<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the registrant __X__
Filed by a party other than the registrant ____
Check the appropriate box:
__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 10, 1998
--------------------
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
Wednesday, June 10, 1998, at 10:00 a.m., for the following purposes, all as
more fully described in the attached Proxy Statement:
(i) To elect two Class I Directors, to serve for the ensuing
three-year period and until their respective successors
are 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 the adoption of the WinStar Communications,
Inc. Qualified Employee Stock Purchase Plan and, in
connection therewith, to amend a provision of the
Company's by-laws; and
(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 30, 1998 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 [8], 1998
<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 Wednesday, June 10, 1998, 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. On or about May [8], 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, 1997, including
financial statements, are being mailed to each stockholder of record at the
close of business on April 30, 1998.
Record Date and Outstanding Shares
The Board has fixed the close of business on April 30, 1998 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 April 30, 1998, the Company has issued and
outstanding ____________ shares of Common Stock and 3,969,122 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 Equity Plan") described below under Proposal II, "FOR" the
approval of the adoption of the WinStar Communications, Inc. Qualified
Employee Stock Purchase Plan (the "Stock Purchase Plan") and an amendment to
the Company's by-laws in connection therewith 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 I 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 two nominees who receive the highest
number of votes will be elected as the Class I Directors of the Company for
the ensuing three-year period. Consequently, any shares not voted "FOR" the
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 Equity Plan, must be approved
by the affirmative vote of a majority of the votes cast at the Meeting.
Proposal III, the adoption of the Stock Purchase Plan and an amendment to the
Company's by-laws in connection therewith, 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 or Proposal III
(because of either stockholder withholding or broker nonvote) are not deemed
"votes cast" with respect to Proposal II and therefore will have no effect on
such vote, but are counted as "votes cast" with respect to Proposal III and
will have the same effect as a vote against such proposal.
Security Ownership of Certain Beneficial Owners and Management
The table and accompanying footnotes on the following pages set forth
certain information as of April 30, 1998 with respect to the common stock
ownership of (i) those persons or groups who beneficially own more than 5% of
the Company's Common Stock, (ii) each director 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, 1997 (the "named
executive officers"), and (iv) all directors and executive officers of the
Company as a group (in each case, based upon information furnished by such
persons). Shares of Common Stock issuable upon exercise of options which are
currently exercisable or exercisable within 60 days of the date of the record
date for the Meeting have been included in the following table. The
percentages set forth on this table do not give effect to the outstanding
Series A Stock.
2
<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) 1,923,840(2) 5.04
Nathan Kantor (1) 1,044,269(3) 2.74
Steven G. Chrust (1) 608,667(4) 1.61
Timothy R. Graham (1) 445,853(5) 1.19
Charles T. Dickson (1) 0(6) -
Steven B. Magyar
Two Pine Point
Lloyd Harbor, New York 11742 69,206(7) *
William J. vanden Heuvel
812 Park Avenue
New York, New York 10021 97,500(8) *
Bert Wasserman
126 East 56th Street
New York, New York 10022 100,000(9) *
James I. Cash
Harvard University
Graduate School of Business Administration
Baker Library 187, Soldiers Field Road
Boston, Massachusetts 02163 40,000(10) *
All Directors and Executive
Officers as a Group (9 persons) 4,329,335(11) 10.77
</TABLE>
- ------------------
* Less than 1%.
(1) The address of this person is c/o WinStar Communications, Inc.,
230 Park Avenue, New York, New York 10169.
(2) Includes 986,667 shares of Common Stock issuable upon exercise of
certain options. Does not include (i) 58,333 shares of Common Stock issuable
upon exercise of options which become exercisable in July 1998, (ii) 75,000
shares of Common Stock issuable upon exercise of options which become
exercisable in three equal annual installments commencing in April 1999 and
(iii) 600,000 shares of Common Stock issuable upon exercise of options which
become exercisable in two equal annual installments in March 1999 and 2000.
Mr. Rouhana has agreed that, during the term of Nathan Kantor's employment
agreement with the Company, he would vote all shares of Common Stock he
controls in favor of Mr. Kantor as a director of the Company.
(3) Includes 948,697 shares of Common Stock issuable upon exercise of
certain options. Does not include (i) 116,667 shares of Common Stock issuable
upon exercise of other options which become exercisable in September 1998,
(ii) 33,333 shares of Common Stock issuable upon exercise of options which
become exercisable in August 1998 or (iii) 30,000 shares of Common Stock
issuable
3
<PAGE>
upon exercise of options which become exercisable in three equal annual
installments commencing in April 1999.
(4) Includes (i) 12,000 shares of Common Stock owned by the pension
plan for SGC Advisory Services, Inc., a money management services firm
specializing in the telecommunications and technology sectors, of which Mr.
Chrust is President and owner ("SGC"), and (ii) 538,667 shares of Common Stock
issuable upon exercise of certain options owned by Mr. Chrust, SGC and members
of his family. Does not include (A) 247,000 shares of Common Stock issuable
upon exercise of other options which become exercisable in two equal annual
installments commencing in January 1999, (B) 33,333 shares of Common Stock
issuable upon exercise of other options which become exercisable in July 1998
or (C) 21,000 shares of Common Stock issuable upon exercise of options which
become exercisable in three equal annual installments commencing in April
1999.
(5) Includes 220,000 shares of Common Stock issuable upon exercise of
certain options. Does not include 15,000 shares of Common Stock issuable upon
exercise of options which become exercisable in three equal annual
installments commencing in April 1999.
(6) Does not include 250,000 shares of Common Stock issuable upon
exercise of options exercisable in five equal annual installments commencing
in December 1998.
(7) Includes (i) 1,000 shares of Common Stock owned by Mr. Magyar's
spouse, over which Mr. Magyar disclaims beneficial ownership, (ii) 1,670
shares of Common Stock owned by benefit plans of which Mr. Magyar is the sole
trustee and primary beneficiary, and (iii) 50,000 shares of Common Stock
issuable upon exercise of certain options.
(8) Includes 90,000 shares of Common Stock issuable upon exercise of
certain options. Also includes 500 shares owned by Mr. vanden Heuvel's spouse,
as to which he disclaims beneficial ownership.
(9) Includes 90,000 shares of Common Stock issuable upon exercise of
certain options.
(10) Represents 40,000 shares of Common Stock issuable upon exercise
of certain options. Does not include 20,000 shares of Common Stock issuable
upon exercise of options which become exercisable in January 1999.
(11) Includes shares referred to as being included in notes (2)
through (10). Excludes shares referred to in such notes as being excluded.
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers and
persons who beneficially own more than ten percent of the Company's Common
Stock to file with the Securities and Exchange Commission ("SEC") initial
reports of ownership and reports of changes in ownership of Common Stock.
Executive officers, directors and greater-than-ten percent stockholders are
required by SEC regulations to furnish the Company with copies of all such
reports they file. To the Company's knowledge, based solely on review of the
copies of such reports furnished to the Company and written representations
that no other reports were required, during the year ended December 31, 1997,
all filings under Section 16(a) were made as required.
4
<PAGE>
PROPOSAL I: ELECTION OF CLASS I 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 and James I. Cash1, will
expire at the Meeting, the term of office of the second class of directors
(Class II), presently consisting of Bert W. Wasserman and Nathan Kantor, 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 in 2000. 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. 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
Two persons will be elected at the Meeting to serve as Class I
Directors for a term of three years. The Board has nominated Steven G. Chrust
and James I. Cash, the incumbent Class I Directors, as the candidates for
election. Unless otherwise specified in the form of proxy, the proxies
solicited by the management will be voted "FOR" the election of these
candidates. In case either 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 I Directors
Steven G. Chrust, 48, has been a director of the Company since
January 1994 and has been employed by the Company as its Vice Chairman of the
Board since January 1995, in which capacity he is responsible for strategic
planning, financing and corporate development. Mr. Chrust is also currently
Chairman of ALTS, the trade organization of alternative local exchange
carriers. He has been the President of SGC Advisory Services, Inc., a
discretionary money-management services firm specializing in the
telecommunications and technology sector, since he founded it in October 1992.
From August 1987 to September 1992, Mr. Chrust was a director of AMNEX, Inc.,
an operator services long distance company, and served as its Chairman of the
Board, Chief Executive Officer and President between October 1990 and October
1992. From August 1985 through December 1989, Mr. Chrust was the Executive
Vice President of Executone Information Systems, Inc., a telecommunications
equipment company. Mr. Chrust was Director of Technology Research and a
stockholder of Sanford C. Bernstein & Co., Inc., a Wall Street investment
firm, where he was ranked in the top tier of telecommunications analysts for
more than ten years and as the first-ranked analyst in that sector for five
consecutive years. He was associated with Sanford C. Bernstein & Co., Inc.,
from 1970 through 1985. From November 1993 until February 1996, Mr. Chrust was
a director of American Communications Services, Inc., a fiber optic-based
competitive access provider. Mr. Chrust is a graduate of Baruch College.
James I. Cash, 50, has been a director of the Company since January
1997. Professor Cash has been a member of the faculty of Harvard Business
School since 1976, having taught in its Masters of Business Administration,
Management Development and Advanced Management programs. Professor Cash
currently serves as a trustee for Massachusetts General Hospital and the
Massachusetts Computer Software Council, overseer for The Gardner Museum and
the Boston Museum of Science, and is a member of the Board of Directors of
Cambridge Technology Partners, The Chubb Corporation, General Electric
Company, Knight-Ridder, Inc., State Street Bank and Trust
- ---------------------------
(1) Following the rignation of two of the Company's Class I directors during
1997, the Board re-classified Professor Cash as a Class I director
5
<PAGE>
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.
The Board of Directors recommends voting
"FOR" each of the above Nominees.
Information Concerning Other Directors and Executive Officers
Class II Directors
Nathan Kantor, 55, has been a director of the Company since October
1994 and President and Chief Operating Officer of the Company since September
1995. Since its formation in November 1990, Mr. Kantor had been the President
of ITC Group, Inc. ("ITC"), a company which specializes in the development of
emerging competitive telecommunications companies. Mr. Kantor, through ITC,
coordinated all of the Company's telecommunications operations from June 1994
to September 1995 when he became President and Chief Operating Officer of the
Company, at which time services provided by ITC to the Company ceased. Mr.
Kantor also is currently the Chairman of the Board and Chief Executive Officer
of Image Telecommunications Corp., a company involved in the development of
information and video servers. From January 1985 to December 1990, he was
President of MCI Telecommunications Corporation (Northeast Division). Mr.
Kantor was a founder of MCI International, Inc., and served as its President
and Chief Operating Officer from its founding in July 1982 to December 1984.
From 1972 to 1982, Mr. Kantor held a number of senior management positions
with MCI Communications, including Vice President of National Operations. Mr.
Kantor is a graduate of Florida State University and the United States
Military Academy at West Point.
Bert Wasserman, 65, has been a director of the Company since June
1995. Mr. Wasserman was Executive Vice President and Chief Financial Officer
of Time Warner, Inc. ("Time Warner") from January 1990 to December 1994 and
was also a director of Time Warner from January 1990 to March 1993. Mr.
Wasserman was a member of the Office of the President and was also a director
of Warner Communications, Inc. ("Warner Communications"), from 1981 to 1990,
when that company merged with Time Warner, and had served Warner
Communications in various capacities beginning in 1966. Mr. Wasserman serves
as a member of various boards, including: several investment companies in the
Dreyfus Family of Funds; Lillian Vernon Corp., a catalog seller of home
products; Mountasia Entertainment International, Inc., an operator of family
recreation centers; The New German Fund, a New York Stock Exchange listed
mutual fund operated by Deutsche Bank AG; and IDT Corp., a provider of
telecommunications services, including Internet access and long distance
services. Mr. Wasserman also served as a director on the Chemical Bank
National Advisory Board until Chemical Bank merged with Chase Manhattan Bank
in March 1996. He is a graduate of Baruch College and Brooklyn Law School.
Class III Directors
William J. Rouhana, Jr., 45, has been a director of the Company since
its inception, its Chairman of the Board since February 1991, and its Chief
Executive Officer since May 1994. Mr. Rouhana was President and Chief
Executive Officer of WinStar Companies, Inc., a merchant banking firm which
focused on media and telecommunications investments ("WinStar Companies"), and
its affiliates from 1983 until November 1995. Through WinStar Companies, he
served, from August 1987 to February 1989, as Vice Chairman of the Board and
Chief Operating Officer of Management Company Entertainment Group, Inc., a
diversified distributor of entertainment products and, thereafter, as its Vice
Chairman of the Board until May 1990. Mr. Rouhana was in private legal
practice from 1977 to 1984, specializing in the financing of entities involved
in the development of entertainment products
6
<PAGE>
and information services. Mr. Rouhana was Vice Chairman of the Board of
Governors of the United Nations Association through 1997 and is a member of the
Board of Directors of Business Executives for National Security. He is a Phi
Beta Kappa graduate of Colby College, a Thomas J. Watson Fellow (1972-1973) and
a graduate of Georgetown University School of Law.
Steven B. Magyar, 49, has been a director of the Company since June
1993. Since May 1994, Mr. Magyar has been operating a private business he owns
which specializes in financial services for high net worth individuals and
business owners. From 1989 to May 1994, Mr. Magyar was a regional vice
president of CIGNA Insurance Co. and during the preceding fifteen years held
various sales and sales management positions with CIGNA. Mr. Magyar has served
on CIGNA's strategic business development committee and has been a guest
lecturer at New York University. Mr. Magyar also is a Certified Life
Underwriter and Chartered Financial Consultant with the American College of
Insurance. Mr. Magyar is a member of the General Agents and Managers
Association, the National Association of Underwriters and the American Society
of CLU and ChFC. Mr. Magyar is a graduate of Colby College.
William J. vanden Heuvel, 67, has been a director of the Company
since June 1995. Since 1984, he has served as Senior Advisor to Allen & Co.,
an investment banking firm, as well as counsel to the law firm Stroock &
Stroock & Lavan. He served as a director of Time Warner from 1981 to 1993 and
currently is a director of Zemex Corp., a New York Stock Exchange listed
company engaged in the mining and exploitation of industrial minerals.
Ambassador vanden Heuvel also has been a member of the IRC Group, a Washington
D.C.-based consulting group made up of former United States ambassadors, since
1981. He has been Chairman of the Board of Governors of the United Nations
Association since 1993. From 1979 to 1981, Ambassador vanden Heuvel served as
United States Deputy Permanent Representative to the United Nations. From 1977
to 1979, he served as United States Ambassador to the European Office of the
United Nations and various other international organizations. He was Special
Assistant to United States Attorney General Robert F. Kennedy from 1961 to
1964. Ambassador vanden Heuvel is a graduate of Deep Springs College, Cornell
University and Cornell Law School.
Other Executive Officers
Timothy R. Graham, 48, has served as Executive Vice President of the
Company since October 1994. From October 1990 through September 1994, Mr.
Graham was engaged in the private practice of law and served in various
capacities with National Capital Management Corporation, a company engaged
through its subsidiaries in various businesses, including the ownership of
real estate rental properties, industrial manufacturing and insurance matters,
including as Corporate Secretary and as President of its primary real estate
and insurance subsidiaries. During that period, Mr. Graham also acted in
various capacities for WinStar Services, Inc., a wholly owned subsidiary of
WinStar Companies. Prior to 1990, Mr. Graham was a partner in the law firm of
Nixon, Hargrave, Devans & Doyle, specializing in corporate finance, regulatory
and business law. Mr. Graham was a Securities Law Editor of Barrister
magazine, an American Bar Association publication, from 1985 to 1986 and has
authored a number of publications, including "Public Offerings in the United
States by Foreign Companies" and "Financing of Foreign Companies through
United States Securities Markets." Mr. Graham also is a member of the Board of
Advisors of the Instructional Television Station of the Archdiocese of New
York. Mr. Graham is a graduate of Fordham Law School and the Georgetown
University School of Foreign Service.
Charles T. Dickson, 43, has served as Executive Vice President and
Chief Financial Officer of the Company since December 1997. For the preceding
four years, Mr. Dickson served as Chief Financial Officer of General
Instrument Corporation. From 1984 to 1993, Mr. Dickson held numerous positions
at MCI Communications Corp., including Vice President, Finance and
Administration, for the
7
<PAGE>
National Accounts Division. From 1979 to 1984, Mr. Dickson was a consultant with
ICF, Inc. providing financial analysis to clients in the energy and
telecommunications industries. Mr. Dickson is a Phi Beta Kappa graduate of Clark
University and received a masters degree in public policy from the University of
California at Berkley.
Board Meetings, Committees and Compensation
The Board met 15 times during the year ended December 31, 1997.
During the year ended December 31, 1997, each director attended seventy-five
percent or more of the meetings held during such time as he was a director.
The Board currently maintains a standing Audit Committee,
Compensation Committee and Nominating Committee. Additionally, from time to
time, the Board establishes special committees for specific purposes. The
membership of the standing committees is as follows, with the committee
chairman listed first:
<TABLE>
<CAPTION>
Audit Committee Compensation Committee Nominating Committee
- ------------------------------------- ----------------------------------- -----------------------------------
<S> <C> <C>
Bert Wasserman Steven B. Magyar William J. vanden Heuvel
Steven B. Magyar William J. vanden Heuvel Steven B. Magyar
James I. Cash James I. Cash William J. Rouhana, Jr.
William J. Rouhana, Jr. William J. Rouhana, Jr.
</TABLE>
The Board's Audit Committee met twice during the year ended December
31, 1997. The responsibilities of the Audit Committee include, in addition to
such other duties as the Board may specify, (i) recommending to the Board the
appointment of independent accountants; (ii) reviewing the timing, scope and
results of the independent accountants' audit examination and the related
fees; (iii) reviewing periodic comments and recommendations by 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 a majority of the members of this Committee must be
independent directors.
The Board's Compensation Committee met seven times during the year
ended December 31, 1997. The responsibilities of the Compensation Committee
include, in addition to such other duties as the Board may specify, (i)
reviewing and recommending to the Board the 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 and
other employee compensation plans. The Company's by-laws provide that 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 once during the year ended
December 31, 1997. The responsibilities of the Nominating Committee 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
Equity Plan"), assuming there are enough shares then available for grant under
the 1992 Equity Plan, each person who is then a director of the Company is
awarded stock options to purchase 10,000 shares of the Company's Common Stock
at the fair market value thereof (as
8
<PAGE>
determined in the accordance with the 1992 Equity Plan), all of which options
are immediately exercisable as of the date of grant and have a term of ten
years.
Executive Compensation
The following table shows the compensation for the years ended
December 31, 1997 and 1996 and the ten month period ended December 31, 1995,
earned by (i) William J. Rouhana, Jr., the Chairman and Chief Executive
Officer of the Company, (ii) Steven G. Chrust, Nathan Kantor and Timothy R.
Graham, the next most highly compensated executive officers of the Company
whose individual compensation exceeded $100,000 during the year ended December
31, 1997, (iii) Fredric E. von Stange, the Company's former Executive Vice
President and Chief Financial Officer, whose individual compensation exceeded
$100,000 during the year ended December 31, 1997, and (iv) Charles T. Dickson,
the Company's current Executive Vice President and Chief Financial Officer
whose employment with the Company commenced in December 1997.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- ------------------------------------------ ------------ ----------------------- ----------------------------
Annual Long Term Compensation
Compensation
----------- ----------- ------------ ---------------
Restricted
Fiscal Salary Bonus Stock Options
Name and principal position Year(1) ($) ($) (2) Awards($) (# Shares)
- ------------------------------------------ ------------ ----------- ----------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
William J. Rouhana, Jr. 12/31/97 483,658 500,000 -- 10,000(4)(5)
Chairman of the Board and 12/31/96 410,076 400,000 -- 135,000(2)(5)
Chief Executive Officer 12/31/95 266,250 575,000 -- 460,000(3)(5)
- ------------------------------------------ ------------ ----------- ----------- ------------ ---------------
Steven G. Chrust 12/31/97 336,924 225,000 -- 10,000(5)
Vice Chairman of the Board 12/31/96 317,809 225,000 -- 45,000(2)(5)
12/31/95 275,652 225,000 -- 10,000(5)
------------------------------------------ ------------ ----------- ----------- ------------ ---------------
Nathan Kantor 12/31/97 448,085 450,000 -- 10,000(5)
President and Chief Operating Officer 12/31/96 370,769 300,000 -- 60,000(2)(5)
12/31/95 99,692(6) 342,500(6) 1,237,500 710,000(5)(7)
- ------------------------------------------ ------------ ----------- ----------- ------------ ---------------
Timothy R. Graham 12/31/97 225,000 225,000 -- 0
Executive Vice President 12/31/96 217,788 125,000 -- 25,000(2)
12/31/95 158,654 75,000 -- 50,000(3)
- ------------------------------------------ ------------ ----------- ----------- ------------ ---------------
Charles T. Dickson (8) 12/31/97 11,923 30,000 -- 250,000(8)
Executive Vice 12/31/96 -- -- -- --
President 12/31/95 -- -- -- --
and Chief Financial Officer
- ------------------------------------------ ------------ ----------- ----------- ------------ ---------------
Fredric E. von Stange(9) 12/31/97 313,462 132,000 -- 31,875(5)
12/31/96 260,711 150,000 -- 35,000(2)(5)
12/31/95 187,692 200,000 -- 235,000(3)(5)
- ------------------------------------------ ------------ ----------- ----------- ------------ ---------------
</TABLE>
- ------------------------------
(1) Represents ten-month period with respect to information for the period
ended December 31, 1995.
(2) Represents bonuses paid or stock options granted as compensation for the
year indicated, the payment or grant of which was made in the subsequent
calendar year.
9
<PAGE>
(3) Represents options to purchase shares of Common Stock granted pursuant to
the terms of the holder's employment agreement in effect for such year.
See "Employment Agreements and Termination of Employment Arrangements."
(4) Does not include options granted to Mr. Rouhana in 1998 in connection
with the renewal of his employment agreement. See "Employment Agreements
and Termination of Employment Arrangements."
(5) Includes or represents options to purchase 10,000 shares of Common Stock
granted annually to directors of the Company under the 1992 Equity Plan.
See "Stock Option Plans."
(6) Mr. Kantor became an employee of the Company in September 1995.
Accordingly, he was paid only a portion of his annual salary during the
ten months ended December 31, 1995. See "Employment Agreements and
Termination of Employment Arrangements." In addition, for the ten months
ended December 31, 1995, the Company paid $1,046,084 to ITC Group, Inc.,
a consulting firm of which Mr. Kantor was the President and principal
stockholder, for services rendered during that period, including
providing the Company the services of up to 12 consultants at any given
time,.
(7) Represents options granted under the terms of Mr. Kantor's employment
agreement. See "Employment Agreements and Termination of Employment
Arrangements."
(8) Mr. Dickson's employment with the Company commenced on December 1, 1997.
On that date, he was granted options to purchase 250,000 shares of the
Company's Common Stock at an exercise price of $17 per share. These
options vest in five equal annual installments commencing December 1,
1998 and have a term extending five years from the date of vesting.
(8) Mr. von Stange resigned as Executive Vice President, Chief Financial
Officer and director of the Company effective November 14, 1997.
The Company cannot determine, without unreasonable effort or expense,
the specific amount of certain personal benefits afforded to its employees, or
the extent to which benefits are personal rather than business. The Company
has concluded that the aggregate amounts of such personal benefits which
cannot be specifically or precisely ascertained do not in any event exceed, as
to each individual named in the preceding table, the lesser of $50,000 or 10%
of the compensation reported in the preceding table for such individual, and
that such information set forth in the preceding table is not rendered
materially misleading by virtue of the omission of the value of such personal
benefits.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
General
This Report is made by the Compensation Committee of the Board of
Directors of the Company (as used in this Report, 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
10
<PAGE>
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 1997. Key factors considered were: (1)
revenue growth in core businesses, including (A) local, long distance and
wholesale telecommunications services and (B) information and entertainment
content and services (i.e., new media); (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 the competitive local exchange carrier (CLEC) business,
including such critical elements as (A) the rollout of the switched CLEC
business in 16 markets in 1997, including the development of sales and support
teams in each of those markets, (B) the development of network and management
systems to manage and control the accelerated development and growth of the
Company, (C) the acquisition of substantial additional roof rights and (D) the
successful integration of the switches and other assets acquired from US One
Communications into the Company's network; (4) the growth of the Company's
workforce from approximately 800 to 1,500 employees in 1997; (5) the high
quality of the management team assembled to execute the Company's business
plan; and (6) the successful planning for the Company's future growth through
the consummation of financing arrangements and the identification of key
acquisition targets. The Committee believes that the Company appropriately
awarded its executive officers for their short and long term 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 generally 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, the bonus and equity components, if awarded, 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 and the Company is not obligated to
provide equity incentives, bonuses or increased cash compensation at any time.
In addition, executive officers are entitled to various benefits, including
medical and other insurance coverage and a 401(k) plan generally available to
all employees of the Company.
11
<PAGE>
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 Chief Executive Officer, the Vice Chairman and the
Chief Operating Officer 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 above-named executive officers was increased in 1997 based upon the
terms of their respective employment agreements and 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
officers are reviewed 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 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 1997 bonus amounts shown on the Summary Table were awarded to the
named executive officers based upon the officer's individual performance,
including significant accomplishments and success in implementing the
Company's development and expansion of its telecommunications and other
business operations and the accelerated progress of the Company during 1997,
including the identification and negotiation of key acquisition targets for
the Company and the consummation of significant capital raising transactions.
Stock Options
The third principal component of compensation arises from the
Company's grant of stock options under the Company's Stock Option Plans. The
Committee believes that stock options serve as important long-term incentives
for 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. The Committee believes that stock options
are an excellent means to align the interests of the Company's employees with
those of its stockholders.
The number of options granted is determined by the Committee and
generally 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 officers and employees are determined by senior
management pursuant to an option grant program approved by the Committee.
Under that program, employees are eligible for annual option grants, based
upon their performance and the Company's performance during the prior year,
within a fixed range which varies depending upon the aggregate number of
options approved by the Compensation Committee for annual grants, the
performance of the Company and of the division in which the employee operates
and the employee's position with the Company. Based upon these factors and the
Committee's belief that the named executive officers and certain other senior
officers already hold significant equity positions in the Company, the
Committee determined to allocate the entire pool of stock options available
for grant to employees with respect to 1997
12
<PAGE>
compensation to executives and employees other than the named executive officers
and such other senior officers.
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
As a portion of his 1997 compensation, the Committee awarded Mr.
Rouhana an incentive bonus of $500,000. This award was based on the
committee's evaluation of his performance and the Company's achievements in
1997, in light of the foregoing performance goals, including that the company
established a switched telecommunications network in 16 major metropolitan
markets throughout the country and developed a broad range of high speed
voice, data, and Internet services. In addition the Company has (A)
accelerated the business plan through strategic acquisitions while maintaining
significant operational growth, (B) continued to improve the quality and
quantity of favorable capital market relationships which enabled the company
to raise significant funding in 1997 and positioned the Company to raise
substantial capital at favorable rates early in 1998, (C ) has added key
talented and experienced management personnel who will help the Company
continue to execute the accelerated business plan, and (D) succeeded in
significant expansion of 38 GHz licenses and CLEC operations.
Mr. Rouhana's prior three year employment contract with the Company
expired on February 28, 1998. Beginning in December of 1997 the Committee met
to evaluate Mr. Rouhana's performance to determine his eligibility for a new
contract and the terms of a new contract. The Committee engaged the services
of a compensation specialist to assist in a review of compensation
arrangements of other CEOs of peer group companies. The Committee then
factored in the unique elements of the Company's business plan and the
expected impact Mr. Rouhana would have on the achievement of the Company's
goals.
On January 6, 1998, Mr. Rouhana and the Committee agreed to a new
three year contract, effective March 1, 1998, pursuant to which Mr. Rouhana
will continue to serve as the Company's Chairman of the Board and Chief
Executive Officer. The employment agreement provides for a minimum annual base
salary of $537,500, with annual increases as agreed upon by the Company and
Mr. Rouhana. The employment agreement also provides that Mr. Rouhana is
eligible for an annual cash bonus, not to exceed 150% of his base salary then
in effect, payable at the discretion of the Committee based upon such factors
as (a) attraction and retention of key executive personnel, (b) the
establishment of strategic direction and achievement of significant Company
goals and Committee identified targets and (c) growth in stockholder value and
enterprise value. As an inducement to enter into the new contract, Mr. Rouhana
was granted: (i) immediately exercisable options to purchase 300,000 shares of
Common Stock for $26 per share, the closing sale price of the Common Stock on
the day immediately preceding the agreement date; (ii) options to purchase
300,000 shares of Common Stock which vest on January 6, 1999, of which 100,000
are exercisable at a price of $26 per share and 200,000 are exercisable at a
price of $39 per share; and (iii) options to purchase 300,000 shares of Common
Stock which vest on January 6, 2000, of which 100,000 are exercisable at a
price of $26 per share and 200,000 are exercisable at a price of $52 per
share. In making the decision regarding the grant of stock options, the
Committee evaluated Mr. Rouhana's performance relative to the guidelines
described above, the Company's achievements during the term of his prior
contract, equity awards to the CEOs of comparable companies, and his critical
leadership role in the Company's future success and the degree to which other
companies have linked CEO compensation to stockholder returns. In addition the
Committee used subjective criteria it deemed relevant in its reasonable
business discretion, such as its opinions about the business environment and
the particular challenges for the Company as well as the potential market for
Mr. Rouhana's services. The Committee believes that the new contract and
compensation package is
13
<PAGE>
in line with industry and market standards and appropriate in light of his past
performance and the Company's aggressive plans for growth.
The Members of the Compensation Committee
-----------------------------------------
Steven B. Magyar, Chairman
William J. vanden Heuvel
James I. Cash
William J. Rouhana, Jr.
14
<PAGE>
OPTION GRANTS IN 1997
The following table sets forth certain information concerning
individual grants of stock options during 1997 to each of the named executive
officers:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------- ------------------------
Potential Realizable
Value At Assumed
Annual Rates of Stock
Individual Grants Price Appreciation for
Option Term
- -------------------- ------------- ----------------- --------------- ----------------- ------------ -----------
Number of Percent of
Securities Total Options
Underlying Granted to
Options Employees in Exercise or
Name Granted (#) Fiscal Year (%) Base Price ($) Expiration Date 5% ($) 10% ($)
- -------------------- ------------- ----------------- --------------- ----------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
William J. 10,000 0.26 16.75 1/12/07 105,339 266,951
Rouhana, Jr. 125,000 3.22 12.00 --(2) 510,143 1,157,341
Chairman of the ------- ---- ------- ---------
Board and Chief 135,000 3.48 615,482 1,424,292
Executive Officer ======= ==== ======= =========
- -------------------- ------------- ----------------- --------------- ----------------- ------------ -----------
Steven G. Chrust 10,000 0.25 16.75 1/12/07 105,339 266,951
Vice Chairman of 35,000 0.90 12.00 --(2) 142,845 324,055
the Board ------ ---- ------- -------
45,000 1.15 278,184 591,006
====== ==== ======= =======
- -------------------- ------------- ----------------- --------------- ----------------- ------------ -----------
Nathan Kantor 10,000 0.26 16.75 1/12/07 105,339 266,951
President and Chief 50,000 1.29 12.00 --(2) 204,057 462,936
Operating Officer ------ ---- ------- -------
60,000 1.55 309,396 729,887
====== ==== ======= =======
- -------------------- ------------- ----------------- --------------- ----------------- ------------ -----------
Timothy R. Graham 25,000 0.64 12.00 --(2) 102,028 231,468
Executive Vice
President
- -------------------- ------------- ----------------- --------------- ----------------- ------------ -----------
Charles T. Dickson 250,000 6.44 17.00 --(1) 2,247,819 5,099,535
Executive Vice
President and Chief
Financial Officer
- -------------------- ------------- ----------------- --------------- ----------------- ------------ -----------
10,000 0.26 16.75 1/12/07 105,339 266,951
Fredric E. von
Stange(3) 25,000 0.64 12.00 --(2) 102,028 231,468
21,875 0.56 20.94 --(4) 288,038 729,946
- -------------------- ------------- ----------------- --------------- ----------------- ------------ -----------
56,875 1.46 495,405 1,228,365
============= ================= ============ ===========
</TABLE>
- ------------------
(1) Reflects stock options granted to Mr. Dickson in connection with the
commencement of his employment with the Company on December 1, 1997.
These options vest in five equal annual installments commencing December
1, 1998 and have a term extending five years from the date of vesting.
(2) These options vest in five equal annual installments commencing March 14,
1997 and have a term extending five years from the date of vesting.
(3) Mr. von Stange resigned as Executive Vice President, Chief Financial
Officer and director of the Company effective November 14, 1997.
(4) These options vest in five equal annual installments commencing October 6,
1998 and have a term extending five years from the date of vesting.
15
<PAGE>
AGGREGATED OPTION EXERCISES IN 1997 AND
FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information concerning
exercises of stock options during 1997 by each of the named executive officers
and the fiscal year-end value of unexercised options held by such persons.
<TABLE>
<CAPTION>
- -------------------- ---------------- -------------- ----------------------------- ----------------------------
Value Number of Securities Value of Unexercised
Shares Realized Underlying Unexercised In-The-Money Options at
Acquired ($'s in Options At Fiscal Year-End (1)
Name On Exercise (#) thousands) Fiscal Year-End (#) ($'s in thousands)
- -------------------- ---------------- -------------- -------------- -------------- ------------- --------------
Exercisable Unexercisable Exercisable Unexercisable
-------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
William J.
Rouhana, Jr. -- -- 626,666 183,334 9,594 4,597
Chairman of the
Board and Chief
Executive Officer
- -------------------- ---------------- -------------- -------------- -------------- ------------- --------------
Steven G. Chrust (2) 60,000 489 531,667 308,333 8,432 4,732
Vice Chairman of
the Board
- -------------------- ---------------- -------------- -------------- -------------- ------------- --------------
Nathan Kantor
President and Chief -- -- 918,699 199,999 14,007 2,858
Operating Officer
- -------------------- ---------------- -------------- -------------- -------------- ------------- --------------
Timothy R. Graham 50,000 428 215,000 20,000 4,011 259
Executive Vice
President
- -------------------- ---------------- -------------- -------------- -------------- ------------- --------------
Charles T. Dickson
Executive Vice -- -- 0 250,000 0 1,984
President and Chief
Financial Officer
- -------------------- ---------------- -------------- -------------- -------------- ------------- --------------
Fredric E. von
Stange -- -- 345,209 36,666 5,674 366
- -------------------- ---------------- -------------- -------------- -------------- ------------- --------------
</TABLE>
- ------------------------
(1) Represents the difference between the aggregate market value at December
31, 1997 of the Common Stock underlying the options, based on a last
sales price of $24.94 on that date, and the options' aggregate exercise
price.
(2) Includes options exercised and options owned by Mr. Chrust and SGC.
(3) Mr. von Stange resigned as Executive Vice President, Chief Financial
Officer and director of the Company effective November 14, 1997.
16
<PAGE>
PERFORMANCE GRAPH
The following graph and table compare the five-year stockholder
returns (from January 1993 through December 1997) 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, 1992 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]
INDEXED RETURNS [12/31/91=100]
<TABLE>
<CAPTION>
Investment Return Return Return Return Return
Dec. 1992 Dec. 1993 Dec. 1994 Dec. 1995 Dec. 1996 Dec. 1997
---------- ---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
WinStar
Communications, Inc. $100.000 $172.414 $498.276 $944.828 $1,158.621 $1,375.862
Nasdaq
Telecommunications Index $100.000 $154.193 $128.688 $168.513 $172.289 $255.067
Nasdaq Stock Market
- - US Index $100.000 $114.790 $112.206 $158.688 $195.180 $239.567
</TABLE>
Employment Agreements and Termination of Employment Arrangements
William J. Rouhana, Jr. had served as Chairman of the Board and Chief
Executive Officer of the Company from May 1994 to February 1995 through
WinStar Services, an entity which had a management agreement with the Company.
The management agreement was terminated on February 28, 1995 and Mr. Rouhana
entered into a three-year employment agreement with the
17
<PAGE>
Company to serve as its Chairman of the Board and Chief Executive Officer
effective March 1, 1995. On January 6, 1998, Mr. Rouhana and the Company entered
into a new three year employment agreement, effective March 1, 1998, pursuant to
which Mr. Rouhana will continue to serve as the Company's Chairman of the Board
and Chief Executive Officer. The employment agreement provides for a minimum
annual base salary of $537,500, with annual increases as agreed upon by the
Company and Mr. Rouhana. The employment agreement also provides that Mr. Rouhana
is eligible for an annual cash bonus, payable at the discretion of the
Compensation Committee, not to exceed 150% of his base salary then in effect. At
the time of execution of this employment agreement, Mr. Rouhana was granted: (i)
immediately exercisable options to purchase 300,000 shares of Common Stock for
$26 per share, the closing sale price of the Common Stock on the day immediately
preceding the agreement date; (ii) options to purchase 300,000 shares of Common
Stock which vest on January 6, 1999, of which 100,000 are exercisable at a price
of $26 per share and 200,000 are exercisable at a price of $39 per share; and
(iii) options to purchase 300,000 shares of Common Stock which vest on January
6, 2000, of which 100,000 are exercisable at a price of $26 per share and
200,000 are exercisable at a price of $52 per share.
Nathan Kantor became President and Chief Operating Officer of the
Company in September 1995, when he entered into a three-year employment
agreement with the Company. The employment agreement provides for a minimum
annual base salary of $320,000 during the first year, $336,000 during the
second year and $352,800 during the third year. The employment agreement
allows Mr. Kantor to devote up to 25% of his business time to serve as
Chairman of the Board and Chief Executive Officer of Image Telecom, a company
involved in the development of information and video servers. In connection
with his employment agreement, Mr. Kantor was also granted immediately
exercisable options to purchase 350,000 shares of Common Stock for $8.25 per
share and additional options to purchase 350,000 shares of Common Stock for
$8.25 per share, vesting in three equal annual installments commencing in
September 1996. The Company also issued 150,000 restricted shares of Common
Stock to Mr. Kantor. In May 1996, the Company agreed to accelerate the vesting
of such restricted shares and Mr. Kantor utilized such shares to pay the
option exercise price of options to purchase 233,302 shares of Common Stock.
Pursuant to the re-load feature of the option agreement governing such
options, Mr. Kantor was granted options to purchase an additional 150,000
shares of Common Stock at an exercise price equal to the market price of the
Common Stock on such date.
Steven G. Chrust became the Vice Chairman of the Board in January
1995, when he entered into a five-year employment agreement with the Company.
The employment agreement, as amended, provides for an annual salary of
$325,000 during the first year, $300,000 during the second and third years and
$305,000 during the fourth and fifth years. In connection with his employment
agreement, the Company granted Mr. Chrust options to purchase 600,000 shares
of Common Stock for $8.00 per share, vesting in five equal annual installments
commencing in January 1996.
In April 1998, the Company entered into Executive Severance Agreements
(each a "Severance Agreement") with each of the named executive officers and
certain other senior officers of the Company and its subsidiaries. The Severance
Agreement generally provides that, if during the two years following a Change of
Control or potential Change of Control of the Company (each as defined in the
Severance Agreement), either (A) the covered executive's employment is
terminated by the Company (other than due to the executive's death or Disability
or for Cause, as defined in the Severance Agreement) or (B) the covered
executive terminates his or her employment with the Company for Good Reason (as
defined in the Severance Agreement), then such executive will be entitled to
receive certain severance benefits, including a cash severance payment equal to
one and one-half times the aggregate of (i) such executive's annual base salary
then in effect plus (ii) such executive's average full-year bonus over the prior
two years. Additional benefits to which a covered executive would be entitled
include continued medical and other insurance benefits for one and one-half
years following termination and career outplacement services. As defined in the
Severance Agreement, "Change of Control of the Company" generally
18
<PAGE>
means that a third party has acquired 35% or more of the Company's voting stock
(whether through a stock purchase, exchange, tender offer or merger) or
substantially all of the Company's assets. A "potential Change of Control" of
the Company would occur if: (w) an agreement is entered into, the consummation
of which would result in a Change of Control; (x) a third party makes a public
announcement of an intention to take action that, if consummated, would result
in a Change of Control of the Company; (y) the Company's Stockholder Rights Plan
is triggered; or (z) the Board makes a good faith determination that a potential
Change of Control has occurred. The Severance Agreement has an initial term of
three years and renews automatically for successive one year terms unless the
Company notifies the covered executive within six months prior to the end of the
then current term that the Severance Agreement will terminate at the end of such
term.
Effective November 14,1997, Fredric E. von Stange resigned as Executive
Vice President, Chief Financial Officer and a director of the Company. In
connection therewith, he and the Company entered into a Separation from
Employment and Consulting Agreement, terminating his employment agreement then
in effect. In consideration for the benefits provided by this agreement, Mr. von
Stange waived his rights under such employment agreement, released the Company
from any claims he might have against it relating to his employment or the
termination thereof and agreed to certain non-competition and other restrictive
covenants. Mr. von Stange also agreed to provide consulting services to the
Company for a two year period. During such term the Company will pay Mr. von
Stange an annual fee equal to his salary at the termination date plus his bonus
payment for 1996, payable in equal bi-weekly installments. Such payments will be
accelerated in the event of a change in control of the Company. All unvested
stock options held by Mr. von Stange at the effective date of the agreement will
continue to vest over the term of the agreement and those remaining unvested on
the agreement's expiration date will vest at that time. In addition, Mr. von
Stange will continue to receive certain insurance and other benefits during the
term of this agreement.
Equity Compensation Plans
In January 1992, the Board adopted the 1992 Equity Plan which was
approved by the stockholders of the Company at the Annual Meeting of
Stockholders in October 1992. The 1992 Equity 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. In 1996, the 1992 Equity
Plan was amended to increase 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 (the "Code")),
restricted stock awards, deferred stock awards, stock appreciation rights and
other stock-based awards, as described in the 1992 Equity Plan. On January 13th
of each calendar year during the term of the 1992 Equity Plan, assuming there
are enough shares then available for grant under the 1992 Equity Plan, each
person who is then a director of the Company is awarded 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 Equity 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 Equity Plan. As of April 15, 1998, options to
purchase 622,507 shares of Common Stock were outstanding under the 1992 Equity
Plan and there are 341,508 shares available for future grant under the 1992
Equity Plan.
In June 1995, the Board adopted the 1995 Equity Plan which was approved
by the stockholders of the Company at the Annual Meeting of Stockholders in
September 1995. The 1995 Equity 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 Equity Plan was amended
to increase the number of shares of Common Stock available thereunder to
3,500,000. In 1997, the 1995 Equity Plan was amended to increase the number of
shares of Common Stock available thereunder to 7,500,000. On March 11, 1998, the
Board approved an amendment to the
19
<PAGE>
1995 Equity Plan increasing the number of shares of Common Stock available
thereunder by 2,500,000 shares, subject to approval by the Company's
stockholders. 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 Code), restricted stock awards, deferred stock
awards, stock appreciation rights and other stock-based awards, as described in
the 1995 Equity Plan.
On March 11, 1998, the Board adopted the WinStar Communications, Inc.
Qualified Employee Stock Purchase Plan which covers 750,000 shares of Common
Stock, subject to approval by the Company's stockholders. See "Proposal III." If
approved by stockholders, the Stock Purchase Plan will become effective as of
October 1, 1998. At the Meeting, the Company's stockholders will be requested to
consider and act upon a proposal to (i) approve the Company's adoption of the
Stock Purchase Plan and (ii) in connection therewith, to effect an amendment to
the Company's by-laws.
The Company maintains a 401(k) Employee Savings Plan under which
employees of the Company and its subsidiaries may make voluntary contributions
through payroll deductions. The Company makes matching contributions, credited
as of the date of a payroll deduction, equal to 25% of the first 6% of
compensation contributed by an employee. The Company's matching contribution is
made by the issuance of Common Stock to such plan for the accounts of
participating employees.
Each of the 1992 and 1995 Equity Plans is administered by the
Compensation Committee which determines the persons to whom awards will be
granted, the number of awards to be granted and the specific terms of each
grant, including the vesting thereof, subject to the provisions of the 1992 and
1995 Equity Plans. The Stock Purchase Plan will also be administered by the
Compensation Committee which will define, prescribe, amend and rescind rules,
regulations, procedures, terms and conditions relating to the Plan, including
the fixing of purchase price discounts and option periods in effect from time to
time, and interpret, administer and construe the Plan and make all other
determinations necessary or advisable for the administration of the Plan.
Compensation Committee Interlocks and Insider Participation
The Board's Compensation Committee is composed of Mr. Rouhana, the
Company's Chairman and Chief Executive Officer, Mr. Magyar, Mr. vanden Heuvel
and Professor Cash. No executive officer of the Company sits on the
compensation committee of another entity, one of whose executive officers
serves as a director of the Company or on the Company's Compensation
Committee, nor does any executive officer of the Company serve as a director
of another entity, one of whose executive officers serves on the Company's
Compensation Committee.
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
Equity 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 Equity 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. In April 1997, the Company amended the 1995 Equity Plan
to increase the number of shares available thereunder
20
<PAGE>
to 7,500,000 shares, which increase was approved by the Company's stockholders
at the Annual Meeting of Stockholders held on June 26, 1997. On March 11, 1998,
the Board approved an amendment to the 1995 Equity Plan, pursuant to which the
number of shares available for issuance pursuant to grants made under the 1995
Equity Plan was increased, subject to approval by the Company's stockholders and
the Meeting, by 2,500,000 shares. As of April 15, 1998, there were outstanding
grants under the 1995 Equity Plan of options to purchase an aggregate of
approximately 7,383,000 shares of Common Stock, which exceeds by approximately
105,000 shares the total number of shares available for issuance under the 1995
Equity Plan. The effectiveness of options granted under the 1995 Equity Plan
which are in excess of the aggregate number available thereunder is subject to
approval of this proposal being obtained at the Meeting. No additional option
grants will be made under the 1995 Equity Plan unless and until the amendment
described herein is approved by the Company's stockholders.
The Board believes that the proposed 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 and
accelerated growth of the Company's business. The Company's rapid growth, both
internally and by acquisition, is evidenced by, among other things, the increase
in the number of employees from 800 to 1,500 in 1997 and to approximately 2,200
as of the date of this Proxy Statement. This rapid growth is expected to
continue through 1998. The Board further believes that without the availability
of stock options to attract and retain executives, managers and other employees,
the Company's ability to maintain such growth and carry out its business plan
may be negatively impacted. Additionally, the Board continues to believe 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 and thereby motivating employees toward
enhancement of share value. See "Compensation Committee Report On Executive
Compensation -- Executive Compensation Policies And Objectives."
If the 1995 Equity Plan, as summarized below under "Summary of the 1995
Equity Plan," 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 21% 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.
SUMMARY OF THE 1995 EQUITY PLAN
Administration
The 1995 Equity 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,
21
<PAGE>
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 10 million 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, in each
case affecting all outstanding share of the Company's Common Stock as a whole.
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 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 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). An Incentive Option may only be granted within a 10-year period from the
date the Plan 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
22
<PAGE>
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
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
23
<PAGE>
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.
24
<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 THE ADOPTION OF
THE WINSTAR COMMUNICATIONS, INC.
QUALIFIED EMPLOYEE STOCK PURCHASE PLAN
AND RELATED AMENDMENT TO THE COMPANY'S BY-LAWS
At the annual meeting, the Company's stockholders will be requested to
consider and act upon a proposal to (i) approve the Company's adoption of the
WinStar Communications, Inc. Qualified Employee Stock Purchase Plan and (ii) in
connection therewith, to effect an amendment to the Company's by-laws. On March
11, 1998, the Board adopted the Stock Purchase Plan which covers 750,000 shares
of Common Stock, subject to approval by the Company's stockholders. If approved
by stockholders, the Stock Purchase Plan will become effective as early as
October 1, 1998.
The Stock Purchase Plan provides, among other things, that the
Compensation Committee which administers such plan may permit employees and
certain officers of the Company to acquire shares of Common Stock at a discount
of up to 15% below the then current market price of the Common Stock. Such
offers to purchase shares pursuant to the Stock Purchase Plan at a discount
could, pursuant to the Company's by-laws, be deemed to be options to purchase
Common Stock for less than current fair market value.
Section 6(b) of Article II of the Company's by-laws provides, in part,
that "the Board, standing alone, or through the compensation committee, shall
not grant any stock options to any officers, employees or directors of the
company after August 5, 1996 and prior to August 5, 1999 which are exercisable
at a price below the closing public trading price of the stock of the Company on
the trading day immediately preceding the date the corporation first agrees to
make such options available." Therefore, the Company's stockholders are being
requested, in connection with their approval of the Stock Purchase Plan, to
effect an amendment to the foregoing provision of the
25
<PAGE>
Company's by-laws solely for the purpose of approving the Stock Purchase Plan.
Upon approval of such amendment, the bylaw provision quoted above shall read
"the Board, standing alone, or through the Compensation Committee, shall not,
except pursuant to and in accordance with the WinStar Communications, Inc.
Qualified Employee Stock Purchase Plan, grant any stock options to any officers,
employees or directors of the company after August 5, 1996 and prior to August
5, 1999 which are exercisable at a price below the closing public trading price
of the stock of the Company on the trading day immediately preceding the date
the corporation first agrees to make such options available." The foregoing
provision of the Company's by-laws will continue in effect and be unmodified for
all other purposes.
The Stock Purchase Plan, and the related bylaw amendment, will become
effective immediately upon approval by the Company's stockholders. The purpose
of the Stock Purchase Plan is to enhance the proprietary interest among the
employees of the Company and its participating subsidiaries through ownership of
Common Stock of the Company, thereby stimulating their personal and active
interest in its growth and prosperity.
Set forth below is a summary of certain important features of the Stock
Purchase Plan, which summary is qualified in its entirety by reference to the
complete text of the plan attached as Exhibit A to this Proxy Statement.
The Board of Directors Recommends voting "FOR" Proposal III
SUMMARY OF THE STOCK PURCHASE PLAN
Administration
The Stock Purchase Plan will be administered by the Compensation
Committee of the Board. Among other things, the Compensation Committee will have
full discretionary authority to define, prescribe, amend and rescind rules,
regulations, procedures, terms and conditions relating to the Stock Purchase
Plan, and to interpret, administer and construe the Stock Purchase Plan and make
all other determinations necessary or advisable for the administration of the
Stock Purchase Plan. The Committee may, consistent with the requirements of the
Stock Purchase Plan, designate an administrator to perform certain day-to-day
administration of the Plan, and to maintain records of the Stock Purchase Plan.
Except as otherwise expressly provided in the Stock Purchase Plan, all
designations, determinations, interpretations, and other decisions under or with
respect to the Stock Purchase Plan, any participation thereunder, or any
participation agreement or certificate relating thereto, will be in the sole
discretion of the Committee, may be made at any time, and will be final,
conclusive, and binding.
Eligibility
Each employee who is regularly scheduled to work for the Company or a
participating subsidiary of the Company for at least 20 hours each week and at
least five months each calendar year shall be eligible to participate in and
will be offered the opportunity to purchase Common Stock under the Stock
Purchase Plan as of the later of 90 days following the employee's last date of
hire and October 1, 1998, the effective date of the Stock Purchase Plan.
Notwithstanding the foregoing, the Committee may (but need not) in its sole
discretion exclude from participation in the Stock Purchase Plan any eligible
employee who as of the date of determination, is or during any portion of the
preceding six months was, a "reporting person" within the meaning of Section 16
of the Exchange Act and the rules and regulations of the SEC thereunder;
provided that such reporting person is a "highly compensated employee" as
defined in Section 414(q) of the Code. In addition, no eligible employee may
participate in the Stock Purchase Plan if (i) immediately after the grant
26
<PAGE>
such employee would own shares and/or hold outstanding options to purchase stock
possessing five percent or more of the total combined voting power or value of
all classes of stock of the Company or of any subsidiary of the Company or (ii)
the option would enable the eligible employee to purchase under all qualified
employee stock purchase plans of the Company and its subsidiaries, in any one
year, more than $25,000 of the Company's stock (based on the fair market value
of the shares determined at the time such option is granted) subject to certain
accumulation rules contained in the Code.
Plan Features
Under the Stock Purchase Plan, the Company may make offerings
("Offerings") of up to 750,000 shares of its common stock to eligible
employees who elect to participate in the Stock Purchase Plan ("Participating
Employees"). The Company may make one or more Offerings in any calendar year
pursuant to which Participating Employees will be granted upon each offering
date determined by the Committee (each a "Date of Grant") the option ("Options")
to purchase shares of Common Stock (the date of purchase being the "Exercise
Date") for a price (the "Exercise Price") determined from time to time by the
Compensation Committee. The Exercise Price will in no event be less than the
lesser of 85% of the Fair Market Value of a share of Common Stock on the Date of
Grant or on the Exercise Date. Each Participating Employee will be offered
Options to purchase such shares in amounts up to a maximum of between one and 15
percent, as determined by the Compensation Committee, of such Participating
Employee's annual compensation (as determined under the Stock Purchase Plan).
The Date of Grant and Exercise Date of any Options (which may be the same) will
also be determined by the Committee in its sole discretion.
Payment for such shares of Common Stock purchased under the Stock
Purchase Plan will be made by payroll deductions during a period preceding the
Exercise Date to be fixed from time to time by the Compensation Committee. All
payroll deductions may be used by the Company for general corporate purposes.
Unless a Participating Employee cancels his or her election to participate in
the Stock Purchase Plan, such employee's participation, through payroll
deductions, will continue and shares of Common Stock will be purchased under the
Stock Purchase Plan on such employee's behalf. A Participating Employee will
have none of the rights or privileges of a stockholder of the Company until the
full purchase price of such Participating Employee's shares has been paid and
such Participating Employee has been issued such shares of Common Stock.
The number of shares authorized for issuance under the Stock Purchase
Plan, the number of shares subscribed for and the purchase price per share are
subject to adjustment in the event of a common stock dividend on the Common
Stock, a common stock split or combination of shares of Common Stock, a
recapitalization or other change in the Company's capitalization, in each case
affecting all outstanding shares of Common Stock as a whole. The Committee may
impose restrictions on the transferability of shares of Common Stock acquired
pursuant to the Stock Purchase Plan, and such restrictions, if any, would apply
uniformly to all Participating Employees with respect to each Offering.
Generally, no right under the Stock Purchase Plan will be assignable, alienable,
saleable, or transferable by a Participating Employee. In addition thereto, no
employee purchasing shares under the Stock Purchase Plan may resell such shares
for a period of 90 days following such purchase.
Amendment and Termination
The Committee may, from time to time, alter, amend, suspend or
discontinue the Stock Purchase Plan for the purpose of meeting any changes in
legal requirements or for any other purpose permitted by law; provided, however,
that, except for any adjustment authorized under the Stock Purchase Plan, the
maximum number of shares that may be offered under the Stock Purchase Plan may
not be increased, without appropriate stockholder approval. Under its terms, the
Stock Purchase Plan will terminate if its adoption and the related bylaw
amendment are not
27
<PAGE>
approved by the holders of at least a majority of the outstanding shares of
Voting Stock of the Company not later than September 30, 1998.
Federal Income Tax Consequences
The following discussion addresses only the general federal income tax
consequences of the Stock Purchase Plan. It does not address the impact of state
and local taxes, the federal alternative minimum tax, and securities laws
restrictions, and is not intended as tax advice to participants in the Stock
Purchase Plan, who should consult their own tax advisors.
The Stock Purchase Plan is intended to qualify as an employee stock
purchase plan within the meaning of Section 423 of the Code. Accordingly,
income will not result to an employee who elects to participate when the
option is granted or when it is exercised and the shares purchased are issued
to him. If an employee disposes of such shares more than two years from the
date on which he is granted the option to purchase shares under the Stock
Purchase Plan and more than one year after the issuance of the shares to him,
or if the employee dies (which ever occurs first), and the option price on the
date of grant was equal to or greater than 85% and less than 100% of the fair
market value of the stock, the employee will be required to include in income,
as compensation for the year in which such disposition or death occurs, an
amount equal to the lesser of (i) the excess of the fair market value of such
shares at the time of disposition over the option price or (ii) the excess of
the fair market value of such shares at the time the option was granted over
the option price. The employee's basis in those shares in his hands at the
time of such a disposition will be his purchase price for the shares increased
by the amount so includable in his income as compensation, and any gain or
loss computed with reference to such adjusted basis which is recognized at the
time of the disposition will be short or long-term capital gain or loss
depending upon the holding period for such shares. In such event, the Company
will not be entitled to any deduction from income.
If any employee disposes of the shares purchased under the Stock
Purchase Plan within two years of the date of grant of the option or one year
from the date of issuance of the shares to him, the employee will be required
to include in income, as compensation for the year in which such disposition
occurs, an amount equal to the difference between the fair market value of the
shares on the date of exercise of the option and the exercise price of the
option. The employee's basis in such shares at the time of disposition will be
increased by the amount includable in his income as compensation, and any gain
or loss computed with reference to such adjusted basis which is recognized at
the time of disposition will be capital gain or loss, either short-term or
long-term, depending on the capital gain holding period for such shares.
Generally, the holding period for such shares begins on the date the shares
are purchased. In the event of a disposition prior to the expiration of the
two- or one-year statutory period, the Company will be entitled to a deduction
from income equal to the amount the employee is required to include in income
as compensation as a result of such disposition. To the extent this
compensation is subject to income tax withholding, Social Security taxes and
other employment taxes, the Company will make such provision as it deems
appropriate for the withholding or other payment of such taxes.
Employees will not be entitled to any deduction from income for
payroll deductions authorized under the Stock Purchase Plan. Cash dividends
paid on shares held under the Plan will be taxable to the employee for income
tax purposes.
The federal income tax rules relating to employee stock purchase
plans qualifying under Section 423 of the Code are complex. Accordingly, the
foregoing outline is intended to summarize only certain major federal income
tax rules concerning employee stock purchase plans, and should not be
construed as specific tax advice.
28
<PAGE>
INDEPENDENT AUDITORS
Grant Thornton LLP served as the Company's independent certified
public accountants for the year ended December 31, 1997. The Board has
selected Grant Thornton LLP as the Company's independent certified public
accountants for the fiscal year ending December 31, 1998. 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.
1998 STOCKHOLDER PROPOSALS
In order for stockholder proposals for the 1999 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 [8], 1999. A stockholder must have been a registered or
beneficial owner of at least 1% of the Company's outstanding stock or stock
with a market value of at least $1,000 for at least one year prior to
submitting the proposal, and the stockholder must continue to own such stock
through the date on which the 1999 Annual Meeting of Stockholders is held.
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.
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 [8], 1998
29
<PAGE>
Exhibit A
WINSTAR COMMUNICATIONS, INC.
QUALIFIED EMPLOYEE STOCK PURCHASE PLAN
-------------------------
ARTICLE I: BACKGROUND
1.1 Establishment of the Plan
WinStar Communications, Inc. (the "Corporation") hereby establishes a stock
purchase plan, effective on the Effective Date (as defined herein), to be
known as the "WINSTAR COMMUNICATIONS, INC. QUALIFIED EMPLOYEE STOCK PURCHASE
PLAN" (the "Plan"), as set forth in this document. The Plan is intended to be
a qualified employee stock purchase plan within the meaning of Section 423 of
the Internal Revenue Code of 1986, as amended, and the regulations and rulings
thereunder. The Plan shall not be construed as constituting an employee
benefit plan within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended.
1.2 Applicability of the Plan
The provisions of this Plan are applicable only to certain individuals who are
Employees, as defined in the Plan.
1.3 Purpose of the Plan
The purpose of the Plan is to enhance the proprietary interest among the
employees of the Corporation and its participating Subsidiaries through
ownership of Common Stock of the Corporation.
ARTICLE II: DEFINITIONS
Whenever capitalized in this document, the following terms shall have the
respective meanings set forth below. Except when otherwise indicated by the
context, the definition of any term herein in the singular may also include
the plural.
2.1 Administrator
Administrator shall mean the person or persons (who may be officers or
employees of the Corporation) selected by the Committee to operate the Plan,
perform day-to-day administration of the Plan, and maintain records of the
Plan.
2.2 Board
Board shall mean the Board of Directors of the Corporation.
<PAGE>
2.3 Code
Code shall mean the Internal Revenue Code of 1986, as amended from time to
time, and any successor thereto and the regulations thereunder.
2.4 Committee
Committee shall mean the Compensation Committee of the Board or any other
committee which consists of members of the Board and which has been designated
by the Board to have the general responsibility for the administration of the
Plan. Subject to the express provisions of the Plan, the Committee shall have
plenary authority in its sole and absolute discretion to interpret and
construe any and all provisions of the Plan, to adopt rules and regulations
for administering the Plan, and to make all other determinations necessary or
advisable for administering the Plan. The Committee's determinations on the
foregoing matters shall be conclusive and binding upon all persons.
2.5 Common Stock
Common Stock shall mean Common Stock, $.01 par value per share, of the
Corporation.
2.6 Compensation
Compensation shall mean, for any Participant, for any period, the
Participant's total salary, wages, commissions, and bonuses to be paid to the
Participant for the respective period. Compensation shall be determined before
giving effect to any salary reduction amounts contributed pursuant to a
Participant's election under a plan maintained by an Employer under Code
Section 401(k) or under Code Sections 125 or 129.
2.7 Corporation
Corporation shall mean WinStar Communications, Inc. or any successor thereto.
2.8 Date of Grant
Date of Grant shall mean the first day of each Option Period, or the last day
of each Participation Cycle, as determined by the Committee.
2.9 Effective Date
Effective Date shall mean October 1, 1998, or such later date as shall be
established by the Committee.
2.10 Employee
Employee shall mean a person employed by an Employer who is classified by the
Employer as an employee (and not as an independent contractor no matter how
characterized by a court or administrative agency).
2.11 Employer
Employer shall mean the Corporation and each Subsidiary other than a
Subsidiary designated by the Committee as not being an Employer for purposes
of the Plan.
2
<PAGE>
2.12 Exercise Date
Exercise Date shall mean the last day of each Option Period or Participation
Cycle, as determined by the Committee, but in no event later than the last
date permitted under Code Section 423(b)(7).
2.13 Fair Market Value
Fair Market Value, as of any given date, shall mean, unless otherwise required
by any applicable provision of the Code or any regulations issued thereunder:
(i) if the Common Stock is listed on a national securities exchange or quoted
on the Nasdaq National Market or Nasdaq SmallCap Market, the last sale price
of the Common Stock in the principal trading market for the Common Stock on
the relevant date or, in the absence of a sale on such date, the last trading
day preceding such relevant date, as reported by the exchange or Nasdaq, as
the case may be; (ii) if the Common Stock is not listed on a national
securities exchange or quoted on the Nasdaq National Market or Nasdaq SmallCap
Market, but is traded in the over-the-counter market, the closing bid price
for the Common Stock on the relevant date or, in the absence of a sale on such
date, the last trading day preceding such relevant date, for which such
quotations are reported by the OTC Bulletin Board or the National Quotation
Bureau, Incorporated or similar publisher of such quotations; and (iii) if the
fair market value of the Common Stock cannot be determined pursuant to clause
(i) or (ii) above, such price as the Committee shall determine, in good faith.
2.14 Option
Option shall mean a right to purchase Common Stock under the Plan granted by
the Committee in accordance with Section 5.1.
2.15 Option Period
Option Period shall mean the period of time between the Date of Grant and the
Exercise Date.
2.16 Option Price
Option Price shall mean the purchase price per share of Common Stock
determined under Section 5.2.
2.17 Participant
Participant shall mean any Employee who has elected to participate in the Plan
under Section 3.2 and who has an account balance under the Plan.
2.18 Participation Cycle
Participation Cycle shall mean the period of time between Exercise Dates, if
the Date of Grant and Exercise Date are the same.
2.19 Plan
Plan shall mean the WinStar Communications, Inc. Qualified Employee Stock
Purchase Plan, as amended and in effect from time to time.
3
<PAGE>
2.20 Request Form
Request Form shall mean an Employee's authorization form, specifying the
Employee's payroll deduction percentage in accordance with Section 6.2, and
containing such terms and provisions as may be required by the Administrator.
2.21 Subsidiary
Subsidiary shall mean any present or future Corporation which is a "subsidiary
corporation" of the Corporation as defined in Code Section 424.
ARTICLE III: ELIGIBILITY AND PARTICIPATION
3.1 Eligibility
Each Employee who is regularly scheduled to work for an Employer at least 20
hours each week and at least five months each calendar year shall be eligible
to participate in the Plan as of the later of:
(a) the next Option Period or Participation Cycle commencing
after 90 days following the Employee's last date of hire by
an Employer; or
(b) the Effective Date.
Notwithstanding the foregoing: (i) the Committee may (but need not), in its
sole discretion, exclude from participation in the Plan any group of Employees
who are highly compensated employees within the meaning or Code Section
414(q), including, without limitation, any Employee who as of the date
of determination is, or during any portion of the preceding six months was, a
"reporting person" within the meaning of Section 16 of the Securities Exchange
Act of 1934, as amended, and the rules and regulations of the Securities and
Exchange Commission thereunder; and (ii) no Employee shall participate in the
Plan with respect to any Option grant if, immediately after the Option grant,
the Employee would own stock, and/or hold outstanding options or rights to
purchase stock (whether under the Plan or otherwise), possessing 5 percent or
more of the total combined voting power or value of all classes of outstanding
stock of the Corporation or any Subsidiary. For purposes of this Section, the
attribution rules of Code Section 424(d) shall apply in determining stock
ownership of any Employee.
3.2 Initial Participation
An Employee eligible to participate in the Plan under Section 3.1 may submit a
Request Form to the Administrator for an Option Period or Participation Cycle.
The Request Form shall authorize a regular after-tax payroll deduction from
the Employee's Compensation for such Option Period or Participation Cycle. The
authorization set forth in such Request Form shall continue in effect
indefinitely, but subject to modification or discontinuance at a later date,
in accordance with Sections Article VI. The Committee may (but need not), in
its sole discretion, elect to allow Participants to participate by submitting
payment in other forms such as lump sum cash payments.
4
<PAGE>
ARTICLE IV: STOCK AVAILABLE
4.1 In General
Subject to adjustment in accordance with Sections 4.2 and 4.3, an aggregate of
750,000 shares of Common Stock shall be available for purchase by Participants
pursuant to the provisions of the Plan. These shares may be authorized and
unissued shares, shares issued and held by the Corporation as treasury stock
or may be shares issued and subsequently acquired by the Corporation, as may
be determined from time to time by the Committee. If an Option under the Plan
expires or terminates for any reason without having been exercised in whole or
in part, the shares subject to such Option that are not purchased shall again
be available for subsequent Option grants under the Plan. If the total number
of shares of Common Stock for which Options are exercised on any Exercise Date
exceeds the maximum number of shares available for the Option Period, the
Committee shall make a pro rata allocation of the shares available in as
nearly a uniform manner as shall be practicable and as it shall determine to
be equitable, and the balance of the cash credited to Participants' accounts
shall be distributed to the Participants as soon as practicable.
4.2 Adjustment in Event of Changes in Capitalization
In the event of a common stock dividend on the Common Stock, a common stock
split or combination of shares of Common Stock, recapitalization or other
change in the Corporation's capitalization, in each case affecting all
outstanding shares of Common Stock as a whole, an appropriate and
proportionate adjustment may, to the extent it deems appropriate, be made by
the Committee in the number and kind of shares as to which outstanding Options
or portions thereof then unexercised shall be exercisable and in the available
shares set forth in Section 4.1. Any adjustment in outstanding Options shall
be made without change in the total price applicable to the unexercised
portion of such Options and with a corresponding adjustment in the Option
Price per share.
4.3 Dissolution, Liquidation, Merger or Similar Transaction
Upon the dissolution or liquidation of the Corporation, or upon a
reorganization, merger, or consolidation of the Corporation with one or more
corporations in which the Corporation is not the surviving corporation, or
upon sale of substantially all of the property or stock of the Corporation to
another corporation, the holder of each Option then outstanding under the Plan
shall be entitled to receive, at the next Exercise Date upon the exercise of
such Option, for each share of Common Stock for which such Option is
exercisable, as nearly as reasonably may be determined, the cash, securities,
or property which a holder of one share of the Common Stock was entitled to
receive upon and at the time of such transaction.
ARTICLE V: OPTION PROVISIONS
5.1 Options
The Committee may grant Options to eligible Employees during the term of the
Plan. The number, Date of Grant and Exercise Date of any Options shall be
determined by the Committee in its sole discretion. The Option Period or
Participation Cycle need not be the same for each grant and more than one
Option may commence or terminate on the same date if the Committee so
provides. The Committee may at any time suspend or accelerate an Option if
required by law or deemed by the Committee to be in the best interests of the
Corporation, including in the event of a change in ownership or control of the
Corporation.
5.2 Option Price
5
<PAGE>
The Option Price of a share of Common Stock purchased for a Participant
pursuant to the exercise of an Option for any Option Period or Participation
Cycle shall be set by the Committee from time to time but shall be no less
than the lesser of:
(a) eighty-five percent (85%) of the Fair Market Value of a
share of Common Stock on the Date of Grant; or
(b) eighty-five percent of the Fair Market Value of a share of
Common Stock on the Exercise Date.
5.3 Calendar Year $25,000 Limit
Notwithstanding anything else contained herein, no Employee may be granted an
Option which permits such Employee's rights to purchase Common Stock under the
Plan (and any other qualified employee stock purchase plan, within the meaning
of Code Section 423, of the Corporation and its Subsidiaries to accrue,
collectively, "Other ESPPs") at a rate which exceeds $25,000 of Fair Market
Value of such Common Stock for each calendar year in which an Option is
outstanding at any time. For purposes of this Section 5.3, Fair Market Value
shall be determined as of the Date of Grant.
ARTICLE VI: PURCHASING COMMON STOCK
6.1 Participant's Account
The Administrator shall establish a book account in the name of each
Participant. A Participant's payroll deductions and dividends on the Common
Stock, if any, credited to his or her account, as discussed in Section 6.2
below, shall be credited to the Participant's account, without interest, until
such cash is withdrawn, distributed, or used to purchase Common Stock as
described below.
Until the exercise of an Option pursuant to Section 6.5 below, all Participant
funds received or held by the Corporation under the Plan shall be held by the
Corporation for the credit of the Participant as part of the Corporation's
general funds and may be used by the Corporation for any corporate purpose.
The Corporation shall not be obligated to segregate any assets with respect to
the Plan. All funds received by the Corporation as consideration for purchases
of Common Stock hereunder may be used by the Corporation for any corporate
purpose including, without limitation, to make investments in, acquire, make
loans to, or otherwise enter into business arrangements with, companies which
are not involved in the telecommunications business, including without
limitation, WinStar New Media Company, Inc. and its subsidiaries which
acquire, produce and distribute information and entertainment content.
6.2 Payroll Deductions
(a) Payroll Deductions
Subject to Section 5.3, by submitting a Request Form before
the beginning of any month in which an Option Period or
Participation Cycle begins and in accordance with rules
adopted by the Committee, an Employee eligible to
participate in the Plan under Section 3.1 may, initially in
accordance with Section 3.2, or thereafter authorize an
after-tax payroll deduction to purchase Common Stock under
the Plan for such Option Period or Participation Cycle. The
payroll deduction shall be in any whole percentage from 1 to
15 percent of such Employee's Compensation payable each pay
period, and at any other time an element of Compensation is
payable. A Participant's payroll deduction, however, shall
be at least ten dollars ($10.00) each payroll period.
6
<PAGE>
(b) Duration
A Participant's Request Form submitted under Section 3.2 or
6.2(a) shall remain effective until modified or discontinued
under Section 6.3 or such Participant is no longer eligible
to participate in the Plan pursuant to the terms hereof or
until the Plan is terminated.
(c) Suspension of Participation Following Hardship
Distribution
No Participant shall make any elective contribution or
employee contribution to this Plan (within the meaning of
Treasury Regulation Section 1.401(k)-1(d)(2)(iv)(B)(4)) for
a period of 12 months after the Participant's receipt of a
hardship distribution from a plan of the Employer or a party
that is aggregated with the Employer under Code Section
414(b), (c), (m) or (o) containing a cash or deferred
arrangement under Code Section 401(k).
6.3 Deduction Modifications and Discontinuance
A Participant may not increase his or her payroll deduction under Section 6.2
during an Option Period or Participation Cycle. A Participant may increase his
or her payroll deductions for future Option Periods or Participation Cycles,
effective as of the first payroll period of any month by filing a new Request
Form in accordance with and subject to such advance notice requirements and
other rules and procedures as may be established from time to time by the
Committee hereunder.
A Participant may decrease or completely discontinue his or her payroll
deductions at any time by filing a new Request Form with the Administrator.
This decrease or discontinuance shall be effective on the first payroll period
of any month after receipt of the Request Form by the Administrator in
accordance with and subject to such advance notice requirements and other
rules and procedures as may be established from time to time by the Committee
hereunder. Any modification or discontinuance under this Section 6.3 shall be
deemed a revocation of any and all prior Request Forms filed by the
Participant.
6.4 Transfer to Ineligible Status
If a Participant becomes employed by a Subsidiary not participating in the
Plan, or remains employed with an Employer but is no longer customarily
scheduled to work at least 20 hours each week and at least five months each
calendar year, the Participant shall cease to be eligible for payroll
deductions pursuant to Section 3.2 or 6.2(a). The cash standing to the credit
of the Participant's account shall become subject to the provisions of Section
7.1.
If the Participant again becomes an Employee of an Employer and is customarily
scheduled to work at least 20 hours each week and at least five months each
calendar year, the Participant shall not be eligible to participate in the
Plan until he or she has filed a new Request Form in accordance with the Plan
and the rules and procedures established from time to time by the Committee
hereunder.
6.5 Automatic Exercise
Unless the cash credited to a Participant's account is withdrawn or
distributed as provided in ARTICLE VII, his or her Option shall be deemed to
have been exercised automatically on the Exercise Date for the purchase of the
number of full shares of Common Stock which the cash credited to his or her
account at that time will purchase at the Option Price.
Fractional shares of Common Stock shall not be issued or purchased under the
Plan. Any accumulated cash balances which would have been used to purchase
fractional shares shall be held in the Participant's account for application
in the next Option Period or Participation Cycle if a
7
<PAGE>
valid Request Form is in effect for such Option Period or Participation Cycle or
otherwise distributed to the Participant without interest as soon as
practicable.
The Committee, in its sole discretion, may determine that, upon exercise of
Options, shares of Common Stock shall be delivered by the Corporation by (i)
issuing and delivering to the Participant a certificate for the number of shares
of Common Stock purchased by the Participant on an Exercise Date or (ii) issuing
and delivering a certificate or certificates or other evidence of ownership of
the number of shares of Common Sock purchased by all Participants on an Exercise
Date, as determined by the Committee, to a brokerage firm selected by the
Committee from time to time which is a member of the National Association of
Securities Dealers (the "Selected Brokerage Firm"). Any such shares so delivered
to the Selected Brokerage Firm shall be maintained by such firm in a separate
brokerage account for each Participant. The issuance and delivery of shares
hereunder shall occur monthly or at such other intervals as the Committee may
determine, consistent with the requirements of the Code.
6.6 Listing, Registration and Qualification of Shares
The granting of Options for, and the sale and delivery of, Common Stock under
the Plan shall be subject to the effecting by the Corporation of any listing,
registration, or qualification of the shares of such Common Stock upon any
securities exchange or under any federal or state law, as determined by the
Committee in its sole discretion, or the obtaining of the consent or approval
of any governmental body which the Committee deems necessary or desirable for
the issuance or purchase of the shares covered.
ARTICLE VII: WITHDRAWALS AND DISTRIBUTIONS
7.1 Discontinuance of Deductions and Transfer to Ineligible Status
In the event of a Participant's complete discontinuance of payroll deductions
under Section 6.3 for any reason (including termination of the Participant's
employment by the Employer for any reason, leave of absence or other
ineligibility of such Participant), the cash balance then standing to the
credit of the Participant's account, if any, shall be returned to the
Participant, in cash, without interest, as soon as practicable.
7.2 Designation of Beneficiary
A Participant shall designate his or her beneficiary in the event of the
Participant's death, on his or her Request Form. This designation of
beneficiary may be changed by the Participant at any time by written notice to
the Administrator received prior to the participants death. In the event of
the death of the Participant in the absence of a validly designated
beneficiary under the Plan who is living at the time of the Participant's
death, the estate of the Participant shall be deemed the Participant's
beneficiary.
7.3 Registration of Certificates; Restrictions on Transfer
The Common Stock certificates or other evidence of shares, when withdrawn or
distributed under this ARTICLE VII or Section 6.5, shall be registered only in
the name of the Participant (or beneficiary, if applicable) or, if so
specified in timely written instructions to the Administrator, in the name of
the Participant (or beneficiary, if applicable) and any other person as joint
tenants with right of survivorship. The Committee may permit a Participant who
is a resident of a jurisdiction which does not recognize such joint tenancy to
have such certificates or other evidence of shares registered in the
Participant's name as tenant in common with a member of such Participant's
immediate family, without right of survivorship. No other names may be
included in the Common Stock registration.
8
<PAGE>
Each Common Stock certificate distributed under the Plan shall bear a legend
prohibiting any transfer by the Participant (or joint or common tenant or
beneficiary or estate of any of them, as applicable) of any share of Common
Stock represented by such certificate during the 90 day period following the
Exercise Date as of which such share was purchased, other than by will or by
the laws of descent and distribution. The restrictions and limitations on the
sale of Common Stock imposed under this Section 7.3 shall apply equally to any
shares of Common Stock delivered to the Selected Brokerage Firm pursuant to
Section 6.5, whether or not such shares are represented by a certificate.
ARTICLE VIII: ADMINISTRATION; AMENDMENT, TERM AND TERMINATION
8.1 Administration
The Plan shall be administered by the Committee, which shall have plenary
authority, in its sole discretion, to:
(a) define, prescribe, amend and rescind rules, regulations,
procedures, terms and conditions relating to the Plan; and
(b) interpret, administer and construe the Plan and make all
other determinations necessary or advisable for the
administration of the Plan, including but not limited to
correcting defects, reconciling inconsistencies and
resolving ambiguities.
The interpretation by the Committee of the terms and conditions of the Plan,
and its administration of the Plan and all action take by the Committee
hereunder, shall be final, binding and conclusive on the Corporation, its
stockholders, Subsidiaries, all Participants and Employees, and upon their
respective successors and assigns, and upon all other persons claiming under
or through any of them or otherwise under the Plan.
8.2 Amendment
The Committee shall have the right to amend or modify the Plan, in full or in
part, at any time and from time to time; provided, however, that no amendment
or modification shall:
(a) affect any right or obligation with respect to any
grant previously made, unless required by law,
including for continued satisfaction of the
requirements of the Code, or
(b) unless previously approved by the stockholders of
the Corporation, if such approval is necessary to
satisfy federal securities laws, the Code, or the
rules of any stock exchange on which the
Corporation's Common Stock is listed --
(1) in any manner materially affect the
eligibility requirements set forth in
Sections 3.1, or change the definition
of Employer as set forth in Section
2.11, or
(2) increase the aggregate number of
shares of Common Stock issuable upon
the exercise of Options or other
grants under the Plan (except as
provided in Sections 4.2 and 4.3), or
(3) materially increase the benefits to
Participants under the Plan.
9
<PAGE>
8.3 Termination
The Committee may suspend or terminate the Plan at any time in its sole and
absolute discretion. The Plan shall be suspended or terminated by the
Committee if at any time the number of shares of Common Stock authorized for
purposes of the Plan is not sufficient to meet all purchase requirements,
except as specified in Section 4.1. Upon suspension or termination of the
Plan, the Administrator shall give notice thereof to all Participants and
shall terminate all payroll deductions. Cash balances then credited to
Participants' accounts shall be distributed promptly, without interest.
8.4 Term of Plan
Unless previously terminated pursuant to Section 8.3, the Plan shall terminate
on and no grants shall be made after, the date on which all shares authorized
for issuance under the Plan have been issued hereunder or on the 10th
anniversary of the Effective Date, whichever occurs first. Notwithstanding the
foregoing, the Plan will terminate and will not become effective if it is not
approved by the Corporation's stockholders in accordance with Section 9.1.
ARTICLE IX: MISCELLANEOUS
9.1 Stockholder Approval
The Plan shall be submitted for approval and ratification by the stockholders
of the Corporation, as required by Treasury regulation Section 1.423-2(c), not
later than September 30, 1998.
9.2 No Employment Rights
Neither the establishment of the Plan, nor the grant of any Options thereunder
or the exercise thereof, shall be deemed to give to any Employee the right to
be retained in the employ of the Corporation or any Subsidiary or to interfere
with the right of the Corporation or any Subsidiary to discharge any employee
or otherwise modify the employment relationship at any time.
9.3 Tax Withholding
The Administrator may make appropriate provisions for withholding of federal,
state, and local income taxes, and any other taxes, from a Participant's
Compensation to the extent the Administrator deems such withholding to be
required.
9.4 Rights Not Transferable
Rights and Options granted under this Plan are not transferable by the
Participant other than by will or by the laws of descent and distribution and
are exercisable only by the Participant during his or her lifetime (or his or
her beneficiary or estate, if applicable). Except as set forth in the
preceding sentence, no interest of the Participant under the Plan may be
assigned, transferred, pledged, mortgaged or otherwise alienated or
anticipated, nor shall any such interest be subject to garnishment,
attachment, execution or levy or any kind or any other legal process, whether
by virtue of bankruptcy, insolvency or other operation of law, prior to
delivery of shares of Common Stock to the Participant or the Selected
Brokerage Firm.
9.5 No Repurchase of Stock by Corporation
The Corporation is under no obligation to repurchase from any Participant any
shares of Common Stock acquired under the Plan.
9.6 Governing Law
10
<PAGE>
The Plan shall be governed by and construed in accordance with the internal
laws of the State of New York (without giving effect to principles of
conflicts of laws of such State or of any other jurisdiction) except to the
extent such laws are preempted by the laws of the United States.
9.7 Indemnification
With respect to liabilities arising under or relating to the Plan, the
Corporation shall indemnify each member of the Board and the Committee and
each other officer or employee of the Corporation, including the
Administrator, to whom any duty or power relating to the Plan may be allocated
or delegated, in each case to the fullest extent permitted by the law and the
Corporation's Certificate of Incorporation and Bylaws.
9.8 Administrative Costs
The Corporation shall pay all administrative expenses associated with the
operation of the Plan including expenses of issuance and sale of shares, but
excluding brokerage commissions on the sale of shares.
* * * * * * *
11
<PAGE>
WINSTAR COMMUNICATIONS, INC. - PROXY
Solicited by the Board of Directors
for Annual Meeting to be held on June 10, 1997
PROXY
The undersigned Stockholder(s) of WINSTAR COMMUNICATIONS, INC., a
Delaware corporation ("Company"), hereby appoints Timothy R. Graham
and William J. Rouhana, Jr., or either of them, with full power of
substitution and power to act without the other, as the agents,
attorneys and proxies of the undersigned, to vote the shares standing
in the name of the undersigned at the Annual Meeting of Stockholders
of the Company to be held on June 10, 1997 and at all adjournments
thereof. This proxy will be voted in accordance with the instructions
given below. If no instructions are given, this proxy will be voted
FOR all of the following proposals.
1. Election of the following Directors: Steven G. Chrust and James I. Cash
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 WinStar Communications, Inc. Qualified Employee Stock
Purchase Plan and related amendment to the Company's Bylaws:
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.
/ / Please check here if you plan to attend the Annual Meeting.
Date
---------------------------------------------,1998
--------------------------------------------------
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.
