SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
AMENDMENT NO. 1 TO FORM 10-K
ON
FORM 10-K/A
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1997
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
Commission file number 1-10726
----------------------------------
WINSTAR COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3585278
(State of Incorporation) (I.R.S. Employer Identification No.
230 Park Avenue
New York, New York 10169
(212) 584-4000
(Address, including zip code, and telephone number, including
area code, of registrant's executive offices)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
Rights to Purchase Series B Preferred Stock
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 |_|
Check if disclosure of delinquent filers in response to item 405 of
Regulation S-K is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. |X|
Issuer's revenues for its most recent fiscal year: $79,631,000
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days: As of March 27, 1998, the aggregate market value of such stock was $1,599
million.
State the number of shares outstanding of each of the issuer's class of
common equity, as of the latest practicable date: As of March 27, 1998, the
number of shares of Common Stock outstanding was 37,217,000.
<PAGE>
Item 10. Directors and Executive Officers of the Registrant
The directors and executive officers of the Company are:
William J. Rouhana, Jr., 45, has been a director of the Company since its
inception, its Chairman of the Board since February 1991, and its Chief
Executive Officer since May 1994. Mr. Rouhana was President and Chief Executive
Officer of WinStar Companies, Inc., a merchant banking firm which focused on
media and telecommunications investments ("WinStar Companies"), and its
affiliates from 1983 until November 1995. Through WinStar Companies, he served,
from August 1987 to February 1989, as Vice Chairman of the Board and Chief
Operating Officer of Management Company Entertainment Group, Inc., a diversified
distributor of entertainment products and, thereafter, as its Vice Chairman of
the Board until May 1990. Mr. Rouhana was in private legal practice from 1977 to
1984, specializing in the financing of entities involved in the development of
entertainment products and information services. Mr. Rouhana was Vice Chairman
of the Board of Governors of the United Nations Association through 1997 and is
a member of the Board of Directors of Business Executives for National Security.
He is a Phi Beta Kappa graduate of Colby College, a Thomas J. Watson Fellow
(1972-1973) and a graduate of Georgetown University School of Law.
Nathan Kantor, 55, has been a director of the Company since October 1994
and President and Chief Operating Officer of the Company since September 1995.
Since its formation in November 1990, Mr. Kantor had been the President of ITC
Group, Inc. ("ITC"), a company which specializes in the development of emerging
competitive telecommunications companies. Mr. Kantor, through ITC, coordinated
all of the Company's telecommunications operations from June 1994 to September
1995 when he became President and Chief Operating Officer of the Company, at
which time services provided by ITC to the Company ceased. Mr. Kantor also is
currently the Chairman of the Board and Chief Executive Officer of Image
Telecommunications Corp., a company involved in the development of information
and video servers. From January 1985 to December 1990, he was President of MCI
Telecommunications Corporation (Northeast Division). Mr. Kantor was a founder of
MCI International, Inc., and served as its President and Chief Operating Officer
from its founding in July 1982 to December 1984. From 1972 to 1982, Mr. Kantor
held a number of senior management positions with MCI Communications, including
Vice President of National Operations. Mr. Kantor is a graduate of Florida State
University and the United States Military Academy at West Point.
Steven G. Chrust, 48, has been a director of the Company since January 1994
and has been employed by the Company as its Vice Chairman of the Board since
January 1995, in which capacity he is responsible for strategic planning,
financing and corporate development. Mr. Chrust is also currently Chairman of
ALTS, the trade organization of alternative local exchange carriers. He has been
the President of SGC Advisory Services, Inc., a discretionary money-management
services firm specializing in the telecommunications and technology sector,
since he founded it in October 1992. From August 1987 to September 1992, Mr.
Chrust was a director of AMNEX, Inc., an operator services long distance
company, and served as its Chairman of the Board, Chief Executive Officer and
President between October 1990 and October 1992. From August 1985 through
December 1989, Mr. Chrust was the Executive Vice President of Executone
Information Systems, Inc., a telecommunications equipment company. Mr. Chrust
was Director of Technology Research and a stockholder of Sanford C. Bernstein &
Co., Inc., a Wall Street investment firm, where he was ranked in the top tier of
telecommunications analysts for more than ten years and as the first-ranked
analyst in that sector for five consecutive years. He was associated with
Sanford C. Bernstein & Co., Inc., from 1970 through 1985. From November 1993
until February 1996, Mr. Chrust was a director of American Communications
Services, Inc., a fiber optic-based competitive access provider. Mr. Chrust is a
graduate of Baruch College.
James I. Cash, 50, has been a director of the Company since January 1997.
Professor Cash has been a member of the faculty of Harvard Business School since
1976, having taught in its Masters of Business Administration, Management
Development and Advanced Management programs. Professor Cash currently serves as
a trustee for Massachusetts General Hospital and the Massachusetts Computer
Software Council, overseer for The Gardner Museum and the Boston Museum of
Science, and is a member of the Board of Directors of Cambridge Technology
Partners, The Chubb Corporation, General Electric Company, Knight-Ridder, Inc.,
State Street Bank and Trust Company and Tandy Corporation. Professor Cash has
2
<PAGE>
authored numerous articles and several books on topics related to information
technology and corporate management and structure and writes a regular column
for Information Week magazine. Professor Cash is a graduate of Texas Christian
University, Purdue University's Graduate School of Mathematical Sciences and
Purdue University's Krannert Graduate School of Management.
Bert Wasserman, 65, has been a director of the Company since June 1995. Mr.
Wasserman was Executive Vice President and Chief Financial Officer of Time
Warner, Inc. ("Time Warner") from January 1990 to December 1994 and was also a
director of Time Warner from January 1990 to March 1993. Mr. Wasserman was a
member of the Office of the President and was also a director of Warner
Communications, Inc. ("Warner Communications"), from 1981 to 1990, when that
company merged with Time Warner, and had served Warner Communications in various
capacities beginning in 1966. Mr. Wasserman serves as a member of various
boards, including: several investment companies in the Dreyfus Family of Funds;
Lillian Vernon Corp., a catalog seller of home products; Mountasia Entertainment
International, Inc., an operator of family recreation centers; The New German
Fund, a New York Stock Exchange listed mutual fund operated by Deutsche Bank AG;
and IDT Corp., a provider of telecommunications services, including Internet
access and long distance services. Mr. Wasserman also served as a director on
the Chemical Bank National Advisory Board until Chemical Bank merged with Chase
Manhattan Bank in March 1996. He is a graduate of Baruch College and Brooklyn
Law School.
Steven B. Magyar, 49, has been a director of the Company since June 1993.
Since May 1994, Mr. Magyar has been operating a private business he owns which
specializes in financial services for high net worth individuals and business
owners. From 1989 to May 1994, Mr. Magyar was a regional vice president of CIGNA
Insurance Co. and during the preceding fifteen years held various sales and
sales management positions with CIGNA. Mr. Magyar has served on CIGNA's
strategic business development committee and has been a guest lecturer at New
York University. Mr. Magyar also is a Certified Life Underwriter and Chartered
Financial Consultant with the American College of Insurance. Mr. Magyar is a
member of the General Agents and Managers Association, the National Association
of Underwriters and the American Society of CLU and ChFC. Mr. Magyar is a
graduate of Colby College.
William J. vanden Heuvel, 67, has been a director of the Company since June
1995. Since 1984, he has served as Senior Advisor to Allen & Co., an investment
banking firm, as well as counsel to the law firm Stroock & Stroock & Lavan. He
served as a director of Time Warner from 1981 to 1993 and currently is a
director of Zemex Corp., a New York Stock Exchange listed company engaged in the
mining and exploitation of industrial minerals. Ambassador vanden Heuvel also
has been a member of the IRC Group, a Washington D.C.-based consulting group
made up of former United States ambassadors, since 1981. He has been Chairman of
the Board of Governors of the United Nations Association since 1993. From 1979
to 1981, Ambassador vanden Heuvel served as United States Deputy Permanent
Representative to the United Nations. From 1977 to 1979, he served as United
States Ambassador to the European Office of the United Nations and various other
international organizations. He was Special Assistant to United States Attorney
General Robert F. Kennedy from 1961 to 1964. Ambassador vanden Heuvel is a
graduate of Deep Springs College, Cornell University and Cornell Law School.
Timothy R. Graham, 48, has served as Executive Vice President of the
Company since October 1994. From October 1990 through September 1994, Mr. Graham
was engaged in the private practice of law and served in various capacities with
National Capital Management Corporation, a company engaged through its
subsidiaries in various businesses, including the ownership of real estate
rental properties, industrial manufacturing and insurance matters, including as
Corporate Secretary and as President of its primary real estate and insurance
subsidiaries. During that period, Mr. Graham also acted in various capacities
for WinStar Services, Inc., a wholly owned subsidiary of WinStar Companies.
Prior to 1990, Mr. Graham was a partner in the law firm of Nixon, Hargrave,
Devans & Doyle, specializing in corporate finance, regulatory and business law.
Mr. Graham was a Securities Law Editor of Barrister magazine, an American Bar
Association publication, from 1985 to 1986 and has authored a number of
publications, including "Public Offerings in the United States by Foreign
Companies" and "Financing of Foreign Companies through United States Securities
Markets." Mr. Graham also is a member of the Board of Advisors of the
Instructional Television Station of the Archdiocese of New York. Mr. Graham is a
graduate of Fordham Law School and the Georgetown University School of Foreign
Service.
3
<PAGE>
Charles T. Dickson, 43, has served as Executive Vice President and Chief
Financial Officer of the Company since December 1997. For the preceding four
years, Mr. Dickson served as Chief Financial Officer of General Instrument
Corporation. From 1984 to 1993, Mr. Dickson held numerous positions at MCI
Communications Corp., including Vice President, Finance and Administration, for
the National Accounts Division. From 1979 to 1984, Mr. Dickson was a consultant
with ICF, Inc. providing financial analysis to clients in the energy and
telecommunications industries. Mr. Dickson is a Phi Beta Kappa graduate of Clark
University and received a masters degree in public policy from the University of
California at Berkeley.
The Company pays each outside director $500 for his attendance at each
meeting of a committee of which he is a member and $1,000 for his attendance at
each meeting of the Board. In addition, on January 13th of each year during the
term of the Company's 1992 Performance Equity Plan (the "1992 Equity Plan"),
assuming there are enough shares then available for grant under the 1992 Equity
Plan, each person who is then a director of the Company is awarded stock options
to purchase 10,000 shares of the Company's Common Stock at the fair market value
thereof (as determined in the accordance with the 1992 Equity Plan), all of
which options are immediately exercisable as of the date of grant and have a
term of ten years.
Item 11. Executive Compensation
The following table shows the compensation for the years ended December 31,
1997 and 1996 and the ten month period ended December 31, 1995, earned by (i)
William J. Rouhana, Jr., the Chairman and Chief Executive Officer of the
Company, (ii) Steven G. Chrust, Nathan Kantor and Timothy R. Graham, the next
most highly compensated executive officers of the Company whose individual
compensation exceeded $100,000 during the year ended December 31, 1997, (iii)
Fredric E. von Stange, the Company's former Executive Vice President and Chief
Financial Officer, whose individual compensation exceeded $100,000 during the
year ended December 31, 1997, and (iv) Charles T. Dickson, the Company's current
Executive Vice President and Chief Financial Officer whose employment with the
Company commenced in December 1997.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual
Compensation Long Term Compensation
-------------------------------------------------------------
Restricted
Salary Bonus Stock Options
Name and principal position Fiscal Year(1) ($) ($)(2) Awards($) (# Shares)
- ------------------------------------- -------------- ------ -------- --------- ----------------
<S> <C> <C> <C> <C> <C>
William J. Rouhana, Jr. 12/31/97 483,658 500,000 -- 10,000(3)(4)
Chairman of the Board and 12/31/96 410,076 400,000 -- 135,000(2)(4)
Chief Executive Officer 12/31/95 266,250 575,000 -- 460,000(4)(5)
Steven G. Chrust 12/31/97 336,924 225,000 -- 10,000(4)
Vice Chairman of the Board 12/31/96 317,809 225,000 -- 45,000(2)(4)
12/31/95 275,652 225,000 -- 10,000(4)
Nathan Kantor 12/31/97 448,085 450,000 -- 10,000(4)
President and Chief Operating Officer 12/31/96 370,769 300,000 -- 60,000(2)(4)
12/31/95 99,692(6) 342,500(6) 1,237,500 710,000(4)(7)
Timothy R. Graham 12/31/97 225,000 225,000 -- 0
Executive Vice President 12/31/96 217,788 125,000 -- 25,000(2)
12/31/95 158,654 75,000 -- 50,000(5)
Charles T. Dickson (8) 12/31/97 11,923 30,000 -- 250,000(8)
Executive Vice President and 12/31/96 -- -- -- --
Chief Financial Officer 12/31/95 -- -- -- --
Fredric E. von Stange(9) 12/31/97 313,462 132,000 -- 31,875(5)
12/31/96 260,711 150,000 -- 35,000(2)(5)
12/31/95 187,692 200,000 -- 235,000(3)(5)
--------------- ------------- -------------- --------------- -------------------
</TABLE>
4
<PAGE>
- ------------------------------
(1) Represents ten-month period with respect to information for the period
ended December 31, 1995.
(2) Represents bonuses paid or stock options granted as compensation for the
year indicated, the payment or grant of which was made in the subsequent
calendar year.
(3) Does not include options granted to Mr. Rouhana in 1998 in connection with
the renewal of his employment agreement. See "Employment Arrangements."
(4) Includes or represents options to purchase 10,000 shares of Common Stock
granted annually to directors of the Company under the 1992 Equity Plan.
(5) Represents options to purchase shares of Common Stock granted pursuant to
the terms of the holder's employment agreement in effect for such year. See
"Employment Arrangements."
(6) Mr. Kantor became an employee of the Company in September 1995.
Accordingly, he was paid only a portion of his annual salary during the ten
months ended December 31, 1995. See "Employment Arrangements." In addition,
for the ten months ended December 31, 1995, the Company paid $1,046,084 to
ITC Group, Inc., a consulting firm of which Mr. Kantor was the President
and principal stockholder, for services rendered during that period,
including providing the Company the services of up to 12 consultants at any
given time.
(7) Represents options granted under the terms of Mr. Kantor's employment
agreement. See "Employment Arrangements."
(8) Mr. Dickson's employment with the Company commenced on December 1, 1997. On
that date, he was granted options to purchase 250,000 shares of the
Company's Common Stock at an exercise price of $17 per share. These options
vest in five equal annual installments commencing December 1, 1998 and have
a term extending five years from the date of vesting.
(9) Mr. von Stange resigned as Executive Vice President, Chief Financial
Officer and director of the Company effective November 14, 1997.
The Company cannot determine, without unreasonable effort or expense, the
specific amount of certain personal benefits afforded to its employees, or the
extent to which benefits are personal rather than business. The Company has
concluded that the aggregate amounts of such personal benefits which cannot be
specifically or precisely ascertained do not in any event exceed, as to each
individual named in the preceding table, the lesser of $50,000 or 10% of the
compensation reported in the preceding table for such individual, and that such
information set forth in the preceding table is not rendered materially
misleading by virtue of the omission of the value of such personal benefits.
5
<PAGE>
OPTION GRANTS IN 1997
The following table sets forth certain information concerning individual
grants of stock options during 1997 to each of the named executive officers:
<TABLE>
<CAPTION>
Potential Realizable
Value At Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term
- ----------------------------------------------------------------------------------------------- -------------------------
Number of
Securities Percent of Total
Underlying Options Granted Exercise or
Options to Employees in Base Price Expiration 5% 10%
Name Granted (#) Fiscal Year (%) ($) Date ($) ($)
- ----------------------------- ------------ ---------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
William J. Rouhana, Jr. 10,000 0.26 16.75 1/12/07 105,339 266,951
Chairman of the Board and 125,000 3.22 12.00 (1) 510,143 1,157,341
Chief Executive Officer ------- ---- ------- ---------
135,000 3.48 615,482 1,424,292
======= ==== ======= =========
Steven G. Chrust 10,000 0.25 16.75 1/12/07 105,339 266,951
Vice Chairman of the Board 35,000 0.90 12.00 (1) 142,845 324,055
------ ---- ------- -------
45,000 1.15 278,184 591,006
====== ==== ======= =======
Nathan Kantor
President and Chief 10,000 0.26 16.75 1/12/07 105,339 266,951
Operating Officer 50,000 1.29 12.00 (1) 204,057 462,936
------ ---- ------- -------
60,000 1.55 309,396 729,887
====== ==== ======= =======
Timothy R. Graham
Executive Vice President 25,000 0.64 12.00 (1) 102,028 231,468
Charles T. Dickson
Executive Vice President and 250,000 6.44 17.00 (2) 2,247,819 5,099,535
Chief Financial Officer
Fredric E. von Stange(3) 10,000 0.26 16.75 1/12/07 105,339 266,951
25,000 0.64 12.00 (1) 102,028 231,468
21,875 0.56 20.94 (4) 288,038 729,946
------ ---- ------- -------
56,875 1.46 495,405 1,228,365
==== ======= =========
- ------------------------------ -------------- ------------------ -------------- -------------- ------------ ------------
</TABLE>
- ------------------
(1) These options vest in five equal annual installments commencing March 14,
1997 and have a term extending five years from the date of vesting.
(2) Reflects stock options granted to Mr. Dickson in connection with the
commencement of his employment with the Company on December 1, 1997. These
options vest in five equal annual installments commencing December 1, 1998
and have a term extending five years from the date of vesting.
(3) Mr. von Stange resigned as Executive Vice President, Chief Financial
Officer and director of the Company effective November 14, 1997.
(4) These options vest in five equal annual installments commencing October 6,
1998 and have a term extending five years from the date of vesting.
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<PAGE>
AGGREGATED OPTION EXERCISES IN 1997 AND
FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information concerning exercises of
stock options during 1997 by each of the named executive officers and the fiscal
year-end value of unexercised options held by such persons.
<TABLE>
<CAPTION>
Shares Value Number of Securities Value of Unexercised
Acquired Realized ($'s Underlying Unexercised In-The-Money Options at
On in thousands) Options At Fiscal Year-End Fiscal Year-End (1)
Exercise (#) ($'s in thousands)
Name (#)
- --------------------------- ---------- --------------- ----------------------------- ------------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William J. Rouhana, Jr.
Chairman of the Board and -- -- 626,666 183,334 9,594 4,597
Chief Executive Officer
Steven G. Chrust (2)
Vice Chairman of the Board 60,000 489 531,667 308,333 8,432 4,732
Nathan Kantor
President and Chief -- -- 918,699 199,999 14,007 2,858
Operating Officer
Timothy R. Graham
Executive Vice President 50,000 428 215,000 20,000 4,011 259
Charles T. Dickson
Executive Vice President -- -- 0 250,000 0 1,984
and Chief Financial Officer
Fredric E. von Stange (3) -- -- 345,209 36,666 5,674 366
-------------- --------------- ------------- --------------- -------------- ----------------
</TABLE>
- ------------------------
(1) Represents the difference between the aggregate market value at December
31, 1997 of the Common Stock underlying the options, based on a last sales
price of $24.94 on that date, and the options' aggregate exercise price.
(2) Includes options exercised and options owned by Mr. Chrust and SGC.
(3) Mr. von Stange resigned as Executive Vice President, Chief Financial
Officer and director of the Company effective November 14, 1997.
Employment Arrangements
William J. Rouhana, Jr. had served as Chairman of the Board and Chief
Executive Officer of the Company from May 1994 to February 1995 through WinStar
Services, an entity which had a management agreement with the Company. The
management agreement was terminated on February 28, 1995 and Mr. Rouhana entered
into a three-year employment agreement with the Company to serve as its Chairman
of the Board and Chief Executive Officer effective March 1, 1995. On January 6,
1998, Mr. Rouhana and the Company entered into a new three year employment
agreement, effective March 1, 1998, pursuant to which Mr. Rouhana will continue
to serve as the Company's Chairman of the Board and Chief Executive Officer. The
employment agreement provides for a minimum annual base salary of $537,500, with
annual increases as agreed upon by the Company and Mr. Rouhana. The employment
agreement also provides that Mr. Rouhana is eligible for an annual cash bonus,
payable at the discretion of the Compensation Committee, not to exceed 150% of
his base salary then in effect. At the time of execution of this employment
agreement, Mr. Rouhana was granted: (i) immediately exercisable options to
purchase 300,000 shares of Common Stock for $26 per share, the closing sale
price of the Common Stock on the day immediately preceding the agreement date;
(ii) options to purchase 300,000 shares of Common Stock which vest on January 6,
1999, of which 100,000 are exercisable at a price of $26 per share and 200,000
7
<PAGE>
are exercisable at a price of $39 per share; and (iii) options to purchase
300,000 shares of Common Stock which vest on January 6, 2000, of which 100,000
are exercisable at a price of $26 per share and 200,000 are exercisable at a
price of $52 per share.
Nathan Kantor became President and Chief Operating Officer of the Company
in September 1995, when he entered into a three-year employment agreement with
the Company. The employment agreement provides for a minimum annual base salary
of $320,000 during the first year, $336,000 during the second year and $352,800
during the third year. The employment agreement allows Mr. Kantor to devote up
to 25% of his business time to serve as Chairman of the Board and Chief
Executive Officer of Image Telecom, a company involved in the development of
information and video servers. In connection with his employment agreement, Mr.
Kantor was also granted immediately exercisable options to purchase 350,000
shares of Common Stock for $8.25 per share and additional options to purchase
350,000 shares of Common Stock for $8.25 per share, vesting in three equal
annual installments commencing in September 1996. The Company also issued
150,000 restricted shares of Common Stock to Mr. Kantor. In May 1996, the
Company agreed to accelerate the vesting of such restricted shares and Mr.
Kantor utilized such shares to pay the option exercise price of options to
purchase 233,302 shares of Common Stock. Pursuant to the re-load feature of the
option agreement governing such options, Mr. Kantor was granted options to
purchase an additional 150,000 shares of Common Stock at an exercise price equal
to the market price of the Common Stock on such date.
Steven G. Chrust became the Vice Chairman of the Board in January 1995,
when he entered into a five-year employment agreement with the Company. The
employment agreement, as amended, provides for an annual salary of $325,000
during the first year, $300,000 during the second and third years and $305,000
during the fourth and fifth years. In connection with his employment agreement,
the Company granted Mr. Chrust options to purchase 600,000 shares of Common
Stock for $8.00 per share, vesting in five equal annual installments commencing
in January 1996.
In April 1998, the Company entered into Executive Severance Agreements
(each a "Severance Agreement") with each of the named executive officers and
certain other senior officers of the Company and its subsidiaries. The Severance
Agreement generally provides that, if during the two years following a Change of
Control or potential Change of Control of the Company (each as defined in the
Severance Agreement), either (A) the covered executive's employment is
terminated by the Company (other than due to the executive's death or Disability
or for Cause, as defined in the Severance Agreement) or (B) the covered
executive terminates his or her employment with the Company for Good Reason (as
defined in the Severance Agreement), then such executive will be entitled to
receive certain severance benefits, including a cash severance payment equal to
one and one-half times the aggregate of (i) such executive's annual base salary
then in effect plus (ii) such executive's average full-year bonus over the prior
two years. Additional benefits to which a covered executive would be entitled
include continued medical and other insurance benefits for one and one-half
years following termination and career outplacement services. As defined in the
Severance Agreement, "Change of Control of the Company" generally means that a
third party has acquired 35% or more of the Company's voting stock (whether
through a stock purchase, exchange, tender offer or merger) or substantially all
of the Company's assets. A "potential Change of Control of the Company" would
occur if: (w) an agreement is entered into, the consummation of which would
result in a Change of Control of the Company; (x) a third party makes a public
announcement of an intention to take action that, if consummated, would result
in a Change of Control of the Company; (y) the Company's Stockholder Rights Plan
is triggered; or (z) the Board makes a good faith determination that a potential
Change of Control of the Company has occurred. The Severance Agreement has an
initial term of three years and renews automatically for successive one year
terms unless the Company notifies the covered executive within six months prior
to the end of the then current term that the Severance Agreement will terminate
at the end of such term.
Effective November 14,1997, Fredric E. von Stange resigned as Executive
Vice President, Chief Financial Officer and a director of the Company. In
connection therewith, he and the Company entered into a Separation from
Employment and Consulting Agreement, terminating his employment agreement then
in effect. In consideration for the benefits provided by this agreement, Mr. von
Stange waived his rights under such employment agreement, released the Company
from any claims he might have against it relating to his employment or the
termination thereof and agreed to certain non-competition and other restrictive
covenants. Mr. von Stange also agreed to provide consulting services to the
Company for a two year period. During such term the Company will pay Mr. von
Stange an annual fee equal to his salary at the termination date plus his
8
<PAGE>
bonus payment for 1996, payable in equal bi-weekly installments. Such payments
will be accelerated in the event of a change in control of the Company. All
unvested stock options held by Mr. von Stange at the effective date of the
agreement will continue to vest over the term of the agreement and those
remaining unvested on the agreement's expiration date will vest at that time. In
addition, Mr. von Stange will continue to receive certain insurance and other
benefits during the term of this agreement.
Compensation Committee Interlocks and Insider Participation
The Board's Compensation Committee is composed of Mr. Rouhana, the
Company's Chairman and Chief Executive Officer, Mr. Magyar, Mr. vanden Heuvel
and Professor Cash. No executive officer of the Company sits on the compensation
committee of another entity, one of whose executive officers serves as a
director of the Company or on the Company's Compensation Committee, nor does any
executive officer of the Company serve as a director of another entity, one of
whose executive officers serves on the Company's Compensation Committee.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The table and accompanying footnotes on the following pages set forth
certain information as of April 30, 1998 with respect to the common stock
ownership of (i) those persons or groups who beneficially own more than 5% of
the Company's Common Stock, (ii) each director of the Company, (iii) the
Company's Chief Executive Officer and each of the Company's next four most
highly compensated executive officers whose individual compensation exceeded
$100,000 in the year ended December 31, 1997 (the "named executive officers"),
and (iv) all directors and executive officers of the Company as a group (in each
case, based upon information furnished by such persons). Shares of Common Stock
issuable upon exercise of options which are currently exercisable or exercisable
within 60 days of the date of the record date for the Meeting have been included
in the following table.
<TABLE>
<CAPTION>
Number of Shares Percent
Name and Address of Beneficial Owner Beneficially Owned Beneficially Owned
- ------------------------------------ ------------------- ------------------
<S> <C> <C>
William J. Rouhana, Jr. (1) 1,923,840(2) 5.04
Nathan Kantor (1) 1,044,269(3) 2.74
Steven G. Chrust (1) 608,667(4) 1.61
Timothy R. Graham (1) 445,853(5) 1.19
Charles T. Dickson (1) 0(6) -
Steven B. Magyar
Two Pine Point
Lloyd Harbor, New York 11742 69,206(7) *
William J. vanden Heuvel
812 Park Avenue
New York, New York 10021 97,500(8) *
Bert Wasserman
126 East 56th Street
New York, New York 10022 100,000(9) *
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Percent
Name and Address of Beneficial Owner Beneficially Owned Beneficially Owned
- ------------------------------------------- -------------------- --------------------
<S> <C> <C>
James I. Cash
Harvard University
Graduate School of Business Administration
Baker Library 187, Soldiers Field Road
Boston, Massachusetts 02163 40,000(10) *
All Directors and Executive
Officers as a Group (9 persons) 4,329,335(11) 10.77
</TABLE>
- ----------------------------
* Less than 1%.
(1) The address of this person is c/o WinStar Communications, Inc., 230 Park
Avenue, New York, New York 10169.
(2) Includes 986,667 shares of Common Stock issuable upon exercise of certain
options. Does not include (i) 58,333 shares of Common Stock issuable upon
exercise of options which become exercisable in July 1998, (ii) 75,000
shares of Common Stock issuable upon exercise of options which become
exercisable in three equal annual installments commencing in April 1999 and
(iii) 600,000 shares of Common Stock issuable upon exercise of options
which become exercisable in two equal annual installments in March 1999 and
2000. Mr. Rouhana has agreed that, during the term of Nathan Kantor's
employment agreement with the Company, he would vote all shares of Common
Stock he controls in favor of Mr. Kantor as a director of the Company.
(3) Includes 948,697 shares of Common Stock issuable upon exercise of certain
options. Does not include (i) 116,667 shares of Common Stock issuable upon
exercise of other options which become exercisable in September 1998, (ii)
33,333 shares of Common Stock issuable upon exercise of options which
become exercisable in August 1998 or (iii) 30,000 shares of Common Stock
issuable upon exercise of options which become exercisable in three equal
annual installments commencing in April 1999.
(4) Includes (i) 12,000 shares of Common Stock owned by the pension plan for
SGC Advisory Services, Inc., a money management services firm specializing
in the telecommunications and technology sectors, of which Mr. Chrust is
President and owner ("SGC"), and (ii) 538,667 shares of Common Stock
issuable upon exercise of certain options owned by Mr. Chrust, SGC and
members of his family. Does not include (A) 247,000 shares of Common Stock
issuable upon exercise of other options which become exercisable in two
equal annual installments commencing in January 1999, (B) 33,333 shares of
Common Stock issuable upon exercise of other options which become
exercisable in July 1998 or (C) 21,000 shares of Common Stock issuable upon
exercise of options which become exercisable in three equal annual
installments commencing in April 1999.
(5) Includes 220,000 shares of Common Stock issuable upon exercise of certain
options. Does not include 15,000 shares of Common Stock issuable upon
exercise of options which become exercisable in three equal annual
installments commencing in April 1999.
(6) Does not include 250,000 shares of Common Stock issuable upon exercise of
options exercisable in five equal annual installments commencing in
December 1998.
(7) Includes (i) 1,000 shares of Common Stock owned by Mr. Magyar's spouse,
over which Mr. Magyar disclaims beneficial ownership, (ii) 1,670 shares of
Common Stock owned by benefit plans of which Mr. Magyar is the sole trustee
and primary beneficiary, and (iii) 50,000 shares of Common Stock issuable
upon exercise of certain options.
10
<PAGE>
(8) Includes 90,000 shares of Common Stock issuable upon exercise of certain
options. Also includes 500 shares owned by Mr. vanden Heuvel's spouse, as
to which he disclaims beneficial ownership.
(9) Includes 90,000 shares of Common Stock issuable upon exercise of certain
options.
(10) Represents 40,000 shares of Common Stock issuable upon exercise of certain
options. Does not include 20,000 shares of Common Stock issuable upon
exercise of options which become exercisable in January 1999.
(11) Includes shares referred to as being included in notes (2) through (10).
Excludes shares referred to in such notes as being excluded.
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers and
persons who beneficially own more than ten percent of the Company's Common Stock
to file with the Securities and Exchange Commission ("SEC") initial reports of
ownership and reports of changes in ownership of Common Stock. Executive
officers, directors and greater- than-ten percent stockholders are required by
SEC regulations to furnish the Company with copies of all such reports they
file. To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the year ended December 31, 1997, all filings
under Section 16(a) were made as required.
Item 13. Certain Relationships and Related Transactions
Not Applicable
11
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this Amendment to be signed on its behalf by the undersigned, thereunto
duly authorized, on the 29th day of April, 1998,
WINSTAR COMMUNICATIONS, INC.
/s/ Joseph P. Dwyer
By:__________________________________
Joseph P. Dwyer
Vice President - Finance
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