SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the registrant X
Filed by a party other than the registrant ____
Check the appropriate box:
____ Preliminary proxy statement ____ Confidential, For Use of
X Definitive proxy statement the Commission Only (as
____ Definitive additional materials permitted by Rule
____ Soliciting material pursuant to 14a-6(e)(2))
Rule 14a-12
WINSTAR COMMUNICATIONS, INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
X No fee required.
____ Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rules 14- a-6(I)(1) and 0-11 (set forth the
amount on which the filing fee is calculated and state how it was
determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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____ Fee paid previously with preliminary materials:
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____ Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing party:
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(4) Date filed:
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WINSTAR COMMUNICATIONS, INC.
685 Third Avenue
New York, New York 10017
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
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To be held on June 28, 2000
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The annual meeting of Stockholders of Winstar Communications, Inc. will be
held at the W New York hotel, 541 Lexington Avenue, New York, NY 10022, on
Wednesday, June 28, 2000, at 10:00 a.m. The matters to be considered and voted
upon at the meeting are set forth below and more fully described in the attached
proxy statement:
o The election of three class III directors, to serve for the ensuing
three-year period and until their respective successors are elected
and qualified;
o A proposal to amend our certificate of incorporation to increase the
number of shares of common stock for issuance by us from 200.0 million
to 400.0 million;
o A proposal to amend our certificate of incorporation to increase the
number of shares of preferred stock authorized for issuance by us in
series from 15.0 million to 30.0 million, with each series to have
such rights and preferences as are determined by our board of
directors;
o A proposal to adopt our 2000 Performance Equity Plan under which stock
options and other equity based awards will be granted to our
directors, officers, employees and consultants; and
o To transact such other business as may properly come before the
meeting and any and all adjournments thereof.
Our board of directors has fixed the close of business on May 12, 2000 as
the record date for the determination of stockholders entitled to notice of, and
to vote at, the meeting or any adjournment thereof.
You will have the opportunity to vote your Winstar shares via telephone or
the Internet. We encourage you to utilize these efficient and cost-effective
voting methods. If you hold your shares in your own name (i.e., you are a
registered stockholder), you should refer to the instructions set forth on the
enclosed proxy card. If your Winstar shares are held in the name of a bank or
broker (i.e., you are a beneficial owner, but not a record holder), you will
receive separate voting instructions from that bank or broker.
By Order of the Board of Directors,
Timothy R. Graham
Secretary
New York, New York
May 22, 2000
Whether or not you plan to attend the meeting, please complete, sign, date and
return the accompanying proxy in the enclosed envelope, or vote via the internet
or by telephone in accordance with instructions set forth on the proxy card.
<PAGE>
WINSTAR COMMUNICATIONS, INC.
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PROXY STATEMENT
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GENERAL INFORMATION
This proxy statement is furnished to our stockholders in connection with
the solicitation of proxies, in the accompanying form, by our board of directors
for use in voting at the annual meeting of stockholders, to be held at the W New
York hotel, 541 Lexington Avenue, New York, NY 10022, on Wednesday, June 28,
2000, at 10:00 a.m., and at any and all adjournments thereof.
On or about May 22, 2000, this proxy statement and the accompanying form of
proxy, together with a copy of Winstar's annual report to stockholders for the
year ended December 31, 1999, including financial statements, are being mailed
to each stockholder of record at the close of business on May 12, 2000.
Our principal executive offices are located at 685 Third Avenue, New York,
New York 10017.
What matters am I voting on?
You are being asked to vote on the following matters:
o The election of three class III directors, to serve for the ensuing
three-year period and until their respective successors are elected
and qualified;
o A proposal to amend our certificate of incorporation to increase the
number of shares of common stock authorized for issuance by us from
200.0 million to 400.0 million;
o A proposal to amend our certificate of incorporation to increase the
number of shares of preferred stock authorized for issuance by us in
series from 15.0 million to 30.0 million, with each series to have
such rights and preferences as are determined by our board of
directors;
o A proposal to adopt our 2000 Performance Equity Plan under which
options to purchase shares of our common stock will be granted to
our directors, officers, employees and consultants; and
o To transact such other business as may properly come before the
meeting and any and all adjournments thereof.
<PAGE>
Who is entitled to vote?
Persons who were holders of our common stock and Series A and Series G
preferred stock as of the close of business on May 12, 2000, the record date,
are entitled to vote at the meeting. As of May 12, 2000, we had issued and
outstanding 89,293,861 shares of common stock, 4,471,240 shares of Series A
preferred stock and 900,000 shares of Series G preferred stock, comprising all
of our issued and outstanding voting stock (collectively, the "Voting Stock").
Each holder of our common stock and Series A preferred stock is entitled to
one vote for each share held on the record date. Each holder of our Series G
preferred stock is entitled to a number of votes per share of Series G preferred
stock held on the record date equal to the number of shares of common stock into
which such share of Series G preferred stock may be converted on such date. As
of the record date, each outstanding share of Series G preferred stock was
convertible into 22.58 shares of common stock. Accordingly, the Series G
preferred stock has aggregate voting power equivalent to approximately
20,324,000 shares of common stock.
All share amounts and prices in this proxy statement reflect our 3-for-2
common stock split, which was effected by us in March 2000 in the form of a 50%
common stock dividend.
What is the effect of giving a proxy?
Proxies in the form enclosed are solicited by and on behalf of the board.
The persons named in the proxy have been designated as proxies by the board. If
you sign and return the proxy in accordance with the procedures set forth in
this proxy statement, the persons designated as proxies by the board will vote
your shares at the meeting as specified in your proxy.
If you sign and return your proxy in accordance with the procedures set
forth in this proxy statement but you do not provide any instructions as to how
your shares should be voted, your shares will be voted as follows:
o FOR the election of the nominees listed below under Proposal I;
o FOR the approval of the amendment to our certificate of incorporation
to increase our authorized common stock as described below under
Proposal II;
o FOR the approval of the amendment to our certificate of incorporation
to increase our authorized preferred stock as described below under
Proposal III;
o FOR the approval of our 2000 Performance Equity Plan as described
below under Proposal IV.
If you give your proxy, your shares also will be voted in the discretion of
the proxies named on the proxy card with respect to any other matters properly
brought before the meeting and any adjournments thereof. In the event that any
other matters are properly presented at the meeting for action, the persons
named in the proxy will vote the proxies in accordance with their best judgment.
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Can I change my vote after I return my proxy card?
Any proxy given pursuant to this solicitation may be revoked by you at any
time before it is exercised. You may effectively revoke your proxy by:
o delivering written notification of your revocation to the Secretary of
Winstar;
o voting in person at the meeting; or
o delivering another proxy bearing a later date.
Please note that your attendance at the meeting will not alone serve to
revoke your proxy.
What is a quorum?
The presence, in person or by proxy, of a majority of the votes entitled to
be cast at the meeting will constitute a quorum at the meeting. A proxy
submitted by a stockholder may indicate that all or a portion of the shares
represented by the proxy are not being voted ("stockholder withholding") with
respect to a particular matter. Similarly, a broker may not be permitted to vote
stock ("broker non-vote") held in street name on a particular matter in the
absence of instructions from the beneficial owner of the stock. The shares
subject to a proxy which are not being voted on a particular matter because of
either stockholder withholding or broker non-vote will not be considered shares
present and entitled to vote on that matter. These shares, however, may be
considered present and entitled to vote on other matters and will count for
purposes of determining the presence of a quorum if the shares are being voted
with respect to any matter at the meeting. If the proxy indicates that the
shares are not being voted on any matter at the meeting, the shares will not be
counted for purposes of determining the presence of a quorum. Abstentions are
voted neither "for" nor "against" a matter, but are counted in the determination
of a quorum.
What is a "broker non-vote"?
A "broker non-vote" occurs when a broker submits a proxy that states that
the broker does not vote for some of the proposals because the broker has not
received instructions from the beneficial owners on how to vote on such
proposals and does not have discretionary authority to vote in the absence of
instructions.
How do I vote?
You may vote your shares in one of three ways: by mail, by telephone or via
the Internet. The prompt return of the completed proxy card or telephone or
Internet vote will assist Winstar in preparing for the meeting.
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To vote by mail:
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Date, sign and return the accompanying proxy in the envelope enclosed for
that purpose (to which no postage need to be affixed if mailed in the United
States). You can specify your choices by marking the appropriate boxes on the
proxy card. If you attend the meeting, you may deliver your completed proxy card
in person or fill out and return a ballot that will be supplied to you.
To vote by telephone or Internet:
--------------------------------
You will have the opportunity to vote your Winstar shares via telephone or
the Internet. We encourage you to utilize these efficient and cost-effective
voting methods. If you hold your shares in your own name (i.e., you are a
registered stockholder), you should refer to the instructions set forth on the
enclosed proxy card. If your Winstar shares are held in the name of a bank or
broker (i.e., you are a beneficial owner, but not a record holder), you will
receive separate voting instructions from that bank or broker.
How many votes are needed for approval of each matter?
o The election of directors requires a plurality vote of the Voting
Stock voted at the meeting. "Plurality" means that the individuals who
receive the largest number of votes cast "FOR" are elected as
directors. Consequently, any shares not voted "FOR" a particular
nominee (whether as a result of a direction of the securities holder
to withhold authority, abstentions or a broker non-vote) will not be
counted in such nominee's favor.
o The amendment to our certificate of incorporation to increase our
authorized common stock must be approved by the affirmative vote of a
majority of the outstanding shares of Voting Stock.
o The amendment to our certificate of incorporation to increase our
authorized preferred stock must be approved by the affirmative vote of
a majority of the outstanding shares of Voting Stock.
o The approval of the 2000 plan must be approved by the affirmative vote
of a majority of the votes cast at the meeting.
Abstentions from voting with respect to Proposals II, III and IV are
counted as "votes cast" with respect to such proposal and, therefore, have the
same effect as a vote against the proposal. Shares deemed present at the meeting
but not entitled to vote on Proposal II or III (because of either stockholder
withholding or broker non-vote) will have the same effect as a vote cast against
the approval of such proposal. Shares deemed present at the meeting but not
entitled to vote on Proposal IV (because of either stockholder withholding or
broker non-vote) are not deemed "votes cast" with respect to such proposal and
therefore will have no effect on such vote.
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Security Ownership of Certain Beneficial Owners and Management
The table and accompanying footnotes on the following pages set forth
certain information as of May 12, 2000 with respect to the ownership of our
common stock by: (i) those persons or groups who beneficially own more than 5%
of our common stock, (ii) each of our directors and named executive officers and
(iii) all of our directors, director-nominees and executive officers as a group
(in each case, based upon information furnished by such persons). Our
outstanding Series A and Series G preferred stock is convertible into and votes
as a single class with our common stock. Shares of common stock issuable upon
(A) exercise of options which are currently exercisable or exercisable within 60
days of the date of this proxy statement and (B) conversion of the Series A and
Series G preferred stock have been included in the following table with respect
to the beneficial ownership of the person owning such options or preferred
stock, but not with respect to any other persons listed below.
<TABLE>
Number of Shares Percent
Name and Address of Beneficial Owner Beneficially Owned Beneficially Owned (%)
- ------------------------------------ ------------------ ----------------------
<S> <C> <C>
William J. Rouhana, Jr. (1) 3,756,465 (2) 4.1
Nathan Kantor (1) 1,782,636 (3) 2.0
Timothy R. Graham (1) 585,378 (4) *
Richard J. Uhl (1) 111,000 (5) *
Steven B. Magyar 127,280 (6) *
Two Pine Point
Lloyd Harbor, New York 11742
William J. vanden Heuvel 111,000(7) *
812 Park Avenue
New York, New York 10021
Bert Wasserman 150,000(8) *
126 East 56th Street
New York, New York 10022
James I. Cash
Harvard University 45,000(9) *
Graduate School of Business Administration
Baker Library 187, Soldiers Field Road
Boston, Massachusetts 02163
Hartley R. Rogers 8,906,477(10) 9.1
c/o Credit Suisse First Boston
11 Madison Avenue
New York, NY 10010
Lawrence B. Sorrel 5,275,378(11) 5.6
c/o Welsh, Carson, Anderson & Stowe VIII, L.P.
320 Park Avenue, Suite 2500
New York, New York 10022
</TABLE>
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<TABLE>
Number of Shares Percent
Name and Address of Beneficial Owner Beneficially Owned Beneficially Owned (%)
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<S> <C> <C>
Janus Capital Corporation 8,743,298(12) 9.8
100 Fillmore Street
Denver, Colorado 80206-4923
Credit Suisse First Boston Equity Partners, L.P. 8,906,477(13) 9.1
11 Madison Avenue
New York, NY 10010
FMR Corp. 8,222,507(14) 9.2
82 Devonshire Drive
Boston, MA 02019
GBU Inc.
GEM Capital Management , Inc.
Gerald B. Unterman 7,842,518(15) 8.8
70 East 55th Street
New York, NY 10022
Putnam Investments, Inc.
One Post Office Square 5,992,706(16) 6.7
Boston, Massachusetts 02109
Welsh, Carson, Anderson & Stowe VIII, L.P.
320 Park Avenue, Suite 2500 5,292,045(17) 5.6
New York, New York
All Directors and Executive
Officers as a Group (10 persons) 20,850,614(18) 19.2
</TABLE>
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* Less than 1%.
(1) The address of this person is c/o Winstar Communications, Inc., 685 Third
Avenue, New York, New York 10017.
(2) Includes (i) 2,347,500 shares of common stock issuable upon exercise of
certain options and (ii) 193,125 shares of common stock issuable upon
exercise of certain options owned by Mr. Rouhana's spouse, as to which Mr.
Rouhana disclaims beneficial ownership. Does not include 187,500 shares of
common stock issuable upon exercise of options which do not become
exercisable within 60 days of the date of this proxy statement. Mr. Rouhana
has agreed that, during the term of Nathan Kantor's employment agreement
with Winstar, he would vote all shares of common stock he controls in favor
of Mr. Kantor as a director of Winstar.
(3) Includes 1,757,674 shares of common stock issuable upon exercise of certain
options. Does not include 365,374 shares of common stock issuable upon
exercise of options which do not become exercisable within 60 days of the
date of this proxy statement.
(4) Includes 166,800 shares of common stock issuable upon exercise of certain
options. Does not include 297,200 shares of common stock issuable upon
exercise of options which do not become exercisable and 7,200 shares of
common stock under a restricted stock award which do not vest within 60
days of the date of this proxy statement.
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(5) Includes 105,000 shares of common stock issuable upon exercise of certain
options. Does not include 865,000 shares of common stock issuable upon
exercise of options which do not become exercisable within 60 days of the
date of this proxy statement.
(6) Includes (i) 1,500 shares of common stock owned by Mr. Magyar's spouse, as
to which Mr. Magyar disclaims beneficial ownership, (ii) 3,786 shares of
common stock owned by benefit plans of which Mr. Magyar is the sole trustee
and primary beneficiary and (iii) 105,000 shares of common stock issuable
upon exercise of certain options.
(7) Includes 105,000 shares of common stock issuable upon exercise of certain
options. Also includes 750 shares of common stock owned by Mr. vanden
Heuvel's spouse, as to which Mr. vanden Heuvel disclaims beneficial
ownership.
(8) Includes 135,000 shares of common stock issuable upon exercise of certain
options.
(9) Includes 45,000 shares of common stock issuable upon exercise of certain
options.
(10) Represents shares of common stock issuable upon conversion of the Series G
preferred stock beneficially owned by Credit Suisse First Boston Equity
Partners, L.P., of which Mr. Rogers is a Managing Director, and certain
affiliated parties. Mr. Rogers disclaims beneficial ownership of these
shares.
(11) Includes 5,269,822 shares of common stock issuable upon conversion of the
Series G preferred stock beneficially owned by Welsh, Carson, Anderson &
Stowe VIII, L.P., of which Mr. Sorrel is a General Partner, and certain
affiliates (collectively, "Welsh, Carson"). Mr. Sorrel disclaims beneficial
ownership of the shares of common stock owned directly by Welsh, Carson and
its affiliates. Information with respect to this stockholder was derived
from its Schedule 13D, as filed with the SEC on February 2000.
(12) Represents shares of common stock beneficially owned by Janus Capital
Corporation ("Janus Capital") and certain affiliated investment companies
for which it is a registered investment adviser. As a result of its role as
investment adviser or sub-adviser to these investment companies, Janus
Capital may be deemed to be the beneficial owner of the shares of common
stock held by such companies. However, Janus Capital does not have the
right to receive any dividends from, or the proceeds from the sale of, the
securities held by such companies and disclaims any ownership associated
with such rights. Information with respect to this stockholder was derived
from its Schedule 13G as filed with the SEC in January 2000.
(13) Represents shares of common stock issuable upon conversion of Series G
preferred stock beneficially owned by Credit Suisse First Boston Equity
Partners, L.P. and certain affiliates. Information with respect to this
stockholder was derived from its Schedule 13D as filed with the SEC in
February 2000.
(14) Represents shares of our common stock beneficially owned by FMR Corp, the
parent holding company of, among others, Fidelity Management & Research
Company ("Fidelity Management"). FMR Corp is a registered investment
adviser which acts as investment adviser to various registered investment
companies within the Fidelity family of investment funds. Information with
respect to this stockholder was derived from its Schedule 13G, as amended,
as filed with the SEC in February 2000.
(15) Represents shares or our common stock beneficially owned by GBU Inc. and
GEM Capital Management, Inc. Each of GBU and GEM is a registered investment
adviser which acts as investment adviser to various funds and managed
accounts. Gerald B. Unterman is the President, a director and principal
stockholder of GBU and GEM Capital. Mr. Unterman, GBU and GEM Capital are
deemed to beneficially own shares of common stock held by those funds and
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managed accounts over which they exercise control. Information with respect
to these stockholders was derived from their Schedule 13G, as amended,
filed with the SEC in February 2000.
(16) Represents shares of common stock beneficially owned by Putnam Investments,
Inc. and certain, affiliates. Information with respect to this stockholder
was derived from its Schedule 13G as filed with the SEC in February 2000.
(17) Represents shares issuable upon conversion of Series G preferred stock
beneficially owned by Welsh, Carson, including 22,223 shares issuable upon
conversion of Series G preferred stock beneficially owned by WCAS
Information Partners, LLP. Information with respect to this stockholder
was derived from its Schedule 13D, as filed with the SEC on February 2000.
(18) Includes shares referred to as being included in notes (2) through (11).
Excludes shares referred to in such notes as being excluded.
Section 16(a) of the Securities Exchange Act of 1934 requires our directors
and executive officers and persons who beneficially own more than ten percent of
our common stock to file with the 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
Winstar with copies of all such reports they file. To Winstar's knowledge, based
solely on review of the copies of such reports furnished to Winstar and written
representations that no other reports were required during the year ended
December 31, 1999, all filings under Section 16(a) were made as required.
Proposal I: Election of Class III Directors
The board is divided into three classes, each of which generally serves for
a term of three years, with only one class of directors being elected in each
year. The term of office of the first class of directors (Class I), presently
consisting of Timothy R. Graham, James I. Cash and Hartley R. Rogers will expire
in 2001; the term of office of the second class of directors (Class II),
presently consisting of Bert W. Wasserman, Nathan Kantor and Lawrence B. Sorrel,
will expire in 2002; and the term of office of the third class of directors
(Class III), presently consisting of William J. Rouhana, Jr., William J. vanden
Heuvel and Steven B. Magyar, will expire at the meeting. In each case, each
director will hold office until the next annual meeting of stockholders at which
his class of directors is to be elected, or until his successor is duly
qualified and appointed.
Information Concerning Nominees
Three persons will be elected at the meeting to serve as Class III
directors for a term of three years. The board has nominated William J. Rouhana,
Jr., William J. vanden Heuvel and Steven B. Magyar, the incumbent Class III
directors, as the candidates for election. Unless otherwise specified in the
form of proxy, the proxies solicited by the management will be voted "FOR" the
election of these candidates. In case any of these nominees becomes unavailable
for election to the board, an event which is not anticipated, the persons named
as proxies, or their substitutes, shall have full discretion and authority to
vote or refrain from voting for any other nominee in accordance with their
judgment. The following information was furnished by the nominees:
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Class III directors
William J. Rouhana, Jr., 47, has been a director of Winstar 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, 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 is a former vice
chairman of the board of governors of the United Nations Association and is a
member of the board of directors of Business Executives for National Security.
He also co-founded and is co-chairman of the Humpty Dumpty Institute and a
member of the board of trustees of Colby College. 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.
Steven B. Magyar, 51, has been a director of Winstar since June 1993. Since
May 1994, Mr. Magyar has owned and operated a private business 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 National Association of Underwriters and the American Society of
CLU and ChFC. Mr. Magyar is a graduate of Colby College.
William J. vanden Heuvel, 70, has been a director of Winstar 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. 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. He is chairman of
the Franklin and Eleanor Roosevelt Institute and chairman of the Council of
American Ambassadors and vice chair of the World Federation of the United
Nations Associations.
The Board of Directors recommends voting "FOR"
each of the above nominees.
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Information Concerning Other Directors and Executive Officers
Class I Directors
James I. Cash, 52, has been a director of Winstar 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, Global Leadership and Advanced Management programs. Professor Cash
currently serves as a trustee for Massachusetts General Hospital and Partners
Healthcare, overseer for 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. and State Street Bank and Trust
Company. Professor Cash has authored numerous articles and several books on
topics related to information technology and corporate management and structure.
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.
Timothy R. Graham, 50, has served as executive vice president, general
counsel and secretary of Winstar since October 1994 and has been a director of
Winstar since January 1999. Prior to 1994, Mr. Graham was engaged in the
practice of law, specializing in corporate finance, regulatory and business law.
Mr. Graham is a member of the board of advisors of the Instructional Television
Station of the Archdiocese of New York and a director of the American
Electronics Association. Mr. Graham is a graduate of Fordham Law School and the
Georgetown University School of Foreign Service.
Hartley R. Rogers, 40, has been a director of Winstar since February 2000.
Mr. Rogers has been managing director and co-head of Credit Suisse First Boston
Equity Partners, L.P., a $2.75 billion private equity fund based in New York
City, since its inception in 1998. Prior to that time, Mr. Rogers was managing
director and head of the private investment department at Morgan Stanley Dean
Witter & Co. where he managed the Princes Gate Investors private equity funds
and the Morgan Stanley Bridge Fund, LLC, a high-yield bridge lending entity.
Prior to that time, Mr. Rogers was president of J.G. Fogg & Co. Incorporated, a
venture capital firm, and an investment banker at Morgan Stanley & Co.
Incorporated. He received an A.B. from Harvard College and an M.B.A. from the
Harvard Business School.
Class II Directors
Nathan Kantor, 57, has been a director of Winstar since October 1994 and
president and chief operating officer of Winstar since September 1995. From 1991
to September 1995, Mr. Kantor was president of ITC Group, Inc., a company that
specialized in the development of emerging competitive telecommunications
companies. Through ITC, Mr. Kantor coordinated all of Winstar's communications
operations from June 1994 to September 1995. 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 also
is currently the chairman of the board and chief executive officer of Image
10
<PAGE>
Telecommunications Corp., a company involved in the development of information
and video servers. Mr. Kantor is a graduate of Florida State University and the
United States Military Academy at West Point.
Lawrence B. Sorrel, 41, has been a director of Winstar since February 2000.
Mr. Sorrel has been a general partner at Welsh, Carson, Anderson & Stowe VIII,
L.P., a New York City-based private equity investment firm, since joining that
firm in 1998. For the previous twelve years, he worked in the private equity
business at Morgan Stanley Dean Witter & Co. where he was a managing director
and one of the senior executives responsible for the firm's private equity
investment activities. He is chairman of the board of directors of SpectraSite
Holdings, and a member of the board of directors of Emmis Communications, Valor
Telecommunications, Westminster Healthcare, and Select Medical Corporation. He
holds a B.A. from Brown University and J.D. and M.B.A. degrees from Harvard
University.
Bert Wasserman, 67, has been a director of Winstar since June 1995. Mr.
Wasserman served as executive vice president and chief financial officer of Time
Warner, Inc. from 1990 until his retirement in 1995 and served on the board of
directors of Time Warner, Inc. and its predecessor company, Warner
Communications, Inc. from 1981 to 1995. He joined Warner Communications, Inc. in
1966 and had been an officer of that company since 1970. Mr. Wasserman is
director of several investment companies in the Dreyfus Family of Funds. He is a
director of Malibu Entertainment, Inc., Lillian Vernon Corporation and PSC Inc.
He is a graduate of Baruch College and Brooklyn Law School.
Other Executive Officer
Richard J. Uhl, 59, has been the president and chief operating officer of
Winstar for Buildings since joining Winstar in December 1997. In November, 1999,
Mr. Uhl was also appointed group executive and chief financial officer. Before
joining Winstar, Mr. Uhl was a member of the board of directors of Frontier
Corporation, a position he assumed when ALC Communications Corporation merged
with Frontier Corporation in 1995. Mr. Uhl previously served on ALC's board for
four years, and was vice president, controller and treasurer of MCI
Communications Corporation for seven years. Mr. Uhl served as president and
board member of Chicago Holdings, Inc., a privately-owned investment banking
firm, for 12 years. Mr. Uhl holds a masters degree from the New York University
Graduate School of Business Administration and a bachelor's degree from
Muhlenberg College.
Board Meetings, Committees and Compensation
Our board met nine times during the year ended December 31, 1999. Each
director attended all of these meetings, except for Mr. Cash who attended six
meetings.
11
<PAGE>
The board currently maintains a standing audit committee, compensation
committee and nominating and corporate governance committee. Additionally, from
time to time, the board establishes special committees for specific purposes.
The membership of the standing committees is as follows, with the committee
chairman listed first:
<TABLE>
Nominating and
Corporate Governance
Audit Committee Compensation Committee Committee
- ------------------------------------ ----------------------------------- ------------------------------------
<S> <C> <C>
Bert Wasserman Steven B. Magyar William J. vanden Heuvel
Steven B. Magyar William J. vanden Heuvel Steven B. Magyar
James I. Cash James I. Cash Timothy R. Graham
Hartley R. Rogers Lawrence B. Sorrel
</TABLE>
The board's audit committee met three times during the year ended December
31, 1999. All members of the audit committee attended all of these meetings. The
responsibilities of the audit committee include, in addition to such other
duties as the board may specify, (i) recommending to the board the appointment
of independent accountants; (ii) reviewing the timing, scope and results of the
independent accountants' audit examination and the related fees; (iii) reviewing
periodic comments and recommendations by our independent accountants and our
response thereto; (iv) reviewing the scope and adequacy of internal accounting
controls and internal auditing activities; and (v) making recommendations to the
board with respect to significant changes in accounting policies and procedures.
The board's compensation committee met four times during the year ended
December 31, 1999. All members of the compensation committee attended all of
these meetings, except Mr. vanden Heuvel, who attended three. The
responsibilities of the compensation committee include, in addition to such
other duties as the board may specify, (i) reviewing and recommending to the
board the policies relating to salaries, compensation and benefits of the
executive officers and key employees of Winstar, and setting the salary,
benefits and other compensation of the Chief Executive Officer, (ii) reviewing
any related party transactions on an ongoing basis for potential conflicts of
interest and (iii) administering Winstar's stock option, stock purchase and
other employee compensation plans.
The board's nominating and corporate governance committee met once during
the year ended December 31, 1999. All members of this committee attended the
meeting. The responsibilities of the nominating and governance committee
include, in addition to such other duties as the board may specify, considering
and recommending to the board nominees for directors, succession planning and
corporate governance matters.
We pay each outside director $500 for his attendance at each meeting of a
board committee of which he is a member and $1,000 for his attendance at each
meeting of our board as well as annual compensation in an amount of $10,000. In
addition, on January 13th of each year during the term of our 1992 performance
equity plan, assuming there are enough shares then available for grant under
this plan, we award each person who is then a member of our board stock options
to purchase 15,000 shares of our common stock with an exercise price equal to
12
<PAGE>
the market price of our common stock at that time (as determined in accordance
with the 1992 plan). These options are immediately exercisable as of the date of
grant and have a term of ten years.
Executive Compensation
The following table shows the compensation for the years ended December 31,
1999, 1998 and 1997 earned by (i) William J. Rouhana, Jr., our chairman and
chief executive officer, (ii) Nathan Kantor, Timothy R. Graham and Richard J.
Uhl, our other executive officers and (iii) Charles T. Dickson, our former
executive vice president and chief financial officer who resigned in October
1999 (all of these executive officers are referred to collectively as the "named
executive officers").
<TABLE>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
------------------------------------ -----------------------------
Other Annual Restricted Securities
Salary Bonus Compensation Stock Awards Underlying
Name and principal position Year ($) ($)(1) ($) ($) Options (#)
- --------------------------- ---- ------ ----- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William J. Rouhana, Jr. 1999 537,002 858,587 67,543 (2) - 165,000 (1) (4)
Chairman of the board and 1998 554,387 750,000 - - 1,365,000 (3)(4)
chief executive officer 1997 483,658 500,000 - - 15,000 (4)
Nathan Kantor 1999 524,363 645,000 - - 115,000 (1)(4)
President and chief operating 1998 519,237 625,000 - - 765,000 (3)(4)
officer 1997 448,085 450,000 - - 15,000 (4)
Timothy R. Graham 1999 316,820 300,000 - 312,900 200,000 (1)(4)
Executive vice president, 1998 284,416 220,000 - - 121,500 (1)
general counsel and secretary 1997 225,000 225,000 - - -0-
Richard J. Uhl 1999 332,043 300,000 - 74,000 602,500 (1)
Group executive and chief 1998 311,526 190,000 - - 75,000(1)
financial officer 1997 11,538 30,000 - - 337,500 (5)
Charles T. Dickson 1999 306,455 -0- - - -
Former executive vice 1998 321,921 150,000 - - 1,500
president and chief financial 1997 11,923 30,000 - - 375,000(5)
officer (6)
</TABLE>
- -----------------------------
(1) Represents or includes 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.
(2) Includes company paid insurance premiums, aircraft usage ($55,439) and the
company matching contribution under its 401(k) plan, payable in Winstar
common stock.
(3) Includes options to purchase shares of common stock granted pursuant to the
terms of the executive's employment agreement entered into in such year.
See "Employment Agreements."
(4) Includes or represents options to purchase 15,000 shares of common stock
granted annually to directors of Winstar under the 1992 Equity Plan. See
"Stock Option Plans."
(5) Granted in connection with the commencement of the named executive's
employment with Winstar.
(6) Mr. Dickson resigned as Executive Vice President and Chief Financial
Officer of Winstar in October 1999.
13
<PAGE>
Except where indicated, Winstar 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. Winstar 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.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
General
This report is made by our compensation committee (as used in this report,
the "Committee"). Mr. Rouhana resigned from the Committee during 1999 and the
Committee currently consists of four non-employee directors. The
responsibilities of the Committee include:
o reviewing and recommending to the board the policies relating to
salaries, compensation and benefits of the executive officers and key
employees of Winstar, and setting the salary, benefits and other
compensation of the Chief Executive Officer;
o reviewing any related party transactions on an ongoing basis for
potential conflicts of interest; and
o administering Winstar's stock option, stock purchase and other
employee compensation plans.
Executive Compensation Policies and Objectives
The Committee evaluates the compensation levels of senior management and
evaluates the various factors affecting compensation of Winstar's highest paid
officers. The Committee believes that compensation to Winstar's executive
officers should be designed to encourage and reward management's efforts to
establish and strengthen Winstar's business and to create added value for
stockholders. Such a compensation program helps to achieve Winstar's business
and financial objectives and also provides incentives needed to attract and
retain the highly qualified executives and other personnel needed for Winstar to
achieve its goal of rapidly developing and expanding its telecommunications and
other businesses and to successfully operate in a competitive marketplace. The
Committee also attributes a substantial portion of each executive officer's
compensation to Winstar's performance and the particular contribution made to
Winstar by such officer and his business unit.
14
<PAGE>
The Committee's executive compensation objectives are:
o to ensure competitive levels of compensation that enable Winstar to
attract, retain and motivate executives of outstanding ability and
character to lead Winstar successfully in its highly competitive
industry characterized by rapid technological change, innovation and
significant capital investment requirements;
o to tie a meaningful portion of compensation to the achievement of
improved long term stockholder value and other business objectives;
and
o to provide equity-based long term incentives that directly link the
compensation of executives to appreciation in Winstar's common stock
and align the financial interests of the executives with those of
Winstar's stockholders.
The Committee reviewed many operational and strategic factors in evaluating
Winstar's performance in 1999. Key factors considered were:
o achievement of performance targets fixed by the board, including its
specific financial and operational targets such as revenue growth,
EBITDA and capital expenditure goals in Winstar's core businesses.
o the quality of revenues generated, including the development of
recurrent high-margin revenue streams through customer growth and
network and product development.
o the continued development of Winstar's integrated broadband services
business, including such critical elements as:
o the rapid expansion of Winstar's local broadband networks and the
interconnection of those networks to further develop its national
end-to-end broadband network, including the acquisition of
indefeasible rights of use (IRUs) for intercity fiber,
acquisition of substantial additional building access rights,
acquisition of additional spectrum rights, the successful
integration into Winstar's network of additional switches and
other assets, including the integration of Winstar's voice and
data networks increasing the value of the network, the deployment
of point-to-multipoint service and the deployment of OC-3
point-to-point service;
o the rapid growth and development of Winstar's data and Internet
business, including the launch of Office.com, the sale of a 33
1/3% interest in Office.com to CBS, the expansion of Winstar's
web hosting business, the development of Winstar's business as an
application service provider including Winstar's participation in
Microsoft's Office Online pilot program and the provisioning of
data services in Winstar's top 60 data markets;
15
<PAGE>
o the continued growth of Winstar's international business,
including the acquisition of key spectrum rights overseas, the
consummation of International acquisitions and the commencement
of service in Europe and in Japan;
o the further development of Winstar's network and management
systems;
o the growth of Winstar's workforce from approximately 2,800 to
3,900 employees in 1999; and
o the successful planning for Winstar's future growth through the
consummation of several key financing arrangements, including a
common stock offering and a preferred stock offering.
The Committee believes that Winstar appropriately awarded its executive
officers for their short and long term efforts throughout 1999.
Executive Compensation Policy and Structure
The compensation of each of Winstar's executive officers during the prior
year consisted of three principal parts - a base salary, an incentive bonus and
equity compensation, typically in the form of a stock option grant which vests
over a period of several years. As more fully described below, the bonus and
equity components are discretionary, meaning that the total compensation of
these executives depends upon several factors, including individual
contribution, attainment of individual and business unit performance objectives,
and company-wide performance; however, there is no specific weight given to each
criterion and Winstar is not obligated to provide equity incentives, bonuses or
increased cash compensation at any time. In addition, executive officers are
entitled to various benefits, including medical and other insurance coverage and
a 401(k) plan generally available to all employees of Winstar.
Base Salary
Base salaries are intended to compensate executives for their ongoing
leadership skills and management responsibility and depend upon factors such as
the executive's experience, capabilities and unique talents and strengths. The
Chief Executive Officer and the Chief Operating Officer have employment
agreements with Winstar under which their base salaries are set, subject to
periodic review and adjustment to reflect among other things, changes in the
duties and responsibilities of such officer, his contribution to Winstar's
achievements during the prior year and the salaries paid to executives
performing similar functions at companies of similar size and complexity to
Winstar. The salaries of each of Winstar's executive officers was increased in
1999 based upon the terms of their respective employment agreements and/or the
Committee's review of the factors relating to executive compensation levels
described elsewhere in this report. Base salaries of Winstar's other officers
are reviewed annually by Winstar's senior executive officers based on the same
policies and objectives applied by the Committee to senior management. The
Committee reviews, but does not approve, the decisions regarding the salaries of
such other officers.
16
<PAGE>
Bonus
The incentive bonuses are dependent upon individual, business unit or
division, and overall company performance. For purposes of determining annual
bonuses, the Committee evaluates the achievement of goals set at the start of
the year and compares Winstar's performance in that year to the prior year. The
1999 bonus amounts awarded to Winstar's executives were based upon these
criteria. These accomplishments included the continued development and expansion
in 1999 of Winstar's voice and data businesses and its information services
business, including the identification and negotiation of key strategic
commercial, acquisition and financing transactions, each of which helped to
significantly accelerate Winstar's development and the growth of its network and
business.
Stock Options and Restricted Stock Awards
The third principal component of compensation arises from Winstar's grant
of stock options and restricted stock awards. The Committee believes that stock
options and restricted stock awards serve as important long-term incentives for
employees by encouraging their continued employment and commitment to Winstar's
performance. Accordingly, stock options and restricted stock awards become
exercisable over a period of years, based on continued employment with Winstar.
Stock options, once vested, generally remain exercisable for a period of up to
10 years after vesting. The Committee believes that stock options and restricted
stock awards are an excellent means to align the interests of Winstar's
employees with those of its stockholders.
The number of stock options and restricted stock awards granted to
executive officers is determined by the Committee and generally is based upon
the same factors considered with respect to that officer's bonus, as described
above. In addition, the Committee strives to grant options at a level sufficient
to provide a strong incentive for executives to work for the long-term success
of the business.
Stock option grants to other officers and employees are determined by
senior management pursuant to an option grant program approved by the Committee.
Under that program, employees are eligible for annual option grants, based once
again upon their individual performance and the performance of their business
unit and Winstar during the prior year, within a fixed range which varies
depending upon the aggregate number of options approved by the Committee and the
employee's level within the company.
The Committee has reviewed the compensation of Winstar's executive officers
and has concluded that their compensation was reasonable in view of Winstar's
performance and the contribution of those officers to that performance.
Compensation of the Chief Executive Officer
As stated above, Mr. Rouhana's base salary for 1999 was determined in
accordance with his employment agreement in effect for that year. His salary
increased from the 1998 level based on the Committee's review of his
performance, and that of Winstar, in 1999 and the level of compensation paid to
chief executives of similarly situated companies. As a portion of his 1999
17
<PAGE>
compensation, the Committee awarded Mr. Rouhana an incentive bonus of $858,587.
This award consisted of a cash bonus of $805,500 (paid in 2000) and
reimbursement of $53,087 in taxes payable in connection with other benefits
provided to him. The latter amount resulted in Mr. Rouhana's bonus for 1999
exceeding 150% of his salary and was approved by the Committee. This award was
based on the Committee's evaluation of his performance and Winstar's
achievements in 1999, which included, among other things, that Winstar:
o secured significant additional funding by entering into an agreement
for a $900 million private equity financing with Microsoft, Welsh,
Carson, Anderson & Stowe and Credit Suisse First Boston Equity
Partners;
o expanded the reach of its broadband network to 60 domestic and 10
international markets and more than doubled its building access rights
to more than 8,000 buildings;
o increased total revenue by 82.3%; while increasing overall gross
margins to 29%;
o increased its online content, including the launch of Office.com,
ranked the number one online business center by Cahner's In Stat as of
November, 1999;
o accelerated the roll out of its broadband network by adding record
number of hub sites, switches and lit fiber;
o positioned Winstar to strengthen its balance sheet though the
refinancing of its debt and certain preferred equity; and
o experienced significant appreciation in enterprise value and common
stock market price from the prior year.
In January 1998, Winstar and Mr. Rouhana entered into a three year
employment agreement, the terms of which were approved by the Committee. See
"Employment Agreements" for a more detailed discussion of the terms of this
agreement. The employment agreement provides for a minimum annual base salary,
with annual increases as agreed upon by Winstar and Mr. Rouhana, a discretionary
annual cash bonus and a grant of stock options which vest over time and are
exercisable at prices at or substantially above the market price of Winstar's
stock on the date of the agreement. In making the decision regarding the grant
of stock options, the Committee also evaluated Mr. Rouhana's performance
relative to the guidelines described above, Winstar's achievements during the
term of his prior contract, equity awards to chief executives of comparable
companies, his critical leadership role in Winstar's future success and the
degree to which other companies have linked compensation of their chief
executives to stockholder returns. In addition, the Committee used subjective
criteria that it deemed relevant in its reasonable business discretion, such as
its opinions about the business environment and the particular challenges for
Winstar as well as the potential market for Mr. Rouhana's services. The
Committee believes that the compensation package is in line with industry and
market standards and appropriate in light of his past performance and Winstar's
aggressive plans for growth.
18
<PAGE>
Notwithstanding anything to the contrary set forth in any of our previous
filings under the Securities Act of 1933 or the Securities Exchange Act of 1934,
that might incorporate future filings made by us under those statutes, the
preceding report on executive compensation and our stock performance graph (set
forth below) will not be incorporated by reference into any of those prior
filings, nor will such report or graph be incorporated by reference into any
future filings made by us under those statutes.
The members of the compensation committee
-----------------------------------------
Steven B. Magyar, Chairman
William J. vanden Heuvel
James I. Cash
Lawrence B. Sorrel
19
<PAGE>
OPTION GRANTS IN 1999
The following table sets forth certain information concerning individual
grants of stock options during 1999 to each of the named executive officers.
Individual Grants
<TABLE>
Potential Realizable
Value At Assumed
Annual Rates of Stock
Price Appreciation
for Option Term
----------------------
Number of Percent of
Securities Total Options
Underlying Granted to Exercise or
Options Employees in Base Price Expiration
Name Granted (#) Fiscal Year (%) ($) Date 5% ($) 10% ($)
- ------------------------ ------------- --------------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
William J. Rouhana, Jr.
Chairman of the board and 15,000 .1310 27.1667 1/13/09 256,274 649,450
chief executive officer
Nathan Kantor
President and chief 15,000 .1310 27.1667 1/13/09 256,274 649,450
operating officer
Timothy R. Graham 15,000 .1310 27.1667 1/13/09 256,274 649,450
Executive vice president, 120,000 1.0477 28.0000 (2) 606,688 1,883,827
general counsel and 150,000 1.3097 41.3330 (3) 2,108,591 4,783,674
secretary(5) ------- ------ --------- ---------
285,000 2.4884 2,971,554 7,316,952
Richard J. Uhl 75,000 .6548 28.0000 (2) 379,180 1,177,392
Group executive and chief 225,000 1.9645 41.3333 (3) 3,162,886 7,175,511
financial officer(5) 337,500 2.9467 24.6667 (4) 2,300,047 5,082,502
------- ------ --------- ---------
637,500 5.5661 5,842,114 13,435,406
Charles T. Dickson
Former executive vice -0- -0- N/A N/A N/A N/A
president and chief
financial officer (1)
</TABLE>
- ------------------
(1) Mr. Dickson resigned as executive vice president and chief financial
officer of Winstar in October 1999.
(2) These options vest in equal annual installments over five years and expire
five years after vesting.
(3) These options vest in varying installments over ten years and expire five
years after vesting.
(4) These options vest in equal annual installments over three years and expire
five years after vesting.
(5) The grants reflected in this table do not include grants of 3,000 shares of
common stock and 1,800 shares of common stock, respectively, to Messrs. Uhl
and Graham made under our 1995 plan in October 1999. They also do not
reflect a grant of 7,200 shares of restricted common stock to Mr. Graham
made under our 1995 plan in December 1999, which shares vest in equal
annual installments of 1,800 shares on each of the first through fourth
anniversaries of the date of grant.
20
<PAGE>
AGGREGATED OPTION EXERCISES IN 1999 AND
FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information concerning exercises of
stock options during 1999 by each of the named executive officers and the fiscal
year-end value of unexercised options held by such persons.
<TABLE>
Shares Value Number of Securities Value of Unexercised
Acquired Realized Underlying Unexercised In-The-Money Options at
on ($'s in Options At Fiscal Year-End (1)
Name Exercise thousands) Fiscal Year-End (#) ($'s in thousands)
(#)
- ------------------------------- ------------ ------------- ------------------------------ -----------------------------
Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C>
William J. Rouhana, Jr.
Chairman of the board and -- -- 2,070,000 525,000 74,631 12,081
chief executive officer
Nathan Kantor
President and chief 450,000 9,042 1,727,674 280,374 63,849 6,246
operating officer
Timothy R. Graham
Executive vice president, -- -- 120,300 293,700 4,709 4,611
general counsel and secretary
Richard J. Uhl
Group executive and chief 45,000 1,124 90,000 840,000 3,203 18,665
financial officer
Charles T. Dickson 75,000 975 75,300 -0- 2,829 -0-
Former executive vice
president and chief financial
officer (2)
</TABLE>
- ------------------------
(1) Represents the difference between the aggregate market value at December
30, 1999 of the common stock underlying the options, based on a last sale
price of $48.9167 on that date, and the options' aggregate exercise prices.
(2) Mr. Dickson resigned as executive vice president and chief financial
officer of Winstar in October 1999.
PERFORMANCE GRAPH
The following graph and table compare the five-year stockholder returns
(from January 1995 through December 1999) of an investment in: (i) the common
stock of Winstar, (ii) the Nasdaq Telecommunications Index and (iii) the Nasdaq
Stock Market - US Index. The comparison assumes that $100 was invested on
December 31, 1994 in Winstar's common stock and in each of the comparison groups
and assumes reinvestment of dividends (though Winstar paid no dividends on its
common stock during such period).
21
<PAGE>
<TABLE>
1994 1995 1996 1997 1998 1999
-------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
WCII 100.0000 189.8701 232.7273 276.3636 432.2078 834.0260
Nasdaq Stock Market Index - US Index 100.0000 141.3350 173.8981 213.0671 300.4315 555.9882
Nasdaq Telecommunications Index 100.0000 130.9130 133.8602 195.4000 323.5145 572.4319
</TABLE>
Employment Agreements
In January 1998, Mr. Rouhana and Winstar entered into a three-year
employment agreement, effective March 1, 1998, pursuant to which Mr. Rouhana
continues to serve as Winstar'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 Winstar and Mr. Rouhana. The
employment agreement also provides that Mr. Rouhana is eligible for an annual
cash bonus, payable at the discretion of the board, 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 450,000 shares of common stock for $17.33 per share, the closing sale
price of the common stock on the day immediately preceding the agreement date;
(ii) options to purchase 450,000 shares of common stock which vested on January
6, 1999, of which 150,000 are exercisable at a price of $17.33 per share and
300,000 are exercisable at a price of $26 per share; and (iii) options to
purchase 450,000 shares of common stock which vested on January 6, 2000, of
which 150,000 are exercisable at a price of $17.33 per share and 300,000 are
exercisable at a price of $34.67 per share.
In September 1998, Mr. Kantor entered into a three-year employment
agreement with Winstar. The employment agreement provides for a minimum annual
base salary of $518,350, with annual increases as agreed upon by Winstar and Mr.
Kantor. The employment agreement also provides that Mr. Kantor is eligible for
22
<PAGE>
an annual cash bonus, payable at the discretion of the chief executive officer
and the board, not to exceed 125% of his base salary then in effect. At the time
of execution of this employment agreement, Mr. Kantor was granted: (i)
immediately exercisable options to purchase 250,000 shares of common stock for
$17.33 per share, which is greater than the $14.33 closing sale price of the
common stock on the business day immediately preceding the agreement date; (ii)
options to purchase 250,376 shares of common stock which vested on September 6,
1999, of which 83,709 are exercisable at a price of $17.33 per share and 166,667
are exercisable at a price of $26 per share; and (iii) options to purchase
166,667 shares of common stock which vest on September 6, 2000, of which 83,709
are exercisable at a price of $17.33 per share and 166,665 are exercisable at a
price of $34.67 per share.
In April 1997, Winstar entered into Executive Severance Agreements (each a
"Severance Agreement") with each of the named executive officers and certain
other senior officers of Winstar 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 Winstar (each as defined in the Severance
Agreement), either (A) the covered executive's employment is terminated by
Winstar (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 Winstar 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 Winstar"
generally means that a third party has acquired 35% or more of Winstar's voting
stock (whether through a stock purchase, exchange, tender offer or merger) or
substantially all of Winstar's assets. A "potential Change of Control" of
Winstar would occur if: (w) an agreement is entered into, the consummation of
which would result in a Change of Control; (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 Winstar; (y) Winstar's Stockholder Rights Plan is
triggered; or (z) the board makes a good faith determination that a potential
Change of Control has occurred. The Severance Agreement has an initial term of
three years and renews automatically for successive one-year terms unless
Winstar 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.
Certain Relationships and Related Transactions
Winstar leases office space located in Westport, Connecticut from KKJ
Properties, LLC, an entity controlled by Nathan Kantor, president and chief
operating officer of Winstar. This is a month-to-month lease under which Winstar
pays monthly rent of $6,600, which Winstar believes to be a fair market rate.
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Equity Compensation Plans
Winstar maintains the 1992 plan, under which a total of 3.0 million shares
of common stock were made available for grants to Winstar's key employees,
officers, directors and consultants. Awards consist of stock options (both
non-qualified options and options intended to qualify as "Incentive" stock
options under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code")), restricted stock awards, deferred stock awards, stock appreciation
rights and other stock-based awards, as described in the 1992 plan. On January
13th of each calendar year during the term of the 1992 plan, assuming there are
enough shares then available for grant under the 1992 plan, each person who is
then a director of Winstar is awarded a stock option to purchase 15,000 shares
of Winstar's common stock at the fair market value thereof (as determined in the
accordance with the 1992 plan), all of which options are immediately exercisable
as of the date of grant and have a term of ten years. These are the only awards
which may be granted to a director of Winstar under the 1992 plan. As of May 12,
2000, options to purchase 732,699 shares of common stock were outstanding under
the 1992 plan and there were 412,076 shares available for future grant under the
1992 plan.
Winstar also maintains the 1995 plan, under which a total of 22.5 million
shares of common stock were made available for grants to Winstar's key
employees, officers, directors and consultants. Awards may consist of stock
options (both non-qualified options and options intended to qualify as
"Incentive" stock options under Section 422 of the Code), restricted stock
awards, deferred stock awards, stock appreciation rights and other stock-based
awards, as described in the 1995 plan. As of May 12, 2000, options to purchase
18,384,256 shares of common stock were outstanding under the 1995 plan and there
were 572,382 shares available for future grant under the 1995 plan.
In March 2000, our board of directors approved the 2000 performance equity
plan, under which a total of 10.0 million shares of common stock will be made
available for grants to Winstar's key employees, officers, directors and
consultants, upon stockholder approval as contemplated by Proposal IV below.
Awards may consist of stock options (both non-qualified options and options
intended to qualify as "Incentive" stock options under Section 422 of the Code),
restricted stock awards, deferred stock awards, stock appreciation rights and
other stock-based awards, as described in the 2000 plan. There are currently no
options outstanding under the 2000 plan.
We also maintain a qualified employee stock purchase plan which covers 1.125
million shares of common stock. Under this stock purchase plan, as currently
administered by the board, employees other than senior management may use a
portion of their salary to acquire shares of common stock on a monthly basis at
a 15% discount to the market price of common stock at the date of purchase. As
of May 12, 2000, a total of 543,801 shares of common stock have been issued and
581,199 shares remain available for issuance under this stock purchase plan.
Winstar maintains a 401(k) employee savings plan under which employees of
Winstar and its subsidiaries may make voluntary contributions through payroll
deductions. Winstar makes matching contributions, credited as of the date of a
payroll deduction, equal to 25% of the first 6% of compensation contributed by
an employee. Winstar's matching contribution is made by the issuance of common
stock to such plan for the accounts of participating employees.
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Each of the 1992, 1995 and 2000 plans is administered by the compensation
committee, which determines the persons to whom awards will be granted, the
number of awards to be granted and the specific terms of each grant, including
the vesting thereof, subject to the provisions of those plans. The stock
purchase plan is also administered by the compensation committee which defines,
prescribes, amends and rescinds rules, regulations, procedures, terms and
conditions relating to the plan, including the fixing of purchase price
discounts and option periods in effect from time to time, and interprets,
administers and construes the plan and makes all other determinations necessary
or advisable for the administration of the plan.
Compensation Committee Interlocks and Insider Participation
The compensation committee is composed of Mr. Magyar, Mr. vanden Heuvel,
Professor Cash and Mr. Sorrel. No executive officer of Winstar sits on the
compensation committee of another entity, one of whose executive officers serves
as a director of Winstar or on Winstar's board, nor does any executive officer
of Winstar serve as a director of another entity, one of whose executive
officers serves on Winstar's board.
Proposal II: Approval of an amendment to our certificate of incorporation to
increase the number of authorized shares of common stock
Our certificate of incorporation currently authorizes the issuance by us of
up to 215.0 million shares of capital stock, consisting of 200.0 million shares
of common stock and 15.0 million shares of preferred stock, the rights, powers
and preferences of which may be fixed by the board. In March 2000, the board
approved an amendment to the certificate of incorporation, pursuant to which,
subject to approval by our stockholders at the meeting, the number of shares of
common stock authorized for issuance by us thereunder will be increased.
As of May 12, 2000, we had issued and outstanding approximately 89,293,861
shares of common stock. In addition, as of May 12, 2000, we had issued and
outstanding securities, including options, warrants and convertible preferred
stock exercisable into an aggregate of approximately 70,000,000 shares of common
stock. We may also issue common stock in payment of the all or a portion of the
purchase price in pending and future acquisitions of assets or businesses by us
(each an "Acquisition").
Accordingly, the board believes that the increase in our authorized shares
of common stock is necessary in order to ensure the availability of a sufficient
number of shares of common stock:
o to allow for future stock splits and stock dividends payable in shares
of common stock;
o for issuance upon the exercise or conversion of the options, warrants
and convertible securities issued or granted by us including to
employees and others under the 1992, 1995 and 2000 plans and/or other
possible future plans; and
o to provide us with the ability to raise additional capital through the
future sale of common stock and/or securities exercisable for or
convertible into common stock.
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o to pay all or a portion of the purchase price in pending and future
acquisitions;
The board believes that Winstar's inability to issue additional common
stock under the above circumstances could materially adversely affect us in the
future by limiting our ability to raise capital if needed and/or requiring us
to make cash payments, in lieu of payments in common stock under circumstances
where it would otherwise be advantageous to make such payments in common stock.
The Board of Directors recommends voting "FOR" Proposal II.
Proposal III: Approval of an amendment to our certificate of incorporation
to increase the number of authorized shares of preferred stock
Currently, our certificate of incorporation allows our board to authorize
the creation and issuance of such preferred stock in one or more series with
such rights, limitations and restrictions as may be determined in the board's
sole discretion, without the expense and delay of a special shareholders'
meeting, except as may be required by our by-laws, applicable law or stock
market or exchange requirements. In March 2000, our board approved an amendment
to our certificate of incorporation to increase the number of such shares of
authorized preferred stock from 15.0 million to 30.0 million. The board of
directors believes that the increase in the number of our authorized shares of
preferred stock is in the best interests of Winstar and its stockholders.
Although it has no present plans or commitments to issue any additional shares
of preferred stock, the board believes that the availability of such additional
securities will improve the flexibility Winstar has in addressing its future
financing requirements. Similar to the provision for the increase in the
authorized number of shares of common stock, the flexibility vested in the board
by an increase in the authorized preferred stock would also enhance Winstar's
ability to consider and, if in the best interests of the stockholders, take
advantage of acquisition opportunities.
The authorization of additional shares of preferred stock will not, by
itself, have any effect on the rights of the holders of shares of common stock.
Nonetheless, the issuance of one or more series of preferred stock could,
depending upon the board's determination of the rights and preferences of the
series of preferred stock, (i) restrict the payment of dividends to holders of
shares of common stock; (ii) dilute voting power of the holders of common stock
to the extent that the holders of shares of preferred stock are given voting
rights; (iii) dilute the equity interests and voting power of the holders of
common stock if the preferred stock is convertible into common stock; and (iv)
restrict the distribution of assets to the holders of the common stock upon
liquidation or dissolution and until the satisfaction of any liquidation
preference granted to the holders of preferred stock.
The board of directors recommends voting "FOR" Proposal III
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Proposal IV:
Approval of the 2000 performance equity plan
In March 2000, our board adopted the 2000 plan, subject to stockholder
approval at the annual meeting. Winstar is a very rapidly growing company that
operates in an intensely competitive industry. A particularly competitive area
of Winstar's business is attracting and retaining talented employees (including
executives, engineers, sales and support personnel and others), many of whom are
regularly solicited by other companies offering attractive cash and equity
compensation packages. To date, Winstar has been very successful in competing
for this talent pool and has amassed an outstanding group of employees. In 1999,
Winstar expanded its workforce from approximately 2,800 to over 3,900 employees.
It has been Winstar's policy to compensate employees with stock options in order
to incentivize them and align their interests with those of the stockholders.
During 1999, Winstar granted a total of 11,427,237 options to employees, with
the average option grant being for 3,206 shares.
We anticipate significant additional growth in the next several years, with
our total workforce reaching over 5,500 by the end of 2000. It has been this
growth, and Winstar's ability to attract and retain talented, dedicated
employees, that has fueled the rapid expansion of our business and the creation
of substantial stockholder value in recent years.
It is imperative that Winstar continue to attract and retain the quality
and quantity of employees that it has in the past in order to continue its
growth and effect its business plan. If unable to do this, Winstar will be at a
significant competitive disadvantage in the marketplace and stockholder value
could be adversely impacted. There are only approximately 980,000 shares still
available for grant under the 1992 and 1995 plans. The ability to continue to
compensate employees with equity-based grants such as stock options is key to
competing for talent. For these reasons, we are requesting that the stockholders
approve the 2000 plan.
The board of directors recommends voting "FOR" Proposal IV.
Summary of the 2000 plan
Administration
The 2000 plan is administered by the compensation committee of the board
(as used in this summary, the "Committee"). The Committee has full authority,
subject to the provisions of the 2000 plan, to award (i) Stock Options, (ii)
Stock Appreciation Rights, (iii) Restricted Stock, (iv) Deferred Stock, (v)
Stock Reload Options and/or (vi) Other Stock-Based Awards (collectively,
"Awards"). Subject to the provisions of the 2000 plan, the Committee determines,
among other things, the persons to whom from time to time Awards may be granted
("Holders"), the specific type of Awards to be granted (e.g., Stock Options,
Restricted Stock), the number of shares subject to each Award, share prices, any
restrictions or limitations on such Awards (e.g., the "Deferral Period" in the
grant of Deferred Stock and the "Restriction Period" when Restricted Stock is
subject to forfeiture), and any vesting, exchange, deferral, surrender,
cancellation, acceleration, termination, exercise or forfeiture provisions
related to such Awards.
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Stock Subject to the 2000 Plan
The 2000 plan authorizes the granting of Awards whose exercise would allow
up to an aggregate of 10,000,000 shares of common stock to be acquired by the
Holders of such Awards. In order to prevent the dilution or enlargement of the
rights of Holders under the 2000 plan, the number of shares of common stock
authorized by the 2000 plan is subject to adjustment by the board in the event
of any dividend on shares of common stock payable in shares of common stock,
common stock split, reverse common stock split or other extraordinary or unusual
event which results in a change in the shares of common stock as a whole. The
board, in the event of any of the foregoing, will make equitable adjustments in
the terms of any awards and the aggregate number of shares reserved for issuance
under the 2000 plan.
If any Award granted under the 2000 plan is forfeited or terminated prior
to exercise, the shares of common stock that were available pursuant to such
Award shall again be available for distribution in connection with Awards
subsequently granted under the 2000 plan. If a Holder pays the exercise price of
a Stock Option by surrendering any previously owned shares and/or arranges to
have the appropriate number of shares otherwise issuable upon exercise withheld
to cover the withholding tax liability associated with the Stock Option
exercise, then the number of shares available under the 2000 plan will be
increased by the lesser of (i) the number of such surrendered shares and shares
used to pay taxes; and (ii) the number of shares purchased under such Stock
Option.
Eligibility
Subject to the provisions of the 2000 plan, Awards may be granted to
employees, officers, directors and consultants who are deemed to have rendered
or to be able to render significant services to Winstar and who are deemed to
have contributed or to have the potential to contribute to Winstar's success.
Incentive Stock Options, as hereinafter defined, may be awarded only to persons
who, at the time of grant of such awards, are, or have agreed to become,
employees of Winstar or its wholly- or majority-owned subsidiaries.
There are limits on the number of shares of common stock underlying Awards
to be granted under the 2000 plan to any one participant in any calendar year.
Types of Awards
Options. The 2000 plan provides both for "Incentive" stock options
("Incentive Stock Options") as defined in Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), and for options not qualifying as
Incentive Options ("Non-Qualified Stock Options"), both of which may be granted
with any other stock-based award under the 2000 plan. The Committee determines
the exercise price per share of common stock purchasable under an Incentive or
Non-Qualified Stock Option (collectively, "Stock Options"). The exercise price
of Stock Options may not be less than 100% of the fair market value on the day
of the grant (or, if greater, the par value of a share of common stock).
However, (i) the exercise price of an Incentive Stock Option granted to a person
possessing more than 10% of the total combined voting power of all classes of
Winstar stock may not be less than 110% of such fair market value on the date of
grant and (ii) if the Stock Option is
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granted in connection with the recipient's hiring, promotion or similar event,
the exercise price may not be less than the fair market value of the common
stock on the date on which the recipient is hired or promoted (or similar event)
if the grant of the Stock Option occurs not more than 90 days after the date of
such hiring, promotion or other event. In the case of an Incentive Stock Option,
the aggregate fair market value (on the date of grant of the Stock Option) with
respect to which Incentive Stock Options become exercisable for the first time
by a Holder during any calendar year shall not exceed $100,000. An Incentive
Stock Option may only be granted within a ten-year period from the date the 2000
plan is adopted and approved and may only be exercised within ten years from the
date of the grant (or within five years in the case of an Incentive Stock Option
granted to a person who, at the time of the grant, owns common stock possessing
more than 10% of the total combined voting power of all classes of Winstar
stock). Subject to any limitations or conditions the Committee may impose, Stock
Options may be exercised, in whole or in part, at any time during the term of
the Stock Option by giving written notice of exercise to Winstar specifying the
number of shares of common stock to be purchased. Such notice must be
accompanied by payment in full of the purchase price, either in cash or, if
provided in the agreement, in securities of Winstar or in combination thereof.
Generally, Stock Options granted under the 2000 plan may not be transferred
other than by will or by the laws of descent and distribution. However, a
Holder, with the approval of the Committee, may transfer a Non-Qualified Stock
Option by gift to a family member of the Holder, by domestic relations order to
a family member of the Holder or by transfer to an entity in which more than
fifty percent of the voting interests are owned by family members of the Holder
or the Holder, in exchange for an interest in that entity.
Generally, if the Holder is an employee, no Stock Options, or any portion
thereof, granted under the 2000 plan may be exercised by the Holder unless he or
she is employed by Winstar or a subsidiary at the time of the exercise and has
been so employed continuously from the time the Stock Options were granted.
However, in the event the Holder's employment with Winstar is terminated due to
disability, the Holder may still exercise his or her Stock Options for a period
of 24 months (or such other greater or lesser period as the Committee may
specify at the time of grant) from the date of such termination or until the
expiration of the stated term of the Stock Option, whichever period is shorter.
Similarly, should a Holder die while in the employment of Winstar or a
subsidiary, his or her legal representative or legatee under his or her will may
exercise the decedent Holder's Stock Options for a period of 18 months from the
date of his or her death (or such other greater or lesser period as the
Committee specifies at the time of grant) or until the expiration of the stated
term of the Stock Option, whichever period is shorter. If the Holder's
employment with Winstar is terminated due to normal retirement (upon such age as
designated by the Committee, and if no age is designated, then upon attaining
the age of 62), the Holder may still exercise his or her vested Stock Options
for a period of 18 months (or such other greater or lesser period as the
Committee may specify at the time of grant) from the date of such termination or
until the expiration of the stated term of the Stock Option, whichever period is
shorter. If the Holder's employment is terminated for any reason other than
death, disability or normal retirement, the Stock Option shall automatically
terminate, except that if the Holder's employment is terminated by Winstar
without cause or if the Holder voluntarily terminates his or her employment
without breaching any employment agreement between Winstar or any subsidiary and
the Holder, then the portion of any Stock Option that has
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vested on the date of termination may be exercised for the lesser of three
months after termination or the balance of the Stock Option's term, unless
otherwise determined by the Committee.
Stock Appreciation Rights. The Committee may grant Stock Appreciation
Rights ("SARs" or singularly "SAR") to participants who have been, or are being,
granted Stock Options under the 2000 plan as a means of allowing such
participants to exercise their Stock Options without the need to pay the
exercise price in cash. In conjunction with Non-Qualified Stock Options, SARs
may be granted either at or after the time of the grant of such Non-Qualified
Stock Options. In conjunction with Incentive Stock Options, SARs may be granted
only at the time of the grant of such Incentive Stock Options. A SAR entitles
the Holder to receive a number of shares of common stock having a fair market
value equal to the excess fair market value of one share of common stock over
the exercise price of the related Stock Option, multiplied by the number of
shares subject to the SAR. The granting of a SAR will not affect the number of
shares of common stock available for awards under the 2000 plan. The number of
shares available for awards under the 2000 plan will, however, be reduced by the
number of shares of common stock acquirable upon exercise of the Stock Option to
which the SAR relates.
Restricted Stock. The Committee may award shares of restricted stock
("Restricted Stock") either alone or in addition to other Awards granted under
the 2000 plan. The Committee determines the persons to whom grants of Restricted
Stock are made, the number of shares to be awarded, the price (if any) to be
paid for the Restricted Stock by the person receiving such stock from Winstar,
the time or times within which awards of Restricted Stock may be subject to
forfeiture (the "Restriction Period"), the vesting schedule and rights to
acceleration thereof, and all other terms and conditions of the Restricted Stock
awards.
Restricted Stock awarded under the 2000 plan may not be sold, exchanged,
assigned, transferred, pledged, encumbered or otherwise disposed of other than
to Winstar during the applicable Restriction Period. Other than regular cash
dividends and other cash equivalent distributions as the Committee may
designate, pay or distribute, Winstar will retain custody of all distributions
("Retained Distributions") made or declared with respect to the Restricted Stock
during the Restriction Period. A breach of any restriction regarding the
Restricted Stock will cause a forfeiture of such Restricted Stock and any
Retained Distributions with respect thereto. Except for the foregoing
restrictions, the Holder will, even during the Restriction Period, have all of
the rights of a stockholder, including the right to receive and retain all
regular cash dividends and other cash equivalent distributions as the Committee
may designate, pay or distribute on such Restricted Stock and the right to vote
such shares.
In order to enforce the foregoing restrictions, the 2000 plan requires that
all shares of Restricted Stock awarded to the Holder remain in the physical
custody of Winstar until the restrictions on such shares have terminated and all
vesting requirements with respect to the Restricted Stock have been fulfilled.
Deferred Stock. The Committee may award shares of deferred stock ("Deferred
Stock") either alone or in addition to other Awards granted under the 2000 plan.
The Committee determines the eligible persons to whom, and the time or times at
which, Deferred Stock will be awarded, the number of shares of Deferred Stock to
be awarded to any person, the duration of the period (the
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"Deferral Period") during which, and the conditions under which, receipt of the
stock will be deferred, and all the other terms and conditions of such Deferred
Stock Awards.
Deferred Stock awards granted under the 2000 plan may not be sold,
exchanged, assigned, transferred, pledged, encumbered or otherwise disposed of
other than to Winstar during the applicable Deferral Period. The Holder shall
not have any rights of a stockholder until the expiration of the applicable
Deferral Period and the issuance and delivery of the certificates representing
such common stock. The Holder may request to defer the receipt of a Deferred
Stock award for an additional specified period or until a specified event. Such
request must generally be made at least one year prior to the expiration of the
Deferral Period for such Deferred Stock award.
Stock Reload Options. The Committee may grant Stock Reload Options to a
Holder who tenders shares of common stock to pay the exercise price of a Stock
Option ("Underlying Option") and/or arranges to have a portion of the shares
otherwise issuable upon exercise withheld to pay the applicable withholding
taxes. A Stock Reload Option permits a Holder who exercises a Stock Option by
delivering stock owned by the Holder for a minimum of six months to receive back
from Winstar a new Stock Option (at the current market price) for the same
number of shares delivered to exercise the Option. The Committee determines the
terms, conditions, restrictions and limitations of the Stock Reload Options. The
exercise price of Stock Reload Options shall be the fair market value as of the
date of exercise of the Underlying Option. Unless the Committee determines
otherwise, a Stock Reload Option may be exercised commencing one year after it
is granted and expires on the expiration date of the Underlying Option.
Other Stock-Based Awards. The Committee may grant Other Stock-Based Awards,
subject to limitations under applicable law, that are denominated or payable in,
valued in whole or in part by reference to, or otherwise based on, or related
to, shares of common stock, as deemed by the Committee to be consistent with the
purposes of the 2000 plan, including purchase rights, shares of common stock
awarded which are not subject to any restrictions or conditions, convertible or
exchangeable debentures or other rights convertible into shares of common stock
and awards valued by reference to the value of securities of or the performance
of specified subsidiaries. Subject to the terms of the 2000 plan, the Committee
has complete discretion to determine the terms and conditions applicable to
Other Stock-Based Awards. Other Stock-Based Awards may be awarded either alone
or in addition to or in tandem with any other awards under the 2000 plan or any
other plan of Winstar.
Competition with Winstar; Solicitation of Customers and
Employees; Disclosure of Confidential Information
If a Holder's employment with Winstar or a subsidiary is terminated for any
reason whatsoever, and within 12 months after the date of termination such
Holder either (i) accepts employment with any competitor of, or otherwise
engages in competition with, Winstar, (ii) solicits any customers or employees
of Winstar to do business with or render services to the Holder or any business
with which the Holder becomes affiliated or to which the Holder renders services
or (iii) discloses to anyone outside Winstar or uses any confidential
information or material of Winstar in violation of Winstar's policies or any
agreement between the Holder and Winstar, the Committee, in its sole discretion,
may require such Holder to return to Winstar the economic value of any Award
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that was realized or obtained by such Holder at any time during the period
beginning on that date that is 12 months prior to the date such Holder's
employment with Winstar is terminated.
Withholding Taxes
Upon the exercise of any Award granted under the 2000 plan, the Holder may
be required to remit to Winstar an amount sufficient to satisfy all federal,
state and local withholding tax requirements prior to delivery of any
certificate or certificates for shares of common stock. Subject to certain
stringent limitations under the 2000 plan and at the discretion of Winstar, the
Holder may satisfy these requirements by electing to have Winstar withhold a
portion of the shares to be received upon the exercise of the Award having a
value equal to the amount of the withholding tax due under applicable federal,
state and local laws.
Agreements
Stock options, restricted stock, deferred stock, stock reload options,
other stock-based awards and SARs granted under the 2000 plan will be evidenced
by agreements consistent with the 2000 plan in such form and having such
additional terms (not contrary to the requirements of the 2000 plan) as the
Committee may prescribe. Neither the 2000 plan nor agreements thereunder confer
any right to continued employment upon any holder of a stock option, restricted
stock, deferred stock, stock reload options, other stock-based award or SAR.
Term and Amendments
Unless terminated by the board, the 2000 plan shall continue to remain
effective until such time as no further Awards may be granted and all Awards
granted under the 2000 plan are no longer outstanding. Notwithstanding the
foregoing, grants of incentive stock options may be made only during the
ten-year period following the date the 2000 plan becomes effective. The board
may at any time, and from time to time, amend the 2000 plan, provided that no
amendment will be made that would impair the rights of a holder under any
agreement entered into pursuant to the 2000 plan without the holder's consent.
Change in Control
The 2000 plan contains certain change in control provisions which could
cause Stock Options and other Awards to become immediately exercisable and
restrictions and deferral limitations applicable to other awards to lapse in the
event:
o any "person" as such term is used in Sections 13(d) and 14(d) of the
Exchange Act, including a "group" as defined in Section 13(d), but
excluding certain stockholders of Winstar, acquires beneficial
ownership of common stock of Winstar having 35% (and 25% in certain
cases) or more of the total voting power of all of Winstar's
outstanding voting capital stock;
o of a merger or consolidation of Winstar, other than one resulting in
Winstar's voting securities outstanding immediately prior thereto
continuing to represent at least 50%
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of the combined voting power of the voting securities of Winstar or
the surviving entity outstanding immediately after such merger or
consolidation;
o of a sale of all or substantially all of Winstar's assets or the
approval of a plan of liquidation of Winstar; or
o members of the board on the effective date of the 2000 plan (together
with any directors elected after the effective date whose election by
the board or whose nomination for election by the stockholders of
Winstar was approved by a vote of a majority of the directors then in
office who were either directors on the effective date of the 2000
plan or whose election or nomination for election was previously so
approved) cease for any reason other than death or disability to
constitute a majority of the board of directors then in office.
Federal Income Tax Consequences
The following discussion of the federal income tax consequences of
participation in the 2000 plan is only a summary of the general rules applicable
to the grant and exercise of Stock Options and other Awards and does not give
specific details or cover, among other things, state, local and foreign tax
treatment of participation in the 2000 plan. The information contained in this
section is based on present law and regulations, which are subject to being
changed prospectively or retroactively.
Incentive Stock Options
The Holder will recognize no taxable income upon the grant of an Incentive
Stock Option. The Holder will realize no taxable income when the Incentive Stock
Option is exercised if the Holder has been an employee of Winstar or its
subsidiaries at all times from the date of the grant until three months before
the date of exercise (one year if the Holder is disabled). Winstar will not
qualify for any deduction in connection with the grant or exercise of Incentive
Stock Options. Upon a disposition of the shares after the later of two years
from the date of grant or one year after the transfer of the shares to the
Holder, the Holder will recognize the difference, if any, between the amount
realized and the exercise price as long-term capital gain or long-term capital
loss (as the case may be) if the shares are capital assets. The excess, if any,
of the fair market value of the shares on the date of exercise of an Incentive
Stock Option over the exercise price will be treated as an item of adjustment
for a Holder's taxable year in which the exercise occurs and may result in an
alternative minimum tax liability for the Holder.
If common stock acquired upon the exercise of an Incentive Stock Option is
disposed of prior to the expiration of the holding periods described above, (i)
the Holder will recognize ordinary compensation income in the taxable year of
disposition in an amount equal to the excess, if any, of the lesser of the fair
market value of the shares on the date of exercise or the amount realized on the
disposition of the shares, over the exercise price paid for such shares and (ii)
Winstar will qualify for a deduction equal to any such amount recognized,
subject to the limitation that the compensation be reasonable. In the case of a
disposition of shares earlier than two years from the date of the grant or in
the same taxable year as the exercise, where the amount realized on the
disposition is less than
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the fair market value of the shares on the date of exercise, there will be no
adjustment since the amount treated as an item of adjustment, for alternative
minimum tax purposes, is limited to the excess of the amount realized on such
disposition over the exercise price, which is the same amount included in
regular taxable income.
Non-Qualified Stock Options
With respect to Non-Qualified Stock Options (i) upon grant of the Stock
Option, the Holder will recognize no income, (ii) upon exercise of the Stock
Option (if the shares of common stock are not subject to a substantial risk of
forfeiture), the Holder will recognize ordinary compensation income in an amount
equal to the excess, if any, of the fair market value of the shares on the date
of exercise over the exercise price, and Winstar will qualify for a deduction in
the same amount, subject to the requirement that the compensation be reasonable
and (iii) Winstar will be required to comply with applicable federal income tax
withholding requirements with respect to the amount of ordinary compensation
income recognized by the Holder. On a disposition of the shares, the Holder will
recognize gain or loss equal to the difference between the amount realized and
the sum of the exercise price and the ordinary compensation income recognized.
Such gain or loss will be treated as capital gain or loss if the shares are
capital assets and as short-term or long-term capital gain or loss, depending
upon the length of time that the Holder held the shares.
If the shares acquired upon exercise of a Non-Qualified Stock Option are
subject to a substantial risk of forfeiture, the Holder will recognize ordinary
income at the time when the substantial risk of forfeiture is removed, unless
such Holder timely files under Code Section 83(b) to elect to be taxed on the
receipt of shares, and Winstar will qualify for a corresponding deduction at
such time. The amount of ordinary income will be equal to the excess of the fair
market value of the shares at the time the income is recognized over the amount
(if any) paid for the shares.
Stock Appreciation Rights
Upon the grant of a SAR, the Holder recognizes no taxable income and
Winstar receives no deduction. The Holder recognizes ordinary income and Winstar
receives a deduction at the time of exercise equal to the cash and fair market
value of common stock payable upon such exercise.
Restricted Stock
A Holder who receives Restricted Stock will recognize no income on the
grant of the Restricted Stock and Winstar will not qualify for any deduction. At
the time the Restricted Stock is no longer subject to a substantial risk of
forfeiture, a Holder will recognize ordinary compensation income in an amount
equal to the excess, if any, of the fair market value of the Restricted Stock at
the time the restriction lapses over the consideration paid for the Restricted
Stock. A Holder's shares are treated as being subject to a substantial risk of
forfeiture so long as his or her sale of the shares at a profit could subject
him or her to a suit under Section 16 (b) of the Exchange Act. The holding
period to determine whether the Holder has long-term or short-term capital gain
or loss begins when the Restriction Period expires, and the tax basis for the
shares will generally be the fair market value of the shares on such date.
34
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A Holder may elect, under Section 83(b) of the Code, within 30 days of the
transfer of the Restricted Stock, to recognize ordinary compensation income on
the date of transfer in an amount equal to the excess, if any, of the fair
market value on the date of such transfer of the shares of Restricted Stock
(determined without regard to the restrictions) over the consideration paid for
the Restricted Stock. If a Holder makes such election and thereafter forfeits
the shares, no ordinary loss deduction will be allowed. Such forfeiture will be
treated as a sale or exchange upon which there is realized loss equal to the
excess, if any, of the consideration paid for the shares over the amount
realized on such forfeiture. Such loss will be a capital loss if the shares are
capital assets. If a Holder makes an election under Section 83(b), the holding
period will commence on the day after the date of transfer and the tax basis
will equal the fair market value of shares (determined without regard to the
restrictions) on the date of transfer.
On a disposition of the shares, a Holder will recognize gain or loss equal
to the difference between the amount realized and the tax basis for the shares.
Whether or not the Holder makes an election under Section 83(b), Winstar
generally will qualify for a deduction (subject to the reasonableness of
compensation limitation) equal to the amount that is taxable as ordinary income
to the Holder, in its taxable year in which such income is included in the
Holder's gross income. The income recognized by the Holder will be subject to
applicable withholding tax requirements.
Dividends paid on Restricted Stock which is subject to a substantial risk
of forfeiture generally will be treated as compensation that is taxable as
ordinary compensation income to the Holder and will be deductible by Winstar
subject to the reasonableness limitation. If, however, the Holder makes a
Section 83(b) election, the dividends will be treated as dividends and taxable
as ordinary income to the Holder, but will not be deductible by Winstar.
Deferred Stock
A Holder who receives an award of Deferred Stock will recognize no income
on the grant of such award. However, he or she will recognize ordinary
compensation income on the transfer of the Deferred Stock (or the later lapse of
a substantial risk of forfeiture to which the Deferred Stock is subject, if the
Holder does not make a Section 83(b) election), in accordance with the same
rules as discussed above under the caption "Restricted Stock."
INDEPENDENT AUDITORS
Grant Thornton LLP served as Winstar's independent certified public
accountants for the year ended December 31, 1999. The board has selected Grant
Thornton LLP as Winstar's independent certified public accountants for the
fiscal year ending December 31, 2000. A representative of Grant Thornton LLP
will have the opportunity to address the stockholders if he so desires and is
expected to be present at the meeting. The representative will be available to
answer appropriate questions from stockholders.
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2000 STOCKHOLDER PROPOSALS
In order for stockholder proposals for the 2001 annual meeting of
Stockholders to be eligible for inclusion in Winstar's Proxy Statement, they
must be received by Winstar at its principal office in New York, New York by
January 26, 2001. A stockholder must have been a continuously registered or
beneficial owner of at least 1% of Winstar's outstanding stock or stock with a
market value of at least $2,000 for at least one year prior to submitting the
proposal, and the stockholder must continue to own such stock through the
date on which the 2001 annual meeting of stockholders is held.
OTHER MATTERS
The board knows of no matter that will be presented for consideration at
the meeting other than the matters referred to in this proxy statement. Should
any other matter properly come before the meeting, it is the intention of the
persons named in the accompanying proxy to vote such proxy in accordance with
their best judgment.
SOLICITATION OF PROXIES
The cost of proxy solicitations will be borne by Winstar. In addition to
solicitations of proxies by use of the mails, some officers or employees of
Winstar, without additional remuneration, may solicit proxies personally or by
telephone. Winstar may also request brokers, dealers, banks and their nominees
to solicit proxies from their clients, where appropriate, and may reimburse them
for reasonable expenses related thereto. Additional solicitation of proxies may
be made by an independent proxy solicitation firm or other entity possessing the
facilities to engage in such solicitation. If any independent entity is used for
such solicitation, Winstar has engaged Georgeson Shareholder Communications Inc.
to assist in the solicitation of proxies and will be required to pay such firm
reasonable fees and reimburse expenses incurred by such firm in the rendering
of such solicitation services.
Timothy R. Graham
Secretary
New York, New York
May 22, 2000
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WINSTAR COMMUNICATIONS, INC.
Instructions for Voting Your Proxy
Winstar Communications, Inc. is now offering stockholders of record three
alternative ways of voting your proxies:
o By Telephone o Via the Internet
(using a touch-tone phone) (using a browser)
o By Mail
(traditional method)
Your telephone or Internet vote authorizes the named proxies to vote your shares
in the same manner as if you had returned your proxy card. We encourage you to
use these cost-effective and convenient ways of voting, 24 hours a day, 7 days a
week.
TO VOTE BY PHONE Available only until 5:00 p.m. Eastern time on June 26, 2000
o This method of voting is available for residents of the U.S. and Canada.
o On a touch-tone phone, call TOLL-FREE 1-800-850-5356, 24 hours a day,
7 days a week.
o You will be asked to enter ONLY the CONTROL NUMBER shown below.
o Have your proxy card ready, then follow the simple recorded instructions.
o Your vote will be confirmed and cast as you direct.
TO VOTE BY INTERNET Available only until 5:00 p.m. Eastern time on June 26, 2000
o Visit our Internet voting Website at http://www.proxy.georgeson.com.
o Enter both the COMPANY NUMBER AND CONTROL NUMBER shown below.
o Follow the simple instructions on the screen.
o You will incur only your usual Internet charges.
TO VOTE BY MAIL
o Mark, sign and date the attached proxy card and return it in the
postage-paid envelope enclosed.
o If you are voting by telephone or the Internet, please do not mail
your proxy card.
COMPANY NUMBER CONTROL NUMBER
TO VOTE BY MAIL, PLEASE DETACH THE PROXY CARD HERE.
[X] Votes must be indicated as in example to the left, in Black or Blue ink.
<PAGE>
WINSTAR COMMUNICATIONS, INC.
Solicited By The Board of Directors
for the Annual Meeting To Be Held on June 28, 2000
The undersigned Stockholder(s) of Winstar Communications, Inc., a
P Delaware corporation ("Company"), hereby appoints William J. Rouhana, Jr.
and Timothy R. Graham, or either of them, with full power of substitution
and to act without the other, as the agents, attorneys and proxies of the
undersigned, to vote the shares standing in the name of the undersigned at
the Annual Meeting of Stockholders of the Company to be held on June 28,
R 2000 and at all adjournments thereof. This proxy will be voted in
accordance with the instructions given below. If no instructions are given,
this proxy will be voted FOR all of the following proposals.
O 1. Election of the following Class III Directors:
FOR all nominees listed below except WITHHOLD AUTHORITY to vote for
X as marked to the contrary below |_| all nominees listed below |_|
William J. Rouhana, Jr., William J. vanden Heuvel and Steven B. Magyar
Y
INSTRUCTIONS: To withhold authority to vote for any individual nominee,
write that nominee's name in the space below.
-----------------------------------------------------------
2. FOR approval of amendment to certificate WITHHOLD AUTHORITY to vote for
of incorporation to increase the number amendment to certificate of
of authorized shares of common incorporation to increase the
stock |_| number of authorized shares of
common stock |_|
3. FOR approval of amendment to certificate WITHHOLD AUTHORITY to vote for
of incorporation to increase the number amendment to certificate of
of authorized shares of preferred incorporation to increase the
stock |_| number of authorized shares of
preferred stock |_|
4. FOR approval of 2000 Performance Equity WITHHOLD AUTHORITY to vote for
Plan |_| 2000 Performance Equity Plan
|_|
5. In their discretion, the proxies are authorized to vote upon such
other business as may come before the meeting or any adjournment
thereof.
|_| I plan on attending the Annual Meeting.
Date _____________________________, 2000
----------------------------------------
Signature
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Signature if held jointly
Please sign exactly as name appears above.
When shares are held by joint tenants, both
should sign. When signing as attorney,
executor, administrator, trustee or
guardian, please give full title as
such. If a corporation, please sign in full
corporate name by President or other
authorized officer. If a partnership,
please sign in partnership name by
authorized person.
Has your address changed:_______________________________________________________
________________________________________________________________________________
Do you have any comments:_______________________________________________________
________________________________________________________________________________