<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
STAR TELECOMMUNICATIONS, 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:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
STAR TELECOMMUNICATIONS, INC.
223 EAST DE LA GUERRA STREET
SANTA BARBARA, CALIFORNIA 93101
NOTICE OF THE 1998 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 1, 1998
TO THE STOCKHOLDERS OF STAR TELECOMMUNICATIONS, INC.:
The 1998 Annual Meeting of Stockholders (the "1998 Annual Meeting") of STAR
Telecommunications, Inc. ("STAR" or the "Company") will be held at 9:00 a.m.,
local time, on Wednesday, July 1, 1998 at the Four Seasons Biltmore Hotel, 1260
Channel Drive, Montecito, California, for the following purposes:
1. To elect the Class I directors of the Company to serve until the annual
meeting of stockholders to be held in 2001 and until their successors are
elected and qualified;
2. To consider and vote upon a proposal to amend Article IV of the Company's
Second Amended and Restated Certificate of Incorporation to increase the
number of shares of authorized Common Stock from Fifty Million (50,000,000)
shares to One Hundred Million (100,000,000) shares;
3. To consider and vote upon a proposal to amend the Company's 1997 Omnibus
Stock Incentive Plan to increase the number of shares of the Company's
Common Stock authorized for issuance thereunder from Three Million
Seventy-Five Thousand (3,075,000) shares to Four Million Seventy-Five
Thousand (4,075,000) shares;
4. To consider and vote upon a proposal to ratify the appointment of Arthur
Andersen LLP as the Company's independent public accountants for the fiscal
year ending December 31, 1998; and
5. To transact such other business as may properly come before the meeting or
any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this notice. Only stockholders of record of the Company's
Common Stock at the close of business on May 27, 1998 will be entitled to notice
of and to vote at the 1998 Annual Meeting or any adjournment or postponement
thereof.
Copies of the Company's (a) Annual Report to Stockholders for the year ended
December 31, 1997 and (b) Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 are being mailed with this Notice but are not to be considered
proxy soliciting material.
By Order of the Board of Directors
[LOGO]
Mary A. Casey
SECRETARY
June 1, 1998
Santa Barbara, California
YOU ARE URGED TO VOTE UPON THE MATTERS PRESENTED AND TO SIGN, DATE AND
PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED. IT IS IMPORTANT FOR
YOU TO BE REPRESENTED AT THE MEETING. PROXIES ARE REVOCABLE AT ANY TIME PRIOR TO
THE VOTE AND THE EXECUTION OF YOUR PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN
PERSON IF YOU ARE PRESENT AT THE MEETING.
Requests for additional copies of proxy materials should be addressed to
Mary A. Casey, Corporate Secretary, at the offices of the Company, 223 East De
La Guerra Street, Santa Barbara, California 93101.
<PAGE>
STAR TELECOMMUNICATIONS, INC.
223 EAST DE LA GUERRA STREET
SANTA BARBARA, CALIFORNIA 93101
------------------------
PROXY STATEMENT
1998 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 1, 1998
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors (the "Board") of STAR Telecommunications,
Inc., a Delaware corporation ("STAR" or the "Company"), for use at the 1998
Annual Meeting of Stockholders (the "1998 Annual Meeting") to be held on
Wednesday, July 1, 1998 at 9:00 a.m., local time, at the Four Seasons Biltmore
Hotel, 1260 Channel Drive, Montecito, California, and any adjournment or
postponement thereof. This Proxy Statement and the form of proxy for the 1998
Annual Meeting were first mailed or delivered to the stockholders of the Company
on or about June 1, 1998.
MATTERS TO BE CONSIDERED
The 1998 Annual Meeting has been called (1) to elect the Class I directors
of the Company to hold office until the annual meeting of stockholders to be
held in 2001 and until their successors are elected and qualified, (2) to
consider and vote upon a proposal to amend Article IV of the Company's Second
Amended and Restated Certificate of Incorporation to increase the number of
shares of authorized Common Stock from Fifty Million (50,000,000) shares to One
Hundred Million (100,000,000) shares, (3) to consider and vote upon a proposal
to amend the Company's 1997 Omnibus Stock Incentive Plan (the "Omnibus Plan") to
increase the number of shares of the Company's Common Stock authorized for
issuance thereunder from Three Million Seventy-Five Thousand (3,075,000) shares
to Four Million Seventy-Five Thousand (4,075,000) shares; (4) to consider and
vote upon a proposal to ratify the appointment of Arthur Andersen LLP as the
Company's independent public accountants for the fiscal year ending December 31,
1998 and (5) to transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
RECORD DATE AND VOTING
The Board has fixed the close of business on May 27, 1998 as the record date
(the "Record Date") for the determination of stockholders entitled to vote at
the 1998 Annual Meeting and any adjournment or postponement thereof. As of the
Record Date, there were outstanding 41,760,026 shares of the Company's common
stock, par value $.001 per share (the "Common Stock").
QUORUM AND VOTING REQUIREMENTS
The holders of record of a majority of the outstanding shares of Common
Stock entitled to vote at the 1998 Annual Meeting, present in person or
represented by proxy, will constitute a quorum for the transaction of business
at the 1998 Annual Meeting. Under Delaware law, abstentions and broker non-votes
are counted for purposes of determining the presence or absence of a quorum for
the transaction of business. As to all matters, each stockholder is entitled to
one vote for each share of Common Stock held. With regard to the election of
directors, the nominees who receive the greatest number of votes at the 1998
Annual Meeting will be elected to the Board. Stockholders are not entitled to
cumulate votes. Votes against a candidate, votes withheld and abstentions have
no legal effect in the election of directors. In matters other than the election
of directors, abstentions will have the same effect as a vote against the
proposals presented to stockholders, whereas broker non-votes will not be
counted for purposes of determining whether a proposal has been approved.
All proxies which are properly completed, signed and returned prior to the
1998 Annual Meeting will be voted. If a stockholder specifies how the proxy is
to be voted with respect to any of the proposals for
<PAGE>
which a choice is provided, the proxy will be voted in accordance with such
specifications. Any proposal with respect to which a stockholder fails to so
specify will be voted in accordance with the following recommendations of the
Board of Directors of the Company: (a) FOR the Board's two nominees to serve as
Class I directors, (b) FOR an amendment to the Company's Second Amended and
Restated Certificate of Incorporation to increase the number of authorized
shares of Common Stock from Fifty Million (50,000,000) shares to One Hundred
Million (100,000,000) shares, (c) FOR an amendment to the Company's Omnibus Plan
to increase the number of shares of Common Stock authorized for issuance
thereunder from Three Million Seventy-Five Thousand (3,075,000) shares to Four
Million Seventy-Five Thousand (4,075,000) shares, (d) FOR the selection of
Arthur Andersen LLP as the Company's independent public accountants for the
fiscal year ending December 31, 1998 and (e) in their discretion, upon such
other business as may properly come before the meeting. Any proxy given by a
stockholder may be revoked at any time before it is exercised, by filing with
the Secretary of the Company an instrument revoking it, by delivering a duly
executed proxy bearing a later date or by the stockholder attending the 1998
Annual Meeting and voting his or her shares in person.
Proxies for the 1998 Annual Meeting are being solicited by mail directly and
through brokerage and banking institutions. The Company will pay all expenses in
connection with the solicitation of proxies. In addition to the use of mails,
proxies may be solicited by directors, officers and regular employees of the
Company personally or by telephone. The Company does not expect to pay any fees
or compensation for the solicitation of proxies (other than to U.S. Stock
Transfer Corporation, the Company's transfer agent and registrar, in connection
with its services in sending proxy materials, obtaining proxies and attending
the 1998 Annual Meeting), but may reimburse brokers and other persons holding
shares of Common Stock in their names, or in the names of nominees, for their
expenses in sending proxy materials to the beneficial owners of such shares and
obtaining their proxies.
All stockholders are urged to complete, sign and promptly return the
enclosed proxy card.
PROPOSAL 1--ELECTION OF DIRECTORS
The Class I directors are to be elected at the 1998 Annual Meeting to serve
until the annual meeting of stockholders to be held in 2001 and until their
respective successors have been elected and qualified. In the absence of
instructions to the contrary, proxies will be voted in favor of the election of
the Board's two nominees to serve as Class I directors. In the event that any
nominee for election as director should become unavailable to serve, it is
intended that votes will be cast, pursuant to the enclosed proxy, for such
substitute nominee as may be nominated by the Board of Directors of the Company.
Management has no present knowledge that any of the persons named to serve as a
director will be unavailable to serve.
No arrangement or understanding exists between any nominee and any other
person or persons pursuant to which any nominee was or is to be selected as a
director or nominee. None of the nominees has any family relationship to any
other nominee or to any executive officer of the Company.
INFORMATION CONCERNING INCUMBENT DIRECTORS
Information is set forth below concerning the incumbent directors, two of
whom, Messrs. Hutchins and Snedegar, are also nominees for election as Class I
directors. Each nominee has consented to being
2
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named in this Proxy Statement as a nominee for director and has agreed to serve
as a Class I director, if elected at the 1998 Annual Meeting.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- -----------------------------------------------------------------------
<S> <C> <C>
Christopher E. Edgecomb(1)......... 39 Chief Executive Officer, Chairman of the Board and Director
Mary A. Casey(1)(2)................ 35 President, Secretary and Director
Mark Gershien...................... 46 Director
Gordon Hutchins, Jr.(3)............ 49 Director
John R. Snedegar(2)(3)............. 49 Director
Arunas A. Chesonis................. 36 Director
</TABLE>
- ------------------------
(1) Member of Non-Executive Stock Option Committee
(2) Member of Audit Committee
(3) Member of Compensation Committee
CHRISTOPHER E. EDGECOMB co-founded the Company in September 1993, served as
President until January 1996 and has served as the Company's Chief Executive
Officer and Chairman of the Board since January 1996. Mr. Edgecomb has been a
director of the Company since its inception. Prior to that time, Mr. Edgecomb
was a founder and the Executive Vice President of West Coast Telecommunications
("WCT"), a nation-wide long distance carrier, from August 1989 to December 1994.
Prior to founding WCT, Mr. Edgecomb was President of Telco Planning, a
telecommunications consulting firm, from January 1986 to July 1989. Prior to
that time, Mr. Edgecomb held senior level sales and marketing positions with TMC
Communications, American Network and Bay Area Teleport.
MARY A. CASEY has been a director and Secretary of the Company since
co-founding STAR in September 1993, and has served as STAR's President since
January 1996. Prior to that time, Ms. Casey was Director of Customer Service at
WCT from December 1991 to June 1993, and served as Director of Operator Services
at Call America, a long distance telecommunications company, from May 1988 to
December 1991.
MARK GERSHIEN has served as a director of the Company since March 1998. Mr.
Gershien has been the Senior Vice President of Sales and Marketing for Level 3
Communications, a telecommunications and information services company, since
January 1998. Prior to that time, Mr. Gershien was the Senior Vice President of
National Accounts for WorldCom, Inc., an international telecommunications
company, and President and Chief Executive Officer of MFS Telecom, a division of
MFS Communications, Inc. prior to its merger with WorldCom, Inc.
GORDON HUTCHINS, JR. has served as a director of the Company since January
1996. Mr. Hutchins has been President of GH Associates, a telecommunications
consulting firm, since July 1989. Prior to founding GH Associates, Mr. Hutchins
served as President and Chief Executive Officer of ICC Telecommunications, a
competitive access provider, and held senior management positions with several
other companies in the telecommunications industry.
JOHN R. SNEDEGAR has served as a director of the Company since January 1996.
Mr. Snedegar has been the President and a director of United Digital Network,
Inc. ("UDN") since June 1990. From June 1980 to February 1992, Mr. Snedegar was
the President and CEO of AmeriTel Management, Inc., a provider of long distance
telecommunications and management services. Mr. Snedegar is also a director for
StarBase Corporation, a software development company, and of STAR. Mr. Snedegar
also serves as President of Kendall Venture Funding, Ltd., a reporting company
in Alberta, Canada.
3
<PAGE>
ARUNAS A. CHESONIS has served as a director of the Company since May 1998.
From May 1987 to April 1998, Mr. Chesonis served in various executive positions
with ACC Corp. and its subsidiaries, including most recently President of ACC
Corp. and President and Chief Operating Officer of ACC Global Corp.
BOARD COMPOSITION
In accordance with the terms of STAR's Certificate of Incorporation, the
terms of office of the Board of Directors are divided into three classes: Class
I, whose term will expire at the 1998 Annual Meeting; Class II, whose term will
expire at the annual meeting of stockholders to be held in 1999; and Class III,
whose term will expire at the annual meeting of stockholders to be held in 2000.
The Class I directors are Gordon Hutchins, Jr. and John R. Snedegar, the Class
II directors are Mark Gershien and Mary A. Casey, and the Class III directors
are Christopher E. Edgecomb and Arunas A. Chesonis. At each annual meeting of
stockholders after the initial classification, the successors to directors whose
term will then expire will be elected to serve from the time of election and
qualification until the third annual meeting following election. This
classification of the Board of Directors may have the effect of delaying or
preventing changes in control or changes in management of the Company.
Each officer is elected by and serves at the discretion of the Board. Each
of the Company's officers and directors, other than nonemployee directors,
devotes substantially full time to the affairs of the Company. STAR's
nonemployee directors devote such time to the affairs of the Company as is
necessary to discharge their duties. There are no family relationships among any
of the Company's directors, officers or key employees.
BOARD MEETINGS AND REMUNERATION
During 1997, the Board held eight meetings and took various actions by
unanimous written consent. Each director attended at least 75% of the aggregate
of the total number of meetings held by the Board during 1997, and each director
attended the total number of meetings held by all committees of the Board during
that period within which he was a director or member of such committee of the
Board. The Board has an Audit Committee composed of Mary A. Casey and John R.
Snedegar, which held one meeting during 1997. The Audit Committee discusses
matters relating to the financial operations of the Company with the Company's
independent public accountants and reviews accounting and operational issues
with the Chief Financial Officer and other relevant executive officers of the
Company. The Board also has a Compensation Committee, composed of Messrs.
Snedegar and Hutchins, which held one meeting during 1997.
The Company's non-employee directors receive $2,000 for each Board meeting
attended in person and $1,000 for each telephonic Board meeting. In addition,
each non-employee director is reimbursed for out-of-pocket expenses incurred in
connection with attendance at meetings of the Board and its committees. In 1996,
Messrs. Hutchins and Snedegar were each granted stock options to purchase 20,500
shares of Common Stock. In 1997, Messrs. Hutchins and Snedegar and Roland Van
der Meer, a former director, were each granted stock options to purchase 10,250
shares of Common Stock. In 1998, Messrs. Hutchins, Snedegar and Gershien were
each granted stock options to purchase 10,250 shares of Common Stock, and Mr.
Chesonis was granted stock options to purchase 10,000 shares of Common Stock.
See "Certain Transactions--Transactions with Outside Directors."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board (the "Compensation Committee") was
formed in May 1996, and, in 1997, the members of the Compensation Committee were
Gordon Hutchins, Jr., John R. Snedegar and Roland A. Van der Meer. None of these
individuals was at any time during the year ended December 31, 1997, or at any
other time, an officer or employee of STAR. Mr. Van der Meer resigned from the
Board and the Compensation Committee, effective as of February 1, 1998. The
Non-Executive
4
<PAGE>
Compensation Committee of the Board (the "Non-Executive Compensation Committee")
was formed in 1997, and the members are Christopher E. Edgecomb and Mary A.
Casey. No member of the Compensation Committee or the Non-Executive Compensation
Committee served at any time during the year ended December 31, 1997 as a member
of the board of directors or compensation committee of any entity that has one
or more executive officers serving as a member of the Board, Compensation
Committee or Non-Executive Compensation Committee, except that Mr. Hutchins was
a director of UDN for a portion of 1997, during which time Mr. Snedegar was
President and a director of UDN.
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
The Compensation Committee recommends to the Board general compensation
policies for the Company, oversees the Company's compensation plans, establishes
the specific compensation levels for Christopher E. Edgecomb, the Company's
Chief Executive Officer and Chairman of the Board, and Mary A. Casey, the
Company's President, and advises the Board with respect to the compensation
policies for the Company's other executive officers.
The following is the Compensation Committee's report submitted to the Board
of Directors addressing the compensation of the Company's executive officers for
the year ended December 31, 1997.
COMPENSATION POLICY
The goal of the Company's executive compensation policy is to provide a
strong and direct link among stockholder values, Company performance, and
executive compensation through the design and implementation of sound
compensation programs that will attract and retain highly qualified personnel.
Compensation programs are intended to complement the Company's short- and
long-term business objectives and to focus executive efforts on the fulfillment
of these objectives. The Company's executive compensation policy is (i) designed
to establish an appropriate relationship between executive pay and the Company's
annual performance, its long-term growth objectives and its ability to attract
and retain qualified executive officers and (ii) based on the belief that the
interests of the executives should be closely aligned with those of the
Company's stockholders. The Company attempts to achieve these goals by
integrating competitive annual base salaries with stock options issued under the
Company's 1997 Omnibus Stock Incentive Plan (the "Omnibus Plan"). The Company
believes that cash compensation in the form of salary provides Company
executives with short-term rewards for success in operations, and that long-term
compensation through existing stock ownership and/or the award of stock options
provides Company executives with a stake in the long-term performance and
success of the Company. Given the early stage of the Company's growth in 1996
and 1997, the Company determined that it would be more appropriate to align the
compensation of its executive officers with that received by executives at
comparable entrepreneurial growth companies instead of with executive
compensation at international telecommunications companies.
BASE SALARY. In establishing the base salary level for each of the
executive officers, the Company reviewed the salaries paid to executive officers
with comparable responsibilities employed by similar entrepreneurial growth
companies. As a result, the executive officers' compensation in 1997 was
generally less than that paid to executive officers in comparable positions
employed by international telecommunications companies, and the annual bonuses
paid to the Company's executive officers were insignificant. The Company also
considered the executive officer's performance in the prior year when
considering base salary levels.
5
<PAGE>
STOCK OPTIONS. The Company believes that stock option grants afford a
desirable long-term compensation method because they directly link the financial
interests of management with those of the stockholders, which results in
long-term corporate financial success. Stock options under the Company's Omnibus
Plan were granted to one of the Company's executive officers in 1997, Kelly D.
Enos, as well as to other employees of the Company. Mr. Edgecomb, Ms. Casey and
David Vaun Crumly, the Company's Executive Vice President--Sales and Marketing,
are already significant owners of the Company's Common Stock. The vesting
provisions of options granted under the Omnibus Plan are designed to encourage
longevity of employment with the Company and generally extend over a four-year
period.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The Compensation Committee believes that Mr. Edgecomb, the Company's Chief
Executive Officer, provides extremely valuable services to the Company, and that
his compensation should therefore be competitive with that paid to executives at
comparable entrepreneurial growth companies. The Compensation Committee also
believes that Mr. Edgecomb's 32% ownership of the Company's Common Stock
provides Mr. Edgecomb with a significant incentive to improve the Company's
performance and thereby increasing value for all of the Company's stockholders.
Mr. Edgecomb's base salary of $360,000 for 1997 was determined by the
Compensation Committee to be appropriate in relation to comparable chief
executive salaries of a peer group of entrepreneurial growth companies. Mr.
Edgecomb's salary for 1997 was based on the Company's overall performance and
accomplishments in 1996, Mr. Edgecomb's efforts and contributions in discharging
his responsibilities as Chairman of the Board and Chief Executive Officer, and
the efforts and contributions by the other executives of the Company under Mr.
Edgecomb's leadership. Mr. Edgecomb did not receive an annual bonus during 1997.
INTERNAL REVENUE CODE SECTION 162(M)
Under Section 162 of the Code, the amount of compensation paid to certain
executives that is deductible with respect to the Company's corporate taxes is
limited to $1,000,000 annually. It is the current policy of the Compensation
Committee to maximize, to the extent reasonably possible, the Company's ability
to obtain a corporate tax deduction for compensation paid to executive officers
of the Company to the extent consistent with the best interests of the Company
and its stockholders.
COMPENSATION COMMITTEE
John R. Snedegar
Gordon Hutchins, Jr.
6
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph compares the total return on the Common Stock with the
cumulative total return on the Nasdaq Market Index--U.S. Companies (a broad
market index) and the Nasdaq Telecommunications Index (an industry index) for
the period from June 12, 1997, the date upon which the Common Stock was
registered pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended, through December 31, 1997. The comparison reflects the investment of
$100 on June 12, 1997, and the reinvestment of dividends (if paid), in each of
the Company's Common Stock (for which no dividends have been paid), the Nasdaq
Market Index and the Nasdaq Telecommunications Index. The stock price
performance of the Company reflected in this comparison is not necessarily
indicative of the future stock price performance of the Company's Common Stock.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
STAR TELECOMMUNICATIONS, INC. NASDAQ TELECOMMUNICATIONS INDEX NASDAQ MARKET INDEX U.S. COMPANIES
<S> <C> <C> <C>
6/12/97 $100.00 $100.00 $100.00
6/30/97 117.51 101.53 102.32
9/30/97 203.99 117.86 119.63
12/31/97 284.92 128.78 112.21
</TABLE>
ASSUMES $100 INVESTED ON JUNE 12, 1997
ASSUMES DIVIDEND REINVESTED YEAR ENDED DECEMBER 31, 1997
VOTE REQUIRED AND RECOMMENDATION OF THE BOARD
The Board's nominees to serve as Class I directors must receive more votes
than any other nominees for Class I directors at the 1998 Annual Meeting to be
elected to the Board.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITS NOMINEES TO SERVE AS CLASS
I DIRECTORS.
PROPOSAL 2 -- APPROVAL OF AMENDMENT TO ARTICLE FOURTH OF THE COMPANY'S
SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
On May 22, 1998, the Board of Directors adopted a resolution amending,
subject to stockholder approval at the 1998 Annual Meeting, Article Fourth of
the Company's Second Amended and Restated Certificate of Incorporation to
increase the number of shares of authorized Common Stock from Fifty Million
(50,000,000) shares to One Hundred Million (100,000,000) shares (the
"Amendment"). A copy of
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<PAGE>
the Amendment is incorporated as Exhibit A attached to this Proxy Statement. The
additional shares would have the same rights and privileges as the shares of
Common Stock presently outstanding.
The Board believes it is desirable to have the additional authorized shares
of Common Stock available for possible future financing transactions, future
acquisitions, stock dividends or splits and other general corporate purposes. On
March 31, 1998, the Board effected a 2.05-for-1 stock split in the nature of a
stock dividend with the payment to the holders of all shares of Common Stock
outstanding on February 20, 1998 of 1.05 shares for each such outstanding share
of Common Stock. Except for the Company's pending acquisition of UDN, as of the
date hereof, the Company has no agreements which would require the issuance of
any of the additional authorized shares. Assuming the receipt of all necessary
stockholder and regulatory approvals, STAR expects to consummate the UDN
acquisition during the summer of 1998 for approximately 600,000 shares of Common
Stock.
It should be noted that any issuance of additional shares of Common Stock
could be disadvantageous to existing stockholders since such issuance might
serve to dilute their percentage interest in the Company. Holders of Common
Stock do not have preemptive rights to purchase any additional shares of Common
Stock which may be issued. The Company would not be required to obtain
stockholder approval to issue authorized but unissued shares of Common Stock,
unless required to do so by applicable law or the rules of the Nasdaq Stock
Market, on which the Company's Common Stock is traded.
It should also be noted that the authorized but unissued shares of Common
Stock, if issued, could be used by incumbent management to make more difficult,
and thereby discourage, an attempt to acquire control of the Company even though
stockholders of the Company may deem such an acquisition desirable. For example,
the shares could be privately placed with purchasers who might support the Board
of Directors in opposing a hostile takeover bid. The issuance of the new shares
could also be used to dilute the stock ownership and voting power of a third
party seeking to remove directors, replace incumbent directors, accomplish
certain business combinations or alter, amend or repeal provisions of the
Company's Second Amended and Restated Certificate of Incorporation. To the
extent that it impedes any such attempts, the issuance of shares of Common Stock
following the Amendment may serve to perpetuate existing management.
The Amendment does not alter the Company's present ability to issue up to
5,000,000 shares of preferred stock in such series with such special rights
(including voting rights), preferences, restrictions, qualifications, and
limitations as the Board of Directors may designate. The Company would not be
required to obtain approval of the holders of Common Stock to issue authorized
but unissued shares of preferred stock, unless required to do so by applicable
law or the Nasdaq Stock Market. The Board of Directors could use its authority
to make such designations and to issue preferred stock in a manner that would
create impediments or to otherwise discourage persons in attempting to gain
control of the Company.
VOTE REQUIRED AND RECOMMENDATION OF THE BOARD
The affirmative votes of a majority of the outstanding shares of Common
Stock are required for approval of the Amendment. If the proposed Amendment is
approved by the stockholders, the Company intends to promptly effect the
Amendment by filing an appropriate amendment to the Second Amended and Restated
Certificate of Incorporation with the Secretary of State of the State of
Delaware.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSED INCREASE IN THE
AUTHORIZED COMMON STOCK OF THE COMPANY.
PROPOSAL 3--APPROVAL OF AMENDMENT TO THE OMNIBUS PLAN
On May 22, 1998, the Board of Directors adopted a resolution amending,
subject to stockholder approval at the 1998 Annual Meeting, the Company's
Omnibus Plan to increase the number of authorized shares of Common Stock from
Three Million Seventy-Five Thousand (3,075,000) shares to Four Million
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Seventy-Five Thousand (4,075,000) shares (the "Plan Amendment"). The Omnibus
Plan, as amended by the Plan Amendment, and information regarding options,
restricted shares, stock units and stock appreciation rights ("SARs") granted
thereunder is summarized below, but these descriptions are subject to and are
qualified in their entirety by the full text of the Omnibus Plan, as amended by
the proposed Plan Amendment, which is incorporated as Exhibit B attached to this
Proxy Statement.
SUMMARY OF THE OMNIBUS PLAN
The Company's Omnibus Plan was adopted by the Board on January 30, 1997 as
the successor to the Company's 1996 Supplemental Option Plan (the "Supplemental
Plan"). Upon approval of the Plan Amendment by the stockholders of the Company
at the 1998 Annual Meeting STAR will have reserved 4,075,000 shares for issuance
under the Omnibus Plan. This share reserve will be comprised of (i) the
2,050,000 shares that were available for issuance under the Supplemental Plan,
plus (ii) an increase of 2,025,000 shares. As of May 15, 1998, 32,060 shares had
been issued under the Supplemental and Omnibus Plans, options for approximately
2,142,314 shares were outstanding (873,686 of which were granted under the
Supplemental Plan) and approximately 915,330 shares remained available for
future grant. Shares of Common Stock subject to outstanding options, including
options granted under the Supplemental Plan, which expire or terminate prior to
exercise, will be available for future issuance under the Omnibus Plan. In
addition, if SARs and stock units are settled under the Omnibus Plan, then only
the number of shares actually issued in settlement will reduce the number of
shares available for future issuance under this plan.
Under the Omnibus Plan, employees, outside directors and consultants may be
awarded options to purchase shares of Common Stock, SARs, restricted shares and
stock units. Options may be incentive stock options designed to satisfy Section
422 of the Internal Revenue Code or nonstatutory stock options not designed to
meet such requirements. SARs may be awarded in combination with options,
restricted shares or stock units, and such an award may provide that the SARs
will not be exercisable unless the related options, restricted shares or stock
units are forfeited.
The Omnibus Plan is administered by the Board or the Compensation Committees
(the "Administrator"). The Administrator has the complete discretion to
determine which eligible individuals are to receive awards; determine the award
type, number of shares subject to an award, vesting requirements and other
features and conditions of such awards; interpret the Omnibus Plan; and make all
other decisions relating to the operation of the Omnibus Plan.
The exercise price for options granted under the Omnibus Plan may be paid in
cash or in outstanding shares of Common Stock. Options may also be exercised on
a cashless basis, by a pledge of shares to a broker or by promissory note. The
payment for the award of newly issued restricted shares will be made in cash. If
an award of SARs, stock units or restricted shares from STAR's treasury is
granted, no cash consideration is required.
The Administrator has the authority to modify, extend or assume outstanding
options and SARs or may accept the cancellation of outstanding options and SARs
in return for the grant of new options or SARs for the same or a different
number of shares and at the same or a different exercise price.
The Board may determine that an outside director may elect to receive his or
her annual retainer payments and meeting fees from STAR in the form of cash,
options, restricted shares, stock units or a combination thereof. The Board will
decide how to determine the number and terms of the options, restricted shares
or stock units to be granted to outside directors in lieu of annual retainers
and meeting fees.
Upon a change in control, the Administrator may determine that an option or
SAR will become fully exercisable as to all shares subject to such option or
SAR. A change in control includes a merger or consolidation of STAR, certain
changes in the composition of the Board and acquisition of 50% or more of the
combined voting power of STAR's outstanding stock. In the event of a merger or
other reorganization, outstanding options, SARs, restricted shares and stock
units will be subject to the agreement of merger or
9
<PAGE>
reorganization, which may provide for the assumption of outstanding awards by
the surviving corporation or its parent, their continuation by STAR (if STAR is
the surviving corporation), accelerated vesting and accelerated expiration, or
settlement in cash.
The Board may amend or terminate the Omnibus Plan at any time. Amendments
may be subject to stockholder approval to the extent required by applicable
laws. In any event, the Omnibus Plan will terminate on January 22, 2007, unless
sooner terminated by the Board.
FEDERAL INCOME TAX CONSEQUENCES
INCENTIVE STOCK OPTIONS
No taxable income will be recognized by a participant under the Omnibus Plan
(a "Participant") upon the grant or exercise of any Incentive Stock Option.
Additionally, the Company will not be entitled to any income tax deduction as
the result of the grant or exercise of any Incentive Stock Option.
Any gain or loss resulting from the subsequent sale of shares of Common
Stock acquired upon exercise of any Incentive Stock Option will be long-term
capital gain or loss if such sale is made after two years from the date of the
grant of the option and after one year from the transfer of such stock to the
Participant upon exercise, so long as the Participant is an employee of the
Company from the date of grant until three months before the date of exercise.
In the event of the Participant's death or disability prior to exercise of an
Incentive Stock Option, special rules apply in determining whether gain or loss
upon sale of the stock acquired upon exercise of such option will be taxable as
long-term capital gain or loss.
If the subsequent sale of stock is made prior to the expiration of such
two-year and one-year periods, the Participant will recognize ordinary income in
the year of sale in an amount equal to the difference between the exercise price
and the fair market value of the shares of Common Stock on the date of exercise;
provided, that if such sale is a transaction in which a loss (if sustained)
would have been recognized by the Participant, the amount of ordinary income
recognized by the Participant will not exceed the excess (if any) of the amount
realized on the sale over the Exercise Price. The Company will then be entitled
to an income tax deduction of like amount. Any excess gain recognized by the
Participant upon such sale would then be taxable as a capital gain, either
long-term or short-term depending upon whether the shares of Common Stock had
been held for more than one year prior to sale.
If an individual sale of shares of Common Stock received upon exercise of an
option qualifies for long term capital gain treatment, the capital gain from
such sale would be taxed at the current maximum federal tax rate of 28% if the
Common Stock has been held for more than one year but less than 18 months, and
at a rate of 20% if the Common Stock has been held for more than 18 months.
Ordinary income is currently taxed at a maximum federal income tax rate of
39.6%. The amount by which the fair market value of shares of Common Stock
purchased upon exercise of an Incentive Stock Option exceeds the Exercise Price
of such stock constitutes an "item of adjustment" that could then be subject to
the alternative minimum tax in the year that the option is exercised.
NONSTATUTORY STOCK OPTIONS
Generally, at the time of the grant of a Nonstatutory Stock Option, no
taxable income will be recognized by the Participant and the Company will not be
entitled to a deduction. Upon the exercise of such an option, the Participant
generally will recognize taxable income, and the Company will then be entitled
to a deduction, in the amount by which the then fair market value of the shares
of Common Stock issued to such Participant exceeds the exercise price. However,
if a sale of shares of Common Stock received upon exercise of such option would
subject the Participant to suit under Section 16(b) of the 1934 Act, the
Participant will not recognize income (and the Company will not be entitled to a
deduction) at the time such option is exercised unless the Participant makes an
election to recognize income at that time. If such election is not made, the
Participant will recognize income and the Company will be entitled to a
deduction at the time when Section 16(b) would no longer apply to such sale.
10
<PAGE>
Income recognized by the Participant upon exercise of a Nonstatutory Stock
Option will be taxed as ordinary income subject to the current maximum federal
income tax rate of 39.6%. Such income constitutes "wages" with respect to which
the Company is required to deduct and withhold federal and state income tax.
Pursuant to the Plans, the exercise of each Nonstatutory Stock Option will be
subject to the Company's determination that all withholding taxes and
liabilities relating to the option have been satisfied.
Upon the subsequent disposition of shares of Common Stock acquired upon the
exercise of a Nonstatutory Stock Option, the Participant will recognize capital
gain or loss in an amount equal to the difference between the proceeds received
upon disposition and the fair market value of such shares at the time of
exercise. If such shares have been held for more than one year at the time of
such disposition the capital gain or loss will be long-term.
STOCK APPRECIATION RIGHTS
At the time of the grant of an SAR, no taxable income will be recognized by
the Participant and the Company will not be entitled to a deduction. Upon the
exercise of such SAR, the Participant generally will recognize taxable income,
and the Company will then be entitled to a deduction, in the amount paid to the
Participant upon exercise, or if Common Stock is given, the Participant
generally will recognize taxable income in the amount of the fair market value
of the Common Stock on the date of settlement and the Company will then be
entitled to a deduction of a like amount. Income recognized by the Participant
upon exercise of an SAR will be taxed as ordinary income. Such an amount
constitutes "wages" with respect to which the Company is required to deduct and
withhold federal and state income tax.
STOCK UNITS
At the time of the grant of a Stock Unit, no taxable income will be
recognized by the Participant and the Company will not be entitled to a
deduction. Upon the settlement of such Stock Unit, the Participant generally
will recognize taxable income, and the Company will then be entitled to a
deduction, in the amount paid to the Participant upon exercise, or if Common
Stock is given, the Participant generally will recognize taxable income in the
amount of the fair market value of the Common Stock on the date of settlement
and the Company will then be entitled to a deduction of a like amount. Income
recognized by the Participant upon settlement of a Stock Unit will be taxed as
ordinary income. Such an amount constitutes "wages" with respect to which the
Company is required to deduct and withhold federal and state income tax.
RESTRICTED SHARES
Generally, due to the conditions and restrictions placed on Restricted
Shares, such Restricted Shares will be deemed to be subject to "a substantial
risk of forfeiture" as such phrase is used in Section 83 of the Code (e.g., the
Company will have the right to repurchase such shares at the purchase price paid
by the Participant (if any) prior to the date such shares vest). Consequently,
under Section 83 of the Code, a Participant receiving Restricted Shares will not
recognize taxable income upon issuance of the Restricted Shares but will
recognize ordinary income in the amount of the fair market value of the
Restricted Shares at such time as such Restricted Shares are no longer subject
to a substantial risk of forfeiture. The Company will be entitled to an income
tax deduction equal to the amount taxable to the Participant. If shares of
Restricted Shares are sold after they cease to be subject to a substantial risk
of forfeiture, the Participant will recognize long-term or short-term capital
gain or loss (using a holding period which generally begins when the risk of
forfeiture lapses) which will generally equal the difference between the sale
price and the fair market value of the shares on the date the risk of forfeiture
lapsed. A Participant may, however, elect, under Section 83(b) of the Code (a
"Section 83(b) Election"), within 30 days of the grant of the Restricted Shares,
to recognize as ordinary income on the date of grant an amount equal to the
excess of the fair market value of the shares of Restricted Shares (determined
without regard to the restrictions) over the purchase price paid by the
Participant (if any) of such shares. The Company will be
11
<PAGE>
entitled to an income tax deduction in the amount taxable to the Participant. If
the shares of Restricted Shares are subsequently forfeited, the Participant will
not be entitled to a deduction, refund, or loss for the amount previously
included in income by reason of the Section 83(b) Election. Also, if the
Participant makes a Section 83(b) Election, the Participant's holding period
commences on, and the tax basis will be equal to the fair market value of shares
on, the date of grant.
ACCELERATION OF STOCK OPTIONS AND SARS AND VESTING OF RESTRICTED SHARES AND
STOCK UNITS UPON TRANSFER OF CONTROL
Pursuant to the Omnibus Plan, upon the occurrence of certain events
involving a change in control of the Company, the exercisability of Nonstatutory
Stock Options and Incentive Stock Options and SARs may be accelerated.
Similarly, Restricted Shares and Stock Units may become fully vested. Such
acceleration may be determined to be, in whole or in part, a "parachute payment"
for federal income tax purposes if it arises from any events connected with a
change in control of the Company. If the present value of all of the
Participant's parachute payments exceeds three times the Participant's average
annual compensation for the past five years, the Participant will be subject to
a special excise tax of 20% on the "excess parachute payment." Such tax will be
applied to the amount of such parachute payment which is in excess of the
greater of such average annual compensation of the Participant or an amount
which the Participant establishes as reasonable compensation. In addition, the
Company will not be allowed a deduction for such "excess parachute payment."
COMPENSATION DEDUCTION LIMITATION
If the compensation attributable to options, SARs, Restricted Shares or
Stock Units granted under the Omnibus Plan to persons subject to Section 162(m)
of the Code is not "qualified performance-based compensation" as defined in the
regulations promulgated under Section 162(m) of the Code, the Company may not be
permitted to deduct such compensation to the extent the individual's aggregate
compensation exceeds $1,000,000 in any year. To constitute "qualified
performance-based compensation," a number of requirements must be met, some of
which are subject to interpretation. There can be no assurance that all
compensation attributable to awards under the Omnibus Plan will constitute
"qualified performance-based compensation" under Section 162(m) of the Code.
GENERAL DISCUSSION; STATE AND LOCAL TAXATION
The foregoing is only a general discussion of the current federal income tax
consequences to a Participant and the Company and is not intended to be relied
upon in determining the income tax consequences resulting from the receipt of
options, SARs, Restricted Shares or Stock Units, the exercise of an option or
SAR, the settlement of Stock Units, or the sale of Common Stock acquired
pursuant to the Omnibus Plan. In addition, there may be state and local tax
consequences to a Participant which may vary between each state and locality.
VOTE REQUIRED AND RECOMMENDATION OF THE BOARD
The affirmative votes of a majority of the outstanding shares of Common
Stock are required for approval of the Plan Amendment.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSED INCREASE IN THE
NUMBER OF SHARES OF COMMON STOCK AUTHORIZED FOR ISSUANCE PURSUANT TO THE OMNIBUS
PLAN.
PROPOSAL 4--RATIFICATION OF THE APPOINTMENT OF
ARTHUR ANDERSEN LLP AS INDEPENDENT PUBLIC ACCOUNTANTS
The Company has appointed Arthur Andersen LLP to continue as the Company's
independent public accountants and to audit the books of account and other
records of the Company for the fiscal year ending
12
<PAGE>
December 31, 1998. The Company has been advised that Arthur Andersen LLP is
independent with respect to the Company within the meaning of the Securities Act
of 1933, as amended, and the applicable published rules and regulations
thereunder. A representative of Arthur Andersen LLP will be available at the
1998 Annual Meeting to respond to appropriate questions related to the audit of
the Company's financial statements. If the stockholders do not ratify the
selection of Arthur Andersen LLP, Arthur Andersen LLP should decline to act or
otherwise become incapable of acting, or if its employment is discontinued, the
Company will appoint independent public accountants for the year ending December
31, 1998. Proxies solicited by the Board will be voted in favor of ratification
unless stockholders specify otherwise.
VOTE REQUIRED AND RECOMMENDATION OF BOARD
Approval of Arthur Andersen LLP as the Company's independent public
accountants requires the affirmative vote of a majority of the shares of the
Company's Common Stock present or represented and entitled to vote at the 1998
Annual Meeting.
THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF ARTHUR ANDERSEN LLP AS THE
COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDING DECEMBER 31,
1998.
SECURITY OWNERSHIP OF CERTAN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company
regarding beneficial ownership of the Company's Common Stock as of May 15, 1998
by (i) each person who is known by the Company to own beneficially more than
five percent of the Company's Common Stock, (ii) each director and nominee for
director, (iii) each of the executive officers named in the Summary Compensation
Table, and (iv) all current officers and directors as a group.
<TABLE>
<CAPTION>
AMOUNT OF SHARES
BENEFICIALLY PERCENTAGE OF SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED BENEFICIALLY OWNED(2)
- ------------------------------------------------------------------------ ----------------- -----------------------
<S> <C> <C>
Entities affiliated with the Hunt Family Trusts(3) ..................... 2,099,182 5.0%
3900 Thanksgiving Tower
Dallas, Texas 75201
Gordon Hutchins, Jr.(4)................................................. 178,350 *
John R. Snedegar(5)..................................................... 30,750 *
Mark Gershien........................................................... -- *
Arunas A. Chesonis...................................................... -- *
Christopher E. Edgecomb................................................. 13,353,707 32.0
Mary A. Casey........................................................... 1,646,613 3.9
David Vaun Crumly(6).................................................... 594,500 1.4
James E. Kolsrud(7)..................................................... 71,747 *
Kelly D. Enos(8)........................................................ 55,307 *
All directors and executive officers as a group (9 persons)(9).......... 15,930,974 37.8
</TABLE>
- ------------------------
* Represents beneficial ownership of less than 1% of the outstanding shares of
Common Stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power
with respect to securities. The address for each listed director and officer
is c/o STAR Telecommunications, Inc., 223 East De La Guerra Street, Santa
Barbara, California 93101. To STAR's knowledge, except as indicated in the
footnotes to this table and pursuant to applicable community property laws,
the persons named in the table have sole voting and investment power with
respect to all shares of Common Stock.
13
<PAGE>
(2) Percentage of beneficial ownership is based on 41,755,594 shares of Common
Stock outstanding as of May 15, 1998. The number of shares of Common Stock
beneficially owned includes the shares issuable pursuant to stock options
that are exercisable within sixty days of May 15, 1998. Shares issuable
pursuant to stock options are deemed outstanding for computing the
percentage of the person holding such options but are not outstanding for
computing the percentage of any other person.
(3) Consists of 692,895 shares held by Lyda Hunt--Herbert Trusts--David Shelton
Hunt, 346,447 shares held by Lyda Hunt--Herbert Trusts--Bruce William Hunt,
346,447 shares held by Lyda Hunt-- Herbert Trusts--Douglas Herbert Hunt,
346,447 shares held by Lyda Hunt--Herbert Trusts--Barbara Ann Hunt, 346,447
shares held by Lyda Hunt--Herbert Trusts--Lyda Bunker Hunt and 20,500 shares
held by David Shelton Hunt. The co-trustees of each of the Hunt Family
Trusts hold voting and investment power for all shares of the Company's
Common Stock held by the respective trusts. Walter P. Roach and Gage A.
Prichard are the co-trustees of each such trust.
(4) Consists of 178,350 shares issuable upon the exercise of stock options
exercisable within sixty days of May 15, 1998.
(5) Consists of 20,500 shares of Common Stock, and 10,250 shares issuable upon
the exercise of stock options exercisable within sixty days of May 15, 1998.
(6) Consists of 451,000 shares of Common Stock, and 143,500 shares of Common
Stock issuable upon the exercise of stock options exercisable within sixty
days of May 15, 1998.
(7) Consists of 20,497 shares of Common Stock held in joint tenancy and 51,250
shares of Common Stock issuable upon the exercise of stock options
exercisable within sixty days of May 15, 1998.
(8) Consists of 16,870 shares of Common Stock and 39,718 shares of Common Stock
issuable upon the exercise of stock options exercisable within sixty days of
May 15, 1998.
(9) Includes 421,787 shares of Common Stock issuable upon the exercise of stock
options exercisable within sixty days of May 15, 1998.
EXECUTIVE OFFICERS, COMPENSATION AND OTHER INFORMATION
EXECUTIVE OFFICERS
Set forth in the table below are the names, ages and current offices held by
all executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------------- --- ------------------------------------------------------------------
<S> <C> <C>
Christopher E. Edgecomb................. 39 Chief Executive Officer and Chairman of the Board
Mary A. Casey........................... 35 President and Secretary
David Vaun Crumly....................... 34 Executive Vice President--Sales and Marketing
James E. Kolsrud........................ 53 Executive Vice President--Operations and Engineering
Kelly D. Enos........................... 39 Chief Financial Officer, Treasurer and Assistant Secretary
</TABLE>
For biographies of Mr. Edgecomb and Ms. Casey, see "Information Concerning
Incumbent Directors."
DAVID VAUN CRUMLY has served as Executive Vice President--Sales and
Marketing of the Company since January 1996. Prior to that time, Mr. Crumly
served as a consultant to the Company from November 1995 to January 1996, was
Vice President of Carrier Sales of Digital Network, Inc. from June 1995 to
November 1995 and was Director of Carrier Sales of WCT from June 1992 to June
1995. Prior to joining WCT, Mr. Crumly served in various sales and marketing
capacities with Metromedia, a long-distance company, from September 1990 to June
1992 and with Claydesta, a long-distance company, from May 1987 to September
1989.
14
<PAGE>
JAMES E. KOLSRUD has served as Executive Vice President--Operations and
Engineering of STAR since September 1996. Prior to joining the Company, Mr.
Kolsrud was an international telecommunications consultant from March 1995 to
September 1996. Prior to that time, he was a Vice President, Corporate
Engineering and Administration of IDB Communications Group, Inc. ("IDB"), an
international communications company, from October 1989 to March 1995, and prior
to that time, he was President of the International Division of IDB.
KELLY D. ENOS has served as Chief Financial Officer of the Company since
December 1996 and as Treasurer and Assistant Secretary since April 1997. Prior
to that time, Ms. Enos was an independent consultant in the merchant banking
field from February 1996 to November 1996 and a Vice President of Fortune
Financial, a merchant banking firm, from April 1995 to January 1996. Ms. Enos
served as a Vice President of Oppenheimer & Co., Inc., an investment bank, from
July 1994 to March 1995 and a Vice President of Sutro & Co., an investment bank,
from January 1991 to June 1994.
Executive officers of the Company are elected by and serve at the discretion
of the Board. No arrangement exists between any executive officer and any other
person or persons pursuant to which any executive officer was or is to be
selected as an executive officer.
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth the compensation earned
by the Company's Chief Executive Officer and four other executive officers who
earned salary and bonus in excess of $100,000 for services rendered in all
capacities to STAR and its subsidiaries (the "Named Officers") for each of the
fiscal years in the two year period ended December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
-------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY ($) BONUS ($) OPTIONS (#) COMPENSATION ($)
- ------------------------------------------------- ----------- ----------- ----------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Christopher E. Edgecomb ......................... 1997 360,000 -- -- 3,202(1)
Chief Executive Officer and Chairman of the 1996 360,000 -- -- 9,223(1)
Board
Mary A. Casey ................................... 1997 217,500 -- -- 13,615(2)
President and Secretary 1996 156,042 -- -- 15,028(2)
David Vaun Crumly ............................... 1997 380,779 1,014 -- 6,202(2)
Executive Vice President--Sales and Marketing 1996 298,002 -- 410,000 3,202(2)
James E. Kolsrud ................................ 1997 177,083 1,014 -- 5,528(3)
Executive Vice President--Operations and 1996 25,000 -- 205,000 --
Engineering
Kelly D. Enos(4) ................................ 1997 150,000 1,014 20,500 25,924(5)
Chief Financial Officer and Treasurer 1996 12,500 -- 153,750 --
</TABLE>
- ------------------------
(1) Consists of life and health insurance premiums paid by STAR.
(2) Consists of life and health insurance premiums and a car allowance paid by
STAR.
(3) Consists of health insurance premiums paid by STAR.
(4) Ms. Enos joined STAR in December 1996.
(5) Consists of a moving allowance of $22,721 and life and health insurance
premiums paid by STAR.
15
<PAGE>
The following table contains information concerning the stock option grants
made to each of the Named Officers named below for the year ended December 31,
1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE OF ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES PERCENT OF TOTAL PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE FOR OPTION TERM(1)
OPTIONS TO EMPLOYEES IN PRICE PER EXPIRATION ---------------------
NAME GRANTED (#) FISCAL YEAR SHARE ($/SH) DATE 5% ($) 10% ($)
- ------------------------------------ ----------- ----------------- ------------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Kelly D. Enos....................... 20,500(2) 2.3% $ 6.83 06/27/07 $ 88,045 $ 223,124
</TABLE>
- ------------------------
(1) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission. There can
be no assurance provided to any executive officer or any other holder of
STAR's securities that the actual stock price appreciation over the 10-year
option term will be at the assumed 5% and 10% levels or at any other defined
level. Unless the market price of the Common Stock appreciates over the
option term, no value will be realized from the option grants made to the
executive officer.
(2) The option becomes exercisable in four equal annual installments on June 26,
1998, 1999, 2000 and 2001, respectively.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
No options were exercised by the Named Officers for the fiscal year ended
December 31, 1997. No stock appreciation rights were exercised during such year
or were outstanding at the end of that year.
1997 OMNIBUS STOCK INCENTIVE PLAN
For a description of the Company's Omnibus Plan, see "Proposal 3--Approval
of Amendment to the Omnibus Plan."
1996 OUTSIDE DIRECTOR NONSTATUTORY STOCK OPTION PLAN
The Company's 1996 Outside Director Nonstatutory Stock Option Plan (the
"Director Plan") was ratified and approved by the Board as of May 14, 1996. has
reserved 410,000 shares of Common Stock for issuance under the Director Plan. As
of April 30, 1998, 61,500 shares had been issued under the Director Plan,
options for 82,000 shares were outstanding and 266,500 shares remained available
for future grant. If an outstanding option expires or terminates unexercised,
then the shares subject to such option will again be available for issuance
under the Director Plan.
Under the Director Plan, outside directors may receive nonstatutory options
to purchase shares of Common Stock. The Director Plan is administered by the
Board or the Compensation Committee (the "Administrator"). The Administrator has
the discretion to determine which eligible individuals will receive options, the
number of shares subject to each option, vesting requirements and any other
terms and conditions of such options.
The exercise price for options granted under the Director Plan will be at
least 85% of the fair market value of the Common Stock on the option grant date,
shall be 110% of the fair market value of the Common Stock on the option grant
date if the option is granted to a holder of more than 10% of the Common Stock
outstanding and may be paid in cash, check or shares of Common Stock. The
exercise price may also be paid by cashless exercise or pledge of shares to a
broker.
The Administrator may modify, extend or renew outstanding options or accept
the surrender of such options in exchange for the grant of new options, subject
to the consent of the affected optionee.
16
<PAGE>
Upon a change in control, the Board may accelerate the exercisability of
outstanding options and provide an exercise period during which such accelerated
options may be exercised. The Board also has the discretion to terminate any
outstanding options that had been accelerated and had not been exercised during
such exercise period. In the event of a merger of STAR into another corporation
in which holders of Common Stock receive cash for their shares, the Board may
settle the option with a cash payment equal to the difference between the
exercise price and the amount paid to holders of Common Stock pursuant to the
merger.
The Board may amend or terminate the Director Plan at any time. In any
event, the Director Plan will terminate on May 14, 2006, unless sooner
terminated by the Board.
EMPLOYMENT AGREEMENTS AND CHANGE OF CONTROL ARRANGEMENTS
The Company has an employment agreement with Mary A. Casey, pursuant to
which Ms. Casey holds the position of President, is paid an annual salary of
$20,000 per month, subject to adjustment to reflect increases in the Consumer
Price Index, was entitled to purchase 1,677,273 shares of Common Stock, and is
eligible to receive a bonus, as determined by the Chief Executive Officer and
Board of Directors. The agreement also provides that Ms. Casey will receive a
severance payment equal to $7,000 per month for the first six months after
termination of employment, and an additional payment of $7,000 per month for the
next six months, minus any amounts earned by her from other employment during
such period. In addition, the agreement provides that if Ms. Casey's employment
is terminated (other than for cause) within four months after a Sale Transaction
(as defined below), she will continue to receive the compensation provided in
the agreement until the expiration of the agreement on December 31, 2000,
instead of the severance payments described above. A Sale Transaction is an
acquisition of more than 75% of the voting securities of the Company, pursuant
to a tender offer or exchange offer approved in advance by the Board of
Directors.
In January 1996, STAR entered into an employment agreement with David Vaun
Crumly pursuant to which Mr. Crumly became Executive Vice President. The
agreement provides for an annual salary of $10,000 per month with an annual
increase, plus incentive bonuses tied to gross revenues of the Company. The
agreement also provides for a commission on certain accounts of the Company and
an option to purchase 369,000 shares of Common Stock at an exercise price of
$0.73 per share. In addition, in the event of a Sale Transaction, Mr. Crumly
will receive a bonus payment equal to the lesser of $1,500,000 or a percentage
of the monthly gross sales of accounts relating to customers introduced to the
Company by Mr. Crumly. If his employment is terminated in certain circumstances,
without cause, within four months after a Sale Transaction, Mr. Crumly is
entitled to receive the compensation provided in this agreement, minus any
compensation earned by other employment, until the expiration of the agreement
on December 31, 2000.
In December 1996, STAR entered into an employment agreement with Kelly D.
Enos, pursuant to which Ms. Enos became Chief Financial Officer of the Company.
The agreement provides for an annual salary of $150,000 (which has been
increased to $160,000) and an option to purchase 153,750 shares of Common Stock
at an exercise price of $4.00 per share. The agreement also provides that Ms.
Enos will receive a severance payment equal to the compensation which she would
have received under the remaining term of the agreement if she terminates the
agreement as a result of STAR's default of its material obligations and duties
under the agreement or if she is terminated by STAR without cause within four
months after a Sale Transaction.
In September 1996, STAR entered into an employment agreement with James E.
Kolsrud, pursuant to which Mr. Kolsrud became Executive Vice
President--Operations and Engineering of STAR. The agreement provides for a
monthly salary of $16,667, an option to purchase 205,000 shares of Common Stock
pursuant to the Company's 1996 Supplemental Stock Option Plan at a price of
$4.00 per share, reimbursement of reasonable out-of-pocket expenses incurred in
connection with Company business, and fringe
17
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benefits accorded to executives of STAR as determined by the Board of Directors.
In the event of termination pursuant to the agreement, Mr. Kolsrud shall be
entitled to receive compensation accrued and payable to him as of the date of
his termination or death, and all other amounts payable to him under the
agreement shall thereupon cease. If his employment is terminated in certain
circumstances within four months after a Sale Transaction, then Mr. Kolsrud
shall continue to receive the compensation provided in the agreement until the
expiration of the agreement on December 31, 2000.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH OUTSIDE DIRECTORS
The Company provides services to Digital Network, Inc. ("DNI"), a wholly
owned subsidiary of UDN. John R. Snedegar, a director of STAR, is President of
UDN. For the year ended December 31, 1997 and the four months ended April 30,
1998, DNI made payments to STAR in the amount of approximately $1,141,000 and
$1,877,000, respectively, for such services.
On November 19, 1997, STAR entered into an agreement to acquire UDN. Messrs.
Snedegar and Edgecomb beneficially own 11.8% and 2%, respectively, of the
outstanding common stock of UDN. In the context of the potential acquisition of
UDN, STAR has loaned $4.5 million to UDN at market rates of interest. Assuming
the receipt of all necessary stockholder and regulatory approvals, management
expects to consummate the UDN acquisition during the summer of 1998 for
approximately 600,000 shares of Common Stock. Prior to consummation of the
acquisition of UDN, STAR received a fairness opinion from an investment banking
firm that the consideration paid was fair, from a financial point of view, to
the stockholders of STAR. UDN's common stock is traded on the Vancouver Stock
Exchange under the symbol UDN.V.
GH Associates, an affiliate of Gordon Hutchins, Jr., a director of the
Company, provides consulting services to STAR. For the years ended December 31,
1995, 1996 and 1997 and the four months ended April 30, 1998, STAR made payments
of approximately $60,000, $154,000, $72,000 and $31,000, respectively, to GH
Associates for general business consulting services relating to the
telecommunications industry and for the performance of other tasks requested by
STAR's Chief Executive Officer, President and Board of Directors. In addition,
in connection with these services, STAR granted to Mr. Hutchins a nonstatutory
option to purchase 205,000 shares of Common Stock at an exercise price of $1.46
per share.
The Company's outside directors have been granted nonstatutory stock options
under the Director Plan. See "Board Meetings and Remuneration."
TRANSACTIONS WITH EXECUTIVE OFFICERS
Each of Kelly D. Enos, David Vaun Crumly and James E. Kolsrud received
incentive stock options to purchase 4,100 shares of Common Stock at an exercise
price of $16.31 in January 1998, and incentive stock options to purchase 100
shares of Common Stock at an exercise price of $27.00 in May 1998.
On October 4, 1996, STAR entered into a $12.0 million line of credit with
Comerica Bank. This line of credit was guaranteed by Christopher E. Edgecomb,
STAR's Chief Executive Officer. The Company has entered into a new revolving
credit facility since that time and Mr. Edgecomb's guarantee of the Comerica
Bank line has been terminated. Mr. Edgecomb did not receive any additional
compensation in connection with such guarantee. STAR has entered into lines of
credit with Mr. Edgecomb in the aggregate amount of $1,448,000. Borrowings under
the lines of credit bear interest at a rate of 9.0% and there was $82,000
outstanding under these lines of credit as of March 31, 1998. In addition, on
November 27, 1997 STAR provided a short-term loan to Mr. Edgecomb for $8.0
million. The loan carried interest of 7% per annum and was repaid in seven days.
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Mr. Edgecomb owns Star Aero Services, Inc. ("Star Aero"), which has
ownership interests in five airplanes that the Company utilizes for business
travel from time to time. For the years ended December 31, 1995, 1996 and 1997
and the four months ended April 30, 1998, the Company paid $144,000, $68,000,
$171,000 and $10,000, respectively, in costs related to the use of Star Aero
services.
Mr. Crumly had controlling ownership of three companies that resold
transmission capacity to STAR during 1996 for a total of approximately $240,000.
No fees were paid to Mr. Crumly during 1997 with respect to such transmission
capacity. In addition, STAR reimbursed approximately $131,000 in legal fees
incurred by such companies in connection with a dispute with the provider of the
capacity that was resold to STAR.
Mr. Kolsrud has a 12.5% interest in Interpacket Group, Inc. ("Interpacket")
which has direct termination arrangements with STAR for certain countries in
Central and South America. For the years ended December 31, 1996 and 1997 and
the four months ended April 30, 1998, STAR paid $37,000, $256,000 and
$1,146,000, respectively, for services rendered by Interpacket. In addition,
STAR purchased satellite transmission equipment and services from Interpacket
during 1997 in the amount of $1,114,000.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Amended and Restated Certificate of Incorporation limits the
liability of its directors for monetary damages arising from a breach of their
fiduciary duty as directors, except to the extent otherwise required by the
Delaware General Corporation Law. Such limitation of liability does not affect
the availability of equitable remedies such as injunctive relief or rescission.
The Company's Bylaws provide that The Company shall indemnify its directors
and officers to the fullest extent permitted by Delaware law, including in
circumstances in which indemnification is otherwise discretionary under Delaware
law. STAR has also entered into or will enter into indemnification agreements
with its officers and directors containing provisions that may require the
Company, among other things, to indemnify such officers and directors against
certain liabilities that may arise by reason of their status or service as
directors or officers (other than liabilities arising from willful misconduct of
a culpable nature), to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified, and to obtain
directors' and officers' insurance if available on reasonable terms.
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions, including loans between
STAR and its officers, directors, principal stockholders and their affiliates
will be approved by a majority of the Board of Directors, including a majority
of the independent and disinterested outside directors on the Board of
Directors, and will continue to be on terms no less favorable to the Company
than could be obtained from unaffiliated third parties.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act ("Section 16") requires the Company's
executive officers, directors and beneficial owners of more than 10% of the
Company's Common Stock (collectively, "Insiders") to file reports of ownership
and changes in ownership of Common Stock of the Company with the Securities and
Exchange Commission and to furnish the Company with copies of all Section 16(a)
forms they file. The Company became subject to Section 16 in conjunction with
the registration of its Common Stock under the Exchange Act effective June 12,
1997. Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no reports on Form 5
were required for those persons, the Company believes that its Insiders complied
with all applicable Section 16 filing requirements during fiscal 1997, except
that Roland Van der Meer, a former director of the Company, filed one late
report on Form 4 covering four transactions.
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OTHER BUSINESS
The Company is not aware of any other business to be presented at the 1998
Annual Meeting. All shares represented by Company proxies will be voted in favor
of the proposals of the Company described herein unless otherwise indicated on
the form of the proxy. If any other matters properly come before the meeting,
Company proxy holders will vote thereon according to their best judgment.
SUBMISSION OF STOCKHOLDER PROPOSALS
Any stockholder who wishes to present a proposal for action at the 1999
annual meeting of stockholders and who wishes to have it set forth in the
corresponding proxy statement and identified in the corresponding form of proxy
prepared by management must notify the Company no later than January 31, 1999 in
such form as required under the rules and regulations promulgated by the
Commission.
ANNUAL REPORTS
Copies of the Company's (a) Annual Report to Stockholders for the year ended
December 31, 1997 and (b) Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 are being mailed to each stockholder of record together with
this Proxy Statement. Such reports are not to be considered proxy soliciting
material.
By Order of the Board of Directors
[LOGO]
Mary A. Casey
SECRETARY
Santa Barbara, California
June 1, 1998
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EXHIBIT A
CERTIFICATE OF AMENDMENT
OF
SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
STAR TELECOMMUNICATIONS, INC.
STAR Telecommunications, Inc. (the "Company"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify:
FIRST: That the date of filing of the Company's original Certificate of
Incorporation with the Delaware Secretary of State was September 13, 1996.
SECOND: That the Board of Directors of the Company adopted resolutions
proposing and declaring advisable the following amendment to the Company's
Second Amended and Restated Certificate of Incorporation:
NOW, THEREFORE BE IT RESOLVED, that the text of Article IV of the Second
Amended and Restated Certificate of Incorporation of the Company be amended to
read in its entirety as set forth below:
"Article IV: The Corporation is authorized to issue two classes of stock to
be designated common stock ("Common Stock") and preferred stock ("Preferred
Stock"). The number of shares of Common Stock authorized to be issued is One
Hundred Million (100,000,000), par value $0.001 per share, and the number of
Preferred Stock authorized to be issued is Five Million (5,000,000), par value
$0.001 per share.
The Preferred Stock may be issued from time to time in one or more series,
without further stockholder approval. The Board of Directors is hereby
authorized, in the resolution or resolutions adopted by the Board of Directors
providing for the issue of any wholly unissued series of Preferred Stock, within
the limitations and restrictions stated in this Second and Amended Restated
Certificate of Incorporation (the "Restated Certificate"), to fix or alter the
dividend rights, dividend rate, conversion rights, voting rights, rights and
terms of redemption (including sinking fund provisions), the redemption price or
prices, and the liquidation preferences of any wholly unissued series of
Preferred Stock, and the number of shares constituting any such series and the
designation thereof, or any of them, and to increase or decrease the number of
shares of any series subsequent to the issue of shares of that series, but not
below the number of shares of such series then outstanding. In case the number
of shares of any series shall be so decreased, the shares constituting such
decrease shall resume the status that they had prior to the adoption of the
resolution originally fixing the number of shares of such series."
THIRD: That the foregoing amendment was duly adopted in accordance with the
applicable provisions of Section 242 of the General Corporation Law of the State
of Delaware.
FOURTH: The foregoing amendment was duly adopted by a majority of the
outstanding shares of stock of the Corporation in accordance with the applicable
provisions of Sections 228 and 242 of the General Corporation Law of the State
of Delaware and the Corporation's Certificate of Incorporation.
IN WITNESS WHEREOF, the Company has caused this Certificate to be executed
on May , 1998.
<TABLE>
<S> <C> <C>
STAR TELECOMMUNICATIONS, INC.,
A DELAWARE CORPORATION
By:
------------------------------------------
</TABLE>
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EXHIBIT B
1997 OMNIBUS STOCK INCENTIVE PLAN OF
STAR TELECOMMUNICATIONS, INC.
ARTICLE 1. INTRODUCTION
The Plan was adopted by the Board on January 30, 1997, subject to approval
by the Company's stockholders. The Plan is effective as of the date of the
Company's initial public offering.
The purpose of the Plan is to promote the long-term success of the Company
and the creation of stockholder value by (a) encouraging Employees, Outside
Directors and Consultants to focus on critical long-range objectives, (b)
encouraging the attraction and retention of Employees, Outside Directors and
Consultants with exceptional qualifications and (c) linking Employees, Outside
Directors and Consultants directly to stockholder interests through increased
stock ownership. The Plan seeks to achieve this purpose by providing for Awards
in the form of Restricted Shares, Stock Units, Options (which may constitute
incentive stock options or nonstatutory stock options) or stock appreciation
rights.
The Plan shall be governed by, and construed in accordance with, the laws of
the State of Delaware (except their choice-of-law provisions).
ARTICLE 2. ADMINISTRATION
2.1 COMMITTEE COMPOSITION. The Plan shall be administered by the
Committee. The Committee shall consist exclusively of two or more directors of
the Company, who shall be appointed by the Board. In addition, the composition
of the Committee shall satisfy:
(a) Such requirements as the Securities and Exchange Commission may
establish for administrators acting under plans intended to qualify for
exemption under Rule 16b-3 (or it successors) under the Exchange Act; and
(b) Such requirements as the Internal Revenue Service may establish for
outside directors acting under plans intended to qualify for exemption under
section 162(m)(4)(C) of the Code.
The Board may also appoint one or more separate committees of the Board,
each composed of one or more directors of the Company who need not satisfy the
foregoing requirements, who may administer the Plan with respect to Employees
and Consultants who are not considered officers or directors of the Company
under section 16 of the Exchange Act, may grant Awards under the Plan to such
Employees and Consultants and may determine all terms of such Awards.
2.2 COMMITTEE RESPONSIBILITIES. The Committee shall (a) select the
Employees, Outside Directors and Consultants who are to receive Awards under the
Plan, (b) determine the type, number, vesting requirements and other features
and conditions of such Award, (c) interpret the Plan and (d) make all other
decision relating to the operation of the Plan. The Committee may adopt such
rules or guidelines as it deems appropriate to implement the Plan. The
Committee's determinations under the Plan shall be final and binding on all
persons.
ARTICLE 3. SHARES AVAILABLE FOR GRANTS
3.1 BASIC LIMITATION. Common Shares issued pursuant to the Plan may be
authorized but unissued shares or treasury shares. The aggregate number of
Restricted Shares, Stock Units, Option and SARs awarded under the Plan shall not
exceed the sum of (i) 750,000 shares, plus (ii) that number of shares available
for issuance under the Supplemental Option Plan from time to time, less those
shares actually issued or reserved for issuance upon the exercise of options
awarded under the Supplemental Option Plan. The limitation of this Section 3.1
shall be subject to adjustment pursuant to Article 10.
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3.2 ADDITIONAL SHARES. If Stock Units, Options or SARs are forfeited or if
Options or SARs terminate for any other reason before being exercised, then the
corresponding Common Shares shall again become available for Awards under the
Plan. If Stock Units are settled, then only the number of Common Shares (if any)
actually issued in settlement of such Stock Units shall reduce the number
available under Section 3.1 and the balance shall again become available for
Awards under the Plan. If SARs are exercised, then only the number of Common
Shares (if any) actually issued in settlement of such SARs shall reduce the
number available under Section 3.1 and the balance shall again become available
for Awards under the Plan. If Restricted Shares are forfeited, then such Shares
shall not become available for subsequent Awards under the Plan.
3.3 DIVIDEND EQUIVALENTS. Any dividend equivalents distributed under the
Plan shall not be applied against the number of Restricted Shares, Stock Units,
Options or SARs available for Awards, whether or not such dividend equivalents
are converted into Stock Units.
ARTICLE 4. ELIGIBILITY
4.1 GENERAL RULES. Only Employees, Outside Directors and Consultants shall
be eligible for designation as Participants by the Committee.
4.2 INCENTIVE STOCK OPTIONS. Only Employees shall be eligible for the
grant of ISOs. In addition, an Employee who owns more than 10% of the total
combined voting power of all classes of outstanding stock of the Company or any
of its Parents or Subsidiaries shall not be eligible for the grant of an ISO
unless the requirements set forth in section 422(c)(6) of the Code are
satisfied.
ARTICLE 5. OPTIONS
5.1 STOCK OPTION AGREEMENT. Each grant of an Option under the Plan shall
be evidenced by a Stock Option Agreement between the Optionee and the Company.
Such Option shall be subject to all applicable terms of the Plan and may be
subject to any other terms that are not inconsistent with the Plan. The Stock
Option Agreement shall specify whether the Option is an ISO or an NSO. The
provisions of the various Stock Option Agreements entered into under the Plan
need not be identical. Options may be granted in consideration of cash payment
or in consideration of a reduction in the Optionee's other compensation. A Stock
Option Agreement may provide that a new Option will be granted automatically to
the Optionee when he or she exercises a prior Option and pays the Exercise Price
in the form described in Section 6.2.
5.2 NUMBER OF SHARES. Each Stock Option Agreement shall specify the number
of Common Shares subject to the Option and shall provide for the adjustment of
such number in accordance with Article 10. Options granted to an Optionee in a
single calendar year shall in no event cover more than 750,000 Common Shares,
subject to adjustment in accordance with Article 10.
5.3 EXERCISE PRICE. Each Stock Option Agreement shall specify the Exercise
Price; provided that the Exercise Price under an ISO shall in no event be less
than 100% of the Fair Market Value of a Common Share on the date of grant and
the Exercise Price under an NSO shall in no event be less than the par value of
the Common Shares subject to such NSO. In the case of an NSO, a Stock Option
Agreement may specify an Exercise Price that varies in accordance with a
predetermined formula while the NSO is outstanding.
5.4 EXERCISABILITY AND TERM. Each Stock Option Agreement shall specify the
date when all or any installment of the Option is to become exercisable. The
Stock Option Agreement shall also specify the term of the option; provided that
the term of an ISO shall in no event exceed 10 years from the date of grant. A
Stock Option Agreement may provide for accelerated exercisability in the event
of the Optionee's death, disability or retirement or other events and may
provide for expiration prior to the end of its term in the event of the
termination of the Optionee's service. Options may be awarded in combination
with SARs, and such an Award may provide that the Option will not be exercisable
unless the related SARs are
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forfeited. NSOs may also be awarded in combination with Restricted Shares or
Stock Units, and such an Award may provide that the NSOs will not be exercisable
unless the related Restricted Shares or Stock Units are forfeited.
5.5 EFFECT OF CHANGE IN CONTROL. The Committee may determine, at the time
of granting an Option or thereafter, that such Option shall become fully
exercisable as to all Common Shares subject to such Option in the event that a
Change in Control occurs with respect to the Company.
5.6 MODIFICATION OR ASSUMPTION OF OPTIONS. Within the limitations of the
Plan, the Committee may modify, extend or assume outstanding options or may
accept the cancellation of outstanding options (whether granted by the Company
or by another issuer) in return for the grant of new options for the same or a
different number of shares and at the same or a different exercise price. The
foregoing notwithstanding, no modification of an Option shall, without the
consent of the Optionee, alter or impair his or her rights or obligations under
such Option.
ARTICLE 6. PAYMENT FOR OPTION SHARES
6.1 GENERAL RULE. The entire Exercise Price of Common Shares issued upon
exercise of Options shall be payable in cash at the time when such Common Shares
are purchased, except as follows:
(a) In the case of an ISO granted under the Plan, payment shall be made
only pursuant to the express provisions of the applicable Stock Option
Agreement. The Stock Option Agreement may specify that payment may be made
in any form(s) described in this Article 6.
(b) In the case of an NSO, the Committee may at any time accept payment
in any form(s) described in this Article 6.
6.2 SURRENDER OF STOCK. To the extent that this Section 6.2 is applicable,
payment for all or any part of the Exercise Price may be made with Common Shares
which are already owned by the Optionee. Such Common Shares shall be valued at
their Fair Market Value on the date when the new Common Shares are purchased
under the Plan. The Optionee shall not surrender Common Shares in payment of the
Exercise Price if such surrender would cause the Company to recognize
compensation expense with respect to the Option for financial reporting
purposes.
6.3 EXERCISE/SALE. To the extent that this Section 6.3 is applicable,
payment may be made by the delivery (on a form prescribed by the Company) of an
irrevocable direction to a securities broker approved by the Company to sell
Common Shares and to deliver all or part of the sales proceeds to the Company in
payment of all or part of the Exercise Price and any withholding taxes.
6.4 EXERCISE/PLEDGE. To the extent that this Section 6.4 is applicable,
payment may be made by the delivery (on a form prescribed by the Company) of an
irrevocable direction to pledge Common Shares to a securities broker or lender
approved by the Company, as security for a loan, and to deliver all or part of
the loan proceeds to the Company in payment of all or part of the Exercise Price
and any withholding taxes.
6.5 PROMISSORY NOTE. To the extent that this Section 6.5 is applicable,
payment may be made with a full-recourse promissory note; provided that the par
value of the Common Shares shall be paid in cash.
6.6 OTHER FORMS OF PAYMENT. To the extent that this Section 6.6 is
applicable, payment may be made in any other form that is consistent with
applicable laws, regulations and rules.
ARTICLE 7. STOCK APPRECIATION RIGHTS
7.1 SAR AGREEMENT. Each grant of an SAR under the Plan shall be evidenced
by an SAR Agreement between the Optionee and the Company. Such SAR shall be
subject to all applicable terms of the Plan and may be subject to any other
terms that are not inconsistent with the Plan. The provisions of
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the various SAR Agreements entered into under the Plan need not be identical.
SARs may be granted in consideration of a reduction in the Optionee's other
compensation.
7.2 NUMBER OF SHARES. Each SAR Agreement shall specify the number of
Common Shares to which the SAR pertains and shall provide for the adjustment of
such number in accordance with Article 10. SARs granted to any Optionee in a
single calendar year shall in no event pertain to more than 750,000 Common
Shares, subject to adjustment in accordance with Article 10.
7.3 EXERCISE PRICE. Each SAR Agreement shall specify the Exercise Price.
An SAR Agreement may specify an Exercise Price that varies in accordance with a
predetermined formula while the SAR is outstanding.
7.4 EXERCISABILITY AND TERM. Each SAR Agreement shall specify the date
when all or any installment of the SAR is to become exercisable. The SAR
Agreement shall also specify the term of the SAR. An SAR Agreement may provide
for accelerated exercisability in the event of the Optionee's death, disability
or retirement or other events and may provide for expiration prior to the end of
its term in the event of the termination of the Optionee's service. SARs may
also be awarded in combination with Options, Restricted Shares or Stock Units,
and such an Award may provide that the SAR will not be exercisable unless the
related Options, Restricted Shares or Stock Units are forfeited. An SAR may be
included in an ISO only at the time of grant but may be included in an NSO at
the time of grant or thereafter. An SAR granted under the Plan may provide that
it will be exercisable only in the event of a Change in Control.
7.5 EFFECT OF CHANGE IN CONTROL. The Committee may determine, at the time
of granting an SAR or thereafter, that such SAR shall become fully exercisable
as to all Common Shares subject to such SAR in the event that a Change in
Control occurs with respect to the Company.
7.6 EXERCISE OF SARS. If, on the date when an SAR expires, the Exercise
Price under such SAR is less than the Fair Market Value on such date but any
portion of such SAR has not been exercised or surrendered, then such SAR shall
automatically be deemed to be exercised as of such date with respect to such
portion. Upon exercise of an SAR, the Optionee (or any person having the right
to exercise the SAR after his or her death) shall receive from the Company (a)
Common Shares, (b) cash or (c) a combination of Common Shares and cash, as the
Committee shall determine. The amount of cash and/or the Fair Market Value of
Common Shares received upon exercise of SARs shall, in the aggregate, be equal
to the amount by which the Fair Market Value (on the date of surrender) of the
Common Shares subject to the SARs exceeds the Exercise Price.
7.7 MODIFICATION OR ASSUMPTION OF SARS. Within the limitations of the
Plan, the Committee may modify, extend or assume outstanding SARs or may accept
the cancellation of outstanding SARs (whether granted by the Company or by
another issuer) in return for the grant of new SARs for the same or a different
number of shares and at the same or a different exercise price. The foregoing
notwithstanding, no modification of an SAR shall, without the consent of the
Optionee, alter or impair his or her rights or obligations under such SAR.
ARTICLE 8. RESTRICTED SHARES AND STOCK UNITS
8.1 TIME, AMOUNT AND FORM OF AWARDS. Awards under the Plan may be granted
in the form of Restricted Shares, in the form of Stock Units, or in any
combination of both. Restricted Shares or Stock Units may also be awarded in
combination with NSOs or SARs, and such an Award may provide that the Restricted
Shares or Stock Units will be forfeited in the event that the related NSOs or
SARs are exercised.
8.2 PAYMENT FOR AWARDS. To the extent that an Award is granted in the form
of newly issued Restricted Shares, the Award recipient, as a condition to the
grant of such Award, shall be required to pay the Company in cash an amount
equal to the par value of such Restricted Shares. To the extent that an
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Award is granted in the form of Restricted Shares from the Company's treasury or
in the form of Stock Units, no cash consideration shall be required of the Award
recipients.
8.3 VESTING CONDITIONS. Each Award of Restricted Shares or Stock Units
shall become vested, in full or in installments, upon satisfaction of the
conditions specified in the Stock Award Agreement. A Stock Award Agreement may
provide for accelerated vesting in the event of the Participant's death,
disability or retirement or other events. The Committee may determine, at the
time of making an Award or thereafter, that such Award shall become fully vested
in the event that a Change in Control occurs with respect to the Company.
8.4 FORM AND TIME OF SETTLEMENT OF STOCK UNITS. Settlement of vested Stock
Units may be made in the form of (a) cash, (b) Common Shares or (c) any
combination of both, as determined by the Committee. The actual number of Stock
Units eligible for settlement may be larger or smaller than the number included
in the original Award, based on predetermined performance factors. Methods of
converting Stock Units into cash may include (without limitation) a method based
on the average Fair Market Value of Common Shares over a series of trading days.
Vested Stock Units may be settled in a lump sum or in installments. The
distribution may occur or commence when all vesting conditions applicable to the
Stock Units have been satisfied or have lapsed, or it may be deferred to any
later date. The amount of a deferred distribution may be increased by an
interest factor or by dividend equivalents. Until an Award of Stock Units is
settled, the number of such Stock Units shall be subject to adjustment pursuant
to Article 10.
8.5 DEATH OF RECIPIENT. Any Stock Units Award that becomes payable after
the recipient's death shall be distributed to the recipient's beneficiary or
beneficiaries. Each recipient of a Stock Units Award under the Plan shall
designate one or more beneficiaries for this purpose by filing the prescribed
form with the Company. A beneficiary designation may be changed by filing the
prescribed form with the Company at any time before the Award recipient's death.
If no beneficiary was designated or if no designated beneficiary survives the
Award recipient, then any Stock Units Award that becomes payable after the
recipient's death shall be distributed to the recipient's estate.
8.6 CREDITORS' RIGHTS. A holder of Stock Units shall have no rights other
than those of a general creditor of the Company. Stock Units represent an
unfunded and unsecured obligation of the Company, subject to the terms and
conditions of the applicable Stock Award Agreement.
ARTICLE 9. VOTING AND DIVIDEND RIGHTS
9.1 RESTRICTED SHARES. The holders of Restricted Shares awarded under the
Plan shall have the same voting, dividend and other rights as the Company's
other stockholders. A Stock Award Agreement, however, may require that the
holders of Restricted Shares invest any cash dividends received in additional
Restricted Shares. Such additional Restricted Shares shall be subject to the
same conditions and restrictions as the Award with respect to which the
dividends were paid. Such additional Restricted Shares shall not reduce the
number of Common Shares available under Article 3.
9.2 STOCK UNITS. The holders of Stock Units shall have no voting rights.
Prior to settlement or forfeiture, any Stock Unit awarded under the Plan may, at
the Committee's discretion, carry with it a right to dividend equivalents. Such
right entitles the holder to be credited with an amount equal to all cash
dividends paid on one Common Share while the Stock Unit is outstanding. Dividend
equivalents may be converted into additional Stock Units. Settlement of dividend
equivalents may be made in the form of cash, in the form of Common Shares, or in
a combination of both. Prior to distribution, any dividend equivalents which are
not paid shall be subject to the same condition and restrictions as the Stock
Units to which they attach.
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ARTICLE 10 PROTECTION AGAINST DILUTION
10.1 ADJUSTMENTS. In the event of a subdivision of the outstanding Common
Share, a declaration of a dividend payable in Common Shares, a declaration of a
dividend payable in a form other than Common Shares in an amount that has a
material effect on the price of Common Shares, a combination or consolidation of
the outstanding Common Shares (by reclassification or otherwise) into a lesser
number of Common Shares, a recapitalization, a spin-off or a similar occurrence,
the Committee shall make such adjustments as it, in its sole discretion, deems
appropriate in one or more of (a) the number of Options, SARs, Restricted Shares
and Stock Units available for future Awards under Article 3, (b) the limitations
set forth in Sections 5.2 and 7.2, (c) the number of Stock Units included in any
prior Award which has not yet been settled, (d) the number of Common Shares
covered by each outstanding Option and SAR or (e) the Exercise Price under each
outstanding Option and SAR. Except as provided in this Article 10, a Participant
shall have no rights by reason of any issue by the Company of stock of any class
or securities convertible into stock of any class, any subdivision or
consolidation of shares of stock of any class, the payment of any stock dividend
or any other increase or decrease in the number of shares of stock of any class.
10.2 REORGANIZATIONS. In the event that the Company is a party to a merger
or other reorganization, outstanding Options, SARs, Restricted Shares and Stock
Units shall be subject to the agreement of merger or reorganization. Such
agreement may provide, without limitation, for the assumption of outstanding
Awards by the surviving corporation or its parent, for their continuation by the
Company (if the Company is a surviving corporation), for accelerated vesting and
accelerated expiration, or for settlement in cash.
ARTICLE 11. AWARDS UNDER OTHER PLANS
The Company may grant awards under other plans or programs. Such awards may
be settled in the form of Common Shares issued under this Plan. Such Common
Shares shall be treated for all purposes under the Plan like Common Shares
issued in settlement of Stock Units and shall, when issued, reduce the number of
Common Shares available under Article 3.
ARTICLE 12. PAYMENT OF DIRECTOR'S FEES IN SECURITIES
12.1 EFFECTIVE DATE. No provision of this Article 12 shall be effective
unless and until the Board has determined to implement such provision.
12.2 ELECTIONS TO RECEIVE NSOS, RESTRICTED SHARES OR STOCK UNITS. An
Outside Director may elect to receive his or her annual retainer payments and
meeting fees from the Company in the form of cash, NSOs, Restricted Shares,
Stock Units, or a combination thereof, as determined by the Board. Such NSOs,
Restricted Shares and Stock Units shall be issued under the Plan. An election
under this Article 12 shall be filed with the Company on the prescribed form.
12.3 NUMBER AND TERMS OF NSOS, RESTRICTED SHARES OR STOCK UNITS. The
number of NSOs, Restricted Shares or Stock Units to be granted to Outside
Directors in lieu of annual retainers and meeting fees that would otherwise be
paid in cash shall be calculated in a manner determined by the Board. The terms
of such NSOs, Restricted Shares or Stock Units shall also be determined by the
Board.
ARTICLE 13. LIMITATION ON RIGHTS
13.1 RETENTION RIGHTS. Neither the Plan nor any Award granted under the
Plan shall be deemed to give any individual a right to remain an Employee,
Outside Director or Consultant of the Company, a Parent or a Subsidiary. The
Company and its Parents and Subsidiaries reserve the right to terminate the
service of any Employee, Outside Director or Consultant at any time, with or
without cause, subject to applicable laws, the Company's certificate of
incorporation and by-laws and a written employment agreement (if any).
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13.2 STOCKHOLDERS' RIGHTS. A Participant shall have no dividend rights,
voting rights or other rights as a stockholder with respect to any Common Shares
covered by his or her Award prior to the time when a stock certificate for such
Common Shares is issued or, in the case of an Option, the time when he or she
becomes entitled to receive such Common Shares by filing a notice of exercise
and paying the Exercise Price. No adjustment shall be made for cash dividends or
other rights for which the record date is prior to such time, except as
expressly provided in Articles 8, 9 and 10.
13.3 REGULATORY REQUIREMENTS. Any other provision of the Plan
notwithstanding, the obligation of the Company to issue Common Shares under the
Plan shall be subject to all applicable laws, rules and regulations and such
approval by any regulatory body as may be required. The Company reserves the
right to restrict, in whole or in part, the delivery of Common Shares pursuant
to any Award prior to the satisfaction of all legal requirements relating to the
issuance of such Common Shares, to their registration, qualification or listing
or to an exemption from registration, qualification or listing.
ARTICLE 14. LIMITATION ON PAYMENTS
14.1 BASIC RULE. Any provision of the Plan to the contrary
notwithstanding, in the event that the independent auditors most recently
selected by the Board (the "Auditors") determine that any payment or transfer by
the Company under the Plan to or for the benefit of a Participant (a "Payment")
would be nondeductible by the Company for federal income tax purposes because of
the provisions concerning "excess parachute payments" in section 280G of the
Code, then the aggregate present value of all Payments shall be reduced (but not
below zero) to the Reduced Amount; provided that the Committee, at the time of
making an Award under this Plan or at any time thereafter, may specify in
writing that such Award shall not be so reduced and shall not be subject to this
Article 14. For purposes of this Article 14, the "Reduced Amount" shall be the
amount, expressed as a present value, which maximizes the aggregate present
value of the Payments without causing any Payment to be nondeductible by the
Company because of section 280G of the Code.
14.2 REDUCTION OF PAYMENTS. If the Auditors determine that any Payment
would be nondeductible by the Company because of section 280G of the Code, then
the Company shall promptly give the Participant notice to that effect and a copy
of the detailed calculation thereof and of the Reduced Amount, and the
Participant may then elect, in his or her sole discretion, which and how much of
the Payments shall be eliminated or reduced (as long as after such election the
aggregate present value of the Payments equals the Reduced Amount) and shall
advise the Company in writing of his or her election within 10 days of receipt
of notice. If no such election is made by the Participant within such 10-day
period, then the Company may elect which and how much of the Payments shall be
eliminated or reduced (as long as after such election the aggregate present
value of the Payments equals the Reduced Amount) and shall notify the
Participant promptly of such election. For purposes of this Article 14, present
value shall be determined in accordance with section 280G(d)(4) of the Code. All
determinations made by the Auditors under this Article 14 shall be binding upon
the Company and the Participant and shall be made within 60 days of the date
when a Payment becomes payable or transferable. As promptly as practicable
following such determination and the elections hereunder, the Company shall pay
or transfer to or for the benefit of the Participant such amounts as are then
due to him or her under the Plan and shall promptly pay or transfer to or for
the benefit of the Participant in the future such amounts as become due to him
or her under the Plan.
14.3 OVERPAYMENTS AND UNDERPAYMENTS. As a result of uncertainty in the
application of section 280G of the Code at the time of an initial determination
by the Auditors hereunder, it is possible that Payments will have been made by
the Company which should not have been made (an "Overpayment") or that
additional Payments which will not have been made by the Company could have been
made (an "Underpayment"), consistent in each case with the calculation of the
Reduced Amount hereunder. In the event that the Auditors, based upon the
assertion of a deficiency by the Internal Revenue Service against the Company or
the Participant which the Auditors believe has a high probability of success,
determine
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that an overpayment has been made, such Overpayment shall be treated for all
purposes as a loan to the Participant which he or she shall repay to the
Company, together with interest at the applicable federal rate provided in
section 7872(f)(2) of the Code; provided, however, that no amount shall be
payable by the Participant to the Company if and to the extent that such payment
would not reduce the amount which is subject to taxation under section 4999 of
the Code. In the event that the Auditors determine that an Underpayment has
occurred, such Underpayment shall promptly be paid or transferred by the Company
to or for the benefit of the Participant, together with interest at the
applicable federal rate provided in section 7872(f)(2) of the Code.
14.4 RELATED CORPORATIONS. For purposes of this Article 14, the term
"Company" shall include affiliated corporations to the extent determined by the
Auditors in accordance with section 280G(d)(5) of the Code.
ARTICLE 15. WITHHOLDING TAXES
15.1 GENERAL. To the extent required by applicable federal, state, local
or foreign law, a Participant or his or her successor shall make arrangements
satisfactory to the Company for the satisfaction of any withholding tax
obligations that arise in connection with the Plan. The Company shall not be
required to issue any Common Shares or make any cash payment under the Plan
until such obligations are satisfied.
15.2 SHARE WITHHOLDING. The Committee may permit a Participant to satisfy
all or part of his or her withholding or income tax obligations by having the
Company withhold all or a portion of any Common Shares that otherwise would be
issued to him or her or by surrendering all or a portion of any Common Shares
that he or she previously acquired. Such Common Shares shall be valued at their
Fair Market Value on the date when taxes otherwise would be withheld in cash.
ARTICLE 16. FUTURE OF THE PLAN
16.1 TERM OF THE PLAN. The Plan, as set forth herein, was adopted on
January 30, 1997, and shall become effective on the date of the Company's
initial public offering. The Plan shall remain in effect until it is terminated
under Section 16.2, except that no ISOs shall be granted after June 12, 2007.
16.2 AMENDMENT OR TERMINATION. The Board may, at any time and for any
reason, amend or terminate the Plan. An amendment of the Plan shall be subject
to the approval of the Company's stockholders only to the extent required by
applicable laws, regulations or rules. No Awards shall be granted under the Plan
after the termination thereof. The termination of the Plan, or any amendment
thereof, shall not affect any Award previously granted under the Plan.
ARTICLE 17. DEFINITIONS
17.1 "Award" means any award of an Option, an SAR, a Restricted Share or a
Stock Unit under the Plan.
17.2 "Board" means the Company's Board of Directors, as constituted from
time to time.
17.3 "Change in Control" shall mean the occurrence of any of the following
events:
(a) The consummation of a merger or consolidation of the Company with
or into another entity or any other corporate reorganization, if more than
50% of the combined voting power of the continuing or surviving entity's
securities outstanding immediately after such merger, consolidation or other
reorganization is owned by persons who were not stockholders of the Company
immediately prior to such merger, consolidation or other reorganization;
(b) A change in the composition of the Board, as a result of which
fewer than one-half of the incumbent directors are directors who either:
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(A) Had been directors of the Company 24 months prior to such
change; or
(B) Were elected, or nominated for election, to the Board with the
affirmative votes of at least a majority of the directors who had been
directors of the Company 24 months prior to such change and who were
still in office at the time of the election or nomination; or
(c) Any "Person" (as such term is used in section 13(d) and 14(d) of
the Exchange Act) by the acquisition or aggregation of securities is or
becomes the beneficial owner, directly or indirectly, of securities of the
Company representing 50% or more of the combined voting power of the
Company's then outstanding securities ordinarily (and apart from rights
accruing under special circumstances) having the right to vote at elections
of directors (the "Base Capital Stock"); except that any change in the
relative beneficial ownership of the Company's securities by any person
resulting solely from a reduction in the aggregate number of outstanding
shares of Base Capital Stock, and any decrease thereafter in such person's
ownership of securities, shall be disregarded until such person increases in
any manner, directly or indirectly, such person's beneficial ownership of
any securities of the Company.
The term "Change in Control" shall not include a transaction, the sole
purpose of which is to change the state of the Company's incorporation.
17.4 "Code" means the Internal Revenue Code of 1986, as amended.
17.5 "Committee" means a committee of the Board, as described in Article 2.
17.6 "Common Share" means one share of the common stock of the Company.
17.7 "Company" means Star Telecommunications, Inc., a Delaware corporation.
17.8 "Consultant" means a consultant or adviser who provides bona fide
services to the Company, a Parent or a Subsidiary as an independent contractor.
Service as a Consultant shall be considered employment for all purposes of the
Plan, except as provided in Section 4.2.
17.9 "Employee" means a common-law employee of the Company, a Parent or a
Subsidiary.
17.10 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
17.11 "Exercise Price," in the case of an Option, means the amount for
which one Common Share may be purchased upon exercise of such Option, as
specified in the applicable Stock Option Agreement. "Exercise Price," in the
case of an SAR, means an amount, as specified in the applicable SAR Agreement,
which is subtracted from the Fair Market Value of one Common Share in
determining the amount payable upon exercise of such SAR.
17.12 "Fair Market Value" means the market price of Common Shares,
determined by the Committee as follows:
(a) If the Common Shares were traded over-the-counter on the date in
question but was not traded on the Nasdaq system or the Nasdaq National
Market System, then the Fair Market Value shall be equal to the means
between the last reported representative bid and asked prices quoted for
such date by the principal automated inter-dealer quotation system on which
the Common Shares are quoted or, if the Common Shares are not quoted on any
such system, by the "Pink Sheets" published by the National Quotation
Bureau, Inc.;
(b) If the Common Shares were traded over-the-counter on the date in
question and were traded on the Nasdaq system or the Nasdaq National Market
System, then the Fair Market Value shall be equal to the last-transaction
price quoted for such date by the Nasdaq system or the Nasdaq National
Market System;
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(c) If the Common Shares were traded on a stock exchange on the date in
question, then the Fair Market Value shall be equal to the closing price
reported by the applicable composite transactions report for such date; and
(d) If none of the foregoing provisions is applicable, then the Fair
Market Value shall be determined by the Committee in good faith on such
basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee
shall be based on the prices reported in the Western Edition of The Wall Street
Journal. Such determination shall be conclusive and binding on all persons.
17.13 "ISO" means an incentive stock option described in section 422(b) of
the Code.
17.14 "NSO" means a stock option not described in sections 422 or 423 of
the Code.
17.15 "Option" means an ISO or NSO granted under the Plan and entitling the
holder to purchase one Common Share.
17.16 "Optionee" means an individual or estate who holds an Option or SAR.
17.17 "Outside Director" shall mean a member of the Board who is not an
Employee Service as an Outside Director shall be considered employment for all
purposes of the Plan, except as provided in Section 4.2.
17.18 "Parent" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a Parent on
a date after the adoption of the Plan shall be considered a Parent commencing as
of such date.
17.19 "Participant" means an individual or estate who holds an Award.
17.20 "Plan" means this 1997 Omnibus Stock Incentive Plan of the Company,
as amended from time to time.
17.21 "Restricted Share" means a Common Share awarded under the Plan.
17.22 "SAR" means a stock appreciation right granted under the Plan.
17.23 "SAR Agreement" means the agreement between the Company and an
Optionee which contains the terms, conditions and restrictions pertaining to his
or her SAR.
17.24 "Stock Award Agreement" means the agreement between the Company and
the recipient of a Restricted Share or Stock Unit which contains the terms,
conditions and restrictions pertaining to such Restricted Share or Stock Unit.
17.25 "Stock Option Agreement" means the agreement between the Company and
an Optionee which contains the terms, conditions and restrictions pertaining to
his or her Option.
17.26 "Stock Unit" means a bookkeeping entry representing the equivalent of
one Common Share, as awarded under the Plan.
17.27 "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. A corporation that attains
the status of a Subsidiary on a date after the adoption of the Plan shall be
considered a Subsidiary commencing as of such date.
17.28 "Supplemental Option Plan" means the Company's 1996 Supplemental
Stock Option Plan as in effect on the date of the adoption of this Plan by the
Company's Board of Directors.
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ARTICLE 18 EXECUTION
To record the adoption of the Plan by the Board, the Company has caused its
duly authorized officer to affix the corporate name and seal hereto.
<TABLE>
<S> <C> <C>
STAR TELECOMMUNICATIONS, INC.
By: /s/
-----------------------------------------
</TABLE>
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AMENDMENT TO 1997 OMNIBUS STOCK INCENTIVE PLAN
OF STAR TELECOMMUNICATIONS, INC.
Article III, Section 3.1 of the 1997 Omnibus Stock Incentive Plan is amended
in its entirety to read as follows:
"3.1 BASIC LIMITATION. Common Shares issued pursuant to
the Plan may be authorized but unissued shares or treasury
shares. The aggregate number of Restricted Shares, Stock
Units, Options and SARs awarded under the Plan shall not
exceed Four Million Seventy-Five Thousand (4,075,000) (the
sum of (i) 2,950,000 shares, plus (ii) 2,050,000, which is
that number of shares available for issuance under the
Supplemental Option Plan from time to time, less those
shares actually issued or reserved for issuance upon the
exercise of options awarded under the Supplemental Option
Plan). The limitation of this Section .1 shall be subject
to adjustment pursuant to Article 10."
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STAR TELECOMMUNICATIONS, INC.
ANNUAL MEETING OF STOCKHOLDERS JULY 1, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned stockholder of STAR Telecommunications, Inc., a Delaware
corporation (the "Company"), hereby acknowledges receipt of the Notice of Annual
Meeting of Stockholders and Proxy Statement, each dated June 1, 1998, and hereby
appoints Christopher E. Edgecomb, Mary A. Casey and Kelly D. Enos, and each of
them, proxies and attorneys-in-fact, with full power to each of substitution, on
behalf and in the name of the undersigned, to represent the undersigned at the
Annual Meeting of Stockholders of the Company to be held on Wednesday, July 1,
1998 at 9:00 a.m., Pacific Time, at the Four Seasons Biltmore Hotel, 1260
Channel Drive, Montecito, California, and at any postponements or adjournments
thereof, and to vote all shares of Common Stock at the Annual Meeting the
undersigned would be entitled to vote if personally present, on the matters set
forth below:
THIS PROXY WILL BE VOTED AS DIRECTED AND AS SAID PROXIES DEEM ADVISABLE ON
SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY POSTPONEMENTS
OR ADJOURNMENTS THEREOF. ANY PROPOSAL WITH RESPECT TO WHICH A STOCKHOLDER FAILS
TO SO SPECIFY WILL BE VOTED IN ACCORDANCE WITH THE RECOMMENDATION OF THE BOARD.
(SEE REVERSE SIDE)
<PAGE>
(CONTINUED ON REVERSE SIDE)
(1) 1. Proposal No. 1 -- Election of Directors:
/ / FOR all nominees listed below (except as indicated). / /
WITHHOLD authority for all nominees listed below.
If you wish to withhold authority for any individual nominee(s), strike a
line through his or their name(s) in the list below:
Gordon Hutchins, Jr. John R. Snedgar
(2) Proposal No. 2 -- To amend the Company's Second Amended and Restated
Certificate of
Incorporation to increase the authorized number of shares of Common
Stock / / FOR / / AGAINST / / ABSTAIN
(3) Proposal No. 3 -- To amend the Company's 1997 Omnibus Stock Incentive Plan
to increase the number of shares of Common Stock authorized for issuance
thereunder / / FOR / / AGAINST / / ABSTAIN
(4) Proposal No. 4 -- To ratify the appointment of Arthur Andersen LLP as the
Company's
independent public accountants for the fiscal year ending December 31,
1998 / / FOR / / AGAINST / / ABSTAIN
Dated: ________________________________, 1998
_______________________________
Printed name(s) as shown on
Stock Certificate
_______________________________
(Signature)
_______________________________
(Signature)
NOTE: This proxy should be
marked and signed by the
stockholder(s) exactly as his,
her, their or its name appears
on the stock certificate and
returned promptly in the
enclosed envelope. Persons
signing in a fiduciary capacity
should so indicate. if shares
are held by two people (for
example, as joint tenants or
community property) both parties
should sign.
