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 ____
Filed by a party other than the registrant ____
Check the appropriate box:
|X| Preliminary proxy statement _______ Confidential, For Use of the
|_| Definitive proxy statement Commission Only (as
|_| Definitive additional materials permitted by Rule 14a-6(e)(2))
|_| Soliciting material pursuant to
Rule 14a-11(c) or Rule 14a-12
WINSTAR COMMUNICATIONS, INC. __
(Name of Registrant as Specified in Its Charter)
_
(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:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11
(set forth the amount on which the filing fee is calculated and state how
it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
____ Fee paid previously with preliminary materials:
____ 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:
(2) Form, schedule or Registration Statement no.:
(3) Filing party:
(4) Date filed:
<PAGE>
WINSTAR COMMUNICATIONS, INC.
230 Park Avenue
New York, New York 10169
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON
JUNE 26, 1997
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders
("Meeting") of WinStar Communications, Inc. ("Company"), will be held at the
Intercontinental Hotel, 111 East 48th Street, New York, New York 10017, on
Thursday, June 26, 1997, at 10:00 a.m., for the following purposes, all as more
fully described in the attached Proxy Statement:
(i) To elect three Class III Directors, each to serve for the ensuing
three-year period and until his respective successor is elected and qualified;
(ii) To approve an amendment to the Company's 1995 Performance Equity Plan
to increase the number of shares of Common Stock available for issuance upon
exercise of options and other awards granted or which may be granted thereunder;
(iii) To approve an amendment to the Company's Certificate of Incorporation
to increase the number of shares of Common Stock authorized for issuance by the
Company to 200,000,000;
(iv) To transact such other business as may properly come before the
Meeting and any and all adjournments thereof.
The transfer books will not be closed for the Meeting. The Board of
Directors has fixed the close of business on April 29, 1997 as the record date
for the determination of stockholders entitled to notice of, and to vote at, the
Meeting or any adjournment thereof.
You are earnestly requested to date, sign and return the accompanying
form of proxy in the envelope enclosed for that purpose (to which no postage
need be affixed if mailed in the United States) whether or not you expect to
attend the Meeting in person. The proxy is revocable by you at any time prior to
its exercise and will not affect your right to vote in person in the event you
attend the Meeting or any adjournment thereof. The prompt return of the proxy
will be of assistance in preparing for the Meeting and your cooperation in this
respect is appreciated. You are urged to read the attached Proxy Statement,
which contains information relevant to the actions to be taken at the Meeting.
By Order of the Board of Directors
Timothy R. Graham
Secretary
New York, New York
May[ 5], 1997
<PAGE>
WINSTAR COMMUNICATIONS, INC.
PROXY STATEMENT
GENERAL INFORMATION
This Proxy Statement is furnished to stockholders of WinStar
Communications, Inc. ("Company"), in connection with the solicitation of
proxies, in the accompanying form, by the Board of Directors of the Company (the
"Board") for use in voting at the Annual Meeting of Stockholders ("Meeting") to
be held at the Intercontinental Hotel, 111 East 48th Street, New York, New York
10017, on Thursday, June 26, 1997, at 10:00 a.m., and at any and all
adjournments thereof.
The Company's executive offices are located at 230 Park Avenue, New
York, New York 10169. Effective January 1, 1996, the Company changed its fiscal
year end from the last day of February to December 31 and now reports on a
calendar year basis. On or about May [5], 1997, this Proxy Statement and the
accompanying form of proxy, together with a copy of the Company's Annual Report
to Stockholders for the year ended December 31, 1996, including financial
statements, are to be mailed to each stockholder of record at the close of
business on April 29, 1997.
Record Date and Outstanding Shares
The Board has fixed the close of business on April 29, 1997 as the
record date for the determination of stockholders entitled to notice of, and to
vote at, the Meeting. Only stockholders of record at the close of business on
that date will be entitled to vote at the Meeting or any and all adjournments
thereof. As of [May 5], 1997, the Company has issued and outstanding
[32,886,538] shares of Common Stock and 4,033,335 shares of Series A Preferred
Stock ("Series A Stock"), comprising all of the Company's issued and outstanding
voting stock (together, "Voting Stock"). Each holder of Voting Stock of the
Company will be entitled to one vote for each share of Voting Stock.
Solicitation and Revocation
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. Any proxy given pursuant to such solicitation and received in time for
the Meeting will be voted as specified in such proxy. If no instructions are
given, proxies will be voted "FOR" the election of the nominees listed below
under Proposal I, "FOR" the approval of the amendment to the 1995 Performance
Equity Plan ("1995 Plan") as described below under Proposal II, "FOR" the
approval of the amendment to the Company's Certificate of Incorporation as
described below under Proposal III and 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.
Any proxy given pursuant to this solicitation may be revoked by the stockholder
at any time before it is exercised by written notification delivered to the
Secretary of the Company, by voting in person at the Meeting, or by delivering
another proxy bearing a later date. Attendance by a stockholder at the Meeting
does not alone serve to revoke his or her proxy.
<PAGE>
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 such proxy are not being voted ("stockholder withholding")
with respect to a particular matter. Similarly, a broker may not be permitted to
vote stock ("broker nonvote") held in street name on a particular matter in the
absence of instructions from the beneficial owner of such stock. The shares
subject to a proxy which are not being voted on a particular matter (because of
either stockholder withholding or broker nonvote) will not be considered shares
present and entitled to vote on such 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, unless the proxy indicates
that such shares are not being voted on any matter at the Meeting, in which case
such shares will not be counted for purposes of determining the presence of a
quorum.
Voting
Under Proposal I, the Class III Directors will be elected by a
plurality of the votes cast at the Meeting with respect to the election of
directors. "Plurality" means that the three nominees who receive the highest
number of votes will be elected as the Class III Directors of the Company for
the ensuing three-year period. Consequently, any shares not voted "FOR" a
particular nominee (because of either stockholder withholding or broker
nonvote), will not be counted in such nominee's favor.
Proposal II, the amendment to the 1995 Plan must be approved by the
affirmative vote of a majority of the votes cast at the Meeting. Proposal III,
the amendment to the Company's Certificate of Incorporation increasing its
authorized capital, must be approved by the affirmative vote of a majority of
the outstanding shares of Voting Stock entitled to vote at the Meeting.
Abstentions from voting with respect to Proposal II or Proposal III 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 (because of either stockholder withholding
or broker nonvote) are not deemed "votes cast" with respect to such proposal and
therefore will have no effect on such vote.
Security Ownership of Certain Beneficial Owners and Management
The table and accompanying footnotes on the following pages set forth
certain information as of [May 5], 1997 with respect to the stock ownership of
(i) those persons or groups who beneficially own more than 5% of the Company's
Common Stock, (ii) each director and director-nominee of the Company, (iii) the
Company's Chief Executive Officer and each of the Company's next four most
highly compensated executive officers whose individual compensation exceeded
$100,000 in the year ended December 31, 1996, and (iv) all directors and
executive officers of the Company as a group (based upon information furnished
by such persons). Shares of Common Stock issuable upon exercise of options which
are currently exercisable or exercisable within 60 days of the date of this
Proxy Statement have been included in the following table. See "Employment
Agreements" and "Stock Option Plans" for additional information on the stock
options granted to the indicated persons. The percentages set forth on this
table do not give effect to the Company's outstanding Series A Stock.
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Percent
Name and Address of Beneficial Owner Beneficially Owned Beneficially Owned
<S> <C> <C>
William J. Rouhana, Jr. (1) 2,253,784(2) 6.74%
Nathan Kantor (1) 849,401(3) 2.53
Steven G. Chrust (1) 500,333(4) 1.50
Fredric E. von Stange (1) 907,499(5) 2.73
Steven B. Magyar
Two Pine Point
Lloyd Harbor, New York 11742 60,706(6) *
Dennis Patrick
1000 Dogue Hill Lane
McLean, Virginia 22101 1,345,798(7) 4.09
William J. vanden Heuvel
812 Park Avenue
New York, New York 10021 87,500(8) *
Bert Wasserman
126 East 56th Street
New York, New York 10022 90,000(9) *
William Harvey
c/o Next Century Media, Inc.
11 North Chestnut Street
New Paltz, New York 12561 30,000(10) *
James I. Cash
Harvard University
Graduate School of Business
Administration
Baker Library 187
Soldiers Field Road 10,000(11) *
Boston, Massachusetts 02163
Timothy R. Graham (1) 385,852(12) 1.17
All Directors and Executive
Officers as a Group (11 persons) 6,520,873(13) 18.50
- ------------------
<FN>
* Less than 1%.
(1) The address of this person is c/o WinStar Communications, Inc., 230
Park Avenue, New York, New York 10169.
(2) Includes 568,333 shares of Common Stock issuable upon exercise of
certain options. Does not include (i) 116,667 shares of Common Stock issuable
upon exercise of options which become exercisable in two equal annual
installments in July 1997 and 1998 or (ii) 125,000 shares of Common Stock
issuable upon exercise of options which become exercisable in five equal annual
<PAGE>
installments commencing in April 1998. See "Proposal II" regarding termination
of these options in the event such proposal is not approved by the stockholders
at the Meeting. Mr. Rouhana has agreed that, during the term of Nathan Kantor's
employment agreement with the Company, he would vote all shares of Common Stock
he controls in favor of Mr. Kantor as a director of the Company.
(3) Includes 689,999 shares of Common Stock issuable upon exercise of
certain options. Also includes 6,500 shares of Common Stock owned by Mr.
Kantor's son, over which Mr. Kantor disclaims beneficial ownership. Does not
include (i) 233,334 shares of Common Stock issuable upon exercise of other
options which become exercisable in two equal annual installments commencing in
September 1997, (ii) 66,667 shares of Common Stock issuable upon exercise of
options which become exercisable in two equal annual installments commencing in
August 1997 or (iii) 50,000 shares of Common Stock issuable upon exercise of
options which become exercisable in five equal annual installments commencing in
April 1998. See "Proposal II" regarding termination of the options in (iii)in
the event such proposal is not approved by the stockholders at the Meeting.
(4) Includes (i) 12,000 shares of Common Stock owned by the pension plan
for SGC Advisory Services, Inc., a telecommunications consulting firm of which
Mr. Chrust is President and owner, and (ii) 368,333 shares of Common Stock
issuable upon exercise of certain options owned by Mr. Chrust or members of his
family. Does not include (A) 360,000 shares of Common Stock issuable upon
exercise of other options which become exercisable in three equal annual
installments commencing in January 1998, (B) 66,667 shares of Common Stock
issuable upon exercise of other options which become exercisable in two equal
annual installments commencing in July 1997 or (C) 35,000 shares of Common Stock
issuable upon exercise of options which become exercisable in five equal annual
installments commencing in April 1998. See "Proposal II" regarding termination
of the options in (c)in the event such proposal is not approved by the
stockholders at the Meeting.
(5) Includes 301,666 shares of Common Stock issuable upon exercise of
certain options. Does not include (i) 33,334 shares of Common Stock issuable
upon the exercise of options which become exercisable in two equal annual
installments commencing in October 1997 or (ii) 25,000 shares of Common Stock
issuable upon exercise of options which become exercisable in five equal annual
installments commencing in April 1998. See "Proposal II" regarding termination
of the options in (ii) in the event such proposal is not approved by the
stockholders at the Meeting.
(6) Includes (i) 1,000 shares of Common Stock owned by Mr. Magyar's spouse,
over which Mr. Magyar disclaims beneficial ownership, (ii) 1,670 shares of
Common Stock owned by benefit plans of which Mr. Magyar is the sole trustee and
primary beneficiary, and (iii) 40,000 shares of Common Stock issuable upon
exercise of certain options.
(7) Includes 10,000 shares of Common Stock issuable upon exercise of
certain options.
(8) Includes 80,000 shares of Common Stock issuable upon exercise of
certain options. Also includes 500 shares owned by Mr. vanden Heuvel's spouse,
as to which he disclaims beneficial ownership.
(9) Includes 80,000 shares of Common Stock issuable upon exercise of
certain options.
(10) Represents 30,000 shares of Common Stock issuable upon exercise of
options.
(11) Represents 10,000 shares of Common Stock issuable upon exercise of
certain options. Does not include 40,000 shares of Common Stock issuable upon
exercise of options which become exercisable in two equal annual installments
commencing in January 1998.
(12) Includes 160,000 shares of Common Stock issuable upon exercise of
certain options. Does not include (i) 50,000 shares of Common Stock issuable
upon exercise of other options which
<PAGE>
become exercisable in October 1997 or (ii) 25,000 shares of Common Stock
issuable upon exercise of options which become exercisable in five equal annual
installments commencing in April 1998. See "Proposal II" regarding termination
of the options in (ii) in the event such proposal is not approved by the
stockholders at the Meeting.
(13) Includes shares referred to as being included in notes (1) through
(12). Excludes shares referred to in such notes as being excluded.
</FN>
</TABLE>
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and executive officers and persons who
beneficially own more than ten percent of the Company's Common Stock to file
with the Securities and Exchange Commission ("SEC") initial reports of ownership
and reports of changes in ownership of Common Stock. Executive officers,
directors and greater-than-ten percent stockholders are required by SEC
regulation to furnish the Company with copies of all such reports they file. To
the Company's knowledge, based solely on review of the copies of such reports
furnished to the Company and written representations that no other reports were
required, during the year ended December 31, 1996, 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 Steven G. Chrust, Fredric E. von Stange and William
Harvey, will expire in 1998, the term of office of the second class of directors
(Class II), presently consisting of Bert W. Wasserman, Nathan Kantor, Dennis R.
Patrick and James I. Cash will expire in 1999, 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. Effective January 2, 1997,
Dennis R. Patrick and James I. Cash were elected as directors of the Company,
thereby expanding the size of the Board from eight directors to ten directors.
The Company's by-laws provide that, until August 1999, a majority of the members
of the Board will be independent directors.
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 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:
Class III Directors
William J. Rouhana, Jr., 44, has been a director of the Company since
its inception, its Chairman of the Board since February 1991, and its Chief
Executive Officer since May 1994. From 1983 until November 1995, Mr. Rouhana was
President and Chief Executive Officer of WinStar Companies, Inc. ("WinStar
Companies"), a merchant bank which, until November 1995, was a principal
stockholder of the Company. 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
<PAGE>
Vice Chairman of the Board until May 1990. Since August 1992, Mr. Rouhana has
been a director of TII Industries, Inc. ("TII Industries"), a telecommunications
equipment manufacturing company. From May 1991 through September 1994, he was
director of Lancit Media Productions, Ltd., a creator of children's television
programming. 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 Vice Chairman of
the Board of Governors of the United Nations Association and is a member of
certain other associations, including Business Executives for National Security.
He is a Phi Beta Kappa graduate of Colby College, a Thomas J. Watson Fellow
(1972-1973) and a graduate of Georgetown University School of Law. Mr. Rouhana
is the brother-in-law of Fredric E. von Stange.
Steven B. Magyar, 47, has been a director of the Company since June
1993. Since May 1994, Mr. Magyar has been operating a private business he owns
which specializes in financial services for high net worth individuals and
business owners. From 1989 to May 1994, Mr. Magyar was a regional vice president
of CIGNA Insurance Co. and during the preceding fifteen years held various sales
and sales management positions with CIGNA. Mr. Magyar has served on CIGNA's
strategic business development committee and has been a guest lecturer at New
York University. Mr. Magyar also is a Certified Life Underwriter and Chartered
Financial Consultant with the American College of Insurance. Mr. Magyar is a
member of the General Agents and Managers Association, the National Association
of Underwriters and the American Society of CLU and ChFC. Mr. Magyar is a
graduate of Colby College.
William J. vanden Heuvel, 66, has been a director of the Company since
June 1995. Since 1984, he has served as Senior Advisor to Allen & Co., an
investment banking firm, as well as counsel to the law firm Stroock & Stroock &
Lavan. He served as a director of Time Warner, Inc. ("Time Warner") from 1981 to
1993 and currently is a director of Zemex Corp., a New York Stock Exchange
listed company engaged in the mining and exploitation of industrial minerals.
Ambassador vanden Heuvel also has been a member of the IRC Group, a Washington
D.C.-based consulting group made up of former United States ambassadors, since
1981. He has been Chairman of the Board of Governors of the United Nations
Association since 1993. From 1979 to 1981, Ambassador vanden Heuvel served as
United States Deputy Permanent Representative to the United Nations. From 1977
to 1979, he served as United States Ambassador to the European Office of the
United Nations and various other international organizations. He was Special
Assistant to United States Attorney General Robert F. Kennedy from 1961 to 1964.
Ambassador vanden Heuvel is a graduate of Deep Springs College, Cornell
University and Cornell Law School.
The Board of Directors recommends voting
"FOR" each of the above Nominees.
<PAGE>
Information Concerning Other Directors and Executive Officers
Class I Directors
Steven G. Chrust, 47, has been a director of the Company since January
1994 and has been employed by the Company as its Vice Chairman of the Board
since January 1995, in which capacity he is responsible for strategic planning,
financing and corporate development. He has been the President of SGC Advisory
Services, Inc., a discretionary money-management services firm specializing in
the telecommunications and technology sector, since he founded it in October
1992. From August 1987 to September 1992, Mr. Chrust was a director of AMNEX,
Inc., an operator services long distance company, and served as its Chairman of
the Board, Chief Executive Officer and President between October 1990 and
October 1992. From August 1985 through December 1989, Mr. Chrust was the
Executive Vice President of Executone Information Systems, Inc., a
telecommunications equipment company. Mr. Chrust was Director of Technology
Research and a stockholder of Sanford C. Bernstein & Co., Inc., a Wall Street
investment firm, where he was ranked in the top tier of telecommunications
analysts for more than ten years and as the first-ranked analyst in that sector
for five consecutive years. He was associated with Sanford C. Bernstein & Co.,
Inc., from 1970 through 1985. From November 1993 until February 1996, Mr. Chrust
was a director of American Communications Services, Inc., a fiber optic-based
competitive access provider. Mr. Chrust is a graduate of Baruch College.
Fredric E. von Stange, 41, has been a director of the Company since its
inception, its Executive Vice President since January 1993, and its Chief
Financial Officer since March 1994. From 1983 until November 1995, Mr. von
Stange was Executive Vice President of WinStar Companies. Mr. von Stange is a
graduate of The Wharton School, University of Pennsylvania. He is the
brother-in-law of William J. Rouhana, Jr.
William Harvey, 54, has been a director of the Company since June 1994.
In 1972 and 1991, respectively, Mr. Harvey founded New Electronic Media Science,
Inc. ("NEMS"), and Next Century Media, Inc. ("Next Century"), marketing, media
and research consulting companies specializing in the marketing, entertainment
and interactive media industries. Mr. Harvey has served as Chief Executive
Officer and President of both NEMS and Next Century since their respective
inceptions. Through NEMS and Next Century, Mr. Harvey has worked with major
television and cable networks, several RBOCs, major film studios, IBM, AT&T,
advertising agencies, videotex companies and advertisers on the integration of
advertising into various new media. Mr. Harvey invented the marketing tool known
as the Area Dominant Influence for Arbitron and co-founded International Ratings
Services, Inc., the first company to provide United States movie studios,
including Warner Brothers, Columbia and CBS International, with ratings for
their television programs broadcast in foreign countries. Since 1979, Mr. Harvey
has also been the publisher of "The Marketing Pulse," a monthly advertising and
media trade newsletter.
Class II Directors
Nathan Kantor, 54, has been a director of the Company since October
1994 and President and Chief Operating Officer of the Company since September
1995. Since its formation in November 1990, Mr. Kantor had been the President of
ITC Group, Inc. ("ITC"), a company which specializes in the development of
emerging competitive telecommunications companies. Mr. Kantor, through ITC,
coordinated all of the Company's telecommunications operations from June 1994 to
September 1995 when he became President and Chief Operating Officer of the
Company, at which time services
<PAGE>
provided by ITC to the Company ceased. Mr. Kantor also is currently the Chairman
of the Board and Chief Executive Officer of Image Telecommunications Corp., a
company involved in the development of information and video servers. From
January 1985 to December 1990, he was President of MCI Telecommunications
Corporation (Northeast Division). Mr. Kantor was a founder of MCI International,
Inc., and served as its President and Chief Operating Officer from its founding
in July 1982 to December 1984. From 1972 to 1982, Mr. Kantor held a number of
senior management positions with MCI Communications, including Vice President of
National Operations. Mr. Kantor is a graduate of Florida State University and
the United States Military Academy at West Point.
Bert Wasserman, 64, has been a director of the Company since June 1995.
Mr. Wasserman was Executive Vice President and Chief Financial Officer of Time
Warner from January 1990 to December 1994 and was also a director of Time Warner
from January 1990 to March 1993. Mr. Wasserman was a member of the Office of the
President and was also a director of Warner Communications, Inc. ("Warner
Communications"), from 1981 to 1990, when that company merged with Time Warner,
and had served Warner Communications in various capacities beginning in 1966.
Mr. Wasserman serves as a member of various boards, including: several
investment companies in the Dreyfus Family of Funds; Lillian Vernon Corp., a
catalog seller of home products; Mountasia Entertainment International, Inc., an
operator of family recreation centers; The New German Fund, a New York Stock
Exchange listed mutual fund operated by Deutsche Bank AG; and IDT Corp., a
provider of telecommunications services, including Internet access and long
distance services. Mr. Wasserman also served as a director on the Chemical Bank
National Advisory Board until Chemical Bank merged with Chase Manhattan Bank in
March 1996. He is a graduate of Baruch College and Brooklyn Law School.
Dennis R. Patrick, 45, has been a director of the Company since January
1997. From 1995 until January 1997, Mr. Patrick served as Chairman and Chief
Executive Officer of Milliwave, L.P., a wireless competitive telecommunications
company which was acquired by the Company in January 1997. From 1990 to 1995,
Mr. Patrick served as President and Chief Executive Officer of Time Warner
Telecommunications, a division of Time Warner Entertainment Company, L.P., which
developed telecommunications strategies for its parent company, Time Warner, and
had operating responsibility for Time Warner's wireless telephone, paging and
data services business. Mr. Patrick served as Chairman of the Federal
Communications Commission ("FCC") from 1987 to 1989 and as a Commissioner of the
FCC from 1983 to 1989 under Presidents Reagan and Bush. From 1981 to 1983, he
served as an Associate Director of Presidential Personnel at the White House
under Ronald Reagan. From 1976 to 1981, Mr. Patrick was a practicing attorney in
Los Angeles. Mr. Patrick was inducted into the Broadcasting Hall of Fame in
1994. Mr. Patrick is a graduate of Occidental College and the University of
California School of Law.
James I. Cash, 49, has been a director of the Company since January
1997. Professor Cash has been a member of the faculty of Harvard Business School
since 1976, having taught in its Masters of Business Administration, Management
Development and Advanced Management programs. Professor Cash currently serves as
a trustee for Massachusetts General Hospital and the Massachusetts Computer
Software Council, overseer for The Gardner Museum and the Boston Museum of
Science, and is a member of the Board of Directors of Cambridge Technology
Partners, The Chubb Corporation, Knight-Ridder, Inc., State Street Bank and
Trust Company and Tandy Corporation. Professor Cash has authored numerous
articles and several books on topics related to information technology and
corporate management and structure and writes a regular column for Information
Week magazine. Professor Cash is a graduate of Texas Christian University,
Purdue University's Graduate School of Mathematical Sciences and Purdue
University's Krannert Graduate School of Management.
<PAGE>
Other Executive Officer
Timothy R. Graham, 47, has served as Executive Vice President of the
Company since October 1994. From October 1990 through September 1994, Mr. Graham
was engaged in the private practice of law and served in various capacities with
National Capital Management Corporation, a company engaged through its
subsidiaries in various businesses, such as the ownership of real estate rental
properties, industrial manufacturing and insurance matters, including as
Corporate Secretary and as President of its primary real estate and insurance
subsidiaries. During that period, Mr. Graham also acted in various capacities
for WinStar Services, Inc., a wholly owned subsidiary of WinStar Companies.
Prior to 1990, Mr. Graham was a partner in the law firm of Nixon, Hargrave,
Devans & Doyle, specializing in corporate finance, regulatory and business law.
Mr. Graham was a Securities Law Editor of Barrister Magazine, an American Bar
Association publication, from 1985 to 1986 and has authored a number of
publications, including "Public Offerings in the United States by Foreign
Companies" and "Financing of Foreign Companies through United States Securities
Markets." Mr. Graham is a director of TII Industries. Mr. Graham also is a
member of the Board of Advisors of the Instructional Television Station of the
Archdiocese of New York. Mr. Graham is a graduate of Fordham Law School and the
Georgetown University School of Foreign Service.
Board Meetings, Committees and Compensation
The Board met seven times during the year ended December 31, 1996. During
the year ended December 31, 1996, each director attended seventy-five percent or
more of the meetings held during such time as he was a director, except for Mr.
Kantor and Mr. Harvey, who each attended five meetings.
The Board currently maintains an Audit Committee, a Compensation Committee
and a Nominating Committee.
The Board's Audit Committee met two times during the year ended December
31, 1996. The responsibilities of the Audit Committee, which currently is
composed of Mr. Rouhana, Mr. Wasserman, Professor Cash and Mr. Magyar, include,
in addition to such other duties as the Board may specify, (i) recommending to
the Board the appointment of independent accountants; (ii) reviewing the timing,
scope and results of the independent accountants' audit examination and the
related fees; (iii) reviewing periodic comments and recommendations by the
Company's independent accountants and the Company's 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 Company's by-laws
provide that, until August 1999, a majority of the members of this Committee
must be independent directors.
The Board's Compensation Committee met four times during the year ended
December 31, 1996. The responsibilities of the Compensation Committee, which
currently is composed of Mr. Rouhana, Mr. Magyar, Mr. Harvey and Mr. vanden
Heuvel, include, in addition to such other duties as the Board may specify, (i)
reviewing and recommending to the Board the salaries, compensation and benefits
of the executive officers and key employees of the Company, (ii) reviewing any
related party transactions on an ongoing basis for potential conflicts of
interest and (iii) administering the Company's stock option plans. The Company's
by-laws provide that, until August 1999, a majority of the members of this
Committee must be independent directors and that, absent approval of a majority
of the independent members of the Compensation Committee, the Company will not
enter into any material transaction with any director or affiliate of any
director of the Company.
The Board's Nominating Committee met one time during the year ended
December 31, 1996. The responsibilities of the Nominating Committee, which
currently is composed of Mr. Rouhana, Mr.
<PAGE>
vanden Heuvel, Mr. Patrick and Mr. Magyar, include, in addition to such other
duties as the Board may specify, considering and recommending to the Board
nominees for directors.
The Company pays each outside director $500 for his attendance at each
meeting of a committee of which he is a member and $1,000 for his attendance at
each meeting of the Board. In addition, on January 13th of each year during the
term of the Company's 1992 Performance Equity Plan (the "1992 Plan"), assuming
there are enough shares then available for grant under the 1992 Plan, each
person who is then a director of the Company is awarded stock options to
purchase 10,000 shares of the Company's Common Stock at the fair market value
thereof (as determined in the accordance with the 1992 Plan), all of which
options are immediately exercisable as of the date of grant and have a term of
ten years.
Executive Compensation
The following tables show the compensation for the year ended December
31, 1996, the ten month period ended December 31, 1995 and the fiscal year ended
February 28, 1995 earned by William J. Rouhana, Jr., the Chief Executive Officer
of the Company, and Steven G. Chrust, Nathan Kantor, Fredric E. von Stange and
Timothy R. Graham, the next four most highly compensated executive officers of
the Company whose individual compensation exceeded $100,000 during the year
ended December 31, 1996.
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- ---------------------------------------------------------------------------------------------------------------------------
Annual Long Term Compensation
Compensation
-----------------------------------------------------------------
Fiscal Restricted
Year(1) Salary Bonus Stock Options
Name and principal position ($) ($) Awards($) (# Shares)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
William J. Rouhana, Jr. 12/31/96 410,076 400,000 -- 135,000(3)(5)
Chairman of the Board and 12/31/95 266,250 575,000 -- 460,000(4)(5)
Chief Executive Officer 2/28/95 -- (2) -- (2) -- 10,000(5)
- ---------------------------------------------------------------------------------------------------------------------------
Steven G. Chrust 12/31/96 317,809 225,000 -- 45,000(3)(5)
Vice Chairman of the Board 12/31/95 275,652 225,000 -- 10,000(5)
2/28/95 109,038(6) -- -- 610,000(5)(7)
- ---------------------------------------------------------------------------------------------------------------------------
Nathan Kantor 12/31/96 370,769 300,000 -- 60,000(3)(5)
President and Chief Operating Officer 12/31/95 99,692(8) 342,500(8) 1,237,500 710,000(9)(5)
2/28/95 -- (8) -- (8) -- 20,000(5)
- ---------------------------------------------------------------------------------------------------------------------------
Fredric E. von Stange 12/31/96 260,711 150,000 -- 35,000(3)(5)
Executive Vice President and Chief 12/31/95 187,692 200,000 -- 235,000(4)(5)
Financial Officer 2/28/95 125,000 -- -- 10,000(5)
- ---------------------------------------------------------------------------------------------------------------------------
Timothy R. Graham 12/31/96 217,788 125,000 -- 25,000(3)
Executive Vice President 12/31/95 158,654 75,000 -- 50,000(11)
2/28/95 72,115(10) -- -- 150,000(12)
- ---------------------------------------------------------------------------------------------------------------------------
- ------------------------------
<FN>
(1) Represents ten-month period with respect to information relating to the
period ended December 31, 1995.
(2) Mr. Rouhana was not paid any salary by the Company during the fiscal year
ended February 28, 1995. Mr. Rouhana became an employee of the Company on
March 1, 1995. See "Employment Agreements." In addition, during the fiscal
year ended February 28, 1995, an aggregate of $254,560 was paid by the
Company to WinStar Services, Inc. (a wholly-owned subsidiary of WinStar
Companies, of which Mr. Rouhana was a principal officer and stockholder,
"WinStar Services") by the Company as management fees and reimbursement of
expenses. The Company paid an additional $481,039 in cash and issued notes
in payment of contingent performance fees to WinStar Services during that
fiscal year. These contingent performance fees related to specific debt and
equity financing and investment transactions aggregating in excess of $33.6
million. All such notes were satisfied during that year when they were used
to pay for the exercise of warrants and stock options held by WinStar
Services and its affiliates.
(3) Represents options to purchase shares of Common Stock granted under the
1995 Plan. See "Proposal II" regarding termination of these options in the
event such proposal is not approved by the stockholders at the Meeting and
"Summary of 1995 Plan.
(4) Represents options to purchase shares of Common Stock granted under the
1995 Plan pursuant to the terms of holder's employment agreement. See
"Employment Agreements."
(5) Includes or represents options to purchase 10,000 shares of Common Stock
granted under the 1992 Plan. See "Stock Option Plans."
<PAGE>
(6) Mr. Chrust became an employee of the Company in January 1995. Accordingly,
he was paid only a portion of his annual salary during the fiscal year
ended February 28, 1995. See "Employment Agreements." In addition the
Company paid $119,020 to SGC Advisory Services, Inc., a consulting firm of
which Mr. Chrust is President and owner, for services rendered during that
year.
(7) Includes options to purchase 600,000 shares of Common Stock granted under
the terms of Mr. Chrust's employment agreement. See "Stock Option Plans."
and "Employment Agreements."
(8) Mr. Kantor became an employee of the Company in September 1995.
Accordingly, he was paid only a portion of his annual salary during the ten
months ended December 31, 1995. See "Employment Agreements." In addition,
for the year ended February 28, 1995 and the ten months ended December 31,
1995, the Company paid $1,553,249 and $1,046,084, respectively, to ITC
Group, Inc., a consulting firm of which Mr. Kantor was the President and
principal stockholder, for services rendered during those periods,
including providing the Company the services of up to 12 consultants at any
given time.
(9) Represents options granted under the terms of Mr. Kantor's employment
agreement. See "Employment Agreements."
(10) Mr. Graham became an employee of the Company in October 1994. Accordingly,
he was paid only a portion of his annual salary during the fiscal year
ended February 28, 1995. See "Employment Agreements."
(11) Represents options granted to Mr. Graham in connection with a one-year
extension of his employment agreement. See "Employment Agreements."
(12) Represents options granted to Mr. Graham in connection with his employment
with, and services rendered to, the Company. See "Employment Agreements."
</FN>
</TABLE>
The Company cannot determine, without unreasonable effort or expense,
the specific amount of certain personal benefits afforded to its employees, or
the extent to which benefits are personal rather than business. The Company has
concluded that the aggregate amounts of such personal benefits which cannot be
specifically or precisely ascertained do not in any event exceed, as to each
individual named in the preceding table, the lesser of $50,000 or 10% of the
compensation reported in the preceding table for such individual, and that such
information set forth in the preceding table is not rendered materially
misleading by virtue of the omission of the value of such personal benefits.
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
General
This report is made by the Compensation Committee of the Board of
Directors of the Company (the "Committee"), which is the committee charged with
establishing and administering the policies and plans which govern compensation
for executive officers, including the named executive officers listed in the
compensation tables in this Proxy Statement. The Committee consists of three
non-employee directors and the Chief Executive Officer. The Committee's
decisions and recommendations regarding the Chief Executive Officer are made
solely by the non-employee members of the Committee.
Executive Compensation Policies And Objectives
The Committee evaluates the compensation levels of senior management
and evaluates the various factors affecting compensation of the Company's
highest paid officers. The Committee believes that compensation to the Company's
executive officers should be designed to encourage and reward management's
efforts to establish and strengthen the Company's business and to create added
value for stockholders. Such a compensation program helps to achieve the
Company's business and financial objectives and also provides incentives needed
to attract and retain the highly qualified executives and other personnel needed
for it to achieve its goals 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 the performance of the Company and the
particular contribution made by such officer to the Company's achievement of its
goals.
The Committee's executive compensation objectives are (1) to ensure
competitive levels of compensation that enable the Company to attract, retain
and motivate executives of outstanding ability and character to lead the Company
successfully in its highly competitive industry characterized by rapid
technological change, innovation and significant capital investment
requirements; (2) to tie a meaningful portion of compensation to the achievement
of improved long term stockholder value and other business objectives; and (3)
to provide equity-based long term incentives that directly link the compensation
of executives to appreciation in the Common Stock and align the financial
interests of the executives with those of the Company's stockholders.
The committee reviewed many operational and strategic factors in
evaluating the company's performance in 1996. Key factors considered were: (1)
revenue growth in core businesses, including (A) local, long distance and
wholesale telecommunications services where revenues increased from $14.6
million in 1995 to $34.0 million in 1996 (approximately 133%), and (B)
information and entertainment content and services (i.e., new media) where
revenues increased from $2.9 million in 1995 to $14.7 million in 1996
(approximately 407%); (2) the quality of revenues generated, including the
development of recurrent revenue streams in the telecommunications divisions
through customer development and in the new media division through strategic
purchases and the development of internal projects; (3) the development of an
operational base for the competitive local exchange carrier (CLEC) business,
which was not operational in 1995, including such critical elements as (A) the
installation of the Company's own switch in New York City and the rollout of the
CLEC business in five additional cities prior to the end of 1996, including the
development of sales teams in each of those cities, (B) the negotiation and
establishment of key interconnect and re-sale agreements, (C) the development of
network and management systems to manage and control the accelerated development
and growth of the Company, (D) the acquisition of substantial additional roof
rights (increased from 140 to 800 during 1996) and (E) the successful
integration of the long distance services business with the CLEC business; (4)
the growth of the Company's workforce from 250 to 800 employees in 1996; and (5)
the high quality of the management team assembled during this period of growth
to execute the Company's business
<PAGE>
plan. These accomplishments met the Company's objectives for 1996. The Committee
believes that the Company appropriately awarded its executive officers for their
short and long terms efforts.
Executive Compensation Policy And Structure
As shown in the Summary Compensation Table (the "Summary Table")
included elsewhere in this Proxy Statement, the compensation of each of the
Company's executive officers during the prior fiscal year consisted of three
principal parts - a base salary, an incentive bonus and equity compensation,
typically in the form of a stock option grant. As more fully described below,
two of those three components are discretionary, meaning that the total
compensation of these executives depends upon several factors, including
individual contribution and attainment of individual and business unit
performance objectives; however, there is no specific weight given to each
criterion. 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 the Company.
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 and capabilities and unique talents and strengths.
Each of the named executive officers has an employment agreement with the
Company 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 the Company's achievements
during the prior year and the salaries paid to executives performing similar
functions at companies of similar size and complexity to the Company. The
salaries of each of the named executive officers was increased in 1996 based
upon the Committee's review of such factors and the other factors relating to
executive compensation levels described elsewhere in this report. Base salaries
of the Company's other executives are reviewed and adjusted annually by the
Company's senior executive officers based on the policies and objectives of the
Committee described herein. The Committee reviews, but does not approve, the
decisions regarding the base salaries of such other executives.
Bonus
The incentive bonuses are dependent upon individual, business unit or
division, and overall Company performance. For purposes of determining the
bonuses, the Committee evaluates the achievement of goals set at the start of
each fiscal year and compares the Company's performance in each year to the
prior year.
The 1996 bonus amounts shown on the Summary Table were awarded to the
named executive officers based upon: (1) the officer's individual performance,
including significant strategic accomplishments and success in implementing the
Company's development and expansion of its telecommunications and other business
operations, including specifically, network development, city plan strategy
development and implementation, corporate positioning with wholesale customers,
execution of key interconnect and resale agreements, spectrum acquisition and
development and team building; and (2) the accelerated progress of the Company
during 1996, including the acquisition of additional 38 GHz spectrum, the
successful launch of the Company's CLEC business, the expansion of its wholesale
carrier services business, including the signing of master service agreements
with a number of several major telecommunications carriers, and the growth of
its new media business including the completion of several key acquisitions.
<PAGE>
Stock Options
The Company wishes to encourage employee ownership of the Company's
Common Stock in the belief that employees who have a proprietary interest in the
Company will focus on its long term success and on building stockholder wealth.
Therefore, the third principal component of compensation arises from the
Company's grant of stock options under the Company's Stock Option Plan. The
Committee believes that stock options serve as important long-term incentives
for both executive officers and other management and non-management employees by
encouraging their continued employment and commitment to the Company's
performance. Accordingly, options become exercisable based on continued
employment with the Company and generally remain exercisable for a period of
five years after vesting. Furthermore, the Committee believes that stock options
are an excellent means to align the interests of the Company's executive
officers and employees with those of its stockholders.
The number of options granted annually to executive officers, including
those granted as a portion of such officers' 1996 compensation as set forth in
the Summary Table, is determined by the Committee and is based upon the same
factors considered with respect to such officers' bonus compensation described
above. In addition, the Committee strives to grant options at a level sufficient
to provide a strong incentive for executive officers to work for the long-term
success of the business. Option grants to other executives 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 upon their performance during the
prior year, within a fixed range which varies depending upon the employee's
position with the Company.
The Committee has reviewed the compensation of the Company's executive
officers and has concluded that their compensation was reasonable in view of the
Company's performance and the contribution of those officers to that
performance.
Compensation of the Chief Executive Officer
The Company's CEO and Chairman of the Board, William J. Rouhana, Jr.,
has an employment agreement with the Company which provides for a minimum base
salary for each of the years during its term and for incentive cash bonus
compensation and equity compensation in the form of stock option grants (in
addition to the fixed grants provided for in that agreement) which are to be
determined by the Committee in its discretion based upon factors substantially
similar to those used to evaluate and fix the compensation of the Company's
other senior executive officers. Although Mr. Rouhana is a member of the
Compensation Committee, he does not participate in deliberations with respect to
his compensation.
Mr. Rouhana's incentive compensation is based on both the Company's
achievement of performance goals and his achievement of personal performance
goals. The 1996 goals for Mr. Rouhana's annual incentive award included: (1)
development of strategies for the future of the Company, including strategies
with regard to the expansion and solidification of the Company's 38GHz spectrum
holdings and the financing of the Company's increased capital needs arising as a
result of the accelerated growth of its telecommunications business in light of
the deregulation under the Telecommunications Act of 1996, (2) implementation of
strategic plans, including plans for utilizing the Company's 38 GHz spectrum
together with other available assets to create a full service telecommunications
services provider combining basic and enhanced telecommunications services with
value added information services, (3) enhancement of the Company's organization
and management, and (4) enhancement of the image and awareness of the Company.
The Committee did not assign specific weights to these personal goals, but
rather reviews them in the context of Mr. Rouhana's accomplishments.
<PAGE>
As a portion of his 1996 compensation, the Committee awarded Mr. Rouhana an
incentive bonus of $400,000 and granted him options to purchase 125,000 shares
of Common Stock at an exercise price of $12.00. See "Proposal II" regarding
termination of these options in the event such proposal is not approved by the
stockholders at the Meeting. These awards were made based upon the Committee's
evaluation of his performance and the Company's achievements in that year, in
light of the foregoing performance goals, including that the Company became a
national competitor in the CLEC and wholesale carrier services businesses
through the development of a coordinated CLEC and wholesale strategy. In
addition, the Company (A) achieved sufficient operational and strategic success
in 1996 to allow it to raise substantial capital during the first quarter of
1997, in an otherwise weak financial climate, which, based upon current plans
and
assumptions related to the Company's operations, will be adequate, together with
other financial resources available to the Company, to fund the Company's growth
and operations for the next several years, (B) succeeded in improving the
quality of its market makers and the number of favorable analyst reviews
published, (C) acquired significant additional 38 GHz spectrum through several
strategic corporate acquisitions, (D) added significantly to its management
capabilities through the recruitment of key executives needed to execute its
business plan, and (E) developed necessary legal, financial, and systems teams
throughout the Company in an industry which is experiencing a scarcity of such
talent in light of its rapid growth and competitiveness.
In making its decision regarding the grant of stock options, the
Committee evaluated Mr. Rouhana's performance relative to the guidelines
described above, the Company's achievements during the year (discussed above),
the awards made to him in prior years, his critical leadership role in the
Company's future success and the degree to which other companies have linked
their CEO's long term compensation to stockholder return. The Committee also
used subjective criteria it deemed relevant in its reasonable business
discretion, such as its opinions about the business environment and the
particular challenges for the Company as well as the potential market for Mr.
Rouhana's services. The Committee believes that Mr. Rouhana's compensation
package for 1996 is in line with industry and market standards and appropriate
in light of his past performance and the Company's aggressive plans for growth.
The Members of the Compensation Committee
Steven B. Magyar
William J. vanden Heuvel
William Harvey
William J. Rouhana, Jr.
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning
individual grants of stock options during the last fiscal year to each of the
named executive officers(1):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------- ----------------------------
Potential Realizable Value
At Assumed Annual Rates
of Stock Price Appreciation
Individual Grants for Option Term
- --------------------------------------------------------------------------------------------- ----------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Number of
Securities Percent of Total
Underlying Options Granted
Options to Employees in Exercise or
Name Granted (#) Fiscal Year (%) Base Price ($) Expiration Date 5% ($) 10% ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
William J. Rouhana, Jr.
Chairman of the Board and 10,000 0.25 14.63 1/12/06 91,894 232,935
Chief Executive Officer 175,000 4.38 18.50 7/29/01 1,061,973 2,187,905
------- ---- --------- ---------
185,000 4.63 1,153,867 2,420,840
======= ==== ========= =========
- ------------------------------------------------------------------------------------------------------------------------------------
Steven G. Chrust
Vice Chairman of the Board 10,000 0.25 14.63 1/12/06 91,894 232,935
100,000 2.50 18.50 7/29/01 606,842 1,250,231
------- ---- ------- ---------
110,000 2.75 698,736 1,483,166
======= ==== ======= =========
- ------------------------------------------------------------------------------------------------------------------------------------
Nathan Kantor
President and Chief 150,000 3.75 20.38 9/5/00 880,075 1,758,368
Operating Officer 10,000 0.25 14.63 1/12/06 91,894 232,935
100,000 2.50 17.00 10/9/01 469,678 1,037,867
------- ---- ------- ---------
260,000 6.50 1,441,647 3,029,170
======= ==== ========= =========
- ------------------------------------------------------------------------------------------------------------------------------------
Fredric E. von Stange
Executive Vice President 10,000 0.25 14.63 1/12/06 91,894 232,935
and Chief Financial Officer 50,000 1.25 18.50 10/1/01 135,909 413,736
------ ---- ------- -------
60,000 1.50 227,803 646,671
====== ==== ======= =======
- ------------------------------------------------------------------------------------------------------------------------------------
Timothy R. Graham
Executive Vice President -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------
<FN>
(1) Does not include options granted to the named executive officers in 1997 as
part of such officers' 1996 compensation. See "Summary Compensation Table."
</FN>
</TABLE>
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information concerning exercises
of stock options during the last fiscal year by each of the named executive
officers and the fiscal year-end value of unexercised options held by such
persons(1).
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Number of Securities Underlying Value of Unexercised
Shares Acquired Value Realized Unexercised Options At In-The-Money Options at
Name On Exercise (#) ($) Fiscal Year-End (#)(2) Fiscal Year-End ($)(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
William J. Rouhana, Jr.
Chairman of the Board and -- -- 408,333 266,667 5,262,932 2,241,667
Chief Executive Officer
- ------------------------------------------------------------------------------------------------------------------------------------
Steven G. Chrust
Vice Chairman of the Board -- -- 303,334 426,666 3,594,847 4,846,665
- ------------------------------------------------------------------------------------------------------------------------------------
Nathan Kantor
President and Chief 232,302 2,974,600 758,699 299,999 8,726,219 3,241,659
Operating Officer
- ------------------------------------------------------------------------------------------------------------------------------------
Fredric E. von Stange
Executive Vice President -- -- 206,667 118,333 2,995,067 1,272,032
and Chief Financial Officer
- ------------------------------------------------------------------------------------------------------------------------------------
Timothy R. Graham
Executive Vice President -- -- 210,000 50,000 3,619,750 431,250
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------
<FN>
(1) Does not include options granted to the named executive officers in 1997 as
part of such officers' 1996 compensation. See "Summary Compensation Table."
(2) Represents the difference between the aggregate market value at December
31, 1996 of the Common Stock underlying the options, based on a last sales
price of $21.00 on that date, and the options' aggregate exercise price.
</FN>
</TABLE>
<PAGE>
PERFORMANCE GRAPH
The following graph and table compare the five-year stockholder returns
(from January 1992 through December 1996) of an investment in: (i) the Common
Stock of the Company, (ii) the Nasdaq Telecommunications Index and (iii) the
Nasdaq Stock Market - US Index. The comparison assumes that $100 was invested on
December 31, 1991 in the Company's Common Stock and in each of the comparison
groups and assumes reinvestment of dividends (though the Company paid no
dividends on its Common Stock during such period).
[Graph comparing investment in the Common Stock of the Company, the Nasdaq
Telecommunications Index and the Nasdaq Stock Market]
<TABLE>
<CAPTION>
INDEXED RETURNS [12/31/91=100]
Return Return Return Return Return Return
Dec. 1992 Dec. 1992 Dec. 1993 Dec. 1994 Dec. 1995 Dec. 1996
<S> <C> <C> <C> <C> <C> <C>
WinStar
Communications, Inc. $100.000 $ 60.417 $104.167 $301.042 $570.833 $700.000
Nasdaq
Telecommunications Index $100.000 $122.822 $189.382 $158.058 $206.964 $211.468
Nasdaq Stock Market
- - US Index $100.000 $116.378 $133.595 $130.586 $184.675 $227.142
</TABLE>
<PAGE>
Employment Agreements
William J. Rouhana, Jr. had served as Chairman of the Board and Chief
Executive Officer of the Company from May 1994 to February 1995 through WinStar
Services, an entity which had a management agreement with the Company. See
"Certain Transactions - Management Agreement." The management agreement was
terminated on February 28, 1995 and Mr. Rouhana entered into a three-year
employment agreement with the Company to serve as its Chairman of the Board and
Chief Executive Officer effective March 1, 1995. The employment agreement, as
amended, provides for a minimum annual base salary of $357,500, with annual
increases as agreed upon by the Company and Mr. Rouhana. Mr. Rouhana's current
base salary is $450,000. In connection with his employment agreement, Mr.
Rouhana was also granted immediately exercisable options to purchase 150,000
shares of Common Stock for $6.00 per share, options which vested in March 1996
to purchase 150,000 shares of Common Stock for $7.00 per share, and options
which vested in March 1997 to purchase 150,000 shares of Common Stock for $8.00
per share.
Nathan Kantor became President and Chief Operating Officer of the
Company in September 1995, when he entered into a three-year employment
agreement with the Company. The employment agreement provides for a minimum
annual salary of $320,000 during the first year, $336,000 during the second year
and $352,800 during the third year. Mr. Kantor's current base salary is
$400,000. The employment agreement allows Mr. Kantor to devote up to 25% of his
business time to serve as Chairman of the Board and Chief Executive Officer of
Image Telecom, a company involved in the development of information and video
servers. In connection with his employment agreement, Mr. Kantor was also
granted immediately exercisable options to purchase 350,000 shares of Common
Stock for $8.25 per share and additional options to purchase 350,000 shares of
Common Stock for $8.25 per share, vesting in three equal annual installments
commencing in September 1996. The Company also issued 150,000 restricted shares
of Common Stock to Mr. Kantor which vest in three equal annual installments
commencing in September 1996. In May 1996, the Company agreed to accelerate the
vesting of such restricted shares and Mr. Kantor utilized such shares to pay the
option exercise price in connection with his exercise of options to purchase
232,302 shares of Common Stock. Pursuant to the re-load feature of the option
agreement governing such options, Mr. Kantor was granted options to purchase an
additional 150,000 shares of Common Stock at an exercise price equal to the
market price of the Common Stock on such date.
Steven G. Chrust became the Vice Chairman of the Board in January 1995,
when he entered into a five-year employment agreement with the Company. The
employment agreement, as amended, provides for an annual salary of $325,000
during the first year, $300,000 during the second and third years and $305,000
during the fourth and fifth years. In connection with his employment agreement,
the Company granted Mr. Chrust options to purchase 600,000 shares of Common
Stock for $8.00 per share, vesting in five equal annual installments commencing
in January 1996.
Fredric E. von Stange, Executive Vice President and Chief Financial
Officer of the Company, entered into a three-year employment agreement with the
Company in March 1995 providing, as amended, for a minimum annual base salary of
$247,500, with annual increases as agreed upon by the Company and Mr. von
Stange. Mr. von Stange's current base salary is $275,000. In connection with his
employment agreement, Mr. von Stange was granted options to purchase 225,000
shares of Common Stock for $6.00 per share, vesting in three equal annual
installments commencing in March 1995.
Timothy R. Graham became Executive Vice President of the Company in
October 1994 when he entered into a two-year employment agreement with the
Company originally expiring in October 1996. Mr. Graham's employment agreement,
as amended, provides for an annual base salary of $225,000. In connection with
his employment with the Company, Mr. Graham was granted options to purchase
150,000 shares of Common Stock for $4.31 per share, vesting in three equal
installments. In September 1995, in connection with a one-year extension of his
employment agreement through October 1997, Mr. Graham was
<PAGE>
granted additional options to purchase 50,000 shares of Common Stock for $12.375
per share, vesting in October 1997.
Stock Option Plans
In January 1992, the Board adopted the 1992 Plan which was approved by
the stockholders of the Company at the Annual Meeting of Stockholders in October
1992. The 1992 Plan originally authorized the granting of awards of up to
1,000,000 shares of Common Stock to the Company's key employees, officers,
directors and consultants. On April 26, 1996, the Board approved an amendment to
the 1992 Plan, increasing the number of shares of Common Stock available
thereunder to 1,500,000. 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), 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
the Company is awarded a stock option to purchase 10,000 shares of the Company's
Common Stock at the fair market value thereof (as determined in the accordance
with the 1992 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 the Company under the 1992 Plan. As of the date of
this Proxy Statement, options to purchase 705,399 shares of Common Stock were
outstanding under the 1992 Plan and there are 396,721 shares available for
future grant under the 1992 Plan.
In June 1995, the Board adopted the 1995 Plan which was approved by the
stockholders of the Company at the Annual Meeting of Stockholders in September
1995. The 1995 Plan originally authorized the granting of awards of up to
1,500,000 shares of Common Stock to the Company's key employees, officers,
directors and consultants. In 1996, the 1995 Plan was amended to increase the
number of shares of Common Stock available thereunder to 3,500,000. On April 27,
1997, the Board approved an amendment to the 1995 Plan increasing the number of
shares of Common Stock available thereunder to 7,500,000. See "Proposal II."
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), restricted stock awards, deferred stock
awards, stock appreciation rights and other stock-based awards, as described in
the 1995 Plan.
The 1992 and 1995 Plans are 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 the 1992 and 1995 Plans.
<PAGE>
Compensation Committee Interlocks and Insider Participation
The Board's Compensation Committee is composed of Mr. Rouhana, the
Company's Chairman and Chief Executive Officer, Mr. Magyar, Mr. Harvey and Mr.
vanden Heuvel. No executive officer of the Company sits on the compensation
committee of another entity, one of whose executive officers serves as a
director of the Company or on the Company's Compensation Committee, nor does any
executive officer of the Company serve as a director of another entity, one of
whose executive officers serves on the Company's Compensation Committee.
PROPOSAL II: APPROVAL OF AN AMENDMENT TO THE 1995 PERFORMANCE
EQUITY PLAN TO INCREASE THE NUMBER OF SHARES ISSUABLE UPON EXERCISE
OF OPTIONS AND OTHER AWARDS GRANTED OR WHICH MAY BE GRANTED THEREUNDER
In September 1995, the stockholders of the Company approved the 1995
Plan under which an aggregate of 1,500,000 shares of Common Stock were reserved
for issuance upon exercise of options and other stock-based awards granted and
which may be granted thereunder. In April 1996, the Company amended the 1995
Plan to increase the number of shares available thereunder from 1,500,000 shares
to 3,500,000 shares, which increase was approved by the Company's stockholders
at the Annual Meeting of Stockholders held on June 27, 1996. On April 27, 1997,
the Board approved a further amendment to the 1995 Plan, pursuant to which the
number of shares available for issuance pursuant to grants made under the 1995
Plan will be increased, subject to approval by the Company's stockholders and
the Meeting, from 3,500,000 to 7,500,000. As of the date of this Proxy
Statement, there are outstanding grants under the 1995 Plan of options to
purchase an aggregate of 3,938,267 shares of Common Stock which, without giving
effect to the amendment to the 1995 Plan described herein, exceeds the number of
shares of Common Stock reserved for issuance under the 1995 Plan.
Accordingly, the Board believes that this increase is necessary to
enable the Company to continue to attract, motivate and retain the highly
qualified management, executive and other personnel required to support the
rapid rollout of the Company's competitive local exchange carrier business and
the continuing aggressive expansion and growth of its other telecommunications
and related businesses, including its wholesale carrier services business and
its information and entertainment content business. The Board further believes
that including equity grants as a portion of employee compensation is an
effective manner of aligning the interests of employees, including senior
executives, with those of the Company's stockholders. See "Compensation
Committee Report On Executive Compensation -- Executive Compensation Policies
And Objectives." In the event the proposed amendment to the 1995 Plan is not
approved by the Company's stockholders, options to purchase that number of
shares which are in excess of the amount reserved for issuance under the 1995
Plan, including certain options granted to the named executive officers as a
part of their 1996 compensation as set forth in the Summary Table, and to
certain other Company executives, will be canceled by the Company.
If the 1995 Plan, as summarized under "Summary of the 1995 Plan,"
below, is amended as proposed, then, if all the shares reserved thereunder were
issued upon the exercise of options and other awards, such shares would be equal
to approximately 18.6% of the total shares that would then be outstanding
(assuming no exercise of other outstanding options and convertible securities).
The Board of Directors recommends voting "FOR" Proposal II.
<PAGE>
SUMMARY OF THE 1995 PLAN
Administration
The 1995 Plan (the "Plan") is administered by the Board or, at its
discretion, by the Compensation Committee (the "Committee"). The Committee has
full authority, subject to the provisions of the 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 Plan, the Committee
determines, among other things, the persons to whom from time to time Awards may
be granted ("Holders" or "Participants"), the specific type of Awards to be
granted (e.g., Stock Option, 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. The interpretation and
construction by the Committee of any provisions of, and the determination by the
Committee of any questions arising under, either of the Plan, or any rule or
regulation established by the Committee pursuant to the Plan, shall be final,
conclusive and binding on all persons interested in either Plan. Awards under
the Plan are evidenced by agreements between the Company and the Participants.
Shares Subject to the Plan
The Plan, as amended, authorizes the granting of Awards whose exercise
would allow up to an aggregate of 7,500,000 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 Plan, the shares of Common Stock
authorized by the Plan are subject to adjustment by the Board in the event of a
stock dividend, stock split, reverse stock split, merger, reorganization,
consolidation, recapitalization or other change in corporate structure affecting
the Company's stock. The shares of Common Stock acquirable pursuant to the
Awards will be made available, in whole or in part, from authorized and unissued
shares of Common Stock. If any Award granted under the Plan is forfeited or
terminated, 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 Plan.
Eligibility
Subject to the provisions of the Plan, Awards may be granted to key
employees, officers, directors and consultants who are deemed to have rendered
or to be able to render significant services to the Company and are deemed to
have contributed or to have the potential to contribute to the success of the
Company. Incentive Stock Options may be awarded only to persons who, at the time
of such awards, are employees of the Company or its wholly- or majority-owned
subsidiaries ("Subsidiaries").
Types of Awards
Options. The Plan provides both for "Incentive" stock options
("Incentive 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 Options"), both of which may be granted with any other
stock based award under the Plan. The Committee will determine the exercise
price per share of Common Stock purchasable under an Incentive or Non-qualified
Option (collectively "Options"). The exercise price of an Incentive Option may
not be less than 100% of the fair market value on the last trading day before
the date of grant (or, in the case of an Incentive Option granted to a person
possessing more than 10% of the total combined voting power of all classes of
stock of the Company, not less than 110% of such fair market value). The
exercise price of a Non-qualified Option may be less than 100% of the fair
market value on the last trading day before the date of the grant. An Incentive
Option may only be granted within a 10-year period from the date the Plan
<PAGE>
was adopted and approved and may only be exercised within 10 years of the date
of the grant (or within 5 years in the case of an Incentive Option granted to a
person who, at the time of the grant, owns stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company). Subject to
any limitations or conditions the Committee may impose, Options may be
exercised, in whole or in part, at any time during the term of the Option by
giving written notice of exercise to the Company specifying the number of shares
of Common Stock to be purchased. Such notice must be accompanied by payment in
full of the purchase price, in cash or in the discretion of the Committee, in
securities of the Company, or any combination thereof.
Options granted under the Plan are generally exercisable only by the
Holder during his or her lifetime. The Options granted under the Plan may not be
transferred other than by will or by the laws of descent and distribution,
except that the Committee may in its sole discretion allow a Non-qualified
Option granted under the Plan to be transferable, subject to compliance with
applicable securities laws.
Generally, if the Holder is an employee, no Incentive Option, or any
portion thereof, granted under the Plan may be exercised by the Holder unless he
or she is employed by the Company or a Subsidiary at the time of the exercise
and has been so employed continuously from the time the Incentive Option was
granted. However, in the event the Holder's employment with the Company is
terminated due to disability, the Holder may still exercise his or her Incentive
Option for a period of one year (or such other 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 Incentive Option, whichever period if
shorter. Similarly, should a Holder die while in the employment of the Company
or a Subsidiary, his or her legal representative or legatee under his or her
will may exercise the decedent Holder's Incentive Option for a period of one
year from 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 Incentive Option, whichever is shorter. Further, if the Holder's employment
is terminated without cause or due to normal retirement (upon attaining the age
of 65), then the portion of any Incentive Option which has vested by the date of
such retirement may be exercised for the lesser of three months after retirement
or the balance of the Incentive Option's term. The Committee is afforded more
flexibility with respect to the terms of Non-qualified Options, since such
options are not subject to Code requirements.
Other. The Committee may grant Stock Appreciation Rights ("SARs" or
singularly "SAR") in conjunction with all or part of any Option granted under
the Plan, or may grant SARs on a free-standing basis. In conjunction with
Nonqualified Options, SARs may be granted either at or after the time of the
grant of such Nonqualified Options. In conjunction with Incentive Options, SARs
may be granted only at the time of the grant of such Incentive Options. An SAR
entitles the Holder thereof to receive an amount (payable in cash and/or Common
Stock as determined by the Committee) equal to the excess fair market value of
one share of Common Stock over the SAR price or the exercise price of the
related Option, multiplied by the number of shares subject to the SAR.
Additionally, the Committee may award shares of Restricted Stock, Deferred Stock
and other stock-based awards either alone or in addition to, or in tandem with,
other Awards granted under the Plan.
Stock Reload Options. The Committee may grant Stock Reload Options in
conjunction with any Option granted under the Plan. In conjunction with
Incentive Options, Stock Reload Options may be granted only at the time of the
grant of such Incentive Option. In conjunction with Non-qualified Options, Stock
Reload Options may be granted either at or after the time of the grant of such
Non-qualified Options. A Stock Reload Option permits a Holder who exercises an
Option by delivering already owned stock (i.e., the stock-for-stock method), to
receive back from the Company a new Option (at the current market price) for the
same number of shares delivered to exercise the Option.
Acceleration of Award Vesting. Generally, under the Plan, if (i) any
person or entity other than the Company and/or any director, officer or
principal stockholder of the Company as of the date the Plan was adopted
acquires securities of the Company (in one or more transactions) representing
certain specified percentages or more of the total voting power of all the
Company's securities then outstanding and (ii) the Board does not authorize or
otherwise approve such acquisition, then, the vesting periods of any and all
<PAGE>
Options and other awards granted and outstanding under the Plan will be
accelerated and all such Options and awards will immediately and entirely vest,
and the respective holders thereof will have the immediate right to purchase
and/or receive any and all shares of Common Stock subject to such Options and
awards on the terms set forth in the Plan and the respective agreements
respecting such Options and awards.
Withholding Taxes
Upon the exercise of any Award granted under the Plan, the Holder may
be required to remit to the Company 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 Plan and at the discretion of the Committee, the
Holder may satisfy these requirements by electing to have the Company 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.
Term and Amendments
Unless terminated by the Committee, the Plan shall continue to remain
effective until such time as no further Awards may be granted and all Awards
granted under the Plan are no longer outstanding. The Committee may at any time,
and from time to time, amend the Plan, except that no amendment may be made
which would impair the rights of any Holder of an existing Option or other Award
without such Holder's consent.
Federal Income Tax Consequences
The following discussion of the federal income tax consequences of
participation in the Plan is only a summary of the general rules applicable to
the grant and exercise of Options and does not give specific details or cover,
among other things, state, local and foreign tax treatment of participation in
the Plan. The information contained in this section is based on present law and
regulations, which are subject to being changed prospectively or retroactively.
Incentive Options
The Participant will recognize no taxable income upon the grant or
exercise of an Incentive Option. The Company will not qualify for any deduction
in connection with the grant or exercise of Incentive 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 Participant, the Participant
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 Option over the
exercise price will be treated as an item of adjustment for a Participant's
taxable year in which the exercise occurs and may result in an alternative
minimum tax liability for the Participant.
If Common Stock acquired upon the exercise of an Incentive Option is
disposed of prior to the expiration of the holding periods described above, (i)
the Participant 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) the Company 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 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.
<PAGE>
Nonqualified Options
With respect to Non-qualified Options (i) upon grant of the option, the
Participant will recognize no income; (ii) upon exercise of the option (if the
shares of Common Stock are not subject to a substantial risk of forfeiture), the
Participant 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 the Company will qualify for a deduction
in the same amount, subject to the requirement that the compensation be
reasonable; and (iii) the Company will be required to comply with applicable
Federal income tax withholding requirements with respect to the amount of
ordinary compensation income recognized by the Participant. On a disposition of
the shares, the Participant 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 participant
held the shares.
If the shares acquired upon exercise of a Non-qualified Option are
subject to a substantial risk of forfeiture, the Participant will recognize
ordinary income at the time when the substantial risk of forfeiture is removed,
unless such Participant timely files under Code Section 83(b) to elect to be
taxed on the receipt of shares, and the Company 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 Participant recognizes no taxable income
and the Company receives no deduction. The Participant recognizes ordinary
income and the Company receives a deduction at the time of exercise equal to the
cash and fair market value of Common Stock payable upon such exercise.
PROPOSAL III: APPROVAL OF AN AMENDMENT TO THE COMPANY'S CERTIFICATE OF
INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
WHICH MAY BE ISSUED BY THE COMPANY THEREUNDER
The Company's Certificate of Incorporation, as amended through the date
of this Proxy Statement, authorizes the issuance by the Company of up to 90
million shares of capital stock, consisting of 75 million shares of Common Stock
and 15 million shares of preferred stock, the rights, powers and preferences of
which may be fixed by the Board. On April 27, 1997, the Board approved an
amendment to the Company's Certificate of Incorporation, pursuant to which the
number of shares of Common Stock authorized for issuance by the Company
thereunder will be increased, subject to approval by the Company's stockholders
and the Meeting, from 75,000,000 to 200,000,000. Pursuant to such amendment,
there will be no change in the number of shares of Preferred Stock authorized
for issuance by the Company under its Certificate of Incorporation. As of the
date of this Proxy Statement, the Company has issued and outstanding
[32,886,538] shares of Common Stock and 4,033,335 shares Series A Preferred
Stock. In addition, as of April 15, 1997, the Company had issued and outstanding
securities, including options, warrants and convertible notes, but excluding the
Series A Stock which is not currently convertible into Common Stock1,
convertible in an aggregate of 17,303,553 shares of Common Stock. In addition,
the Company may 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 the
Company (each an "Acquisition").
- --------
1 One-half of the outstanding Series A Stock becomes convertible, at the option
of the holder, into Common Stock in August 1997 and the balance becomes
convertible into Common Stock in November 1997.
<PAGE>
Accordingly, the Board believes that the increase in the Company's
authorized shares of Common Stock is necessary in order to ensure the
availability of a sufficient number of shares of Common Stock (i) to pay all or
a portion of the purchase price in pending and future Acquisitions, (ii) for
issuance upon the exercise or conversion of the options, warrants and
convertible securities described above (and any additional such securities
issued or granted by the Company including to employees and others under the
1995 Plan and/or other possible future plans), and (iii) to provide the Company
with the ability to raise additional capital through the future sale of Common
Stock and/or securities exercisable for or convertible into Common Stock. The
Board believes that the failure of the Company to maintain the ability to issue
additional Common Stock under the above circumstances could materially adversely
affect the Company in the future by limiting the Company's ability to raise
capital if needed and/or requiring the Company 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 III.
INDEPENDENT AUDITORS
Grant Thornton LLP served as the Company's independent certified public
accountants for the year ended December 31, 1996. The Board has selected Grant
Thornton LLP as the Company's independent certified public accountants for the
fiscal year ending December 31, 1997. 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.
1997 STOCKHOLDERS PROPOSALS
In order for stockholder proposals for the 1997 Annual Meeting of
Stockholders to be eligible for inclusion in the Company's Proxy Statement, they
must be received by the Company at its principal office in New York, New York by
January [6], 1998.
OTHER MATTERS
The Board knows of no matter which 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.
<PAGE>
SOLICITATION OF PROXIES
The cost of proxy solicitations will be borne by the Company. In
addition to solicitations of proxies by use of the mails, some officers or
employees of the Company, without additional remuneration, may solicit proxies
personally or by telephone. The Company 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, the Company 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 [5], 1997
<PAGE>
WINSTAR COMMUNICATIONS, INC. - PROXY
Solicited by the Board of Directors
for Annual Meeting to be held on June 26, 1997
P The undersigned Stockholder(s) of WINSTAR COMMUNICATIONS, INC., a
Delaware corporation ("Company"), hereby appoints William J. Rouhana, Jr.
R and Fredric E. von Stange, or either of them, with full power of
substitution and to act without the other, as the agents, attorneys and
O 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
X held on June 26, 1997 and at all adjournments thereof. This proxy will be
voted in accordance with the instructions given below. If no instructions
Y are given, this proxy will be voted FOR all of the following proposals.
1. Election of the following Directors: William J. vanden Heuvel, William
J. Rouhana, Jr. and Steven B. Magyar
FOR |_| WITHHELD |_|
(INSTRUCTION: To withhold authority to vote for any individual nominee,
write the nominee's name in the space provided) _____________________
2. Approval of the amendment to the Company's 1995 Performance Equity Plan:
FOR |_| AGAINST |_| WITHHELD |_|
3. Approval of the amendment to the Company's Certificate of Incorporation:
FOR |_| AGAINST |_| WITHHELD |_|
4. 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 _____, 1997
----------------------------
Name of Stockholder
----------------------------
Signature
----------------------------
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.
<PAGE>
