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 June 30, 1996
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 small business issuer as specified in its charter)
Delaware 13-3585278
----------------------------- --------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or
organization)
230 Park Ave., Suite 3126, New York, NY 10169
(Address of principal executive offices)
(212) 687-7577
(Registrant's telephone number)
-----------------------
(Former name, former address and former fiscal year end
if 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 ___
State the number of shares outstanding of each of the issuer's
classes of common stock, as of July 31, 1996: 28,039,985
<PAGE>
FORM 10-Q
WINSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. Financial Information
<TABLE>
Item 1. Financial Statements
<S> <C>
Page
Condensed Consolidated Balance Sheets - June 30, 1996
(unaudited) and December 31, 1995.................................................. 3
Unaudited Condensed Consolidated Statements of Operations -
three and six months ended June 30, 1996 and 1995.................................. 4
Unaudited Condensed Consolidated Statements of Cash Flows -
six months ended June 30, 1996 and 1995............................................ 5
Notes to Condensed Consolidated Financial Statements............................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................................ 12
PART II. Other Information.......................................................................... 19
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signatures........................................................................................... 21
</TABLE>
WinStar Communications, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
<TABLE>
June 30, December 31,
1996 1995
(unaudited)
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $ 75,600,073 $138,105,824
Short term investments 115,460,429 73,594,849
Cash, cash equivalents and short term investments 191,060,502 211,700,673
Investments in equity securities 937,500 6,515,250
Accounts receivable, net 14,905,197 8,683,860
Notes receivable 214,318 7,391,686
Prepaid expenses and other current assets 8,888,945 3,568,448
Total current assets 226,930,599 238,059,552
Property and equipment, net 25,788,184 15,898,005
Notes receivable 385,106 3,488,948
Investments and advances 399,729 322,733
Licenses, net 12,519,169 12,556,281
Intangible assets, net 10,061,579 3,033,505
Deferred financing costs 11,157,759 10,525,301
Other assets 2,103,036 1,478,530
Total assets $289,345,161 $285,362,855
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Loans payment $ 8,758,076 $ 8,287,461
Accounts payable and accrued expenses 23,738,727 13,513,369
Capitalized lease obligations 1,528,811 1,355,255
Total current liabilities 34,025,614 23,156,085
Senior notes payable 164,715,601 153,971,508
Convertible notes payable 82,357,801 76,985,754
Other notes payable 3,585,777 3,416,288
Capitalized lease obligations 5,450,617 6,081,299
Total liabilities 290,135,410 263,610,934
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 29,707,792, outstanding
28,037,497 and 27,201,029 306,943 297,079
Additional paid-in capital 111,186,462 103,836,510
Accumulated deficit (70,126,061) (41,311,075)
42,056,244 63,511,414
Less: Treasury stock (42,733,993) (39,677,743)
Deferred compensation - (1,100,000)
Unrealized loss on long term investments (112,500) (981,750)
Total stockholders' (deficit) equity (790,249) 21,751,921
Total liabilities and stockholders' equity $289,345,161 $285,362,855
See notes to Condensed Consolidated Financial Statements
</TABLE>
3
<PAGE>
WinStar Communications, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(unaudited)
<TABLE>
For the three months ended For the six months ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $16,174,545 $ 6,281,897 $ 30,683,587 $ 12,439,846
Cost of sales 9,074,239 4,434,192 17,647,510 9,032,733
Gross profit 7,100,306 1,847,705 13,036,077 3,407,113
Selling, general and administrative
expenses 17,813,566 3,196,402 28,005,469 6,966,060
Depreciation and amortization 473,455 102,317 834,965 161,311
Operating loss (11,186,715) (1,451,014) (15,804,357) (3,720,258)
Other expense (income)
Interest expense 9,200,157 245,929 18,014,704 429,928
Interest income (2,600,874) (169,004) (5,657,530) (294,111)
Amortization of intangibles 271,974 86,171 466,568 148,905
Equity in loss of AGT - 567,157 - 1,103,752
Net loss before income taxes (18,057,972) (2,181,267) (28,628,099) (5,108,732)
Income taxes 58,204 - 186,887 -
Net loss $(18,116,176) $(2,181,267) $(28,814,986) $(5,108,732)
Net loss per share $ (0.65) $ (0.11) $ (1.05) $ (0.25)
Weighted average shares outstanding 27,720,202 20,594,278 27,468,186 20,183,505
See Notes to Condensed Consolidated Financial Statements
</TABLE>
4
<PAGE>
WinStar Communications, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
For the six months ended
June 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities, net of the effect of
acquisitions
Net loss $ (28,814,986) $ (5,108,732)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 2,658,760 319,177
Amortization of licenses and intangibles 459,338 149,154
Provision for doubtful accounts 803,590 354,898
Equity in unconsolidated results of AGT - 1,087,779
Non cash interest expense 16,156,192 -
Other - 46,360
(Increase) decrease in operating assets:
Accounts receivable (2,710,591) 1,500,572
Inventories (2,355,709) (1,438,127)
Prepaid expense and other current assets (6,304,797) 29,124
Other assets (574,377) (77,061)
Increase (decrease) in accounts payable and accrued
expenses 1,760,656 (439,416)
Net cash used in operating activities (18,921,924) (3,576,272)
Cash flows from investing activities:
Increase in short term investments, net (41,865,580) (764,089)
Proceeds from sales of equity investments 6,447,000 -
Investments in and advances to AGT - (6,625,228)
Collections of notes receivable 93,774 680,000
Increase in notes receivable (748,498) (1,216,255)
Purchase of property and equipment, net (10,405,329) (1,022,689)
License acquisition costs (228,283) -
Cash acquired through acquisitions 93,067 -
Other - 294,736
Net cash used in investing activities (46,613,849) (8,653,525)
Cash flows from financing activities:
Repayment of loans payable, net (88,757) (713,058)
Proceeds from notes payable - 7,505,800
Debt financing costs (392,646) -
Net proceeds from equity transactions 4,195,684 8,374,772
Payment of capital lease obligations (684,259) (136,732)
Net cash provided by financing activities 3,030,022 15,030,782
Net (decrease) increase in cash and cash equivalents (62,505,751) 2,800,985
Cash and cash equivalents at beginning of period 138,105,824 5,287,188
Cash and cash equivalents at end of period 75,600,073 8,088,173
Short term investments at end of period 115,460,429 771,681
Cash, cash equivalents and short term investments at end of period $191,060,502 $ 8,859,854
See Notes to Condensed Consolidated Financial Statements
</TABLE>
5
<PAGE>
WINSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 1996
(unaudited)
1. Basis of Presentation
The Company provides local and long distance telecommunications services in the
United States. As a complement to its telecommunications operations, the Company
produces and distributes information and entertainment content. The Company also
maintains a consumer products company with distribution through national
retailers in the United States and Canada.
The Company operates its businesses through its wholly-owned subsidiaries, which
include: WinStar Wireless, Inc. ("WinStar Wireless"), WinStar
Telecommunications, Inc. ("WinStar Telecom"), WinStar Gateway Network, Inc.
("WinStar Gateway"), WinStar New Media Company, Inc. and Non Fiction Films, Inc.
(collectively, "WinStar New Media"), and WinStar Global Products, Inc. ("WinStar
Global Products").
The condensed consolidated financial statements presented herein include the
accounts of WinStar and its subsidiaries, WinStar Wireless, WinStar Telecom,
WinStar Gateway, WinStar New Media, and WinStar Global Products (collectively,
the "Company"). All material inter-company transactions and accounts have been
eliminated in consolidation. The accounts have been prepared by the Company
without audit. However, the foregoing statements contain all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
the Company's management, necessary to present fairly the financial position of
the Company as of June 30, 1996, the statements of operations for the three and
six months ended June 30, 1996 and 1995, and the statements of cash flows for
the six months ended June 30, 1996 and 1995.
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 financial statements
and notes thereto included in the Company's transition report on Form 10-KSB for
the ten month fiscal period ended December 31, 1995.
The Company changed its fiscal year end from February 28 to December 31,
effective January 1, 1996. Accordingly, the unaudited financial statements for
the three and six months ended June 30, 1995 have been restated to reflect this
change.
The results of operations for the three and six months ended June 30, 1996 are
not necessarily indicative of the results of operations for the year ending
December 31, 1996.
2. Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. Cash equivalents
consist of money market fund investments, short-term certificates of deposit,
and commercial paper.
<PAGE>
WINSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 1996
(unaudited)
3. Short Term Investments
Short term investments are widely diversified and principally consist of
certificates of deposit and money market deposits, U.S. government or government
agency securities, commercial paper rated "A-l/P-1" or higher, and municipal
securities rated "A" or higher with an original maturity of greater than three
and less than six months. Short term investments are considered held-to-
maturity and are stated at amortized cost which approximates fair value.
4. Acquisitions
A) Acquisition of Avant-Garde
Avant-Garde Telecommunications, Inc. ("AGT") was a privately held
company which held 30 millimeter wave radio licenses granted by the
Federal Communications Commission in September 1993. Through July 17,
1995, the Company owned 49% of AGT and accounted for its investment in
AGT under the equity method. For the three and six months ended June
30, 1995, AGT had net losses of approximately $1,084,000 and
$1,799,000, respectively. On July 17, 1995, pursuant to the terms of
the merger agreement, the Company exchanged 1,275,000 shares of its
common stock, valued at $5,100,000, for the 51% of AGT that it did not
already own. AGT was then merged into a wholly-owned subsidiary of the
Company.
The acquisition of AGT has been treated as a "purchase" for purposes of
generally accepted accounting principles, with the purchase price
allocated based on fair value of the assets acquired and liabilities
assumed, including approximately $12,600,000 allocated to the licenses
acquired. The amount allocated to licenses is being amortized over 40
years in accordance with industry practice. The accounts of AGT have
been consolidated into the Company's financial statements as of the
date of the acquisition. Unaudited pro-forma results of operations,
which reflect the previously completed merger of AGT into the Company
as if the merger occurred as of January 1, 1995 are as follows:
<TABLE>
<S> <C> <C>
For the three For the six
months ended months ended
June 30, 1995 June 30, 1995
------------- -------------
Net sales $ 6,282,000 $ 12,443,000
Net loss (2,329,000) (5,817,000)
Net loss per share $ (.11) $ (.27)
</TABLE>
<PAGE>
WINSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 1996
(unaudited)
B) Agreement to Acquire Local Area Telecommunications, Inc.
In April 1996, a subsidiary of the Company entered into an agreement to
acquire certain assets of Local Area Telecommunications, Inc.
("Locate"), comprising its business as a competitive access provider of
local digital microwave distribution services and facilities. The
purchase price for such assets is $17,500,000, which will be paid in
the form of a promissory note due six months after closing and bearing
interest at the annual rate of eight percent. The Company may convert
the note, in whole but not in part, at its election, into that number
of shares of common stock of the Company ("Common Stock") equal to (a)
the principal amount and all accrued and unpaid interest on the note
divided by (b) the average of the closing prices of the Common Stock
for the five days ending on the date on which the Company gives written
notice of its decision to convert the note.
Consummation of the purchase is subject to certain closing conditions
including 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 business. The
purchase is expected to close as soon as practicable after satisfaction
of all closing conditions set forth in the purchase agreement.
In connection with the purchase, the Company and Locate entered into a
service agreement for a term commencing in April 1996 whereby the
Company performs certain consulting and related services for Locate.
Locate pays the Company a fee of up to $125,000 per month during the
term of the agreement, subject to certain adjustments.
C) Acquisition of 80% Equity Interest in Fox/Lorber Associates, Inc., 65%
Equity Interest in The Winning Line, Inc. and Agreement to Acquire
Pinnacle Nine Communications, LLC
In April 1996, Non Fiction Films, a wholly-owned subsidiary of the
Company, acquired 80% of the outstanding common stock of Fox
Lorber Associates, Inc. ("Fox/Lorber"), an independent distributor of
films, entertainment series and documentaries in television and home
video markets. The purchase price, aggregating approximately
$1,470,000, consisted of cash, common stock of the Company, and
promissory notes.
In April 1996, WinStar New Media converted $970,000 principal amount of
loans (plus accrued interest) outstanding to The Winning Line, Inc.
("TWL") into a 65% equity interest in TWL. TWL operates the SportsFan
Radio Network ("SportsFan"). SportsFan is a multi-media sports
programming and production company which
<PAGE>
WINSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 1996
(unaudited)
provides live sports programming to more than 200 sports and talk
format radio stations across the United States.
The acquisitions have been treated as purchases for generally accepted
accounting principles, with the purchase allocated based on the fair
market value acquired and liabilities assumed, including approximately
$7.1 million allocated to goodwill, which is being amortized over 20
years. The accounts of the acquired entities have been consolidated
into the Company's financial statements as of the dates of
acquisitions. Pro forma financial information for these acquisitions is
not presented herein since they are not material to the Company's
financial statements.
In June 1996, the Company entered into an agreement to acquire the
outstanding equity interests of Pinnacle Nine Communications, LLC,
which is the holder of three 38 GHz licenses providing for 100 MHz of
bandwidth in each of Baltimore, Dallas and Philadelphia. The
acquisition is subject to obtaining applicable regulatory approvals
and is expected to be consummated once the required regulatory appovals
have been received.
D) Agreement to Acquire Milliwave Limited Partnership
In June 1996, a subsidiary of the Company entered into certain
agreements with Milliwave Limited Partnership ("Milliwave") whereby the
Company would acquire Milliwave for a purchase price of $40 million in
cash and 3.4 million shares of the Company's common stock (which had an
aggregate market value of $85 million based on a $25 per share market
price at the time the agreements were executed). The number of shares
to be issued in connection with the acquisition is subject to upward or
downward adjustment depending on the market price of the Company's
common stock at the time the transaction is closed subject to certain
limitations. The acquisition is subject to certain regulatory
approvals, and is expected to be consummated in 1997. The agreements
provide for the Company to assist in managing and developing the
licenses, under Milliwave's control, during an interim period prior to
the planned acquisition of Milliwave by the Company.
E) Litigation
On August 5, 1996, the Delaware Chancery Court approved the final
settlement of several related actions brought by various stockholders
of the Company against the Company, its directors and certain other
persons, thereby terminating these actions. Although the Company
believed that the allegations were completely without merit, in order
to halt the expense, inconvenience and distraction of continued
litigation, the Company entered into the court approved settlement
agreement pursuant to which the Company agreed to amend its bylaws to
formalize certain corporate governance issues and to pay legal fees and
expenses of plaintiffs' counsel in the amount of $246,500, a portion of
which is covered by the Company's insurance.
<PAGE>
WINSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 1996
(unaudited)
WinStar Gateway occasionally receives inquiries from state authorities
with respect to consumer complaints concerning the provision of
telecommunications services, including allegations of unauthorized
switching of long distance carriers and misleading marketing. The
Company believes such inquiries are common in the long distance
industry and addresses such inquiries in the ordinary course of
business.
In April, 1996, an action was commenced against WinStar Gateway by
several named plaintiffs on behalf of themselves and other similarly
situated Alabama residents alleging the unauthorized switching of long
distance service and deceptive marketing practices conducted in that
state.
In June, 1996, the Company filed an action for declaratory judgment
against a former officer of WinStar Gateway after the Company was
notified by such former officer of his belief that he was entitled to
the issuance of certain shares of common stock of the Company. In July
1996 the complaint was amended by the Company to include certain breach
of contract claims arising out of the failure of such former officer to
abide by the non-competition and similar provisions of his employment
agreement.
Refer to Item 1, Legal Proceedings of Part II, Other Information, for
more information regarding each of these actions. The Company does not
believe that the resolution of these matters individually or
collectively will have a material adverse effect on the Company, its
financial condition or its results of operations.
F) Stock Option Plans
On June, 27, 1996, stockholders voted to approve an amendment to the
Company's 1995 Performance Equity Plan to increase the number of shares
available thereunder for stock option grants by 1,500,000 shares.
Stockholders also voted to approve an amendment to the Company's 1992
Performance Equity Plan to increase the number of shares available
thereunder for stock option grants by 500,000 shares.
G) Commitments
As of June 30, 1996, the Company also has commitments during the next
year to (i) purchase $23.5 million of telecommunications equipment,
(ii) pay an aggregate of approximately $41 million upon consummation of
the Milliwave and other acquisitions and (iii) pay $17.5 million in
short-term notes or Common Stock upon consummation of the Locate
acquisition.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for any historical information contained herein, the matters discussed in
this report contain forward-looking statements that involve risks and
uncertainties which are described in the Company's SEC reports, including the
Form 10-KSB for the ten month transition period ended December 31, 1995 and the
Form 10-Q for the period ended March 31, 1996.
Company Overview
The Company provides local and long distance telecommunications services in the
United States. As a complement to its telecommunications operations, the Company
produces and distributes information and entertainment content. The Company also
maintains a consumer products company with distribution through national
retailers in the United States and Canada.
The Company operates its businesses primarily through the following wholly-owned
subsidiaries:
o WinStar Wireless is a competitive access provider ("CAP") that provides
Wireless Fiber- based dedicated local access services on a wholesale
basis to other carriers in many major metropolitan areas via the
Company's digital wireless capacity in the 38 GHz portion of the radio
spectrum. Wireless FiberSM services currently are marketed to long
distance carriers, fiber-based CAPs, competitive local exchange
carriers ("CLECs"), cellular and specialized mobile radio services,
local exchange carriers ("LECs"), cable companies, internet service
providers, and value added resellers and systems integrators.
o WinStar Telecom is a CLEC that is rolling out its local exchange
services as a value-added, economical alternative to the LECs,
particularly through the exploitation of the Company's Wireless Fiber
capabilities, in substantially all of the 41 licensed areas covered by
the Company's 38 GHz licenses. WinStar Telecom markets its services
primarily through a direct sales force to small and medium-sized
businesses.
o WinStar Gateway Network is a long distance telecommunications services
reseller that provides service directly to residential customers and
which supports WinStar Telecom's offering of bundled local and long
distance service to businesses.
o WinStar New Media produces and distributes, domestically and abroad,
information and entertainment content, principally nonfiction and
international programming and nationally syndicated sports radio
programming.
Wireless FiberSM is a service mark of WinStar Communications, Inc.
<PAGE>
o WinStar Global Products, which was acquired by the Company prior to its
entry into the telecommunications industry, designs, manufactures,
markets and distributes personal care products, principally bath and
hair care products, and sells primarily through large retailers,
including mass merchandisers, discount stores, department stores and
national and regional drug store chains.
Substantially all of the Company's revenues have historically been generated
through its long distance telecommunications, information and entertainment, and
consumer products business. However, beginning in December 1994, the Company
positioned itself for entry into the local telecommunications market as a CAP
through WinStar Wireless, which currently provides Wireless Fiber-based
dedicated local access services to a limited number of customers, and which has
generated nominal revenues to date.
The passage of the Telecommunications Act of 1996 resulted in opportunities that
caused the Company to accelerate the development and expansion of its local
telecommunications businesses. In April 1996, the Company (through WinStar
Telecom) entered the local exchange services market as a CLEC. It currently
provides such services on a resale basis in New York City.
In connection with its CLEC business, the Company intends to install its own
switches and remote nodes and utilize its Wireless Fiber capacity, together with
facilities leased or purchased from other carriers, to originate and terminate
local switched telecommunications traffic in all 41 of its licensed areas.
In addition, the Company intends to accelerate the expansion of its Wireless
Fiber-based CAP business as this business will be used to service a significant
portion of the local access needs of the Company's CLEC business, including for
backbone interconnections of hub, main switch and local node sites, and for the
origination and termination of local traffic generated by the Company's local
exchange customers.
The Company's entry into the local exchange services market, along with the
continued development and expansion of the Company's local access business, will
require significant amounts of capital expenditures for the construction of
Wireless Fiber links and switch-based infrastructure on a city-by-city basis,
for working capital and for funding of operating losses during the next several
years. It is anticipated that the faster the Company rolls out its CLEC
business, the greater its near term operating losses and capital expenditures
will be.
Results of Operations
Three Months Ended June 30, 1996 Compared to Three Months Ended June 30, 1995
Net sales for the three months ended June 30, 1996 increased by $9,893,000, or
157%, to $16,175,000, from $6,282,000 for the three months ended June 30, 1995.
This increase was principally attributable to increased revenues generated by
the Company's telecommunications businesses, which had revenues of approximately
$10,400,000 during the three months ended June 30, 1996, compared with
$2,300,000 for the three months ended June 30, 1995.
<PAGE>
The increase in telecommunications revenue relates primarily to the Company's
residential long distance telephone business, which is currently the Company's
largest source of telecommunications revenue. During the quarter, however, the
operations of the Company's new local communications businesses were advanced on
many fronts, including the addition of personnel and customers, broader
regulatory authorizations in several states, negotiation of interconnect
agreements with incumbent local exchange carriers, and new relationships with
equipment vendors. All of these accomplishments set the stage for future revenue
growth from this part of the Company's business. Over time, this focus on the
local communications market is expected to result in residential long distance
revenues accounting for a lower percentage of the overall telecommunications
revenues of the Company. Furthermore, the Company intends to expand the
marketing of its long distance services to the business market through WinStar
Telecom, as part of its integrated telecommunications services offering.
During the second quarter, the Company stopped accepting new customer orders for
long distance services from certain independent marketing agents. These agents
were responsible for generating a substantial portion of the Company's
telecommunications revenues during the first six months of 1996, through certain
marketing programs which the Company concluded were not consistent with its
overall strategy. On May 10, 1996, the Company adopted a policy of mandatory
independent verification of all written customer orders as a result of consumer
and regulatory complaints from these programs. The Company is developing
alternative long distance marketing programs designed to attract a broader base
of customers, including the marketing and sales by its new CLEC sales force of
these services to small and medium size commercial customers, and is continuing
its efforts to increase its revenues through acquisitions. While the Company
expects overall revenues to increase in the third and fourth quarters of 1996,
to the extent that such new programs or acquisitions individually or in the
aggregate are not successful in the near term, the Company is likely to
experience a reduction in its residential long distance revenues during the same
period.
The Company also recorded a $1,444,000 increase in its information services
revenues to $2,652,000, from $1,208,000 for the three months ended June 30,
1995, principally resulting from the Fox/Lorber and TWL acquisitions which
occurred during the second quarter. The two New Media acquisitions are
consistent with the Company's low risk, low expenditure approach to the content
business. The acquisitions cost approximately $2.5 million consisting of cash,
stock and notes, and are expected to contribute approximately $7 million to
revenues for the balance of the year.
Gross profit for the three months ended June 30, 1996 increased by $5,252,000,
or 284%, to $7,100,000, from $1,848,000 for the three months ended June 30,
1995. Gross profit as a percentage of net sales increased to 43.9% for the three
months ended June 30, 1996, from 29.4% for the three months ended June 30, 1995
and 40.9% for the first quarter of 1996. This increase was primarily
attributable to improving margins in the Company's telecommunications business,
which have been positively impacted by lower cost of sales for its long distance
business achieved through reduced carrier costs resulting from renegotiated
contracts with its long distance service carriers. The telecommunications
segment gross profit margin increased to 47.9% for the current quarter, up from
23.7% for the second quarter of 1995 and 45.6% for the first quarter of
<PAGE>
1996. The Company expects that gross profit margins of its long distance
business for the third and fourth quarter of 1996 will be lower due to the
Company's shift in long distance marketing strategy. Margin improvement was also
recognized from the information services segment, where the gross profit margin
for the three months ended June 30, 1996 was 41.5% compared with 31.4% for the
second quarter of 1995 and 17.2% for the first quarter of 1996.
The Company expects gross profit to continue to increase as the Company's local
communications business expands, however the gross profit margin is expected to
continue to fluctuate during this development phase. For example, the gross
profit margin of the Company's CLEC business will initially be lower, until its
switches are installed and in operation, at which time margins are expected to
increase. The Company's CAP business is expected to positively impact margins as
revenues increase. Long distance margins are expected to be lower in the near
term, due to the Company's shift in its long distance marketing strategy. While
these decreased long distance margins may have a greater effect on the overall
gross profit margin in the near term, this is expected to have a lesser effect
on overall gross profit margin in time as revenues from the other business
segments accelerate. The Company's information services and consumer product
segments' gross profit margins fluctuate from quarter to quarter based on
seasonality and product mix.
Selling, general and administrative expenses increased by $14,616,000 to
$17,812,000, or 110% of net sales, for the three months ended June 30, 1996 from
$3,196,000, or 51% of net sales, for the comparable period of the prior year.
Compared with the first quarter ended March 31, 1996, selling, general and
administrative expenses increased by $7,620,000, from $10,192,000, or 70% of net
sales. The telecommunications segment accounted for 65% of such increase.
Significant factors were the increase in sales, marketing, network and software
engineering and related technical and support personnel resulting from the
accelerated rollout of the Company's CLEC operations and growth in personnel at
WinStar Wireless. These expenses will continue to grow as a percentage of net
sales in the near term as the Company continues to emphasize the development of
its local communications business. The effect of the Fox/Lorber and TWL
acquisitions during the quarter resulted in expense increases in the information
services segment, which generated 9% of the increase for the quarter. Corporate,
general and administrative expenses accounted for 24% of the total increase,
reflecting the expense of continued expansion of the Company's executive,
finance, information and human resource personnel and systems. For the reasons
noted above, the operating loss for the three months ended June 30, 1996 was
$11,187,000, compared with $1,451,000 for the three months ended June 30, 1995.
Interest expense for the three months ended June 30, 1996 was $9,200,000,
compared with $246,000 for the three months ended June 30, 1995. The increase
was primarily attributable to $8,282,000 in interest accreted on the Company's
senior and convertible notes payable issued in the Company's October 1995 debt
placement, which is not payable in cash until after 1999. Interest income for
the three months ended June 30, 1996 increased by $2,432,000, to $2,601,000,
from $169,000 for the three months ended June 30, 1995. The increase is
attributable to earnings on the proceeds of the 1995 debt placement, which
raised net proceeds of $214,000,000.
<PAGE>
Other expense consists of amortization of intangibles and equity in income
(loss) of unconsolidated subsidiaries. Other expense, net for the three months
ended June 30, 1996 decreased by $381,000, to $272,000, from $653,000 for the
three months ended June 30, 1995. During the three months ended June 30, 1995,
the Company recorded an expense of $567,000 representing its equity interest in
the losses of Avant-Garde. As a result of the merger of Avant- Garde into a
subsidiary of the Company, the Company began to include all of Avant-Garde's
revenues and expenses in its consolidated statements of operations effective
July 17, 1995, and therefore this expense does not appear in the statement of
operations for the quarter ended June 30, 1996. In addition, the cost of
acquisition of Avant-Garde has been allocated primarily to licenses, and the
amortization of this asset caused an increase in the amortization expense from
$86,000 for the three months ended June 30, 1995, to $272,000 for the three
months ended June 30, 1996.
For the reasons noted above, the net loss for the three months ended June 30,
1996 was $18,116,000, compared with a net loss of $2,181,000 for the second
quarter of 1995.
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
Net sales for the six months ended June 30, 1996 increased by $18,244,000, or
147%, to $30,684,000, from $12,440,000 for the six months ended June 30, 1995.
This increase was principally attributable to increased revenues generated by
the Company's telecommunications businesses, which had revenues of approximately
$20,573,000 during the six months ended June 30, 1996, compared with $4,553,000
for the six months ended June 30, 1995. The increase in telecommunications
revenue relates primarily to the Company's long distance telephone business. The
Company also recorded a $1,370,000 increase in its information services revenues
to $3,423,000, from $2,052,000 for the six months ended June 30, 1995,
principally resulting from the Fox/Lorber and TWL acquisitions which occurred
during the second quarter.
Gross profit for the six months ended June 30, 1996 increased by $9,629,000, or
283%, to $13,036,000, from $3,407,000 for the six months ended June 30, 1995.
Gross profit as a percentage of net sales increased to 42.5% for the six months
ended June 30, 1996, from 27.4% for the six months ended June 30, 1995. This
increase was primarily attributable to improving margins in the Company's
telecommunications businesses, which have been positively impacted by lower cost
of sales for its long distance business achieved through reduced carrier costs
and volume rebates resulting from renegotiated contracts with its long distance
service carriers. The telecommunications segment gross profit margin increased
to 46.7% for the six month period ended June 30, 1996, up from 21.4% for the
first six months of 1995. Margin improvement was also recognized from the
information services segment, with a gross profit margin for the six months
ended June 30, 1996 of 36.0%, compared with 28.6% for the first six months of
1995.
Selling, general and administrative expenses increased by $21,039,000 to
$28,005,000, or 91% of net sales, for the six months ended June 30, 1996 from
$6,966,000, or 56% of net sales, for the comparable period of the prior year.
The telecommunications segment accounted for 71% of such increase. Significant
factors were the increase in sales, marketing, network and software engineering
and related technical and support personnel resulting from the accelerated
rollout of
<PAGE>
the Company's CLEC operations, along with selling costs associated with the
increased revenues in the long distance telephone business. The effect of the
Fox/Lorber and TWL acquisitions during the second quarter resulted in expense
increases in the information services segment, which generated 6% of the
increase for the six month period. Corporate, general and administrative
expenses accounted for 20% of the total increase, reflecting the expense of
continued expansion of the Company's executive, finance, information and human
resource personnel and systems. For the reasons noted above, the operating loss
for the six months ended June 30, 1996 was $15,804,000, compared with $3,720,000
for the six months ended June 30, 1995.
Interest expenses for the six months ended June 30, 1996 was $18,015,000,
compared with $430,000 for the six months ended June 30, 1995. The increase was
primarily attributable to $16,116,000 in interest accreted on the senior and
convertible notes payable issued in the Company's October 1995 debt placement,
which is not payable in cash until after 1999. Interest income for the six
months ended June 30, 1996 increased by $5,364,000, to $5,658,000, from $294,000
for the six months ended June 30, 1995. The increase is attributable to earnings
on the proceeds of the 1995 debt placement.
Other expense for the six months ended June 30, 1996 decreased by $786,000, to
$467,000, from $1,253,000 for the six months ended June 30, 1995. During the six
months ended June 30, 1995, the Company recorded an expense of $1,104,000
representing its equity interest in the losses of Avant-Garde. As a result of
the merger of Avant-Garde, the Company began to include all of Avant-Garde's
revenues and expenses in its consolidated statements of operations effective
July 17, 1995, and therefore this expense does not appear in the statement of
operations for the quarter ended June 30, 1996. In addition, the cost of
acquisition of Avant-Garde has been allocated primarily to licenses, and the
amortization of this asset caused an increase in the amortization expense from
$149,000 for the six months ended June 30, 1995, to $467,000 for the six months
ended June 30, 1996.
For the reasons noted above, the net loss for the six months ended June 30, 1996
was $28,815,000, compared with a net loss of $5,109,000 for the second quarter
of 1995.
Liquidity and Capital Resources
The Company has incurred significant operating and net losses due in large part
to the development of its telecommunications services business, and anticipates
that such losses will increase as the Company accelerates its growth strategy.
Historically, the Company has funded its operating losses and capital
expenditures through public and private offerings of debt and equity securities
and from credit facilities. Cash used to fund negative EBITDA during the three
and six months ended June 30, 1996 and the ten months ended December 31, 1995
was $10.7 million, $15.0 million and $9.0 million, respectively. In October
1995, the Company raised net proceeds of approximately $214.5 million from the
placement of debt securities (the "1995 Debt Placement") to fund the expansion
of its CAP business. Interest expense on such debt does not require payments of
cash for the first five years. At June 30, 1996 and December 31, 1995,
<PAGE>
working capital was $193 million and $215 million, respectively, including cash,
cash equivalents and short term investments of $191 million and $212 million,
respectively.
The passage of the Telecommunications Act has resulted in opportunities that
have caused the Company to accelerate the development and expansion of its
telecommunications businesses. To capitalize on these opportunities, the Company
has undertaken a plan to expand and accelerate its capital expenditure program.
Capital expenditures for the three and six months ended June 30, 1996, and the
ten months ended December 31, 1995 were $7.8 million, $10.4 million and $8.7
million, respectively, and, prior to the enactment of the Telecommunications
Act, the Company's planned capital expenditures for 1996 and 1997 were estimated
at $36 million and $52 million, respectively. As a result of the acceleration of
the development and expansion of the Company's telecommunications businesses,
the Company now plans to significantly increase its capital expenditures.
A significant portion of the Company's increased capital requirements will
result from the rollout of the Company's CLEC business on a nationwide basis.
The Company has begun to build a direct sales force, has opened sales offices in
New York City and Boston, and is in the process of expanding into other
metropolitan areas. Additionally, the Company is in the process of ordering
switching and other network equipment to be placed in key markets. Accordingly,
the Company expects that its working capital, capital expenditure needs and
selling, general and administrative expenses will continue to increase as this
expansion takes place, which will accelerate the Company's need for additional
capital.
The Company has two working capital facilities and an equipment lease financing
facility with a total of $14.4 million outstanding thereunder as of June 30,
1996. The terms of both working capital facilities expire in 1996. The Company
is currently negotiating and expects to complete extensions of both working
capital facilities.
As of June 30, 1996, the Company also has commitments during the next year (i)
to purchase $23.5 million of telecommunications capital equipment, (ii) to pay
an aggregate of approximately $41 million upon consummation of the Milliwave and
other acquisitions, and (iii) to pay $17.5 million in short term notes or Common
Stock upon consummation of the Locate acquisition.
The proceeds of the Company's 1995 Debt Placement will be used principally to
fund the capital expenditures and operating losses resulting from the
accelerated development and expansion of the Company's telecommunications
businesses. Management anticipates, based on current plans and assumptions
relating to its operations, that the net proceeds from the 1995 Debt Placement,
together with its current financial resources and equipment financing
arrangements which the Company intends to seek, will be sufficient to fund the
Company's growth and operations for approximately 18 to 24 months. Management
believes that the Company's capital needs at the end of such period will
continue to be significant and the Company will continue to seek additional
sources of capital. The Company anticipates that it will be able to raise
sufficient capital to implement its accelerated plan. Further, in the event the
Company's plans or assumptions change or prove to be inaccurate, or if the
Company successfully consummates any acquisitions of businesses or assets
(including additional 38 GHz licenses, by auction or
<PAGE>
otherwise), the Company may be required to seek additional sources of capital
sooner than currently anticipated. Sources of additional capital may include
public and private equity and debt financings, sales of nonstrategic assets and
other financing arrangements. There can be no assurance that the Company will be
able to obtain financing, or, if such financing is available, that the Company
will be able to obtain it on acceptable terms. Failure to obtain additional
financing, if needed, could result in the delay or abandonment of some or all of
the Company's development and expansion plan, which would have a material
adverse effect on the Company's business and could adversely affect the
Company's ability to service its debt and the value of its Common Stock.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In January 1995, the Company's directors, certain other persons and the Company
(as a nominal defendant) were named in one or more of four actions brought by
various stockholders of the Company in the Court of Chancery of the State of
Delaware in and for New Castle County, These actions subsequently were
consolidated into a single lawsuit, which has been settled. The complaint
alleged that certain transactions including (i) the payment of consideration to
certain directors and others in connection with the Company's acquisition of
WinStar Gateway and (ii) the payment of compensation (including the granting of
options and the issuance of warrants) to certain directors and others involved
self dealing, waste of corporate assets, or otherwise were unfair to the
Company. Although the Company believed that the allegations were completely
without merit, in order to halt the expense, inconvenience and distraction of
continued litigation, the Company entered into a court approved settlement
agreement pursuant to which the Company agreed to amend its bylaws to formalize
certain corporate governance issues, and to pay legal fees and expenses of
plaintiffs' counsel in the amount of $246,500, a portion of which is covered by
the Company's insurance.
WinStar Gateway occasionally receives inquiries from state authorities with
respect to consumer complaints concerning the provision of telecommunications
services, including allegations of unauthorized switching of long distance
carriers and misleading marketing. The Company believes such inquiries are
common in the long distance industry and addresses such inquiries in the
ordinary course of business. WinStar Gateway recently has experienced an
increased level of consumer and regulatory complaints, a substantial majority of
which arose from the activities of a limited number of independent marketing
agents. On May 10, 1996, WinStar Gateway adopted a policy of mandatory
independent verification for 100% of customer orders received from these agents'
programs, and effective June 10, 1996, no longer accepts customer orders from
these programs. WinStar Gateway also has initiated discussions with the FCC and
a number of state regulatory authorities with respect to the resolution of any
issues arising from the terminated programs. The Company does not believe that
resolution of these issues will have a material adverse effect on the Company,
its financial condition or its results of operations.
In April 1996, an action was commenced against WinStar Gateway in the Circuit
Court of Jefferson County, Alabama, arising from long distance marketing
programs previously conducted in that state. The plaintiffs, James Schaffer and
Linda Kelly, on behalf of themselves and other Alabama residents similarly
situated, allege that their long distance service was switched to WinStar
Gateway and away from their previous providers without their consent and through
misleading and deceptive marketing practices. The plaintiffs seek monetary
relief, the exact amount of which cannot be determined. WinStar Gateway has
removed the action to federal court in Alabama and also has moved to have the
complaint dismissed. In the event the action is not disposed of by motion, the
Company intends to resolve the action as expeditiously and economically as
possible, which may include the diligent defense of the action or settlement.
The Company believes that it has meritorious defenses to the allegations raised
in the action. In the event WinStar Gateway is not successful in the defense of
the action, or if WinStar Gateway elects to settle the action, the Company
believes that any judgment against WinStar Gateway, or
<PAGE>
settlement entered into by it, will not have a material adverse effect on the
Company, its financial condition or its results of operations.
In June 1996 the Company, as plaintiff, commenced an action for declaratory
judgment against Nelson Thibodeaux, a former officer of WinStar Gateway, in the
Federal District Court for the Southern District of New York seeking a
declaration that the Company has no obligation to Mr. Thibodeaux under stock
option agreements granted to him during his employment with WinStar Gateway.
Further, because the Company believes that any and all claims that may be
advanced by Mr. Thibodeaux with regard to his stock option agreements would be
frivolous, the Company has notified Mr. Thibodeaux and his counsel of its
intention to seek sanctions and such other remedies as may be available against
Mr. Thibodeaux and his counsel in the event that Mr. Thibodeaux and his counsel
seek to assert any defense to the Company's action. Additionally, the Company
seeks monetary damages arising from an alleged breach by Mr. Thibodeaux of the
non-competition and related provisions contained in his employment agreement
with the Company.
Item 4. Submission of Matters to a Vote of Security Holders
On June 27, 1996, the Company held its annual meeting of stockholders, which
included the election of directors and the approval of amendments to the
Company's stock option plans. Stockholders voted to elect Bert W. Wasserman and
Nathan Kantor to serve as Class II directors for a term of three years.
21,515,328 shares were voted for and 145,553 shares were withheld from Mr.
Kantor's election and 21,514,228 shares were voted for and 146,653 shares were
withheld from Mr. Wasserman's election. The stockholders also voted on the
approval of an amendment to the Company's 1995 Performance Equity Plan ("1995
Plan") to increase the number of shares available thereunder for stock option
grants by 1,500,000 shares. 12,904,717 shares were voted for the amendment to
the 1995 Plan, 2,197,998 shares were voted against the amendment to the 1995
Plan and 74,414 shares abstained from voting on the amendment to the 1995 Plan.
The stockholders also voted on the approval of an amendment to the Company's
1992 Performance Equity Plan ("1992 Plan") to increase the number of shares
available thereunder for stock option grants by 500,000 shares. 13,207,227
shares were voted for the amendment to the 1992 Plan, 1,891,593 shares were
voted against the amendment to the 1992 Plan and 75,009 shares abstained from
voting on the amendment to the 1992 Plan.
Item 6. Exhibits and Reports on Form 8-K
Exhibits
3.6(a) Amendments to Bylaws of the Company
10.79 Agreement and Plan of Merger between Milliwave, LP and WinStar
Wireless, Inc., a wholly-owned subsidiary of WinStar
Communications, Inc.
10.80 Service Agreement between WinStar Wireless, Inc. and Milliwave, LP
10.81 Transmission Path Lease Agreement between Milliwave, LP and
WinStar Wireless, Inc.
27.1 Financial Data Schedule
<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/William J. Rouhana, Jr.
William J. Rouhana, Jr.
Chief Executive Officer, Director, and
Chairman of the Board of Directors Dated: August 14, 1996
By: /s/Fredric E. von Stange
Fredric E. von Stange
Director, Executive Vice President, Chief
Financial Officer (and principal accounting
officer) Dated: August 14, 1996
<PAGE>
<PAGE>
AMENDMENTS TO BYLAWS
ARTICLE II, Section 1:
1. Powers of Directors. The property, business and affairs of the corporation
shall be managed by the Board of Directors which may exercise all the powers of
the corporation except such as are by the law of the State of Delaware or the
Certificate of Incorporation or these By-Laws required to be exercised or done
by the stockholders;
ARTICLE II, Section 2:
2. Number, Classes, Election, Terms of Office of Directors, Majority of
Independent Directors. The number of directors which shall constitute the Board
shall be fixed by resolution of the Board from time to time. The directors shall
be divided, equally or as nearly equal in number as possible, into three classes
each of which shall serve for a term of three years. The number of directors may
be changed by resolution of a majority of the entire Board, but no decrease may
shorten the term of any incumbent director. Until August 5, 1999, at each
meeting of stockholders at which directors are elected, persons will be elected
so that a majority of the directors comprising the Board after such election
shall be independent. Directors shall be elected by a plurality of the votes
cast and shall hold office until the next annual meeting of stockholders at
which his or her class of directors is to be elected and until his or her
successor is elected and qualified. Directors need not be stockholders. As used
in these By-Laws, the term "entire Board" means the total number of directors
which the corporation would have if there were no vacancies on the Board;
ARTICLE II, Section 3:
3. Vacancies on Board of Directors; Removal.
(a) Any director may resign his or
her office at any time by delivering his or her resignation in writing to the
Chairman of the Board, Chief Executive Officer, President or Secretary of the
corporation. It will take effect at the time specified therein or, if no time is
specified, it will be effective at the time of its receipt by the corporation.
The acceptance of a resignation shall not be necessary to make it effective,
unless expressly so provided in the resignation.
(b) Any vacancy, or newly
created directorship resulting from any increase in the authorized number of
directors, may be filled by a person or persons, as required, by the vote of a
majority of the directors then in office, though less than a quorum, or by a
sole remaining director, and any director so chosen shall hold office until the
next annual meeting of stockholders at which his or her class of directors is to
be elected and until his or her successor is duly elected and qualified or until
his or her earlier resignation or removal; provided, however, that, until August
5, 1999, if an independent director resigns, dies or becomes physically or
mentally incapacitated so as to be unable to serve as a director, thereby
resulting in a circumstance in which the majority of the Board no longer
consists of independent directors, the Board shall have a period which is the
longer of (i) four months from the date such vacancy is created and (ii) four
months from August 5, 1996 to appoint a new, independent person to the vacated
directorship; and provided further, that any newly created directorship
resulting from any increase in the authorized number of directors must be filed
by
<PAGE>
an independent person if necessary to maintain a Board comprised of a majority
of independent directors.
ARTICLE II, Section 6
6. (a) The Board of Directors shall maintain an audit
committee whose responsibilities shall include, in addition to such other duties
as the Board may specify, (i) recommending to the Board the appointment of
independent accountants; (ii) reviewing the timing, scope and results of the
independent accountants' audit examination and the related fees; (iii) reviewing
periodic comments and recommendations by the Company's independent accountants,
and the Company's responses thereto; (iv) reviewing the scope and adequacy of
internal accounting controls and internal auditing activities; and (v) reviewing
and making recommendations to the Board with respect to significant changes in
accounting policies and procedures. The audit committee shall be comprised of
persons that are members of the Board of Directors and, until August 5, 1999 the
majority of such committee's members shall be independent.
(b) The Board of Directors shall maintain a compensation committee whose
responsibilities shall include, in addition to such other duties as the Board
may specify, (i) reviewing and recommending to the Board the salaries,
compensation and benefits of the executive officers and key employees of the
Company, (ii) reviewing any related party transactions on an ongoing basis for
potential conflicts of interest and (iii) administering the Company's stock
option plans. The compensation committee shall be comprised of persons that are
members of the Board of Directors and, until August 5, 1999 the majority of such
committee's members shall be independent. Until August 5, 1999, absent the
approval of a majority of the independent members of the compensation committee,
the Company shall not enter into any material transaction with any director or
affiliate of any director of the Company. Further, the Board of Directors,
standing alone, or through the compensation committee, shall not grant any stock
options to any officers, employees or directors of the Company after August 5,
1996 and prior to August 5, 1999 which are exercisable at a price below the
closing public trading price of the stock of the Company on the trading day
immediately preceding the date the corporation first agrees to make such options
available.
(c) The Board of Directors shall maintain a nominating committee whose
responsibility shall be to consider and select candidates to stand as the
nominees of the Board of Directors for election as directors at each meeting of
stockholders at which directors will be elected. The nominating committee shall
be comprised of persons that are members of the Board of Directors and, until
August 5, 1999, the majority of such committee's members shall be independent.
(d) The Board may, by resolution or resolutions passed by a majority of the
entire Board, designate one or more additional committees. Each committee,
including the corporation's audit, compensation and nominating committees shall
consist of two or more directors. The Board may designate one or more directors
as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee, subject to the limitations
with respect to independent directors set forth in this subsection. In the
absence or disqualification of any member of such committee or committees, the
member or members thereof present at any such meeting and not disqualified from
voting, whether or not he, she or they constitute a quorum, may unanimously
appoint another member of the Board to act at the meeting in the place of any
such absent or disqualified member; provided, however, that only an independent
director may serve as an alternate for or replacement of another independent
director.
<PAGE>
(e) Committees, to the extent provided in the resolution or resolution of the
Board, or in these By-Laws, shall have and may exercise all the powers and
authority of the Board in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power of
authority in reference to amending the Certificate of Incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property and
assets, recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the by-laws of the corporation; and
unless the resolution, these by-laws, or the Certificate of Incorporation
expressly so provide, no such committee shall have the power or authority to
declare a dividend or to authorize the issuance of stock.
ARTICLE VII:
ARTICLE VII
CONTROL OVER BY-LAWS
Subject to the provisions of the Certificate of Incorporation
and the provision of the General Corporation Law, the power to amend, alter or
repeal these bylaws and to adopt new By-Laws may be exercised by the Board of
Directors or by the stockholders of the corporation; provided, however, that
Sections 1, 2, 3 and 6 of Article II and this Article VII shall be amended,
altered or repealed only by the affirmative vote of the outstanding shares
entitled to vote thereon.
AGREEMENT AND PLAN OF MERGER
DATED: JUNE 28, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Page
ARTICLE I....................................................................................................... 2
SECTION 1.01. The Merger.................................................................................. 2
SECTION 1.02. Closing..................................................................................... 2
SECTION 1.03. Effective Time.............................................................................. 3
SECTION 1.04. Effects of the Merger....................................................................... 3
SECTION 1.05. Charter and By-Laws of Surviving Corporation................................................ 3
SECTION 1.06 Directors and Officers of Milliwave......................................................... 3
ARTICLE II
MERGER CONSIDERATION AND RELATED MATTERS
SECTION 2.01. Conversion of Milliwave Shares.............................................................. 3
SECTION 2.02. Proper Endorsements, Etc.................................................................... 5
SECTION 2.03. Voting and Related Matters.................................................................. 5
SECTION 2.04. Surrender and Payment....................................................................... 6
SECTION 2.05. Adjustments................................................................................. 7
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE MILLIWAVE PARTIES........................................................................................ 8
SECTION 3.01. Organization................................................................................ 8
SECTION 3.02. Authority and Corporate Action.............................................................. 9
SECTION 3.03. The Partner Shares and Milliwave Interests.................................................. 10
SECTION 3.04. Compliance with Instruments and Laws........................................................ 11
SECTION 3.05. The Licenses and FCC Applications........................................................... 11
SECTION 3.06. Assets and Liabilities...................................................................... 13
SECTION 3.07. Contracts................................................................................... 14
SECTION 3.08. Litigation.................................................................................. 14
SECTION 3.09. Tax Liabilities............................................................................. 15
SECTION 3.10. Consents and Approvals...................................................................... 15
SECTION 3.11. Title to Properties......................................................................... 16
SECTION 3.12. No Guarantees............................................................................... 16
SECTION 3.13. Employees; Labor Matters.................................................................... 16
SECTION 3.14. Brokers..................................................................................... 16
SECTION 3.15. Records..................................................................................... 16
SECTION 3.17. Disclosure.................................................................................. 17
<PAGE>
Page
SECTION 3.18. Survival of Representations and Warranties.................................................. 17
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF WINSTAR....................................................................... 17
SECTION 4.01. Capitalization of WinStar and WinStar Sub................................................... 18
SECTION 4.02. Corporate Existence and Power............................................................... 18
SECTION 4.03. Authority and Corporate Action.............................................................. 18
SECTION 4.04. WinStar Shares.............................................................................. 19
SECTION 4.05. WinStar Public Information.................................................................. 19
SECTION 4.06. Consents and Approvals...................................................................... 19
SECTION 4.07. Survival of Representations and Warranties.................................................. 20
ARTICLE V
ADDITIONAL AGREEMENTS........................................................................................... 20
SECTION 5.01. Registration of WinStar Shares.............................................................. 20
SECTION 5.02. Indemnification............................................................................. 21
SECTION 5.03. Investment Representations.................................................................. 23
SECTION 5.04. Financial Statements........................................................................ 24
SECTION 5.05. Operation of Company's Business............................................................. 25
SECTION 5.06. Prosecution of FCC Consent; Disclosure...................................................... 26
SECTION 5.07. FCC Applications............................................................................ 27
SECTION 5.08. Reports..................................................................................... 28
SECTION 5.09. Intentionally Omitted....................................................................... 28
SECTION 5.11. Boards of Directors; Advisory Board......................................................... 28
SECTION 5.12. Intentionally Omitted....................................................................... 29
SECTION 5.13. Access to Information....................................................................... 29
SECTION 5.14. No Other Negotiations....................................................................... 29
SECTION 5.15. No Securities Transactions.................................................................. 30
SECTION 5.16. Disclosure of Certain Matters............................................................... 30
SECTION 5.17. Confidentiality............................................................................. 30
SECTION 5.18. Other Information........................................................................... 31
SECTION 5.19. Regulatory and Other Authorizations......................................................... 31
SECTION 5.20. Cooperation; Best Efforts; Further Action................................................... 32
SECTION 5.21. Schedules................................................................................... 32
SECTION 5.22. Exchange Act Reports........................................................................ 33
SECTION 5.23. Termination of Agreements................................................................... 33
<PAGE>
Page
SECTION 5.24. Resignations................................................................................ 33
SECTION 5.25. Legal Opinions.............................................................................. 33
SECTION 5.26. Release of Claims........................................................................... 33
SECTION 5.27. Non-Compete................................................................................. 33
SECTION 5.28. Dividend.................................................................................... 34
ARTICLE VI
CONDITIONS PRECEDENT TO THE MERGER.............................................................................. 34
SECTION 6.01. Conditions to Each Party's Obligations...................................................... 34
SECTION 6.02. Conditions to the Obligations of WinStar.................................................... 34
SECTION 6.03. Conditions to the Obligations of the Milliwave Parties..................................... 36
ARTICLE VII
INDEMNIFICATION................................................................................................. 37
SECTION 7.01. Intentionally Omitted....................................................................... 37
ARTICLE VIII
TERMINATION..................................................................................................... 37
SECTION 8.01. Methods of Termination...................................................................... 37
SECTION 8.02. Effect of Termination....................................................................... 39
ARTICLE IX
DEFINITIONS..................................................................................................... 40
SECTION 9.01. Certain Defined Terms....................................................................... 40
ARTICLE X
GENERAL PROVISIONS.............................................................................................. 42
SECTION 10.01. Expenses................................................................................... 42
SECTION 10.02. Notices.................................................................................... 42
SECTION 10.03. Press Release; Public Announcements........................................................ 43
SECTION 10.04. Amendment.................................................................................. 43
SECTION 10.05. Waiver..................................................................................... 43
SECTION 10.06. Headings................................................................................... 44
SECTION 10.07. Severability............................................................................... 44
SECTION 10.08. Entire Agreement; Conflict................................................................. 44
SECTION 10.09. Benefit.................................................................................... 45
<PAGE>
Page
SECTION 10.10. Governing Law; Jurisdiction................................................................ 45
SECTION 10.11. Counterparts............................................................................... 45
</TABLE>
<PAGE>
SCHEDULES
Schedule A Partners
Schedule B Stockholders
Schedule C Licenses and Applications --- Service Areas
Schedule 3.05(c) Forms 494A
Schedule 3.05(d) Understandings re: Licenses
Schedule 3.06 Assets and Liabilities
Schedule 3.07 Contracts
Schedule 3.08 Litigation
Schedule 3.10 Approvals
Schedule 3.13 Employees
<PAGE>
AGREEMENT
AGREEMENT AND PLAN OF MERGER, dated June 28, 1996, among the
Corporations listed on Schedule A annexed hereto (the "Partners"), the Persons
listed on Schedule B annexed hereto (the "Stockholders"), MILLIWAVE LIMITED
PARTNERSHIP, a Florida limited partnership whose address is 1776 Eye Street,
N.W., Suite 850, Washington, D.C. 20006 ("Milliwave"), WINSTAR MILLIWAVE, INC.,
a Delaware corporation whose address is 230 Park Avenue, Suite 3126, New York,
New York 10169 (the "WinStar Sub"), and WINSTAR COMMUNICATIONS, INC., a Delaware
corporation whose address is 230 Park Avenue, New York, New York 10169
("WinStar").
WHEREAS, the Partners are the owners of all of the outstanding partnership
interests of Milliwave ("Interests"); and
WHEREAS, the Stockholders are the owners of all of the outstanding capital stock
of the Partners; and
WHEREAS, Milliwave was formed to acquire, own and operate
telecommunications facilities throughout the United States and internationally
and has been granted by the Federal Communications Commission ("FCC") licenses
to operate microwave facilities in the 38 GHz band ("Licenses") in the
metropolitan areas of the United States ("service areas") listed in Part I of
Schedule C annexed hereto and has filed applications with the FCC for licenses
to operate such microwave facilities in the service areas listed in Part II of
Schedule C);
and WHEREAS, subject to approval by the FCC, the Stockholders,
Milliwave, WinStar Sub and WinStar desire to merge each of the Partners into
WinStar Sub in accordance with this Agreement and the Delaware General
Corporation Law (the "DGCL") and on the terms and conditions set forth herein;
IT IS AGREED:
<PAGE>
ARTICLE I
THE MERGER
SECTION 1.01. The Merger. Upon the terms and subject to the conditions
hereof, and in accordance with the relevant provisions of the DGCL, WinStar Sub
and each Partner shall consummate the merger ("Merger") of the Partners into
WinStar Sub at the Effective Time (as defined below). Following the Merger,
WinStar Sub shall continue as the surviving corporation (the "Surviving
Corporation") and shall continue its existence under the law of the State of
Delaware as a wholly-owned subsidiary of WinStar and the separate corporate
existence of each Partner shall cease. As a result of the Merger, all of the
Interests will be owned by the WinStar Sub.
SECTION 1.02. Closing. Unless this Agreement shall have been terminated
and the Transactions abandoned pursuant to Article VIII, the consummation of the
Merger and the other Transactions (the "Closing") shall take place as promptly
as practicable (and in any event within fifteen Business Days) after
satisfaction or waiver of the conditions to the Merger set forth in Article VI,
at the offices of Graubard Mollen & Miller, 600 Third Avenue, New York, New York
10016, unless the Parties hereto agree in writing to another date or place. The
date on which the Closing occurs is referred to herein as the "Closing Date."
SECTION 1.03. Effective Time. On the Closing Date, WinStar Sub and each
Partner shall file with the Secretary of State of the State of Delaware a
Certificate of Merger reflecting the consummation of the Merger in accordance
with the DGCL. The Merger shall become effective at such time as the Certificate
of Merger is so filed (the "Effective Time").
SECTION 1.04. Effects of the Merger. The Merger shall have the effects set forth
in Sections 251 and 328 of the DGCL.
SECTION 1.05. Charter and By-Laws of
Surviving Corporation. The Certificate of Incorporation and By-Laws of WinStar
Sub shall be the Certificate of Incorporation and By-Laws of the Surviving
Corporation at the Effective Time.
SECTION 1.06 Directors and Officers of
Milliwave. The directors and officers of WinStar Sub shall be the directors and
officers of the Surviving Corporation. <PAGE>
ARTICLE II
MERGER CONSIDERATION AND RELATED MATTERS
SECTION 2.01 (a) Conversion of Partner Shares. At the Effective Time,
all shares of the capital stock of each Partner ("Partner Shares") then
outstanding shall be converted into an aggregate of 3,400,000 shares of the
Common Stock of WinStar ("WinStar Shares") and $40,000,000 cash, which WinStar
Shares and cash shall be issued and paid to the Stockholders in the numbers and
amounts set forth in Schedule B (as amended from time to time by the Milliwave
Parties prior to the Closing Date (and, in its amended form, hereinafter
referred to as "Schedule B")) upon surrender of their certificates for their
Partner Shares. The aggregate amounts of WinStar Shares and cash issued and paid
to all of the Stockholders for their Partner Shares is referred to herein as the
"Merger Consideration." Notwithstanding the foregoing, (I) (a) if the average of
the last sale prices of the WinStar Shares for the ten trading days prior to the
Closing Date ("Average Price") is less than $22.06, then the Merger
Consideration shall be increased by an amount equal to the product obtained
("Maximum Increase") by multiplying the difference between the Average Price and
$22.06 by 3,400,000; provided, however, that the increase shall in no event
exceed the product obtained by multiplying 1,100,000 by the Average Price
("Capped Increase"); provided further, however, that if the Capped Increase is
less than the Maximum Increase, the Milliwave Parties may terminate this
Agreement unless WinStar pays the Maximum Increase. Any increase shall be paid
by WinStar in cash or WinStar Shares, or any combination thereof, at WinStar's
option, provided, however, that the cash portion of the consideration shall in
no event exceed 50% of the Merger Consideration (if any such increase is paid by
the issuance of additional WinStar Shares, such shares shall be valued at the
Average Price); and (b) if the Average Price is greater than $27.94, then the
number of WinStar Shares constituting the Merger Consideration shall be reduced
by that number of shares determined by dividing (i) the product obtained by
multiplying the difference between the Average Price and $27.94 by 1,700,000 by
(ii) the Average Price; (II) the amount of cash included in the Merger
Consideration to be paid to each Stockholder shall be reduced by an amount equal
to the unsatisfied liabilities, obligations and other commitments (due or to
become due) of the respective Partner of which the Stockholder is a stockholder
on the Closing Date; (III) the aggregate amount of cash included in the Merger
Consideration shall be reduced by an amount equal to the accrued unsatisfied
liabilities of Milliwave on the Closing Date, except (a) liabilities incurred by
Milliwave as a direct result of the breach by WinStar Wireless, Inc. of its
obligations under the Services Agreement, dated the date hereof and (b)
liabilities released pursuant to Section 5.26 hereof; and (IV) the amount of
cash to be paid to each Stockholder included in the Merger Consideration shall
be increased by any cash, cash equivalents or accounts receivable held by
Milliwave or a Partner on the Closing Date. Any such adjustment or reduction
shall be
<PAGE>
apportioned among the Stockholders in proportion to the amounts of Merger
Consideration set forth for each of them in Schedule B, except that any
reduction attributable to the unsatisfied liabilities, obligations and other
commitments of a Partner, or any increase attributable to the cash, cash
equivalents or accounts receivable of a Partner, shall be allocated solely to
the Stockholders of that Partner.
(b) Escrow Deposit. Within two business days of the execution of this Agreement,
WinStar shall deposit into the attorney escrow account of Graubard Mollen &
Miller ("Escrow Agent") the amount of $5,000,000 ("Escrow Deposit"). The Escrow
Deposit shall be held by the Escrow Agent in accordance with the terms of this
Agreement or a mutually acceptable escrow agreement executed by the Parties at a
later date. At the time of a Closing, the Escrow Agent shall deliver the Escrow
Deposit to the Stockholders as part of the cash portion of the Merger
Consideration to be paid by WinStar. WinStar acknowledges that such payment
shall not constitute "liquidated damages" nor prevent the Stockholders from
exercising their rights and remedies under Section 8.02. If this Agreement is
terminated by Milliwave pursuant to Section 8.01(c), then the Escrow Agent shall
deliver the Escrow Deposit to Milliwave after receipt by the Escrow Agent of a
notice signed by both Milliwave and WinStar that the Agreement has been so
terminated. In the event of the termination of this Agreement for any other
reason, the Escrow Agent shall deliver the Escrow Deposit to WinStar. In any
case, all interest earned on the Escrow Deposit shall be delivered to WinStar
upon disposition of the Escrow Deposit. The Escrow Agent shall not charge for
its services and shall have no liability hereunder except for its intentional
misconduct.
SECTION 2.02. Proper Endorsements, Etc. If certificates representing
any portion of the Merger Consideration are to be issued to a Person other than
the registered holder of the Partner Shares formerly represented by the
certificate or certificates surrendered in exchange for the Merger
Consideration, it shall be a condition to such issuance that the certificate or
certificates so surrendered shall be properly endorsed or otherwise be in proper
form for transfer and that the Person requesting such issuance shall pay to the
Exchange Agent (as defined below) any transfer or other Taxes required as a
result of such issuance of stock certificates of Merger Consideration to a
Person other than the registered holder of such Partner Shares or establish to
the satisfaction of WinStar and its counsel, that such Tax has been paid or is
not payable.
SECTION 2.03. Voting and Related Matters. Each Stockholder agrees that,
prior to the Closing Date, it/he will irrevocably vote its/his Partner Shares in
favor of the Merger so that the Merger is authorized and approved by the Partner
in accordance with the DGCL. Each Stockholder hereby waives all rights under
DGCL ss.262 to an appraisal of the Partner Shares he owns.
<PAGE>
SECTION 2.04. Transfers. Until the Closing, (i) no Partner shall sell,
transfer, pledge, assign, encumber, negotiate, donate or otherwise dispose of
(collectively, "sell") any of its Interest; and/or no Stockholder shall sell its
Partner Shares; provided, however, that (i) Partners who hold Series B limited
partnership interests in Milliwave (the "Series B Partners") may assign their
Interest to entities controlled by, or under common control with, such Series B
Partners, or side-by-side funds of such entities, and (ii) any Stockholder may
transfer his Interest to immediate family members or trusts established for
their benefit as long as any such transferee agrees in writing to be bound by
the terms of this Agreement and the transferor-Stockholder is not relieved of
any liability or obligation hereunder.
SECTION 2.05. Surrender and Payment.
(a) Prior to the Effective Time, WinStar shall appoint the company then acting
as the transfer agent for its Common Stock as its agent (the "Exchange Agent")
for the purpose of exchanging certificates representing Partner Shares for
certificates representing the WinStar Shares to be issued with respect thereto
as part of the Merger Consideration. Prior to the Effective Time, WinStar will
send, or will cause the Exchange Agent to send to each holder of Partner Shares
at the Effective Time a letter of transmittal for use in such exchange.
(b) Each holder of Partner Shares that shall have been converted into the Merger
Consideration, upon surrender to the Exchange Agent of a certificate or
certificates formerly representing such Partner Shares, together with a properly
completed letter of transmittal covering such certificates, will be entitled to
receive the stock certificates of WinStar representing the appropriate number of
WinStar Shares issuable and the appropriate amount of cash payable in respect of
such Partner Shares, as determined in accordance with Schedule B. Until so
surrendered, each such certificate shall, after the Effective Time, represent
for all purposes, the appropriate number of WinStar Shares and the right to
receive such amount of cash. In no event will a holder of Partner Shares be
entitled to interest on the Merger Consideration issuable in respect of such
Partner Shares.
(c) After the Effective Time, there shall be no further registration of
transfers of Partner Shares held prior to the Effective Time, except as may be
required by the DGCL. If, after the Effective Time, certificates formerly
representing Partner Shares are presented to the Surviving Corporation or the
Exchange Agent, they shall be canceled and exchanged for the consideration
provided for, and in accordance with the procedures set forth, in this Article
II.
<PAGE>
SECTION 2.06. Adjustments.
(a) If at any time during the period between the date of this Agreement and the
Effective Time, the outstanding shares of Common Stock of WinStar shall have
been changed into a different number of shares or a different class by reason of
any stock dividend, subdivision, reclassification, recapitalization, split,
combination or exchange of shares, the number of WinStar Shares included in the
Merger Consideration shall be correspondingly adjusted to reflect such stock
dividend, subdivision, reclassification, recapitalization, split, combination or
exchange of shares.
(b) If, prior to the Effective Time, any capital reorganization or
reclassification of the Common Stock of WinStar, or consolidation or merger of
WinStar with another corporation, or the sale of all or substantially all of
WinStar's assets to another corporation or other similar event shall be
effected, then, as a condition of such reorganization, reclassification,
consolidation, merger, or sale, lawful and fair provision shall be made whereby
the Stockholders shall thereafter have the right to receive, in lieu of the
WinStar Shares they would otherwise receive upon consummation of the Merger,
such shares of stock, securities, or assets as may be issued or payable with
respect to or in exchange for the number of WinStar Shares to be issued to them
hereunder had the Merger been consummated immediately prior to such
reorganization, reclassification, consolidation, merger, or sale and in such
event appropriate provision shall be made with respect to the rights and
interests of the Stockholders to the end that the provisions hereof shall
thereafter be applicable, as nearly as may be in relation to any share of stock,
securities, or assets thereafter deliverable upon the consummation of the
Merger. WinStar shall not effect any such consolidation, merger, or sale unless
prior to the consummation thereof the successor corporation (if other than
WinStar) resulting from such consolidation or merger, or the corporation
purchasing such assets, shall assume by written instrument executed and
delivered to the Stockholders evidencing its obligation to deliver such shares
of stock, securities, or assets as, in accordance with the foregoing provisions,
such Stockholders will be entitled to receive.
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE MILLIWAVE PARTIES
The Partners and Milliwave (who, together with the Stockholders shall
be referred to collectively as the "Milliwave Parties"), jointly and severally,
each represents and warrants to WinStar and WinStar Sub as follows and
acknowledges that WinStar and WinStar Sub are relying upon such representations
and warranties:
SECTION 3.01. Organization. Each of the Partners is a corporation duly
organized, validly existing and in good standing under the law of the State of
Delaware, except that Milliwave Communications Corp. ("GP") is a Florida
corporation. Milliwave is a limited partnership duly organized and validly
existing under the laws of the State of Florida. Neither Milliwave nor any of
the Partners has any subsidiaries. Although each of the Partners may not
necessarily be duly qualified to do business as a foreign corporation, and
Milliwave may not necessarily be duly qualified to do business as a foreign
limited partnership in each of the jurisdictions in which the property owned,
leased or operated by it or the nature of the business which it conducts
requires qualification, such potential failure or failures, singly or in the
aggregate, will not have a material adverse effect on its business or
operations. Neither Milliwave nor any of the Partners owns, directly or
indirectly, any capital stock or any other securities of any issuer or any
equity interest in any other entity and is not a party to any agreement to
acquire any such securities or interest. Milliwave and each of the Partners has
all requisite power to own, lease and operate its properties and to carry on its
business as now being conducted and as presently contemplated to be conducted.
SECTION 3.02. Authority and Corporate Action. Each of the Milliwave
Parties has all necessary power and authority to enter into this Agreement and
to perform its obligations as contemplated hereby. All corporate action
necessary to be taken by any Milliwave Party to authorize the execution,
delivery and performance of this Agreement and all other agreements and
instruments delivered by such Milliwave Party in connection with this Agreement
has been duly and validly taken, except the vote referred to in the first
sentence of Section 2.03. Subject to the terms and conditions hereof, this
Agreement constitutes the valid and binding obligation of the Milliwave Parties,
enforceable in accordance with its terms, except as the enforceability thereof
may be limited by any applicable bankruptcy, insolvency or other laws affecting
creditors' rights generally or by general principles of equity, regardless of
whether such enforceability is considered in equity or at law and except that
enforceability of any indemnification provision may be limited under Federal and
state securities laws. The execution and delivery of this
<PAGE>
Agreement do not, and performance will not, violate or result in any default
under any provision of the Certificate of Incorporation or By-Laws of any
Partner or any corresponding instrument of Milliwave, or of any indenture,
license or other agreement to which any of the Milliwave Parties is a party or
any law, regulation, order, writ, judgment or decree applicable to it and by
which the ability of any of the Milliwave Parties to consummate the transactions
to be consummated by them hereunder would be adversely affected, except to the
extent that such defaults, singly or in the aggregate, would not have a material
adverse effect on Milliwave. The Stockholders also make the representations and
warranties contained in this Section 3.02 to WinStar and WinStar Sub, but only
with respect to matters relating to such Stockholder and any Partner of which he
is a Stockholder.
SECTION 3.03. The Partner Shares and Milliwave Interests.
The Stockholders also make the representations and warranties
contained in this Section 3.03 to WinStar and WinStar Sub, but only with respect
to matters relating to such Stockholder and any Partner of which he is a
Stockholder.
(a) Ownership. The Stockholders are the registered and beneficial owners of the
Partner Shares outstanding on the date hereof and the Partners are the
registered and beneficial owners of all of the Interests, in each case free and
clear of any Lien (as hereinafter defined) whatsoever and subject to no
restrictions with respect to the transferability thereof except as to the
Federal and state securities laws, the FCC Rules (as hereinafter defined), the
Amended and Restated Limited Partnership Agreement of Milliwave dated as of May
30, 1996 (the "Partnership Agreement"), and certain Option Agreements, dated May
30, 1996 between certain Stockholders and Partners, giving the Stockholders the
right to purchase the Partners' Interests ("Options"). Schedule A contains a
true and correct list of all the Partners and their respective Interests in
Milliwave and a description of the Options. Schedule B contains a true and
correct list of all the Stockholders of each Partner and will, at the Closing,
contain the number of shares owned by, and the Merger Consideration payable to,
each Stockholder. The Stockholders presently have no intent to sell any of the
WinStar Shares to be issued to them as part of the Merger Consideration.
(b) Capitalization. The Partner Shares owned
by the Stockholders represent all the issued
and outstanding shares of the capital stock of the Partners and are duly
authorized, validly issued, fully paid and non-assessable. The Interests owned
by the Partners represent all of the issued and outstanding partnership
Interests of Milliwave. There are no options, warrants or other contractual
rights outstanding which require, or give any Person the right to require, the
issuance of any capital stock of any Partner or of any Interest in Milliwave,
whether or not
<PAGE>
such rights are presently exercisable, except for the Option Agreements and the
Equity Holders Agreement, dated May 30, 1996, which would require the conversion
of Milliwave into a corporation upon the GP's request. All outstanding
securities of the Partners and Milliwave were issued in compliance with all
Federal and state securities laws.
(c) No Dividends. There are no declared but unpaid dividends or dividend
arrearages on any of the Partner Shares.
SECTION 3.04. Compliance with Instruments and Laws. Neither Milliwave
nor any Partner is in violation of any term of its Certificate of Incorporation,
or in material violation of its By-laws. Neither Milliwave nor any Partner is in
violation of the provisions of any mortgage, indenture, contract, agreement,
instrument, judgment, decree, order, statute, rule or regulation to which it is
subject and a violation of which could have a material adverse effect on its
ability to perform its obligations under this Agreement or on the business of
Milliwave. Milliwave is not in violation of any applicable law, rule,
regulation, order, writ or decree of any court or any governmental agency or
instrumentality, where the consequences of such violation would be materially
adverse to it.
SECTION 3.05. The Licenses and FCC Applications.
(a) Except as noted on Schedule 3.05, Milliwave holds each of the Licenses
granted to it as of the date hereof (the "Existing Licenses"). Each of the
Existing Licenses is in full force and effect except for such conditions imposed
generally by the FCC upon Licenses issued in the 38 GHz spectrum or conditions
stated in the authorization. There are no pending petitions for reconsideration
of the grants of the Existing Licenses and the grants of the Existing Licenses
have become final orders, no longer subject to reconsideration by the FCC on its
own motion or to judicial review. Milliwave has not been notified of any
unresolved protest to the grants of the Existing Licenses.
(b) A true and correct copy of Milliwave's (i) pending applications for Licenses
("FCC Applications"), as such FCC Applications have been modified or amended,
and (ii) Existing Licenses has been furnished to WinStar. The statements made in
the FCC Applications were true, correct and complete in all material respects at
the time made and are true, correct and complete in all material respects at the
time of execution of this Agreement and include all disclosures required by the
FCC Rules with respect to relationships between any of the Milliwave Parties or
other Persons who are the holders of Licenses or FCC Applications therefor.
Milliwave is the
<PAGE>
applicant of record with respect to the FCC Applications which are pending.
(c) Except pursuant to the Transaction Documents and as noted on Schedule 3.05,
Milliwave has not granted any rights to other Persons under the Existing
Licenses and FCC Applications and retains the exclusive right to use the
Existing Licenses and Licenses which may be granted pursuant to the pending FCC
Applications. Attached hereto as Schedule 3.05(c) is a list of all reports on
Form 494A which Milliwave has filed with the FCC with respect to the Existing
Licenses, copies of which have previously been furnished to WinStar. Milliwave
has filed all such Forms 494A and all reports required by 47 C.F.R. ss. 21.711
of the FCC Rules which it has been required to file.
(d) Except as set forth on
Schedule 3.05, there are no agreements or understandings existent or under
negotiation between Milliwave and any other Person who is the holder of a
License or FCC Application.
SECTION 3.06. Assets and Liabilities.
(a) Schedule 3.06 contains a true and complete list as of the date of this
Agreement of (i) all material assets owned by Milliwave other than the Existing
Licenses and the FCC Applications, and (ii) all of the material liabilities or
obligations of any kind, whether known or unknown, absolute, accrued, contingent
or otherwise, of Milliwave. Milliwave has not sold, dividended or otherwise
transferred any of its assets (including cash) since January 1, 1996.
(b) Milliwave has delivered to WinStar its financial statements as of and for
the periods ended December 31, 1995 (audited) and March 31, 1996 (unaudited).
The financial statements have been prepared in accordance with GAAP throughout
the periods indicated and fairly present the financial condition of Milliwave at
their respective dates and the results of the operation of Milliwave for the
periods covered thereby.
(c) Each of the Partner's only asset is its Interest in Milliwave. No Partner
has any liabilities of any nature whatsoever, except that certain Partners owe
money to certain Stockholders, as evidenced by Promissory Notes, dated May 30,
1996, and described on Schedule B hereto ("Notes") and except for liabilities of
the general partner as a result of being a GP of Milliwave. The Stockholders
also make the representations and warranties contained in this Section 3.06(c)
to WinStar and WinStar Sub, but only with respect to matters relating
<PAGE>
to such Stockholder and any Partner of which he is a Stockholder.
SECTION 3.07. Contracts. Except as set forth in Schedule 3.07,
Milliwave does not have any material contract, agreement, lease, permit,
consent, license, registration, easement, obligation or commitment (written or
oral) of any nature whatsoever (collectively, "Contracts"), other than the
Licenses and the FCC Applications. Except as set forth on Schedule 3.07, each
Contract is a valid and binding obligation of Milliwave, as the case may be,
enforceable in accordance with its terms (except as the enforceability thereof
may be limited by any applicable bankruptcy, insolvency or other laws affecting
creditors' rights generally or by general principles of equity, regardless of
whether such enforceability is considered in equity or at law), and is in full
force and effect (except for any Contracts which by their terms expire after the
date hereof or are terminated after the date hereof in accordance with the terms
thereof) and Milliwave, to the best of the knowledge of the Milliwave Parties,
any other party thereto, has not breached any material provision of, nor is in
default in any material respect under the terms of (and, to the best of the
knowledge of the Milliwave Parties, no condition exists which, with the passage
of time, the giving of notice, or both, would result in a default under the
terms of) any of the Contracts, except in each case, where the failure to be
valid, binding, or in full force and effect, or where any such breach, would not
have a material adverse effect in Milliwave. Milliwave has delivered true and
complete copies of each of the Contracts to WinStar. No Partner is a party to
any Contract except this Agreement, the Partnership Agreement and the purchase
agreement pursuant to which each Partner purchased its Interest, Notes, Option
Agreement and Equity Holders Agreement. The GP shall not be deemed to be a party
to a contract if it simply executed such contract on behalf of Milliwave.
SECTION 3.08. Litigation. Except as set forth on Schedule 3.08, there
are no actions, suits, arbitrations or other proceedings pending or, to the best
of the knowledge of the Milliwave Parties, threatened against Milliwave or any
Partner at law or in equity before any court, federal, state, municipal or other
governmental department or agency or other tribunal, except for such proceedings
which, if determined adversely to Milliwave or such Partner, would not have a
material adverse effect on Milliwave. Except as set forth on Schedule 3.08,
neither Milliwave, any Partner nor any of their respective property is subject
to any order, judgment, injunction or decree, except for such which would not
have a material adverse effect on Milliwave.
SECTION 3.09. Tax Liabilities. Milliwave and each of the Partners has
filed all Federal, state and local Tax reports and returns required by any law
or regulation to be filed by it and for which the failure to file would have a
material adverse effect on it, and has either duly paid all Taxes, duties, and
charges indicated as being due on the basis of such returns and reports, or will
have made adequate provision for the payment thereof, and the
<PAGE>
assessment of any material amount of additional Taxes in excess of those paid
and reported is not reasonably expected. There are no material unresolved
questions or claims concerning Tax liability of Milliwave nor any of the
Partners. Neither Milliwave nor any of its Partners has been audited by any
taxing authority and neither is currently involved in any such audit. Each
Partner (other than C Corporations) has made or will make a timely election to
be treated as an S Corporation for federal income tax purposes and, to the
extent permitted in the states in which they are subject to federal tax, for
state corporate income tax purposes. It is understood and agreed that all
federal, state and local tax reports and returns required to be filed with
respect to periods ending on or prior to the close of business on the Closing
Date, shall be the responsibility of Milliwave, the Partners and the
Stockholders, who shall also be responsible for paying any taxes indicated as
being owed thereon. Copies of any tax reports and returns to be filed for the
period ending on the Closing Date shall first be delivered to WinStar for review
and comment. The Stockholders also make the representations and warranties
contained in this Section 3.09 to WinStar and WinStar Sub, but only with respect
to matters relating to such Stockholder and any Partner of which he is a
Stockholder (but not with respect to the GP in its capacity as such).
SECTION 3.10. Consents and Approvals. The execution and delivery of
this Agreement by the Milliwave Parties do not, and the performance of this
Agreement and the consummation of the transactions contemplated hereby by the
Milliwave Parties will not, require any consent, approval, authorization or
other action by, or filing with or notification to, any governmental or
regulatory authority or other third party not already obtained, other than (a)
the consent of the FCC (the "FCC Consent"), (b) the consent required under the
Hart Scott Rodino Antitrust Improvements Act (the "HSR Consent"), (c) the
approvals and consents set forth in Schedule 3.10 (the "Other Approvals" and,
with the FCC Consent and the HSR Consent, the "Approvals"), and (d) such
consents, approvals, authorizations or actions, which, if not obtained or taken,
would not prevent any of the Milliwave Parties from performing any of its
material obligations under this Agreement or would not materially and adversely
affect Milliwave.
SECTION 3.11. Title to Properties. Subject to Section 3.05, Milliwave
and each of the Partners has good title to all its properties and assets. None
of such properties and assets is subject to any encumbrance or adverse claim of
any nature whatsoever, direct or indirect, whether accrued, absolute, contingent
or otherwise, other than liens imposed by law, including the FCC Rules, and
liens which would not have a material adverse effect on Milliwave, and the
restrictions imposed by the Option Agreements.
SECTION 3.12. Employees; Labor Matters. Except as set forth in Schedule 3.13,
neither Milliwave nor
<PAGE>
any Partner has any employees. Schedule 3.13 also sets forth summary
descriptions of the material terms of all employment agreements to which
Milliwave or any Partner is a party. Except as set forth in Schedule 3.13, no
Stockholder receives any salary or other cash or other compensation from
Milliwave or any Partner as an officer, director, consultant, employee or
otherwise.
SECTION 3.14. Brokers. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of any of the Milliwave Parties.
SECTION 3.15. Records. As of the date hereof, the books of account of
Milliwave and the Partners are, and, as of the Closing Date, the books of
account of Milliwave and the Partners and the minute books, stock certificate
books and stock transfer ledgers of the Partners will be, complete and correct
in all material respects.
SECTION 3.16. Disclosure. No representation or warranty by the
Milliwave Parties contained in this Agreement contains or will contain any
untrue statement of a material fact or omits or will omit to state a material
fact necessary in order to make the statements contained therein not misleading.
SECTION 3.17. Survival of Representations and Warranties. The
representations and warranties of the Milliwave Parties set forth in this
Agreement shall terminate and be of no further force and effect on the Closing
Date, except that (i) the representations and warranties set forth in Section
3.03 shall survive without limitation as to time; (ii) the representations and
warranties set forth in Section 3.06(c) shall survive for a period of one year
from the Effective Time; and (iii) the representations and warranties in Section
3.09 shall survive until the expiration of the statute of limitations with
respect to each respective Tax. A claim made against a Milliwave Party for
breach of any representation and warranty (which claim may include reasonable
attorneys fees) must be made prior to the termination of the applicable
representation, as set forth above. The maximum exposure of a Stockholder for
breach of a representation or warranty hereunder shall be limited to 60% of the
dollar amount of the Merger Consideration he receives he receives on the Closing
Date.
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF WINSTAR
WinStar and WinStar Sub jointly and severally represent and
warrant as follows and acknowledge that the Milliwave Parties are relying upon
such representations and warranties:
SECTION 4.01. Capitalization of WinStar and WinStar Sub. The authorized
capital stock of WinStar consists of (A) 75,000,000 shares of Common Stock, par
value $.01 per share, of which 27,748,005 shares are issued and outstanding, and
(B) 15,000,000 shares of Preferred Stock, par value $.01 per share, none of
which are issued or outstanding. The authorized capital stock of WinStar Sub
consists of 200 shares of Common Stock, par value $.01 per share, of which 100
are issued and outstanding.
SECTION 4.02. Corporate Existence and Power. Each of WinStar and
WinStar Sub is a corporation duly organized, validly existing and in good
standing under the law of the State of Delaware. Each of WinStar and WinStar Sub
has all requisite power to own, lease and operate its properties and to carry on
its business as now being conducted and as presently contemplated to be
conducted.
SECTION 4.03. Authority and Corporate Action. Each of WinStar and
WinStar Sub has all necessary power and authority to enter into this Agreement
and to perform its obligations as contemplated hereby. All corporate action
necessary to be taken by WinStar and WinStar Sub to authorize the execution,
delivery and performance of this Agreement and all other agreements and
instruments delivered by WinStar and WinStar Sub in connection with this
Agreement has been duly and validly taken. Subject to the terms and conditions
hereof, this Agreement constitutes the valid and binding obligation of WinStar
and WinStar Sub, enforceable in accordance with its terms, except as the
enforceability thereof may be limited by any applicable bankruptcy, insolvency
or other laws affecting creditors' rights generally or by general principles of
equity, regardless of whether such enforceability is considered in equity or at
law and except that enforceability of any indemnification provision may be
limited under Federal and state securities laws. The execution and delivery of
this Agreement by WinStar and WinStar Sub do not, and the performance will not,
violate or result in any default under any provision of its Certificate of
Incorporation or By-Laws or any default under any indenture, license or other
agreement to which WinStar and WinStar Sub is a party or any law, regulation,
order, writ, judgment or decree applicable to it and by which its ability to
consummate the transactions hereunder would be adversely affected.
<PAGE>
SECTION 4.04. WinStar Shares. The WinStar Shares to be issued to the
Stockholders as part of the Merger Consideration will, upon issuance in
accordance with the terms of this Agreement, be validly issued, fully paid and
non-assessable.
SECTION 4.05. WinStar Public Information. WinStar has filed all reports
required to be filed by it pursuant to the Securities Exchange Act of 1934 (the
"Exchange Act") since January 1, 1994 (the "Exchange Act Reports"). All of the
Exchange Act Reports were true and complete in all material respects when filed.
WinStar has provided Milliwave with copies of all of the Exchange Act Reports
and of its Prospectuses, dated June 14, 1996, included in its Registration
Statements on Form S-3, as filed with the Securities and Exchange Commission
("SEC") on that date (the "Prospectuses"). The Prospectuses, as of their date,
did not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
SECTION 4.06. Consents and Approvals. Except for the Approvals, all
consents, approvals, qualifications, orders, or authorizations of, or filings
with, any governmental authority, required in connection with (i) WinStar's and
WinStar Sub's valid execution, delivery, or performance of this Agreement, (ii)
the issuance of the WinStar Shares, and (iii) the consummation of the other
transactions contemplated on the part of WinStar by this Agreement, have been
obtained or made.
SECTION 4.07. Survival of Representations and Warranties. The
representations and warranties of WinStar and WinStar Sub set forth in this
Agreement shall terminate on the Closing Date and be of no further force or
effect, except that the representations and warranties set forth in Section 4.04
shall survive without limitation as to time. A claim made against WinStar for
breach of any representation and warranty (which claim may include reasonable
attorneys fees) must be made prior to the termination of the applicable
representation, as set forth above.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. Registration of WinStar Shares. No later than September
30, 1996, WinStar and the Stockholders shall negotiate in good faith to enter
into a Registration Rights Agreement containing the terms described in Sections
5.01 and 5.02, below (but if no such agreement is executed, Sections 5.01 and
5.02 shall control). Prior to January 1, 1998, WinStar shall file a registration
statement with the SEC to register the WinStar
<PAGE>
Shares (and any shares issued in respect of such shares, e.g., in connection
with splits, dividends, reclassifications, etc.) under the Securities Act of
1933, as amended (the "Act"), or shall include the WinStar Shares in a
registration statement which has been filed but not been declared effective if
allowable under the Act and the rules promulgated thereunder, so that they may
be sold by the Stockholders (for purposes of this Section 5.01 and Sections 5.02
and 5.03, (including certain transferees of such Stockholders, each a "Holder"
and collectively the "Holders") to the extent legally permissible. WinStar shall
use its best efforts to cause such registration statement to be declared
effective by the SEC by March 31, 1998. WinStar shall bear all fees and expenses
incurred by it in connection with the preparation and filing of such
registration statement. Each Holder will pay all brokerage discounts and
commissions with respect to the sale of his WinStar Shares and any fees and
expenses of separate counsel and accountants which may be retained by the
Holders. Notwithstanding the foregoing, WinStar shall have no obligation
hereunder in connection with any registration on behalf of a Holder unless the
Holder provides to WinStar such information and documents with respect to his
ownership of the WinStar Shares, compliance with the law, manner of proposed
disposition and such other matters as WinStar shall reasonably request for
disclosure in the registration statement. WinStar shall use its best efforts to
keep such registration statement current and effective for such period as may be
necessary until the Holder can freely sell in the open market all of his WinStar
Shares under an exemption from the registration requirements. The rights granted
under this Section 5.01 shall survive any transaction of the type referred to in
Section 2.06(b).
SECTION 5.02. Indemnification.
(a) WinStar will indemnify and hold harmless, each Holder, its officers and
directors and each Person who controls a Holder (within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act) against all losses, claims,
damages, liabilities and expenses (including reasonable attorneys' fees, costs
and expenses) caused by any untrue or alleged untrue statement of material fact
contained in any registration statement filed pursuant to Section 5.01,
prospectus or preliminary prospectus or any amendment thereof or supplement
thereto or any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as the same are caused by or contained in any information
furnished in writing to WinStar by such Holder for use therein.
(b) Each Holder will indemnify WinStar, its directors and officers and each
Person who controls WinStar (within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act) against any losses, claims, damages,
liabilities and expenses (including reasonable attorneys' fees, costs and
expenses) resulting
<PAGE>
from any untrue or alleged untrue statement of material fact contained in the
registration statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, but only to the extent that such untrue statement or omission is
contained in any information so furnished by such Holder in writing which states
that such information is for use in such registration statement, prospectus or
preliminary prospectus or any amendment or supplement thereto.
(c) Any Person entitled to indemnification under this Section 5.02 will (a) give
prompt written notice to the indemnifying party of any claim with respect to
which it seeks indemnification; provided, that the failure to give such notice
shall not relieve the indemnifying party of its obligations hereunder and (b)
unless in such indemnified party's reasonable judgment a conflict of interest
between such indemnified and indemnifying parties may exist with respect to such
claim, permit such indemnifying party to assume the defense of such claim with
counsel reasonably satisfactory to the indemnified party. If such defense is
assumed, the indemnifying party will not be subject to any liability for any
settlement made by the indemnified party without its consent (but such consent
will not be unreasonably withheld). An indemnifying party who is not entitled
to, or elects not to, assume the defense of a claim will not be obligated to pay
the fees and expenses of more than one counsel for each party indemnified by
such indemnifying party with respect to such claim.
SECTION 5.03. Investment Representations.
(a) Each Stockholder represents and warrants that he or she is either an
accredited investor under Regulation D promulgated pursuant to the Act or is
sufficiently sophisticated and knowledgeable about business matters, or is
advised by a representative (who executes such documents as may be reasonably
requested by WinStar) that by his or her business or financial experience has
such knowledge and experience in financial and business matters, that he or she
is capable of evaluating the merits and risks of an investment in the WinStar
Shares.
(b) Each Stockholder understands that the WinStar Shares will not have been
registered under the Act by the Closing Date and are offered pursuant to an
exemption thereunder, and that the issuance thereof has not been approved or
disapproved by the SEC or by any other Federal or state agency. No Stockholder
will sell or transfer any WinStar Shares unless such sale or transfer is
registered under the Act or exempt from registration thereunder. Each
certificate representing WinStar Shares shall bear the following legend:
<PAGE>
The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and may not be
sold, assigned, pledged or otherwise transferred or hypothecated except
pursuant to an effective registration statement under such Act or in
accordance with an exemption from the registration requirements
thereof.
(c) Each Stockholder acknowledges that he is acquiring the WinStar Shares for
his own account for investment and not on behalf of or for the benefit of any
other Person, trust, estate, or business organization and has no intention of
distributing any WinStar Shares to others in violation of the Act.
(d) Each Stockholder understands that he may be required to hold the WinStar
Shares indefinitely except to the extent any thereof are registered under the
Act and sold by him in accordance therewith. Each Stockholder understands that
the WinStar Shares may also be subject to resale restrictions imposed by the
securities laws of various states and may not be sold without compliance with
such laws.
(e) The Stockholders acknowledge that they have been given the opportunity to
ask questions of and to obtain documents from the executive officers and
directors of WinStar regarding the operations of WinStar and all such questions
and documents have been answered and provided to Holders' full satisfaction.
Each Stockholder acknowledges receiving a copy of each of the Exchange Act
Reports and the Prospectuses.
SECTION 5.04. Financial Statements. The Stockholders and Milliwave
understand that WinStar is a public company and may need to file with the SEC
and other regulatory bodies audited, unaudited and pro forma financial
statements reflecting the Milliwave's and WinStar's operations. Accordingly, the
Stockholders, Partners and Milliwave agree to cooperate with WinStar in this
regard and to provide WinStar all information WinStar may reasonably request in
that connection. In furtherance of the foregoing, the Stockholders shall deliver
to WinStar copies of audited financial statements of Milliwave for each year
ending after the date hereof and prior to the Closing Date, and unaudited
financial statements of Milliwave for each quarter ending after the date hereof
and prior to the Closing Date, all of which shall be prepared in accordance with
generally accepted accounting principles throughout the periods indicated and
fairly present the financial condition of Milliwave at their respective dates
and the results of operations of Milliwave for the periods covered thereby.
SECTION 5.05. Operation of Milliwave's Business. Except as contemplated
by this Agreement and the other Transaction Documents, between the date hereof
and the Closing Date, Milliwave will conduct its business only in the ordinary
course of such business and neither it nor the Partners or Stockholders on their
behalf will undertake
<PAGE>
any other activities without WinStar's express written consent, including but
not limited to any of the following:
(a) take any action which would make any of their representations or warranties
hereunder incorrect immediately after such action is taken;
(b) issue any Interest in Milliwave, any options, warrants or other rights to
purchase any Interest in Milliwave, any securities or other instruments
convertible or exchangeable into Interest in Milliwave, or any other right,
security or instrument which in any way, shape or form grants to the holder
thereof an Interest or the right to acquire an Interest in Milliwave;
(c) sell, assign, transfer, pledge, hypothecate or otherwise dispose or encumber
any Interest in Milliwave or enter into any agreement or other arrangement to
make any such disposition or encumbrance;
(d) declare any dividend or make any distribution on the outstanding Milliwave
Interests or directly or indirectly redeem or purchase any of the outstanding
Interest;
(e) incur any indebtedness on behalf of Milliwave which is not prepayable at the
Closing, or grant any liens or security interests in any of Milliwave's assets
(other than to secure indebtedness permitted hereunder); or
(f) guaranty any debts of their affiliates.
SECTION 5.06. Prosecution of FCC Consent; Disclosure.
(a) Unless the Parties have otherwise agreed, no later than ten days after the
date on which at least one transmission path has been installed in 80% of the
service areas covered by Licenses owned by Milliwave on such date, Milliwave,
upon the written request of WinStar, will make such filings and take such other
actions as are reasonable and necessary to obtain the FCC Consent and shall
thereafter diligently prosecute the FCC Consent until it is obtained; provided,
however, that Milliwave shall be entitled to unilaterally file for FCC Consent
at such time as 100% of the Licenses have been constructed.
<PAGE>
(b) The Parties shall cooperate with each other to enable them to make such
regulatory filings and take such other actions as they deem necessary or
appropriate to disclose the existence of this Agreement and the Transactions and
the relationships of the Parties. When practicable, each Party shall give the
other Parties at least three Business Days' advance written notice of any such
filings it proposes to make with the FCC.
SECTION 5.07. FCC Applications. Subject to the FCC Rules, the Milliwave
Parties shall use their reasonable efforts to obtain approval of the FCC
Applications which have heretofore been filed by Milliwave. Milliwave and
WinStar shall use reasonable efforts to resolve the mutual exclusivity between
their pending applications in the Las Vegas and Santa Rosa markets by Milliwave
dismissing its applications in Las Vegas and WinStar dismissing its application
in Santa Rose in the event that the FCC lifts the freeze in the filing of
application amendments prior to the termination of this Agreement. Except as
provided in this Section 5.07, nothing in this Agreement is intended or shall be
construed to preclude either party, during the term of this Agreement, from
preparing or filing any amendments to reduce the size of any 38 GHz application
in any market area, whether or not such applications are in conflict with the
other party.
SECTION 5.08. Reports. Between the date hereof and the Closing Date,
Milliwave shall furnish to WinStar monthly financial and operating statements,
periodic reports describing the status of the FCC Applications, Licenses and
applications for the FCC Consents and Other Approvals and filings on Form 494A
and such other information as WinStar may reasonably request.
SECTION 5.09. Intentionally Omitted
SECTION 5.10. Ancillary Agreements. Concurrently with the execution of this
Agreement, Milliwave and WinStar Wireless, Inc. shall enter into (i) a
Transmission Path Lease Agreement, and (ii) a Services Agreement.
SECTION 5.11. Boards of Directors. Promptly after the Closing Date, WinStar's
Board of Directors shall be expanded and Dennis R. Patrick shall be appointed as
a member thereof.
SECTION 5.12. Intentionally omitted.
SECTION 5.13. Access to Information. Between the date of this Agreement and the
Closing Date, Milliwave, the Partners, WinStar and WinStar Sub will permit the
other Parties and their Representatives (i)
<PAGE>
reasonable access during normal business hours to all of their books, records,
financial and operating data, reports and other related materials, offices and
other facilities and properties; and (ii) to make such inspections and copies
thereof as they may reasonably request.
SECTION 5.14. No Other Negotiations. Until the earlier of the Closing
or the termination of this Agreement, none of the Milliwave Parties shall (a)
solicit, encourage, directly or indirectly, any inquiries, discussions or
proposals for, (b) continue, propose or enter into any negotiations or
discussions looking toward or (c) except as contemplated by this Agreement,
enter into any agreement or understanding providing for any acquisition of any
Interest in Milliwave or of a substantial portion of its assets, nor shall any
of the Milliwave Parties provide any information to any Person for the purpose
of evaluating or determining whether to make or pursue any such inquiries or
proposals with respect to any such acquisition. The Milliwave Parties shall
immediately notify WinStar of any such realistic, material inquiries or
proposals or requests for information for such purpose and shall provide WinStar
with written summaries thereof which shall include identification of the Persons
making such inquiries.
SECTION 5.15. No Securities Transactions. The Milliwave Parties shall
not engage in any transactions involving the securities of WinStar during the
period commencing on the date hereof and terminating on the sixtieth day after
the Closing Date. Each of Milliwave and the Partners shall use its best efforts
to require each of its officers, directors, employees, agents and
Representatives to comply with the foregoing requirement.
SECTION 5.16. Disclosure of Certain Matters. From the date hereof
through the Closing Date, each Party shall give the other Parties prompt written
notice of any event or development that occurs that (a) had it existed or been
known on the date hereof would have been required to be disclosed under this
Agreement, (b) would cause any of the representations and warranties of the
Party contained herein to be inaccurate or otherwise misleading, (c) gives the
Party any reason to believe that any of the conditions set forth in Article VI
will not be satisfied, or (d) is of a nature that is or may be materially
adverse to the operations, prospects or condition (financial or otherwise) of
such Party.
SECTION 5.17. Confidentiality. The Milliwave Parties, on the one hand,
and WinStar and WinStar Sub, on the other hand, shall hold and shall cause their
respective Representatives to hold in strict confidence, unless compelled to
disclose by the FCC, the SEC or by other judicial or administrative process or
by other requirements of law, all documents and information concerning the other
Party furnished it by such other Party or its Representatives in connection with
the Transactions (except to the extent that such information can be shown to
have been (a)
<PAGE>
previously known by the Party to which it was furnished, (b) in the public
domain through no fault of such Party or (c) later lawfully acquired from other
sources, which source is not the agent of the other Party, by the Party to which
it was furnished), and each Party shall not release or disclose such information
to any other Person, except its Representatives in connection with this
Agreement. Notwithstanding the foregoing, WinStar shall be entitled to disclose
such matters as it is required to disclose to meet its legal obligations under
the securities laws. In addition, subject to the same exceptions as are set
forth in the first sentence of this Section 5.17, the Stockholders shall hold
and shall cause their respective Representatives to hold in strict confidence
all documents and information obtained by them concerning the businesses of
Milliwave including, without limitation, financial information, trade secrets
and "know-how," customers, suppliers and methodologies.
SECTION 5.18. Other Information. If in order to properly prepare
documents required to be filed with governmental authorities or its financial
statements, it is necessary that a Party be furnished with additional
information and such information is in the possession of the other Party, such
other Party agrees to furnish such information if it is reasonably available in
a timely manner to the Party requiring such information, at the cost and expense
of the Party being furnished such information.
SECTION 5.19. Regulatory and Other Authorizations. Each Party will use
its best efforts to obtain the FCC Consent and all other authorizations,
consents, orders and approvals of all Federal, state and other regulatory bodies
and officials that may be or become necessary for the performance of its
obligations pursuant to this Agreement and will cooperate fully with the other
Party in promptly seeking to obtain all such authorizations, consents, orders
and approvals. Notwithstanding anything to the contrary in this Agreement,
positions taken by a Party in filings with the FCC in connection with any rule
making proceeding or other action by the FCC which may have an adverse impact
upon any other Party hereto (except with respect to obtaining the FCC Consent or
otherwise relating to the ability of a Party to consummate the Transactions)
shall not be deemed to be a breach of any obligation or condition incumbent upon
a Party pursuant to this Agreement or any of the other Transaction Documents.
SECTION 5.20. Cooperation; Best Efforts; Further Action. Subject to the
terms and conditions of this Agreement, each Party shall cooperate with the
other and shall use its best efforts to take, or cause to be taken, all actions
and to do, or cause to be done, all things necessary, proper or advisable to
consummate the Transactions, including the execution and delivery of any
additional instruments necessary to consummate the Transactions. Each of the
Parties shall execute such documents and other papers and take such further
actions as may be reasonably
<PAGE>
required or desirable to carry out the provisions hereof and the Transactions
and to fulfill the conditions incumbent upon them under this Agreement and the
other Transaction Documents.
SECTION 5.21. Schedules. The Parties shall have the obligation to
supplement or amend, not less frequently than quarterly, the Schedules being
delivered concurrently with the execution of this Agreement and annexed hereto
with respect to any matter hereafter arising or discovered which, if existing or
known at the date of this Agreement, would have been required to be set forth or
described in the Schedules. The obligations of the Parties to amend or
supplement the Schedules being delivered herewith shall terminate on the Closing
Date. Notwithstanding any such amendment or supplementation, for purposes of
Sections 6.02(a) and 6.03(a), the representations and warranties of the Parties
shall be made with reference to the Schedules as they exist at the time of
execution of this Agreement.
SECTION 5.22. Exchange Act Reports. WinStar shall promptly furnish
Milliwave with copies of all reports filed by WinStar with the SEC after the
date of this Agreement pursuant to the provisions of the Exchange Act.
SECTION 5.23. Termination of Agreements. On or before the Closing Date, all
agreements between Milliwave and any of its officers, directors, employees or
consultants shall be terminated.
SECTION 5.24. HSR Filing. Promptly after the execution of this
Agreement, the Parties hereto shall cooperate with each other in order to make
the necessary filings required to obtain HSR Approval. Each Party shall bear its
own professional fees with respect to such filing, but WinStar and WinStar Sub,
on the one hand, and the Milliwave Parties, on the other hand, shall equally
share the filing fees with respect thereto.
SECTION 5.25. Legal Opinions. Concurrently with the execution of this Agreement,
WinStar shall have received an opinion reasonably acceptable to WinStar from
Paul, Hastings, Janofsky & Walker.
SECTION 5.26. Release of Claims. By his execution of this Agreement,
each Stockholder and Partner unconditionally releases Milliwave, and each
Stockholder unconditionally releases each Partner, effective as of the Closing
Date, from all obligations and liabilities owed to such Stockholder or Partner
by the releasee as shall exist on the Closing Date.
<PAGE>
SECTION 5.27. Non-Compete. For a period of two years from the Closing
Date, none of the Milliwave Parties (except for those who are Class B Limited
Partners of Milliwave or Stockholders of such Partners) shall engage (in any
capacity) in any business which applies for, acquires, licenses, leases or
otherwise exploits the 38 GHz band of the radio spectrum; provided that passive
ownership of up to 1% of the equity of a company in such business shall not
violate this Section.
SECTION 5.28. Notes; Options; Miscellaneous. (a) No Stockholder shall
exercise its Option prior to the Closing Date or the earlier termination of this
Agreement. Prior to the Closing Date, each Stockholder will contribute its Note
to the capital of its respective Partner and such Partner shall acquire the
Option from the Stockholder.
(b) The GP shall not exercise its right under the Equity
Holders Agreement to force the Partnership to convert into a corporation prior
to the Closing Date or the earlier termination of this Agreement.
SECTION 5.29 Inconsistent Documents. The Milliwave Parties acknowledge
that WinStar has not been given the opportunity to review certain Contracts and
other agreements material to its business and capital structure, including the
Notes and Options. The Milliwave Parties agree that (i) to the extent any
Contract or other agreement to which any of them is a party contains terms
inconsistent with the terms contained in this Agreement, that this Agreement
shall control; and (ii) that they will not exercise any right under any Contract
or other agreement detrimental to WinStar's rights hereunder or which may
otherwise impair or restrict the ability of WinStar to consummate the
transactions contemplated hereby.
ARTICLE VI
CONDITIONS PRECEDENT TO THE MERGER
SECTION 6.01. Conditions to Each Party's Obligations. The respective
obligations of each Party to consummate the Merger and the other Transactions
shall be subject to the fulfillment at or prior to the Closing Date of the
following conditions:
(a) No Governmental Order or Regulation. There shall not be in effect any order,
decree or injunction (whether preliminary, final or appealable) of a United
States Federal or state court of competent jurisdiction, and no rule or
regulation shall have been enacted or promulgated by any governmental authority
or
<PAGE>
agency, that prohibits consummation of the Merger.
(b) Approvals. All Approvals required for the consummation of the Merger,
including but not limited to the FCC C onsent and HSR approval, shall have been
granted.
SECTION 6.02. Conditions to the Obligations of WinStar. The obligations
of WinStar and WinStar Sub to consummate the Merger and the Transactions shall
be subject to the satisfaction or waiver, on or before the Closing Date, of each
of the following conditions:
(a) Representations and Warranties; Covenants. The representations and
warranties of the Milliwave Parties contained in this Agreement shall be true
and correct in all material respects as of the Closing Date, with the same force
and effect as if made as of the Closing Date (except where the failure to be so
true and correct, singly or in the aggregate, would not have a material adverse
effect on Milliwave); and all the covenants contained in this Agreement to be
complied with by the Milliwave Parties on or before the Closing Date shall have
been complied with in all material respects (except where the failure to so
comply, singly or in the aggregate, would not have a material adverse effect on
Milliwave), and WinStar shall have received a certificate of the Stockholders
and Milliwave to such effect.
(b) Legal Opinions. WinStar shall have received legal opinions from Goodwin,
Procter & Hoar, LLP (or other counsel reasonably acceptable to WinStar) with
respect to corporate and similar matters, and of Paul, Hastings, Janofsky &
Walker with respect to FCC related matters, in forms customary for transactions
of this nature.
SECTION 6.03. Conditions to the Obligations of the Milliwave Parties.
The obligations of the Milliwave Parties to consummate the Merger and the
Transactions shall be subject to the satisfaction or waiver, on or before the
Closing Date, of each of the following conditions:
(a) Representations and Warranties; Covenants. The representations and
warranties of WinStar and WinStar Sub contained in this Agreement shall be true
and correct in all material respects as of the Closing Date, with the same force
and effect as if made as of the Closing Date (except where the failure to be
true and correct, singly or in the aggregate, would not have a material adverse
effect on Milliwave); and all the covenants contained in this Agreement to be
complied with by WinStar and WinStar Sub on or before the Closing Date shall
<PAGE>
have been complied with (except where the failure to so comply, singly or in the
aggregate, would not have a material adverse effect on Milliwave, and
Milliwave), and the Stockholders shall have received a certificate of WinStar to
such effect.
(b) Legal Opinion. The Milliwave Parties shall have received a legal opinion
from Graubard Mollen & Miller in form customary for transactions of this nature.
(c) Delisting. To the extent that the Merger Consideration is paid in whole or
in part with WinStar Shares, WinStar's Common Stock must be (i) registered under
the Securities Exchange Act of 1934; and (ii) quoted on the Nasdaq National
Market or listed on of the New York Stock Exchange or the American Stock
Exchange; provided, however, that if the Milliwave Parties determine to
terminate this Agreement as a result of the failure by WinStar to meet this
condition, then WinStar shall have the right to pay the Merger Consideration in
cash and avoid termination; provided further, however, that if WinStar
determines to so pay in cash, each of the Milliwave Parties shall have the
option to have the Merger Consideration paid to them in cash, in WinStar Shares
or any combination thereof.
<PAGE>
ARTICLE VII
INDEMNIFICATION
Intentionally Omitted.
ARTICLE VIII
TERMINATION
SECTION 8.01. Methods of Termination. The transactions contemplated herein may
be terminated and/or abandoned at any time but not later than the Closing:
(a) by mutual written consent of WinStar and Milliwave;
(c) by Milliwave, (i) if WinStar or the WinStar Sub shall have breached any of
the covenants in Article V hereof in any material respect except where such
breach could not have a material adverse effect on the Milliwave Parties or
WinStar, or on the ability of the Parties to consummate the transactions
contemplated by this Agreement, (ii) if the representations and warranties of
WinStar and WinStar Sub contained in this Agreement shall not be true and
correct in all material respects at the time made except where the failure to be
so true and correct, singly or in the aggregate, could not have a material
adverse effect on the Milliwave Parties or WinStar, or on the ability of the
Parties to consummate the transactions contemplated by this Agreement, or (iii)
if such representations and warranties shall not be true and correct in all
material respects at and as of the Closing Date as though such representations
and warranties were made again at and as of the Closing Date, except to the
extent that such representations are made herein as of a specific date prior to
the Closing Date and except where the failure to be so true and correct, singly
or in the aggregate, could not have a material adverse effect on the Milliwave
Parties or WinStar, or on the ability of the Parties to consummate the
transactions contemplated by this Agreement, and in any such event, if such
breach is subject to cure, WinStar has not cured such breach within 10 business
days of the Stockholders' notice of an intent to terminate, or (iv) WinStar
commences any case, proceeding or other action (A) relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking to have an order for
relief entered
<PAGE>
with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment, liquidation, dissolution,
composition or other relief with respect to it or its debts, or (B) seeking
appointment of a receiver, trustee, custodian or other similar official for it
or for all or any substantial part of its property, or shall make a general
assignment for the benefit of its creditors, or there shall be commenced against
WinStar any case, proceeding or other action of a nature referred to in clause
(A) above or seeking issuance of a warrant of attachment, execution, distraint
or similar process against all or any substantial part of its property, which
case, proceeding or other action (x) results in the entry of an order for relief
or (y) remains undismissed, undischarged or unbonded for a period of 120 days or
(iv) if Milliwave terminates the Services Agreement with WinStar Wireless;
(d) by WinStar, (i) if any of the Milliwave Parties shall have breached any of
the covenants in Article V hereof in any material respect except where such
breach could not have a material adverse effect on Milliwave, WinStar or WinStar
Sub, or on the ability of the Parties to consummate the transaction contemplated
by this Agreement or (ii) if the representations and warranties of the Milliwave
Parties contained in this Agreement shall not be true and correct in all
respects at the time made and except where the failure to be so true and
correct, singly or in the aggregate, could not have a material adverse effect on
Milliwave, WinStar or WinStar Sub, or on the ability of the Parties to
consummate the transaction contemplated hereby, or (iii) if such representations
and warranties shall not be true and correct in all material respects at and as
of the Closing Date as though such representations and warranties were made
again at and as of the Closing Date, except to the extent that such
representations are made herein as of a specific date prior to the Closing Date
except where the failure to be so true and correct, singly or in the aggregate,
could not have a material adverse effect on Milliwave, WinStar or WinStar Sub,
or on the ability of the Parties to consummate the transaction contemplated
hereby, and in any such event, if such breach is subject to cure, the Milliwave
Parties have not cured such breach within 10 Business Days of WinStar's notice
of an intent to terminate; provided, however, that the failure of Milliwave to
timely construct an initial link in any market as to which Milliwave received a
Failure to Construct Notice under the Services Agreement shall not be deemed
material.
(e) by Milliwave (i) under Section 2.01(a) if WinStar determines not to pay the
Maximum Increase, or (ii) if the average last sale price of WinStar common stock
for any 30 consecutive trading days after December 31, 1996 is less than
$16-2/3.
SECTION 8.02. Effect of Termination. In the event of termination and abandonment
by WinStar or
<PAGE>
by Milliwave, or both, pursuant to Section 8.01 hereof, written notice thereof
shall forthwith be given to the other Party and all further obligations of the
Parties shall terminate, no Party shall have any right against the other Party
hereto, except as set forth in this Section 8.02, and each Party shall bear its
own costs and expenses. If the transactions contemplated by this Agreement are
terminated and/or abandoned as provided herein:
(a) If this Agreement is terminated by Milliwave pursuant to Section 8.01(c) or
by WinStar pursuant to Section 8.01(d), the terminating Party's right to pursue
all legal and equitable remedies for specific performance, breach of contract or
otherwise, including, without limitation, damages relating thereto, shall
survive such termination unimpaired, it being acknowledged and agreed by the
Parties that the business of Milliwave and WinStar are of a special, unique and
extraordinary character and that any breach will cause irreparable injury to the
non-breaching Party for which money damages will not provide a wholly adequate
remedy; provided, however, that the maximum monetary exposure of a Stockholder
under this section shall be limited to his pro rata share (based on equity in
Milliwave) of the fair market value of Milliwave.
(b) Each Party hereto will return all documents, work papers and other material
(and all copies thereof) of the other Party relating to the transactions
contemplated hereby, whether so obtained before or after the execution hereof,
to the Party furnishing the same; and
(c) All confidential information received by a Party with respect to the
business of the other Party shall be treated in accordance with Section 5.17,
which shall survive such termination or abandonment.
ARTICLE IX
DEFINITIONS
SECTION 9.01. Certain Defined Terms. As used in this Agreement, the following
terms shall have the following meanings:
"Affiliate" means, with respect to a Party, a Person controlled by,
controlling or under common control with such Party.
"Business Day" means a day of the year on which banks are not required
or authorized to be closed in the City of New York.
<PAGE>
"Damages" means the dollar amount of any loss, damage, expense or
liability, including, without limitation, reasonable attorneys' fees and
disbursements incurred by an Indemnified Party in any action or proceeding
between the Indemnified Party and the Indemnifying Party or between the
Indemnified Party and a third Party, which is determined (as provided in Article
VII) to have been sustained, suffered or incurred by a Party or Milliwave and to
have arisen from or in connection with an event or state of facts which is
subject to indemnification under this Agreement; the amount of Damages shall be
the amount finally determined by a court of competent jurisdiction or
appropriate governmental administrative agency (after the exhaustion of all
appeals) or the amount agreed to upon settlement in accordance with the terms of
this Agreement, if a Third Party Claim, or by the Parties, if a Direct Claim (as
hereinafter defined).
"Liens" means any lien, claim, charge, restriction or encumbrance.
"Party" means WinStar and/or WinStar Sub, on the one hand, and the
Stockholders, Partners and/or Milliwave, on the other hand (collectively,
"Parties").
"Person" means an individual, partnership, corporation, joint venture,
unincorporated organization, cooperative or a governmental entity or agency
thereof.
"Representatives" of either Party means such Party's employees,
accountants, auditors, actuaries, counsel, financial advisors, bankers,
investment bankers and consultants.
"Tax" or "Taxes" means all income, gross receipts, sales, stock
transfer, excise, bulk transfer, use, employment, franchise, profits, property
or other taxes, fees, stamp taxes and duties, assessments, levies or charges of
any kind whatsoever (whether payable directly or by withholding), together with
any interest and any penalties, additions to tax or additional amounts imposed
by any taxing authority with respect thereto.
"Third Party Claim" means a claim, demand, suit, proceeding or action
("Claim") by a Person, firm, corporation or government entity other than a Party
hereto or any affiliate of such Party.
"Transaction Documents" means this Agreement, the Plan of Merger and
the other agreements and documents contemplated hereby and thereby.
<PAGE>
"Transactions" means the Merger and the other transactions contemplated by the
Transaction Documents.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.01. Expenses. Except as otherwise provided herein, all costs
and expenses, including, without limitation, fees and disbursements of
Representatives, incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the Party incurring such costs and
expenses.
SECTION 10.02. Notices. All notices and other communications given or
made pursuant hereto shall be in writing and shall be deemed to have been duly
given or made as of the date delivered or mailed if delivered Personally or by
nationally recognized courier or mailed by registered mail (postage prepaid,
return receipt requested) or by telecopy to the Parties at the following
addresses (or at such other address for a Party as shall be specified by like
notice, except that notices of changes of address shall be effective upon
receipt):
(a) If to the Milliwave Parties:
Milliwave Limited Partnership
Attention: Dennis R. Patrick
1776 Eye Street, N.W., #850
Washington, D.C. 20006
Telecopier No.: (202) 331-1731
with a copy to:
Goodwin, Procter & Hoar, LLP
Attention: Laura Hodges Taylor, P.C.
Exchange Place
Boston, Massachusetts 02109
Telecopier No.: (617) 523-1231
(b) If to WinStar or WinStar Sub:
230 Park Avenue
Suite 3126
New York, New York 10169
Attention: Timothy R. Graham
Telecopier No.: 212-867-1565
<PAGE>
with a copy to:
Graubard Mollen & Miller
600 Third Avenue
New York, New York 10016
Attention: David Alan Miller, Esq.
Telecopier No.: 212-687-6989
SECTION 10.03. Press Release; Public Announcements. Neither the
Stockholders, the Partners nor Milliwave shall make any press release or other
public announcement in respect of this Agreement or the transactions
contemplated herein. WinStar shall not make any such announcement or release
without Milliwave's prior approval, which shall not be unreasonably withheld.
SECTION 10.04. Amendment. This Agreement may not be amended or modified except
by an instrument in writing signed by the Parties, which instrument shall
thereupon be binding upon all the Parties.
SECTION 10.05. Waiver. At any time prior to the Closing, any Party may
(a) extend the time for the performance of any of the obligations or other acts
of the other Parties, (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto and (c)
waive compliance with any of the agreements or conditions contained herein. Any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed by the Party to be bound thereby.
SECTION 10.06. Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 10.07. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy or violates FCC Rules, all other conditions and provisions of
this Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the transactions contemplated hereby is not
affected in any manner adverse to any Party. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
Parties shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the Parties as closely as possible in an acceptable
manner to the end that transactions contemplated hereby are fulfilled to the
extent possible.
SECTION 10.08. Entire Agreement; Conflict. This Agreement and the Schedules and
Exhibits hereto
<PAGE>
constitute the entire agreement and supersede all prior agreements and
undertakings, both written and oral, among the Stockholders, Milliwave and
WinStar with respect to the subject matter hereof and, except as otherwise
expressly provided herein, are not intended to confer upon any other Person any
rights or remedies hereunder.
SECTION 10.09. Benefit. This Agreement shall inure to the benefit of and be
binding upon the successors and assigns of the Parties.
SECTION 10.10. Governing Law; Jurisdiction. This Agreement shall be
governed by, and construed in accordance with, the law of the State of Delaware,
without regard to principles of conflicts of law, except that the DGCL shall
govern those matters affecting the constituent corporations to the Merger as
provided for therein. The Parties agree that any action or proceeding arising
out of or in any way relating to this Agreement or the other Transaction
Documents shall be brought in the courts of the State of Delaware and
irrevocably submit to such jurisdiction, which jurisdiction shall be exclusive.
The Parties waive all objections to such exclusive jurisdiction and that such
courts constitute an inconvenient forum. Process or summons in any such action
or proceeding may be served by registered mail, return receipt requested,
postage prepaid, addressed to a Party at the address set forth in Section 10.02.
Such mailing shall be deemed personal service and shall be deemed made upon the
Party served upon the first attempt at delivery if such attempt is refused.
SECTION 10.11. Counterparts. This Agreement may be executed in one or
more counterparts, and by the different Parties in separate counterparts, each
of which when executed shall be deemed to be an original but all of which when
taken together shall constitute one and the same agreement.
SECTION 10.12 . Consent. Whenever any consent, decision, authorization or
agreement ("Blessing") of the Milliwave Parties is required hereunder, such
Blessing can be given by the GP on behalf of all the other Milliwave Parties.
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement to
be executed as of the date first written above.
WINSTAR COMMUNICATIONS, INC.
By: William J. Rouhana, Jr.
Name:
Title: Chairman and CEO
WINSTAR MILLIWAVE, INC.
By: Dennis Patrick
Name:
Title: President
The undersigned agrees to act as
Escrow Agent under Section 2.01(b)
GRAUBARD MOLLEN & MILLER
\
By: David Alan Miller, Esq.
SERVICES AGREEMENT
THIS SERVICES AGREEMENT (this "Agreement") is made as of this
28th day of June, 1996 by and between WINSTAR WIRELESS, INC., a Delaware
corporation ("WinStar"), and MILLIWAVE, LP, a limited partnership ("Milliwave").
RECITALS
WHEREAS, Milliwave is a holder of licenses issued by the
Federal Communications Commission (the "FCC") to provide wireless
telecommunications services utilizing specific portions of the 38.6 to 40 GHz
frequency band ("38 GHz") (the "Business");
WHEREAS, Milliwave and WinStar have entered into that certain
Agreement and Plan of Merger of even date herewith pursuant to which WinStar
will merge with Milliwave subject to, inter alia, the prior consent of the FCC
(the "Merger Agreement"); and
WHEREAS, WinStar, directly or through its subsidiaries, is
being engaged to perform certain consulting and related services for Milliwave
in connection with the Business beginning on the Effective Date (as hereinafter
defined) and ending upon the termination of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and
covenants herein contained, the parties agree as follows:
1. Appointment. Subject to Milliwave's retention of licensee control, Milliwave
hereby retains WinStar on the conditions and the terms set forth herein to
provide the Services (as defined below) during the Term (as defined below).
2. Term. This Agreement shall commence as of June 28, 1996 (the "Effective
Date") and shall continue in full force and effect until terminated pursuant to
Section 10 below (the "Term").
3. Services. WinStar agrees to provide the following services (the "Services")
to Milliwave:
(a) Site Access. WinStar shall make available to Milliwave sites for the
installation of Milliwave's radio links as set forth below.
(b) Installation of Radio Links. Attached as Exhibit A is a true and correct
list of Milliwave's licenses ("Licenses") and, for each of these Licenses, the
construction date deadline ("Deadline") as provided pursuant to the rules and
regulations promulgated by the Federal Communications Commission (the "FCC
Rules"). Immediately upon the signing of this Agreement but in no event later
than the close of business on July 1, 1996, Milliwave shall have provided to
WinStar a complete and accurate listing of the coordinates of each and every
Milliwave License. WinStar shall use reasonable efforts to accomplish the proper
construction of one radio link in each of Milliwave's licensed areas on or
before the close of the eighteenth
<PAGE>
month after the date of issuance of such License, but in no event later than May
30, 1997, regardless of the date of issuance. Notwithstanding the foregoing,
WinStar shall have no duty to construct a licensed facility if WinStar has
provided notice, at least 30 days in advance of the Deadline, with respect to
such facility that WinStar will not be able to accomplish the construction of a
License prior to the Deadline (this notice is referred to as the "Failure to
Construct Notice"). WinStar shall provide Milliwave with periodic progress
reports on site acquisition activities and proposed construction timetables.
Milliwave represents to WinStar that Milliwave has ordered seventy (70) radios
from P-Com, Inc. ("P-Com") and Milliwave that has taken delivery of a sufficient
number of P-Com radios to complete the construction of one (1) link in each of
Milliwave's Licensed Areas for which the Deadline falls on or prior to September
1, 1996. Milliwave will acquire and provide to WinStar upon request a sufficient
number of P-Com radios to complete the construction of one (1) link in each of
the Licensed Areas. WinStar shall provide Milliwave reasonable notice of the
location to which equipment needed to complete construction of a link shall be
shipped. Milliwave agrees to deliver radios and other equipment (collectively,
"Installation Equipment" to the site locations requested by WinStar. The
foregoing requirement to construct is subject to the receipt by WinStar of the
Installation Equipment (at the appropriate site or WinStar's warehouse, at
WinStar's option) within fifteen (15) business days of the Deadline, which
Installation Equipment is in good working order.
(c) Management of the Network. WinStar will also, subject to the direction and
control of Milliwave, manage Milliwave's network which shall include, but not be
limited to, the following responsibilities: maintaining the systems and
equipment of the Business; supervising operations; performing obligations under
customer contracts, leases, and other operating agreements; bookkeeping and
accounting; collecting rent, subscriber fees, income, and other revenues from
customers; making all necessary disbursements, deductions and payments with
respect to the repair, maintenance and operation of the Business; and,
consistent with the existing practices of Milliwave, supervising employees and
legal advisors in performing such acts required in each jurisdiction where the
Business operates which are necessary to comply with applicable statutes,
ordinances, laws, rules and regulations (including, without limitation, the
Communications Act of 1934, as amended, and any the FCC Rules (collectively, the
"Applicable Laws")), and preparing for filing by Milliwave of all appropriate
license renewal applications and other reports and filings necessary to keep in
force and effect any Federal Communications Commission ("FCC") or public
utilities commission license or authorization required to be held by Milliwave
in connection with the Business. WinStar shall report monthly to the chief
executive officer of Milliwave (or other designee of the Board of Directors of
Milliwave) with respect to the operation of the Business and the Services
provided by WinStar and prepare monthly written reports to the Board of
Directors of Milliwave with respect to the Services provided by WinStar and the
financial performance of the Business. If requested by the Board of Directors of
Milliwave upon reasonable advance notice, WinStar will have in attendance at any
meeting of the Board of Directors of Milliwave (in person if such meeting is
held in New York or Washington, D.C., or by telephone if elsewhere) a
representative of WinStar to report on the Services performed by WinStar and the
performance of the Business.
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<PAGE>
4. WinStar's Fees.
Milliwave shall pay WinStar:
(a) Site Access. A fee of $ per link per month for site access in each
market. This fee shall be due and payable upon the completion of construction of
the initial Milliwave link in each licensed area.
(b) Installation of Radio Links. A fee of $ for each radio link that is
constructed on a Milliwave licensed area; provided, however, that only one
$ fee will be paid in a particular licensed area. This fee shall be due and
payable upon of completion of construction of the initial Milliwave link in each
licensed area.
(c) Management Fee. A fee of $ per month for performing the function listed
in Section 3(c) of this Agreement. This fee shall be due and payable upon
completion of construction of the initial Milliwave link in each licensed area.
Amounts due hereunder shall be paid within 15 days after the close of the month
in which the obligation was incurred.
Milliwave will also reimburse WinStar for its reasonable and prudent
out-of-pocket expenses incurred in connection with rendering the Services, which
expense shall not exceed $ (the "Expense Limitation") per market without
the prior approval of Milliwave, which approval shall not be unreasonably
withheld. Notwithstanding anything in this Agreement that may be construed to
the contrary, the parties acknowledge that there will be substantial costs
incurred in connection with the Licenses that have a Deadline on or prior to
September 15, 1996, and, therefore, the parties acknowledge that the Expense
Limitation will probably have to be exceeded.
5. Standard of Services. WinStar shall perform the Services in a professional
manner and in accordance with all applicable professional or industry standards
and all Applicable Laws.
6. Indemnification.
(a) WinStar shall indemnify and hold Milliwave harmless from and against all
damages, expenses, costs, or losses suffered or incurred by Milliwave resulting
from or arising out of WinStar's grossly negligent or reckless performance or
nonperformance of its obligations hereunder.
(b) Milliwave shall indemnify and hold WinStar harmless from and against all
damages, expenses, costs, or losses suffered or incurred by WinStar resulting
from
3
<PAGE>
or arising out of Milliwave's grossly negligent or reckless performance or
nonperformance of its obligations hereunder.
7. Proprietary Information. Each party acknowledges that, in
the course of the performance of this Agreement, it may have access to
privileged and proprietary information claimed to be unique, secret, and
confidential, and which constitutes the exclusive property or trade secrets of
the other, and the parties acknowledge that they are in a confidential
relationship with each other. This information may be presented in documents
marked with a restrictive notice or otherwise tangibly designated as proprietary
or during oral discussions, at which time representatives of the disclosing
party will specify that the information is proprietary. Each party agrees to
maintain the confidentiality of the proprietary information and to use the same
degree of care as it uses with regard to its own proprietary information to
prevent the disclosure, publication or unauthorized use of the proprietary
information. Neither party may duplicate or copy proprietary information of the
other party other than to the extent necessary for legitimate business uses in
connection with this Agreement. A party shall be excused from these
nondisclosure provisions if the proprietary information has been, or is
subsequently, generally available to the public without breach of this
Agreement, the proprietary information is made public by the other party, the
other party gives its express, prior written consent to the disclosure of the
proprietary information, the proprietary information is independently developed
by such party, or if the disclosure is required by law, or court process.
Notwithstanding anything to the contrary in this Agreement, this provision shall
survive the termination or expiration of this Agreement for a period of three
(3) years after the date of this Agreement.
8. Control bv Milliwave.
(a) Notwithstanding anything in this Agreement that may be construed to the
contrary, Milliwave shall retain ultimate control over the personnel, operations
and policies of the Business, including, without limitation, all legal and
regulatory matters, until the Closing (as defined in the Merger Agreement).
Milliwave and its officers, employees and agents shall retain full access at all
times to all aspects of the operations and books and records of the Business.
Milliwave may, in its discretion, accept or reject, in whole or in part, any
recommendation made by WinStar under this Agreement.
(b) It is expressly understood that nothing in this Agreement is intended to
give to WinStar or any affiliate of WinStar any right which would be deemed to
constitute a transfer of control (as "control" is defined in the Communications
Act of 1934, as amended, and/or the FCC Rules or case law) of one or more of
Milliwave's licenses from Milliwave to WinStar or any affiliate of WinStar.
Specially, and without limitation, the overall responsibility for the operation
of the System shall at all times reside with Milliwave and, accordingly, shall
be subject to and shall follow the instructions of, Milliwave in the provision
of services under this Agreement. To this end, Milliwave shall be in charge of:
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<PAGE>
(i) Use of all facilities and equipment.
(ii) Control of daily operation.
(iii) Creation and implementation of policy decisions.
(iv) Employment, supervision and dismissal of employees of Milliwave.
(v) Payment of financing obligations and expenses incurred in the
initial coordination of the system.
(vi) Receipt and distribution of all monies and profits derived
from the operation of the system.
(vii) Execution and approval of all contracts entered into
by Milliwave, and any regulatory filing made to the
FCC, any state or local public service commission or
any similar institution.
(c) Nothing in this Agreement is intended to diminish or restrict Milliwave's
obligations as an FCC licensee and the parties hereto desire that this Agreement
and the transactions contemplated hereby be in full compliance with the FCC
Rules. If the FCC determines that any provision of this Agreement violates any
applicable rules, policies, or regulations, the parties shall use their best
efforts to immediately bring this Agreement into compliance, consistent with the
intent of this Agreement.
(d) Notwithstanding anything in this Agreement that may be construed to the
contrary, Milliwave shall have the absolute right to act independently to
establish a link in any Milliwave market, and to file an FCC Form 494-A with the
FCC evidencing satisfaction of the initial construction requirement with respect
to such market in support of the parties' efforts to secure FCC approval of the
transaction contemplated by the Merger Agreement.
9. Termination. This Agreement shall terminate:
(a) Upon the Closing under the Merger Agreement.
(b) Upon written notice by Milliwave to WinStar after the giving of a Failure to
Construct Notice more than three times during the Term of this Agreement,
provided, however, that Milliwave shall not have the right to terminate if the
inability of WinStar to meet the Deadline was directly attributable to a failure
of Milliwave to satisfy an obligation under this Agreement.
(c) Automatically upon the termination of the Merger Agreement.
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<PAGE>
(d) Upon the insolvency of WinStar, appointment of a receiver of the property of
WinStar, or assignment for the benefit of the creditors of WinStar; or
(e) Upon the filing of a voluntary petition by or against WinStar under the
bankruptcy laws of the United States or 60 days after the filing of an
involuntary petition if such involuntary petition is not discharged by such
date.
10. No Joint Venture; Non-Exclusive Engagement. Nothing herein
contained shall be deemed to have created, or be construed as having created any
joint venture, joint employer, or partnership relationship between WinStar and
Milliwave. At all times during the performance of its duties and obligations
arising hereunder, WinStar shall be deemed to be acting as an independent
contractor and shall have no right or authority to assume or create any
obligation or responsibility, express or implied, on behalf of or in the name of
Milliwave, except as authorized by Milliwave. No provisions of this Agreement
shall be construed to preclude WinStar, or any agent, assistant, affiliate or
employee of WinStar from engaging in any activity whatsoever, including, without
limitation, receiving compensation for services, or acting as an advisor to any
person or advisor to or participant or owner in any corporation, partnership,
trust or other business entity or from receiving compensation or profit
therefor. WinStar shall not be obligated to present any particular business
opportunity to Milliwave, even if such opportunity is of such a character which,
if presented to Milliwave, could be taken by Milliwave, and WinStar and any
affiliate thereof shall have the right to take for its own account
(individually) or to recommend to others any such particular business
opportunity.
11. Individual Designees. WinStar shall only be required to
make available such employees, agents, or designees to perform services
hereunder as it shall deem to be reasonably necessary to provide such services
and Milliwave shall not be entitled to the services of any particular executive
or employee of WinStar in connection with this Agreement.
12. Notices. Unless otherwise required hereunder, all notices, requests,
comments and other communications hereunder shall be in writing and shall be
sent via facsimile, in each case addressed:
If to WinStar:
WinStar Wireless, Inc.
Attention: Ralph Peluso
7799 Leesburg Pike
Falls Church, Virginia 22043
Telecopier No.: 703/917-6557
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With a copy to:
WinStar Wireless, Inc.
Attention: Timothy R. Graham
230 Park Avenue, Suite 3126
New York, New York 10169
Telecopier No.: 212/867-1565
If to Milliwave:
Milliwave, LP
Attention: Alex Felker
1776 Eye Street, N.W. #850
Washington, D.C. 20006
Telecopier No.: 202/331-1731
with a copy to:
Carl W. Northrop, Esq.
Paul, Hastings, Janofsky & Walker
1299 Pennsylvania Ave., N.W. Tenth Floor
Washington, D.C. 20004-2400
Telecopier No.: 202/508-9700
provided, however, that if any party shall have designated a different address
or telecopier number by notice to the others, then to the last address so
designated. Notice shall be deemed given when transmitted via facsimile as
indicated above.
13. Waiver. Any waiver by any party of any breach of or failure to comply with
any provision of this Agreement by the other party shall be in writing and shall
not be construed as, or constitute, a continuing waiver of such provision or a
waiver of any other provision of this Agreement.
14. Complete Agreement. This Agreement sets forth the entire
understanding of the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements, covenants, arrangements, communications,
representations or warranties, whether oral or written, by any party or any
officer, employee or representative of any party.
15. Governing Law; Jurisdiction. This Agreement shall be construed and
interpreted in accordance with and governed by the law of the State of New York
and of the United States of America. Except where FCC primary jurisdiction is
specified by law, the parties agree that any action or proceeding arising out of
this Agreement shall be brought in the
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courts of the State of New York in the County of New York or the United States
District Court for the Southern District of New York and irrevocably submit to
such jurisdiction, which jurisdiction shall be exclusive. The parties waive all
objections to such exclusive jurisdiction and that such courts constitute an
inconvenient forum. Process or summons in any such action or proceeding may be
served by registered mail, return receipt requested, postage prepaid, addressed
to a party at the address set forth in Paragraph 13. Such mailing shall be
deemed personal service and shall be deemed made upon the party served upon the
first attempt at delivery if such attempt is refused.
16. Force Majeure. If by reason of force majeure either party
is unable in whole or in part to carry out its obligations hereunder, that party
shall not be deemed in violation or default during the continuance of such
inability. The term "force majeure," as used herein, shall mean the following:
acts of God; acts of public enemies; orders of any kind of the government of the
United States of America or of any individual state or any of their departments,
agencies, political subdivisions, or officials or any civil or military
authority; insurrections, riots, epidemics, landslides, lightning, earthquakes,
fires, hurricanes, volcanic activity, storms of extraordinary force, floods,
washouts, drought, strikes, embargoes, civil disturbances, explosions, or any
other cause or event not reasonably within the control of the adversely affected
party.
17. Amendment. This Agreement may be amended or modified only by an instrument
in writing duly executed by both parties.
18. Counterparts. More than one counterpart of this Agreement may be executed by
the parties.
19. Dealings with Third Parties; Use of Indicia. Neither party
is, nor shall either party hold itself out to be, vested with any power or right
to contractually bind on behalf of the other as its contracting broker, agent or
otherwise for committing, selling, conveying or transferring any of the other
party's assets or property, contracting for or in the name of the other party,
or making any contractually binding representations as to the other party which
shall be deemed representations contractually binding upon such party. Neither
party shall have the right to use the other's name, trade names, trademarks,
service marks, logos, codes or other symbols without the other's written
consent, except as required by law; provided, however, that WinStar shall be
permitted to refer to Milliwave in its customer and supplier agreements, as well
as any regulatory filings, to identify Milliwave's status as the holder of the
applicable 38 GHz Band licenses and regulatory authority. In furtherance (and
not in limitation) of the foregoing, Milliwave acknowledges that "WinStar" and
"Wireless Fiber" are service marks of WinStar and/or its affiliates, to which
all rights are reserved.
20. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective permitted assigns.
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21. Severability. If any provision of this Agreement is
determined to be invalid, illegal or incapable of being enforced by a court or
regulatory agency of competent jurisdiction, the other provisions of this
agreement shall not be affected and shall remain in full force and effect and
the parties shall negotiate in good faith revisions to this Agreement so as to
effect the original intent of the parties pursuant to the provisions so
affected.
22. Assignment. This Agreement may not be assigned by
Milliwave or WinStar, unless the assigning party obtains the prior written
consent of the other party and any attempted assignment in contravention of this
provision shall be void and ineffective. Milliwave agrees that sales by WinStar
to its customers or other service arrangements are not assignments within the
contemplation of this Paragraph. Notwithstanding the foregoing, WinStar may
assign this Agreement without Milliwave's prior written consent (i) in
conjunction with the merger or reorganization of WinStar or any controlling
corporation, or the sale by WinStar or any controlling corporation thereof of
all or substantially all of its assets; or (ii) to any entity that is owned or
controlled in whole or in part by WinStar or its affiliates; or (iii) to any
financing source of WinStar in connection with any financing provided to WinStar
and/or any affiliate thereof provided, however, in the cases of (i) and (ii)
above, the assignee agrees in writing to be bound by the provisions of this
Lease Agreement.
23. Headings. The Paragraph and other headings contained in this Agreement are
for reference purposes only and shall not affect the meaning or interpretation
of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed and delivered by their duly authorized officers on the day and year
first above written.
MILLIWAVE, LP WINSTAR WIRELESS, INC.
By: Dennis Patrick By: Timothy Graham
Print Name Print Name
Title President Title Vice President
TRANSMISSION PATH LEASE AGREEMENT
TRANSMISSION PATH LEASE AGREEMENT dated June 28, 1996, between
MILLIWAVE L.P., a Florida limited partnership ("Carrier"), and WINSTAR WIRELESS,
INC. ("Customer"), a Delaware corporation.
WHEREAS, Carrier is the holder of licenses issued by the
Federal Communications Commission ("FCC") to provide wireless telecommunications
services utilizing specific channels of the 38.6 to 40 GHz frequency band ("38
GHz" or "38 GHz Band") in certain geographical areas and, in the future, Carrier
may become the holder of similar licenses from the FCC for additional
geographical areas from time to time; and
WHEREAS, Carrier offers its wireless telecommunications services to the public;
and
WHEREAS, Customer is a common carrier providing various wireless communications
services to the public; and
WHEREAS, Carrier and Customer both desire to bring innovative
wireless local distribution services to the public in as rapid a fashion and at
as low a cost as possible; and
WHEREAS, Customer desires to lease Transmission Paths (as
hereinafter defined) from Carrier between various points to be designated by
Customer from time to time, in order to supplement and/or complement its
existing capacity so as to meet its customers' needs and expand its offerings
for transmission services; and
WHEREAS, Carrier desires to lease such Transmission Paths to
Customer upon the terms and conditions set forth herein; and
WHEREAS, Customer is making a substantial commitment to
Carrier hereunder, and will be incurring significant continuing market
development costs and sharing valuable proprietary information with Carrier;
NOW, THEREFORE, in consideration of the premises and the
mutual promises, covenants and conditions set forth below, the parties hereto
agree as follows:
1. Definitions. As used in this Lease Agreement, the following terms shall have
the meanings indicated:
A. "Effective Date" means June 28, 1996.
B. "Transmission Facilities" means the radio equipment and related facilities
needed to transmit and/or receive 38 GHz Band radio signals via a specific radio
channel allotted by Carrier for Customer's use between Transmission Points (as
hereinafter defined) selected by the Customer in accordance with the terms
hereof.
C. "Service Area" means a geographical area bounded by minimum and maximum
latitude and longitude coordinates within which Carrier is licensed or has
applied to be licensed by the FCC to provide 38 GHz services. Exhibit A hereto
contains a list of all of Carrier's presently licensed Service Areas and all
Service Areas for which the Carrier has pending applications.
D. "Transmission Point" means a building or other structure selected by
Customer.
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E. "Transmission Path" means the communications path between two Transmission
Points, including intermediate/repeater Transmission Points.
F. "Circuit Path" means a segment of bandwidth used by Customer in accordance
with the terms hereof, capable of transmitting a minimum of four (4) T-1/DS-1
circuits in a two way/duplex mode between Transmission Points.
G. "Business Office" means the location of Carrier's principal business office,
currently 1776 Eye Street, N.W., #850, Washington, D.C. 20036, Telephone: (202)
331-9777, or such other location within 35 miles of Washington, D.C. as may be
specified from time to time by Carrier to Customer in writing.
2. Term. The term of this Lease Agreement shall begin on the
Effective Date and shall continue through June 30, 1998 ("Initial Term"), except
as provided in Paragraph 12 hereof and provided further that the term shall be
reduced to a period which is not later than one year from the date of voluntary
termination.
3. Lease of Transmission Paths.
A. Effective upon the execution hereof, Carrier shall lease to Customer one or
more Transmission Paths in each Service Area, as may be requested by Customer,
during the Initial Term and any Renewal Term of this Lease Agreement subject to
the limitations set forth in Schedule A. Transmission Paths shall be requested
by Customer in accordance with Paragraph 3B below.
B. To initiate service hereunder for a Transmission Path, Customer shall issue a
service notice ("Service Notice"), addressed to Carrier at Carrier's Business
Office specifying the desired location of the Transmission Points, the number of
Circuit Paths in the Transmission Path, the Transmission Facilities to be
utilized to operate each Circuit Path, the desired Circuit Path capacity, and
the expected date for the commencement of service. Customer may subsequently
increase or decrease or move its desired Circuit Path capacity or discontinue,
move or modify service on any Transmission Path by submitting a new Service
Notice. In lieu of submitting a Service Notice, Customer may file with Carrier a
request ("Preclearance Request") with respect to a specified Transmission Path
stating that it has concluded a prior coordination study which has determined
that utilization of such Transmission Path will not be prevented by reason of
electromagnetic interference to or from another licensee or to or from another
Transmission Path then in service and requesting Carrier to protect the subject
precleared Transmission Path (i.e., not lease or otherwise grant rights to the
precleared Transmission Path to any other customer, not use the precleared
Transmission Path other than for the provision of service to Customer and not
grant any rights to any other customer or use for its own benefit any other
Transmission Path which would electromagnetically interfere with the usage of
such precleared Transmission Path by Customer) until such time specified by
Customer in the Service Order or Preclearance Request as the desired date for
commencement of service, which shall not be later than nine (9) months from the
date of the Preclearance Request.
C. Upon Customer's delivery to Carrier of a Service Notice pursuant to Paragraph
3B, Customer, with Carrier's full cooperation and subject to its oversight and
control, shall promptly act to have the necessary Transmission Facilities
installed as soon as practicable. Customer shall comply with all health, safety
and construction laws and regulations regarding the conditions thereof,
including, but not limited to, obtaining any required construction approvals and
site leases, all of which shall be issued in Customer's name but which shall
include a provision that provides Carrier full and unfettered access to the
subject Transmission Facilities. In addition, Customer shall be responsible for
providing, at
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its sole cost and expense, electrical power, single-line telephone connection,
heating and cooling, and conduit and wiring hook-ups required to install and
operate the Transmission Facilities.
D. Customer shall, at its sole cost and expense, install and maintain all
Transmission Facilities that are subject to this Agreement, including site
preparation, engineering and design work provided, however, that the first
Transmission Path (the "Initial Service Area Paths") in each Service Area shall
be installed and all related Transmission facilities shall be furnished by
Carrier an installed at the sole cost and expense of Carrier. All equipment used
by Customer (other than the Transmission facilities furnished by Carrier)shall
be of its own selection; provided, however, that equipment provided by Customer
shall not violate technical standards of the FCC in effect from time to time. In
order to ensure a superior level of quality and to maintain the integrity of
proprietary information, Carrier retains at its reasonable discretion the
ability to approve (or reject) the individuals providing such installation,
maintenance and support services to the extent that they are not qualified to
perform such services or are otherwise designated by Customer.
E. To the extent possible and practical, Carrier shall provide Customer
immediate computer readable, online access to Carrier's Network Control Center
(if it maintains such a center) for the purpose of providing contemporaneous
information as to the operation of the Transmission Facilities utilized by
Customer and, to the extent that Carrier is not maintaining a manned 24-hour,
seven days a week operating Network Control Center or in addition to the
Carrier's Network Control Center, Customer shall be permitted to maintain such a
system for immediate computer readable, on-line review of all operation of
Transmission Facilities provided to Customer hereunder.
F. Notwithstanding anything to the contrary contained in this Lease Agreement,
Carrier's agreement to provide any individual Transmission Path to Customer is
contingent upon (i) the existence of a direct or indirect (i.e., using repeaters
or other equipment) line of sight path between the Transmission Points selected
by Customer, (ii) Carrier being provided with rights of access allowing entry
upon the premises of Transmission Points for the purpose of installing,
operating, maintaining, and controlling Transmission Facilities located there,
(iii) the provision by Customer to Carrier, at no cost to Carrier, of sufficient
electricity to operate the Transmission Facilities, (iv) the provision by
Customer, at no cost to Carrier, of all means necessary to connect Customer's
traffic to the Transmission Facilities, (v) Carrier, if requested by Customer,
obtaining required interconnection agreements with other carriers in a form
reasonably satisfactory to Customer, (vi) the availability of a connecting
co-channel Transmission Path in an adjacent service area operated by another
carrier, or in an adjacent Service Area, in a deployment situation where
Customer desires to carry traffic between service areas, (vii) the availability
of sufficient capacity, and (viii) the provision of any service hereunder not
being prohibited by any applicable rule or practice of the FCC and/or of any
state or local authority having jurisdiction.
G. The Transmission Paths provided hereunder may be used for any purpose,
including, without limitation, for the transmission of audio, data and/or video
signals, as well as any combination thereof, except where any such uses may,
from time to time, be specifically prohibited by law or by the rules and
practices of the FCC and/or any state or local authority with jurisdiction over
that particular Service Area. Subject to compliance with any applicable FCC or
state regulation, Customer may resell the services provided herein.
H. Carrier shall maintain a data base of all Transmission Paths subject to this
Agreement which will contain the geographical coordinates of each Transmission
Point, the number of Circuit Paths therein, the Transmission Facilities utilized
therefor and such other information as Carrier shall deem necessary or
appropriate to provide the service hereunder and to comply with applicable FCC
and/or state and local regulations. Upon reasonable request, Customer shall
provide such information to Carrier
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with respect to the usage of Transmission Paths (other than the identity of its
customers unless specifically requested in writing by the FCC or other
regulatory authority) as Carrier shall deem necessary in order to carry out its
obligations hereunder and, upon reasonable request, Carrier shall provide
information to Customer with respect to Transmission Paths leased hereunder.
Customer acknowledges that Carrier may be required to use such information in
reports submitted to the FCC and/or other regulatory authorities, and consents
to the disclosure of such information solely for that purpose and subject to the
provisions of Paragraph 14 hereof.
I. Notwithstanding anything in this Lease Agreement to the contrary, including
the availability of Transmission Paths and Transmission Facilities to Carrier
hereunder, Customer may, at any time, obtain Transmission Paths and Transmission
Facilities in the 38 GHz Band from any other source, including Customer's
affiliates ("Additional Sources"), to supplement, or in lieu of, the
Transmission Paths and Transmission Facilities provided to Customer hereunder.
Carrier shall not be entitled to any compensation from Customer for any
Transmission Paths and Transmission Facilities obtained by Customer from
Additional Sources.
J. Customer shall ensure that all FCC tower lighting and painting requirements,
as well as all applicable Federal Aviation Administration requirements are
followed with respect to Transmission Paths installed hereunder by Customer.
4. Control of Facilities. Notwithstanding any other provision
of this Lease Agreement, Carrier has and shall at all times continue to retain
control over all FCC licenses and Transmission Facilities subject to this Lease
Agreement and shall have, at all times, unfettered access to all of the
Transmission Facilities installed pursuant to this Lease Agreement. In
exercising this control, Carrier will not disturb or interfere with the services
provided to Customer or its customers without good cause, such as a request from
the FCC to shut down interfering transmissions, performance of routine
maintenance, emergency service restoration or correction of other technical
problems; provided, however, that Carrier shall provide Customer as much time as
is reasonably practicable in the case of emergency disruptions of service.
Carrier shall, with the reasonable cooperation and assistance of Customer,
remain in material compliance with all regulations necessary to keep Carrier's
licenses in full force and effect. Carrier and Customer shall comply in all
material respects with all applicable FCC rules and regulations as well as any
applicable state and local regulations and requirements governing Carrier's
licenses and the provision of telecommunications services thereunder. In this
regard, Carrier and Customer specifically agree as follows:
A. Customer shall not represent itself as the holder of any FCC licenses issued
to Carrier.
B. Neither Carrier nor Customer shall represent itself as the legal
representative of the other before the FCC or any state regulatory body. Except
as otherwise required by law, all filings made before regulatory bodies with
respect to Carrier's licenses and/or the services provided hereunder shall be
made by and in the name of Carrier. Carrier and Customer will cooperate with
each other with respect to regulatory matters concerning Carrier's licenses and
the services provided pursuant to this Lease Agreement.
C. Nothing in this Lease Agreement is intended to diminish or restrict Carrier's
obligations as an FCC licensee and both parties desire that this Lease Agreement
be in full compliance with the rules and regulations of the FCC and/or any state
or local jurisdiction. Subject to the provisions of Paragraph 24 hereof, if the
FCC or any state regulatory body of competent jurisdiction determines that any
provision of this Lease Agreement violates any applicable rules, policies, or
regulations, both parties shall use their best efforts to immediately bring this
Lease Agreement into compliance,
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consistent with the intent of this Lease Agreement.
D. It is expressly understood by Carrier and Customer that nothing in this Lease
Agreement is intended to give to Customer any right which would be deemed to
constitute a transfer of control (as "control" is defined in the Communications
Act of 1934, as amended, and/or any applicable FCC rules or case law) of one or
more of Carrier's licenses from Carrier to Customer.
5. Primacy of Service During Initial Phase.
Subject to the limits set forth in Schedule A, Customer will have the
exclusive right to utilize the frequencies licensed to Carrier for a period of
two years from the date hereof (the "Initial Term"); provided, however, that the
exclusive right will terminate at such time as Customer has in operation 400
Transmission Paths dedicated to end users.
6. Payments. Customer shall pay to Carrier, at Carrier's
Business Office, the sum of $ per Transmission Path for each Transmission Path
operated by Customer with a Circuit Path capacity below DS-3 and $ per
Transmission Path for each Transmission Path operated by Customer with a Circuit
Path capacity of DS-3 and above provided, however, that Customer's obligation
with respect to the Initial Service Area Path in each Service Area shall be
limited to $ per month regardless of Circuit Path capacity utilization unless
such Path shall be for purposes of providing service to an end user of Customer.
The parties agree that the prices referred to above for Circuit Path capacity
Transmission Paths (other than as set forth in the proviso in the preceding
sentence) will be subject to good faith renegotiation and adjustment on the
first anniversary date hereof to reflect revisions in the then current market
pricing in direct access charges in the telecommunications industry. These
amounts shall be payable in arrears on or before the 15th day after the close of
each month during the Initial Term and each Renewal Term.
7. Regulatory Matters.
A. Carrier shall timely file with the FCC and other regulatory agencies all
required reports or notices, including (without limitation) semi-annual reports
pursuant to Section 21.711 of the FCC's rules. Carrier shall make all other
filings with the FCC and other regulatory bodies required in connection with
Carrier's ability to provide services hereunder, including tariffs, upon
reasonable request by Customer. Customer shall cooperate with Carrier by timely
supplying to Carrier the information it requests with respect to its
Transmission Paths in order to make such filings. Carrier agrees that it will
consult with Customer with respect to any FCC or other regulatory filings that
relate to services provided hereunder, and will provide Customer with a copy of
any regulatory submissions made by Carrier in connection with the provision by
Carrier of services hereunder at least three (3) business days prior to their
being filed at the FCC or other regulatory body. Except as otherwise provided in
this Lease Agreement, neither party shall be restricted under this Lease
Agreement from making any filings with state or federal regulatory authorities,
including without limitation, the FCC and the Securities and Exchange
Commission, as it deems to be appropriate; provided, however, that neither party
shall make any filing with any governmental agency which challenges the validity
of any agreement entered into between Carrier and Customer or the ability of
Carrier to provide services hereunder. Customer and Carrier shall also cooperate
to comply with any FCC requirements for posting of licenses.
B. Carrier shall use its best efforts, and Customer shall reasonably cooperate
with Carrier, to obtain any and all FCC and state and local licenses, permits,
authorizations or approvals required to provide the services contemplated by
this Lease Agreement in a timely manner and as requested by Customer. During the
term hereof (i) Carrier shall report to Customer on a monthly basis with regard
to the status of its licenses and governmental authorizations to render
interstate and intrastate services;
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(ii) Carrier shall confirm to Customer on the last day of each calendar quarter
that Carrier is in compliance in all material respects with all applicable FCC
and state regulatory laws and regulations including, without limitation, the
filing of Forms 494A; and (iii) Carrier shall supply copies of Forms 494A to
Customer within two (2) business days after the Forms have been submitted to the
FCC.
8. Regulatory Treatment of this Transmission Path Lease
Agreement. Carrier and Customer intend that this Lease Agreement shall be
treated for regulatory purposes as a carrier-to-carrier contract, which shall be
binding upon Carrier and which may not be modified or abrogated by any tariff
filed by Carrier. Promptly after execution of this Lease Agreement, Carrier
shall file with the FCC and appropriate state authorities, if necessary, a copy
of this Lease Agreement or a summary of the terms of this Lease Agreement.
9. Liability of Carrier and Customer.
A. The liability of Carrier for damages arising out of mistakes, omissions,
interruptions, delays, errors, or defects in transmission occurring in the
course of furnishing service hereunder shall in no event exceed an amount equal
to the proportionate charge to Customer for the period of time during which such
mistake, omission, delay, error, or defect in transmission occurs. Interruptions
of service will be measured from the time reported by Customer until the time
service is restored. No credit will be given for interruptions of less than
thirty (30) minutes in duration. Credit will not be given for any period of time
in which the employees or agents of Carrier are denied access to a Transmission
Point for the purpose of restoring service. Carrier shall be liable for any
damages, credits, costs or expenses arising from Carrier's incorrect frequency
coordination or subsequent interference arising from usage by Carrier. In no
event will Carrier be liable for consequential damages.
B. Carrier shall be indemnified and saved harmless from and against all loss,
liability, damage, ad expense, including reasonable counsel fees, due to (i)
claims for libel, slander, or infringement of copyright arising from the
material transmitted over Transmission Facilities; (ii) claims for infringement
of patents arising from combining, or using in connection with service or
facilities (including the Transmission Facilities) furnished by Carrier,
facilities or equipment of Customer; and (iii) claims for damage to property and
injury or death to persons, including payments made under any Workmen's
Compensation Law or under any plan for employees disability and death benefits
which may arise out of, or be caused by, the construction, installation,
maintenance, presence, use or removal of Customer facilities or equipment
connected, or to be connected, to Carrier's facilities (including the
Transmission Facilities).
C. Carrier shall not be liable for any act or omission of any other carrier or
other entity which furnishes facilities or equipment used with Transmission
Facilities provided hereunder, unless such carrier or other entity acted as an
agent of Carrier. Carrier shall be liable for any defacement or for damage to
any premises resulting from the furnishing of services hereunder in such
premises or the installation or removal of Transmission Facilities therefrom,
unless such defacement or damage is not the result of actions or omissions of
the agents or employees of Carrier.
10. Liability Insurance. Customer shall maintain during the term of this Lease
Agreement the following insurance coverage as well as all other insurance
required by law in each jurisdiction where services are provided hereunder: (1)
Worker's Compensation and related insurance as required by law; (2) employer's
liability insurance with a limit of at least three million dollars ($3,000,000)
for each occurrence; (3) comprehensive general liability insurance, with a limit
of at least three million ($3,000,000) per occurrence; (4) comprehensive motor
vehicle liability insurance with limits of at least three million dollars
($3,000,000) for bodily injury including death, to any one person, three hundred
thousand dollars ($300,000) for each occurrence of property damage, and three
million dollars ($3,000,000) for any
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one occurrence. Customer shall furnish Carrier, if requested by Carrier,
certificates or adequate proof of the insurance required by this clause. Each
policy shall provide that the insurer must give both parties, in writing, at
least thirty (30) days prior to cancellation of, or any material change in the
policy.
11. Indemnification. Carrier and Customer shall indemnify,
defend and hold the other party harmless from any and all claims, damages,
causes of action, penalties, statutory damages, interest, and costs and
expenses, including reasonable attorneys' fees and court costs, arising directly
or indirectly out of (i) the breach of such party's representations, warranties
or obligations hereunder, or (ii) the negligence or willful misconduct of the
said party, its employees or agents in connection with the performance of this
Lease Agreement.
12. Default. For purposes of this Lease Agreement, it shall be an "Event of
Default" hereunder if:
A. Customer fails to make any payment due and payable under this Lease Agreement
and such failure continues for ten (10) days after written notice thereof shall
have been sent to Customer by Carrier; or
B. Any of the representations or warranties of Customer or Carrier prove at any
time to be materially incorrect as of the date of this Lease Agreement; or
C. Carrier or Customer breaches any material provision of this Lease Agreement,
the Service Agreement and the Agreement and Plan of Merger between the Carrier
and Customer or any affiliates thereof, and such breach continues for twenty
(20) days after written notice thereof shall have been sent by the nonbreaching
party to the breaching party; or
D. Carrier shall forfeit, surrender, submit for cancellation, suffer the
revocation of, or suffer or accept the adverse modification of one or more of
its licenses covering a Service Area ("Affected Licenses"), such event not
resulting from any act or failure to act on the part of Customer and having no
cure period, and considered fully matured as of the last day that Carrier may
lawfully operate the facilities as authorized prior to modification ("Affected
Date").
If an Event of Default occurs under this Paragraph 12, the nondefaulting party
may terminate this Lease Agreement upon six (6) months written notice to the
other party. Any party seeking to terminate this Lease Agreement shall continue
to fulfill its obligations under this Lease Agreement during the six months
notice period. Each party's rights to indemnity from the other party and to
specific performance of this Lease Agreement shall survive the termination of
this Lease Agreement. Notwithstanding the foregoing, if Customer elects not to
terminate this Lease Agreement as a result of an Event of Default specified in
Paragraph 12D, above, then this Lease Agreement shall be amended to
appropriately reduce the ongoing obligations (including payment obligations of
Customer) of the parties hereto with respect to the Affected Licenses, such
amendment to be effective as of the Affected Date. In the event of a default by
a party hereunder, the nondefaulting party may offset against amounts owed by
the nondefaulting party to the defaulting party hereunder any amounts owed by
the defaulting party to the nondefaulting party.
13. Specific Performance. The parties acknowledge and agree
that irreparable damage would occur to a non-defaulting party in the event that
any of the provisions of this Lease Agreement were not performed in accordance
with their specific terms or were otherwise breached. Accordingly, each party
agrees that the non-defaulting party shall be entitled to an injunction and
other remedies of "specific performance" in order to enforce specifically the
terms and provisions hereof, in
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addition to any other remedy to which it may be entitled at law or equity.
14. Use of Information. All confidential technical and
business information and all software and related documentation in whatever form
recorded (all hereinafter designated "Information") furnished by either party to
the other party under or in contemplation of this Lease Agreement shall remain
the property of the furnishing party. For purposes of this Lease Agreement, the
parties hereto agree that Customer's customer lists and End User identification
which may become known to Carrier during the course of this Lease Agreement are
confidential in nature and shall be deemed "Information" hereunder. Unless the
parties otherwise agree in writing, all Information: (i) shall be treated in
confidence by the receiving party and used only for the purposes for which
furnished, (ii) shall not be reproduced or copied in whole or in part, except as
necessary for use as authorized in this Lease Agreement, and (iii) shall,
together with any copies thereof, be returned or destroyed when no longer
needed, or may, if in the form of software recorded on an erasable storage
medium, be erased. The above conditions do not apply to any part of the
Information that becomes known to the receiving party free of any obligation to
keep it in confidence. Carrier shall provide to Customer a letter agreement
executed by each of Carrier's parent corporation and the officers, employees,
stockholders and directors of Carrier and its parent corporation confirming
their agreement to the terms hereof.
15. Notices. Unless otherwise required hereunder, all notices, requests,
comments and other communications hereunder shall be in writing and shall be
sent via facsimile, in each case addressed:
If to Customer:
WinStar Wireless, Inc.
Attention: Ralph Peluso
7799 Leesburg Pike
Falls Church, Virginia 22043
Telecopier No.: 703/917-6557
With a copy to:
WinStar Wireless, Inc.
Attention: Timothy R. Graham
230 Park Avenue, Suite 3126
New York, New York 10169
Telecopier No.: 212/867-1565
If to Carrier:
Milliwave, LP
Attention: Alex Felker
1776 Eye Street, N.W. #850
Washington, D.C. 20006
Telecopier No.: 202/331-1731
with a copy to:
Carl W. Northrop, Esq.
Paul, Hastings, Janofsky & Walker
1299 Pennsylvania Ave., N.W. Tenth Floor
Washington, D.C. 20004-2400
Telecopier No.: 202/508-9700
8
<PAGE>
provided, however, that if any party shall have designated a different address
or telecopier number by notice to the others, then to the last address so
designated. Notice shall be deemed given when transmitted via facsimile as
indicated above.
16. Waiver. Any waiver by any party of any breach of or failure to comply with
any provision of this Lease Agreement by the other party shall be in writing and
shall not be construed as, or constitute, a continuing waiver of such provision
or a waiver of any other provision of this Lease Agreement.
17. Complete Agreement. This Lease Agreement sets forth the
entire understanding of the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
party or any officer, employee or representative of any party.
18. Governing Law; Jurisdiction. This Lease Agreement shall be
construed and interpreted in accordance with and governed by the law of the
State of New York and of the United States of America. Except where FCC primary
jurisdiction is specified by law, the parties agree that any action or
proceeding arising out of this Lease Agreement shall be brought in the courts of
the State of New York in the County of New York or the United States District
Court for the Southern District of New York and irrevocably submit to such
jurisdiction, which jurisdiction shall be exclusive. The parties waive all
objections to such exclusive jurisdiction and that such courts constitute an
inconvenient forum. Process or summons in any such action or proceeding may be
served by registered mail, return receipt requested, postage prepaid, addressed
to a party at the address set forth in Paragraph 15. Such mailing shall be
deemed personal service and shall be deemed made upon the party served upon the
first attempt at delivery if such attempt is refused.
19. Force Majeure. If by reason of force majeure either party
is unable in whole or in part to carry out its obligations hereunder, that party
shall not be deemed in violation or default during the continuance of such
inability. The term "force majeure," as used herein, shall mean the following:
acts of God; acts of public enemies; orders of any kind of the government of the
United States of America or of any individual state or any of their departments,
agencies, political subdivisions, or officials or any civil or military
authority; insurrections, riots, epidemics, landslides, lightning, earthquakes,
fires, hurricanes, volcanic activity, storms of extraordinary force, floods,
washouts, drought, strikes, embargoes, civil disturbances, explosions, or any
other cause or event not reasonably within the control of the adversely affected
party.
20. Amendment. This Lease Agreement may be amended or modified only by an
instrument in writing duly executed by both parties.
21. Counterparts. More than one counterpart of this Lease Agreement may be
executed by the parties.
9
<PAGE>
22. Dealings with Third Parties; Use of Indicia. Neither party
is, nor shall either party hold itself out to be, vested with any power or right
to contractually bind on behalf of the other as its contracting broker, agent or
otherwise for committing, selling, conveying or transferring any of the other
party's assets or property, contracting for or in the name of the other party,
or making any contractually binding representations as to the other party which
shall be deemed representations contractually binding upon such party. Neither
Carrier nor Customer shall have the right to use the other's name, trade names,
trademarks, service marks, logos, codes or other symbols without the other's
written consent, except as required by law; provided, however, that Customer
shall be permitted to refer to Carrier in its customer and supplier agreements,
as well as any regulatory filings, to identify Carrier's status as the holder of
the applicable 38 GHz Band licenses and regulatory authority. In furtherance
(and not in limitation) of the foregoing, Carrier acknowledges that "WinStar"
and "Wireless Fiber" are service marks of Customer and/or its affiliates, to
which all rights are reserved.
23. Binding Effect. This Lease Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective permitted assigns.
24. Severability. If any provision of this Lease Agreement is
determined to be invalid, illegal or incapable of being enforced by a court or
regulatory agency of competent jurisdiction, the other provisions of this
agreement shall not be affected and shall remain in full force and effect and
the parties shall negotiate in good faith revisions to this Lease Agreement so
as to effect the original intent of the parties pursuant to the provisions so
affected.
25. Assignment. This Lease Agreement may not be assigned by
Carrier or Customer, unless the assigning party obtains the prior written
consent of the other party and any attempted assignment in contravention of this
provision shall be void and ineffective. Carrier agrees that sales by Customer
to its customers or other service arrangements are not assignments within the
contemplation of this Paragraph. Notwithstanding the foregoing, Customer may
assign this Lease Agreement without Carrier's prior written consent (i) in
conjunction with the merger or reorganization of Customer or any controlling
corporation, or the sale by Customer or any controlling corporation thereof of
all or substantially all of its assets; or (ii) to any entity that is owned or
controlled in whole or in part by Customer or its affiliates; or (iii) to any
financing source of Customer in connection with any financing provided to
Customer and/or any affiliate thereof provided, however, in the cases of (i) and
(ii) above, the assignee agrees in writing to be bound by the provisions of this
Lease Agreement.
26. Headings. The Paragraph and other headings contained in this Lease Agreement
are for reference purposes only and shall not affect the meaning or
interpretation of this Lease Agreement.
10
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Lease
Agreement to be executed by their duly authorized officers on the day and year
first above written.
WINSTAR WIRELESS, INC.
By: Timothy Graham
Vice President
MILLIWAVE L.P.
By: Dennis Patrick
President
11
<PAGE>
EXHIBIT A
SERVICE AREAS
12
<PAGE>
EXHIBIT B
SERVICE NOTICE
13
<PAGE>
SCHEDULE A
400 Transmission Paths plus one Transmission Path for each Initial
Service Area Path installed by Customer without a direct use by an end user of
Customer.
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Jun-30-1996
<CASH> 191,060,502
<SECURITIES> 937,500
<RECEIVABLES> 14,905,197
<ALLOWANCES> 0
<INVENTORY> 10,924,137
<CURRENT-ASSETS> 226,930,599
<PP&E> 25,788,184
<DEPRECIATION> 0
<TOTAL-ASSETS> 289,345,161
<CURRENT-LIABILITIES> 34,025,614
<BONDS> 256,109,796
<COMMON> 306,943
0
688,900
<OTHER-SE> (1,786,092)
<TOTAL-LIABILITY-AND-EQUITY> 289,345,161
<SALES> 16,174,545
<TOTAL-REVENUES> 16,174,545
<CGS> 0
<TOTAL-COSTS> 9,074,239
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,200,157
<INCOME-PRETAX> (18,057,972)
<INCOME-TAX> 0
<INCOME-CONTINUING> (18,116,176)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,116,176)
<EPS-PRIMARY> (0.65)
<EPS-DILUTED> (0.65)
<FN>
(1) Accounts receivable are net of allowance for doubtful accounts
(2) PP&E are net of accumulated depreciation
(3) Preferred Stock no mandatory and Common stock exclude treasury stock
(4) Certain other equity includes treasury stock
(5) WinStar Global Products' sales (health and beauty aids) are grouped with
"total revenue"
(6) Income taxes reported on income statement are based on capital, therefore
excluded from this line item
</FN>
</TABLE>
