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 March 31, 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 of (IRS Employer Identification No.)
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 April 29, 1996: 27,423,684
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FORM 10-Q
WINSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
PART I. Financial Information
Item 1. Financial Statements
Unaudited Condensed Consolidated Balance
Sheets - March 31, 1996 and December 31, 1995 3
Unaudited Condensed Consolidated Statements
of Operations - three months ended
March 31, 1996 and 1995........................... 5
Unaudited Condensed Consolidated Statements
of Cash Flows - three months ended
March 31, 1996 and 1995........................ 6
Notes to Condensed Consolidated
Financial Statements........................... 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
PART II. Other Information..................................... 17
Item 6. Exhibits and Reports on Form 8-K
Signatures ............................................ 18
2
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WINSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE
SHEETS
<TABLE>
March 31, December 31,
1996 1995
----------- -------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 176,130,544 $ 138,105,824
Short term investments 27,372,707 73,594,849
------------ ------------
Cash, cash equivalents and short term investments 203,503,251 211,700,673
Investments in equity securities 6,158,250 6,515,250
Accounts receivable, net 9,746,373 8,683,860
Notes receivable 374,908 199,635
Inventories 7,895,211 7,391,686
Prepaid expenses and other current assets 2,819,192 3,568,448
------------ ------------
Total current assets 230,497,185 238,059,552
Property and equipment, net 18,089,226 15,898,005
Notes receivable 4,029,280 3,488,948
Investments and advances 322,733 322,733
Licenses, net 12,443,408 12,556,281
Intangible assets, net 3,071,629 3,033,505
Deferred financing costs 10,515,964 10,525,301
Other assets 1,503,366 1,478,530
------------- ------------
Total assets $ 280,472,791 $ 285,362,855
============= =============
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Loans payable $ 8,876,316 $ 8,287,461
Accounts payable and accrued expenses 11,169,254 13,513,369
Capitalized lease obligations 1,437,852 1,355,255
------------ -----------
Total current liabilities 21,483,422 23,156,085
Senior notes payable 159,194,067 153,971,508
Convertible notes payable 79,597,033 76,985,754
Other notes payable 3,436,314 3,416,288
Capitalized lease obligations 5,809,745 6,081,299
------------ ------------
Total liabilities 269,520,581 263,610,934
------------ ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock 688,900 688,900
Common stock, $.01 par value; authorized 75,000,000
shares, issued 29,740,306 and outstanding 27,233,543 297,404 297,079
Additional paid-in capital 103,989,159 103,836,510
Accumulated deficit (52,009,885) (41,311,075)
------------- ------------
52,965,578 63,511,414
Less: Treasury stock (39,677,743) (39,677,743)
Deferred compensation (996,875) (1,100,000)
Unrealized loss on long term investments (1,338,750) (981,750)
-------------- -------------
Total stockholders' equity 10,952,210 21,751,921
-------------- ------------
Total liabilities and stockholders' equity $ 280,472,791 $ 285,362,855
============== =============
</TABLE>
See notes to Condensed Consolidated Financial Statements
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WINSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
For the three months ended
March 31,
--------------------------
1996 1995
---- ----
<S> <C> <C>
Sales $ 14,509,042 $ 6,157,949
Cost of sales 8,573,271 4,598,541
------------------ ----------------
Gross profit 5,935,771 1,559,408
Selling, general and
administrative expenses 10,191,903 3,769,658
Depreciation and amortization 361,510 58,994
------------------ ------------------
Operating loss (4,617,642) (2,269,244)
Other expense
Interest expense, net 5,757,891 58,892
Amortization of 194,594 62,734
intangibles
Equity in loss of AGT - 536,595
------------------ ------------------
Net loss before income taxes (10,570,127) (2,927,465)
Income taxes 128,683 -
------------------ ------------------
Net loss $ (10,698,810) $ (2,927,465)
================== ==================
Net loss per share $ (0.39) $ (0.15)
================== ==================
Weighted average shares outstanding 27,214,281 19,934,710
================== ==================
</TABLE>
See Notes to Condensed Consolidated Financial Statements
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WINSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
(unaudited)
<TABLE>
For the three months ended
March 31,
---------------------------------
1996 1995
<S> <C> <C>
Cash flows from operating activities
Net loss $ (10,698,810) $ (2,927,465)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 846,205 131,271
Amortization of licenses and intangibles 192,413 62,985
Provision for doubtful accounts 380,758 204,384
Equity in unconsolidated results of AGT - 520,560
Non cash interest expense 7,853,864 -
Other - 32,952
(Increase) decrease in operating assets:
Accounts receivable (1,443,271) 1,542,678
Inventories (503,525) (1,116,507)
Prepaid expenses and other current assets 749,256 306,392
Other assets (116,667) 4,552
(Decrease) increase in accounts payable
and accrued expenses (2,146,939) 396,591
---------- ----------
Net cash used in operating activities (4,886,716) (841,607)
----------- ----------
Cash flows from investing activities:
Decrease in short term investments - Net 46,222,142 -
Investments in and advances to AGT - (2,213,961)
Collections of notes receivable 34,331 180,000
Increase in notes receivable (749,936) (806,158)
Purchase of property and equipment, net (2,576,983) (541,325)
License acquisition costs (118,729) -
Other - 294,736
----------- -----------
Net cash provided by (used in) investing activities 42,810,825 (3,086,708)
----------- ------------
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Cash flows from financing activities:
Proceeds from (repayment of) loans payable - net 588,855 (1,549,673)
Debt financing costs (303,744) -
Net proceeds from equity transactions 124,072 2,533,832
Payment of capital lease obligations (308,572) (60,779)
---------- ----------
Net cash (used in) provided by financing activities 100,611 923,380
---------- ----------
Net increase in cash and cash equivalents 38,024,720 (3,004,935)
Cash and cash equivalents at beginning of period 138,105,824 5,287,188
----------- ----------
Cash and cash equivalents at end of period 176,130,544 2,282,253
Short term investments at end of period 27,372,707 -
----------- ----------
Cash, cash equivalents and short term
investments at end of period $ 203,503,251 $ 2,282,253
=========== =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
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WINSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 1996
(unaudited)
1. Basis of Presentation
WinStar Communications, Inc. ("WinStar") is a company primarily involved in the
provision of local and long distance telecommunications services in the United
States. WinStar operates its three business segments, telecommunications,
information services and consumer products, through the following wholly-owned
subsidiaries:
WinStar Wireless, Inc. ("Wireless") is a competitive access provider which
provides its Wireless FiberSM "last mile" telecommunications service to
long distance carriers, competitive access providers, mobile communications
companies, local telephone companies, cable television operators, Internet
access providers, and other customers with broadband local
telecommunications needs.
WinStar Telecommunications, Inc. ("WinStar Telecom") provides competitive
local telephone service as an alternative to the incumbent local telephone
company, and also plans to bundle local, long distance, and other
telecommunications and information services.
WinStar Gateway Network, Inc. ("Gateway") provides long distance
telephone service to business and residential customers throughout the
United States.
WinStar New Media Company, Inc. (including its affiliate, Non-Fiction
Films, Inc.) ("New Media") produces, acquires rights to, and
distributes, information services and entertainment content as a
complement to the above named entities' telecommunications activities.
WinStar Global Products Inc. ("Global Products") is a merchandising
subsidiary which distributes consumer products through more than 25,000
retail outlets.
The condensed consolidated financial statements presented herein include the
accounts of WinStar and its subsidiaries, Wireless, WinStar Telecom, Gateway,
New Media and 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 March
31, 1996, the statements of operations for the three months ended March 31, 1996
and 1995, and the statements of cash flows for the three months ended March 31,
1996 and 1995.
- ------------------------------------------
Wireless Fiber SM is a service mark of WinStar Communications, Inc.
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WINSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 1996
(unaudited)
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 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 months ended March 31, 1995 have been restated to reflect this change.
The results of operations for the three months ended March 31, 1996 are not
necessarily indicative of the results of operations for the year ending December
31, 1996.
1 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.
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.
1 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. These licenses allow the licensee to deliver
voice, data and video via the 38 GHz band in many of the largest metropolitan
areas in the United States, as well as other markets.
Through July 17, 1995, the Company owned 49% of AGT and accounted for its
investment in AGT under the equity method. For the period from January 1, 1995
to March 31, 1995, AGT had net losses of approximately $1,084,000. 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
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WINSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 1996
(unaudited)
into WinStar Wireless Fiber Corp. ("Wireless Fiber Corp."), 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 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 merger of AGT into
the Company as if the merger occurred as of January 1, 1995 are as follows:
For the three
months ended
March 31,
1995
Net sales $ 6,161,027
Net loss (3,488,205)
Net loss per share $ (0.16)
1 Subsequent Events
Acquisition of Locate
Pursuant to the purchase and sale agreement, dated as of April 1, 1996 (the
"Locate Purchase Agreement"), by and among MobileMedia Corporation
("MobileMedia"), Local Area Telecommunications, Inc. ("Locate"), WinStar Locate,
Inc. ("WinStar Locate"), a subsidiary of WinStar Wireless Fiber Corp. (a
wholly-owned subsidiary of WinStar), and WinStar, WinStar Locate will acquire
(the "Locate Asset Purchase") from Locate certain assets comprising its business
as a competitive access provider of local digital microwave distribution
services and facilities to large corporations and to interexchange and other
common carriers (the "Business"). The purchase price for such assets will be
$17,500,000, which will be paid in the form of a promissory note due six months
after the closing of the Locate Asset Purchase and bearing interest at the
annual rate of eight percent. WinStar may convert the note, in whole but not
part, at its election, into that number of shares of 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 WinStar gives written notice of its
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WINSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 1996
(unaudited)
decision to convert the note. Locate has no rights of conversion. WinStar has
granted certain registration rights to Locate with respect to such shares of
Common Stock in the event that WinStar elects such conversion.
Consummation of the Locate Asset Purchase is subject to certain closing
conditions including (i) expiration or termination of the waiting period under
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and (ii)
consent of the Federal Communications Commission and certain state agencies to
the transfer of control of, or the assignment of, certain licenses and other
authorizations to conduct the Business. The transaction is expected to close as
soon as practicable after satisfaction of all closing conditions set forth in
the Locate Purchase Agreement.
In connection with the Locate Asset Purchase, WinStar, Wireless and Locate
entered into a service agreement ("Services Agreement") for a term commencing in
April 1996 and terminating upon the earlier to occur of (i) the closing of the
Locate Asset Purchase or (ii) termination of the Locate Purchase Agreement.
Pursuant to the Services Agreement, WinStar directly or through its
subsidiaries, performs certain consulting and related services for Locate in
connection with the Business. As full compensation for WinStar's performance of
such services, Locate pays WinStar a fee of $125,000 per month during the term
of the agreement, subject to certain adjustments (the "Monthly Fee").
Acquisition of 80% Equity Interest in Fox Lorber
On April 24, 1996, Non Fiction Films, Inc. ("NFF"), a wholly-owned subsidiary of
WinStar, acquired ("Fox/Lorber Acquisition") 80% of the outstanding common stock
("GFL Common Stock") of GFL Communications, Inc. ("GFL"). GFL's sole asset is
all of the common stock of Fox/Lorber Associates, Inc. ("Fox/Lorber"), an
independent distributor of films, entertainment series and documentaries in the
television and home video markets. Pursuant to the terms of the Agreement and
Plan of Reorganization ("Agreement") by and among NFF, GFL and Richard Lorber,
NFF acquired the 80% of GFL Common Stock for a purchase price consisting of (i)
$150,000 in the common stock of WinStar ("WinStar Common Stock"), or 8,633
shares, based on a last sales price of a share of WinStar Common Stock of
$17.375, and (b) $300,000 in cash contributed by NFF through GFL to the working
capital of Fox/Lorber.
Pursuant to the terms of the Agreement, NFF also purchased from Gaga
Communications, Inc. ("Gaga"), in a separate, simultaneous transaction ("Gaga
Purchase"), all of the outstanding shares of Fox/Lorber's preferred stock,
together with three promissory notes in the aggregate principal amount of
$136,507 (including accrued and unpaid interest thereon) payable by Fox/Lorber
to Gaga for an aggregate purchase price of $1,020,000 in WinStar Common Stock,
or 58,800 shares based on a last sales price of a share of WinStar Common Stock
of $17.375. NFF and Fox/Lorber canceled all such shares of preferred stock and
notes after the closing.
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WINSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 1996
(unaudited)
Acquisition of 65% Equity Interest in The Winning Line
In April 1994, New Media and The Winning Line, Inc. ("TWL"), among others,
entered into an agreement ("TWL Agreement"), pursuant to which New Media had
made certain loans to TWL. Pursuant to the terms of the TWL Agreement, as
amended, on April 8, 1996, WinStar New Media converted $970,000 principal amount
of such loans (plus interest accrued thereon) into a 65 percent equity interest
in TWL.
TWL operates the SportsFan Radio Network ("SportsFan"). SportsFan is a
multimedia sports programming and production company which provides live sports
programming to more than 200 sports and talk format radio stations across the
United States, up to 24 hours a day, including to affiliate stations in 90 of
the top 100 United States markets.
Under the TWL Agreement, WinStar New Media has the right to require certain
principals of TWL who own the remaining 35 percent equity interest in TWL to
sell, and such principals have the right to require WinStar New Media to
purchase, the remaining 35 percent equity interest based upon certain criteria.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Company Overview
Perceiving emerging opportunities in an increasingly procompetitive
telecommunications industry, the Company entered the telecommunications business
in 1993 with its acquisition of Gateway, the Company's long distance
telecommunications services subsidiary. Thereafter, the Company expanded into
the local segment of the telecommunications industry with initial purchases in
February and April 1994 of equity interests in AGT, a holder of numerous 38 GHz
licenses, and subsequent acquisition of AGT by a subsidiary of the Company in
July 1995. Historically, substantially all of the Company's telecommunications
revenues have been generated by the long distance telecommunications services
operations of Gateway. Wireless, the Company's local telecommunications services
subsidiary, introduced its Wireless Fiber services in December 1994 and
currently provides such services to a limited number of customers, generating
nominal revenues to date. The Company anticipates, however, that the revenues
generated by the operations of Wireless and WinStar Telecom will represent an
increasingly larger percentage of the Company's consolidated revenue as the
Company expands into the local telecommunications services market.
The Company believes that the ability to deliver information and entertainment
content to consumers will play an increasingly important role in consumers'
choice of telecommunications providers. Accordingly, the Company initiated
operations of an information and entertainment services subsidiary, New Media,
which includes Non-Fiction Films, in the fiscal year ended February 28, 1995.
New Media acquires distribution and other rights to information and
entertainment products from entities which can benefit from the Company's
telecommunications, marketing and distribution networks and expertise and whose
products may enhance the marketability of the Company's telecommunications
services in the future.
The Company also continues to market consumer products nationwide through Global
Products, a subsidiary acquired prior to the Company's entry into the
telecommunications industry.
The Company has expended significant capital and effort in assimilating and
developing its telecommunications subsidiaries, completing several transactions
critical to the future development of its telecommunications operations and
building an operating and management infrastructure for its growing
telecommunications business. A significant amount of capital has been used in
connection with the development of the Company's wireless local
telecommunications operations, including the hiring and development of an
experienced management team, the purchase of transceivers and related equipment,
the development and installation of network and operating systems and the
commercial introduction of the Company's Wireless Fiber services, including the
initiation of marketing and sales efforts.
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The Company seeks to utilize its Wireless Fiber services to capture a portion of
the local telecommunications market as well as to enhance the marketability of
its long distance telecommunications services. Accordingly, the Company intends
to make increasing capital expenditures in connection with the continuing growth
of its Wireless Fiber services and the expansion of its wireless local
telecommunications business. The Company also expects to make increasing capital
expenditures with respect to the expansion and improvement of its long distance
operations and the growth of its information and entertainment services
operations. Proper management of the Company's growth, should such growth occur,
will require the Company to maintain quality control over its services and
expand the Company's internal management, technical and accounting systems at a
pace consistent with the growth of the Company's business, all of which will
require substantial capital expenditures. See "- Liquidity and Capital
Resources".
Results of Operations
Three Months Ended March 31, 1996 Compared to Three Months Ended March 31, 1995
Net sales for the three months ended March 31, 1996 increased by $8,351,000, or
136%, to $14,509,000 compared with net sales of $6,158,000 in the three months
ended March 31, 1995. This increase was principally attributable to increased
revenues generated by the Company's telecommunications segment, which had
revenues of approximately $10.2 million during the three months ended March 31,
1996, compared with $2.2 million in the three months ended March 31, 1995. This
increase arose principally from the Company's long distance telephone business.
On April 24, 1996, NFF acquired an 80% equity interest in Fox/Lorber, a
television and home video distribution company with United States and
international distribution capacity and a library of programming. The Fox/Lorber
Acquisition furthers the Company's strategy of leveraging the Non-Fiction Film
brand name in special interest and information content. In combination with
growth in other parts of the Company's business, it is anticipated by management
that the Fox/Lorber Acquisition will allow New Media to exceed $10 million in
revenues in 1996, a three-fold increase over 1995, although there can be no
assurance that this will be the case.
Gross profit as a percentage of net sales increased to 40.9% for the three
months ended March 31, 1996, compared with 25.3% for the three months ended
March 31, 1995. The increase was primarily attributable to increasing margins in
the Company's telecommunications segment, which was positively impacted during
the first quarter by lower cost of sales achieved through reduced carrier costs
and volume rebates resulting from renegotiated contracts from service suppliers.
As a result of incentives created by recent regulatory and legislative changes,
the Company has accelerated its plan to deliver local switched services on a
national basis, utilizing the broadband capacity of Wireless Fiber services. The
Company's WinStar Telecom unit has begun to build a direct sales force and has
opened its first sales office in New York. It is in the process of expanding
into other metropolitan areas with staff currently in place in Boston and
Buffalo as
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well. Additionally, WinStar Telecom 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. See
"Liquidity and Capital Resources".
Selling, general and administrative expenses increased by $6,422,000 to
$10,192,000 or 70.2% of net sales, for the three months ended March 31, 1996,
from $3,770,000, or 61.2% of net sales, for the comparable period of the prior
year. The growth in personnel in the telecommunications segment, as described
above, including initial costs associated with the business, along with selling
costs associated with increased revenues in the long distance telephone
business, accounted for approximately 86% of the increase. Corporate general and
administrative expenses accounted for approximately 11% of the total increase,
reflecting the expense of continued expansion of the executive, finance,
information system and human resource functions. For the reasons noted above,
the operating loss for the three months ended March 31, 1996 was $4,618,000,
compared with $2,269,000 for the three months ended March 31, 1995.
Net interest expense for the three months ended March 31, 1996 was $5,758,000,
compared with $59,000 for the three months ended March 31, 1995. The increase
was primarily attributable to $7,834,000 in interest accreted to the Senior
Notes and the Convertible Notes but not payable in cash during the current
quarter, offset in part by interest income earned on invested cash.
During the three months ended March 31, 1995, the Company recorded an expense of
$537,000 representing its equity interest in the losses of AGT. As a result of
the merger of AGT into a subsidiary of the Company, the Company began to include
all of AGT's revenues and expenses in its consolidated statement of operations
effective July 17, 1995, and therefore this expense does not appear in the
current quarter's statement of operations. In addition, the cost of the
acquisition of AGT has been allocated primarily to licenses, and the
amortization of this asset caused an increase in amortization expense from
$63,000 for the three months ended March 31, 1995 to $195,000 for the three
months ended March 31, 1996.
For the reasons noted above, the net loss for the three months ended March 31,
1996 was $10,699,000 compared with a net loss of $2,927,000 for the first
quarter of 1995.
Liquidity and Capital Resources
The Company's balance sheet at March 31, 1996 reflects working capital of
$209,014,000 with cash, cash equivalents and short term investments of
$203,503,000, compared with $214,903,000 and $211,701,000, respectively, at
December 31, 1995. Cash and working capital was used during the quarter
principally to finance the continued expansion of the Company's
telecommunications operations.
The Company has historically funded capital expenditures, acquisitions, working
capital requirements and operating losses from public and private offerings of
securities and from credit facilities. The Company has made approximately $2.6
million of capital expenditures for the three months ended March 31, 1996. The
Company believes it has an opportunity to
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significantly expand its telecommunications services business and that currently
available capital will enable it to expand more quickly and effectively.
However, the acceleration of the Company's plan to deliver local switched
services on a national basis should increase the Company's capital needs as this
expansion takes place.
The Company has incurred significant operating and net losses attributable in
large part to the development of its telecommunications services and anticipates
that such losses will increase as the Company attempts to accelerate its growth
strategy. Management anticipates, based on current plans and assumptions
relating to its operations, that its existing financial resources will be
sufficient to fund the Company's growth and operations for the next 24 months.
Management believes that the Company's capital needs will continue to be
significant and the Company will continue to seek additional sources of capital.
Further, in the event the Company's plan or assumptions change or prove to be
inaccurate, or if the Company successfully consummates any acquisitions, or the
Company is able to successfully accelerate its growth plan in the local switched
services market, then the Company may 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 if required, or, if such financing is available, that the
Company will be able to obtain it on acceptable terms.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Exhibits
10.67 Agreement and Plan of Reorganization by and among Non Fiction Films Inc.,
a wholly owned subsidiary of WinStar Communications,Inc. ("WinStar"), GFL
Communications, Inc.("GFL"), Fox/Lorber Associates, Inc.("Fox/Lorber"), a
wholly-owned subsidiary of GFL, and Richard Lorber
10.68 Security Agreement between Fox/Lorber and WinStar New Media Company,Inc.,
a wholly-owned subsidiary of WinStar
10.69 Purchase and Sale Agreement("Purchase and Sales Agreement") by and among
WinStar, WinStar Locate, Inc., a wholly-owned subsidiary of WinStar
Wireless Fiber Corp. (a wholly-owned subsidiary of WinStar), MobileMedia
Corporation ("MobileMedia") and Local Area Telecommunications, Inc.
("Locate"), a wholly- owned subsidiary of MobileMedia
10.70 Service Agreement by and between WinStar Wireless, Inc., a wholly- owned
subsidiary of WinStar and Locate
21.1 Schedule of Subsidiaries
27 Financial Data Schedule
B Current Reports on Form 8-K - None
17
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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: May 14, 1996
By: /s/Fredric E. von Stange
Fredric E. von Stange
Director, Executive Vice President, Chief
Financial Officer (and principal accounting
officer) Dated: May 14, 1996
18
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EXHIBIT 10.67
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, dated April 24, 1996
("Agreement"), by and among Non Fiction Films Inc., a Delaware corporation whose
address is 230 Park Avenue, Suite 3126, New York, New York 10169 ("NFF"), GFL
Communications, Inc., a New York corporation whose address is 419 Park Avenue
South, New York, New York 10016 ("GFL"), Fox/Lorber Associates, Inc., a New York
corporation whose address is 419 Park Avenue South, New York, New York 10016
("Fox/Lorber"), and Richard Lorber, an individual having an office c/o
Fox/Lorber Associates, Inc., 419 Park Avenue South, New York, New York 10016
("Richard" or "Seller").
WHEREAS, Fox/Lorber licenses, distributes and markets feature length motion
pictures and television programming;
WHEREAS, GFL is the beneficial and record holder of all of the
outstanding shares of common stock of Fox/Lorber and Richard is the beneficial
and record owner of 300 shares of common stock of GFL, representing all of the
outstanding capital stock of GFL; and
WHEREAS, NFF wishes to acquire 80% of the issued and outstanding shares
of capital stock of GFL through a share exchange with Richard.
IT IS AGREED:
1. The Exchange; Restrictions on Transfer; Richard's GFL Shares.
1.1 The Exchange. On the date hereof ("Closing Date"), Richard
shall sell, transfer and assign to NFF 240 of the shares of common stock of GFL
owned by him ("GFL Exchange Shares") and NFF shall, in exchange therefor,
arrange to have issued to Richard an aggregate of 8,633 shares ("WinStar
Exchange Shares") of the Common Stock of WinStar Communications, Inc ("WinStar")
(which number of shares is determined by dividing $150,000 by the last sale
price of the common stock on April 12, 1996 ($17.375)). NFF shall cause WinStar
to issue a certificate or certificates evidencing the WinStar Exchange Shares on
the Closing Date. NFF (or WinStar) shall pay all issue taxes, if any, with
respect to the issuance of the WinStar Exchange Shares. The foregoing exchange
of shares shall be referred to herein as the "Exchange." The parties intend for
the Exchange to qualify as a tax-free reorganization pursuant to Section 368(b)
of the Internal Revenue Code of 1986, as amended, and each agrees to prepare and
file its respective tax returns consistent with such intention. Notwithstanding
the foregoing, no party shall be liable to any other party if the Exchange does
not so qualify.
1.2 Restrictions on Transfer.
(a) Richard agrees that the WinStar Exchange Shares and Richard's GFL
Shares, as defined below, cannot be sold unless such shares are registered under
the Securities Act of 1933 or an exemption therefrom is available thereunder.
Additionally, prior to April 30, 2002, Richard shall not sell, pledge, dispose,
gift or otherwise transfer or hypothecate the 60 shares of GFL owned by him and
not transferred to NFF hereunder ("Richard's GFL Shares") to anyone except his
spouse or any of his children or any trusts established for their benefit
("Permitted Transferee"). Notwithstanding the foregoing, Richard shall not
transfer Richard's GFL Shares to a Permitted Transferee unless the Permitted
Transferee agrees in writing to be bound by Sections 1.2 and 1.3 hereof. After
April 30, 2002, Richard shall, prior to any transfer by him of any of Richard's
GFL Shares to a third party ("Transferee"), give
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NFF a ten-day right of first refusal to match the terms of the offer made by
such Transferee to purchase such shares.
(b) The certificates evidencing the WinStar Exchange Shares and Richard's
GFL Shares shall bear the following legends:
"The shares represented by this certificate have been
acquired for investment and have not been registered under the
Securities Act of 1933. The shares may not be sold or
transferred in the absence of such registration or an
exemption therefrom under said Act."
"The shares represented by this certificate have been
acquired pursuant to a certain Agreement and Plan of
Reorganization, dated April 24, 1996, a copy of which is on
file with the issuer hereof and may not be transferred,
pledged or disposed of except in accordance with the terms and
conditions thereof."
1.3 Purchase and Sale of Richard's GFL Shares.
(a) Richard and his Permitted Transferees shall have the right to require
NFF to purchase ("Purchase Option") all, but not less than all, of Richard's GFL
Shares on the following terms and conditions. Richard may exercise the Purchase
Option upon written notice to NFF at any time during the periods commencing on
April 1 and ending on April 30 of each of the calendar years ending December 31,
1997, 1998 and 1999 (the April 30 date in each such year being referred to as
the "Purchase Option Expiration Date"). The per-share price to be paid by NFF
upon exercise of the Purchase Option shall be as follows:
"Earnings" for the Calendar Year
Preceding Exercise of Purchase Option Per Share Purchase Price
less than $300,000 No Purchase Option available
$300,000 $3,333.33
$375,000 $4,166.67
$450,000 $5,000.00
$525,000 $5,833.33
$600,000 $6,666.67
$675,000 $7,500.00
$750,000 $8,333.33
$825,000 $9,166.67
$900,000 $10,000.00
$975,000 $10,833.33
$1,050,000 $11,666.67
$1,125,000 $12,500.00
$1,200,000 $13,333.33
over $1,275,000 $14,166.67
"Earnings" shall mean Fox/Lorber's net income before taxes and
excluding extraordinary items, as determined by WinStar's independent auditors;
provided, however, that (i) to the extent that Fox/Lorber records income from
the reversal of all or a part of the "LCP Reserve" (as defined in Section
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6.8 below), such income shall be excluded from Earnings; (ii) to the extent that
Fox/Lorber records amortization of goodwill and such goodwill results from the
recording of the LCP Reserve, such amortization shall also be excluded from
Earnings; and (iii) Fox/Lorber shall be allocated a share of WinStar's
"corporate overhead" only if such overhead is generally allocated among
WinStar's direct and indirect subsidiaries and only if such allocation is
reasonably related to Fox/Lorber's use of, or benefit from, such overhead.
(b) If Richard does not exercise the Purchase Option, then NFF shall have
the right to require Richard and his Permitted Transferees to sell ("Sale
Option") all, but not less than all, of Richard's GFL Shares to NFF. The Sale
Option is exercisable by written notice to Richard at any time during the
three-year period commencing on the Purchase Option Expiration Date in 1999. The
per-share purchase price of the Sale Option shall be $8,333.33; provided that
the total price (i.e., the number of Richard's GFL Shares multiplied by the
per-share purchase price) paid by NFF shall be reduced (but not to less than
$100,000 in the aggregate) by the amount by which average Earnings for the
calendar years ending December 31, 1996, 1997 and 1998 is less than $750,000.
(c) The purchase price for the Purchase Option and the Sale Option shall be
payable by NFF in common stock of WinStar. The per-share value of the WinStar
common stock shall be equal to the average of the last sale prices of the
WinStar common stock during the calendar month immediately preceding the month
in which the Purchase Option or the Sale Option, as the case may be, is
exercised. The shares of common stock of WinStar, when issued in accordance with
this Agreement, shall be validly authorized and issued, fully paid and
non-assessable, and not subject to any Encumbrances. NFF shall cause WinStar to
issue a certificate or certificates evidencing such shares of common stock upon
the closing of the Purchase Option or the Sale Option. The closing of the
Purchase Option or Sale Option shall take place within ten days of the exercise
thereof, unless Earnings has not been determined by such date, in which case the
closing shall take place within three days of such determination. NFF (or
WinStar) shall pay all issue taxes, if any, with respect to the issuance of the
shares.
(d) If at any time during the period between the date of this Agreement and
the exercise of the Purchase Option or Sale Option (together, the "Options"),
the outstanding shares of Common Stock of GFL, as a group, 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, merger, consolidation, reorganization or other like change in
capital structure, the per-share prices to be paid upon exercise of the Options
shall be correspondingly adjusted.
(e) If, prior to the exercise of the Options, there occurs any
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 consolidation, merger, or
sale, lawful and fair provision shall be made whereby, upon exercise of the
Options, Richard and his Permitted Transferees shall thereafter have the right
to receive, in lieu of the WinStar shares they would otherwise receive, 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 Option been exercised immediately prior to such consolidation,
merger, or sale, and in such event, appropriate provision shall be made with
respect to the rights and interests of Richard and his Permitted Transferees to
the end that the provisions hereof shall thereafter be applicable in relation to
any shares of stock, securities, or assets thereafter deliverable upon exercise
of the Options.
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(f) Notwithstanding anything contained herein to the contrary, if at any
time prior to the Purchase Option Expiration Date in 1999, NFF determines to
engage in a "Major Transaction," as defined below, then (i) NFF shall give
Richard no less than 10 days written notice of the date the Major Transaction is
scheduled to be consummated; and (ii) during such 10-day period, Richard and his
Permitted Transferees shall be entitled to exercise the Purchase Option on the
terms set forth in subsection (a) above, except that the purchase price therefor
may be paid by NFF in either shares of WinStar common stock or in cash. "Major
Transaction" shall mean (i) a sale by NFF of GFL Exchange Shares such that the
WinStar Group (as defined in Section 6.4 hereof) can no longer elect the
majority of GFL's Board of Directors; or (ii) a sale by Fox/Lorber or GFL to a
person other than a member of the WinStar Group of all or substantially all of
their respective assets.
2. Directors and Officers.
2.1 GFL. Immediately prior to the execution of this Agreement,
Richard, as the sole shareholder and director of GFL, adopted resolutions
pursuant to which, on the Closing Date, the persons listed on Schedule 2.1
hereto shall become the officers and directors of GFL.
2.2 Fox/Lorber. Immediately prior to the execution of this
Agreement, GFL, as the holder of all of the outstanding shares of common stock
of Fox/Lorber, and Richard, as the sole director of Fox/Lorber, adopted
resolutions pursuant to which, on the Closing Date, the persons listed on
Schedule 2.2 hereto shall become the officers and directors of Fox/Lorber.
3. Capital Contribution and Credit Facility.
3.1 Capital Contribution. Simultaneously with the execution of this
Agreement, NFF shall cause GFL to contribute to Fox/Lorber, as a capital
contribution, the sum of $300,000.
3.2 Credit Facility. Commencing on the date hereof and
terminating on December 31, 1998, NFF agrees to provide (or cause an affiliate
of NFF to provide) cash advances to Fox/Lorber ("Credit Facility") in
immediately-available funds, when and as requested by Fox/Lorber for (i) working
capital (up to $350,000), (ii) acquisition of product approved by NFF or (iii)
financing of accounts receivables which NFF deems creditworthy; provided,
however, that the aggregate principal amount to be advanced hereunder shall not
exceed $2,000,000. Fox/Lorber agrees to use the proceeds of the Credit Facility
to replace the $200,000 previously advanced by WinStar New Media Company Inc. to
Fox/Lorber.
3.3 Promissory Note. All amounts advanced under the Credit
Facility by NFF or its affiliate ("Lender") shall be evidenced by a senior
promissory note in the form of Exhibit A attached hereto, to be executed by
Fox/Lorber simultaneously herewith ("Note"). Advances shall be payable on demand
and shall bear interest at the per annum rate of 3% above the prime rate of
Chemical Bank, N.A., as announced from time to time; provided, however, that
Fox/Lorber shall use any and all monies and payments received by it at any time
("Receipts") to pay interest on, and repay advances made under, the Credit
Facility. All of such Receipts shall be deposited by Fox/Lorber in an account
("Lock Box") under Fox/Lorber's name, the signatories on which shall be
designated by NFF. NFF shall be entitled to withdraw from the Lock Box all
monies necessary to pay interest on, and repay advances made under, the Credit
Facility. Alternatively, upon NFF's instructions, Fox/Lorber shall either
endorse all Receipts to Lender immediately after Fox/Lorber's receipt of same or
deposit the Receipts in an account other than the Lock Box and transfer the
proceeds to Lender immediately after clearance of funds. Such amounts
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<PAGE>
repaid shall be applied first to any and all interest then outstanding under the
Note and then to principal and shall be available for readvancement to
Fox/Lorber, under the same terms as set forth in Section 3.2 above, during the
term of the Credit Facility. Any and all principal and interest remaining
outstanding under the Credit Facility as of December 31, 1998 shall become due
and payable on such date without demand by NFF.
3.4 Termination of Credit Facility. NFF may terminate the
Credit Facility at any time, if (i) in its reasonable judgment, there has been a
material adverse change in the business or financial condition of Fox/Lorber or
(ii) Fox/Lorber or Richard (other than by following instructions given by NFF or
its affiliates) materially breaches any of its or his representations,
warranties or covenants made in, or defaults on, any of its or his material
obligations under, this Agreement or any other agreement being executed
simultaneously herewith, provided that the Credit Facility shall not be
terminated under (ii), above, until such breach has been acknowledged in writing
by Fox/Lorber or Richard or is finally adjudicated.
3.5 Security Agreement. All advances made under the Credit
Facility are being secured by Fox/Lorber granting to Lender a security interest
in all of its assets (now owned or hereafter acquired) pursuant to the Security
Agreement in the form of Exhibit B hereto ("Security Agreement"), to be executed
simultaneously herewith. Simultaneously herewith, Fox/Lorber shall also execute
and deliver UCC-1 Financing Statements and such other documents as may be
reasonably requested by NFF and its counsel to perfect such security interest.
Lender shall execute all documents and take all actions reasonably necessary to
subordinate its lien to any lien (consented to by NFF) on any specific
Fox/Lorber production series, or rights and/or proceeds therein, granted in
favor of the third party independent financier, licensee or acquirer of such
specific Fox/Lorber production series or rights therein.
3.6 Acknowledgments. Richard and Fox/Lorber hereby acknowledge
and agree that, notwithstanding anything to the contrary herein, (i) the Note
issued, and security interest granted, to Lender by Fox/ Lorber are not on
account of an antecedent debt but are instead in consideration for the new value
provided to Fox/ Lorber by Lender; (ii) the collateral covered by the security
interest granted to Lender is unique and subject to waste if misused or
mismanaged and the security interest cannot be adequately protected by a
replacement lien in other collateral; and (iii) the exercise of any rights
("Rights") (a) by Lender in accordance with the terms and provisions of the
Note, Security Agreement and applicable law, or (b) by NFF, solely as a
shareholder of GFL, or by GFL, solely as a shareholder of Fox/Lorber, under the
Certificate of Incorporation or By-laws of GFL or Fox/Lorber, or under
applicable law, shall not be deemed to be "excessive control" by Lender, NFF or
GFL. Richard and Fox/Lorber hereby waive any claim that the exercise of any such
Rights by Lender, NFF, or GFL shall be deemed to be "excessive control" by
Lender, NFF or GFL.
4. Representations and Warranties of GFL, Fox/Lorber and Richard. GFL,
Fox/Lorber and Richard, jointly and severally, represent and warrant as follows
and acknowledge that NFF is relying upon such representations and warranties in
connection herewith:
4.1 Corporate Existence and Power. Each of GFL and Fox/Lorber
is a corporation duly organized, validly existing and in good standing under the
laws of the State of New York and is qualified to do business and is in good
standing in each state in which the ownership or leasing of its properties or
the character of its business require such qualification, except where the
failure to so qualify would not have a material adverse effect on the business,
operations, assets or financial condition of GFL and Fox/Lorber, taken as a
whole, ("Material Adverse Effect"). Each of GFL and Fox/Lorber has the
5
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requisite legal and corporate power to own, lease and operate its properties and
to carry on its business as now being conducted. Richard has furnished to NFF
true and complete copies of (a) the Certificate of Incorporation and all
amendments thereto of each of GFL and Fox/Lorber, certified by the Secretary of
State of the State of New York, and (b) the by-laws of each of GFL and
Fox/Lorber as presently in effect, certified as true and correct by the
Secretary of each of GFL and Fox/Lorber.
4.2 Subsidiaries; Investments in Others. GFL has no
subsidiaries or interests in any partnership, joint venture or other entity
other than Fox/Lorber. Other than as described on Schedule 4.2, Fox/Lorber has
no subsidiaries or interests in any partnership, joint venture or other entity.
4.3 Capital Stock. The authorized capital stock of GFL
consists of 5,000 shares of Common Stock, $.01 par value. There are no shares of
capital stock of GFL held in its treasury other than as set forth on the GFL
Balance Sheet, as defined below, and other than 19 shares of Common Stock
contributed by Richard immediately prior to the execution of this Agreement.
There are no declared but unpaid dividends or undeclared dividend arrearages on
any shares of GFL's capital stock. The authorized capital stock of Fox/Lorber
consists of 5,000,000 shares of Common Stock, $.01 par value, 16,109 shares of
Series A Preferred Stock, $1.00 par value, and 18,409 shares of Series B
Preferred Stock, $1.00 par value. There are no shares of capital stock of
Fox/Lorber held in its treasury, except for 130,250 shares of Common Stock.
There are no declared but unpaid dividends or undeclared dividend arrearages on
any shares of Fox/Lorber's capital stock. All issued shares of capital stock of
each of GFL (including the GFL Exchange Shares) and Fox/Lorber have been duly
authorized and validly issued and are fully paid and nonassessable, and are not
subject to Encumbrances. No options, warrants, preemptive or other rights for
the purchase of any shares of the capital stock of either GFL or Fox/Lorber or
any security convertible into such stock are authorized and outstanding, except
with respect to the Preferred Stock of Fox/Lorber. All outstanding securities of
GFL and Fox/Lorber were issued in accordance with all federal and state
securities laws.
4.4 Ownership of Stock. Richard is the registered holder and
beneficial owner of 300 shares of Common Stock of GFL, representing all of the
issued and outstanding shares of capital stock of GFL, free and clear of any
mortgage, pledge, lien, security interest, conditional sale agreement, voting
and/or sale agreement, claim, encumbrance or charge of any kind
("Encumbrances"). GFL is the registered holder and beneficial owner of 1,172,250
shares of Common Stock of Fox/Lorber, representing all of the issued and
outstanding shares of Common Stock of Fox/Lorber, free and clear of any
Encumbrances. There are no other shares of capital stock of Fox/Lorber
outstanding, except the shares of Preferred Stock referred to in Section 6.3
hereof.
4.5 Authorization; No Restrictions. Richard, GFL and Fox/Lorber, as the
case may be, is authorized and has the legal right and power to execute and
deliver this Agreement, the Note and the Security Agreement and to perform their
respective obligations hereunder and thereunder. The execution, delivery and
performance of this Agreement, the Note and the Security Agreement by Richard,
GFL and Fox/Lorber, as the case may be, in accordance with their respective
terms, will not, with or without the giving of notice or the passage of time, or
both, conflict with, result in a default, right to accelerate or loss of rights
under, or result in the creation of any encumbrance pursuant to, or require the
consent of any third party or governmental authority pursuant to (a) the
certificate of incorporation or by-laws of GFL or Fox/Lorber, or (b) any
mortgage, lease or other agreement or any law, regulation or order to which
Richard, GFL or Fox/Lorber is a party or by which any of them (or any of their
assets, properties, operations or businesses) may be subject or bound, except
where any such conflict, default, acceleration, loss, encumbrance or failure to
obtain consent will not have a Material Adverse Effect. This
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Agreement is the legal, valid, and binding obligation of Richard and GFL,
enforceable against them in accordance with their respective terms applicable to
them, except to the extent the enforceability of the same may be limited by
bankruptcy, insolvency, or other laws affecting creditors' rights generally or
by the availability of equitable remedies. This Agreement, the Note and the
Security Agreement are legal, valid, and binding obligations of Fox/Lorber,
enforceable against it in accordance with their respective terms applicable to
it, except to the extent the enforceability of the same may be limited by
bankruptcy, insolvency, or other laws affecting creditors' rights generally or
by the availability of equitable remedies.
4.6 Employees. Schedule 4.6 hereto contains a complete list of
all of the employees of GFL and/or Fox/Lorber, including salary, bonus paid for
1995 and material perquisites and benefits. None of such employees is subject to
an employment agreement with GFL or Fox/Lorber. All employees of GFL and/or Fox
Lorber are terminable at will.
4.7 Records. The minute books, stock certificate books and
stock transfer ledgers of GFL and Fox/Lorber are complete and correct in all
material respects from and after October 1, 1994.
4.8 Financial Statements. GFL has delivered to NFF complete
copies of an audited balance sheet as of September 30, 1995 and the related
statements of operations and accumulated deficit and cash flows for the year
then ended, together with the notes thereto, and an unaudited balance sheet as
of March 31, 1996 and the related statements of operations and accumulated
deficit and cash flows for the six months then ended (collectively, the "GFL
Financial Statements"). The GFL Financial Statements fairly present, in all
material respects, in conformity with GAAP applied on a consistent basis the
financial position and assets and liabilities of GFL and Fox/Lorber as of the
dates thereof and GFL's and Fox/Lorber's consolidated results of operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal, recurring adjustments which will not, in the aggregate,
have a material impact on such statements). The March 31, 1996 balance sheet
that is included in the GFL Financial Statements is referred to herein as the
"GFL Balance Sheet," and March 31, 1996 is referred to herein as the "Balance
Sheet Date."
4.9 Assets; Library; Receivables. GFL's only asset is
1,172,250 shares of Fox/Lorber. Each of GFL and Fox/Lorber has good and
marketable title to all of its assets, free and clear of any and all
Encumbrances, except for Encumbrances in favor of WinStar New Media Company Inc.
and Encumbrances in favor of Orion Pictures Corporation on Fox/Lorber's domestic
home video receivables ("Orion's Lien"). Fox/Lorber owns all of the license fees
receivables and accounts receivables set forth on the GFL Balance Sheet, free
and clear of any Encumbrance except Orion's Lien, and Richard has no reason to
believe that all of such receivables, after deducting the amounts indicated for
doubtful accounts, will not be collected by Fox/Lorber in the ordinary course.
Attached as Schedule 4.9 hereto, is a "library valuation" representing the
future income expected to be generated by the rights and titles owned and
licensed by Fox/Lorber. The information contained on Schedule 4.9 represents
Richard's and Fox/Lorber's best estimates, based on fair and reasonable
assumptions.
4.10 Liabilities. As of the date hereof, neither GFL nor
Fox/Lorber has any liabilities or obligations, whether absolute, accrued,
contingent or otherwise, (a) except as and to the extent (i) listed on Schedule
4.10 hereto, (ii) reflected on the GFL Balance Sheet, or (iii) incurred in the
ordinary course of business since the Balance Sheet Date (such latter
liabilities (excluding Home Video Obligations) not being in excess of $100,000),
and (b) except for (i) executory obligations under Contracts (as defined in
Section 4.15) set forth in Schedule 4.15, or if not required to be set forth in
Schedule 4.15, incurred in the ordinary course of business, and (ii) obligations
incurred since March 31,
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1996 to acquire home video rights ("Home Video Obligations"). Except as set
forth in Schedule 4.10, no single Home Video Obligation is in excess of $20,000.
All Home Video Obligations, in the aggregate, are less than $175,000.
4.11 Bank Accounts. Schedule 4.11 hereto sets forth a true and
complete list of the names and addresses of all banks and other financial
institutions in which GFL or Fox/Lorber has any accounts, deposits or
safe-deposit boxes, and the names of all persons authorized to draw on such
accounts or deposits or to have access to such safe-deposit boxes.
4.12 Transactions with Certain Persons. No officer, director,
shareholder or employee of GFL or Fox/Lorber or any member of any such person's
immediate family (an "Insider") is presently a party to any transaction with GFL
or Fox/Lorber relating to its business, including without limitation, any
contract, agreement or other arrangement (i) providing for the furnishing of
services by, (ii) providing for the rental of real or personal property from, or
(iii) otherwise requiring payments to, (other than for services as officers,
directors or employees of GFL or Fox/Lorber as described on Schedule 4.6 hereof)
any Insider or corporation, partnership, trust or other entity in which any
Insider has a substantial interest as a stockholder, officer, director, trustee
or partner, other than as set forth on Schedule 4.12 hereto. Except as set forth
on Schedule 4.12 hereto, neither GFL nor Fox/Lorber has any obligation or
liability, or owes any monies, to an Insider.
4.13 First Lien. The security interest granted by the Security Agreement
represents, as of the date hereof, a first lien on all Fox/Lorber's assets,
subject only to the prior lien granted to WinStar New Media Company Inc. and
Orion's Lien.
4.14 Permits and Licenses; Compliance with Law. Schedule 4.14
sets forth a list of all material licenses, permits, authorizations, variances,
exemptions, orders and approvals from federal, state, local and foreign
governmental and regulatory bodies (collectively, "Permits") held by each of GFL
and Fox/Lorber in connection with its business. Each of GFL and Fox/Lorber is in
compliance in all respects with the terms of such Permits and with all
requirements, standards and procedures of the federal, state, local and foreign
governmental or regulatory bodies which issued them, except for noncompliance,
which singly or in the aggregate, would not have a Material Adverse Effect.
Neither GFL nor Fox/Lorber is required to obtain or hold any other permit in
connection with its business, except for permits, the failure to obtain which
would not have a Material Adverse Effect. Each of GFL and Fox/Lorber is in
compliance in all respects with all federal, state, local and foreign laws,
ordinances, codes, regulations, orders, requirements, standards of procedures
which are applicable in any respect to its business, except for noncompliance,
which singly or in the aggregate, would not have a Material Adverse Effect.
4.15 Agreements Valid; No Default. All the contracts,
agreements, leases, licenses, commitments and/or arrangements which are material
to either GFL's or Fox/Lorber's business ("Material Contracts") are listed in
Schedule 4.15 hereof and copies thereof have been made available to NFF. Any
contract, agreement, lease, license, commitment and/or arrangement ("Contract")
which requires GFL or Fox/Lorber to pay more than $10,000 to another party, or
which requires another party to pay more than $10,000 to GFL or Fox/Lorber,
shall be deemed to be a Material Contract. The Material Contracts are valid and
binding, enforceable in accordance with their respective terms, and are in full
force and effect, except where the absence of same will not have a Material
Adverse Effect. Except as set forth in Schedule 4.15, there is not under any
such Material Contract (a) any existing default by GFL or Fox/Lorber, or any
event which, after notice or lapse of time, or both, would consti-
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tute a default by GFL or Fox/Lorber or result in a right to accelerate by any
other person or a loss of any rights of GFL or Fox/Lorber and (b) to the best of
GFL's or Fox/Lorber's knowledge, any default by any other person, or any event
which, after notice or lapse of time, or both, would constitute a default by any
such person or result in a right to accelerate by GFL or Fox/Lorber or a loss of
any rights of any such person, except in either case, for defaults which, singly
or in the aggregate, would not have a Material Adverse Effect. The aggregate
amount payable under Contracts which are not Material Contracts does not exceed
$100,000.
4.16 Intangibles. Except as described on Schedule 4.16,
neither GFL nor Fox/Lorber has received any notice claiming that it is
infringing upon or otherwise acting adversely to any copyrights, trademarks,
trademark rights, service marks, service names, trade names, patents, patent
rights, licenses or trade secrets owned by any other person, firm, corporation
or other entity.
4.17 Consents. All consents, approvals, qualifications,
orders, or authorizations of, or filings with, any governmental authority or any
other party (including parties to Material Contracts), required in connection
with Richard's and/or GFL's or Fox/Lorber's valid execution, delivery, or
performance of this Agreement, the Note and the Security Agreement have been
obtained, except for the filings described in Sections 6.5 and 6.6 hereto.
4.18 Tax Liabilities. Each of GFL and Fox/Lorber has filed all
federal, state and local tax reports and returns required by any law or
regulation to be filed by it and has duly paid all taxes, duties and charges due
and payable by it for all periods prior to the March 31, 1996, or has reserved
against such payment on the GFL Balance Sheet. To Richard's knowledge, the
assessment of any material amount of additional taxes in excess of those paid
and reported is not reasonably expected. Except as set forth in Schedule 4.18,
neither GFL nor Fox/Lorber has been audited by any taxing authority and is not
currently involved in any such audit or any investigation by a taxing authority.
4.19 Errors and Omissions Liability Insurance. Fox/Lorber has in effect
producers' errors and omissions liability insurance, on a blanket basis, for its
titles currently in distribution in the United States ($1 million/$3
million/$10,000 deductible).
4.20 Litigation. Except as set forth on Schedule 4.20, there
is no claim, legal action, arbitration or other legal or administrative
proceeding (collectively "Proceedings"), nor any order, decree or judgment,
pending or in effect, or, to the knowledge of Richard, threatened, against or
relating to either GFL or Fox/Lorber, its properties, assets or business, except
for such Proceedings which, if determined adversely, would not have a Material
Adverse Effect, and Richard does not know of any basis for the same.
Additionally, there is no Proceeding, nor any order, decree or judgment, pending
or in effect, or, to the knowledge of Richard, threatened, against Richard which
would materially affect the transactions contemplated by this Agreement or any
other agreement being executed simultaneously herewith or which would affect
Richard's or NFF's ownership of any shares of GFL Common Stock.
4.21 Disclosure. No representation or warranty by GFL,
Fox/Lorber or Richard contained in this Agreement and no information contained
in any Schedule to this Agreement, to Richard's knowledge, contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained therein not misleading.
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4.22 Investment Representations. Richard is acquiring the
WinStar Exchange Shares for his own account and not with a view towards
distribution thereof. Richard understands that he must bear the economic risk of
the investment in the WinStar Exchange Shares, which shares cannot be sold by
him unless they are registered under the Securities Act of 1933 (the "1933 Act")
or an exemption therefrom is available thereunder and WinStar is under any
obligation to register the WinStar Exchange Shares for sale under the 1933 Act.
Richard has had both the opportunity to ask questions and receive answers from
the officers and directors of NFF and WinStar and all persons acting on their
behalf concerning the business and operations of WinStar and NFF and to obtain
any additional information to the extent NFF or WinStar possesses or may possess
such information or can acquire it without unreasonable effort or expense
necessary to verify the accuracy of such information.
5. Representations and Warranties of NFF. NFF represents and warrants as
follows and acknowledges that Richard, GFL and Fox/Lorber are relying upon such
representations and warranties in connection herewith.
5.1 Corporate Existence and Power. NFF is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and is qualified to do business and is in good standing in each state
in which the ownership or leasing of its properties or the character of its
business require such qualification, except where the failure to so qualify
would not have a material adverse effect on the business, operations, assets or
financial condition of NFF. NFF has the requisite legal and corporate power to
own, lease and operate its properties and to carry on its business as now being
conducted.
5.2 Ownership of Stock. WinStar is the registered holder and
beneficial owner of 90 shares of Common Stock of NFF, representing all of the
issued and outstanding shares of capital stock of NFF, free and clear of any
Encumbrance.
5.3 Authorization; No Restrictions. NFF is authorized and has
the legal right and power to execute and deliver this Agreement and to perform
its obligations hereunder. The execution, delivery and performance of this
Agreement by NFF in accordance with its respective terms, will not, with or
without the giving of notice or the passage of time, or both, conflict with,
result in a default, right to accelerate or loss of rights under, or result in
the creation of any Encumbrance pursuant to, or require the consent of any third
party or governmental authority pursuant to (a) the certificate of incorporation
or by-laws of NFF, or (b) any mortgage, lease or other agreement or any law,
regulation or order to which NFF is a party or by which NFF (or any of its
assets, properties, operations or businesses) may be subject or bound. This
Agreement is the legal, valid, and binding obligation of NFF, enforceable
against it in accordance with its terms, except to the extent the enforceability
of the same may be limited by bankruptcy, insolvency, or other laws affecting
creditors' rights generally or by the availability of equitable remedies.
5.4 Consents. All consents, approvals, qualifications, orders,
or authorizations of, or filings with, any governmental authority or other
party, required in connection with (i) NFF's valid execution, delivery, or
performance of this Agreement and (ii) the consummation of the other
transactions contemplated on the part of NFF by this Agreement, have been
obtained or made.
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5.5 WinStar Exchange Shares. The WinStar Exchange Shares
constitute validly authorized and issued, fully paid and non-assessable shares
and are not subject to Encumbrances.
5.6 Litigation. There is no Proceeding, nor any order, decree
or judgment in progress, pending or in effect, or, to the knowledge of NFF,
threatened, against NFF or WinStar which would materially affect the
transactions contemplated by this Agreement or any other agreement being
executed simultaneously herewith or which would affect WinStar's ability to
issue the WinStar Merger Shares.
5.7 WinStar SEC Reports. WinStar has delivered to Richard its
Transition Report on Form 10-KSB for the period ended December 31, 1995 ("Annual
Report") and the prospectus contained in its Registration Statement on Form S-4
which was declared effective by the Securities and Exchange Commission
("Commission") on January 31, 1996 ("Prospectus"). The Annual Report, as of its
filing date, and the Prospectus (including the financial statements contained
therein), as of its effective date, complied in all material respects with the
requirements of the rules and regulations promulgated by the Commission with
respect thereto. WinStar has filed all reports under the Securities Exchange Act
of 1934 that were required to be filed as of the Closing Date and has otherwise
complied with all material requirements of the Securities Act of 1933 and the
Securities Exchange Act of 1934. The financial statements of WinStar included in
the Annual Report and in the Prospectus comply as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the Commission with respect thereto, have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis during the period covered and fairly present, in all material respects,
the financial position of WinStar as of the dates thereof and the results of
operations and changes in financial position for the periods then ended.
6. Additional Agreements of the Parties.
6.1 Intentionally Omitted.
6.2 Distribution Agreement. Fox/Lorber and NFF shall promptly
after the Closing Date enter into a distribution agreement on customary terms
and conditions pursuant to which Fox/Lorber shall be appointed as an
international distributor, on an agency basis, of the Japanese rights to "Epic
Biographies" (excluding video) and "Great Ships" and other NFF productions to be
designated by NFF, in its sole discretion, for which Fox/Lorber will be paid a
commission equal to 15% of net proceeds.
6.3 Gaga Purchase. Simultaneously with the execution of this
Agreement, NFF shall purchase from Gaga Communications Inc. ("Gaga") (i) 14,708
shares of Series A Preferred Stock of Fox/Lorber; (ii) 16,810 shares of Series B
Preferred Stock of Fox/Lorber; and (iii) three promissory notes payable by
Fox/Lorber to Gaga in the aggregate principal amount of $136,507.70, including
all accrued and unpaid interest thereon (approximately $8,800 as of April 15,
1996) for an aggregate purchase price of $1,020,000 payable in shares of WinStar
Common Stock. The Preferred Stock and promissory notes will be cancelled as of
the Closing Date immediately after the execution of this Agreement.
6.4 Utilization of WinStar Sub's Affiliates. From and after
the date hereof, Fox/Lorber agrees to buy or utilize and pay for any and all
products and services offered by WinStar or any of its respective affiliates
("WinStar Group") if (i) Fox/Lorber has determined to buy or utilize the type of
products or services offered by any of the WinStar Group and (ii) such products
and services are
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sold or provided to Fox/Lorber by the WinStar Group at prices no less favorable
than average prices the WinStar Group charges unaffiliated third parties.
6.5 UCC-1 Financing Statements. Immediately after the
execution of this Agreement, NFF and Fox/Lorber shall arrange to have the UCC-1
Financing Statements referred to in Section 3.5 hereof filed in the appropriate
jurisdictions. No other UCC-1 Financing Statements will be filed (with the
consent of Richard) after the Closing Date and prior to those UCC-1 Financing
Statements perfecting the lien granted to the Lender under the Security
Agreement.
6.6 Filing; Collateral Assignment of Copyrights. Fox/Lorber
shall file for copyright protection for all of its copyrightable materials, in
the ordinary course, consistent with industry practice (but not necessarily
consistent with Fox/Lorber's past practice) and in accordance with any
agreements governing such copyrightable materials. Simultaneously with the
execution of this Agreement, and upon NFF's requests in the future, Fox/Lorber
is taking and shall take all necessary and reasonable action to cause to have
filed with the United States Copyright Office such documents as NFF shall
reasonably request to perfect and protect the lien granted by the Security
Agreement, including manually signed copies of the UCC-1 Financing Statement
referred to in paragraph 3.5 hereof, together with a written acknowledgement
("Copyright Acknowledgement") signed by Fox/Lorber that (i) any and all of its
copyrights (including mortgages of copyrights) are subject to liens granted to
NFF, (ii) such copyrights are being collaterally assigned to NFF and (iii) such
copyrights shall be deemed assigned to NFF if and when NFF enforces its lien.
6.7 No Restriction on WinStar. Richard, GFL and Fox/Lorber
acknowledge and agree that neither WinStar nor any of its affiliates shall be
obligated to present any particular business opportunity to GFL or Fox/Lorber,
even if such opportunity is of such a character which, if presented to GFL or
Fox/Lorber could be taken by GFL or Fox/Lorber, and WinStar and any affiliate
thereof shall have the right to take for its own account or to recommend to
others any such particular business opportunity.
6.8 License Costs Payable.
(a) GFL, Fox/Lorber and Richard have informed NFF that the line item
entitled "License Costs Payable" on the GFL Balance Sheet includes approximately
$750,000 of payables which is an audit adjustment reserve for potential payables
(the "LCP Reserve"). Attached as Schedule 6.8 hereto is a listing by deal number
(internally assigned by Fox/Lorber) of License Costs Payable as of September 30,
1995, exclusive of the LCP Reserve. Richard shall reimburse Fox/Lorber, up to a
maximum of $750,000, for any license costs which Fox/Lorber has paid on or after
October 1, 1995 or hereafter is required to pay for cash receipts received prior
to September 30, 1995 and which are for deal numbers that do not appear on the
attached Schedule 6.8 (such license costs being referred to as the "LCP Reserve
Costs"); provided, however, that (i) such reimbursement shall be made only from,
and only to the extent of, 50% of the proceeds of the sale by Richard of his
WinStar Common Stock issued to him pursuant to a certain Stock Option Agreement,
dated the date hereof, between WinStar and Richard, after deducting the exercise
price paid thereon ("Richard's Net Proceeds"); (ii) to the extent that "LCP
Reserve Costs" are payable as a result of a misclassification wherein payables
on Schedule 6.8 are reduced by a like amount, Richard's obligation to reimburse
Fox/Lorber hereunder shall be limited to the net increase in the payable amount;
and (iii) between the second and third anniversaries of the Closing Date,
Richard shall not become obligated to make any additional reimbursements to
Fox/Lorber hereunder once Richard is required to make reimbursements aggregating
$525,000 since the Closing
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Date; between the third and fourth anniversaries of the Closing Date, Richard
shall not become obligated to make any additional reimbursements to Fox/Lorber
hereunder once Richard is required to make reimbursements aggregating $300,000
since the Closing Date; between the fourth and fifth anniversaries of the
Closing Date, Richard shall not become obligated to make any additional
reimbursements to Fox/Lorber hereunder once Richard is required to make
reimbursements aggregating $75,000 since the Closing Date; and Richard shall not
become obligated to make any additional reimbursements hereunder after the fifth
anniversary of the Closing Date. Notwithstanding the foregoing, NFF shall
negotiate with Richard in good faith to accelerate the reductions in
reimbursement obligations set forth in (iii) above if Richard presents evidence
to NFF that certain LCP Reserve Costs will not have to be paid; and Richard will
negotiate with NFF in good faith to delay such reductions in reimbursement
obligations if NFF presents Richard with evidence that certain LCP Reserve Costs
will have to be paid. (The following is an example of the manner in which (iii)
above shall be implemented: If, prior to the second anniversary of the Closing
Date, Richard is required to make reimbursements to Fox/Lorber of $300,000,
then, between the second and third anniversaries of the Closing Date, the
maximum additional reimbursements which Richard may be obligated to make shall
be $225,000 ($525,000 less $300,000), and (assuming no reimbursements over the
$300,000 were required), as of the third anniversary, Richard shall not become
obligated to make any additional reimbursements hereunder ($300,000 less
$300,000).)
(b) In order to secure Richard's reimbursement obligations, he hereby
grants to Fox/Lorber and NFF a lien on, and security interest in, 50% of
Richard's Net Proceeds and agrees that he shall deposit 50% of Richard's Net
Proceeds in an escrow account reasonably acceptable to Richard and NFF, pursuant
to an escrow agreement reasonably acceptable to Richard and NFF. All interest on
the escrow account will be payable to Richard. NFF shall be entitled to withdraw
from the escrow account all reimbursements required to be made by Richard
hereunder. After such withdrawals, Richard will be entitled to withdraw from the
escrow account amounts in excess of his maximum reimbursement obligations in any
year. Richard shall execute such documents as may be reasonably requested by NFF
or Fox/Lorber to protect and perfect the lien granted hereby.
(c) NFF and Richard shall give each other notice of any LCP Reserve Costs
which Fox/Lorber has paid on or after October 1, 1995 or hereafter is required
to pay, promptly after becoming aware thereof. Upon receipt of any such notice,
Richard shall have the opportunity to demonstrate to NFF that the LCP Reserve
Cost is the result of a misclassification as described in Section 6.8(ii) above,
and NFF shall have the opportunity to refute such claim.
6.9 Charter and By-Law Amendments. The parties hereto agree
that, promptly after the Closing Date, (i) GFL's Certificate of Incorporation
shall be amended to (a) change its name to a name selected by NFF, (b) eliminate
the liability of directors to the fullest extent permitted by law, and (c) deny
pre-emptive rights to shareholders; (ii) GFL's by-laws shall be amended to
change the fiscal year end to December 31; (iii) Fox/Lorber's Certificate of
Incorporation shall be amended to (a) eliminate the liability of the directors
to the fullest extent permitted by law, and (b) terminate Fox/Lorber's ability
to issue preferred stock; and (iv) Fox/Lorber's by-laws shall be amended to (a)
eliminate the ability of any officer to call a special meeting of stockholders
or directors and (b) change the fiscal year-end to December 31. The Agreement
shall constitute the consent of the undersigned to the foregoing, to the extent
that the undersigned are directors and/or stockholders of GFL or Fox/Lorber.
7. Delivery by GFL, Fox/Lorber and Richard. GFL, Fox/Lorber and Richard are
hereby delivering to NFF:
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7.1 Note, Security Agreement, UCC-1 Financing Statements and
Copyright Acknowledgement. Executed Note, Security Agreement, UCC-1 Financing
Statements necessary to perfect the lien granted by the Security Agreement and
Copyright Acknowledgement.
7.2 Corporate Records, Etc. All corporate records of GFL and
Fox/Lorber, including, without limiting the generality of the foregoing, minute
books, share register books and share certificate books; provided, however, that
Richard may retain copies of (and hereafter shall have reasonable access to)
such documents as shall be reasonably necessary to document his position for tax
and other purposes as a shareholder of GFL (whether before or after the date of
this Agreement) and an employee of Fox/Lorber.
7.3 Stock Certificates. Certificates representing the 240 GFL Exchange
Shares.
7.4 Legal Opinion. The legal opinion of Akin, Gump, Strauss, Hauer & Feld,
L.L.P.
8. Delivery by NFF. NFF is hereby delivering to Richard:
8.1 WinStar Exchange Shares. The 8,633 WinStar Exchange Shares.
8.2 Legal Opinion. The legal opinion of Graubard Mollen & Miller.
9. Intentionally Omitted.
10. Indemnification.
(a) Subject to Section 10(d), Richard shall indemnify and hold harmless
NFF, GFL and Fox/Lorber from and against, and shall reimburse NFF, GFL and
Fox/Lorber for, any damages (including costs and expenses attendant thereto)
which may be sustained, suffered or incurred by NFF, GFL or Fox/Lorber
(including reasonable attorneys' fees), and which arise from or in connection
with, or are attributable to, the breach of any of Richard's, GFL's or
Fox/Lorber's representations and warranties contained in Article 4 hereof.
(b) Subject to Section 10(d), NFF shall indemnify and hold harmless Richard
from and against, and shall reimburse Richard for, any damages (including costs
and expenses attendant thereto) which may be sustained, suffered or incurred by
Richard (including reasonable attorneys' fees), and which arise or result from
or in connection with or are attributable to the breach of any of NFF's
representations and warranties contained in Article 5 hereof.
(c) A party required to make an indemnification payment pursuant to this
section ("Indemnifying Party") shall have no liability with respect to any
representation or warranty under Articles 4 and 5 hereof unless the party
entitled to receive such indemnification payment ("Indemnified Party") gives
notice to the Indemnifying Party specifying (i) representation or warranty
contained herein which it asserts has been breached, (ii) in reasonable detail,
the nature and dollar amount of any claim the Indemnified Party may have against
the Indemnifying Party by reason thereof under this Agreement, and (iii) whether
or not the claim is a claim by a person other than a party hereto (a "Third
Party Claim"). Such notice shall be given whether or not the claim, or the claim
plus other claims in the aggregate, exceeds the Basket described in Section
10(d). With respect to Third Party Claims, an
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Indemnified Party (a) shall give the Indemnifying Party prompt notice of any
Third Party Claim, (b) prior to taking any action with respect to such Third
Party Claim, shall consult with the Indemnifying Party as to the procedure to be
followed in defending, settling, or compromising the Third Party Claim, and (c)
shall not consent to any settlement or compromise of the Third Party Claim
without the written consent of the Indemnifying Party (which consent shall not
be unreasonably withheld or delayed). The Indemnifying Party shall be entitled
to participate in defending, settling or compromising any Third Party Claim and
to assume the defense of such Third Party Claim with counsel of its choice and
shall assume such defense if requested by the Indemnified Party. Notwithstanding
the election by, or obligation of, the Indemnifying Party to assume the defense
of a Third Party Claim, the Indemnified Party shall have the right to
participate in the defense of such Third Party Claim at its own expense. If the
Indemnifying Party assumes the defense of a Third Party Claim, the Indemnifying
Party will not compromise or settle any such Third Party Claim without the
written consent of the Indemnified Party (which consent shall not be
unreasonably withheld or delayed) if the relief provided is other than monetary
damages and will promptly notify the Indemnified Party of any settlement and the
amount thereof.
(d) Claims under the indemnity provided in subsections (a) and (b) above
based upon a breach of the representations and warranties contained in Articles
4 and 5 hereof ("Rep and Warranty Claims") may be made for a period of two years
after the Closing Date, except that a claim based upon a breach of the
representations and warranties in Sections 4.3, 4.4, 4.18, 4.22 and 5.5 may be
made until expiration of the applicable statute of limitations. The Indemnifying
Party shall have no liability for Rep and Warranty Claims under this Section 10
unless the amount of damages sustained by the Indemnifying Party for all Rep and
Warranty Claims exceeds $50,000 ("Basket"), in which event, the Indemnifying
Party shall have liability only for amounts in excess of the Basket, and the
aggregate liability of the Indemnifying Party for Rep and Warranty Claims shall
not exceed $500,000 ("Cap").
11. Miscellaneous.
11.1 Brokerage. Richard, GFL and Fox/Lorber represent that
they have not engaged any person who may be entitled to any finder's fee,
brokerage commission or other like payment in respect of the negotiation,
execution, or performance of this Agreement. NFF represents that they have not
engaged any person who may be entitled to any finder's fee, brokerage commission
or other like payment in respect of the negotiation, execution, or performance
of this Agreement.
11.2 Notices.
Any and all notices, requests, demands, consents, approvals or other
communications required or permitted to be given under any provision of this
Agreement shall be in writing and shall be deemed given upon personal delivery
or the mailing thereof by certified mail, postage prepaid, return receipt
requested), to the respective parties, as follows:
(i) If to NFF addressed to
230 Park Avenue
Suite 3126
New York, New York 10169
Attn: Stuart B. Rekant
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with a copy to:
Graubard Mollen & Miller
600 Third Avenue
New York, New York 10016-2097
Attn: David Alan Miller, Esq.
(ii) If to Richard, GFL or Fox/Lorber, addressed to
c/o Fox/Lorber Associates, Inc.
419 Park Avenue South
New York, New York 10016
Attn: Richard Lorber
with a copy to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
399 Park Avenue
New York, NY 10022
Attention: Steven H. Scheinman, Esq.
A party may change its address for the purpose of this
Agreement by notice to the other parties given as aforesaid.
11.3 Entire Agreement. This writing together with the
Schedules, Exhibits and the other agreements referred to herein constitute the
entire agreement of the parties with respect to the subject matter hereof and
may not be modified, amended or terminated except by a written agreement
specifically referring to this Agreement signed by the parties.
11.4 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of each party hereto and its or their successors and
assigns. Except as hereafter provided, this Agreement shall not be assigned by
any party hereto and any attempted assignment shall be void; provided that NFF
may assign its rights and obligations pursuant to this Agreement to WinStar or
to any corporation owned or controlled by WinStar. In the event of such
assignment, the assignor shall remain responsible for full performance of any
duties or obligations assigned by them.
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11.5 Governing Law. This Agreement and all amendments thereof shall, in all
respects, be governed by and construed and enforced in accordance with the
internal law (without regard to principles of conflicts of law) of the State of
New York.
11.6 Counterparts. This Agreement may be signed in counterparts which
together shall constitute one and the same Agreement.
11.7 Survival. Each representation, warranty, covenant and
agreement made or deemed made by a party shall survive the execution of this
Agreement and the closing of the transactions contemplated hereby, provided that
claims made against any party for breach of any such representation, warranty,
covenant or agreement shall be governed by Section 10 hereof. The
representations and warranties made by Richard, GFL and/or Fox/Lorber herein
shall not be affected or deemed waived by reason of the fact that NFF, WinStar
or any agent thereof knew or should have known that any such representation or
warranty is or might be inaccurate in any respect. The representations and
warranties made by NFF herein shall not be affected or deemed waived by reason
of the fact that Richard, GFL and/or Fox/Lorber or any agent thereof knew or
should have known that any such representation or warranty is or might be
inaccurate in any respect.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed the day and year first above written.
NON FICTION FILMS INC.
By:___________________________
GFL COMMUNICATIONS, INC.
By:___________________________
FOX/LORBER ASSOCIATES, INC.
By:___________________________
------------------------------
RICHARD LORBER
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EXHIBIT 10.68
SECURITY AGREEMENT
AGREEMENT, dated April 24, 1996, between Fox/Lorber Associates, Inc.
("Debtor") and WinStar New Media Company, Inc. ("Secured Party").
WHEREAS, Secured Party has advanced funds to Debtor, evidenced
by a certain Senior Secured Negotiable Promissory Note ("Note") dated the date
hereof, and may advance additional funds to Debtor in the future to be evidenced
by such Note, all pursuant to the terms of an Agreement and Plan of
Reorganization ("Exchange Agreement"), dated the date hereof, among Debtor, Non
Fiction Films Inc.
("NFF"), GFL Communications, Inc. ("GFL") and Richard Lorber.
IT IS AGREED:
1. To enable Debtor to acquire new value, and to secure the
indebtedness to Secured Party created by the extension of such new value, as
evidenced by the Note, and also to secure any and all future advances or loans
which may be made by the Secured Party to the Debtor at the request of the
Debtor and any other payments or debts of any kind owed or to become owed by
Debtor to Secured Party or NFF, the Debtor hereby grants and conveys to Secured
Party a security interest and mortgages, to the extent of Debtor's indebtedness
and obligations to Secured Party, in:
(a) the property described on Schedule A annexed hereto and made a part
hereof, which the Debtor represents is and will be used for business,
(b) all proceeds and profits thereof, if any, and
(c) all increases, substitutions, replacements, additions and accessions
thereto (the foregoing (a), (b) and (c) hereinafter called the "Collateral").
2. Debtor represents and warrants to Secured Party as follows:
(a) except as disclosed to NFF in the Exchange Agreement, Debtor is the
lawful owner of the Collateral free from any Encumbrance (hereinafter defined)
whatsoever, has the sole right to grant a security interest therein and will
defend the Collateral against all claims and demands of all persons;
(b) except as disclosed to NFF in the Exchange Agreement, the lien granted
by Debtor to Secured Party on the Collateral is a first priority security
interest, and there are no other mortgages, pledges, liens, security interests,
claims, encumbrances or charges of any kind ("Encumbrances") on any of such
property; and
(c) the Note is and will be senior to all of Debtor's other obligations for
borrowed funds and no obligations for borrowed funds shall be paid by Debtor
prior to the Note without the Secured Party's prior written consent.
3. Debtor agrees with Secured Party as follows:
(a) to pay and perform all of the obligations secured by this Agreement
according to their terms.
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(b) to do the following on demand of the Secured Party: furnish further
assurance of title, execute any written agreement or do any other acts necessary
to effectuate the purposes and provisions of this Agreement, execute any
instrument or statement required by law or otherwise in order to perfect,
continue, record or terminate the security interest of the Secured Party in the
Collateral and pay all costs of filing in connection therewith.
(c) to keep the Collateral free and clear of all attachments, levies, taxes
and Encumbrances of every kind and nature, other than the liens created hereby.
(d) to retain possession of the Collateral during the existence of this
Agreement; keep the Collateral at the locations specified in Schedule A and not
to remove same (except in the usual course of business for temporary periods)
without the prior written consent of Secured Party; and keep the Collateral, at
Debtor's own cost and expense, in good repair and condition and available for
inspection by Secured Party at all reasonable times.
(e) to pay, when due, all taxes, assessments and license fees relating to
the Collateral.
(f) to keep the Collateral fully insured against loss by fire, theft and
other casualties, to give immediate written notice to Secured Party and to
insurers of loss or damage to the Collateral and to promptly file proofs of loss
with insurers.
(g) to comply with the terms and conditions of any leases covering the
premises wherein the Collateral is located and any orders, ordinances, laws or
statutes of any city, state or governmental department having jurisdiction with
respect to such premises or the conduct of business thereon, and, when requested
by Secured Party, to execute any written instruments and do any other acts
necessary to effectuate more fully the purposes and provisions of this
Agreement.
4. Secured Party shall execute all documents and take all
actions reasonably necessary to subordinate its lien to any lien on any specific
production series of Debtor, or rights and/or proceeds therein, granted in favor
of the third party independent financier, licensee or acquirer of such specific
production series or rights therein.
5. All notices to any party hereof shall be in writing and
shall be sufficiently given if delivered to such party in person, by Federal
Express or similar receipted delivery, sent by facsimile transmission, or, if
mailed, postage prepaid, by certified mail, return receipt requested, addressed
to such party at its address as set forth below or to such other address as it,
by written notice to the others, may designate from time to time.
If to Debtor:
Fox/Lorber Associates, Inc.
419 Park Avenue South
New York, New York 10016
Attn: President
Fax No.: (212) 685-2625
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If to Secured Party:
WinStar New Media Company, Inc.
230 Park Avenue
Suite 3126
New York, New York 10109
Attn: Stuart B. Rekant
Fax No.: (212) 972-6610
In either case, with a copy to:
Graubard Mollen & Miller
600 Third Avenue
New York, New York 10016
Attn: David Alan Miller, Esq.
Fax No.: (212) 682-2320
and to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
399 Park Avenue
New York, New York 10022
Attention: Steven H. Scheinman, Esq.
Fax No.: (212) 872-1002
6. (a) The following shall constitute an "Event of Default" by Debtor
hereunder:
(i) the failure by Debtor to comply with, or perform any provision of, or
an "Event of Default" occurs under, the Note;
(ii) a breach by the Debtor of any of its representations, warranties or
covenants contained in this Security Agreement;
(iii) the breach by the Debtor or Richard Lorber of any of its or his
representations, warranties or covenants contained in the Exchange Agreement if
such breach has either been acknowledged in writing by Debtor or Richard Lorber
or has been finally adjudicated;
(iv) the loss, theft, damage or destruction to or of any of the Collateral
which loss, damage or destruction has a material adverse effect on the value of
the Collateral or Debtor's business or financial condition;
(v) Debtor shall become insolvent, cease operations, dissolve, terminate
its business existence, make an assignment for the benefit of creditors, suffer
the appointment of a receiver, trustee, liquidator or custodian of all or any
part of its property;
(vi) any proceedings under any bankruptcy or insolvency law shall be
commenced by Debtor or any guarantor or endorser of the Obligations;
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(vii) any proceeding under any bankruptcy or insolvency law shall be
commenced against Debtor or any guarantor or endorser of the Obligations which
Debtor acquiesces to or fails to have dismissed within ten (10) days; and
(viii) subjection of any of the Collateral to levy of execution or other
judicial process.
(b) Upon the occurrence of an Event of Default hereunder, Secured Party
shall have all the rights, remedies and privileges with respect to repossession,
retention and sale of the Collateral and disposition of the proceeds as are
accorded by the applicable sections of the New York Uniform Commercial Code.
(c) Upon the occurrence of an Event of Default hereunder and upon demand of
Secured Party, Debtor shall assemble the Collateral and make it available to
Secured Party at the place and at the time designated in the demand.
(d) Upon the occurrence of an Event of Default hereunder, the reasonable
attorneys' fees and the legal and other expenses for pursuing, searching for,
receiving, taking, keeping, storing, advertising and selling the Collateral
incurred by Secured Party shall be chargeable to and paid by Debtor.
(e) Debtor shall remain liable for any deficiency resulting from a sale of
the Collateral and shall pay any such deficiency to Secured Party forthwith on
demand.
(f) If Debtor shall default in the performance of any of the provisions of
this Agreement on the Debtor's part to be performed, Secured Party may perform
same for Debtor's account and any monies expended in so doing shall be
chargeable with interest to Debtor and added to the Obligations owed to Secured
Party.
7. Secured Party is hereby authorized to file UCC-1 Financing
Statements to perfect the security interest granted herein. Debtor hereby
irrevocably grants to Secured Party a power of attorney to file amendments to
the UCC-1 Financing Statements, and to execute and file such other documents as
may be necessary to perfect the security interests contemplated hereby,
including the filing of manually signed copies of such UCC-1 Financing
Statements with the United States Copyright Office, together with a written
acknowledgement signed by Debtor that (i) any and all of Debtor's copyrights are
being collaterally assigned to Secured Party and (ii) such copyrights shall be
deemed assigned to Secured Party if and when Secured Party enforces its lien
granted hereunder.
8. This Agreement may be signed in any number of counterparts
with the same effect as if the signatures to each counterpart were upon a single
instrument, and all such counterparts together shall be deemed an original of
this Agreement.
9. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to
principles of conflicts of law.
10. The terms, warranties and agreements herein contained
shall bind and inure to the benefit of the respective parties hereto, and their
respective legal representatives, successors, estates and assigns.
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11. The gender and number used in this Agreement are used as a
reference term only and shall apply with the same effect whether the parties are
of the masculine or feminine gender, corporate or other form, and the singular
shall likewise include the plural.
12. This Agreement may only be amended or modified by a writing duly
executed by the parties to this Agreement.
13. The failure of any of the parties hereto at any time to
enforce any of the provisions of this Agreement shall not be deemed or construed
to be a waiver of any such provision, nor to in any way effect the validity of
this Agreement or any provision hereof or the right of any of the parties hereto
to thereafter enforce each and every provision of this Agreement.
14. Debtor hereby acknowledges and agrees that,
notwithstanding anything to the contrary herein, (i) the Note issued, and
security interest granted, to Secured Party by Debtor are not on account of an
antecedent debt but are instead in consideration for the new value provided to
Debtor by Secured Party (ii) the collateral covered by the security interest
granted to Secured Party is unique and subject to waste if misused or mismanaged
and the security interest cannot be adequately protected by a replacement lien
in other collateral; and (iii) the exercise of any rights ("Rights") (a) by
Secured party in accordance with the terms and provisions of the Note, this
Security Agreement and applicable law, or (b) by NFF, solely as a shareholder of
GFL, or by GFL, solely as a shareholder of Debtor, under the Certificate of
Incorporation or By-laws of GFL or Debtor, or under applicable law, shall not be
deemed to be "excessive control" by Secured Party, NFF or GFL. Debtor hereby
waives any claim that the exercise of any such Rights by Secured Party, NFF, or
GFL shall be deemed to be "excessive control" by Secured Party, NFF or GFL.
IN WITNESS WHEREOF, the parties have signed this Agreement on
this 24th day of April, 1996.
DEBTOR:
FOX/LORBER ASSOCIATES, INC.
By:_______________________
Richard Lorber, President
SECURED PARTY:
WINSTAR NEW MEDIA COMPANY, INC.
By:________________________
Stuart B. Rekant, President
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SCHEDULE A
Identification and Location of Collateral:
Collateral
All assets of Debtor of every kind, including goods, consumer goods, contract
rights, personal property, equipment, fixtures, inventory, cash, chattel paper,
accounts, documents, instruments and contracts and all general intangibles,
including patents, pending and issued, copyrights, trademarks, technology and
software and all other property used in the regular operations of the businesses
of Debtor, whether now owned or hereafter acquired, and all proceeds,
substitutions and products thereof. At the Following Location
419 Park Avenue South
New York, New York 10016
<PAGE>
EXHIBIT 10.69
PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement (this "Agreement") is entered into as
of April 1, 1996 among MobileMedia Corporation, a Delaware corporation
("MobileMedia") and its wholly-owned subsidiary Local Area Telecommunications,
Inc., a New York corporation ("Locate"), WinStar Locate, Inc., a Delaware
corporation ("Transferee") and WinStar Communications, Inc., a Delaware
corporation ("WinStar").
RECITALS:
A. Locate owns certain assets which are used in connection with its
microwave telecommunications business.
B. Locate desires to sell, assign and transfer the Identified Assets (as
defined in Article I) to the Transferee in consideration of the issuance by
WinStar of the Notes (as defined in Article I) and the assumption by the
Transferee of the Identified Liabilities (as defined in Article I).
NOW, THEREFORE, in consideration of the foregoing and of the mutual
agreements set forth herein, the parties hereby agree as follows:
ARTICLE I. DEFINITIONS.
As used in this Agreement, the terms defined below shall have the
respective meanings set forth below, with such meanings to be equally applicable
to the singular and plural forms thereof.
Action. Any action, suit, arbitration, administrative or other proceeding,
criminal prosecution or investigation by or before any Governmental Authority.
Affiliate. When used with reference to a specified Person: any Person that
directly or indirectly controls or is controlled by or is under common control
with the specified Person.
Agreement. This Purchase and Sale Agreement.
Authorization. Any consent, approval, waiver or authorization of,
expiration or termination of any waiting period requirement (including pursuant
to the HSR Act) of, or filing, registration, qualification, declaration or
designation with or by, any Governmental Authority.
Bill of Sale. As defined in Section 3.2.1.
Business. The microwave business, operations and facilities of Locate
excluding Switch Assets, the Switch Business or any rights under the Switch
Agreement.
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Buyer Default. As defined in Section 10.3.
Claim. As defined in Section 9.1.
Closing Date. As defined in Section 3.1.
Common Stock. The common stock, par value .01 per share, of WinStar.
Consent. Any consent, approval or waiver of a Person, excluding any
Authorization of any Governmental Authority.
Encumbrance. Any lien, claim, charge, security interest, option,
mortgage, pledge, restriction on transferability, defect of title or other
claim, charge or other encumbrance of any nature whatsoever.
FCC. The Federal Communications Commission.
FCC Final Orders. An Order or Orders entered by the FCC permitting the
transfer of control or assignment of all of the Licenses within the jurisdiction
of the FCC and any applications therefor, (i) as to which the time period for
seeking reconsideration, review or appeal shall have elapsed from the date of
entry or grant thereof without the filing of any adverse request, petition or
appeal by any Person or by the FCC on its own motion with respect to such
Orders, or any aspect or portion thereof, or any resubmission of any application
or request for any such Orders, or (ii) if challenged, that (or affected aspects
or portions of which) shall have been reaffirmed or upheld or the challenge in
respect of which shall have been withdrawn and the applicable period for seeking
further administrative or judicial review in respect of which shall have expired
without the filing of any action, petition or request for further review.
FCC Rules. The rules, regulations and proclamations of the FCC.
Governmental Authority. Any government or political subdivision or
department thereof, any governmental or regulatory body, commission, board,
bureau, agency or instrumentality, or any court, in each case whether domestic
or foreign, federal, state or local.
HSR Act. The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
Identified Assets. All of the assets of Locate of every kind and
description, wherever located, excluding cash, accounts receivable, security
deposits (subject to Section 7.23) and other cash equivalents, but including
without limitation all of Locate's right, title and interest in and to (i) any
real property owned or leased by Locate, (ii) any tangible personal property
owned, used or held for use by Locate, (iii) any intangible personal property
owned, used or held for use by Locate, (iv) any software, programs, data,
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"knowhow," customer lists and customer information used or held for use by
Locate, (v) any License or Authorization held by Locate (including any
applications therefor and modifications thereto), (vi) customer contracts for
the services offered by the Business (the "Customer Contracts"), the Material
Contracts, and any other contract, agreement, or lease to which Locate is a
party, (vii) customer deposits, bonds, telephone and telecopy numbers,
tradenames, logos, (viii) any insurance claim, warranty, contractual indemnity
claim, or right of recovery or setoff owned or held by Locate, and (ix) any
Intellectual Property owned, used or held for use by Locate; all books, records
and files of Locate other than corporate, accounting and tax books, records and
files (copies of which shall be provided to Transferee); and (x) all goodwill
associated with the Business; excepting and excluding however (i) the Switch
Assets and the rights of Locate under the Switch Agreement and the Service
Agreement, (ii) the MobileMedia common stock held by Locate, (iii) the capital
stock and assets of the Subsidiaries, (iv) the rights of Locate under this
Agreement, the Registration Rights Agreement and the Notes and (v) the assets
identified on Schedule 3.03.
Identified Liabilities. All of the liabilities and obligations of
Locate (i) arising after the Closing Date out of the Material Contracts and (ii)
under any Working Capital Loans issued pursuant to the Service Agreement which
are in existence as of the Closing Date.
Indemnified Party. With respect to any Claim, the party seeking
indemnification pursuant to Article IX.
Indemnifying Party. With respect to any Claim, the party from whom
indemnification is sought pursuant to Article IX.
Intellectual Property. All patents, patent applications, trademarks,
trademark applications and registrations, service marks, service mark
applications and registrations, and copyright registrations and applications,
used in the Business or constituting a part of the Identified Assets.
Law. Any domestic or foreign, federal, state or local, statute, law,
ordinance, rule or regulation.
License. Any license, permit, consent, tariff, waiver, dispensation,
certificate of public convenience and necessity, certificate of compliance,
franchise, approval or other similar authorization granted by any Governmental
Authority, used in the Business or constituting a part of the Identified Assets.
Locate. As defined in the preamble to this Agreement.
Material Adverse Effect. For purposes of this Agreement, a "Material
Adverse Effect" will be deemed to have occurred if any of the following
transpire (i) the loss of "roof rights" for more than 30 buildings for which
Locate currently has roof rights; (ii) the loss of existing Licenses pursuant to
which more than fifteen percent (15%) of the Business'
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existing customer base (based on monthly revenues from all Business customers
for transmission services for January 1996) are provided transmission services,
unless such services can be provided pursuant to other Licenses; or (iii) any
event which causes, or results in any proceedings instituted by the FCC with
respect to, the revocation, modification, impairment, restriction, suspension,
termination, cancellation or loss of any microwave radio license granted to
Locate by the FCC in the 38.6 to 40.0 gigahertz band of the radio spectrum.
Material Contracts. The notes, indentures or other evidences of
indebtedness, and other contracts, agreements and leases, to which Locate is
party or by which it is bound, which are identified on Schedule 1.01 to this
Agreement.
MobileMedia. As defined in the preamble to this Agreement.
Notes. The notes evidencing that certain indebtedness of WinStar in the
aggregate principal amount of $17.5 million, bearing interest at a simple rate
of 8.0% per annum, convertible into Common Stock of WinStar in substantially the
form of Exhibit A.
Order. Any judgment, ruling, order, writ, injunction, decree, stipulation
or award entered or rendered by any Governmental Authority.
Permitted Encumbrances. Means (i) liens for current taxes or other
governmental assessments or charges not yet due and payable, (ii) materialman's,
mechanic's, workman's, repairman's, carrier's, warehouseman's, employee's and
other like liens incurred in the ordinary course of business, so long as such
liens either individually or in the aggregate do not materially impair the value
of the assets subject thereto, or (iii) the Encumbrances set forth on Schedule
4.5(A), other than Encumbrances securing liabilities for borrowed money.
Person. Any individual or corporation, company, partnership, trust,
incorporated or unincorporated association, joint venture, Governmental
Authority or other entity of any kind.
PUC. Any state or local public utilities commission, public service
commission or other similar agency, or any municipal authority asserting
jurisdiction over Locate, the Identified Assets or the Business.
Registration Rights Agreement. The Registration Rights Agreement with
respect to the Common Stock of WinStar issuable upon conversion of the
convertible debt evidenced by the Notes in substantially the form of Exhibit B.
Seller Default. As defined in Section 10.2.
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Service Agreement. That certain Service Agreement dated as of April 1,
1996 between Locate and WinStar Wireless, Inc., a Delaware corporation and
wholly-owned subsidiary of WinStar.
Subsidiaries. As defined in Section 4.2.
Switch Agreement. That certain Master Assignment and Assumption
Agreement dated as of October 1, 1995 between Locate and TC Systems, Inc., a
Delaware corporation ("TCS"), pursuant to which Locate will assign to TCS
substantially all of the assets used or held for use by Locate in its Switch
Business.
Switch Assets. Those assets of Locate which are assigned to TCS upon
consummation of the Switch Agreement, a schedule of substantially all of which
assets has been previously provided to WinStar.
Switch Business. The telephone switching operation of Locate providing
local exchange carrier services in New York City which is to be transferred to
TCS pursuant to the Switch Agreement.
Transferee. As defined in the preamble to this Agreement.
WinStar. As defined in the preamble to this Agreement.
ARTICLE II. PURCHASE AND SALE.
2.1 Transfer of Identified Assets. Subject to and upon the terms and
conditions contained in this Agreement, Locate agrees to sell, assign,
transfer and convey at the Closing to the Transferee, and the
Transferee agrees to purchase at the Closing, the Identified Assets.
2.2 Assumption of Identified Liabilities. Subject to and upon the terms and
conditions contained in this Agreement, the Transferee agrees to assume
at the Closing only (i) the Identified Liabilities and (ii) obligations
arising under the Customer Contracts after the Closing Date. Transferee
shall not, and shall not have any responsibility or obligation to,
assume, discharge or carry out any liabilities or obligations of Locate
except the Identified Liabilities, all of which other liabilities and
obligations (including, but not limited to, liabilities or obligations
under or arising from (i) the notes and agreements to which Locate is a
party set forth in Schedule 2.2 hereto (the "Excluded Contracts"), or
(ii) any employee plan of Locate or under the Employee Retirement
Income Security Act of 1974, and any liability or obligation to any
Locate employee for pre- or post-termination benefits, severance, or
otherwise (collectively, the "Employee Obligations")) shall be
discharged and carried out by Locate.
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2.3 Purchase Price. At the Closing, upon the terms and subject to the
conditions set forth herein, WinStar shall deliver to Locate for the
sale, transfer, assignment, conveyance and delivery of the Identified
Assets the Notes in the principal amount of $17.5 million (the
"Purchase Price"). The Purchase Price shall be allocated among the
Identified Assets in a manner mutually agreed upon by the parties and
consistent with the requirements of Section 1060 of the Internal
Revenue Code of 1986, as amended (the "Code"). In the event that the
parties, after good faith negotiation, cannot agree on such allocation,
Winstar shall make the final determination thereof. Locate and WinStar
agree to timely make all necessary filings required by Section 1060 of
the Code.
2.4 Prorations. At the Closing, or as promptly as practicable following the
Closing Date, but in no event later than 30 calendar days thereafter,
the real and personal property taxes, water, gas, electricity and other
utilities, prepaid expenses (with respect to security deposits only,
subject to Section 7.23), and other similar periodic charges payable
with respect to the Business shall be prorated between Locate and
WinStar effective as of the Closing Date. Locate shall pay all rent
under the leases covered by the Identified Liabilities through the end
of the calendar month in which the Closing Date occurs, and WinStar
shall reimburse Locate for such rent under the leases covered by the
Identified Liabilities accrued from the Closing Date through the end of
such month as part of the post-Closing proration.
ARTICLE III. CLOSING.
3.1 Closing. Subject to and upon the terms and conditions contained in this
Agreement, the closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at 10:00 a.m. on the fifth business day immediately
following the day on which the conditions to Closing set forth in Article VIII
have been fulfilled or waived and either Locate, on the one hand, or the
Transferee, on the other hand, shall have given written notice to the other
party of such fulfillment or waiver, or on such other business day as may be
agreed to by the parties (in either case, the "Closing Date"), at the offices of
Latham & Watkins, 885 Third Avenue, New York, New York, or at such other place
as may be agreed to by the parties.
3.2 Deliveries at Closing. At the Closing:
3.2.1 Locate and MobileMedia shall deliver to the Transferee (i) a
bill of sale for the Identified Assets in the form attached to
this Agreement as Exhibit C (the "Bill of Sale"), (ii) the
certificates, opinions and other documents and instruments
described in Section 8.3, (iii) the Authorizations and
Consents required pursuant to Sections 8.1.3 and 8.1.4 or
otherwise obtained by Locate, and (iv) such other documents
and instruments as the Transferee or
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its counsel may reasonably request to consummate or evidence the
transactions contemplated by this Agreement.
3.2.2 The Transferee and WinStar shall deliver to Locate (i) the Notes,
(ii) the Registration Rights Agreement, (iii) an assumption of the Identified
Liabilities in the form attached to this Agreement as Exhibit D (the
"Assumption"), (iv) the certificates, opinions and other documents and
instruments described in Section 8.2, and (v) such other documents and
instruments as Locate or MobileMedia or their respective counsel may reasonably
request to consummate or evidence the transactions contemplated by this
Agreement.
3.3 Payment Instructions. By written notice from Locate to WinStar given at
least ten days prior to the Closing Date ("Payment Instructions"),
Locate may instruct WinStar to issue Notes and deliver Registration
Rights Agreements on the Closing Date to up to ten persons
("Designees") other than Locate. WinStar agrees to comply with the
Payment Instructions with respect to any particular Designee if, on the
Closing Date, such Designee delivers to WinStar the certificate
required by Section 8.3.4 hereof and such other certificates and
agreements as counsel for WinStar determines are reasonably necessary
for compliance with applicable securities laws.
3.4 Form of Documents and Instruments. All of the documents and instruments
delivered at the Closing shall be in form and substance, and shall be
executed and delivered in a manner, reasonably satisfactory to the
respective counsel for the parties.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF LOCATE.
Locate represents and warrants to the Transferee and WinStar that:
4.1 Organization and Qualification. Locate is a corporation duly organized,
validly existing and in good standing under the laws of the State of
New York, has all requisite corporate power and authority to own, lease
and operate its assets, and to carry on its business as it is now being
conducted, and is duly qualified to do business as a foreign
corporation and in good standing to do business in each jurisdiction in
which the nature of its business or the ownership or leasing of its
assets makes such qualification necessary, including but not limited to
the jurisdictions listed on Schedule 4.1 hereto. Locate has furnished
to Transferee true and complete copies of (a) the certificate of
incorporation and all amendments thereto of Locate, certified by the
Secretary of State of the State of New York, and (b) the by-laws of
Locate as presently in effect, certified as true and correct by an
officer of Locate.
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4.2 Subsidiaries. Locate holds (i) all of the issued and outstanding shares
free and clear of any Encumbrances of the common stock of LOCATE-1,
Inc., a New York corporation, and (ii) 1,065,548 of the 1,265,000
issued and outstanding shares of the common stock of Personal
Communication Network Services of New York, Inc., a New York
corporation (collectively, the "Subsidiaries"). Each Subsidiary is a
nonoperating subsidiary with insignificant assets and no liabilities or
obligations of any kind, except as indicated on Schedule 4.2. Locate
owns 4,375,000 of the issued and outstanding shares of Class A Stock of
MobileMedia ("Locate MobileMedia Shares"), free and clear of any
Encumbrances, except those imposed by applicable securities laws.
Locate may freely sell the Locate MobileMedia Shares at any time,
subject to compliance with applicable securities laws. Except with
respect to the Locate MobileMedia Shares and the Subsidiaries, Locate
does not own an equity interest in any other person.
4.3 Authorization. Locate has all necessary corporate power and authority
to execute and deliver this Agreement and the Registration Rights
Agreement, to perform its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby. The
execution, delivery and performance by Locate of this Agreement and,
when executed and delivered by Locate, the Registration Rights
Agreement have been duly authorized by all necessary corporate action
on the part of Locate. Each of this Agreement and the Registration
Rights Agreement constitutes the legal, valid and binding obligation of
Locate enforceable against Locate in accordance with its terms, except
as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the rights and
remedies of creditors generally and general principles of equity,
regardless of whether applied in equity or at law.
4.4 No Conflict; Approvals. The execution, delivery and performance by
Locate of this Agreement and the Registration Rights Agreement and the
consummation of the transactions contemplated hereby and thereby will
not result in any violation of or conflict with, constitute a default
(with or without notice or the lapse of time) under, or give rise to a
right of termination, cancellation, or acceleration of, or result in
the imposition of an Encumbrance under, or, except as indicated on
Schedule 4.4 to this Agreement, require any Authorization or Consent
under, (i) the Articles of Incorporation or By-Laws of Locate, (ii) any
Material Contract, Customer Contract or License, or (iii) any Law or
Order by which Locate is bound, except for any such violations,
conflicts, defaults or failures to obtain Authorizations or Consents,
that either individually or in the aggregate have not had and will not
have a material adverse effect on the Business ("Material Adverse
Effect").
4.5 Assets. Locate has good and marketable title to the Identified Assets,
which, as of the Closing Date, shall be free and clear of all Encumbrances
except Permitted Encumbrances. The Identified Assets constitute all the
assets used in the Business. There are no pending, or to Locate's
knowledge, threatened, condemnation
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proceedings relating to any real property owned by Locate. The assets
of Locate currently used in the conduct of the Business are, in the
aggregate, in satisfactory repair, working order and condition, subject
to ordinary wear and tear, and comply in all respects with all
standards and rules imposed by any Governmental Authority, except where
any failures to so comply either individually or in the aggregate have
not had and will not have a Material Adverse Effect. Schedule 4.5(B) to
this Agreement sets forth a list of all material real and personal
property included in the Identified Assets; provided, however, that
Locate shall have the right to update and replace Schedule 4.5(B) at
the Closing so long as such replacement Schedule is not materially
different from the original Schedule 4.5(B).
4.6 Material Contracts. Except as indicated on Schedule 4.6 to this
Agreement, (i) each Material Contract is in full force and effect, (ii)
neither Locate, nor to Locate's knowledge any other Person, has
breached any Material Contract or is in default thereunder, and no
event has occurred which, with the passage of time or the giving of
notice or both, would constitute such a breach or default, except where
any such breaches or defaults either individually or in the aggregate
have not had and will not have a Material Adverse Effect, (iii) to
Locate's knowledge no claim of a material breach of or default under
any Material Contract has been asserted or threatened, and (iv) neither
Locate, nor to Locate's knowledge any other Person, is seeking the
renegotiation of any Material Contract or substitute performance
thereunder. True and complete copies of all Material Contracts
(together with any and all amendments thereto) have been delivered to
Transferee. Other than the Material Contracts or as evidenced in the
expense schedules previously delivered to Transferee by Locate, Locate
has no contract, agreement, obligation, arrangement, understanding or
commitment (whether written or oral) pertaining to the Business
("Contract"), other than (i) liabilities described on Schedule 4.6
hereto, (ii) Contracts involving the payment by Locate of less than
$10,000 individually, but not more than $100,000 in the aggregate,
(iii) the Excluded Contracts and (iv) the Customer Contracts.
4.7 Licenses and Authorizations. All of the Licenses and Authorizations of
Locate are described in Schedule 4.7 hereto, are in full force and
effect, are valid for the balances of their respective terms, have not
been materially impaired by acts of, or failures to make required
filings by, Locate, and are not subject to material conditions or
restrictions not stated therein or identified on Schedule 4.7 that
would reasonably be expected to limit the full operation of such
Licenses and Authorizations, other than conditions or restrictions
which are generally applicable to holders of such Licenses and
Authorizations. Except as set forth on Schedule 4.7, Locate has duly
and in a timely fashion under applicable law secured all necessary
Licenses and Authorizations from, and has filed all necessary
registrations, applications, reports and other documents with, the FCC,
and as applicable, any PUC and any other Governmental Authority
exercising jurisdiction or having jurisdiction over Locate or its
facilities. All reports required to be filed by Locate with the FCC,
and all other reports required to be filed by Locate with Governmental
Authorities
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with respect to the Business when filed were accurate and complete in
all material respects, except for such failures to file or inaccuracies
or omissions which would not, individually or in the aggregate, have a
Material Adverse Effect. There are no pending petitions for
reconsideration or revocation of the grants of any Licenses or
Authorizations except as identified on Schedule 4.7. Locate has not
been notified of any unresolved protest to the grants of any Licenses
or Authorizations or objections by the FCC, any PUC, any other
Governmental Authority or any other person. Locate is not subject to
any Order or any pending or, to Locate's knowledge, threatened Action
which has had or would reasonably be expected to have a material
adverse effect on the validity of, or which has resulted or would
reasonably be expected to result in the revocation, termination,
nonrenewal or material adverse modification of, any such License or
Authorization. To Locate's knowledge, there have been no events or
occurrences which have resulted or would reasonably be expected to
result in (i) the revocation, termination, nonrenewal or material
adverse modification of, or (ii) any material adverse effect on any
material right of Locate under, any License or Authorization. Schedule
4.7 also lists each currently pending application for a License or
Authorization and any pending request for modification, amendment or
termination thereof, as well as the status thereof with the appropriate
Governmental Authority.
4.8 Intellectual Property. Locate owns or possesses adequate rights to use
(without making any payment or granting any right to any Person in
exchange) all of the Intellectual Property used by it in connection
with the Business, all of which Intellectual Property is described on
Schedule 4.8 to this Agreement, and to Locate's knowledge there is no
material infringement of the Intellectual Property of any other Person,
nor has any such infringement been asserted or threatened against
Locate.
4.9 Employee Matters. Except as set forth in Schedule 4.9, Locate is not a
party to any employment agreement which is not terminable upon not more
than sixty days' notice without payment to the employee of any amounts
other than (i) accrued salary, bonuses and vacation pay, and (ii) the
amounts, if any, payable under the severance policy for Locate
employees.
4.10 Compliance with Laws. Except as set forth on Schedule 4.10, the conduct
by Locate of the Business complies in all respects with all Laws and
Orders applicable thereto, except where any failures to so comply
either individually or in the aggregate have not had and would not
reasonably be expected to have a Material Adverse Effect.
4.11 Litigation. Except as indicated on Schedule 4.11 to this Agreement,
there are no Orders against Locate or any of its assets, or any Actions
pending or to Locate's knowledge any Actions or inquiries threatened,
by or before any Governmental Authority against Locate that either
individually or in the aggregate (i) have had or will have a Material
Adverse Effect or (ii) could restrain, enjoin or otherwise prevent
consummation of the transactions contemplated by this Agreement or
permit
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such consummation only subject to one or more material adverse
conditions or restrictions applicable to the Transferee.
4.12 Full Disclosure. No representation or warranty by Locate in this
Agreement, or in any schedules, disclosures, notices, letters or
exhibits referred to herein or any other certificate or document
furnished or to be furnished by Locate pursuant hereto, contains any
untrue statement of a material fact or omits or will omit to state a
fact necessary to make any statement contained herein or therein not
misleading or necessary in order to provide Transferee with complete
and accurate information as to all material aspects of the Business,
Identified Assets and Identified Liabilities.
4.13 Compliance with Bulk Sales Act. There are no creditors who can object
to the transactions contemplated hereby under the Bulk Sales Act of the
State of New York, or the Uniform Commercial Code, or statutes of
similar import, if applicable. The consideration for the transactions
contemplated herein constitutes the fair value thereof to Locate.
4.14 Financial Statements. Locate has delivered to Transferee complete
copies of the following financial statements: (i) an audited balance
sheet as of December 31, 1994 and the related statements of operations,
accumulated deficit and cash flows for the year then ended, together
with the notes thereto, (ii) an unaudited balance sheet and related
statements of operations, accumulated deficit and cash flows for the
year ended December 31, 1995, and (iii) an unaudited balance sheet and
related statements of operations, accumulated deficit and cash flows as
of February 29, 1996. All such audited and unaudited financial
statements are referred to herein collectively as the "Locate Financial
Statements." The Locate Financial Statements were prepared in
accordance with generally accepted accounting principles consistently
applied throughout the periods covered thereby and fairly and
accurately present the financial position and assets and liabilities of
Locate as of the dates thereof and Locate's results of operations and
cash flows for the periods then ended (subject in the case of any
unaudited interim financial statement, to normal, recurring and other
adjustments which will not have a material impact on the financial
statements), except that the audited financial statements of Locate as
of and for the year ended December 31, 1994 reflect the consolidated
balance sheet and statement of operations on a discontinued operations
basis, and furthermore, (i) the audited financial statements of Locate
as of and for the year ended December 31, 1994 also include the Switch
Business and (ii) the unaudited financial statements as of and for the
year ended December 31, 1995 and as of and for the two months ended
February 29, 1996 relate only to the Business and do not include the
Switch Business. In addition, the unaudited financial statements of
Locate as of December 31, 1995 and February 29, 1996, do not include
any additional reserve for additional losses to be incurred prior to
and in connection with the completion of the Locate disposal which
would be required to be stated under GAAP. The balance sheet as of
February 29, 1996 that is included in the Locate Financial Statements
is referred to herein as the
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"Balance Sheet," and February 29, 1996 is referred to herein as the
"Balance Sheet Date."
4.15 Undisclosed Liabilities. Except as set forth on Schedule 4.15, Locate
has no material liabilities, due or to become due, except (a) as and to
the extent reflected or reserved against on the Balance Sheet, and (b)
those incurred in the ordinary course of business and consistent with
prior practices since the Balance Sheet Date.
4.16 Absence of Certain Changes or Events. Except as set forth in Schedule
4.16 or pursuant to the Locate Parties Agreement, since the Balance Sheet Date,
Locate has not, with respect to the Business:
4.16.1 sold, transferred, leased to others or otherwise disposed of
any material asset, or canceled or compromised any material
debt or claim, or waived or released any right of substantial
value;
4.16.2 received any notice of termination of any contract, lease or
other agreement, or suffered any damage, destruction or loss
(whether or not covered by insurance) which, in any case or in
the aggregate, has had or will have a Material Adverse Effect;
4.16.3 encountered any labor union organizing activity, had any
actual or threatened employee strikes, work stoppages,
slowdowns or lockouts, or any other labor trouble, or had any
material change in its relations with its employees or agents
or any of its customers or suppliers;
4.16.4 transferred or granted any rights under, or entered into any
settlement regarding the breach or infringement of, any
Intellectual Property, or modified any existing rights with
respect thereto;
4.16.5 suffered any other change, event or condition which, in any
case or in the aggregate, has had or will have a Material
Adverse Effect;
4.16.6 discharged or satisfied any material Encumbrance other than
those then required to be discharged or satisfied, or paid any
material obligation or liability, absolute, accrued,
contingent or otherwise, whether due or to become due, other
than current liabilities shown on the Balance Sheet and
current liabilities incurred as of the Balance Sheet Date in
the ordinary course of business and consistent with prior
practice; or
4.16.7 entered into any agreement or made any commitment to take any
of the types of action described in any of the foregoing
clauses (other than clauses 4.16.2, 4.16.3 or 4.16.5).
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ARTICLE V. REPRESENTATIONS AND WARRANTIES OF MOBILEMEDIA.
MobileMedia represents and warrants to the Transferee that:
5.1 Organization and Qualification. MobileMedia is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware, has all requisite corporate power and authority to
own, lease and operate its assets, and to carry on its business as it
is now being conducted, and is duly qualified to do business as a
foreign corporation and in good standing to do business in each
jurisdiction in which the nature of its business or the ownership or
leasing of its assets makes such qualification necessary.
5.2 Authorization. MobileMedia has all necessary corporate power and
authority to execute and deliver this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated
hereby. The execution, delivery and performance by MobileMedia of this
Agreement have been duly authorized by all necessary corporate action
on the part of MobileMedia. This Agreement constitutes the legal, valid
and binding obligation of MobileMedia enforceable against MobileMedia
in accordance with its terms, except as enforceability may be limited
by bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the rights and remedies of creditors generally and general
principles of equity, regardless of whether applied in equity or at
law.
5.3 No Conflict; Approvals. The execution, delivery and performance by
MobileMedia of this Agreement and the consummation of the transactions
contemplated hereby will not result in any violation of or conflict
with, constitute a default (with or without notice or the lapse of
time) under, or give rise to a right of termination, cancellation, or
acceleration of, or result in the imposition of an Encumbrance under,
or, except as indicated on Schedule 5.3 to this Agreement, require any
Authorization or Consent, under, (i) the Certificate of Incorporation
or By-Laws of MobileMedia, (ii) any note, indenture or other evidence
of indebtedness, or other contract, agreement or lease, to which
MobileMedia is a party or by which it is bound, or (iii) any material
Law or Order by which MobileMedia is bound, except for any such
violations, conflicts, defaults or failures to obtain Authorizations or
Consents, that either individually or in the aggregate will not prevent
MobileMedia from performing its obligations hereunder.
5.4 Litigation. There are no Orders against MobileMedia or any of its
assets, or any Actions pending or to MobileMedia's knowledge
threatened, by or before any Governmental Authority against MobileMedia
that could restrain, enjoin or otherwise prevent consummation of the
transactions contemplated by this Agreement or permit such consummation
only subject to one or more material adverse conditions or restrictions
applicable to the Transferee.
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ARTICLE VI. REPRESENTATIONS AND WARRANTIES OF THE TRANSFEREE.
The Transferee and WinStar jointly and severally represent and warrant to Locate
and MobileMedia that:
6.1 Organization and Qualification. Transferee and WinStar are corporations
duly organized, validly existing and in good standing under the laws of
the State of Delaware. Each of the Transferee and WinStar has all
requisite corporate power and authority to own, lease and operate its
assets, and to carry on its business as it is now being conducted, and
is duly qualified to do business as a foreign corporation and in good
standing to do business in each jurisdiction in which the nature of its
business or the ownership or leasing of its assets makes such
qualification necessary. Transferee and WinStar have furnished to
Locate and MobileMedia true and complete copies of (a) the certificate
of incorporation and all amendments thereto of Transferee and WinStar,
certified by the applicable Secretary of State, and (b) the by-laws of
the Transferee and WinStar as presently in effect, certified as true
and correct by the Secretary of such entity.
6.2 Authorization. Transferee and WinStar have all necessary corporate
power and authority to execute and deliver this Agreement and to
perform their obligations hereunder and to consummate the transactions
contemplated hereunder. WinStar has all necessary corporate power and
authority to execute and deliver the Notes and the Registration Rights
Agreement and to perform its obligations thereunder. The execution,
delivery and performance by Transferee and WinStar of this Agreement,
and by Winstar of the Registration Rights Agreement and the Notes, have
been duly authorized by all necessary corporate action on the part of
Transferee and WinStar, respectively. This Agreement constitutes the
legal, valid and binding obligation of Transferee and WinStar
enforceable against each, jointly and severally, in accordance with its
terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the
rights and remedies of creditors generally and general principles of
equity, regardless of whether applied in equity or at law. Each of the
Notes and the Registration Rights Agreements, when executed and
delivered by WinStar, will constitute the legal, valid and binding
obligation of WinStar enforceable against WinStar in accordance with
its terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the
rights and remedies of creditors generally and general principles of
equity, regardless of whether applied in equity or at law
6.3 No Conflict; Approvals. The execution, delivery and performance by
WinStar or the Transferee of this Agreement, or by Winstar of the
Registration Rights Agreement and the Notes, and the consummation of
the transactions contemplated thereunder will not result in any
violation of or conflict with, constitute a default (with or without
notice or the lapse of time) under, or give rise to a right of
termination,
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cancellation, or acceleration of, or result in the imposition of an
Encumbrance under, or, except as indicated on Schedule 6.3 to this
Agreement, require any Authorization or Consent under, (i) the
Certificate of Incorporation or Bylaws of WinStar or the Transferee,
(ii) any material note, indenture or other evidence of indebtedness, or
other material contract, agreement or lease, to which WinStar or the
Transferee is a party or by which it is bound or (iii) any material Law
or Order by which WinStar or the Transferee is bound, except for any
such violations, conflicts, defaults or failures to obtain
Authorizations or Consents, that either individually or in the
aggregate have not had and would not reasonably be expected to have a
material adverse effect on the financial condition of the WinStar or
the Transferee.
6.4 Litigation. To the Transferee's knowledge, there are no Orders against
either Transferee, WinStar or any of their respective assets, or any
Actions pending or threatened, by or before any Governmental Authority
against WinStar or the Transferee that would reasonably be expected to
restrain, enjoin or otherwise prevent consummation of the transactions
contemplated by this Agreement or permit such consummation only subject
to one or more material adverse conditions or restrictions applicable
to Locate or MobileMedia.
6.5 Financial Statements. WinStar has previously furnished to Locate copies
of WinStar's financial statements for the year ended December 31, 1995
(collectively the "WinStar Financial Statements"). The WinStar
Financial Statements were prepared in accordance with generally
accepted accounting principles consistently applied throughout the
periods covered thereby and fairly and accurately present the financial
position and assets and liabilities of WinStar as of the date thereof
and WinStar's results of operations and cash flows for the period then
ended.
6.6 Full Disclosure. WinStar has filed all reports required to be filed by
it pursuant to the Securities Exchange Act of 1934 (the "Exchange Act")
within the two years preceding the date of this Agreement (the
"Exchange Act Reports"). All of the Exchange Act Reports were true and
complete in all material respects when filed. WinStar has provided
Locate with copies of its Annual Report on Form 10-K for the year ended
December 31, 1995 ("10-K") and the Prospectus dated January 31, 1996
included in its Registration Statement on Form S-4 declared effective
by the SEC on that date (the "S-4 Prospectus"). The S-4 Prospectus,
taken together with and as supplemented by the 10-K, does not contain
as of the date thereof, or contain as of the date of this Agreement,
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; provided, however, that WinStar makes no representation
with respect to the completeness of disclosure as it relates to
existing or proposed federal, state or local legislation and regulation
affecting telecommunications matters. No specific representation or
warranty by WinStar in this Agreement contains any untrue
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statement of a material fact or omits or will omit to state a fact
necessary to make any material statement contained in such
representation or warranty not misleading.
6.7 Authorization; Enforceability; Notes. The Notes have been duly
authorized, and when the Notes are delivered and paid for pursuant to
this Agreement at the Closing, the Notes will have been duly executed,
authenticated, issued and delivered and will conform to the form
thereof attached as Exhibit A to this Agreement and the Notes will
constitute valid and legally binding obligations of WinStar,
enforceable in accordance with their respective terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium
and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles.
6.8 Common Stock.
6.8.1 The authorized capital stock of Transferee consists of
75,000,000 shares of Common Stock and 15,000,000 shares of
preferred stock of which 27,213,520 shares of Common Stock and
no shares of preferred stock were issued and outstanding as of
March 18, 1996. All of the outstanding shares of Common Stock
have been duly authorized and validly issued, are fully paid
and nonassessable.
6.8.2 When the Notes are delivered and paid for pursuant to this
Agreement, the Notes will be convertible into the Common Stock
of WinStar in accordance with their terms; the shares of
Common Stock initially issuable upon conversion of the Notes
have been duly authorized and reserved for issuance upon such
conversion and, when issued upon such conversion, will be
validly issued, fully paid and nonassessable.
6.9 Special Approvals; Notes. No Authorization or other approval,
authorization, or order of, or filing with, any federal, state or local
governmental agency or body or any court is required for the
consummation of the transactions contemplated by this Agreement with
respect to the issuance and sale of the Notes by WinStar.
ARTICLE VII. COVENANTS.
7.1 Financial Statements. Locate and MobileMedia 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
Locate's operations. Accordingly, Locate and MobileMedia agree to
cooperate fully with WinStar in this regard and to provide WinStar all
information WinStar may reasonably request in that connection. In
furtherance of the foregoing:
7.1.1 concurrently with the execution of this Agreement, Locate has
delivered to WinStar audited balance sheets of Locate as at
December 31, 1994, 1993 and
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1992 and audited statements of operations, shareholders'
equity and cash flows for each of the years then ended.
7.1.2 on or before April 30, 1996, Locate and MobileMedia shall
cause Locate, at its expense, to deliver to WinStar an audited
balance sheet with respect to the Business as at December 31,
1995 and an audited statement of operations, shareholders
equity and cash flows with respect to the Business for the
year then ended.
7.1.3 on or before February 14 of each year ending prior to the
Closing Date, Locate and MobileMedia shall cause Locate, at
its expense, to deliver to WinStar an audited balance sheet
with respect to the Business as at December 31, of the year
preceding such February 14 and audited statement of
operations, shareholders' equity and cash flows with respect
to the Business for the year then ended; and
7.1.4 on or before 30 calendar days after the end of each fiscal quarter
ending prior to the Closing Date, beginning with the quarter ending March 31,
1996, Locate and MobileMedia shall cause Locate to deliver to WinStar unaudited
balance sheets with respect to the Business at the last day of such quarter and
at the comparable date of the prior fiscal year and unaudited statements of
operations, shareholders' equity and cash flows with respect to the Business for
the quarters then ended and the fiscal year to date, except that no such
unaudited information need be delivered with respect to the last quarter of each
fiscal year.
All of the foregoing financial statements have been or will be prepared
in accordance with generally accepted accounting principles consistently applied
throughout the periods indicated and shall fairly present the respective
financial conditions of Locate at their respective dates and the results of
their respective operations for the periods covered thereby. Locate will cause
the appropriate management personnel of Locate to provide such confirmations as
are necessary to confirm the accuracy of all financial statements provided to
WinStar and will cooperate with WinStar in connection with the preparation of
financial statements reflecting Locate's operations for all periods ending on or
prior to the Closing Date, including delivery of certifications as to the
accuracy of all such financial statements.
7.2 Operation of Business. Notwithstanding the terms of the Service
Agreement, between the date of this Agreement and the Closing Date,
Locate shall (a) retain complete control over its operations and not
transfer control thereof to any other Person, (b) take all reasonable
action within its means to preserve the Business and the Licenses, and
(c) otherwise conduct the Business in good faith and in accordance with
reasonable operating standards consistent with past practice. Except as
may be otherwise specifically permitted by this Agreement, between the
date hereof and the
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Closing Date, Locate will conduct the Business only in the ordinary
course of such business. Notwithstanding the foregoing, except as
specifically permitted by this Agreement and except in connection with
the performance of its obligations pursuant to Material Contracts and
under the Services Agreement, Locate will not undertake any of the
following activities:
7.2.1 take any action intended in whole or in part to make any of
its representations or warranties hereunder incorrect after
such action is taken;
7.2.2 declare any dividend, whether of cash or securities, or make
any distribution in securities on the outstanding shares of
Locate or directly or indirectly redeem or purchase any of the
outstanding Shares of Locate (any such action being referred
to herein as a "Dividend"); or
7.2.3 take any other action which would be reasonably expected to
have a Material Adverse Effect.
7.3 No Transfer of Control.
7.3.1 It is expressly understood that nothing in this Agreement or
the Service Agreement is intended to give to WinStar or the
Transferee 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 Locate's Licenses from Locate
to WinStar or the Transferee.
7.3.2 Nothing in this Agreement or the Service Agreement is intended to
diminish or restrict Locate'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 and/or the rules and regulations of any state
or local jurisdiction. Subject to the provisions of Section 11.12, if the FCC or
any state regulatory body of competent jurisdiction 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.
7.4 Prosecution of FCC Final Order; Disclosure.
7.4.1 Promptly after the execution of this Agreement, Locate will
make such filings and take such other actions as are necessary
to obtain the FCC Final Order and any applicable State
regulatory consents and shall thereafter diligently prosecute
such consents until they are obtained.
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7.4.2 Locate and MobileMedia shall cooperate in disclosing
information to WinStar to enable WinStar to make such
regulatory filings and take such other actions as it deems
necessary or appropriate to disclose the existence of this
Agreement, the transactions contemplated hereby and the
relationships of the parties. WinStar shall give Locate
advance written notice and copies of any such filings it
proposes to make with the FCC, which notice shall be at least
two business days in advance of such filing whenever
practicable.
7.4.3 WinStar shall cooperate in disclosing information to Locate 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, the
transactions contemplated hereby and the relationships of the parties. Locate
shall give WinStar advance written notice and copies of any such filings it
proposes to make with the FCC with respect to the transactions contemplated
hereby, which notice shall be at least two business days in advance of such
filing whenever practicable.
7.5 Access to Information. Locate and MobileMedia will (i) permit WinStar
and its representatives reasonable access during normal business hours
upon reasonable advance notice to all of the books, records, financial
and operating data, reports and other related materials, offices and
other facilities and properties of Locate; and (ii) permit WinStar and
its representatives to make such inspections and copies thereof as they
may reasonably request.
7.6 No Other Negotiations. Until the earlier of the Closing Date or the
termination of this Agreement, neither Locate nor MobileMedia shall (a)
solicit or encourage, directly or indirectly, any inquiries,
discussions or proposals for, (b) continue, propose or enter into any
negotiations or discussions looking toward, or (c) enter into any
agreement or understanding providing for, any acquisition of any
capital stock of Locate or of any part of its assets, nor shall Locate
or MobileMedia 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.
7.7 No Securities Transactions. Neither Locate nor MobileMedia shall engage
in any transactions involving the securities of WinStar prior to the
time of the making of a public announcement of the closing of the
transactions contemplated by this Agreement. Locate and MobileMedia
shall each use its best efforts to require each of its officers,
directors, employees, agents and representatives to comply with the
foregoing requirement.
7.8 Disclosure of Certain Matters. From the date hereof through the Closing
Date or the termination of this Agreement, Locate shall give WinStar prompt
written notice of any event or development that occurs that (a) had it
existed or been known on the
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date hereof would have been required to be disclosed under this
Agreement, (b) would cause any of the representations and warranties of
Locate or MobileMedia contained herein to be inaccurate, incomplete or
otherwise misleading or (c) causes Locate or MobileMedia to conclude
that any of the conditions set forth in Article 8 cannot be satisfied.
7.9 Confidentiality. Locate and MobileMedia, on the one hand, and WinStar and
the Transferee, 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 parties furnished it by such other parties or its
representatives in connection with the transactions contemplated by this
Agreement (except to the extent that such information can be shown to have
been (a) 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 any other source, 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, each of WinStar and MobileMedia shall be entitled to issue press
releases and make such filings with the SEC to disclose such matters as it
is required to disclose to meet its legal obligations, provided that, in
the case of press releases, it shall endeavor to give at least two hours'
advance notice (which may be oral) and, in the case of filings, it shall
give at least four hours' advance notice (which may be oral) to the other
party. In addition to any other right or remedy available to the parties,
the provisions of this Section 7.9 shall be enforceable by a proceeding for
specific performance or other equitable relief.
7.10 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
concerning another party and such information is in the possession of
such other party, such other party agrees to take all reasonable and
practicable steps to furnish such information upon written request in a
timely manner to the party requesting such information, at the cost and
expense of the party being furnished such information.
7.11 Regulatory and Other Authorizations and Conditions. Each party will use
all reasonable efforts to obtain the FCC Final Orders, comply with any
HSR filing obligations and all other Authorizations and Consents and
will cooperate fully with the other party in promptly seeking to obtain
same. Locate and MobileMedia will use all reasonable efforts to satisfy
the conditions to closing set forth in Sections 8.1 and 8.3 hereof.
WinStar and Transferee will use all reasonable efforts to satisfy the
conditions to closing set forth in Sections 8.1 and 8.2 hereof.
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7.12 Cooperation: Further Action. Subject to the terms and conditions of
this Agreement, each party shall cooperate with the other and shall use
all reasonable 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 contemplated hereby, including the
execution and delivery of any additional instruments necessary to
consummate the transactions contemplated hereby. Each of the parties
shall execute such documents and other papers and take such further
actions as may be reasonably required or desirable to carry out the
provisions hereof to satisfy conditions contained in this Agreement.
7.13 WinStar Information. WinStar shall promptly furnish Locate with copies
of all reports filed by WinStar with the SEC under the Securities
Exchange Act of 1934 after the date of this Agreement and all press
releases and letters issued by it and disseminated to all stockholders
of record.
7.14 Locate's Accounts Receivable. Except as provided in the Service
Agreement, all accounts receivable of Locate relating to periods prior
to the Closing Date shall continue to be the property of Locate (the
"Locate Accounts Receivable"). In the event of a dispute between Locate
and a customer as to any such account, Locate shall consult with
Transferee before initiating any action which could result in impairing
the goodwill of such customer to Transferee and the Business and
Transferee and Locate shall cooperate in the resolution of such dispute
in a business-like manner. From and after the Closing Date, (i) WinStar
shall promptly remit to Locate any amounts received with respect to
accounts receivable of the Business (including those which identify
themselves as constituting Locate Accounts Receivable) until such time
as the Locate Accounts Receivable have been paid in full; provided,
however, that any payments which specifically designate payment for
services performed after the Closing Date shall be and remain the
property of WinStar, and (ii) Locate shall promptly remit to WinStar
any amounts received with respect to accounts receivable of the
Business attributable to the operation thereof after the Closing Date.
7.15 Compliance With Bulk Sales Law; Sales Taxes. Promptly after the
execution of this Agreement, Locate shall comply with any applicable
notice requirement contained in the Uniform Commercial Code relating to
Bulk Transfers. Seller will pay, prior to the Closing Date, all taxes,
including sales taxes, taxes with respect to the provision of
telecommunication services and other similar taxes, due and payable as
a result of the conduct of its business prior to the Closing Date.
Locate and Transferee shall cooperate with each other to prepare and
file such forms and notifications with state taxing authorities as may
be necessary to insulate Transferee from Locate's sales tax
liabilities.
7.16 Locate Name. Locate and MobileMedia shall cause Locate and LOCATE-1, Inc.
to change their names immediately after the Closing Date to names which do
not
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include the words "Locate", "Local" or "Area", or any combination or derivation
thereof.
7.17 Sales and Transfer Taxes. Locate hereby assumes liability for and shall pay
all sales, transfer and similar taxes incurred as a result of the sale of
the Identified Assets.
7.18 Payment and Performance of Identified Liabilities. From and after the
Closing, the Transferee shall duly and punctually pay and perform all of
the Identified Liabilities.
7.19 Employment of Employees. The Transferee shall offer employment to those
employees of Locate which it designates in a list to be delivered to
Locate at least ten days prior to the Closing Date.
7.20 Casualty Insurance. The Transferee shall arrange separate casualty
insurance (including without limitation workers compensation, automobile and
general liability insurance) for the business effective at the Closing.
7.21 Arrangements in Lieu of Consents. If Locate, despite commercially
reasonable efforts, is unable to obtain a Consent to the assignment of
any Material Contract, Locate shall make arrangements reasonably
acceptable to Transferee, pursuant to which the Transferee shall have
substantially the same benefits as it would have had under such
Material Contract if such Consent had been obtained and such Material
Contract had been assigned to the Transferee, and shall duly and
punctually pay, or reimburse Locate for payment of, and perform, all of
the liabilities and obligations of Locate after the Closing Date under,
such Material Contract.
7.22 Notice of Certain Matters. Locate or MobileMedia, on the one hand, and
the Transferee, on the other hand, shall each give notice to the other
party, promptly after gaining knowledge thereof, of (i) the occurrence
or failure to occur of any event whose occurrence or failure to occur
would reasonably be expected to cause any representation or warranty of
such party contained in this Agreement or any Schedule hereto to be
materially inaccurate, and (ii) any failure of such party to comply
with or satisfy any covenant or condition contained in this Agreement
to be complied with or satisfied by it.
7.23 Security Deposits. That parties agree that although security deposits
outstanding as of the Closing Date are excluded from the Identified
Assets, the amounts with respect to such deposits shall be paid to
Locate only to the extent such deposits are either refunded or credited
to Transferee. Notwithstanding the foregoing, in the event Transferee
either renews or terminates a lease with such a security deposit,
Transferee agrees to use its good faith efforts to obtain either a
refund or credit with respect to such security deposit.
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7.24 No Transfers or Dividends. From the date hereof until the Indemnity
Termination Date, as defined in Section 9.6 hereof, Locate shall not
transfer any of its material assets, except the Switch Assets or
transfers made in accordance with the Service Agreement or transfers to
an entity which would be a permitted transferee under Section 11.3, or
declare, make or pay, any Dividends.
7.25 Schedules Up To the Closing Date. Upon the request of a party, made not
more frequently than monthly, the other party shall have the obligation
to supplement or amend, not less frequently than monthly, the Schedules
being delivered concurrently by such other party 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.
ARTICLE VIII. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PARTIES.
8.1 Conditions Precedent to the Closing. The respective obligations of
Locate, MobileMedia, WinStar and the Transferee to consummate the
transactions contemplated by this Agreement are subject to the
fulfillment prior to or at the Closing of each of the following
conditions, any or all of which may be waived in whole or in part by
the party benefitted thereby to the extent permitted by applicable law:
8.1.1 HSR Act. If filing under the HSR Act is required, the waiting
period under the HSR Act shall have expired or been
terminated.
8.1.2 FCC Final Orders. The FCC Final Orders shall have been obtained.
8.1.3 Other Authorizations. All other Authorizations required in
connection with the consummation of the transactions
contemplated by this Agreement shall have been obtained or
filed, as the case may be, except for such failures to obtain
or file Authorizations that either individually or in the
aggregate (i) have not had and would not reasonably be
expected to have a Material Adverse Effect, or (ii) do not
materially impair the ability of the parties to perform their
respective obligations under this Agreement.
8.1.4 Consents. All Consents required in connection with the
consummation of the transactions contemplated by this
Agreement shall have been obtained, except for such failures
to obtain Consents (i) as to which arrangements have been made
pursuant to Section 7.22, or (ii) that either individually or
in the aggregate (A) have not had and would not reasonably be
expected to have a Material Adverse Effect, or (B) do not
materially impair the ability of the parties to perform their
respective obligations under this Agreement.
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8.1.5 No Injunction. There shall not be in effect any Order, and no
Action shall have been instituted by any Person other than a
party hereto that imposes or seeks to obtain any Order,
restraining, enjoining or otherwise preventing consummation of
the transactions contemplated by this Agreement or permitting
such consummation only subject to conditions or restrictions
that are unacceptable to any party, in such party's reasonable
judgment.
8.2 Conditions to Obligations of Locate and MobileMedia. The obligations of
Locate and MobileMedia to consummate the transactions contemplated by
this Agreement are subject to the fulfillment at or prior to the
Closing of each of the following conditions, any or all of which may be
waived in whole or in part by Locate and MobileMedia to the extent
permitted by applicable law:
8.2.1 Representations and Warranties. The representations and
warranties of WinStar and the Transferee contained in this
Agreement shall have been true when made, and shall be true at
the Closing with the same effect as though such
representations and warranties had been made at the Closing,
provided, that representations and warranties that speak as of
a specific date other than the Closing Date need only be true
as of such date.
8.2.2 Covenants and Conditions. WinStar and the Transferee shall
have performed and complied in all material respects with all
covenants and conditions contained in this Agreement that are
required to be performed and complied with by it prior to or
at the Closing.
8.2.3 Certificates. WinStar and the Transferee shall have delivered
to Locate and MobileMedia a certificate dated the Closing Date
and signed by each of them, certifying as to the fulfillment
of the conditions contained in Sections 8.2.1 and 8.2.2.
8.2.4 Opinions. Locate and MobileMedia shall have received an opinion
dated the Closing Date and addressed to them from counsel for WinStar and
the Transferee, in form and substance reasonably satisfactory to counsel
for Locate and MobileMedia, addressing matters which are customary in
connection with transactions of the type and nature contemplated by this
Agreement, the Registration Rights Agreement and the Notes. Such opinion
may be made subject to such limitations, assumptions and qualifications as
are customary in connection with transactions of the type and nature
contemplated by this Agreement, the Registration Rights Agreement and the
Notes but shall provide that the holders of the Notes may rely upon such
opinion.
8.3 Conditions to Obligations of WinStar and the Transferee. The
obligations of WinStar and the Transferee to consummate the transactions
contemplated by this
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Agreement are subject to the fulfillment at or prior to the Closing of
each of the following conditions, any or all of which may be waived in
whole or in part by WinStar and the Transferee to the extent permitted
by applicable law:
8.3.1 Representations and Warranties. The representations and
warranties of Locate and MobileMedia contained in this Agreement shall have
been true when made, and shall be true at the Closing (except to the extent
untrue or inaccurate as a result of the operation of the Business pursuant
to the Services Agreement) with the same effect as though such
representations and warranties had been made at the Closing, provided, that
representations and warranties that speak as of a specific date other than
the Closing Date need only be true as of such date.
8.3.2 Covenants and Conditions. Locate and MobileMedia shall have
performed and complied in all material respects with all
covenants and conditions contained in this Agreement that are
required to be performed and complied with by them prior to or
at the Closing.
8.3.3 Certificates of Locate and MobileMedia. Locate and MobileMedia
shall have delivered to the Transferee (i) a certificate dated
the Closing Date and signed by an executive officer of each of
them, certifying as to the fulfillment of the conditions
contained in Sections 8.3.1 and 8.3.2; and (ii) a statement of
record of the FCC concerning status of Locate's Licenses.
8.3.4 Certificates of the Payees. Locate and each of the Designees
(each a "Payee") shall have delivered to the Transferee a
certificate certifying to the following:
8.3.4.1 Such Payee is an accredited investor under Regulation
D promulgated pursuant to the Securities Act of 1933,
as amended ("Act").
8.3.4.2 Such Payee understands that the issuance of the Note and the
shares of WinStar Common Stock into which the Note may be converted
("Conversion Shares") have not been registered under the Act and are and
will be offered pursuant to an exemption thereunder. Such Payee will not
sell or transfer the Note or the Conversion Shares unless such sale or
transfer is registered under the Act or exempt from registration
thereunder.
8.3.4.3 Such Payee is acquiring the Note and any Conversion
Shares which it may acquire thereunder, for its own
account for investment and not on behalf of or for
the benefit of any other
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person, trust, estate, or business organization, and
has no intention of distributing same to others in
violation of the Act.
8.3.4.4 Such payee acknowledges that (i) it has been given copies of,
and has reviewed WinStar's Exchange Act Reports (and all similar reports
filed by WinStar after the date hereof) and S-4 Prospectus, as such terms
are defined in Section 6.6 hereof, and (ii) it has 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
Transferee and all such questions and documents have been answered and
provided to Locate's full satisfaction.
8.3.5 Opinions. The Transferee shall have received an opinion dated
the Closing Date and addressed to them from counsel for Locate and
MobileMedia, in form and substance reasonably satisfactory to counsel for
the Transferee, addressing matters which are customary in connection with
transactions of the type and nature contemplated by this Agreement. Such
opinion may be made subject to such limitations, assumptions and
qualifications as are customary in connection with transactions of the type
and nature contemplated by this Agreement.
8.3.6 No Material Adverse Change. Except for the disposition of the
Switch Business and to the extent attributable to WinStar's
recommendations with respect to the operation of the Business
under the Service Agreement, the Business shall not have
suffered any Material Adverse Effect.
ARTICLE IX. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
COVENANTS; INDEMNIFICATION.
9.1 Certain Definitions.
9.1.1 "Third-Party Claim" as used in this Agreement 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.
9.1.2 "Direct Claim" as used in this Agreement means any Claim other
than a Third-Party Claim.
9.1.3 "Damages" as used in this Agreement means the dollar amount of
any loss, damage, expense or liability, including, without
limitation, reasonable attorneys' fees, which is determined
(as provided below) to have been sustained, suffered or
incurred by a party and to have arisen from or in connection
with an event or state of facts which is subject to
indemnification
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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.
9.2 Indemnification of Transferee and WinStar by Locate and MobileMedia.
Locate and MobileMedia, jointly and severally, shall indemnify and hold
harmless Transferee and WinStar from and against, and shall reimburse
Transferee and WinStar for, any Damages which may be sustained,
suffered or incurred by Transferee and WinStar, whether as a result of
any Third-Party Claims or otherwise, and which arise or result from or
in connection with or are attributable to (a) the breach of any of
Locate's or MobileMedia's covenants, representations, warranties,
agreements, obligations or undertakings contained in this Agreement,
(b) the operation of the Business on or before the Closing Date except
to the extent attributable to WinStar's recommendations with respect to
the operation of the Business under the Service Agreement, (c) any
Employee Obligations, (d) non-compliance with applicable bulk sales
laws or (e) the Excluded Contracts.
9.3 Limitation on Indemnification of Transferee and WinStar by MobileMedia.
Notwithstanding MobileMedia's indemnification obligations under Section
9.2 above, the aggregate maximum liability of MobileMedia under this
Agreement shall not exceed $2,000,000.
9.4 Indemnification of Locate and MobileMedia. Transferee and WinStar,
jointly and severally, shall indemnify and hold harmless Locate and
MobileMedia from and against, and shall reimburse Locate and
MobileMedia for, any Damages which may be sustained, suffered or
incurred by Locate and MobileMedia, whether as a result of Third-Party
Claims or otherwise, and which arise or result from or in connection
with or are attributable to (a) the breach of any of Transferee's or
WinStar's covenants, representations, warranties, agreements,
obligation or undertakings contained in this Agreement or (b) the
operation of the Business after the Closing Date.
9.5 Procedure. A party required to make an indemnification payment pursuant to
this Agreement ("Indemnifying Party") shall have no liability with respect
to Third-Party Claims or otherwise with respect to any covenant,
representation, warranty, agreement, undertaking or obligation under this
Agreement unless the party entitled to receive such indemnification payment
("Indemnified Party") gives notice to the Indemnifying Party specifying (i)
the covenant, representation or warranty, agreement, undertaking or
obligation contained herein which it asserts has been breached, (ii) in
reasonable detail, the nature and dollar amount of any Claim the
Indemnified Party may have against the Indemnifying Party by reason thereof
under this Agreement, and (iii) whether or not the Claim is a Third-Party
Claim. With
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respect to Third-Party Claims, an Indemnified Party (a) shall give the
Indemnifying Party prompt notice of any Third-Party Claim, (b) prior to
taking any action with respect to such Third-Party Claim, shall consult
with the Indemnifying Party as to the procedure to be followed in
defending, settling, or compromising the Third-Party Claim, (c) shall
not consent to any settlement or compromise of the Third-Party Claim
without the written consent of the Indemnifying Party (which consent,
unless the Indemnifying Party has elected to assume the exclusive
defense of such Claim, shall not be unreasonably withheld or delayed)
and (d) shall permit the Indemnifying Party, if it so elects, to assume
the exclusive defense of such Third-Party Claim (including, except as
provided in the penultimate sentence of this Section 9.5, the
compromise or settlement thereof) at its own cost and expense. If the
Indemnified Party shall (i) fail to notify or to consult with the
Indemnifying Party with respect to any Third-Party Claim in accordance
with clauses (a) or (b) above or (ii) consent to the settlement or
compromise of any Third-Party Claim without having received the written
consent of the Indemnifying Party (unless, if the Indemnifying Party
has not elected to assume the exclusive defense of such Claim, the
consent of the Indemnifying Party is unreasonably withheld or delayed),
then the Indemnifying Party shall be relieved of its indemnification
obligation with respect to such Third-Party Claim under this Agreement.
The Indemnifying Party will not compromise or settle any such
Third-Party Claim without the written consent of the Indemnified Party
(which consent shall not be unreasonably withheld or delayed) if the
relief provided is other than monetary damages. Notwithstanding the
provisions of this Article IX, if Locate or MobileMedia, as the
Indemnifying Party, elects to assume the defense with respect to any
Third-Party Claim asserted by any customer of the Business, then
Transferee shall have the right to compromise or settle such
Third-Party Claim, at the expense of the Indemnifying Party, with the
written consent of Locate or MobileMedia (which consent shall not be
unreasonably withheld or delayed).
9.6 Nature and Survival of Representations and Warranties. All
representations and warranties made by a party pursuant hereto or in
connection with the transactions contemplated hereby shall remain in
effect continuously to and including the Closing, and shall survive the
Closing until the date (the "Rep Termination Date") which is the later
of one year after the date of this Agreement and nine months after the
Closing Date; provided that if notice of a Claim had been given by any
party prior to the Rep Termination Date, such Claim and the related
right to indemnification shall survive until the Claim is finally
resolved, despite the termination of the representations and warranties
implicated by such Claim (the "Indemnity Termination Date," as used
herein, shall mean the Rep Termination Date unless a notice of a Claim
had been given prior to such date, in which case it shall mean the date
after the Claim is finally resolved and the appropriate indemnification
payment, if any, is made). The representations, warranties, covenants
and agreements made by Locate or MobileMedia in this Agreement as of
the date of this Agreement shall not be affected or deemed waived by
reason of the fact that
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WinStar or its representatives knew or should have known that any such
representations, warranties, covenants or agreement is or might be
inaccurate in any respect. Any furnishing of information to Transferee
by Locate pursuant to, or otherwise in connection with, this Agreement,
including, without limitation, any information contained in any
document, contract, book or record of Locate to which Transferee shall
have access or any information obtained by, or made available to,
Transferee as a result of any investigation made by or on behalf of
Transferee prior to or after the date of this Agreement, shall not
affect Transferee's right to rely on any representation, warranty,
covenant or agreement made or deemed made by Locate in this Agreement
and shall not be deemed a waiver thereof.
9.7 Cooperation. Each party shall, and shall cause its Affiliates which are
controlled by it, and its and their directors, officers, employees,
agents, counsel, accountants and other advisors to, fully cooperate
with the other parties in the defense or settlement of any Claim, make
available their books and records to such other parties during normal
business hours, and furnish such other assistance to such other parties
as may be reasonably requested by any of them in connection with such
defense or settlement.
9.8 Limitations. Neither Locate nor MobileMedia on the one hand, nor
WinStar nor Transferee on the other hand, shall be liable to the other
Parties under this Agreement for any Damages (other than those relating
to taxes) until the aggregate amount otherwise due the party being
indemnified exceeds an accumulated total of $175,000 and then only to
the extent of such excess.
9.9 Exclusive Remedy. Except for remedies that cannot be waived as a matter
of law, including without limitation claims under applicable federal
and state securities laws, after the Closing the indemnification
provided by this Article IX shall be the sole and exclusive remedy of
the parties for any breach of any representation, warranty or covenant
contained in this Agreement or any Schedule hereto or the certificates
delivered pursuant to Section 8.2.3 or 8.3.3, provided, that this
Section 9.9 shall not limit or impair the rights or remedies that a
party may have at equity for injunctive relief or specific performance.
ARTICLE X. TERMINATION OF THIS AGREEMENT.
10.1 Survival of Certain Provisions. The provisions of Sections 7.9, 11.7 and
11.8 (the "Surviving Sections") shall survive any termination of this
Agreement and shall continue in full force and effect without termination.
10.2 Termination Upon Default by Locate or MobileMedia. If (i) either Locate
or MobileMedia breaches any provision of this Agreement applicable to
it and as a result thereof a condition in Section 8.1 or 8.3 cannot be
fulfilled prior to or at the Closing, and the Transferee and WinStar
have not breached any provision of this
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Agreement applicable to them in any material respect, or (ii) the
conditions in Sections 8.1 and 8.2 are fulfilled and either Locate or
MobileMedia fails or refuses to consummate the transactions
contemplated by this Agreement (each, a "Seller Default"), then this
Agreement shall be terminated and the Transferee and WinStar shall have
the rights and remedies provided by law with respect to such Seller
Default.
10.3 Termination Upon Default by the Transferee. If (i) the Transferee
breaches any provision of this Agreement applicable to it and as a
result thereof a condition in Section 8.1 or 8.2 cannot be fulfilled
prior to or at the Closing, and neither Locate nor MobileMedia has
breached any provision of this Agreement applicable to it in any
material respect, or (ii) the conditions in Sections 8.1 and 8.3 are
fulfilled and the Transferee fails or refuses to consummate the
transactions contemplated by this Agreement (each, a "Buyer Default"),
then this Agreement shall be terminated and Locate and MobileMedia
shall have the rights and remedies provided by law with respect to such
Buyer Default.
10.4 Other Events Resulting in Termination. If (i) Locate, MobileMedia and
the Transferee agree in writing to terminate this Agreement or (ii) any
Governmental Authority enacts, promulgates or issues any statute, rule,
regulation, ruling, writ or injunction, or takes any other action,
restraining, enjoining or otherwise preventing the consummation of the
transactions contemplated by this Agreement, and all appeals and means
of appeal therefrom are exhausted, and either Locate and MobileMedia,
on the one hand, or the Transferee, on the other hand, give notice of
their election to terminate this Agreement, or (iii) this Agreement is
not terminated pursuant to Section 10.2 or 10.3 and the Closing does
not occur prior to or on June 30, 1997 or such later date as may be
agreed to in writing by Locate, MobileMedia and the Transferee, then in
each such event this Agreement shall be terminated and the parties
shall have no further rights or obligations under this Agreement,
except for the rights and obligations provided in the Surviving
Sections.
ARTICLE XI. GENERAL.
11.1 Intentionally Omitted.
11.2 Further Assurances. From time to time after the Closing, each party
shall execute and deliver such further instruments and take such other
actions as any party shall reasonably request in order to confirm,
perfect or otherwise complete the transactions contemplated by this
Agreement.
11.3 Successors and Assigns. No party hereto may assign its rights or
obligations hereunder except with the written consent of the other
parties hereto. Notwithstanding the foregoing, (i) Transferee shall be
entitled to assign this Agreement to another direct or indirect
subsidiary of WinStar; and (ii) Locate shall
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be entitled to transfer any of its assets including the Identified
Assets and the Identified Liabilities to a limited liability company
owned by Locate and MobileMedia (or one or more of MobileMedia's
affiliates) as long as (a) such transfer does not result in a breach of
any of Locate's or MobileMedia's representations, warranties, covenants
or agreements hereunder, and (b) the transferee of the Identified
Assets becomes a party to this Agreement (including with respect to
Section 9.2) along with Locate and MobileMedia, who shall remain
obligated hereunder. This Agreement shall be binding upon and inure to
the benefit of the parties and their respective successors and
permitted assigns.
11.4 Entire Agreement. This Agreement and the Exhibits and Schedules hereto
constitute the entire agreement and understanding among the parties
with respect to the subject matter of this Agreement, and supersede all
prior and contemporaneous agreement and understandings, whether written
or oral, with respect to such subject matter.
11.5 Amendment. This Agreement may be modified or amended only by a written
instrument executed by each of the parties.
11.6 Counterparts. This Agreement may be executed in any number of counterparts
which shall nevertheless constitute one instrument.
11.7 Expenses. If this Agreement is terminated for any reason other than a
Seller Default or a Buyer Default, or the transactions contemplated by
this Agreement are consummated, each party shall bear all expenses,
costs and fees incurred by such party in connection with (i)
negotiation and preparation of this Agreement and the related
agreements contemplated hereunder, (ii) compliance by such party with
its covenants and obligations contained in this Agreement and (iii) the
Closing.
11.8 Brokers. Locate and MobileMedia represent and warrant to the Transferee
that, except for Donaldson, Lufkin & Jenrette Securities Corporation,
no investment banker, broker, finder or other similar Person has acted
for them or any of their Affiliates in connection with this Agreement
and the transactions contemplated hereby. At the Closing, Locate and
MobileMedia shall pay the fees of Donaldson, Lufkin & Jenrette
Securities Corporation.
The Transferee represents and warrants to Locate and MobileMedia that
no investment banker, broker, finder or other similar Person has acted
for them or any of their Affiliates in connection with this Agreement
and the transactions contemplated hereby.
11.9 Notices. All notices, demands or communications required or permitted
under this Agreement shall be in writing. Any notice, demand or
communication given under this Agreement shall be deemed to be duly
given if given in writing (including facsimile) addressed as provided
below (or at such other address as the addressee
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shall have specified by notice actually received by the addressor) and
either (i) actually delivered in fully legible form to such address or
(ii) in the case of a letter, three business days shall have elapsed
after such letter shall have been deposited in the United States mails,
with first-class postage prepaid and registered or certified.
If to Locate or MobileMedia, addressed to them at:
65 Challenger Road
Ridgefield Park, NJ 07660
Attention: General Counsel
Facsimile: (201) 440-2889
with a copy (which shall not constitute notice) to:
Latham & Watkins
505 Montgomery Street
San Francisco, CA 94111
Attention: Kenneth M. Poovey, Esq.
Facsimile: (415) 395-8095
If to the Transferee, addressed to it as follows:
WinStar Communications, Inc.
230 Park Avenue, Suite 3126
New York, New York 10169
Attention: Timothy R. Graham
Facsimile: (212) 867-1565
with a copy (which shall not constitute notice) to:
David A. Miller
Graubard Mollen & Miller
600 Third Avenue
New York, New York 10016-2097
Facsimile: (212) 682-2320
11.10 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York without
regard to principles of conflict of laws. Each party irrevocably
submits to the exclusive jurisdiction of the courts of the State of New
York for the purpose of any Action arising out of or based upon this
Agreement, any Related Instrument, or the subject matter hereof or
thereof, and agrees that process may be served upon such party if such
party cannot otherwise be served in the State of New York by registered
or certified mail addressed as provided in Section 11.9.
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11.11 No Waiver. The failure of any party to exercise any right, power or
remedy provided under this Agreement or otherwise available in respect
of this Agreement at law or in equity, or to insist upon compliance by
any other party with such other party's obligations under this
Agreement, shall not constitute a waiver by such party of such party's
right to exercise any such or any other right, power or remedy or to
demand such compliance.
11.12 Severability. The provisions of this Agreement are severable, and in
the event that any one or more of the provisions of this Agreement are
deemed illegal or unenforceable, the remaining provisions 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 provision so affected.
11.13 No Third Party Beneficiaries. This Agreement shall inure to the benefit
of only the parties hereto and their permitted assigns. No person,
including any employee of Locate or any Designee, may claim the rights
of a third party beneficiary hereunder. The only rights a Designee may
have against WinStar shall be embodied in the Note and Registration
Rights Agreement delivered to such Designee at the Closing.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first above written.
MOBILEMEDIA CORPORATION
By:_________________________________
Kenneth R. McVay
Vice President
LOCAL AREA TELECOMMUNICATIONS, INC.
By_________________________________
R. Craig Roos
Chief Executive Officer
WINSTAR COMMUNICATIONS, INC.
By_________________________________
Timothy R. Graham
Executive Vice President
WINSTAR LOCATE, INC.
By_________________________________
Timothy R. Graham
President
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EXHIBIT 10.70
SERVICE AGREEMENT
THIS SERVICE AGREEMENT (this "Agreement") is made as of this
1st day of April, 1996 by and between WinStar Wireless, Inc., a Delaware
corporation ("WinStar") and Local Area Telecommunications, Inc., a New York
Corporation ("Locate").
RECITALS
WHEREAS, Locate (i) acts as a competitive access provider of
local digital microwave distribution services and facilities to large
corporations and to interexchange and other common carriers (the "Business") and
(ii) operates a telephone switching operation providing local exchange, long
distance and international services in New York City (the "Switch Operations");
WHEREAS, Locate, WinStar Locate, Inc., a Delaware corporation
("WinStar Locate"), and WinStar Communications, Inc., a Delaware corporation,
have entered into that certain Purchase and Sale Agreement of even date herewith
pursuant to which WinStar Locate will purchase substantially all of the assets
and assume certain of the liabilities of the Business (the "Purchase
Agreement"); and
WHEREAS, WinStar directly or through its subsidiaries, is to
perform certain consulting and related services for Locate 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. Locate hereby retains WinStar on the conditions and for 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 April 1, 1996 (the "Effective
Date") and shall continue in full force and effect until terminated pursuant to
Section 11 below (the "Term").
3. Services. WinStar agrees to provide consulting and related
assistance to Locate (the "Services") at the request and direction of Locate
with respect to all aspects of the operation of the Business, including the
following: maintaining the systems and equipment of the Business; supervising
employees; performing obligations under customer contracts, real estate 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
Locate, supervise Locate's 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 rules or regulations promulgated by the Federal Communications Commission
(the "FCC Rules") or the New York Public Services
<PAGE>
Commission (the "Applicable Laws"), including the filing by Locate of any
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 held by Locate which is
being utilized in connection with the Business. WinStar shall report weekly to
the chief executive officer of Locate (or other designee of the Board of
Directors of Locate) 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 Locate with respect to the Services provided by WinStar and the
financial performance of the Business. If requested by the Board of Directors of
Locate upon reasonable advance notice, WinStar will have in attendance at any
meeting of the Board of Directors of Locate (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.
4. Monthly Fee.
(a) As full compensation for WinStar's performance of the Services, Locate
shall pay WinStar a fee of $125,000 per month during the Term, subject to
adjustment as provided in Sections 4(b) and 4(c) below (the "Monthly Fee"). In
the event of a partial month during the Term, the Monthly Fee shall be
calculated ratably based on the number of days in such period.
(b) To the extent EBIDA (as defined below) is less than the Monthly Fee in
any month during the Term, the Monthly Fee for such month shall be reduced to an
amount equal to EBIDA. "EBIDA" shall mean the amount equal to (A) all revenues
arising from the operation of the Business during such month, less (B) any and
all expenses, including taxes, paid and accrued on account of the operation of
the Business in a manner consistent with past practices during such month
(including any such expenses which were prepaid prior to the Effective Date),
but excluding, (x) the expenses identified on Schedule 1 and all expenses and
liabilities arising from the operation of the Business prior to the Effective
Date and (y) expenses arising from operation of the Switch Operations. In this
regard, expenses of the Business attributable to operation of the Business prior
to the Effective Date and all other excluded expenses will be paid by Locate
from the cash generated by the Business solely to the extent that in the
aggregate such expenses are equal to or less than the aggregate cash and
accounts receivable of Locate as of the end of business on March 31, 1996.
Accounts receivable for purposes of this Agreement shall include any and all
accounts due or to become due with respect to any services provided by Locate
prior to the Effective Date. A true and correct schedule of all expenses
incurred by Locate in the operation of the Business in February 1996 has been
previously delivered to WinStar.
(c) In the event that in any month EBIDA shall exceed the Monthly Fee, the
Monthly Fee shall be increased to equal the lesser of (i) the amount of such
EBIDA and (ii) the amount of the Monthly Fee plus the cumulative amount by which
the Monthly Fee has previously been reduced pursuant to 4(b) above.
2
<PAGE>
(d) The Monthly Fee shall be paid on or before the 30th day after the close
of each month during which Services were performed, except to the extent that
there is insufficient cash generated from the Business for the payment of such
fee after the payment of expenses (as provided in (b) above), in which case the
fee shall be paid as and when such cash is received.
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. Working Capital Loans. In the event that EBIDA shall be
less than zero in any month during the Term, WinStar shall make a loan to Locate
in the amount of such deficit (a "Working Capital Loan"); provided, however,
that WinStar shall have no obligation to lend in excess of $1,000,000 in the
aggregate plus all Monthly Fees previously paid to WinStar hereunder. Each
Working Capital Loan shall be evidenced by a promissory note in a form
reasonably satisfactory to WinStar and bear interest at a simple rate of 8% per
annum. The principal and interest under all Working Capital Loans shall become
due and payable on the date which is 15 days following the termination of the
Purchase Agreement; provided, however, that the aggregate amount due under all
Working Capital Loans shall be reduced in the aggregate by the aggregate amount
received by WinStar as of such date pursuant to Section 4 above.
7. Indemnification.
(a) WinStar shall indemnify and hold Locate harmless from and against all
damages, expenses, costs, or losses suffered or incurred by Locate resulting
from or arising out of WinStar's grossly negligent or reckless performance or
nonperformance of its obligations hereunder.
(b) Locate shall indemnify and hold WinStar harmless from and against all
damages, expenses, costs, or losses suffered or incurred by WinStar in
connection with its performance of its obligations under this Agreement except
to the extent attributable to WinStar's negligent or reckless performance or
nonperformance of its obligations hereunder.
(c) Locate shall use its best efforts to cause MobileMedia Corporation to
add WinStar as an additional insured under MobileMedia Corporation's applicable
insurance policies with respect to WinStar's performance of its obligations
under this Agreement.
8. 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
3
<PAGE>
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 regulation.
Notwithstanding anything to the contrary in this Agreement, this provision shall
survive the termination or expiration of this Agreement.
9. Control by Locate.
(a) Notwithstanding anything in this Agreement to the contrary, Locate
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 Purchase Agreement). Locate 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. Locate may, in its discretion,
accept or reject, in whole or in part, any recommendation made by WinStar under
this Agreement. The parties acknowledge and agree that any such acceptance or
rejection shall not be deemed to give WinStar cause to terminate this Agreement
or the Purchase 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 Locate's licenses from Locate to WinStar or any affiliate of WinStar.
(c) Nothing in this Agreement is intended to diminish or restrict Locate'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 and/or the rules and regulations of any state or local jurisdiction. If
the FCC or any state regulatory body of competent jurisdiction 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.
10. Assignment. Neither party shall assign any rights or obligations under
this Agreement to any person other than a corporate parent or subsidiary of such
party without the prior written consent of the other party, except however,
Locate may transfer its
4
<PAGE>
rights and obligations under this Agreement to a limited liability company owned
by Locate and MobileMedia (or one or more of MobileMedia's affiliates) to which
it transfers all or substantially all of the assets of the Business. Any
attempted assignment in violation of this Section 10 shall be null and void.
This Agreement shall binding upon and inure to the benefit of the parties'
permitted successors and assigns; provided, however, that the assigning party
shall remain liable for the performance of this Agreement by the assignee.
11. Termination. This Agreement shall terminate upon the
earlier to occur of (i) the Closing (as defined in the Purchase Agreement) under
the Purchase Agreement or (ii) termination of the Purchase Agreement
("Termination"). Notwithstanding the foregoing, (i) in the event of a Closing,
Locate's obligations to pay any amount then due pursuant to Section 4 shall
survive, and (ii) in the event of a Termination, Locate's obligations to pay any
amount then due pursuant to Section 4 and the Working Capital Loans shall
survive. Notwithstanding the foregoing, Locate may terminate this Agreement at
any time by written notice to WinStar upon the occurrence of any of the
following events:
(a) the continued material failure by WinStar to perform any
of its obligations under this Agreement; provided, however, that WinStar shall
be given notice thereof by Locate and a ten day period thereafter to cure such
material failure;
(b) the insolvency of WinStar, appointment of a receiver of the property of
WinStar, or assignment for the benefit of the creditors of WinStar; or,
(c) 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.
12. 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
Locate. 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
Locate, except as authorized by Locate. 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 Locate,
even if such opportunity is of such a character which, if presented to Locate,
could be taken by Locate, 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. WinStar shall have the right, without
charge, during the Term, to utilize the facilities of Locate; provided, however,
that (a) in the event of a Termination, WinStar shall remove all of its
personnel and assets from Locate's facilities within twenty days of the
5
<PAGE>
Termination and (b) all WinStar assets on Locate's premises shall be separately
identified as assets of WinStar and shall not be commingled with those of
Locate.
13. No Services to Switch Operations. Nothing herein contained shall be
deemed to give WinStar any right or obligation to provide services to, receive
any revenues of, assume any liabilities of, or exercise any rights with respect
to, the conduct of the Switch Operations.
14. 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 Locate shall not be entitled to the services of any particular executive or
employee of WinStar in connection with this Agreement.
15. Notices. Any notices hereunder shall be deemed
sufficiently given by one party to another only if in writing and if any when
delivered or tendered either in person or as of five business days after deposit
in the United States mail in a sealed envelope registered or certified, with
postage prepaid, addressed as follows:
Local Area Telecommunications, Inc.
17 Battery Place, Suite 1200
New York, New York 10004-1256
Attention: President
with a copy to: MobileMedia Corporation
65 Challenger Road
Ridgefield Park, New Jersey, 07660
Attention: General Counsel
6
<PAGE>
If to WinStar: WinStar Communications, Inc.
230 Park Avenue, Suite 3126
New York, New York 10169
Attention: Timothy R. Graham
Facsimile: (212) 867-1565
with a copy (which shall not constitute notice) to:
David A. Miller
Graubard Mollen & Miller
600 Third Avenue
New York, New York 10016-2097
Facsimile: (212) 682-2320
or to such other address as the party addressed shall have previously designated
by written notice to the serving party, given in accordance with this section;
provided, that a notice not given as above shall, if it is in writing, be deemed
given if and when actually received by the party to whom it is required or
permitted to be given.
16. Persons Bound. This Agreement and all terms and provisions contained
herein shall bind and inure to the benefit of the parties hereto, and their
respective successors, assigns and legal representatives.
17. Entire Agreement. This Agreement contains the entire agreement among
the parties relating to the transactions contemplated hereby. All prior or
contemporaneous agreements, understandings, representations and statements
regarding such transactions, oral or written, are merged herein.
18. Choice of Law. This Agreement is made pursuant to, and shall be
governed by and construed in accordance with the laws applicable to contracts
made and to be performed entirely within the State of New York.
19. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, and all such
counterparts taken together shall be deemed to constitute one and the same
instrument.
20. Severability. If any provision of this Agreement or the
application thereof to any particular circumstance, shall to any extent be
invalid or unenforceable, the remainder of this Agreement, or the application of
such provision to persons or circumstances other than those as to which it is
invalid or unenforceable, shall not be affected thereby, and each provision of
this Agreement shall be valid and enforceable to the fullest extent permitted by
law.
7
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this
Agreement as of the date first mentioned above.
LOCAL AREA TELECOMMUNICATIONS, INC.
By:____________________________
R. Craig Roos
Chief Executive Officer
WINSTAR WIRELESS, INC.
By:___________________________
Timothy R. Graham
Vice President
8
<PAGE>
Schedule 1
Excluded Expenses
1. Promissory Note (10% Senior Note Due September 15, 1996) dated as of
October 7, 1993 in the original principal amount of $10,000,000 issued by
Locate. Current principal amount outstanding: $2,500,000
2. Promissory Note (10% Senior Note due January 1, 1996) dated as of
December 29, 1994 in the original principal amount of $3,750,000 issued by
Locate to the Wilmington Trust Company and G. Jeffrey Mennen as Co- Trustees
under Agreement dated 11/25/70 with George S. Mennen for John Henry Mennen, as
amended by Amendment No. 1 to Promissory Note dated April 28, 1995 extending due
date to March 31, 1996. Current principal amount outstanding: $3,750,000
3. Promissory Note (10% Senior Note due January 1, 1996) dated as of
December 29, 1994 in the original principal amount of $3,750,000 issued by the
Company to the Wilmington Trust Company and G. Jeffrey Mennen as Co-Trustees
under Agreement dated 11/25/70 with George S. Mennen for Christina M. Andrea, as
amended by Amendment No. 1 to Promissory Note dated April 28, 1995 extending due
date to March 31, 1996. Current principal amount outstanding: $3,750,000
4. Promissory Note (12% Super Senior Note due 30, 1995) dated as of
February 10, 1995 in the original principal amount of $3,000,000 issued by the
Company to Hellman & Friedman Capital Partners II, L.P., a California limited
partnership ("HFCP II"), as amended by Amendment No. 1 to Promissory Note dated
April 28, 1995 extending due date to January 1, 1996. Current principal amount
outstanding: $3,000,000
5. Promissory Note (12% Super Senior Note due January 1, 1996) dated as of
May 8, 1995 in the original principal amount of $1,000,000 issued by the Company
to HFCP II. Current principal amount outstanding: $1,000,000
6. Promissory Note (12% Super Senior Note due January 1, 1996) dated as of
June 6, 1995 in the original principal amount of $500,000 issued by the Company
to HFCP II. Current principal amount outstanding: $500,000 7. Promissory Note
(12% Super Senior Note due January 1, 1996) dated as of July 25, 1995 in the
original principal amount of $500,000 issued by the Company to HFCP II.
Current principal amount outstanding: $500,000
8. Promissory Note (12% Super Senior Note due January 1, 1996) dated as of
August 18, 1995 in the original principal amount of $300,000 issued by the
Company to HFCP II. Current principal amount outstanding: $300,000
9
<PAGE>
9. Promissory Note (12% Super Senior Note due January 1, 1996) dated as of
October 10, 1995 in the original principal amount of $700,000 issued by the
Company to HFCP II. Current principal amount outstanding: $700,000
10. Promissory Note (12% Super Senior Note due January 1, 1996) dated as of
November 1, 1995 in the original principal amount of $1,300,000 issued by the
Company to HFCP II. Current principal amount outstanding: $1,300,000.
11. Promissory Note (12% Subordinated Note due December 31, 1992) dated
September 3, 1991 in the original principal amount of $25,000 issued by the
Company to Jerry McAndrews. Current principal amount outstanding: $25,000.
12. Employment agreement dated December 31, 1992 between Locate and Kenneth
M. Curtin.
13. Employment agreement dated December 31, 1992 between Locate and Craig
Roos.
14. Depreciation of property, plant and equipment.
15. Amortization of intangible assets.
16. Legal fees incurred in connection with the contemplated sale
of the Business to WinStar and accounting fees to the extent
attributable to the audit for the year ended December 30,
1995.
17. Interest on the Promissory Notes listed in items 1 - 11 above.
10
<PAGE>
Exhibit 21.1
Subsidiaries if WinStar Communications, Inc.
(a Delaware corporation, incorporated in September 1990)
Wholly Owned Subsidiaires
WinStar Wireless, Inc.
(Delaware, February 1994)
WinStar Wireless Fiber Corp. ("WWFC") Subsidiaries of WWFC
(Delaware, March 1995)
WinStar Locate, Inc.
(Delaware, April 1996)
WinStar Gateway Network, Inc.
(Delaware, May 1992) Local subsidiaries of
WWFC (each a
Delaware corporation)
WinStar Telecommunications, Inc.
(Delaware, February 1996)
WinStar New Media Company, Inc. ("WNM") Subsidiaries of WNM
(Delaware, March 1994)
WinStar Broadcasting
Corp. (Delaware,
Non Fiction Films, Inc. ("NFF") March 1996)
(Delaware, July 1994)
The Winning Line, Inc.
("TWL") (Washington,
October 1992: WNM
has a 65% equity
interest in TWL)
Subsidiaries of NFF
WinStar Global Products, Inc. ("WGP") GFL Communications,
(Delaware, February 1987) Inc. (New York,
February 1990: NFF
has an 80% equity
interestin GFL, which is
the sole stockholder of
Fox/Lorber Associates,
Inc. (New York, May
1981))
Subsidiaries of WGP
Inne Dispensables Inc.
(New York, April 1993)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Allowance for doubtful accounts:
WinStar Global Products $115,375
WinStar New Media 0
Non Fiction Films 0
WinStar Gateway 763,051
WinStar Wireless 5,607
---------
TOTAL $884,033
=========
Accumulated Depreciation:
WinStar Global Products $498,216
WinStar New Media 2,598
Non Fiction Films 3,213
WinStar Gateway 921,302
WinStar Wireless 374,457
---------
TOTAL $1,799,786
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 203,503,251
<SECURITIES> 6,158,250
<RECEIVABLES> 9,746,373
<ALLOWANCES> 864,033
<INVENTORY> 7,695,211
<CURRENT-ASSETS> 230,497,185
<PP&E> 18,089,226
<DEPRECIATION> 1,799,786
<TOTAL-ASSETS> 280,472,791
<CURRENT-LIABILITIES> 21,483,422
<BONDS> 248,037,159
<COMMON> 297,404
0
685,900
<OTHER-SE> 9,965,906
<TOTAL-LIABILITY-AND-EQUITY> 280,472,791
<SALES> 0
<TOTAL-REVENUES> 14,509,042
<CGS> 0
<TOTAL-COSTS> 8,573,271
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 360,758
<INTEREST-EXPENSE> 5,757,891
<INCOME-PRETAX> (10,698,810)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,698,810)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,698,810)
<EPS-PRIMARY> (0.39)
<EPS-DILUTED> (0.39)
<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) Interest-expense is net of interest income
(7) Income taxes reported on income statement are based on capital, therefore
excluded from this line item
</FN>
</TABLE>
