SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) November 7, 2000
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WINSTAR COMMUNICATIONS, INC.
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(Exact Name of Registrant as Specified in Charter)
Delaware 1-10726 13-3585278
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(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
685 Third Avenue, New York, New York 10017
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (212) 792-9800
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Not Applicable
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(Former Name or Former Address, if Changed Since Last Report)
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ITEM 5. OTHER EVENTS
A. Offering of Preferred Stock and Warrants
General
On November 7, 2000, Winstar Communications, Inc. ("Company" or
"Winstar") and its wholly-owned subsidiary, Winstar Credit Corp. ("WCC"),
entered into a Securities Purchase Agreement ("Purchase Agreement") with Credit
Suisse First Boston Equity Partners, L.P. ("CSFB"), Welsh, Carson, Anderson &
Stowe VIII, L.P. ("WCAS"), Microsoft Corporation ("Microsoft"), CPQ Holdings,
Inc., a wholly-owned subsidiary of Compaq Computer Corporation ("Compaq"), and
the other purchasers listed on the signature pages thereto (collectively and
together with certain other purchasers to be identified prior to closing, the
"Purchasers"), pursuant to which the Company and WCC agreed to sell to the
Purchasers an aggregate of 270,000 shares of the Company's Series H Senior
Cumulative Participating Convertible Preferred Stock ("Series H Stock") and
warrants to purchase an aggregate of 4,590,000 shares of Common Stock
("Warrants" and, together with the Series H Stock, the "Securities") for an
aggregate purchase price of $270,000,000. The closing of the purchase is
expected to take place in December 2000 after the satisfaction of certain
closing conditions described below.
The Series H Stock, which will vote on an as-converted basis with the
Company's Common Stock, 6% Series A Cumulative Convertible Preferred Stock
("Series A Stock") and Series G Senior Cumulative Participating Convertible
Preferred Stock ("Series G Stock" and, with the Common Stock, Series A Stock and
Series H Stock, the "Voting Securities"), and the Warrants, will represent, on
an after-issued basis, beneficial ownership of approximately 14.3% of the
Company's outstanding Common Stock, 8.4% of the Company's outstanding Voting
Securities (based upon the number of votes and assuming that the Warrants are
not exercised), and approximately 8.7% of the Company's fully diluted Common
Stock.
In February 2000, CSFB, WCAS and Microsoft and certain of their
affiliates purchased 900,000 shares of the Company's Series G Stock for an
aggregate purchase price of $900,000,000 and such purchasers (or their
affiliates) continue to hold such securities. Based on each party's holdings of
the Company's Series G Stock and Series H Stock, after the consummation of the
Purchase Agreement, CSFB, WCAS and Microsoft will own approximately 10.7%, 6.7%
and 6.7%, respectively, of the Company's Voting Securities (based upon the
number of votes and assuming that the Warrants are not exercised).
Terms of the Series H Stock
Dividends
If any cash dividends are paid on the Common Stock, the holders of
Series H Stock shall be entitled to receive such cash dividends on an
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as-converted basis. In addition, the Series H Stock pays cumulative dividends at
a rate equal to the excess (if any) of (i) 12.5% per annum on its liquidation
preference over (ii) the amount of any regular cash dividends per share of
Series H Stock that have been paid during the applicable dividend period on the
Common Stock. Such dividends shall be payable quarterly in arrears on March 15,
June 15, September 15 and December 15 of each year to the record holders of the
Series H Stock as of March 1, June 1, September 1 and December 1. The Company
has the option to pay these dividends in cash or by adding the amount of the
dividend to the liquidation preference of the Series H Stock ("Accretion of
Liquidation Preference").
Conversion
Each share of Series H Stock is convertible into shares of Common Stock
(the "Conversion Shares") at an initial conversion price ("Conversion Price") of
$25.00 per Conversion Share1, subject to certain "structural" anti-dilution
adjustments (i.e., adjustments for a stock split, combination, reclassification
or other similar event involving the Common Stock) and weighted average
anti-dilution adjustments for issuances of securities at a price less than the
Conversion Price for the first two years after the closing and thereafter at a
price less than the Current Market Price ("Anti-Dilution Protection
Provisions"). "Current Market Price" means, as of any date, the volume-weighted
average trading price of the Common Stock on Nasdaq for the 20 consecutive
trading days immediately prior to such date. The Company will have the option to
convert all of the shares of Series H Stock into Common Stock at the Conversion
Price if, on or after the fourth anniversary of the date of issuance of the
Series H Stock, the Current Market Price is at least equal to 155% of the
"conversion price" (as defined in the Series G Stock Certificate of
Designations) of the Series G Stock on such date. The conversion price of the
Series G Stock is currently $45.00 and 155% thereof is $69.75.
Liquidation, Dissolution or Winding up
In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Company, before any payment or distribution of the
Company's assets are made to the holders of Junior Securities (as defined
below), holders of Series H Stock will be entitled to receive an amount per
share equal to the greater of (i) the accreted value of the Series H Stock on
such date, plus all dividends accrued to such date (whether or not earned or
declared) since the end of the previous dividend period and (ii) the amount that
would have been payable on a number of shares of Common Stock equal to the
number of Conversion Shares into which a share of Series H Stock was convertible
immediately prior to such date. Holders of Series H Stock will not be entitled
to any further payment. If the assets of the Company distributable among the
holders of Series H Stock are insufficient to pay in full the preferential
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1 The closing sale price of the Common Stock on the date the Purchase
Agreement was executed was $22.375 per share.
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amount and liquidating payments on any Parity Securities (as defined below),
then such assets will be distributed among the holders of Series H Stock and any
such Parity Securities ratably in accordance with the respective amounts that
would be payable if all amounts payable thereon were paid in full.
Ranking
With respect to dividend rights and rights on liquidation, dissolution
and winding up, the Series H Stock will rank (i) senior to the Company's Common
Stock, Series A Stock, Series E Junior Convertible Preferred Stock and each
other class or series of capital stock established in the future by the
Company's Board of Directors, the terms of which do not expressly provide that
it ranks senior to, or on a parity with, the Series H Stock (collectively, the
"Junior Securities") and (ii) on a parity with the Company's Series D 7% Senior
Cumulative Convertible Preferred Stock Due 2010, Series F 7 1/4% Senior
Cumulative Convertible Preferred Stock, Series G Stock and each other class or
series of capital stock established in the future by the Company's Board of
Directors, the terms of which expressly provide that such class or series will
rank on a parity with the Series H Stock (collectively, the "Parity
Securities"). The Company may not issue any equity securities that are senior to
the Series H Stock without the consent of the holders of the Series H Stock.
Redemption
On April 1, 2010, the Company will be required to redeem all of the
outstanding shares of Series H Stock at a redemption price per share equal to
the greater of (i) the accreted value of the Series H Stock on such date, plus
all dividends accrued to such date (whether or not earned or declared) since the
most recent dividend payment date and (ii) the Current Market Price on April 1,
2010 multiplied by the number of Conversion Shares into which a share of Series
H Stock is convertible on such date. The Company has the option to pay the
redemption price in cash or in shares of Common Stock. If the Company elects to
pay the redemption price, in whole or in part, in shares of Common Stock, such
shares will be valued at 97% of the Current Market Price on April 1, 2010. If
the Company determines to pay the redemption price in shares of Common Stock,
the Company has agreed to use its best efforts to register such shares under the
Securities Act of 1933, as amended, prior to the delivery of such shares.
Change of Control
In the event of a "change of control" (as defined in the Series H Stock
Certificate of Designations) of the Company, the Company will make an offer to
purchase all outstanding shares of Series H Stock at a purchase price equal to
the "change of control amount" (as defined in the Series H Stock Certificate of
Designations) on such date. The Company has the option to pay the change of
control amount in cash or shares of Common Stock. If the Company elects to pay
the applicable change of control amount in shares of Common Stock, such shares
will be valued at the Current Market Price on the date the change of control
amount is paid. If the Company determines to pay the change of control amount in
shares of Common Stock, the Company has agreed to use its best efforts to
register such shares prior to the delivery of such shares.
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Voting Rights
Each holder of Series H Stock will be entitled to vote with the Common
Stock on all matters and will be entitled to that number of votes equal to the
number of Conversion Shares into which such holder's shares of Series H Stock
could be converted on the record date for the determination of shareholders
entitled to vote on such matter or, if no such record date is established, on
the date such vote is taken or any written consent of shareholders is solicited.
In addition, so long as any of the Series H Stock is outstanding, the
affirmative vote of the holders of a majority of the outstanding shares of
Series H Stock, voting together as a single class, will be necessary to: (i)
amend, alter or repeal any provision of the Company's Restated Certificate of
Incorporation or By-laws so as to adversely affect the Series H Stock, (ii)
issue any additional Series H Stock or create, authorize or issue any capital
stock that ranks senior (whether with respect to dividends or upon liquidation,
dissolution, winding up or otherwise) to the Series H Stock or (iii) redeem for
cash any Junior Securities, subject to certain exemptions.
Terms of the Warrants
The Warrants allow the holders to purchase up to an aggregate of
4,590,000 shares of the Company's Common Stock at an initial exercise price
("Exercise Price") of $25.00 per share. The Warrants are exercisable upon the
earlier of (i) 180 days from the date of issuance and (ii) the date on which a
change of control occurs. The Warrants expire on the fifth year anniversary of
the date of issuance. The Warrants contain the same Anti-Dilution Protection
Provisions as the Series H Stock. Additionally, if on the first anniversary of
the date of issuance, the Current Market Price is less than $25, the Exercise
Price shall be reduced to such Current Market Price. If, on any date after the
sixth month anniversary of the date of issuance, the Current Market Price equals
or exceeds 155% of the conversion price of the Series G Stock (currently
$69.75), the Company may, by written notice, require the Warrants to be
exercised or exchanged within 30 days after the delivery of such notice.
Shareholders Agreements
Concurrently with the closing of the transaction, CSFB and its affiliated
co-investment partners, WCAS and its affiliated co-investment partners and
Microsoft will enter into separate Amended and Restated Shareholders Agreements
with the Company and Compaq will enter into a Shareholders Agreement with the
Company. Pursuant to their respective Amended and Restated Shareholders
Agreements, each of the CSFB Entities, the WCAS Entities and Microsoft (a) will
agree that until the earlier of February 1, 2010 or the date on which such party
owns less than 20% of its initial holdings of Series G Stock or Series H Stock,
such party will not purchase any additional voting securities of the Company
without the Company's prior written consent and (b) the Company will grant to
each party customary demand and "piggyback" registration rights. The
Shareholders Agreement with Compaq also provides for certain limited demand and
"piggyback" registration rights. Additionally, pursuant to each of the
respective shareholders agreements, each Purchaser will agree, subject to
certain exceptions, not to transfer shares of its Series H Stock, Series G
Stock, Warrants or the underlying Common Stock without the consent of the
Company to a single holder or group of related holders if such Purchaser knows
or has reason to believe after asking such holder or group of holders, that as a
result thereof such holders or group of related holders would beneficially own
more than 5% of the Company's outstanding common stock on a fully diluted basis.
Pursuant to their respective Amended and Restated Shareholders
Agreements, each of WCAS and CSFB is entitled to designate one director nominee
to the Company's Board of Directors as long as it continues to own at least 40%
of its initial holdings of Series H Stock or Series G Stock. For so long as each
of WCAS and CSFB has the right to designate a director nominee to the Company's
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Board of Directors, each shall also have the right to have such director
appointed to the Compensation Committee (in the case of WCAS) and the Audit
Committee (in the case of CSFB) of the Company's Board of Directors. At each
meeting of the Company's Board of Directors (or any committee thereof) attended
by the director nominee of WCAS or CSFB, such director nominee may be
accompanied by one individual (who shall not have any voting rights) selected by
such director nominee. At such time as each of WCAS and CSFB no longer has the
right to designate a director nominee to the Company's Board of Directors, and
so long as it continues to own 20% of its initial holdings of Series H Stock or
Series G Stock, it will be entitled to designate a non-voting observer to the
Company's Board of Directors. Each of WCAS, CSFB and Compaq will also be
entitled to receive certain financial information regarding the Company in order
to monitor its equity interest in the Company so long as it continues to own 20%
of its initial holdings of Series H Stock or Series G Stock.
Closing Conditions
The closing of the purchase of the Securities is subject to the
satisfaction of customary closing conditions for a transaction of this type.
Additionally, the Company must obtain the approval of the Term Loan C and
related amendment to its Senior Secured Credit Agreement (as described below)
from a majority in interest of the lenders under such agreement. The Company
anticipates satisfying all closing conditions and consummating this transaction
during the fourth quarter of 2000.
B. Equipment Leasing Facilities
On November 7, 2000, a subsidiary of the Company ("CSC Lessee"),
entered into an equipment leasing arrangement with Cisco Systems Capital
Corporation ("CSC Lessor"), a subsidiary of Cisco Systems Inc., pursuant to
which the CSC Lessor has committed to provide equipment lease financing to the
CSC Lessee for purchases of equipment and related services from Cisco (the
"CSC Lease Financing"). CSC Lessee's obligations under the CSC Lease Financing
are guaranteed by the Company and WCI Capital Corp., a subsidiary of the
Company.
CSC Lessor has agreed to provide up to $500 million of CSC Lease
Financing, of which $125 million is immediately available. An additional $125
million becomes available at such time as the Company raises $250 million of
additional equity capital (which will occur with the issuance of the Series H
Stock described above) or in certain other events. A second additional tranche
of $125 million of CSC Lease Financing becomes available to the Company at such
time as the Company raises an additional $250 million of equity capital or in
certain other events and a third additional tranche of $125 million of CSC Lease
Financing becomes available to the Company at such time as the Company raises
a further additional $250 million of equity capital or in certain other events.
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Also on November 7, 2000, the Company obtained a commitment from Compaq
Financial Services Corporation, a subsidiary of Compaq Computer Corporation
("CPQ Lessor"), to provide up to $50 million of equipment lease financing to the
Company or a subsidiary of the Company ("CPQ Lessee"), for purchases of
equipment and related services from Compaq. The utilization of this facility is
subject to certain conditions, including the execution of definitive lease
documentation and the completion of due diligence by CPQ Lessor, all of which
conditions the Company expects to have satisfied during the fourth quarter of
2000.
C. Additional Senior Secured Financing
The Company has received a commitment for a new $200 million Term Loan
C (the "Term Loan C") to be made under the Revolving Credit and Term Loan
Agreement, dated as of May 4, 2000, among WCI Capital Corp., as borrower,
the Company and certain subsidiaries, as guarantors, the Lenders from
time to time parties thereto, The Bank of New York, as Letter of Credit Issuer,
Administrative Agent and Collateral Agent for the Lenders and certain other
parties in other capacities (as heretofore amended, the "Credit Agreement"). The
new loan will become effective upon appropriate amendments to the existing
facility agreement being signed by the parties, including a majority in interest
of the existing lenders under the facility. Closing of the Term Loan C will be
subject to certain customary closing conditions. We expect to close this
transaction during the fourth quarter of 2000.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
AND EXHIBITS.
(c) Exhibits
4.1 Purchase Agreement, dated as of November 7, 2000,
among the Company, WCC and the Purchasers (without
exhibits)*
4.2 Form of Certificate of Designations, Preferences and
Rights of Series H Senior Cumulative Participating
Convertible Preferred Stock*
4.3 Form of Amended and Restated Shareholders Agreement
to be entered into separately with the Company by
each of (i) CSFB and its affiliated co-investment
partners, (ii) WCAS and its affiliated co-investment
partners and (iii) Microsoft*
4.4 Form of Shareholders Agreement to be entered into
with the Company by Compaq*
4.5 Form of the Warrants*
99.1 Press Release, dated November 7, 2000*
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* To be filed by Amendment
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: November 14, 2000
WINSTAR COMMUNICATIONS, INC.
By: /s/ Kenneth J. Zinghini
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Kenneth J. Zinghini
Senior Vice President
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EXHIBIT INDEX
The following exhibits are filed as part of this report:
Exhibit Document
4.1 Purchase Agreement, dated as of November 7, 2000, among the Company, WCC
and the Purchasers (without exhibits)*
4.2 Form of Certificate of Designations, Preferences and Rights of Series H
Senior Cumulative Participating Convertible Preferred Stock*
4.3 Form of Amended and Restated Shareholders Agreement to be entered into
separately with the Company by each of (i) CSFB and its affiliated
co-investment partners, (ii) WCAS and its affiliated co-investment
partners and (iii) Microsoft*
4.4 Form of Shareholders Agreement to be entered into with the Company by
Compaq*
4.5 Form of the Warrants*
99.1 Press Release, dated November 7, 2000*
___________________________
* To be filed by Amendment
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