SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
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) October 8, 1996
---------------
WINSTAR COMMUNICATIONS, INC.
--------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Delaware 1-10726 13-3585278
- ---------------------------- ------------- --------------------
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
230 Park Avenue, New York, New York 10169
- ---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (212) 687-7577
--------------
Not Applicable
-------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
Exhibit Index -- Page 19
Page 1 of 21 Pages
<PAGE>
Item 2. Acquisition or Disposition of Assets.
On April 1, 1996, WinStar Communications, Inc. ("WinStar"),
WinStar Locate, Inc., a subsidiary of WinStar ("WinStar Locate"), MobileMedia
Corporation ("MobileMedia"), and Local Area Telecommunications, Inc., a
wholly-owned subsidiary of MobileMedia ("Locate"), executed a Purchase and Sale
Agreement (the "Agreement"), pursuant to which WinStar Locate was to acquire
(the "Locate Asset Purchase") from Locate all assets comprising its business as
a competitive access provider of local digital microwave distribution services
and facilities to corporations and long distance and other common carriers,
except for assets relating to the telephone switching operation of Locate
providing local exchange carrier services in New York City (the "Business").
Among Locate's key assets are two 38 GHz licenses, each providing 100 MHz of
bandwidth, for the New York City metropolitan area, including Long Island and
Northern New Jersey. In addition, Locate, together with its existing customers,
has access to the roofs of numerous buildings, including the World Trade Center
and other key sites in New York City.
Simultaneously with the execution of the Agreement, WinStar,
WinStar Wireless, Inc., a wholly-owned subsidiary of WinStar, and Locate entered
into a service agreement (the "Service Agreement") for a term commencing in
April 1996 and terminating upon the earlier to occur of (i) the Closing Date (as
defined below) or (ii) termination of the Agreement. Pursuant to the Service
Agreement, WinStar, directly or through its subsidiaries, agreed to perform
certain consulting and related services for Locate in connection with the
Business. As full compensation for WinStar's performance of such services,
Locate agreed to pay WinStar a fee of $125,000 per month during the term of the
Service Agreement, subject to certain adjustments.
Consummation of the Locate Asset Purchase was subject to
certain closing conditions including (i) expiration or termination of the
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and (ii) consent of the Federal Communications Commission and
certain state agencies to the transfer of control of, or the assignment of,
certain licenses and other authorizations to conduct the Business.
Prior to the Closing Date, Locate assigned all of its rights
and obligations under the Agreement to Locate, L.L.C. ("Locate LC"), a Delaware
limited liability company in which MobileMedia and Locate are members and Locate
Manager, Inc. is a managing member. Accordingly, the Agreement was amended to
include Locate LLC as a party, with Locate remaining a party and continuing to
be liable thereunder.
The parties closed the transaction on October 8, 1996
("Closing Date"). The purchase price for the assets comprising the Business was
$17,500,000, which was paid in the form of a promissory note ("Note") due April
8, 1997 and bearing interest at the rate of 8% per annum. WinStar may convert
the Note, in whole but not in part, at its election, into that number of shares
("Conversion Shares") of common stock of WinStar ("Common Stock") equal to (i)
the principal amount and all accrued and unpaid interest on the Note divided by
(ii) the average of the closing prices of the Common Stock for the five days
ending on the date on which WinStar gives written notice of its decision to
convert the Note. Locate LLC has no rights of conversion. In the event that
WinStar elects to convert the Note into Conversion Shares, it has agreed that,
prior to such conversion, it would have declared effective a registration
statement providing for the resale of the Conversion Shares.
2
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Business Acquired.
Report of Independent Auditors
The Board of Directors and Shareholders
Local Area Telecommunications, Inc.
We have audited the accompanying balance sheets of the Microwave
Division of Local Area Telecommunications, Inc. as of December 31, 1995 and
1994, and the related statements of operations, divisional (deficit) surplus and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of the Microwave
Division of Local Area Telecommunications, Inc. at December 31, 1995 and 1994,
and the results of its operations and its cash flows for the years then ended,
in conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, the Microwave
Division's recurring losses from operations and divisional deficit raise
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustment that might result from the
outcome of this uncertainty. As also discussed in Note 1, on April 1, 1996, the
Company entered into an agreement to sell certain of the assets of the Microwave
Division to WinStar Communications, Inc.
Ernst & Young LLP
MetroPark, New Jersey
April 9, 1996
3
<PAGE>
The Microwave Division of
Local Area Telecommunications, Inc.
Balance Sheets
<TABLE>
<CAPTION>
December 31,
June 30, 1996 ------------------------------------
-------------- 1995 1994
(Unaudited) ---- ----
<S> <C> <C> <C>
ASSETS
Current assets
Cash...................................... $ 35,419 $ 441,994 $ 1,772,460
Accounts receivable, net of
allowance for doubtful accounts
of $95,000, $90,000 and $73,000
at June 30, 1996 and December
31, 1995 and 1994....................... 611,828 538,269 526,391
Inventories............................... 3,402,454 3,353,641 2,895,981
Prepaids and other current assets......... 130,974 171,752 619,885
---------- ---------- ----------
Total current assets........................ 4,180,675 4,505,656 5,814,717
Property and equipment, net................. 8,799,170 10,015,056 11,531,900
Security deposits........................... 85,029 83,308 85,164
---------- ---------- ----------
Total assets................................ $13,064,874 $14,604,020 $17,431,781
========== ========== ==========
LIABILITIES AND DIVISIONAL
(DEFICIT) SURPLUS
Current liabilities
Accounts payable and accrued
expenses................................ $ 813,722 $ 874,001 $ 1,945,129
Obligations under capital leases.......... 54,799 107,816 65,535
Interest payable.......................... 2,528,013 1,645,708 641,579
Notes payable............................. 17,300,000 17,300,000
---------- ---------- ----------
Total current liabilities................... 20,696,534 19,927,525 2,652,243
Capital lease obligations, less
current portion........................... 233,862 233,862 210,295
Long-term debt.............................. 25,000 25,000 13,050,000
---------- ---------- ----------
Total liabilities........................... 20,955,396 20,186,387 15,912,538
Divisional (deficit) surplus............... (7,890,522) (5,582,367) 1,519,243
---------- ---------- ---------
Total liabilities and divisional
(deficit) surplus......................... $13,064,874 $14,604,020 $17,431,781
========== ========== ==========
</TABLE>
See accompanying notes.
4
<PAGE>
The Microwave Division of
Local Area Telecommunications, Inc.
Statements of Operations
<TABLE>
<CAPTION>
Six Months Ended June 30, Year ended December 31,
-------------------------- ---------------------------
1996 1995 1995 1994
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Sales of communications services......... $ 1,900,607 $2,043,513 $ 4,264,664 $ 4,946,988
Sales of communications systems.......... 578,904 1,517,031 2,656,718 1,842,828
Installation charges..................... 49,667 120,479 169,165 88,151
---------- --------- ---------- ----------
2,529,178 3,681,023 7,090,547 6,877,967
Operating expenses
Network services......................... 1,337,081 1,286,991 2,320,374 2,381,922
Cost of systems sold..................... 391,744 1,093,815 1,714,429 1,302,601
Selling, general and administrative...... 872,202 1,016,857 2,582,894 2,780,982
Depreciation and amortization............ 1,280,152 1,345,046 2,784,156 2,608,765
---------- --------- ---------- ----------
3,881,179 4,742,709 9,401,853 9,074,270
---------- --------- ---------- ----------
Loss from operations....................... (1,352,001) (1,061,686) (2,311,306) (2,196,303)
Other income (expense)
Interest income.......................... 4,784 6,091 11,736 7,370
Interest expense......................... (960,938) (720,788) (1,587,851) (1,012,434)
---------- ---------- ---------- ----------
(956,154) (714,697) (1,576,115) (1,005,064)
---------- ---------- ---------- ----------
Net loss................................. $(2,308,155) $(1,776,383) $(3,887,421) $(3,201,367)
========== ========== ========== ==========
</TABLE>
See accompanying notes.
5
<PAGE>
The Microwave Division of
Local Area Telecommunications, Inc.
Statements of Divisional (Deficit) Surplus
Six months ended June 30, 1996 and
years ended December 31, 1995 and 1994
Divisional surplus at December 31, 1993......................... $ 4,692,407
Net loss...................................................... (3,201,367)
Net activity with Locate...................................... 28,203
Divisional surplus at December 31, 1994......................... 1,519,243
Net loss...................................................... (3,887,421)
Net activity with Locate.......................... ........... (3,214,189)
----------
Divisional deficit at December 31, 1995......................... (5,582,367)
Net loss (unaudited)........................................ . (2,308,155)
----------
Divisional deficit at June 30, 1996 (unaudited)................. $(7,890,522)
See accompanying notes.
6
<PAGE>
The Microwave Division of
Local Area Telecommunications, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended June 30, Year Ended December 31,
--------------------------------- --------------------------------
1996 1995 1995 1994
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Operating activities
- --------------------
Net loss........................ $(2,308,155) $(1,776,383) $(3,887,421) $(3,201,367)
Adjustments to
reconcile net loss to net
cash used in operating
activities
Depreciation and
amortization.............. 1,280,152 1,345,046 2,784,156 2,608,765
Changes in assets and
liabilities
Accounts receivable......... (73,559) (110,217) (11,878) 142,512
Inventory................... (48,813) (20,839) (457,660) (228,059)
Prepaids and other.......... 39,057 20,061 449,989 (291,231)
Accounts payable and
accrued expenses.......... (60,279) (18,533) (1,071,128) (223,308)
Interest payable............ 882,305 225,737 1,004,129 2,918
--------- --------- ---------- ----------
Net cash used in operating
activities.................... (289,292) (335,128) (1,189,813) (1,189,770)
--------- --------- ----------- ----------
Investing activities
- --------------------
Capital expenditures............ (64,266) (794,892) (1,164,712) (432,099)
--------- --------- ----------- ----------
Net cash used in investing
activities.................... (64,266) (794,892) (1,164,712) (432,099)
--------- --------- ----------- ----------
Financing activities
- --------------------
Payments made under
capital lease obligation...... (53,017) (35,247) (36,752) (20,471)
Proceeds from issuance of
short term debt............. 1,500,000
Payments made on short term
debt....................... (25,000)
Payments made on long-
term debt..................... (25,000) (7,500,000)
Proceeds from issuance of
long-term debt................ 4,300,000 10,500,000
Payments to Locate.............. (2,820,449) (6,073,442) (3,109,794)
Payments from Locate............ 1,147,035 2,859,253 2,952,997
--------- --------- ---------- ----------
Net cash provided by (used
in) financing activities...... (53,017) (233,661) 1,024,059 2,822,732
--------- --------- ---------- ----------
Net (decrease) increase in
cash.......................... (406,575) (1,363,681) (1,330,466) 1,200,863
Cash at beginning of period..... 441,994 1,772,460 1,772,460 571,597
--------- --------- ---------- ----------
Cash at end of period........... $ 35,419 $ 408,779 $ 441,994 $1,772,460
========= ========= ========= =========
Non-cash financing activities
- -----------------------------
Acquisition of equipment
under capital leases.......... $ 102,600 $ 296,300
Issuance of Locate's common
stock to retire debt.......... 185,000
</TABLE>
See accompanying notes.
7
<PAGE>
The Microwave Division of
Local Area Telecommunications, Inc.
Notes to Financial Statements
December 31, 1995 and 1994
June 30, 1996 and 1995 (Unaudited)
1. Summary of Significant Accounting Policies
Organization and Basis of Presentation
Local Area Telecommunications, Inc. (the Company), a subsidiary of
MobileMedia Corporation (MobileMedia), was incorporated on October 21, 1981. The
Company's Microwave Division (the Division) is engaged in operations pertaining
to the installation, servicing and maintenance of digital microwave radiosystems
for business use within major metropolitan areas. The Division provides voice,
data and image transmission between dispersed locations through point-to-point,
point-to-multipoint and point-topoint short-haul digital microwave radio. The
Division also designs, installs and sells microwave infrastructures used in
cellular communication systems and other networks.
The accompanying financial statements of the Microwave Division of
Local Area Telecommunications, Inc. include all of the microwave operations of
Local Area Telecommunications, Inc., including an allocated share of common
expenses and specifically identifiable assets, liabilities and long-term debt.
These financial statements have been prepared from the accounting records of
Local Area Telecommunications, Inc. and are presented on a going concern basis
which contemplates the realization of assets and the settlement of liabilities
and commitments in the normal course of business. The Division incurred net
losses of $3,769,387 and $3,201,367 for the years ended December 31, 1995 and
1994, respectively, and as of December 31, 1995 had a divisional deficit of
$5,432,367. The continued operations of the Division are dependent upon the
receipt of additional funding from Mobile Media and/or other sources. There can
be no assurance that such funding will be received.
In October 1994, following a comprehensive review of the operations of
the Company, the Company's Board of Directors developed a plan to sell
substantially all of the assets of the Company by October 1995, retaining an
investment banker to market the assets. At December 31, 1994, in accordance with
Accounting Principles Board Opinion No. 30, "Reporting the Results of
Operations--Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions", the
Company accrued losses in anticipation of disposal prior to December 31, 1995.
At December 31,1995, the Microwave Division remained unsold and the Company
accrued additional losses expected to be incurred due to the delay in
consummating the disposal. The accrued losses at December 31, 1995 and 1994 have
been recorded in the Company's accounts, and the accompanying financial
statements do not reflect any allocation therefrom.
On April 1, 1996, the Company entered into an agreement (the "Sale
Agreement") to sell the assets of the Microwave Division, excluding cash,
accounts receivable and certain security deposits, to WinStar
Communications,Inc. (WinStar) in exchange for the assumption of certain
liabilities and $17.5 million in the form of notes bearing interest at 8% (the
WinStar Notes). The WinStar Notes are convertible into common stock of WinStar
at the option of WinStar.
Consummation of the sale noted above is subject to regulatory approval.
There can be no assurance, however, that the sale will be consummated or that,
if consummated, it will be consummated on the terms described above.
In connection with the Sale Agreement, the Company entered into a
service agreement ("Services Agreement") for a term commencing in April 1996 and
terminating upon the earlier to occur of (i) the closing of the Sale Agreement,
or (ii) termination of the Sale Agreement. Pursuant to the Services Agreement,
WinStar provides management services for the Company. As full compensation for
WinStar's performance of such services, the Company pays WinStar a fee of
$125,000 per month during the term.
8
<PAGE>
The Microwave Division of
Local Area Telecommunications, Inc.
Notes to Financial Statements--(Continued)
1. Summary of Significant Accounting Policies--(Continued)
of the agreement, subject to certain adjustments.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Unaudited Interim Financial Statements
The interim financial information as of June 30, 1996 and the six
months ended June 30, 1996 and 1995 contained herein is unaudited but, in the
opinion of management, includes all adjustments of a normal recurring nature
which are necessary for a fair presentation of the financial position, results
of operations, and cash flows for the periods presented. Results of operations
for the periods presented herein are not necessarily indicative of results of
operations for the entire year.
Inventories
Inventories consist of the cost of communications equipment not yet
placed in service plus the net book value of equipment previously in service
which the Company anticipates returning to service within one year. All
inventory is recorded at the lower of average cost or market.
Property and Equipment
Property and equipment additions, as well as the labor costs associated
with the installation thereof, are capitalized at cost. Depreciation is computed
on the straight-line method based upon estimated useful lives ranging from 5 to
10 years.
Revenue Recognition
The Company recognizes revenue for communication services when the
services are provided. Sales of communication systems are recognized upon
delivery and installation.
Impairment of Long-Lived Assets
In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Division adopted Statement No.
121 as of January 1, 1996, which had no effect on the Division's financial
position or results of operations.
Income Taxes
The Division is included in the consolidated federal income tax return
of MobileMedia. No consolidated federal income tax expense or benefit is
allocated to the Division.
9
<PAGE>
The Microwave Division of
Local Area Telecommunications, Inc.
Notes to Financial Statements--(Continued)
2. Property and Equipment
The components of property and equipment were as follows
June
30, 1996 December 31
-------- ------------
(Unaudited) 1995 1994
---- ----
Equipment placed in service....... $26,375,597 $26,472,594 $26,641,661
Furniture and fixtures............ 1,849,777 1,715,051 1,452,478
---------- ----------- ----------
28,225,374 28,187,645 28,094,139
Less accumulated depreciation..... 19,426,204 18,172,589 16,562,239
---------- ---------- ----------
$ 8,799,170 $10,015,056 $11,531,900
========== ========== ==========
Included in equipment placed in service is certain equipment obtained
under capital leases. At June 30, 1996, this equipment has a gross book value of
approximately $429,000 and a net book value of approximately $343,000.
3. Notes Payable
Notes payable, all of which are unsecured, consisted of the following
June
30, 1996 December 31
-------- -----------
(Unaudited) 1995 1994
---- ----
12% super senior note payable...... $ 7,300,000 $ 7,300,000 $ 3,000,000
10% senior notes payable, due
March 31, 1996................... 7,500,000 7,500,000 7,500,000
10 % senior note payable, due
September 15, 1996............... 2,500,000 2,500,000 2,500,000
12% Subordinated Note.............. 25,000 25,000 50,000
---------- ---------- ----------
$17,325,000 $17,325,000 $13,050,000
========== ========== ==========
In December 1994, the Division refinanced $7,500,000 of its $10,000,000
10% note payable, due September 15, 1996 with two $3,750,000 10% senior notes
payable (the Senior Notes), due January 1, 1996. On April 28, 1995, the due
dates of the two $3,750,000 Senior Notes were extended to March 31, 1996.
In December 1994, the Division borrowed $3,000,000 from a MobileMedia
shareholder in exchange for a 12% super senior note payable due January 1, 1996.
During 1995, the Division borrowed $4,300,000 in exchange for six additional 12%
super senior notes (collectively, the "Super Senior Notes").
As of April 9, 1996, neither the Senior Notes nor the Super Senior
Notes (collectively, the "Notes") were repaid. It is anticipated that the Notes
will be exchanged for WinStar Notes acquired by the Company pursuant to the Sale
Agreement (Note 1).
Total interest paid for the six months ended June 30, 1996 and 1995,
and for the years ended December 31, 1995 and 1994 was approximately $79,000,
$517,000, $586,000 and $1,269,000, respectively.
10
<PAGE>
The Microwave Division of
Local Area Telecommunications, Inc.
Notes to Financial Statements--(Continued)
4. Related Party Transactions
For the six months ended June 30, 1996 and 1995, and for the years
ended December 31, 1995 and 1994, the Division had sales to MobileMedia of
approximately $18,000, $35,000, $70,000 and $721,000, respectively.
In December 1995, on behalf of the Division, the Company acquired
certain vehicles, totaling approximately $103,000, under capital lease
agreements (the Agreements) with Roos Capital Planners, Inc., a related party.
The Agreements require the Company to make 36 monthly installments of $4,000.
5. Commitments and Contingencies
On behalf of the Division, the Company leases space under cancelable
and noncancellable operating leases which expire at various dates through 2000.
Total rental expense for the six months ended June 30, 1996 and 1995, and for
the years ended December 31, 1995 and 1994 was approximately $805,000, $756,000,
$1,586,000 and $1,811,000, respectively. Additionally, the Company is obligated
under capital leases for certain equipment.
Future minimum payments under capital leases and noncancellable
operating leases with initial terms of one year or more consists of the
following as of December 31, 1995
Capital Operating
Leases Leases
-------- ----------
1996................................................. $147,900 $ 630,000
1997................................................. 147,900 538,000
1998................................................. 122,708 18,000
1999................................................. 8,000
2000................................................. 3,000
------- ---------
Total future minimum payments........................ 418,508 $1,197,000
=========
Less amount representing interest.................... 76,830
-------
Present value of net minimum lease payments (including
current portion of $107,816)......................... $341,678
=======
The Company has employment agreements with certain executives through
December 31, 1996 requiring the payment of $428,645 per year in compensation
with increases of 5% per annum. Additionally, payments of $1,500,000 may be
required in certain circumstances by the Company in the event of the termination
of employment of the executives within six months from the date of sale of the
Company, as defined in the employment agreements. Also, if the earnings before
interest, depreciation, taxes and amortization of MobileMedia increase by more
than 30% and 50%, the Chief Executive Officer is entitled to a payment of
$350,000 for each noted percentage increase. Based on the specified performance
criteria, $350,000 was expensed in each of 1994 and 1995, and is included in the
results of operations.
11
<PAGE>
(b) Pro Forma Financial Information
WINSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated balance sheet
has been prepared by taking the June 30, 1996 consolidated balance sheets of
WinStar Communications, Inc. and subsidiaries (the "Company") and the balance
sheet of certain assets of the Microwave Division of Local Area
Telecommunications, Inc. ("Locate"), as if the Locate Asset Purchase had
occurred on June 30, 1996. The unaudited pro forma condensed consolidated
balance sheet has been prepared for information purposes only and does not
purport to be indicative of the financial condition that necessarily would have
resulted had the Locate Asset Purchase taken place on June 30, 1996.
The following unaudited pro forma condensed consolidated statements of
operations for the ten month period ended December 31, 1995 and for the six
months ended June 30, 1996 give effect to the Company's acquisition of certain
assets of Locate, 65% of The Winning Line, Inc. ("TWL"), 80% of Fox/Lorber, and
the remaining 51% of Avant-Garde Telecommunications, Inc. ("AGT"), as if they
occurred as of the beginning of the respective periods. The revenues and results
of operations included in the following unaudited pro forma condensed
consolidated statements of operations are not indicative of anticipated results
of operations for periods subsequent to the acquisitions, nor are they
considered necessarily to be indicative of the results of operations for the
periods specified had the acquisitions actually been completed at the beginning
of each respective period.
These financial statements should be read in conjunction with the notes
to the unaudited pro forma condensed consolidated financial statements, which
follow, the consolidated financial statements of the Company and the financial
statements of Locate and the related notes thereto.
12
<PAGE>
WINSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1996
<TABLE>
<CAPTION>
Adjustments
The Company, Locate, Increase/
Historical Historical (Decrease) Pro Forma
------------ ----------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............................... $ 75,600,073 $ 35,419 -- $ 75,635,492
Short term investments.................................. 115,460,429 -- -- 115,460,429
----------- ---------- ----------- -------------
Cash, cash equivalents and short term investments..... 191,060,502 35,419 -- 191,095,921
Investments in marketable equity securities............. 937,500 -- -- 937,500
Accounts receivable, net................................ 14,905,197 611,828 -- 15,517,025
Notes receivable........................................ 214,318 -- -- 214,318
Inventories............................................. 10,924,137 3,402,454 (2,726,607)(a) 11,599,984
Prepaid expenses and other current assets............... 8,888,945 130,974 (130,974)(a) 8,888,945
----------- ---------- ----------- ------------
Total current assets................................. 226,930,599 4,180,675 (2,857,581) 228,253,693
Property and equipment, net............................. 25,788,184 8,799,170 (5,816,235)(a) 28,771,119
Notes receivable........................................ 385,106 -- -- 385,106
Investments and advances................................ 399,729 -- -- 399,729
Licenses, net........................................... 12,519,169 -- 14,705,188(a) 27,224,357
Intangible assets, net.................................. 10,061,579 -- -- 10,061,579
Deferred financing costs................................ 11,157,759 -- -- 11,157,759
Other assets............................................ 2,103,036 85,029 -- 2,188,065
----------- ---------- ---------- -----------
Total assets......................................... $289,345,161 $13,064,874 $ 6,031,372 $308,441,407
=========== ========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Loan payable............................................ $ 8,758,076 $17,300,000 $17,500,000 (a) $ 26,258,076
(17,300,000)(a)
Accounts payable and accrued expenses................... 23,738,727 3,341,735 (2,034,150)(a) 25,046,312
Capitalized lease obligations........................... 1,528,811 54,799 -- 1,583,610
----------- ---------- ----------- -----------
Total current liabilities............................ 34,025,614 20,696,534 (1,834,150) 52,887,998
Senior notes payable.................................... 164,715,601 -- -- 164,715,601
Convertible notes payable............................... 82,357,801 -- -- 82,357,801
Other notes payable..................................... 3,585,777 25,000 (25,000)(a) 3,585,777
Capitalized lease obligations........................... 5,450,617 233,862 -- 5,684,479
----------- ---------- ---------- -----------
Total liabilities.................................... 290,135,410 20,955,396 (1,859,150) 309,231,656
----------- ---------- ---------- -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock....................................... 688,900 -- -- 688,900
Common stock, $.01 par value; authorized 75,000,000
shares, issued 30,694,260 and outstanding 28,037,497
shares, pro forma issued 34,094,260 and outstanding
31,437,097 shares, and pro forma as adjusted issued
38,087,366 and outstanding 35,430,603 shares........ 306,943 -- -- 306,943
Partners' capital..................................... -- -- -- --
Additional paid-in capital............................ 111,186,462 -- -- 111,186,462
Accumulated deficit................................... (70,126,061) (7,890,522) 7,890,522 (a) (70,126,061)
----------- ----------- ---------- -----------
42,056,244 (7,890,522) 7,890,522 42,056,244
Less: Treasury stock................................. (42,733,993) -- -- (42,733,993)
Deferred compensation............................... -- -- -- --
Unrealized loss on investment in marketable securities (112,500) -- -- (112,500)
----------- ----------- ---------- -----------
Total stockholders' equity.......................... (790,249) (7,890,522) 7,890,522 (790,249)
----------- ----------- ---------- -----------
Total liabilities and stockholders' equity.......... $289,345,161 $13,064,874 $ 6,031,372 $308,441,407
=========== ========== ========== ===========
</TABLE>
13
<PAGE>
WINSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
TWL, Fox/Lorber, Pro Forma
Historical, Historical, Adjustments
The Company, Locate, January 1 to January 1 to Increase/
Historical Historical April 7, 1996 April 23, 1996 (Decrease) Pro Forma
------------ ----------- ------------- -------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales.................. $ 30,683,587 $ 2,529,178 $ 455,777 $ 2,292,535 $ -- $35,961,077
Cost of sales............... 17,647,510 1,728,825 367,607 1,447,169 -- 21,191,111
----------- ---------- -------- ---------- -------- ----------
Gross profit............. 13,036,077 800,353 88,170 845,366 -- 14,769,966
Selling, general and
administrative expenses.. 28,005,469 872,202 529,421 903,542 -- 30,310,634
Depreciation................ 834,965 1,280,152 9,008 7,000 -- 2,131,125
----------- ---------- -------- ---------- -------- ----------
Operating loss.............. (15,804,357) (1,352,001) (450,259) (65,176) -- (17,671,793)
Other (income) expense
Interest expense......... 18,014,704 960,938 112,205 21,044 (246,438)(a) 18,862,453
Interest income.......... (5,657,530) (4,784) -- -- -- (5,662,314)
Amortization of intangibles 466,568 -- 1,940 1,500 316,762 (b) 786,770
----------- ---------- -------- ---------- -------- ----------
Net loss before income taxes (28,628,099) (2,308,155) (564,404) (87,720) (70,324) (31,658,702)
Income taxes................ 186,887 -- -- -- -- 186,887
----------- ---------- -------- ---------- -------- ----------
Net loss.................... $(28,814,986) $(2,308,155) $(564,404) $ (87,720) $ (70,324) $(31,845,589)
=========== ========== ======== ========== ======== ===========
Net loss per share.......... $ (1.05) $ (1.16)
=========== ===========
Weighted average shares
outstanding 27,468,186 41,868 (g) 27,510,054
========== ======== ===========
</TABLE>
14
<PAGE>
WINSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TEN MONTH PERIOD ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
AGT, Pro Forma
Historical Adjustments
The Company, March 1 to Locate, TWL, Fox/Lorber, Increase/
Historical July 17, 1995 Historical Historical Historical (Decrease) Pro Forma
------------ ------------- ---------- ----------- ---------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.................. $ 29,771,472 $ 17,779 $ 7,090,547 $ 1,381,319 $7,534,876 $(2,189,994)(c) $ 43,560,999
(45,000)(e)
Cost of sales.............. 19,546,351 -- 4,034,803 957,190 5,679,399 (1,568,699)(c) 28,649,044
----------- ---------- ---------- ---------- --------- ----------
Gross profit........... 10,225,121 17,779 3,055,744 424,12 1,855,477 (666,295) 14,911,955
Selling, general and
administrative expenses.... 19,266,466 1,704,294 2,582,894 1,470,831 2,296,448 (70,000)(d) 26,554,832
(651,101)(c)
(45,000)(e)
Depreciation............... 770,284 59,250 2,784,156 25,000 27,521 (450,786)(c) 3,215,425
----------- ---------- ---------- ---------- --------- ---------- -----------
Operating loss............. (9,811,629) (1,745,765) (2,311,306) (1,071,702) (468,492) 550,592 (14,858,302)
Other (income) expense
Interest expense......... 7,630,079 -- 1,587,851 244,454 79,174 (197,782)(a) 9,104,363
(239,413)(c)
Interest income.......... (2,889,813) -- (11,736) -- -- -- (2,901,549)
Amortization of intangibles 439,888 31,978 -- 7,045 5,619 603,823 (b) 1,087,416
(937)(c)
Other expense............ -- -- -- -- 126,188 (21,031)(c) 105,157
Equity in loss of AGT.... 865,676 -- -- -- -- (865,676)(f) --
----------- ---------- ---------- ---------- --------- -------- -----------
Net loss................... $(15,857,459) $(1,777,743) $(3,887,421) $(1,323,201) $ (679,473) $ 1,271,608 $(22,253,689)
=========== ========== ========== ========== ========= ========== ===========
Net loss per share......... $ (0.70) $ (0.95)
=========== ===========
Weighted average shares 575,000 (h)
outstanding................ 22,769,770 67,433 (g) 23,412,203
=========== ========== ===========
</TABLE>
15
<PAGE>
WINSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The adjustments below were prepared based on data currently available
and in some cases are based on estimates or approximations. It is possible that
the actual amounts to be recorded may have an impact on the results of
operations and the balance sheet different from that reflected in the
accompanying unaudited pro forma condensed consolidated financial statements. It
is therefore possible that the entries presented below will not be the amounts
actually recorded. Deferred income taxes have not been considered in the pro
forma balance sheet because they are not expected to be material at the time of
the consummation of the acquisitions.
Balance Sheet at June 30, 1996
(a) To record the issuance of $17,500,000 in notes payable in payment
for certain assets of Locate, to eliminate assets and liabilities not acquired
or assumed and division deficiency, and to allocate the excess of the purchase
price over the fair value of the assets acquired to the licenses acquired.
Statements of Operations for the Ten Months Ended December 31, 1995
and For the Six Months Ended June 30, 1996
(a) To eliminate interest expense incurred by Locate on liabilities not
assumed by the Company, offset in part by an adjustment to record interest
expense at 8% per annum on a $17.5 million promissory note to be issued by the
Company in connection with the acquisition of certain assets of Locate.
(b) To record amortization of the excess of the purchase price over the
net book value of the assets acquired in the Locate, TWL and Fox/Lorber
transactions.
(c) To adjust the historical results of operations to a ten month
period. The historical results of operations reflected in the December 31, 1995
unaudited pro forma condensed consolidated statement of operations for Locate
and Fox/Lorber are for the twelve months ended December 31, 1995 and September
30, 1995, respectively, and these adjustments are made to restate these
historical results for the ten months ended on those respective dates. Had the
historical results of operations and the pro forma adjustments been restated in
all instances to reflect twelve months of activity, the unaudited pro forma
condensed consolidated statement of operations for the year ended December 31,
1995 would reflect net sales of $49.4 million, an operating loss of $16.1
million, and a net loss of $51.5 million.
(d) To eliminate management fee expense incurred by TWL and payable to
the Company.
(e) To eliminate management fees charged by the Company to AGT pursuant
to a management agreement.
(f) To eliminate the Company's proportionate share of AGT's results for
the period, recorded previously under the equity method.
(g) To record shares issued in accordance with the Fox/Lorber
acquisition agreement as being outstanding for the entire period.
(h) To record shares issued in accordance with the AGT merger agreement
as being outstanding for the entire period.
16
<PAGE>
(c) Exhibits
Exhibit Number Description
1 Purchase and Sale Agreement by and among the
Company, WinStar Locate, Inc., MobileMedia
Corporation and Local Area Telecommunications,
Inc. (incorporated by reference to Exhibit 10.69
to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1996)
2 Amendment to the Purchase and Sale agreement by
and among the Company, WinStar Locate, Inc.,
MobileMedia Corporation and Local Area
Telecommunications, Inc. (filed herewith).
17
<PAGE>
SIGNATURES
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.
Dated: October __, 1996 WINSTAR COMMUNICATIONS, INC.
----------------------------
(Registrant)
/s/ Timothy R. Graham
----------------------------
Timothy R. Graham
Executive Vice President
18
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
1 Purchase and Sale Agreement by and among the Company, WinStar
Locate, Inc., MobileMedia Corporation and Local Area
Telecommunications, Inc. (incorporated by reference to Exhibit
10.69 to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996)
2 Amendment to the Purchase and Sale agreement by and among the
Company, WinStar Locate, Inc., MobileMedia Corporation and
Local Area Telecommunications, Inc. (filed herewith).
19
<PAGE>
EXHIBIT 2
AGREEMENT
This Agreement is entered into as of the 8th day of October,
1996, by and among MobileMedia Corporation, a Delaware corporation
("MobileMedia"), WinStar Locate, Inc., a Delaware corporation ("WinStar
Locate"), WinStar Communications, Inc., a Delaware corporation ("WinStar
Communications"), and Locate L.L.C., a Delaware limited liability company
("Locate LLC"), as assignee of Local Area Telecommunications, Inc., a New York
corporation ("Locate").
A. MobileMedia, Locate, WinStar Locate and WinStar Communica-
tions are parties to that certain Purchase and Sale Agreement dated as of
April 1, 1996 (the "Agreement").
B. Locate has assigned to Locate LLC, and Locate LLC has
assumed from Locate, all rights and obligations under the Agreement pursuant to
that certain Agreement of Formation dated as of April 28, 1995 among Locate
Manager, Inc., a Delaware corporation, Locate and MobileMedia.
C. Section 11.3 of the Agreement permits such an assignment,
on the condition that Locate LLC, as assignee of Locate, become a party to the
Agreement along with Locate and MobileMedia, both of which shall remain
obligated thereunder.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements herein contained, and intending to be legally
bound hereby, the parties hereto agree as follows:
1. Locate LLC a Party to the Agreement. Pursuant to and
subject to the terms of Section 11.3 of the Agreement, Locate LLC is hereby
admitted as a party to the Agreement, and Locate LLC hereby assumes all duties
and obligations of Locate under the Agreement. Notwithstanding the foregoing, as
provided in Section 11.3, Locate shall remain a party to and continue to be
liable under the Agreement.
2. Reference to and Effect on the Agreement. Except as
expressly provided herein, the Agreement shall remain in full force and effect.
3. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York without
regard to principles of conflict of laws.
4. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute a single instrument.
20
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date first above written.
LOCATE L.L.C.,
a Delaware limited liability company
By: Locate Manager, Inc.,
a Delaware corporation,
its Managing Member
By: /s/ Michael Lorelli
-------------------------
Michael Lorelli
President
Agreed.
MOBILEMEDIA CORPORATION,
a Delaware corporation
By: /s/ Michael Lorelli
---------------------------
Michael Lorelli
Chief Executive Officer
WINSTAR COMMUNICATIONS, INC.,
a Delaware corporation
By: /s/ Timothy R. Graham
---------------------------
Timothy R. Graham
Executive Vice President
WINSTAR LOCATE, INC.,
a Delaware corporation
By: /s/ Timothy R. Graham
--------------------------
Timothy R. Graham
Its: President
21
<PAGE>
