended September 30, 1999, we incurred dividend obligations
of $43.4 million relative to our Series A, C, D and F Preferred Stock, none of
which were paid in cash. For the nine months ended September 30, 1998, such
obligations amounted to $31.2 million. The increase is primarily due to the
issuance of 4,000,000 shares of Series D 7% Senior Cumulative Convertible
Preferred Stock in March 1998 and the issuance of 300,000 shares of Series F
Convertible Preferred Stock in June 1999.
Liquidity and Capital Resources
At September 30, 1999, working capital was $308.5 million (including cash, cash
equivalents and short-term investments of $476.9 million) as compared to $193.1
million at December 31, 1998 (including cash, cash equivalents and short-term
investments of $313.0 million). The increase in working capital is primarily a
result of financing activities during the year, offset by cash used by operating
and investing activities.
Financing activities provided $730.7 million of cash during the nine months
ended September 30, 1999, compared to $689.7 million during the nine months
ended September 30, 1998. In February 1999, we sold 4.2 million shares of our
common stock at $41.75 per share and received net proceeds of approximately
$167.5 million. In June 1999, we sold 300,000 shares of our Series F 7 1/4%
Senior Cumulative Convertible Preferred Stock and received net proceeds of
$290.5 million.
During the nine months ended September 30, 1999, we incurred approximately
$522.3 million in indebtedness under our financing agreement with Lucent
Technologies ("Lucent"). Under the terms of this five year agreement, Lucent
will provide up to $2.0 billion to finance the purchase by Winstar of equipment
and related services, of which approximately $1.4 billion has not been drawn
down at September 30, 1999. The agreement further provides that Lucent will not
hold more than $500.0 million of such debt at any one time.
In June 1999, our 14% Convertible Senior Subordinated Discount Notes due in 2005
automatically converted into 5.9 million shares of our common stock. At the time
of the conversion the notes had an aggregate accreted value of approximately
$122.1 million.
Also in June 1999, we completed a $35.0 million accounts receivable
securitization financing. Under this financing, we may borrow up to the lesser
of the maximum amount of the facility (which has been set initially 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 ("LIBOR"), plus 1.5%.
As of September 30, 1999, the Company had $7.5 million outstanding under this
financing.
23
<PAGE>
During the nine months ended September 30, 1999, we used $182.8 million of cash
in operating activities, compared to $257.4 million during the nine months ended
September 30, 1998. Net cash used by operating activities is primarily due to
losses from continuing operations and changes in working capital items, offset
by non-cash interest expense and depreciation and amortization. Additionally,
from January 1, 1999 through September 30, 1999, we received $142.7 million from
Williams Communications, Inc. ("Williams") in connection with the delivery of 94
hub sites and maintenance services under the Wireless Fiber(Service Mark) IRU
Agreement signed in December 1998. Under this agreement with Williams, we expect
to receive an additional $260.7 million over the next two years as hubs are
delivered, and at least $42.2 million through 2009 for maintenance services we
will provide over the term of the Wireless Fiber(Service Mark) IRU Agreement.
Cash used to fund negative EBITDA during the three months ended September 30,
1999 was approximately $72.6 million. EBITDA represents earnings before
interest, income taxes, depreciation and amortization and is commonly used in
the telecommunications industry to measure cash flows and liquidity. EBITDA is
not intended to represent results of operations or cash flows from operating
activities determined in accordance with generally accepted accounting
principles and may not be comparable to similarly titled measures reported by
other companies.
Cash used in investing activities during the nine months ended September 30,
1999 was $553.7 million, compared to $523.0 million during the nine months ended
September 30, 1998. Cash used in investing activities for the nine months ended
September 30, 1999 primarily consists of cash used to purchase property and
equipment of $367.0 million and cash used to purchase short-term investments of
$168.1 million. We also took delivery of certain dark fiber assets, as well as
certain specified fixed circuits, from Williams which extended our long haul
telecommunications network, thus increasing capitalized lease obligations by
$288.4 million. We expect to pay Williams an additional $395.8 million over the
next seven years for dark fiber, long-haul transport services and other network
services. Purchases of property and equipment during the three months ended
September 30, 1999 were approximately $311.1 million, of which $255.9 million
were financed through our financing agreements with Lucent, Williams and various
equipment vendors.
We have incurred significant operating and net losses, due in large part to the
development of our network and the growth of our sales and marketing
organization, and we anticipate that such losses will continue over the near
term as we execute our growth strategy, although we anticipate that our EBITDA
losses will continue to decline. We are in the process of ordering and
installing switches and other network equipment to be placed in our key markets.
Historically, we have funded our operating losses and capital expenditures
through public and private offerings of debt and equity securities and from
credit and lease facilities.
To capitalize on opportunities in our industries, we are pursuing a rapid
expansion of services offered to our current 60 U.S. markets. We are also
focused on offering our services to 50 foreign markets by the end of 2004. This
expansion will require significant amounts of capital to finance capital
expenditures and anticipated operating losses. We have the ability to moderate
our capital spending and operating losses by varying the number of markets in
which we build network and offer services. In the event that we slow the speed
or narrow the focus of our
24
<PAGE>
business plan, we will reduce our capital requirements and operating losses.
Under our current plan to expand our domestic and international markets, we plan
to spend approximately $1.2 billion during 1999 and 2000 for capital equipment
(inclusive of purchases during the first three quarters of 1999), which we
expect to finance principally through the Lucent financing agreement and other
vendor financing arrangements which we believe are available to us.
We anticipate, based on our business plan and related assumptions (including an
assumption of full availability of the $2.0 billion under our Lucent financing
agreement), that our existing financial resources, additional accounts
receivable and equipment financings that we intend to seek, will be sufficient
to fund our operations for approximately 15 to 21 months, and to fund our
capital requirements for the next several years. We may be required to seek
additional sources of capital sooner than we anticipate if: our operating
assumptions change or prove to be inaccurate; less than $2.0 billion becomes
available under the Lucent financing agreement; we fail to secure additional
equipment and accounts receivable financing; we consummate any acquisitions of
significant businesses or assets (including spectrum licenses); or we further
accelerate our plan and enter markets more rapidly. We continually evaluate the
financing alternatives available to us and may decide to seek a variety of forms
of additional debt and/or equity financing.
Subsequent to September 30, 1999, we entered into a second agreement with
Metromedia Fiber Network ("MFN") to obtain dark fiber capacity in 38 major
markets in the United States, including Atlanta, Boston, Dallas/Fort Worth,
Houston, Los Angeles, and Seattle, and three major international markets -
London, Amsterdam, and Cologne. We will pay approximately $300 million over 20
years, including interest, beginning upon delivery of the dark fiber.
Year 2000 Compliance
We are completing renovation of our systems that have been identified as being
at risk for 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. Any computer programs 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. If not corrected, this
could result in system failures or miscalculations which could result in service
or other interruptions. We are completing remaining upgrades and replacements,
including the scheduled retirement of several older systems that are no longer
needed. Winstar has now substantially completed the individual renovation,
component level and system level testing of its critical network and business
applications, including those supplied by third party vendors. Winstar expects
to complete final end-to-end integration and interoperability testing of all
critical network systems shortly.
Our first priority is to protect customer-sensitive operations from service
interruptions or billing discrepancies that could occur as a result of the Year
2000 transition. Customer-sensitive mission critical operations that have been
addressed as part of our Year 2000 program include our
25
<PAGE>
telecommunications network, traffic data, customer order processing and
provisioning systems, customer billing and invoicing, and data interfaces to and
from these systems. Business-critical operations that have been addressed for
Year 2000 issues include systems, applications and operations which do not
directly impact the customer, but are essential to internal communications and
our ability to run the business day-to-day. Finally, we have also addressed
matters for which failure might cause inconvenience and delay for our employees,
but would not directly impact customers, service, or routine business
operations.
We have developed Year 2000 compliance standards that follow industry
requirements. In order to implement these standards, last year we formed a Year
2000 Program Office to manage the Year 2000 project plan enterprise-wide. The
project team is comprised of management and technical representatives from our
major operational areas, together with experienced Year 2000 subject matter
experts. The Year 2000 Program Office is responsible for program participation
and compliance of all corporate entities; working with outside Year 2000
consultants; oversight of testing, quality assurance and compliance; and Year
2000 communications. The Program Management Office reports to the Chief
Information Officer and other senior corporate officers on the Winstar Year 2000
Executive Steering Committee.
Key activities in our Year 2000 program include: planning and program
definition, inventory and prioritization of date-sensitive systems (including
computer and electrical systems, equipment and the systems of companies acquired
or to be acquired by us), risk assessment, remediation, testing, audit and
certification, contingency planning, implementation, and post-implementation
monitoring.
We have completed the inventory and assessment of our critical systems, key
vendors and suppliers, and external interfaces, and are now completing final
testing, replacements and upgrades. This effort entailed, among other things,
identification of the several hundred systems used by us in the operation of our
business, and the review in our laboratory of equivalent components of all of
our hardware and software systems for date related code issues. We continue to
assess and identify isolated, non-standard components which may be deployed in
the customer site portion of our network that may not be identical to those
tested in the lab. To the extent any such components are not identified and, if
necessary, remediated, they could cause customer specific failures. However, we
believe that any such failures would be isolated and not affect the operation of
the network or our systems as a whole.
Both Winstar-owned, and vendor-supplied systems have been, or are currently
being subjected to integration testing following stand-alone evaluation, in
accordance with Winstar's Year 2000 Compliance Standards. Winstar is conducting
Year 2000 systems and integration testing of its business applications in a
dedicated, on-site test lab where system environments can be set to Year 2000
dates without impacting current operations. With the exception of a few
remaining applications now in process and expected to be reviewed shortly,
Winstar has completed the individual renovation and testing of its critical
business applications.
26
<PAGE>
Winstar is also completing Year 2000 Network Integration Testing in a separate
Network Integration Test Facility. The Network Integration Test Facility
simulates end-to-end call processing across Winstar's telecommunications
network. Year 2000 testing conducted in Phases I and II was successfully
completed with no Year 2000 date issues. Final testing is currently underway and
is expected to conclude in the near future. Other Year 2000 compliance
activities in progress now include testing of Winstar Y2K contingency plans, and
completion of desktop upgrades.
Testing and compliance monitoring as part of the Winstar Year 2000 program will
continue through the fourth quarter of 1999 and into the new year to cover
system changes as well as to support the growth and development of the network.
We have, where we deemed necessary, required suppliers and third-party vendors
to provide statements of Year 2000 compliance in their contracts with us. In
addition, and as part of our Year 2000 project, we have contacted all of our
vendors and suppliers, including other telecommunications providers, equipment
manufacturers and software vendors, to obtain a statement regarding the vendor's
Year 2000 compliance. We currently require our outside vendors and suppliers to
provide reasonable assurances that their hardware and/or software is Y2K ready.
We are closely monitoring the few vendors or suppliers who have not provided
satisfactory assurance to-date. We believe that these are in areas not critical
to our networks and are prepared to take appropriate action, if necessary,
including moving to an alternate vendor or supplier who can give such
assurances.
Winstar is finalizing contingency plans in all key business areas for potential
Year 2000 problems. Contingency plans cover major business processes, including
operation of the Winstar network, customer billing, and other mission and
business-critical operations. Training for Winstar personnel who will implement
contingencies has been completed and simulation of contingency plans has begun.
A Year 2000 Command Center will be in place in December, and key personnel will
be on-site or on-call before, during, and after the critical transition period
from late December, 1999 through mid-January, 2000.
The total cost associated with our Year 2000 compliance project is not expected
to be material to our financial position. The estimated total cost of the
project is approximately $8 million. The total amount expended through September
30, 1999 was approximately $6.0 million. We will make appropriate adjustments to
these estimates upon completion of this project.
Our failure to make our key systems Year 2000 compliant could adversely impact
our ability to service our telecommunications and other customers and otherwise
carry on our business. Such problems could include interruptions in the
operation of our telecommunications network, traffic data, customer order
processing and provisioning systems, customer billing and invoicing, and data
interfaces to and from these systems. Although we expect that we will have
identified and remediated any material Year 2000 problems in our internal
systems prior to the end of 1999, if any significant Year 2000 problems in our
systems are not uncovered or are not remediated in a timely
27
<PAGE>
manner, significant failures of these functions could occur and could have
material adverse consequences to our operations.
While we are working aggressively to finish testing and renovation of our own
mission and business critical systems for Year 2000 problems, we do not control
the systems of our suppliers. As discussed above, we are seeking assurances from
our suppliers regarding the Year 2000 readiness of their systems. We also have
conducted interoperability testing, where feasible, to test whether our
suppliers' systems will accurately provide our systems with date data and
telecommunications functionality into and beyond the new millennium.
Notwithstanding these measures, there is some risk that the interoperation of
our systems with those of our suppliers' may be impacted by the Year 2000 date
change. In addition, in light of the vast interconnection and interoperability
of telecommunications networks worldwide, and the vast array of
telecommunications equipment used in those networks (including equipment used by
customers on their premises) the ability of any telecommunications provider,
including Winstar, to provide services to customers (e.g., to complete calls and
transport data and to bill for such services) is dependent, to some extent, on
the networks, systems and equipment of other carriers and numerous equipment
manufacturers. To the extent the networks, systems and equipment of other
carriers and customer premise equipment and systems are adversely impacted by
Year 2000 problems, the ability of Winstar to provide service may be adversely
impacted as well. Any such impact could have a material adverse effect on our
operations.
Certain industry-wide efforts are underway to test individual network components
and to address issues related to the interoperability of telecommunications
networks both domestically and worldwide. For instance, Winstar is a member of
the Alliance for Telecommunications Industry Solutions ("ATIS") Network Testing
Committee ("NTC"), an industry forum made up of telecommunications carriers
which has sponsored a series of Year 2000 activities to test, among other
things, Year 2000 readiness with respect to transmissions between and over
various domestic and international carriers' networks and has participated in
ATIS-sponsored Year 2000 testing. However, while many carriers are working
toward understanding the worldwide communications infrastructure and are helping
to avoid potential problems stemming from the Year 2000 issue, Winstar cannot
give assurances that the interconnection of the networks of different carriers
will not be adversely impacted by the Year 2000 issue.
We also may consummate acquisitions prior to the end of 1999. The extent of the
Year 2000 problems associated with any such acquired companies and the cost and
timing of remediation will be evaluated during and after completion of the
acquisition process. Our Year 2000 efforts include active participation by newly
acquired businesses and a plan is in place for immediate coordination in the
event of future acquisitions. However, we cannot give assurances that the
systems of any acquired company will be fully Year 2000 compliant when acquired
or will be capable of timely remediation.
Having identified our mission critical and business critical systems and our key
suppliers, and the associated risks of failure of those systems to be Year 2000
ready, we are finalizing contingency plans which will be implemented in the
event we determine that any such systems will not be made
28
<PAGE>
Year 2000 compliant in a timely manner. Winstar will also have additional
dedicated staff on site before, during, and after the Year 2000 date change to
respond to Year 2000 contingencies and ensure business continuity for the
Company, our customers and our employees to the maximum extent possible.
Effects of Recently Issued Accounting Pronouncements
In September 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"),
which requires entities to recognize all derivatives in their financial
statements as either assets or liabilities measured at fair value. SFAS 133 also
specifies new methods of accounting for hedging transactions, prescribes the
items and transactions that may be hedged and specifies detailed criteria to be
met to qualify for hedge accounting. SFAS 133, as amended by SFAS 137, is
effective for fiscal years beginning after September 15, 2000. We are currently
evaluating the impact that SFAS 133 will have on our consolidated financial
statements and disclosures.
Forward-Looking Statements
This report 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.
The following factors and other factors may cause our actual results to differ
materially from those contemplated by some of the forward-looking statements
included in this report:
o the willingness of the marketplace to accept fixed wireless services
generally, and our Wireless Fiber(Service Mark) services in particular, as
an acceptable alternative to other available communications technologies
and rapid technological innovation bringing on constant enhancements in
communications;
o our ability to penetrate our targeted markets, which are dominated by much
larger entrenched competitors, and attract and retain a sufficient
revenue-generating customer base;
o our ability to obtain sufficient capital to finance the buildout of our
domestic and international telecommunications network, fund our projected
operating losses and service our debt obligations;
29
<PAGE>
o the general condition of the economy and the financial markets,
particularly within the telecommunications and technology sector which has
historically been even more volatile than the markets as a whole;
o changes in the regulatory environment which may directly affect: the
breadth of services which we and our competitors may offer and the terms
of those services, the size and number of our competitors, our ability to
obtain necessary access to customer buildings in order to provide our
services, and our use of our spectrum assets; and
o our ability to hire and retain a sufficient number of highly skilled and
qualified employees sufficient to support our growth objectives,
particularly in light of the intense competition for these employees in
the recently de-regulated telecommunications industry.
30
<PAGE>
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
Our exposure to market risk for changes in interest rates relates primarily to
our investment portfolio, redeemable preferred stock and long-term debt
obligations. We do not use derivative instruments in our investment portfolio.
We place our investments primarily with high quality credit issuers and, by
policy, limit the amount of credit exposure to any one issuer. With the
exception of our obligations under the Lucent Financing, we have no cash flow
exposure due to rate changes for long-term obligations. Our Lucent obligations
are variable rate instruments, however, there has been no material changes in
market risk since December 31, 1998. We primarily enter into debt obligations to
support the construction of our network and working capital needs.
31
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities
Recent Sales of Unregistered Securities
The following table sets forth certain information with respect to the issuance
by the Company of certain securities during the quarter ended September 30,
1999, without registration of such securities under the Securities Act:
<TABLE>
<CAPTION>
Terms of
Exemption Conversion or Use of
Securities Sold Purchasers Consideration Claimed Exercise Proceeds
- --------------- ---------- ------------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
109,110 Various Shares issued Section 4(2) Not Applicable The Company
individuals as did not
consideration receive cash
in various proceeds for
acquisitions these shares
and for
consulting
services
</TABLE>
Item 4. Submission of Matters to a Vote of Security Holders
At its Annual Meeting of Stockholders (the "Meeting") held on July 2, 1999, the
Company submitted the following matters to a vote of its security holders, all
of which matters were approved:
1. Election of Class I Directors.
Name of Director Votes For Votes Withheld
---------------- --------- --------------
Nathan Kantor 41,721,679 356,138
Bert Wasserman 41,813,661 264,156
The term of office of each of the following additional directors of the Company
continued after the Meeting: William J. Rouhana, Jr., Timothy R. Graham, Steven
B. Magyar, William J. vanden Heuvel and James I. Cash.
2. Amendment of Winstar Communications, Inc. 1995 Performance Equity Plan
increasing the number of shares available for issuance pursuant to grants
made thereunder from 10,000,000 to 15,000,000.
Votes For Votes Against Abstentions
--------- ------------- -----------
21,966,535 9,476,856 153,908
32
<PAGE>
Item 5. Other Information
Notes to Stockholders Regarding 1999 Annual Meeting of Stockholders:
Pursuant to Rule 14a-4 promulgated by the Securities and Exchange Commission,
stockholders are advised that the Company's management shall be permitted to
exercise discretionary voting authority under proxies it solicits and obtains
from the Company's 2000 Annual Meeting of Stockholders with respect to any
proposal presented by a stockholder at such meeting, without any discussion of
the proposal in the Company's proxy statement for such meeting, unless the
Company receives notice of such proposal at its principal office in New York,
New York no later than January 7, 2000.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
10.1 Fiber Optic Private Network Agreement, dated September 30, 1999,
between Winstar Wireless, Inc. and Metromedia Fiber Network
Services, Inc.
27 Financial Data Schedule
(b) Reports on Form 8-K.
None
33
<PAGE>
SIGNATURES
In accordance with requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
Winstar Communications, Inc.
Registrant
By: /s/Richard J. Uhl
-------------------------------------
Richard J. Uhl
Group Executive and Chief Financial
Officer (Principal Financial Officer) Dated: November 12, 1999
By: /s/ Joseph P. Dwyer
-------------------------------------
Joseph P. Dwyer
Senior Vice President, Finance
(Principal Accounting Officer) Dated: November 12, 1999
34
<PAGE>
Fiber Optic Private Network Agreement Product Order Number Two
Product Order Number Two ("Product Order") together with Exhibits A-D, the
General Terms and Conditions, ("GTC") and all addenda attached hereto constitute
the Fiber Optic Private Network Agreement (collectively, together with any
amendments and supplements thereto, the "Agreement") dated as of September 30,
1999, by and between Metromedia Fiber Network Services, Inc. ("MFN"), 1 North
Lexington Avenue, 4th Floor, White Plains, New York 10601, and WinStar Wireless,
Inc. ("Carrier"), 7799 Leesburg Pike, Suite 401, Tysons Corner, VA 22043.
Definitions of capitalized terms used in this Agreement appear in the Product
Orders, the GTC and Exhibits A-D hereto.
WHEREAS, MFN has constructed or intends to construct certain fiber optic
networks;
WHEREAS, Carrier desires to obtain from MFN certain rights with respect to such
fiber optic networks, all in accordance with the terms and conditions of this
Agreement;
WHEREAS, Carrier intends to take the fiber from MFN, light such fiber with its
optronics and, subject to the terms and condition of this Agreement, resell such
fiber to its customers.
NOW, THEREFORE, in consideration of the mutual covenants contained in the
Agreement, the Parties agree as follows:
1. Carrier orders and MFN will provide certain fiber as follows:
1.1 Term: See Section 1.1 of the GTC.
1.2 Fiber Miles: The total number of fiber miles (including the agreed upon
Lateral Extensions) as provided in Exhibit B hereto. The total number of
fiber miles are subject to adjustment based upon the final as-built plans
for the applicable Segment delivered by MFN to Carrier and as otherwise
specified in Section 1.4 of this Product Order.
1.3 Fiber Specifications: See Exhibit C (the "Specifications").
1.4 Payments:
1.4(a) Subject to Exhibit B, Carrier shall commence making payments to
MFN in the amount of $40.20 per month per fiber mile for each
Segment of Fibers delivered to Carrier in accordance with the
terms of this Agreement ("Carrier Fibers"), as of the Service Date
for that Segment with the applicable Included Lateral Extensions
and other Lateral Extensions, if any, in accordance with Section
1.4(c) below (collectively, the "Fiber Payments"). Fifteen percent
(15%) of the Fiber Payments are for the included Maintenance
Services set forth in this Agreement.
1.4(b) All Applicable Taxes (as defined in the GTC), if any, shall be
paid as provided in the GTC. The total Fiber Payments are subject
to adjustment in the event that the actual fiber miles for a
Segment are adjusted based on the final as-built plans for the
applicable Segment delivered by MFN to Carrier as set forth on
Exhibit B.
1.4(c) As of the Service Date for the first Segment of Carrier Fibers
delivered to Carrier on each map attached as Exhibit A or to be
added to Exhibit A for those markets
<PAGE>
for which there is no map as of the date of this Agreement, MFN
shall be required to deliver up to four of the Lateral Extensions
(associated with such first Segment) requested by Carrier for such
Segment (it being understood that (subject to the following
provisos) if there are more than four Lateral Extensions as to
which Carrier has given notice or which are listed in Exhibit E,
MFN shall be entitled to select three of the four to be delivered
with the first Segment and the fourth will be to Carrier's central
office as provided below); provided that Carrier has given written
notice to MFN of Carrier's request for such Lateral Extensions at
least 6 months prior to the completion of construction of such
first Segment or is listed in Exhibit E (and is associated with
the first Segment); and provided further that one of such Lateral
Extensions is to Carrier's central office, which central office is
identified in Exhibit A, Exhibit E or is otherwise specified by
Carrier at least 6 months prior to completion of such first
Segment. MFN shall be required to deliver the Included Lateral
Extensions (to the extent not delivered with the first Segment) as
well as other Lateral Extensions requested by Carrier; provided
that such Included Lateral Extensions and other Lateral Extensions
need not be delivered prior to the Service Date of the Segment to
which they relate; and provided further that Carrier shall comply
with the Lateral Extension Policy set forth in Exhibit D (save and
except any payment obligations with respect to the Included
Lateral Extensions). In no event will Carrier be obligated to take
delivery or accept any Segment in an Existing Market (as defined
in Exhibit B) or Potential Market (as defined in Exhibit B) prior
to the Service Date for the Segment containing the Lateral
Extension to Carrier's central office.
1.5 If Carrier requests that MFN construct Lateral Extensions (as defined in
Exhibit D) (e.g., Carrier designated buildings, ILEC locations for
interexchange) in addition to the Included Lateral Extensions identified
in Exhibit A or as otherwise identified by MFN in accordance with Section
1.5 of the GTC, Carrier shall, in addition to the Fiber Payments, pay for
all such Lateral Extensions off the Network Backbone (other than the
Included Laterals Extensions as defined in Section 1.5 of the GTC) in
accordance with the Lateral Extension Policy set forth in Exhibit D.
2. Estimated DeliveryDate: MFN shall use commercially reasonable efforts to
make available the Carrier Fibers to the Carrier in accordance with the
schedule attached hereto as Exhibit B. Each Segment of Carrier Fibers and
associated Lateral Extensions, if any, when such Lateral Extensions are
delivered by MFN and accepted by Carrier is referred to in this Agreement
as a "Segment" or "Segments of Carrier Fibers."
3. MFN address (and contact person) is as follows:
Metromedia Fiber Network Services, Inc.
1 North Lexington Avenue, 4th Floor
White Plains, New York 10601
Attn: Vice President - Marketing
If declaring a default or termination, a copy of the notice must be sent
to:
-2-
<PAGE>
Metromedia Fiber Network Services, Inc.
1 North Lexington Avenue, 4th Floor
White Plains, New York 10601
Attn: Vice President - Legal Affairs
4. Carrier address (and contact person) is as follows:
WinStar Wireless, Inc.
7799 Leesburg Pike, Suite 401
Tysons Corner, VA 22043
Attn: David Ackerman, EVP
with a copy to:
WinStar Communications, Inc.
685 Third Avenue, 31st Floor
New York, New York 10017
Attn: C.Z. Czerner
If declaring a default or termination, a copy of the notice must be sent
to:
WinStar Communications, Inc.
685 Third Avenue, 31st Floor
New York, New York 10017
Attn: Timothy R. Graham
General Counsel
5. Option to Extend/Purchase: See GTC Section 1.2.
6. MFN Construction Coordinator: Until such time as substantially all of the
Carrier Fibers that are the subject of this Product Order Two have been
Accepted, MFN shall, at its cost and expense, designate an MFN employee as
its"Construction Coordinator." The Construction Coordinator shall be fully
dedicated and on-site at Carrier's Northern Virginia office two days per
week. MFN agrees to use commercially reasonable efforts to hire an
individual as the Construction Coordinator, it being understood that it
may take several months after the Effective Date to do so.
The persons signing this Agreement are authorized by the respective Parties to
do so. Signature constitutes acceptance of all terms and conditions of this
Agreement.
WinStar Wireless, Inc. Metromedia Fiber Network Services, Inc.
By: By:
------------------------------------ ------------------------------------
Name: CZ Czerner Name: Howard M. Finkelstein
Title: Senior VP, Corporate Development Title: President
-3-
<PAGE>
Fiber Optic Private Network Agreement
General Terms and Conditions
Capitalized terms used in these General Terms and Conditions which are not
defined herein shall have the meaning given thereto in the Product Order and any
Exhibits or addenda thereto or hereto. All references herein to "Agreement"
shall mean the Agreement as defined in Product Order Number Two between
Metromedia Fiber Network Services, Inc. ("MFN") and WinStar Wireless, Inc.
("Carrier") to which these General Terms and Conditions are attached. The term
"Party" will refer, individually, to either MFN or Carrier and the term
"Parties" will refer to both of them.
1. TERM AND LEASE
1.1 Term. MFN hereby leases and grants to Carrier access to and use of optical
fiber specified in the Product Order ("Carrier Fiber") on MFN's fiber optic
cable network ("Network") and the exclusive right to use the Carrier Fiber as
provided in this Agreement. The Carrier Fiber leased by Carrier hereunder will
be referred to as the "Product" or "Carrier Fiber." The "Term" shall mean with
respect to each Segment of Carrier Fibers, as set forth on Exhibit B, the period
commencing on the Service Date (as defined in Section 1.4) for a Segment of
Carrier Fibers and ending twenty (20) years after the Service Date for such
Segment of Carrier Fibers (the "Initial Term") plus any extensions pursuant to
Section 1.2 hereof (the "Extended Term", and together with the Initial Term,
collectively hereinafter referred to as the "Term"). In addition Carrier shall
have access to and exclusive right to use all Carrier Fibers leased to Carrier
in accordance with the Lateral Extension Policy.
1.2 Extended Term/Purchase Option. At the end of the Initial Term (or the
Extended Term, as applicable), Carrier may extend the Initial Term or purchase
the Carrier Fibers as follows:
(a) Extended Term. If MFN, in its sole discretion, extends or renews all
applicable underlying Rights-of-Way relating to the Carrier Fibers in any
Segment beyond the Initial Term, Carrier shall have the right to extend the
Initial Term of the Lease, for a term corresponding to each such extension or
renewal (up to two additional ten-year periods). No later than one (1) year
prior to the end of the Initial Term, MFN shall give notice to Carrier advising
Carrier whether or not MFN intends to seek to renew any Rights-of-Way relevant
to this Agreement (the "Renewal Notice"). Within sixty (60) days after the date
of the Renewal Notice, if in such Renewal Notice MFN states that it intends to
seek to renew any Rights-of-Way relevant to this Agreement, Carrier shall give
notice to MFN (the "Extension Notice") whether or not Carrier intends to renew
the Term of this Lease as to the Carrier Fibers in the Segments covered by such
Rights-of-Way. If in Carrier's Extension Notice, Carrier advises MFN that it
intends to renew the Term of this Lease as aforesaid, the Parties shall meet and
negotiate in good faith the Extended Fiber Payments to be paid by Carrier during
the Extended Term as provided in Section 2.5.
(b) Purchase Option. As of the expiration date of the Initial Term or
Extended Term, if such Initial Term was extended pursuant to Section 1.2(a)
above, Carrier may elect to purchase all of the Carrier Fibers and an undivided
interest in the fiber optic cable containing the Carrier
<PAGE>
Fibers ("Cable") and an undivided interest in the duct owned by MFN containing
Cable ("Duct"), in a Segment for $1.00 per fiber mile ("Purchase Option"). The
sale by MFN to Carrier, and the purchase by Carrier from MFN, of such Carrier
Fibers, Cable and Duct pursuant to the Purchase Option shall be without any
express or implied representations, warranties or continuing obligations or
covenants by MFN of any kind with respect to the Carrier Fibers, Cable, Duct or
any Rights-of-Way or otherwise except that MFN shall warrant its ownership in
the Carrier Fibers, Cable and Duct being sold. If Carrier elects to exercise the
Purchase Option at the end of the Initial Term, Carrier will give written notice
to MFN within sixty (60) days after the Renewal Notice pursuant to Section
1.2(a) above ("Purchase Option Notice"), which Purchase Option Notice shall be
in lieu of and not in combination with the Extension Notice. If Carrier elects
to exercise the Purchase Option at the end of the Extended Term, then Carrier
shall give the Purchase Option Notice to MFN within sixty (60) days before the
expiration date of the Extended Term. Neither the grant of the foregoing option
nor the exercise thereof shall not require MFN to breach any existing contract
or Right-of-Way or violate any law or regulation.
1.3 MFN will use commercially reasonable efforts to install the Product on or
about the Estimated Delivery Dates as shown on Exhibit B and provide Carrier
with access thereto. MFN shall test all Carrier Fibers (including the applicable
Included Lateral Extensions and other Lateral Extensions) in accordance with the
Specifications set forth in Exhibit C to this Agreement ("Acceptance Testing")
to verify that the Carrier Fibers are installed in compliance with such
Specifications. Acceptance Testing shall be conducted for each Segment. Where
practical, MFN shall provide Carrier at least ten (10) business days advance
notice, but in any case at least five (5) business days advance notice, of the
date and time of Acceptance Testing for each Segment (each of which shall take
place during normal business hours where practical) such that Carrier shall have
the right, but not the obligation, to have a person or persons present to
observe MFN's Acceptance Testing. When MFN has determined that the results of
the Acceptance Testing with respect to a particular Segment show that the
Carrier Fibers so tested are installed and in compliance with the applicable
Specifications, MFN shall promptly provide Carrier with a copy of such test
results and a completion notice (the "Completion Notice"). Carrier shall, within
fourteen (14) days of receipt of the Completion Notice, either reject the
Completion Notice specifying the defect or failure in such Acceptance Testing or
give MFN written notice of acceptance of such Acceptance Testing. (The period
from the date of Carrier's receipt of Completion Notice to the date of MFN's
receipt of Carrier's notice of rejection or acceptance being referred to herein
as the "Review Period"). In the event Carrier rejects the Completion Notice, MFN
shall promptly, and not later than fourteen (14) days after receipt of Carrier's
notice of rejection, and at no cost to Carrier, commence, and use commercially
reasonable efforts to promptly remedy the defect or failure. Thereafter, upon
completion of the remediation of the defect or failure, MFN shall again give
Carrier another Completion Notice. The foregoing procedure shall apply again and
successively thereafter until the Carrier Fibers in such Segment meet the
Specifications at which point Carrier shall give MFN written notice of
acceptance.
1.4 Service Date. The "Service Date" for the first Segment for each of the
Existing Markets (as defined in Exhibit B) referred to in Exhibit B and the
first Segment for each of the Potential Markets (as defined in Exhibit B) that
are identified following such Potential Market being Announced (as defined in
Exhibit B) (including with respect to the Existing Markets and
-2-
<PAGE>
Potential Markets the applicable Included Lateral Extensions and other Lateral
Extensions, if any, as identified by Carrier in accordance with Section 1.4(c)
of Product Order Two) will be the earlier of (i) completion of end-to-end
testing and acceptance of the applicable Segment by MFN and issuance by Carrier
of notice of acceptance, (ii) expiration of the Review Period if Carrier fails
to give notice of any deficiencies in the Carrier Fibers pursuant to Section
1.3, (iii) if Carrier has identified deficiencies as provided above, then the
first date upon which the Product comprising such Segment is in compliance with
the Specifications in accordance with Section 1.3, or (iv) use of the Carrier
Fibers by Carrier other than in connection with Acceptance Testing. The "Service
Date" for all subsequent Segments for each of the Existing Markets referred to
in Exhibit B and all subsequent Segments for each of the Potential Markets that
are identified following such Potential Markets being Announced will be the
earlier of (i) completion of end-to-end testing and acceptance of the applicable
Segment by MFN and issuance by Carrier of notice of acceptance, (ii) expiration
of the Review Period if Carrier fails to give notice of any deficiencies in the
Carrier Fibers pursuant to Section 1.3, (iii) if Carrier has identified
deficiencies as provided above, then the first date upon which the Product
comprising such Segment is in compliance with the Specifications in accordance
with Section 1.3, or (iv) use of the Carrier Fibers by Carrier other than in
connection with Acceptance Testing. In the event that the Service Date for any
Segment does not occur within 120 days after the Estimated Delivery Date,
Carrier, at its sole option, may terminate this Agreement in respect of such
Segment only by giving notice (the "Termination Notice") to MFN at any time
prior to MFN's issuance of a subsequent Completion Notice; provided, however,
Carrier may thereafter terminate this Agreement with respect to such Segment if
the Service Date does not occur after such subsequent Completion Notice. Except
as otherwise set forth in this Agreement, upon any such termination, neither
party shall have any further obligation to the other in respect of any such
terminated Segment.
1.5 For each Existing Market (other than those markets in which Carrier obtained
fiber from MFN under Product Order One dated July 22, 1998 between the parties)
and each Potential Market identified in Exhibit B, MFN shall provide to Carrier,
at no cost or expense to Carrier, Lateral Extensions to two buildings selected
by MFN (the "Included Lateral Extensions") to MFN's fiber panel in such
buildings; provided, however, Existing Markets and Potential Markets in which
MFN has Fiber to the building that contains the Williams Communications
point-of-presence and for which MFN has any required authorization needed to
make the Lateral Extension available, one of the Included Lateral Extensions
shall be to the building where Williams' point-of-presence is located in such
market. To the extent not included in the Included Lateral Extension (e.g.,
beyond MFN's fiber panel in the building) or as otherwise may be agreed to by
MFN in its sole discretion, Carrier shall use commercially reasonable efforts to
arrange for access into the buildings and for the use of any required building
riser conduit and all other facilities in the building required by MFN for the
Lateral Extensions. At any location where Carrier has requested MFN to build a
Lateral Extension where there is no existing external building access and/or
riser conduit, either occupied or unoccupied, the cost to construct and install
such access or conduit will be borne solely by Carrier except as set forth in
the Lateral Extension Policy. Carrier shall have the option to perform all
construction and installation of conduit and fiber or to request MFN to perform
such construction and installation by written notice to MFN in accordance with
the Lateral Extension Policy, attached hereto as Exhibit D. MFN shall construct
such Lateral Extensions as Carrier may request in accordance with such
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Policy within the time period that the Parties may agree. Any fiber included in
any Lateral Extensions constructed by MFN shall be owned by MFN and be deemed
Carrier Fiber for purposes of this Agreement. All Lateral Extensions will be
built with diverse routing into the building to the extent commercially
reasonable. If requested by Carrier, MFN will develop and deliver to Carrier
building plans for construction of the Lateral Extension. Carrier will
compensate MFN for such plans at mutually agreed upon rates if Carrier does not
engage MFN to construct the Lateral Extension.
1.6 Upon the expiration of the Term, or any earlier termination in accordance
with the terms of this Agreement, Carrier shall promptly remove from any
property owned, leased or licensed by MFN, all Carrier property, equipment and
other materials used in connection with the Product within forty-five (45) days
from such expiration or termination. Carrier shall complete such removal in a
manner that does not damage the Product or the Network, it being agreed that
Carrier may remove its optronics and electronics. Carrier shall be responsible
for and reimburse MFN for any damage caused by such removal. MFN shall cooperate
with Carrier in removal of any of Carrier's property. If Carrier fails to remove
its property within such period, such property will be deemed abandoned, and MFN
may make such disposition of the property as it deems necessary or advisable at
Carrier's sole expense.
1.7 MFN agrees that all installations will be grounded outside all applicable
buildings.
2. TERMS OF PAYMENT/TAXES
2.1 Within five (5) business days after the Service Date for a Segment, Carrier
shall commence payment of the Fiber Payments for such Carrier Fiber in
accordance with the Product Order (each a "Fiber Payment"). Together with each
Fiber Payment, the Carrier shall pay the Applicable Taxes, if any, then due and
payable by Carrier pursuant to this Agreement. MFN shall send Carrier an invoice
setting forth Applicable Taxes payable by Carrier in accordance with this
Agreement. As used herein Applicable Taxes shall mean all applicable sales, use
or other taxes assessed on the transactions contemplated by this Agreement
(other than taxes on or measured by MFN's income or capital and any franchise or
permit fees payable by MFN), unless otherwise subject to an exemption and an
exemption certificate or other documentation is provided by Carrier ("Applicable
Taxes"). All Fiber Payments hereunder due to MFN shall be made by wire transfer
to an account designated by MFN. All other payments shall be invoiced by MFN and
shall be accompanied by information in order for Carrier to verify the
calculation of any amounts due and shall be paid by Carrier by wire transfer or
check 30 days after invoice.
2.2 Carrier shall be responsible for, and shall timely pay, all Applicable Taxes
with respect to this Agreement which are imposed upon Carrier by applicable law.
MFN shall be responsible for, and shall timely pay, all Applicable Taxes with
respect to this Agreement which are imposed upon MFN by applicable law.
Notwithstanding the foregoing all sales and use taxes (other than taxes on or
measured by MFN's income or capital and any franchise or permit fees payable by
MFN) assessed with respect to use or maintenance of the Carrier Fiber by Carrier
shall be borne by Carrier.
2.3 If at any time any Applicable Tax is imposed on, assessed against or borne
by either Carrier or MFN with respect to this Agreement, Carrier or MFN, as the
case may be, shall have
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the right to protest, by appropriate proceedings, the imposition or assessment
of any such Applicable Tax. In such event, Carrier or MFN, as the case may be,
shall be responsible for such payments and shall indemnify and hold the other
Party harmless from and against any liability, expense, legal action or cost,
including reasonable attorney's fees, resulting from the exercise of its rights
under this Section 2.3. In the event of any refund, rebate, reduction or
abatement of any such Applicable Tax, the Party who was responsible for paying
such tax shall be entitled to receive the entire benefit of such refund, rebate,
reduction or abatement.
2.4 If Carrier fails to pay to MFN any sum within ten (10) days after the date
when due pursuant to this Agreement if MFN has provided the information with
respect thereto required by Section 2.1, then, in addition to such sum and to
any other rights or remedies that MFN may have, Carrier shall pay interest on
such unpaid sum at the lower of the highest legal rate of interest permitted in
the State of New York or one and one-half (1.5%) per month. Notwithstanding the
foregoing, no interest shall accrue on any payment which is disputed in good
faith by Carrier while such dispute is pending. If such dispute is resolved in
favor of MFN, interest shall be paid on the amount due from the due date
thereof.
2.5 In the event that the Term is extended in accordance with Section 1.2
hereof, the Fiber Payments for the Extended Term ("Extended Fiber Payments")
shall be the fair market value of the Carrier Fibers as of the commencement of
the Extended Term. The fair market value of the Carrier Fibers shall mean the
amount that a willing lessee would pay and a willing lessor would accept for
fibers of the age and quality of the Carrier Fibers. The Parties shall negotiate
in good faith to determine the Extended Fiber Payments as provided in this
Section 2.5. Among other things the Parties shall negotiate in good faith
whether or not the Extended Fiber Payments shall be paid as a lump sum or shall
be paid on a monthly basis. In the event that the Parties agree that the
Extended Fiber Payments will be paid on a lump sum basis during the Extended
Term, the Parties shall negotiate in good faith any terms of this Agreement that
must be modified in order to take account of such lump sum payments.
3. MAINTENANCE, RESTORATION AND REPAIR OF THE PRODUCTS ("MAINTENANCE SERVICE")
3.1 Except for any maintenance or repair required solely as a result of the
fault of Carrier, MFN, at its sole cost and expense, shall be responsible for
maintenance and repair of the Network and the Product in a good and workmanlike
manner, in accordance with the same maintenance procedures that MFN utilizes for
its other customers in order that the Product will meet the Specifications at
all times during the Term. MFN shall use commercially reasonable efforts to
cause the Network and the Product to remain in good working order and condition.
No charge shall be made by MFN for maintenance, surveillance, general system
redundancy or repair on the MFN Network. MFN agrees that it shall at all times
maintain remote monitoring of the Product for surveillance purposes in
accordance with its standard procedures. Any maintenance or repair required
solely as a result of the fault of Carrier shall be performed by MFN at the cost
and expense of Carrier, such cost to be MFN's standard costs for its customers
who pay therefor. If such maintenance and repair is required as a result of the
fault of Carrier and MFN, the costs shall be apportioned in accordance with
their respective responsibility therefor. Any scheduled maintenance
(non-emergency) shall be performed at such times so as to
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minimize any disruption of Carrier's service and operations. MFN shall cooperate
with Carrier in scheduling any such maintenance. Where practicable, any
scheduled maintenance that is expected to produce any signal discontinuity shall
be scheduled after midnight and before 6:00 a.m. local time. MFN shall to the
extent practical notify Carrier in advance of the date and time of any scheduled
maintenance and as soon as practicable after becoming aware of the need for any
non-routine maintenance.
3.2 In the event of an interruption of service for one or more of Carrier's
fiber rings, or if not in a ring format then of one or more of Carrier's Fibers
hereunder, resulting from physical damage to, or severance of, or a break in, or
other failure of any Product or otherwise ("Outage"), Carrier shall notify MFN
by telephone at (888) 636-2778 or through such other notification procedure as
the Parties may establish. Provided that MFN personnel or contractors have
access to affected Carrier facilities immediately upon notification, if
necessary, MFN shall respond and commence work within two (2) hours from
notification by Carrier and use commercially reasonable efforts to restore
effective use of the Product as expeditiously as practicable, with a goal of no
more than four (4) hours from receipt by MFN of Carrier's notification or from
the time MFN otherwise becomes aware of such interruption. Maintenance Service
will be provided on a seven (7) days per week, twenty-four (24) hours per day
basis. If MFN establishes a priority customer group for emergency maintenance,
MFN shall include Carrier in the highest priority in such group, which priority
customer group shall receive whenever possible, priority in the restoration of
any Outage affecting Carrier's use of the Carrier Fibers or such other treatment
as MFN establishes from time to time for such priority customer group. MFN will
provide remote monitoring of the Network and Product in accordance with its
standard policy.
3.3 In the event of an interruption of service for one or more of Carrier's
fiber rings, or if not in ring format then of one or more of Carrier's Fibers
hereunder resulting from damage to, or severance of, or a breach in, or other
failure of any Product or otherwise that affect Carrier or its customers ("Total
Outage"), Carrier shall receive from MFN a credit ("Outage Credit") calculated
at 16.67% of the monthly Fiber Payment for the affected Segment, for each four
(4) hours of Total Outage, up to a maximum Outage Credit equal to the monthly
Fiber Payment in respect of each Total Outage or series of related Total
Outages. Outage Credits will not be payable for the applicable Total Outage for
any period during which MFN personnel or contractors are denied access to
Carrier facilities to remedy an Total Outage. The foregoing states the sole and
exclusive remedy of Carrier, and liability of MFN, for any Total Outages.
3.4 If all or part of the Product requires restoration, replacement or repair
during the Term solely as a result of an act, or solely as a result of any
failure to act on the part of Carrier as required hereunder, including without
limitation, the negligence or willful misconduct of Carrier, its officers,
employees, agents, contractors, subcontractors, invitees or representatives,
such repair, replacement and/or restoration will be made by MFN, at Carrier's
sole expense, in accordance with MFN's then current time and materials rates
plus Applicable Taxes. In addition, Carrier will not receive any Outage Credit
resulting from the foregoing. If any such restoration, replacement or repair is
required as a result of the act, or as a result of any failure to act as
required hereunder, by Carrier and MFN, the costs shall be apportioned in
accordance with their respective responsibility therefor.
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3.5 MFN may assign or subcontract to any third party any or all of its duties to
Carrier (including Maintenance Service) under this Agreement and Product Order
at any time, without the consent of Carrier, provided that MFN shall continue to
remain responsible for any such duties.
3.6 It is specifically acknowledged and agreed by Carrier that MFN will have the
right to inspect Carrier's use of the Product during normal business hours upon
at least one (1) day's prior notice by MFN. Any such inspection shall be
conducted in a way that will minimize any disruption in Carrier's business or
its service to its customers.
3.7 MFN agrees that at all times during the Term it or its contractors will
maintain an inventory of cable which is at least equal to the largest fiber
count and longest span between two splice points.
4. USE AND OWNERSHIP OF THE PRODUCT
4.1 Carrier shall not, by itself or through any agent or contractor, make any
repair to, or replacement of, the Product or any other equipment provided by MFN
in connection with the Product or otherwise. Subject to the right of Carrier to
add optronics and to otherwise make the Carrier Fibers operational, Carrier
shall not use the Product in any manner which damages or interferes with the
Product or the Network.
4.2 Carrier shall use the Product in material compliance with all material
applicable federal, state and local codes, ordinances, laws, rules and
regulations and all material requirements of all applicable franchises, rights
of way, leases, licenses and other obligations with respect to the Network or
Product to which Carrier is a party or of which it has been advised in writing.
Carrier shall be responsible for the obtaining of any permits, licenses or
governmental or other approvals necessary for Carrier's or any other customer of
Carrier's use of the Product hereunder but not for the construction, operation
or maintenance thereof.
4.3 Certain Resale Restrictions. Carrier shall not, directly or indirectly,
lease, sublease, license, sublicense, sell, condo, wholesale or otherwise
transfer the Carrier Fibers (i.e., dark fibers or windows (wave division
multiplexing, that is, a transfer of dark fiber or a window of dark fiber on
which the transferee places its optronics) as provided in the Product Order) to
any third party other than a Permitted Assignee (as defined in Section 20.2
hereof) unless such fiber optic capacity is distributed through Carrier's or a
Permitted Assignee's transmission system. Nothing in this Section 4.3 shall
restrict or limit Carrier from entering into agreements for the use of capacity
and/or services which utilize the Product after Carrier has added optronics
and/or otherwise made the Product operational by lighting the Carrier Fibers.
Any breach of this Section 4.3 shall be deemed to be a material breach of this
Agreement and the lease granted hereunder and in the event of such material
breach MFN shall have, in addition to any and all rights and remedies, the right
to terminate this Agreement and Carrier's access to the Carrier Fibers, in each
case only with respect to the Segment affected, if such breach is not cured
within 60 days after notice from MFN to Carrier.
4.4 MFN represents and warrants that it holds and will hold during the Term all
right, title and interest in and to the Product and the Network up to the points
at which MFN's facilities end
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and Carrier's facilities begin, subject only to the grant of access and use
provided to Carrier under the terms of this Agreement, and subject to the terms
of Section 12.2.
4.5 MFN reserves the right, consistent with applicable leases or Rights-of-Way,
to utilize unused external building access and space within the conduit(s)
occupied by the Product provided that such use does not interfere with or hinder
Carrier's use of its Product as permitted hereunder or cause Carrier to have to
pay money for such use.
5. APPROVALS
5.1 Carrier Approvals. During the Term of this Agreement, Carrier shall secure
and maintain in full force and effect any and all necessary approvals, consents,
Rights-of-Way, permits, licenses, easements and leases ("Carrier Approvals") as
may be necessary (a) for Carrier's use of the Product (but not the construction,
operation or maintenance thereof) for the purpose intended by the Carrier and
(b) to endeavor to provide all requisite access to MFN to Carrier's buildings
and/or facilities in order for MFN to perform its construction, installation,
maintenance and other obligations hereunder, twenty-four (24) hours per
day/seven (7) days per week. Carrier shall provide all electricity and other
utilities available to Carrier at Carrier's locations as MFN may require to
fulfill its obligations hereunder.
5.2 MFN Approvals. During the Term, MFN shall be in material compliance with all
material applicable federal, state and local codes, ordinances, laws, rules and
regulations and, subject to Section 12.2 all agreements, licenses, easements,
Rights-of-Way, franchises, permits, orders and consents applicable to the
construction, operation and maintenance of the Network and the Product and the
transactions contemplated by this Agreement.
6. WARRANTIES
6.1 Compliance with Specifications. MFN warrants to Carrier that when first put
into Service the Network and Product will operate in accordance with the
Specifications related thereto. MFN warrants that during the Term it shall
maintain the Network and the Product so that it will comply with and operate in
accordance with the Specifications.
6.2 Disclaimer. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT, MFN
DISCLAIMS ALL WARRANTIES WHETHER EXPRESS OR IMPLIED INCLUDING ANY AND ALL
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT
TO THE (i) NETWORK OR PRODUCT, (ii) THE LEASE GRANTED PURSUANT HERETO, (iii)
MAINTENANCE SERVICE, AND (iv) CONSTRUCTION AND INSTALLATION SERVICES, IF ANY,
RELATING TO ANY LATERALS CONSTRUCTED OR OTHER CONSTRUCTION PERFORMED BY MFN FOR
CARRIER.
7. LIABILITY/INDEMNIFICATION
7.1 Liability. In no event shall either Party be liable to the other for any
incidental, indirect, special, consequential, exemplary, or punitive damages
arising out of or relating to this Agreement, the lease granted hereunder, the
Network, Product or Maintenance Service provided
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hereunder, including damages based on loss of revenues, profits or lost business
opportunities, regardless of whether the respective Party had been advised of or
could have foreseen the possibility of such damages.
7.2 Indemnity. Each Party agrees to indemnify, defend and hold the other Party,
the other Party's officers, directors, employees, agents and contractors,
harmless from and against all loss, damage, liability, cost and expense
(including reasonable attorney's fees and expenses) by reason of any claims or
actions by third parties for personal injury or other tortious act including
death, damage, loss or destruction of any real or tangible personal property
(including without limitation the Network and Product) which third party claims
arise out of or relate to any act or omission to act by such indemnifying party,
its officers, directors, agents, employees, contractors, representatives or
invitees in connection with such indemnifying party's performance or failure to
perform any term, condition or obligation under this Agreement. Carrier agrees
to so indemnify MFN from and against Carrier's use of the Product and conduct of
its business including the content of any video, voice or data carried by
Carrier or its customers through the Network and the Product.
7.3 Third Parties. Nothing contained herein shall operate as a limitation on the
right of either Party hereto to bring an action for damages of any kind against
any third party (other than the other Party's officers, directors, employees,
agents, contractors, representatives or invitees) based on any act or omission
of such third party. Each Party agrees to execute such documents and provide
such commercially reasonable assistance, at the injured Party's sole expense, as
may be reasonably necessary to enable the injured Party to pursue any such
action against such third party.
8. CONFIDENTIALITY
The Parties acknowledge and agree that certain information that each Party has
provided or will provide to the other in connection with this Agreement,
including, without limitation, the financial terms of this Agreement, the number
of fiber miles and the specific fiber routes showing the specific location of
the fiber cables within a Segment (the "Confidential Agreement Terms"), are and
will be confidential and proprietary (the "Confidential Information") to the
Party providing such information (the "Providing Party"). The Party in receipt
of the Confidential Information (the "Receiving Party") agrees not to
distribute, use or disclose to any third party the Confidential Information of
the Providing Party. Each Party will restrict dissemination of Confidential
Information to only (a) those persons who must have access to such Confidential
Information in order to perform their respective rights or obligations hereunder
or who otherwise need to know such Confidential Information in connection with
such Party's business and (b) the Party's legal, tax and accounting personnel
and advisors and those potential and existing strategic partners who have signed
a nondisclosure agreement. Notwithstanding anything herein to the contrary, the
provisions of this Section 8 shall not apply to any Confidential Information
which (a) is or becomes available to the public through no breach of this
Agreement; (b) was previously known by the Receiving Party without an obligation
to hold it in confidence; (c) is received from a third party without
restrictions regarding disclosure; or (d) is required be disclosed by applicable
law, rule, regulation, court order or legal process. Except as required by law,
rule, regulation, court or legal process or except as otherwise permitted by
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this Section 8, neither Party shall disclose any of the Confidential Agreement
Terms without the prior written consent of other Party. MFN may disclose the
identity of Carrier as a customer of MFN and Carrier may disclose the identity
of MFN as a supplier of Carrier, in each case without any additional consent
from the other Party. Carrier may also disclose to any of its customers or
potential customers Confidential Information consisting of the beginning and
ending points of the Segments of fiber routes that are the subject of this
Agreement, provided that Carrier will not disclose the specific fiber routes
showing the specific location of the fiber cables within a Segment unless
Carrier and such customer or potential customer have signed a non-disclosure
agreement agreeing not to disclose such fiber routes to others. MFN agrees not
to disclose Carrier's hub sites or collocation sites to any third party except
that MFN may disclose such hub sites or collocation sites to an assignee or
subcontractor pursuant to Section 3.5 only to the extent necessary for such
assignee or subcontractor to perform duties hereunder on behalf of MFN and
provided that such assignee or subcontractor enters into a nondisclosure
agreement with respect thereto.
9. NOTICES
9.1 Unless otherwise provided herein, all notices and communications concerning
this Agreement shall be in writing and sent to the address (and contact person)
specified in the Product Order, or at such other address as may be designated in
writing by a Party. Unless otherwise provided herein, notices shall be sent by
certified US Mail, return receipt requested, or by a commercial overnight
delivery service for next business day delivery, and will be deemed delivered,
if sent by certified US Mail return receipt requested, five (5) days after
deposit; or, if sent by commercial overnight delivery service, one (1) business
day after deposit with such service.
10. TRANSITION
10.1 For a period of 180 days prior to the expiration or termination of the Term
("Transition Period"), MFN will cooperate with Carrier in effecting the orderly
and efficient transfer to another network or transmission system of Carrier or a
third party designated by Carrier and perform such services as may be reasonably
requested by, and at the expense of, Carrier in connection with such transfer.
The terms and conditions of this Agreement shall apply to the Transition Period.
11. TERMINATION/REMEDIES/FORCE MAJEURE
11.1 Defaults. The occurrence and continuance of one or more of the following
events shall constitute a default ("Default") under this Agreement:
(a) A Party breaches any material term or condition of this Agreement (other
than a breach by MFN of Section 3.3 for which the exclusive remedy is provided
in Section 3.3 and other than a breach by Carrier specified in Section 11.1(b)
for which the remedy is provided in Section 11.1(b)) and such breach remains
uncured thirty (30) days after giving written notice of such breach to the
defaulting party by the non-defaulting; provided, however, that if the breach is
of a nature or involves circumstances taking more than thirty (30) days to cure,
the time period shall
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be extended for as long as may be reasonably necessary to cure such breach up to
a maximum of 120 days as long as the defaulting party proceeds diligently to
cure same;
(b) If Carrier fails to make any Fiber Payment when due in accordance with this
Agreement within ten (10) days of receipt of written notice of late payment from
MFN, then during the continuance of such Default MFN shall have the right to
terminate this Agreement with respect to the Segment for which the Fiber Payment
has not been made immediately without further notice to Carrier and thereafter
deny access to the applicable Segment to the Carrier.
(c) If at any time prior to the payment of all Fiber Payments, a Party applies
for or consents to the appointment of a receiver, trustee or similar officer for
it or any substantial part of its property or assets, or any such appointment is
made without such application or consent by such Party and remains undischarged
for a period of sixty (60) days; or
(d) If at any time prior to the payment of all Fiber Payments, a Party consents
to the institution of a petition, application, answer, or otherwise of any
bankruptcy, insolvency or reorganization and any such proceeding as instituted
against such Party remains undischarged for a period of sixty (60) days.
11.2 (a) Except in the case of the gross negligence or willful misconduct of a
Party hereto, and except where a specific remedy is herein provided, the sole
and exclusive liability of each Party to the other Party for any Default
pursuant to Section 11.1 (a) shall be limited to seeking damages caused by such
Default subject to the limitations set forth in this Agreement.
(b) Upon and during the continuance of a Default pursuant to Section
11.1(b) or in the event of a breach by Carrier of Section 4.3 of this Agreement
which is not cured as provided in Section 4.3, MFN shall have the right to
terminate this Agreement with respect to the Segment for which payment has not
been made or the Segment which was transferred in violation of Section 4.3, as
applicable, immediately upon notice to Carrier and thereafter to deny access to
the applicable Segment to Carrier. Notwithstanding anything in this Agreement to
the contrary, MFN shall not be entitled to terminate this Agreement or use of
any of the Carrier Fibers for any reason other than as provided in the
immediately preceding sentence.
11.3 (a) If a Default on the part of MFN has occurred and is continuing for a
period of 120 days after Carrier has given notice thereof to MFN, Carrier shall
have the right, in its sole discretion, to take such action as it may determine
to be necessary to cure the Default in the case of a Default under Section
11.1(a) or to terminate this Agreement with respect to the Segment(s) adversely
affected by such Default, subject to the limitations set forth in this
Agreement.
(b) If a Default (other than pursuant to Section 11.1 (b)) on the part of
Carrier has occurred and is continuing for a period of 120 days after MFN has
given notice thereof to Carrier, MFN shall have the right, in its sole
discretion, to take such action as it may determine to be necessary to cure the
Default, subject to the limitations set forth in this Agreement.
11.4 Intentionally Omitted.
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11.5 In the event any law, statute, ordinance, decision, order, regulation or
opinion letter issued by a governmental (federal, state or local) agency,
regulatory body, or otherwise, causes (i) material loss to MFN as a consequence
of modification to any of the terms of any material Rights-of-Way; (ii)
impairment, of MFN's control, possession and/or effective use of the Network or
ability to lease Product on a commercially reasonable basis; or (iii) a loss or
impairment of MFN's operating authority, MFN shall have the right, exercisable
in its sole discretion, to terminate the Product Order upon a minimum of 180
days prior written notice (or such longer period of notice as is practicable
under the circumstances) without liability whatsoever to Carrier or any party
claiming by, through or under Carrier other than to return to Carrier a pro rata
portion of the relevant Fiber Payment paid (if any) for the remainder of the
Initial Term or Extended Term, as applicable, as to such Segment, in proportion
to the number of fiber miles affected and shall provide the Transition Services
provided for in Section 10.
11.6 Neither Party shall be considered in breach of this Agreement resulting
from delay or prevention of such Party's performance caused by any act
attributable to an occurrence of an event of Force Majeure.
11.7 The term "Force Majeure" shall mean any cause beyond the reasonable control
of Carrier (or MFN, as applicable) including but not limited to action by
governmental authority including without limitation moratorium on any activities
related to this Agreement, third party labor dispute, flood, earthquake, fire,
lightning, epidemic, war, riot, civil disturbance, sabotage and the like. The
party affected by an event of Force Majeure (the "Affected Party") shall give
notice to the other party (the "Other Party") promptly of any occurrence or
condition which, in the Affected Party's opinion, warrants an extension of time.
Such notice will specify in detail the anticipated length of delay, the cause of
the delay, and a timetable by which any remedial measures will be implemented.
12. RIGHTS-OF-WAY; RELOCATION OF NETWORK
12.1 Rights-of-Way. "Rights-of-Way" shall mean all licenses, easements and
rights-of-way either by contract or through a franchise, approvals (regulatory
or otherwise), permits, orders, consents, franchises and all other rights
(governmental or otherwise) required to be obtained by MFN to enable it to
operate the Network, provide the Product or provide access to the Product to
Carrier under the Agreement.
12.2 MFN Warranties. MFN represents and warrants that it has, or shall use
commercially reasonable efforts to obtain by the Service Date, all Rights-of-Way
needed in order to operate the Network and to provide the Product or access
thereto to Carrier. MFN shall use commercially reasonable efforts to cause all
such Rights-of-Way to remain in effect through the Initial Term and shall use
commercially reasonable efforts to replace such Rights-of-Way, if any expire or
are terminated or discontinued during the Initial Term, with suitable
replacement Rights-of-Way including, but not limited to, Rights-of-Way
connecting the points shown on Exhibit A, but not necessarily following the same
route as followed with the prior Right-of-Way. In the event that any
Rights-of-Way are terminated or discontinued and not replaced and the loss of
such Rights-of-Way materially adversely affects the use by Carrier of the
Product, then MFN and Carrier shall mutually agree whether MFN shall either (i)
provide Carrier with additional or substitute
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fiber optic capacity on comparable portions of MFN's then existing Network
(and/or other MFN Networks, including networks belonging to or controlled by
MFN's Affiliates) equivalent to the aggregate number of fiber miles lost as a
result of loss of such Rights-of-Way, or (ii) to issue a rebate to Carrier which
rebate shall represent the pro rata portion of the Fiber Payment allocable to
the remainder of the Term in proportion to the number of fiber miles affected.
The foregoing shall be MFN's sole and exclusive liability and Carrier's sole and
exclusive remedy therefor.
12.3 If MFN receives notice of any request, intent, or plan by any third party,
including, but not limited to, a governmental entity, to relocate any portion of
MFN's Network used in the provision of the Product, MFN shall promptly notify
Carrier of such request, intent, or plan. If MFN is required by any such third
party to relocate any portion of MFN's Network used in providing the Product,
MFN shall give Carrier at least sixty (60) days (or such lesser period of notice
that MFN may have received) prior written notice of any such relocation
("Relocation Notice"). Together with the Relocation Notice, MFN shall provide an
estimate of the cost of such relocation. MFN shall relocate the Carrier Fibers,
and, to the extent MFN is not reimbursed for the cost of such relocation by a
third party, governmental entity or otherwise, Carrier shall pay its pro rata
share (i.e., Carriers' number of Carrier Fibers in the affected Network divided
by the total number of fibers in the affected Network) of the costs associated
with the relocation of the Product; except, however, to the extent that the
factors causing such relocation are under MFN's control. MFN shall use its
commercially reasonable efforts to secure an agreement for reimbursement from
any third party, governmental entity or otherwise, requiring any relocation of
the Network and the Product.
12.4 Participation in Condemnation Proceeding. In the event any portion of the
Network or the Product and/or the Rights-of-Way in or upon which the Product has
been installed, become the subject of a condemnation proceeding which is not
dismissed within one hundred eighty (180) days of the date of filing of such
proceeding and which could reasonably be expected to result in a taking by any
governmental agency or other party having the power of eminent domain for public
purpose or use, both Parties shall be entitled, to the extent permitted under
applicable law, to participate any condemnation proceedings to seek to obtain
compensation by either joint or separate awards for the economic value of their
respective interests in the Carrier Fibers that are subject to such condemnation
proceeding.
12.5 Notice of Condemnation Proceedings. Upon receipt by MFN of a formal notice
of condemnation or taking, affecting the Product, the Network or any Carrier
Fibers included in any Lateral Extension, or any Right-of-Way, MFN shall give
notice to Carrier. MFN shall also notify Carrier of any similar threatened
condemnation proceeding and agrees not to sell the Carrier Fibers and/or
Rights-of-Way to such acquiring agency, authority or other party in lieu of
condemnation without prior written notice to Carrier.
12.6 Except as specifically provided in this Section 12, MFN shall not be
required to obtain, extend or renew any Rights-of-Way during the Term of this
Agreement.
13. INSTALLATION OF DARK FIBER OPTIC CABLE
MFN shall terminate the fiber at an MFN Point of Presence or at the end of a
Lateral Extension provided by MFN to Carrier under the terms of this Agreement.
-13-
<PAGE>
14. INSURANCE.
Each of MFN, any contractor and any subcontractor shall procure and maintain, at
its own cost and expense, the following types of insurance and coverage during
the Term of this Agreement:
Type of Insurance Minimum Amount
- ----------------- --------------
(1) Worker's compensation and all occupational As required by State law
disease
(2) Employer's liability including all $100,000 per occurrence
occupational disease when not so covered by
Worker's compensation above
(3) Commercial General Liability (comprehensive) $1,000,000 per
including contractual liability, product and occurrence and annual
completed operations, business interruption, bodily aggregate
injury and property damage combined
(4) Automobile liability (comprehensive), bodily $1,000,000 per
injury and property damage combined occurrence
(5) Umbrella liability $10,000,000 per
occurrence and annual
aggregate
MFN shall issue to Carrier an insurance certificate and a copy of
such policies, naming Carrier as an additional insured as to (3) and (5) above.
All such insurance policies shall be issued by an insurer duly licensed and
authorized to conduct insurance business in New York and having a policyholder's
and financial rate of "AIX" or better. At least thirty (30) days prior to the
expiration of any policy, MFN shall furnish paid receipts and other evidence
satisfactory to Carrier that such policy has been renewed or replaced. In
addition, all policies shall be written so as to require ten (10) days' prior
written notice delivered to Carrier for any cancellation or termination.
Carrier shall maintain Commercial General Liability Insurance
(comprehensive) of at least $3,000,000 per occurrence and annual aggregate,
which shall name MFN as an additional insured. MFN and Carrier shall comply with
the insurance requirements, if any, in any Right-of-Way agreements applicable to
the Network. The undertakings of MFN with respect to insurance shall not relieve
MFN of its obligations in this Agreement, including without limitation, Section
7.2 hereof or Carrier of any of its obligations contained in this Agreement.
15. GOVERNING LAW
15.1 THIS AGREEMENT WILL BE INTERPRETED AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ITS PRINCIPLES
OF CONFLICTS OF LAWS.
-14-
<PAGE>
16. SURVIVAL
The Parties' respective representations, warranties, and covenants, together
with obligations of indemnification, confidentiality and limitations on
liability will survive the expiration, termination or rescission of this
Agreement and continue in full force and effect.
17. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the Parties hereto with
respect to the subject matter hereof and supersede any and all prior
negotiations, understandings, and agreement with respect hereto, whether oral or
written.
18. REMEDIES CUMULATIVE
Except as otherwise expressly provided, the rights and remedies set forth in
this Agreement shall be in addition to, and cumulative of, all other rights and
remedies at law or in equity.
19. REPRESENTATIONS, WARRANTIES AND COVENANTS
19.1 Representations, Warranties and Covenants. Each Party represents, warrants
and covenants to the other that (a) it is a corporation, duly organized, validly
existing and in good standing under the laws of the state of its organization,
(b) it has all requisite power and authority to enter into and perform its
obligations under this Agreement, (c) this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action on its part, and (d) this Agreement, when executed,
will become the legal, valid and binding obligation of such Party.
19.2 Subject to the terms and conditions of this Agreement, MFN represents,
warrants and covenants that during the Term, Carrier will have quiet enjoyment
of the Product without any interruption or disturbances from MFN or anyone
claiming by, through or under MFN (including, without limitation, any Permitted
Assignee).
19.3 No Rejection. In the context of any potential bankruptcy, insolvency or
other similar proceeding relating to MFN, it is the position of the Parties that
upon payment by Carrier of the total Fiber Payments (or any portion thereof then
due), and any Applicable Taxes then due, Carrier will have then fully performed
this Agreement and MFN shall have no right to, and MFN agrees that it shall not,
take any action seeking to reject this Agreement for any reason whatsoever, in
any bankruptcy, insolvency or similar proceeding.
20. ASSIGNMENT
20.1 Except as otherwise provided in Section 20.2, neither MFN nor Carrier may
assign this Agreement, in whole or in part except by operation of law, without
prior written consent of the other party, which consent shall not be
unreasonably withheld or delayed, and except as consistent with regulatory
authorizations.
-15-
<PAGE>
20.2 Either Party may assign this Agreement in whole, but not in part, to a
Permitted Assignee. As used herein the term "Permitted Assignee" shall mean (a)
any Affiliate (as hereinafter defined) of either Party, (b) any Person which
purchases all or substantially all the assets of Party, or any Person formed by
or surviving the merger or consolidation of Party and any other person or (c)
any institutional creditor to whom this Agreement is assigned as collateral
security for any indebtedness of either Party or any Affiliate of such Party,
provided that such collateral assignment is subject to the terms of this
Agreement. Upon any assignment hereunder the assignor shall remain responsible
for performance under this Agreement. Any Permitted Assignee pursuant to
subparagraph (a) or (b) of this Section 20.2 shall expressly assume all
obligations and liabilities with respect to the Agreement which arise after the
effective date of assignment or transfer prior to or upon the effectiveness of
such assignment and, in the case of an assignment as provided in subparagraph
(c) of this Section 20.2, in the event the institutional creditor exercises its
rights with respect to this Agreement it shall expressly assume all obligations
and liabilities with respect to the Agreement which arise thereafter. As used
herein, the term Affiliate shall mean, with respect to any Person, any other
Person who, directly or indirectly, controls, is controlled by, or is under
common control with that Person. As used in this definition, "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of a Person, whether by way of equity
ownership, contract or otherwise.
21. MISCELLANEOUS
21.1 The covenants, undertakings, and agreements set forth in this Agreement
shall be binding upon and solely for the benefit of and will be enforceable only
by the Parties hereto or their respective successors or permitted assigns.
21.2 The headings of the Sections in this Agreement are strictly for convenience
and shall not in any way be construed as amplifying or limiting any of the
terms, provisions or conditions thereof.
21.3 In the event any term of this Agreement is held invalid, illegal or
unenforceable, in whole or in part, neither the validity of the remaining part
of such term nor the validity of the remaining terms of this Agreement will be
in any way affected thereby.
21.4 This Agreement may be amended only by a written instrument executed by the
Parties.
21.5 No failure to exercise and no delay in exercising, on the part of either
Party hereunder, any right, power or privilege hereunder will operate as a
waiver hereof, except as expressly provided herein.
21.6 This Agreement may be executed in multiple counterparts, all of which taken
together will constitute one and the same instrument.
21.7 No Brokers. MFN and Carrier each represent and warrant to the other that it
has not retained any broker, finder, investment banker or other similar person
or entity who is entitled to any brokerage fee, finder's fee or other similar
fee or commission in connection with the transactions contemplated in this
Agreement.
-16-
<PAGE>
21.8 Relationship of the Parties. Nothing in this Agreement shall constitute the
Parties as partners or joint ventures or otherwise related in any way, and
neither Party has any right under this Agreement to bind or commit the other in
any way to any third party.
21.9 Most Favored Nations. MFN agrees to treat Carrier on a Most Favored Nations
basis for the period of 18 months from the date of this Agreement. MFN warrants
that all financial terms, warranties, provisions regarding duration, termination
or expiration and other terms and conditions contained in this Agreement, taken
as a whole, are equivalent to or better than the terms and provisions offered by
MFN to its current customers (excluding any Federal, state or local government
or agency thereof who is given more favorable terms as part of the granting of a
franchise or if such terms are specifically required by applicable procurement
laws or regulations). If during said 18 month period MFN enters into any other
agreement(s) with any other customer(s) (excluding any Federal, state or local
government or agency thereof who is given more favorable terms as part of the
granting of a franchise or if such terms are specifically required by applicable
procurement laws or regulations) providing such customer(s) with more favorable
terms, taken as a whole, then this Agreement shall be deemed appropriately
amended to provide such more favorable terms to Carrier, unless Carrier elects,
in writing, to reject such new term(s) or provision(s). MFN shall promptly
provide Carrier with any refund or credits thereby created.
IN WITNESS WHEREOF, the Parties have duly executed and delivered this
Agreement as of the day and year first above written.
WINSTAR WIRELESS, INC.
By: ___________________________________
Name: CZ Czerner
Title: Senior VP, Corporate Development
METROMEDIA FIBER NETWORK SERVICES,
INC.
By: ___________________________________
Name: Howard M. Finkelstein
Title: President
-17-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 202,468,000
<SECURITIES> 274,453,000
<RECEIVABLES> 124,852,000
<ALLOWANCES> 0
<INVENTORY> 23,242,000
<CURRENT-ASSETS> 707,604,000
<PP&E> 1,415,464,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,767,405,000
<CURRENT-LIABILITIES> 399,096,000
<BONDS> 1,885,013,000
423,477,000
46,000
<COMMON> 548,000
<OTHER-SE> (309,518,000)
<TOTAL-LIABILITY-AND-EQUITY> 2,767,405,000
<SALES> 0
<TOTAL-REVENUES> 304,133,000
<CGS> 0
<TOTAL-COSTS> 224,850,000
<OTHER-EXPENSES> 421,016,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 154,011,000
<INCOME-PRETAX> (478,985,000)
<INCOME-TAX> (3,000,000)
<INCOME-CONTINUING> (475,985,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (475,985,000)
<EPS-BASIC> (10.47)
<EPS-DILUTED> (10.47)
<FN>
(1) Receivables are net of allowance for doubtful accounts.
(2) PP&E are net of accumulated depreciation.
</TABLE>
