<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:
____ Preliminary Proxy Statement
__X_ Definitive Proxy Statement
____ Definitive Additional Materials
____ Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
____ Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
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 37,266,763
shares of Common Stock and 3,969,124 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.
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.
<PAGE>
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.
<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) 5.03
Nathan Kantor(1)........................................................... 1,044,269(3) 2.73
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) 10.76
</TABLE>
(Footnotes on next page)
2
<PAGE>
(Footnotes from previous page)
- ------------------
* Less than 1%.
(1) The address of this person is c/o WinStar Communications, Inc., 230 Park
Avenue, New York, New York 10169.
(2) Includes 986,667 shares of Common Stock issuable upon exercise of certain
options. Does not include (i) 58,333 shares of Common Stock issuable upon
exercise of options which become exercisable in July 1998, (ii) 75,000
shares of Common Stock issuable upon exercise of options which become
exercisable in three equal annual installments commencing in April 1999 and
(iii) 600,000 shares of Common Stock issuable upon exercise of options
which become exercisable in two equal annual installments in March 1999 and
2000. Mr. Rouhana has agreed that, during the term of Nathan Kantor's
employment agreement with the Company, he would vote all shares of Common
Stock he controls in favor of Mr. Kantor as a director of the Company.
(3) Includes 948,697 shares of Common Stock issuable upon exercise of certain
options. Does not include (i) 116,667 shares of Common Stock issuable upon
exercise of other options which become exercisable in September 1998, (ii)
33,333 shares of Common Stock issuable upon exercise of options which
become exercisable in August 1998 or (iii) 30,000 shares of Common Stock
issuable upon exercise of options which become exercisable in three equal
annual installments commencing in April 1999.
(4) Includes (i) 12,000 shares of Common Stock owned by the pension plan for
SGC Advisory Services, Inc., a money management services firm specializing
in the telecommunications and technology sectors, of which Mr. Chrust is
President and owner ('SGC'), and (ii) 538,667 shares of Common Stock
issuable upon exercise of certain options owned by Mr. Chrust, SGC and
members of his family. Does not include (A) 247,000 shares of Common Stock
issuable upon exercise of other options which become exercisable in two
equal annual installments commencing in January 1999, (B) 33,333 shares of
Common Stock issuable upon exercise of other options which become
exercisable in July 1998 or (C) 21,000 shares of Common Stock issuable upon
exercise of options which become exercisable in three equal annual
installments commencing in April 1999.
(5) Includes 220,000 shares of Common Stock issuable upon exercise of certain
options. Does not include 15,000 shares of Common Stock issuable upon
exercise of options which become exercisable in three equal annual
installments commencing in April 1999.
(6) Does not include 250,000 shares of Common Stock issuable upon exercise of
options exercisable in five equal annual installments commencing in
December 1998.
(7) Includes (i) 1,000 shares of Common Stock owned by Mr. Magyar's spouse,
over which Mr. Magyar disclaims beneficial ownership, (ii) 1,670 shares of
Common Stock owned by benefit plans of which Mr. Magyar is the sole trustee
and primary beneficiary, and (iii) 50,000 shares of Common Stock issuable
upon exercise of certain options.
(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.
3
<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. Cash(1), 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 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.
- ------------------
(1)Following the resignation of two of the Company's Class I directors during
1997, the Board re-classified Professor Cash as a Class I director.
4
<PAGE>
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 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
5
<PAGE>
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 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>
6
<PAGE>
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 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.
7
<PAGE>
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 $100,000 during the
year ended December 31, 1997, and (iv) Charles T. Dickson, the Company's current
Executive Vice President and Chief Financial Officer whose employment with the
Company commenced in December 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------------
------------------- RESTRICTED
FISCAL SALARY BONUS STOCK OPTIONS
NAME AND PRINCIPAL POSITION YEAR(1) ($) ($)(2) AWARDS($) (# SHARES)
- ------------------------------------------------------- -------- ------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C>
William J. Rouhana, Jr.
Chairman of the Board and
Chief Executive Officer.............................. 12/31/97 483,658 500,000 -- 10,000(4)(5)
12/31/96 410,076 400,000 -- 135,000(2)(5)
12/31/95 266,250 575,000 -- 460,000(3)(5)
Steven G. Chrust
Vice Chairman of the Board........................... 12/31/97 336,924 225,000 -- 10,000(5)
12/31/96 317,809 225,000 -- 45,000(2)(5)
12/31/95 275,652 225,000 -- 10,000(5)
Nathan Kantor
President and Chief Operating Officer................ 12/31/97 448,085 450,000 -- 10,000(5)
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
Executive Vice President............................. 12/31/97 225,000 225,000 -- 0
12/31/96 217,788 125,000 -- 25,000(2)
12/31/95 158,654 75,000 -- 50,000(3)
Charles T. Dickson(8)
Executive Vice President and Chief Financial
Officer.............................................. 12/31/97 11,923 30,000 -- 250,000(8)
12/31/96 -- -- -- --
12/31/95 -- -- -- --
Fredric E. von Stange(9)............................... 12/31/97 313,462 132,000 -- 31,875(5)
12/31/96 260,711 150,000 -- 35,000(2)(5)
12/31/95 187,692 200,000 -- 235,000(3)(5)
</TABLE>
- ------------------
(1) Represents ten-month period with respect to information for the period ended
December 31, 1995.
(2) Represents bonuses paid or stock options granted as compensation for the
year indicated, the payment or grant of which was made in the subsequent
calendar year.
(3) 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.'
(Footnotes continued on next page)
8
<PAGE>
(Footnotes continued from previous page)
(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.
(9) Mr. von Stange resigned as Executive Vice President, Chief Financial Officer
and director of the Company effective November 14, 1997.
The Company cannot determine, without unreasonable effort or expense, the
specific amount of certain personal benefits afforded to its employees, or the
extent to which benefits are personal rather than business. The Company has
concluded that the aggregate amounts of such personal benefits which cannot be
specifically or precisely ascertained do not in any event exceed, as to each
individual named in the preceding table, the lesser of $50,000 or 10% of the
compensation reported in the preceding table for such individual, and that such
information set forth in the preceding table is not rendered materially
misleading by virtue of the omission of the value of such personal benefits.
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
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.
9
<PAGE>
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.
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.
10
<PAGE>
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
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
11
<PAGE>
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 $52 per share. In making the decision
regarding the grant of stock options, the Committee evaluated Mr. Rouhana's
performance relative to the guidelines described above, the Company's
achievements during the term of his prior contract, equity awards to the CEOs of
comparable companies, and his critical leadership role in the Company's future
success and the degree to which other companies have linked CEO compensation to
stockholder returns. In addition the Committee used subjective criteria it
deemed relevant in its reasonable business discretion, such as its opinions
about the business environment and the particular challenges for the Company as
well as the potential market for Mr. Rouhana's services. The Committee believes
that the new contract and compensation package is in line with industry and
market standards and appropriate in light of his past performance and the
Company's aggressive plans for growth.
The Members of the Compensation Committee
Steven B. Magyar, Chairman
William J. vanden Heuvel
James I. Cash
William J. Rouhana, Jr.
12
<PAGE>
OPTION GRANTS IN 1997
The following table sets forth certain information concerning individual
grants of stock options during 1997 to each of the named executive officers:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE
- ----------------------------------------------------------------------------------------------- AT ASSUMED ANNUAL RATES
NUMBER OF PERCENT OF OF STOCK PRICE
SECURITIES TOTAL APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE OR FOR OPTION TERM
OPTIONS TO EMPLOYEES IN BASE ------------------------
NAME GRANTED(#) FISCAL YEAR(%) PRICE($) EXPIRATION DATE 5%($) 10%($)
- ---------------------------- ---------- --------------- ------------ --------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
William J. Rouhana, Jr. .... 10,000 0.26% $16.75 1/12/07 $ 105,339 $ 266,951
Chairman of the Board 125,000 3.22 12.00 --(2) 510,143 1,157,341
and Chief Executive ---------- ----- ---------- ----------
Officer 135,000 3.48 615,482 1,424,292
---------- ----- ---------- ----------
---------- ----- ---------- ----------
Steven G. Chrust ........... 10,000 0.25 16.75 1/12/07 105,339 266,951
Vice Chairman of the 35,000 0.90 12.00 --(2) 142,845 324,055
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
Fredric E. von Stange(3) ... 10,000 0.26 16.75 1/12/07 105,339 266,951
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 $1,228,365
---------- ----- ---------- ----------
---------- ----- ---------- ----------
</TABLE>
- ------------------
(1) Reflects stock options granted to Mr. Dickson in connection with the
commencement of his employment with the Company on December 1, 1997. These
options vest in five equal annual installments commencing December 1, 1998
and have a term extending five years from the date of vesting.
(2) These options vest in five equal annual installments commencing March 14,
1997 and have a term extending five years from the date of vesting.
(3) Mr. von Stange resigned as Executive Vice President, Chief Financial Officer
and director of the Company effective November 14, 1997.
(4) These options vest in five equal annual installments commencing October 6,
1998 and have a term extending five years from the date of vesting.
13
<PAGE>
AGGREGATED OPTION EXERCISES IN 1997 AND
FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information concerning exercises of
stock options during 1997 by each of the named executive officers and the fiscal
year-end value of unexercised options held by such persons.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING
SHARES ACQUIRED VALUE REALIZED UNEXERCISED OPTIONS AT
NAME ON EXERCISE (#) ($'S IN THOUSANDS) FISCAL YEAR-END (#)
- ----------------------------------- --------------- ------------------- ----------------------------
EXERCISABLE UNEXERCISABLE
----------- -------------
<S> <C> <C> <C> <C>
William J. Rouhana, Jr. ........... -- -- 626,666 183,334
Chairman of the Board and
Chief Executive Officer
Steven G. Chrust (2) .............. 60,000 $ 489 531,667 308,333
Vice Chairman of the Board
Nathan Kantor -- -- 918,699 199,999
President and Chief .............
Operating Officer
Timothy R. Graham ................. 50,000 428 215,000 20,000
Executive Vice President
Charles T. Dickson ................ -- -- 0 250,000
Executive Vice President and
Chief Financial Officer
Fredric E. von Stange ............. -- -- 345,209 36,666
<CAPTION>
VALUE OF UNEXERCISED
IN-THE-MONEY OPTIONS AT
FISCAL YEAR-END(1)
($'S IN THOUSANDS)
-----------------------------
NAME EXERCISABLE UNEXERCISABLE
- ----------------------------------- ------------- -------------
<S> <C> <C>
William J. Rouhana, Jr. ........... $ 9,594 $ 4,597
Chairman of the Board and
Chief Executive Officer
Steven G. Chrust (2) .............. 8,432 4,732
Vice Chairman of the Board
Nathan Kantor 14,007 2,858
President and Chief .............
Operating Officer
Timothy R. Graham ................. 4,011 259
Executive Vice President
Charles T. Dickson ................ 0 1,984
Executive Vice President and
Chief Financial Officer
Fredric E. von Stange ............. $ 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.
14
<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>
15
<PAGE>
EMPLOYMENT AGREEMENTS
William J. Rouhana, Jr. had served as Chairman of the Board and Chief
Executive Officer of the Company from May 1994 to February 1995 through WinStar
Services, an entity which had a management agreement with the Company. The
management agreement was terminated on February 28, 1995 and Mr. Rouhana entered
into a three-year employment agreement with the Company to serve as its Chairman
of the Board and Chief Executive Officer effective March 1, 1995. On January 6,
1998, Mr. Rouhana and the Company entered into a new three year employment
agreement, effective March 1, 1998, pursuant to which Mr. Rouhana will continue
to serve as the Company's Chairman of the Board and Chief Executive Officer. The
employment agreement provides for a minimum annual base salary of $537,500, with
annual increases as agreed upon by the Company and Mr. Rouhana. The employment
agreement also provides that Mr. Rouhana is eligible for an annual cash bonus,
payable at the discretion of the Compensation Committee, not to exceed 150% of
his base salary then in effect. At the time of execution of this employment
agreement, Mr. Rouhana was granted: (i) immediately exercisable options to
purchase 300,000 shares of Common Stock for $26 per share, the closing sale
price of the Common Stock on the day immediately preceding the agreement date;
(ii) options to purchase 300,000 shares of Common Stock which vest on January 6,
1999, of which 100,000 are exercisable at a price of $26 per share and 200,000
are exercisable at a price of $39 per share; and (iii) options to purchase
300,000 shares of Common Stock which vest on January 6, 2000, of which 100,000
are exercisable at a price of $26 per share and 200,000 are exercisable at a
price of $52 per share.
Nathan Kantor became President and Chief Operating Officer of the Company
in September 1995, when he entered into a three-year employment agreement with
the Company. The employment agreement provides for a minimum annual base salary
of $320,000 during the first year, $336,000 during the second year and $352,800
during the third year. The employment agreement allows Mr. Kantor to devote up
to 25% of his business time to serve as Chairman of the Board and Chief
Executive Officer of Image Telecom, a company involved in the development of
information and video servers. In connection with his employment agreement, Mr.
Kantor was also granted immediately exercisable options to purchase 350,000
shares of Common Stock for $8.25 per share and additional options to purchase
350,000 shares of Common Stock for $8.25 per share, vesting in three equal
annual installments commencing in September 1996. The Company also issued
150,000 restricted shares of Common Stock to Mr. Kantor. In May 1996, the
Company agreed to accelerate the vesting of such restricted shares and Mr.
Kantor utilized such shares to pay the option exercise price of options to
purchase 233,302 shares of Common Stock. Pursuant to the re-load feature of the
option agreement governing such options, Mr. Kantor was granted options to
purchase an additional 150,000 shares of Common Stock at an exercise price equal
to the market price of the Common Stock on such date.
Steven G. Chrust became the Vice Chairman of the Board in January 1995,
when he entered into a five-year employment agreement with the Company. The
employment agreement, as amended, provides for an annual salary of $325,000
during the first year, $300,000 during the second and third years and $305,000
during the fourth and fifth years. In connection with his employment agreement,
the Company granted Mr. Chrust options to purchase 600,000 shares of Common
Stock for $8.00 per share, vesting in five equal annual installments commencing
in January 1996.
In April 1998, the Company entered into Executive Severance Agreements
(each a 'Severance Agreement') with each of the named executive officers and
certain other senior officers of the Company and its subsidiaries. The Severance
Agreement generally provides that, if during the two years following a Change of
Control or potential Change of Control of the Company (each as defined in the
Severance Agreement), either (A) the covered executive's employment is
terminated by the Company (other than due to the executive's death or Disability
or for Cause, as defined in the Severance Agreement) or (B) the covered
executive terminates his or her employment with the Company for Good Reason (as
defined in the Severance Agreement), then such executive will be entitled to
receive certain severance benefits, including a cash severance payment equal to
one and one-half times the aggregate of (i) such executive's annual base salary
then in effect plus (ii) such executive's average full-year bonus over the prior
two years. Additional benefits to which a covered executive would be entitled
include continued medical and other insurance benefits for one and one-half
years following termination and career outplacement services. As defined in the
Severance Agreement, 'Change of Control of the Company' generally means that a
third party has acquired 35% or more of the Company's voting stock (whether
through a stock purchase, exchange, tender offer or merger) or substantially all
of the Company's assets. A
16
<PAGE>
'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 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
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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.
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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 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 7,280,000 shares of Common Stock, which
approximately equals the total number of shares available for issuance under the
1995 Equity Plan. 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,
deferral, surrender, cancellation, acceleration, termination, exercise,
forfeiture or other 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
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regulation established by the Committee pursuant to the Plan, shall be final,
conclusive and binding on all persons interested in either Plan. Awards under
the Plan are evidenced by agreements between the Company and the Participants.
SHARES SUBJECT TO THE PLAN
The Plan, as amended, authorizes the granting of Awards whose exercise
would allow up to an aggregate of 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 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
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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 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
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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.
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.
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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 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
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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 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,
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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 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.
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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
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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.
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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.
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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.
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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
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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.
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(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.
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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.
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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
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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 the Annual Meeting to be held on June 10, 1998
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, 1998 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.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
