AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 10, 1998
REGISTRATION NO. 333-64465
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-1
ON
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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STARTEC GLOBAL COMMUNICATIONS CORPORATION
(Exact name of Registrant as specified in its charter)
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<S> <C> <C>
MARYLAND 4813 52-1660985
(State or other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
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10411 MOTOR CITY DRIVE
BETHESDA, MD 20817
(301) 365-8959
(Address, including zip code, and telephone number, including area
code, of Registrant's principal executive offices)
RAM MUKUNDA
PRESIDENT AND CHIEF EXECUTIVE OFFICER
10411 MOTOR CITY DRIVE
BETHESDA, MD 20817
(301) 365-8959
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
Thomas L. Hanley, Esq.
Robert B. Murphy, Esq.
Schnader Harrison Segal & Lewis LLP
1300 I Street, NW, 11th Floor East
Washington, DC 20005
(202) 216-4200
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: FROM TIME TO
TIME AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED
MAXIMUM
OFFERING PROPOSED AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE PRICE MAXIMUM AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SECURITY OFFERING PRICE FEE
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Warrants to purchase Common Stock 160,000 24.20(1) $3,872,000 $1,143
Common Stock, $0.01 par value(2)(3) 200,226 -- -- --
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(g).
(2) Represents shares of Common Stock issuable upon the exercise of the
Warrants. Pursuant to Rule 416, this Registration Statement also covers
such indeterminate number of shares of Common Stock as may be issuable upon
exercise of the Warrants pursuant to the anti-dilution provisions thereof.
(3) Also includes rights to purchase Series A Junior Participating Preferred
Stock of Startec Global Communications Corporation that are associated with
the Common Stock. Such rights will not be exercisable or evidenced
separately from the Common Stock prior to the occurrence of certain events,
and no separate consideration will be received by the Company in connection
with the issuance of such rights.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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PROSPECTUS
[STARTEC GLOBAL COMMUNICATIONS CORPORATION LOGO]
160,000 WARRANTS TO PURCHASE SHARES OF COMMON STOCK
AND
200,226 SHARES OF COMMON STOCK
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This Prospectus relates to (i) 160,000 warrants (the "Warrants") to
purchase the common stock, par value $0.01 per share (the "Common Stock") of
Startec Global Communications Corporation (the "Company") and (ii) 200,226
shares of Common Stock (the "Warrant Shares") that may be issued from time to
time upon the exercise of the Warrants. The Warrants and Warrant Shares may be
offered and sold by the holders thereof or by their transferees, pledgees,
donees, or successors (collectively the "Selling Holders") from time to time
following the effective date of the registration statement (the "Warrant
Registration Statement") of which this Prospectus forms a part. The Warrants and
the Warrant Shares may be sold by the Selling Holders from time to time in
privately negotiated transactions, in transactions in the over-the-counter
market, and as to the Warrants Shares on the Nasdaq National Market, or by a
combination of such methods of sale, at fixed prices that may be changed, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices, at varying prices determined at the time of sale or at
negotiated prices. The Selling Holders may sell the Warrants and the Warrant
Shares directly to purchasers or through underwriters, broker-dealers or agents.
See "Plan of Distribution."
The Warrants were originally issued and sold by the Company on May 21, 1998
as a part of an offering (the "Notes Offering") of 160,000 Units (the "Units"),
each Unit consisting of $1,000 principal amount of its 12% Senior Notes due 2008
(the "Notes") and one Warrant, in an offering that was exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to Section 4(2), Rule 144A and Regulation S
thereunder. The 160,000 Warrants entitle the holders thereof to acquire an
aggregate of 200,226 Warrant Shares, and are exercisable at any time and from
time to time after November 15, 1998 through May 15, 2008 (the "Expiration
Date"). Each Warrant entitles the holder thereof to purchase 1.25141 shares of
Common Stock at an exercise price of $24.20 per share (the "Exercise Price"),
subject to certain anti-dilution provisions. The registration of the Warrants
and the Warrant Shares pursuant to the Warrant Registration Statement is
intended to satisfy certain obligations of the Company under the registration
rights provisions of an agreement relating to the Warrants between the Company
and First Union National Bank, as Warrant Agent, dated May 21, 1998 (the
"Warrant Agreement").
The Company will not receive any proceeds from the sale of the Warrants or
the Warrant Shares by the Selling Holders. To the extent that any Warrants are
exercised, the Company will receive the Exercise Price for the Warrant Shares.
Pursuant to the terms of the Warrant Agreement, the Company has agreed to bear
the expenses incurred in connection with the registration of the Warrants and
Warrant Shares being offered hereby; provided, however, that the Selling Holders
will pay any underwriting discounts, selling commissions and transfer taxes (if
any), applicable to their sales. In addition, the Company has agreed to
indemnify the Selling Holders against certain liabilities, including liabilities
under the Securities Act.
The Selling Holders and any broker-dealers, agents or underwriters that
participate in the distribution of the Warrants and the Warrant Shares may be
deemed to be "underwriters" and any discounts, commissions, concessions or other
compensation received by them and any profit on the resale of shares purchased
by them may be deemed to be underwriting compensation within the meaning of the
Securities Act. To the extent required, the names of any such agents or
underwriters involved in the sale of the Warrants and the Warrant Shares and the
applicable commissions and discounts, if any, and any other information with
respect to a particular offer or sale will be set forth in an accompanying
supplement to this Prospectus. See "Plan of Distribution."
The Common Stock is listed on the Nasdaq National Market under the symbol
"STGC." On November 6, 1998, the last reported sale price of the Common Stock on
the Nasdaq National Market was $11.50 per share. Application has been made to
have the Warrant Shares approved for quotation on the Nasdaq National Market.
Prior to this offering, there has been no public market for the Warrants and
there can be no assurance that an active public market for the Warrants will
develop or that, if a such a market develops, it will be maintained. The Company
does not intend to apply for quotation of the Warrants on the Nasdaq Stock
Market or for listing of the Warrants on any national securities exchange.
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE WARRANTS AND WARRANT
SHARES.
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THE WARRANTS AND THE WARRANT SHARES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES
COMMISSION OR REGULATORY AUTHORITY NOR HAS THE COMMISSION OR ANY
STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS NOVEMBER 12, 1998.
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AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement under
the Securities Act with respect to the Warrants and Warrant Shares being offered
by this Prospectus. This Prospectus does not contain all the information set
forth in the Registration Statement and the exhibits and schedules thereto,
certain portions of which have been omitted pursuant to the rules and
regulations of the Commission. Statements made in this Prospectus as to the
contents of any contract, agreement or other document are not necessarily
complete. For further information with respect to the Company and the securities
offered hereby, reference is made to the Registration Statement, including the
exhibits thereto and the financial statements, notes and schedules filed as a
part thereof. With respect to each such contract, agreement or other document
filed or incorporated by reference as an exhibit to the Registration Statement,
reference is made to such exhibit for a more complete description of the matter
involved, and each such statement is qualified in its entirety by such
reference.
The Company has agreed to file with the Commission, to the extent
permitted, and provide to the holders of the warrants, reports, information and
documents specified in Sections 13(a) and 15(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), whether or not the Company is subject
to such informational requirements of the Exchange Act.
The Company is subject to the informational and reporting requirements of
the Exchange Act and, in accordance therewith, files periodic reports, proxy and
information statements, and other information, with the Commission. Such
reports, proxy and information statements, and other information may be
inspected and copied at the public reference facilities of the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and
at the regional offices of the Commission located at Northwestern Atrium, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material can be
obtained from the Commission at prescribed rates by writing to the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549. The Commission maintains a Web
site (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants that are filed
electronically with the Commission. In addition, the Company's Common Stock is
quoted on the Nasdaq National Market, and reports proxy and information
statements and other information concerning the Company may also be inspected at
the offices of NASDAQ Operations, 1735 K Street, N.W., Washington, D.C. 20006.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by the Company with the Commission pursuant
to the Exchange Act (File No. 0-23087) are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, including the amendment thereto.
2. The Company's Quarterly Report on Form 10-Q for the quarter ending June
30, 1998.
3. The Company's Quarterly Report on Form 10-Q for the quarter ending March
31, 1998.
4. The Company's Current Reports on Form 8-K filed September 14, 1998, June
24, 1998, May 21, 1998, May 15, 1998, April 10, 1998 and April 8, 1998.
5. The description of the Company's Common Stock contained in the
Registration Statement on Form 8-A filed September 15, 1997, as amended on
October 8, 1997.
In addition, all reports and other documents subsequently filed by the
Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after
the date of this Prospectus and prior to the termination of the offering of the
securities shall be deemed to be incorporated by reference in this Prospectus
from the date of filing such documents. Any statement contained in a document
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the
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extent that a statement contained herein or in any subsequently filed document
that also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon the written or oral
request of such person, a copy of any and all of the documents that are
incorporated herein by reference (other than exhibits to such documents, unless
such exhibits are specifically incorporated by reference into such documents).
Such requests should be directed to Startec Global Communications Corporation,
10411 Motor City Drive, Bethesda, MD 20817, Attention: Chief Financial Officer.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
The statements contained in this Prospectus that are not historical facts
are "forward-looking statements" (as such term is defined in the Private
Securities Litigation Reform Act of 1995), which can be identified by the use of
forward-looking terminology such as "believes," "expects," "intends,"
"foresees," "plans," "may," "will," "should," or "anticipates" or the negative
thereof or other variations thereon or comparable terminology, or by discussions
of strategy that involve risks and uncertainties. In addition, from time to
time, the Company or its representatives have made or may make forward- looking
statements, orally or in writing. Furthermore, such forward-looking statements
may be included in, but are not limited to, press releases or oral statements
made by or with the approval of an authorized executive officer of the Company.
Management wishes to caution the reader that the forward-looking statements
contained in this Prospectus involve predictions. No assurance can be given that
anticipated results will be achieved; actual events or results may differ
materially as a result of risks facing the Company. Such risks include, but are
not limited to, those set forth in "Risk Factors" beginning on page 8 of this
Prospectus.
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PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified
in its entirety by, the more detailed information, including the risk factors
and the financial statements (including the notes thereto) contained or
incorporated by reference in this Prospectus. References in this Prospectus to
"Startec Global" and the "Company" refer to Startec Global Communications
Corporation and its subsidiaries, and give effect to the Reorganization, except
where the context otherwise requires. See "-- Holding Company Reorganization."
For definitions of certain technical and other terms used in this Prospectus,
see "Glossary of Terms."
THE COMPANY
OVERVIEW
Startec Global is a rapidly growing, facilities-based international long
distance telecommunications service provider. The Company markets its services
to select ethnic residential communities throughout the United States and to
leading international long distance carriers. The Company provides its services
through a flexible, high-quality network of owned and leased transmission
facilities, operating and termination agreements and resale arrangements. The
Company currently owns and operates an international gateway switch in New York
City and has ordered another international gateway switch expected to be
deployed in Los Angeles in 1998. Including the Los Angeles switch, the Company
expects to install up to 20 switches worldwide through 2000. Additionally, the
Company has interests in several undersea cable facilities and plans to acquire
additional interests in cable facilities linking North America with Europe, the
Pacific Rim, Asia and Latin America, as well as linking the East Coast and West
Coast of the United States. The Company operates seven points-of-presence
("P.O.P.") sites in the United States and the United Kingdom and plans to
install up to three more in Europe by the end of 1998. The Company also plans to
invest in or acquire two satellite earth stations during 1998 and 1999. As the
Company executes its expansion strategy and encounters new marketing
opportunities, management may elect to relocate or redeploy certain switches,
P.O.P. sites and other network equipment to alternate locations from what is
outlined above.
Startec Global was founded in 1989 to capitalize on the significant
opportunity to provide international long distance services to select ethnic
communities in major U.S. metropolitan markets that generate substantial
long-distance traffic to their countries of origin. Until 1995, the Company
concentrated its marketing efforts in the New York-Washington, D.C. corridor and
focused on the delivery of international calling services to India. At the end
of 1995, the Company expanded its marketing efforts to include the West Coast of
the United States, and began targeting other ethnic groups in the United States,
such as the Middle Eastern, Filipino and Russian communities. International
traffic generated by the Company currently terminates primarily in Asia, the
Pacific Rim, the Middle East, Africa, Eastern and Western Europe and North
America.
The Company uses sophisticated database marketing techniques and a variety
of media to reach its targeted residential customers, including focused print
advertising in ethnic newspapers, advertising on ethnic radio and television
stations, direct mail, sponsorship of ethnic events and customer referrals. The
Company's strategy is to provide overall value to its customers and combine
competitive pricing with high levels of service, rather than to compete on the
basis of price alone. The Company provides responsive customer service 24 hours
a day, seven days a week, which supports 17 different languages full-time and 24
different languages part-time. The Company believes that its focused marketing
programs and its dedication to customer service enhance its ability to attract
and retain customers in a low-cost, efficient manner. Residential customers
access the Company's network by dialing a carrier identification code prior to
dialing the number they are calling. This service,
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known as "dial-around" or "casual calling," enables customers to use the
Company's services without changing their existing long distance carriers. As
part of its overall strategy, the Company seeks to increase the proportion of
its net revenues derived from residential customers.
In order to achieve economies of scale in its network operations and to
balance its residential international traffic, in late 1995, the Company began
marketing its excess network capacity to international carriers seeking
competitive rates and high-quality transmission capacity. Since initiating its
international wholesale services, the Company has significantly expanded its
number of carrier customers.
BUSINESS STRATEGY
The Company's objectives are to (i) become the leading provider of
international long distance services to select ethnic residential communities in
the United States, Canada and Europe with significant international long
distance usage and (ii) leverage its residential long distance business to
become a leading provider of wholesale carrier services on corresponding
international routes. In order to achieve its objectives, the Company's strategy
relies on the following elements:
o Expand the addressable market. The Company currently serves
residential customers in 20 major U.S. metropolitan markets. The
Company has also identified over 40 major markets outside the United
States, primarily in Canada, Europe and Southeast Asia, which the
Company believes are attractive for entry based on the demographic
characteristics, traffic patterns, regulatory environment and
availability of appropriate advertising channels. The Company
anticipates entering up to 20 of these markets by the end of 2000. In
addition, the Company seeks to increase its penetration of its
existing and prospective markets by (i) targeting additional ethnic
communities and (ii) marketing additional routes to existing customers
who principally use the Company's services for one route.
o Achieve "first-to-market" entry of select ethnic residential markets.
The Company believes that it enjoys significant competitive advantages
by establishing a customer base and brand name in select ethnic
residential communities ahead of its competitors. The Company intends
to capitalize on its proven marketing strategy to further penetrate
select ethnic residential communities in the United States, Canada and
Europe ahead of its competitors. The Company selects its target
markets based on favorable demographics with respect to long distance
telephone usage, including geographic immigration patterns, population
growth and income levels. Targeting select ethnic communities also
enables the Company to aggregate traffic along certain routes (which
reduces its costs) and to focus on rapidly expanding and deregulating
telecommunications markets. The Company's target residential customer
base is comprised of emigrants from emerging markets in Asia, Eastern
Europe, the Middle East, the Pacific Rim, Latin America and Africa.
o Expand international network facilities. The Company plans to expand
its international network facilities during the remainder of 1998 and
through 2000 by deploying 20 additional switches, installing P.O.P.
sites, securing additional ownership interests in undersea cable
facilities and investing in domestic cable facilties, investing in or
acquiring two satellite earth stations and entering into operating
agreements. By building network facilities and expanding operating
agreements that enable it to carry an increasing percentage of its
traffic on its own network ("on-net"), the Company believes that it
will be able to reduce its transmission costs and reliance on other
carriers and ensure greater control over quality of service. During
the next three years, the Company expects to increase significantly
the volume of its traffic that is originated, carried and terminated
on-net.
The Company intends to implement a network hubbing strategy,
linking its existing and prospective customer base in the United
States, Canada and Europe to call destinations in foreign countries
through a network of foreign-based switches and other
telecommunications
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equipment. The Company also plans to continue to enhance its
termination options through additional operating agreements, transit
arrangements and, if appropriate opportunities arise, strategic
acquisitions and alliances. The Company has also taken steps to
improve the quality of its network by upgrading its network monitoring
and customer service centers, and plans to install enhanced software
that will enable it to better monitor call traffic routing, capacity
and quality.
o Maximize network utilization and efficiency through wholesale carrier
business. The Company intends to continue to market its international
long distance services to existing and new carrier customers. Because
the Company's residential minutes of use are generated primarily
during non-business hours or on weekends, the Company has substantial
capacity to offer to international carriers. The significant carrier
traffic volume that the Company generates allows it to capture
additional revenues, to increase economies of scale and to improve
network efficiency.
o Build customer loyalty. The Company seeks to build long-term customer
loyalty through tailored in-language marketing efforts focusing on
each target ethnic group's specific needs and cultural backgrounds,
responsive customer service offering in-language services and
involvement in its customers' communities through sponsorship of local
events and other activities. The Company markets its residential
services under the "STARTEC" name to enhance its name recognition and
build brand loyalty in its target communities. The Company maintains a
detailed information database of its customers, which it uses to
monitor usage, track customer satisfaction and analyze a variety of
customer behaviors, including retention and frequency of usage.
o Pursue strategic acquisitions and alliances. In order to accelerate
its business plan and take advantage of the rapidly changing
telecommunications environment, the Company intends to carefully
evaluate and pursue strategic acquisitions, alliances and investments.
The Company believes that, with the remaining net proceeds of the Notes
Offering, it will have sufficient capital resources to fund its expansion plans
through the end of the first quarter of 2000. The Company's ability to complete
its strategic plan thereafter, however, will require significant additional
capital.
MARKET OPPORTUNITY
According to industry sources, the international telecommunications
industry generated approximately $67 billion in revenues and 81 billion minutes
of use during 1997. Industry sources indicate that the international
telecommunications market is one of the fastest growing and most profitable
segments of the global telecommunications industry. It is estimated that by the
end of 2001 this market will have expanded to $98 billion in revenues and 153
billion minutes of use, representing compound annual growth rates from 1997 of
10% and 17%, respectively. The highly competitive and rapidly changing
international telecommunications market has created a significant opportunity
for carriers that can offer high-quality, low-cost international long distance
service.
Based on industry estimates, in 1997 approximately 70% of international
long distance traffic was generated between North America and Western Europe.
The Company's target market consists of a significant portion of the remaining
30% of the international long distance traffic, or approximately $20 billion in
revenues and 24 billion minutes of use. The Company believes that international
long distance usage in its target markets will grow at rates in excess of the
international telecommunications market as a whole, primarily as a result of (i)
continuing economic development in these markets with a corresponding investment
in telephone and telecommunications infrastructure and (ii) continuing
deregulation of these markets.
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RECENT DEVELOPMENTS
HOLDING COMPANY REORGANIZATION
In March 1998, the Company's Board of Directors approved a plan pursuant to
which the Company's assets, liabilities and operations will be reorganized into
a Delaware holding company structure (the "Reorganization"). The Reorganization
was approved by the Company's stockholders at their annual meeting on July 31,
1998. Accordingly, the Company has incorporated a wholly-owned subsidiary
corporation in Delaware ("Subsidiary Holdings") that is the owner of all of the
outstanding voting capital stock of certain other newly-formed lower-tier
subsidiaries, each of which will be responsible for distinct aspects of the
Company's pre-Reorganization business, including separate subsidiaries
responsible for (i) U.S. operations, (ii) finance and investments, (iii)
ownership of licenses, and (iv) foreign operations. The Company has formed seven
additional lower-tier subsidiaries under the laws of foreign countries in order
to optimize tax benefits and other advantages associated with such jurisdictions
and the Company anticipates forming additional foreign subsidiaries as needed.
The Reorganization will consist of (i) the transfer of substantially all of
the Company's assets to the appropriate lower-tiered subsidiaries and (ii) the
merger (the "Merger") of the Company with and into Subsidiary Holdings. Certain
transfers are subject to federal and state regulatory approvals. On July 31,
1998, the Company received stockholder approval for the Merger and is awaiting
such regulatory approvals. The Company anticipates completing the Reorganization
in the fourth quarter of 1998. Pursuant to the Merger, the present holders of
shares of Common Stock of the Company will receive shares of common stock in
Subsidiary Holdings on a share-for-share basis. Upon completion of the transfers
and the Merger, it is expected that Subsidiary Holdings will remain as the
surviving entity and the Warrants will become warrants to purchase shares of the
common stock of Subsidiary Holdings on the same terms and conditions as
described herein. In addition, it is expected that Subsidiary Holdings' only
assets will be its equity interests in its subsidiaries.
NOTES OFFERING
On May 21, 1998, the Company completed the Notes Offering of 160,000 Units,
each Unit consisting of $1,000 principal amount of its 12% Notes and one
Warrant, in an offering that was exempt from the registration requirements of
the Securities Act pursuant to Section 4(2), Rule 144A and Regulation S
thereunder. The Notes, in aggregate principal amount of $160,000,000, were
issued pursuant to an indenture (the "Indenture") dated May 21, 1998 between the
Company and First Union National Bank, as Trustee (the "Trustee").
In order to fulfill its obligations under a Registration Rights Agreement
by and among the Company, Lehman Brothers Inc., Goldman, Sachs & Co. and ING
Barings (U.S.) Securities, Inc. as the Initial Purchasers of the Units (the
"Initial Purchasers"), the Company filed a registration statement (the "Exchange
Offer Registration Statement") with the Commission and has conducted an exchange
offer (the "Exchange Offer") pursuant to which it offered to exchange up to
$160,000,000 aggregate principal amount of its Series A Senior Notes due 2008
(the "Exchange Notes") for a like principal amount of the Notes. The terms of
the Exchange Notes are identical in all material respects to those of the Notes,
except that the Exchange Notes have been registered under the Securities Act,
and, therefore, will not bear legends restricting their transfer. Under certain
circumstances described in the Registration Rights Agreement, the Company may
also be obligated to file an additional registration statement (the "Shelf
Registration Statement") in order to permit holders of the Notes to resell such
Notes. Upon completion of the transfers and the Reorganization (including the
Merger) described above, it is expected that Subsidiary Holdings
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will remain as the surviving entity and as the obligor under the Notes and the
Exchange Notes. Unless the context otherwise requires, the Notes and the
Exchange Notes are referred to herein collectively as the "Notes."
Interest on the Notes is payable semiannually in arrears on May 15 and
November 15 of each year, commencing on November 15, 1998. The Notes are
redeemable at the option of the Company in whole or in part at any time on or
after May 15, 2003, at specified redemption prices plus accrued and unpaid
interest and Liquidated Damages (as defined in the Indenture), if any, thereon
to the date of redemption. In addition, at any time prior to May 15, 2001, the
Company may, from time to time, redeem up to 35.0% of the originally issued
aggregate principal amount of the Notes at the specified redemption prices plus
accrued interest and Liquidated Damages, if any, to the date of redemption with
the Net Cash Proceeds (as defined in the Indenture) of one or more Public Equity
Offerings (as defined in the Indenture); provided that at least 65.0% of the
originally issued aggregate principal amount of the Notes remains outstanding
after such redemption. In the event of a Change of Control (as defined in the
Indenture), each holder of the Notes has the right to require the Company to
purchase all or any of such holder's Notes at a purchase price in cash equal to
101.0% of the aggregate principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, to the date of purchase.
The Company used approximately $52.4 million of the proceeds from the Notes
Offering to purchase a portfolio of Pledged Securities (as defined in the
Indenture) consisting of U.S. Governmental Obligations (as defined in the
Indenture), which are pledged as security and restricted for use as the first
six scheduled interest payments on the Notes.
The Notes are unsecured obligations of the Company, rank senior in right of
payment to any existing and future obligations of the Company expressly
subordinated in right of payment to the Notes and will be pari passu in right of
payment with all other existing and future unsecured and unsubordinated
obligations of the Company. The Notes require maintenance of certain financial
and nonfinancial covenants, including limitations on additional indebtedness,
restricted payments (including dividends), transactions with affiliates, liens
and asset sales.
-----------------
5
<PAGE>
THE WARRANTS AND WARRANT SHARES OFFERING
The Warrants were originally issued by the Company in the Notes Offering,
pursuant to which 160,000 Units were issued and sold, with each Unit consisting
of $1,000 principal amount of Senior Notes and one Warrant. The 160,000 Warrants
entitle the holders thereof to acquire an aggregate of 200,226 Warrant Shares.
The registration of the Warrants and the Warrant Shares pursuant to this Warrant
Registration Statement is intended to satisfy certain obligations of the Company
under the registration rights provisions of the Warrant Agreement. For
additional information concerning the Warrants and the definitions of certain
capitalized terms used below, see "Description of Warrants" and "Description of
Capital Stock."
Warrants offered by the Selling
Holders......................... Up to 160,000 Warrants.
Common Stock offered by the
Selling Holders................. Up to 200,226 shares of Common Stock.
Common Stock outstanding be
fore the Offering (1) .......... 8,964,815 shares.
Common Stock to be outstand
ing after the Offering(1)(2) 9,165,041 shares.
Exercisability................... The Warrants are exercisable at any time and
from time to time after November 15, 1998
until the Expiration Date.
Expiration Date.................. May 15, 2008.
Exercise Price.................. Each Warrant entitles the holder thereof to
purchase 1.25141 shares of Common Stock at an
exercise price of $24.20 per share.
Anti-Dilution
Provisions....................... The number of shares of Common Stock for
which each Warrant is exercisable and the
price per share at which each Warrant is
exercisable are subject to adjustment upon
the occurrence of certain events as provided
in the Warrant Agreement. See "Description of
Warrants -- Adjustments."
Registration Rights............. Pursuant to the Warrant Agreement, the
Company is required to keep the Warrant
Registration Statement effective, subject to
certain exceptions, until the second
anniversary of the last date on which a
Warrant was exercised when the Warrant
Registration Statement was not effective or
when the Warrant Registration Statement was
suspended, or such earlier time when all of
the Warrants and/or Warrant Shares have been
sold pursuant to the Warrant Registration
Statement. See "Description of Warrants --
Registration Rights."
Use of Proceeds................ The Company will not receive any proceeds
from either the sale of the Warrants or the
sale of the Warrant Shares by the Selling
Holders. Proceeds received by the Company
from the exercise of the Warrants, if any,
will be used for the purchase of
telecommunications and related network
equipment and general corporate purposes.
6
<PAGE>
Nasdaq Listing.................. The Warrants will not be quoted on the Nasdaq
Stock Market or listed or traded on any
national securities exchange. Application has
been made to have the Warrant Shares quoted
along with the other shares of the Common
Stock on the Nasdaq National Market.
Nasdaq National Market
symbol.......................... STGC
- -----------
(1) Excludes (i) 7,450 shares of Common Stock issuable upon the exercise of
options outstanding as of October 31, 1998 under the Company's Amended and
Restated Stock Option Plan; (ii) 513,400 shares of Common Stock issuable
upon the exercise of options outstanding as of October 31, 1998 under the
Company's 1997 Performance Incentive Plan; and (iii) 620,126 shares of
Common Stock issuable pursuant to the exercise of certain outstanding
warrants (including the Warrants).
(2) Assumes that all of the Warrants are exercised.
-----------------
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE WARRANTS AND WARRANT
SHARES.
-----------------
The Company's executive offices are located at 10411 Motor City Drive,
Bethesda, Maryland 20817, and its telephone number at that address is (301)
365-8959. The Company changed its name in 1997 from STARTEC, Inc. to Startec
Global Communications Corporation.
7
<PAGE>
RISK FACTORS
Prospective investors should consider carefully the risk factors set forth
below, as well as the other information appearing in this Prospectus, before
making an investment in the Warrants and the Warrant Shares.
SUBSTANTIAL INDEBTEDNESS; LIQUIDITY
The Company has substantial indebtedness as a result of the Notes Offering.
As of June 30, 1998, the Company had total assets of approximately $215.3
million, total Indebtedness (as defined in the Indenture) of approximately
$158.6 million (including approximately $647,000 of Indebtedness, excluding the
Notes) and stockholders' equity of approximately $32.3 million. For the fiscal
year ended December 31, 1997, after giving pro forma effect to the Notes
Offering and the application of the net proceeds therefrom as if the Notes
Offering had been consummated on January 1, 1997, the Company's EBITDA would
have been approximately $2.5 million and its EBITDA would have been insufficient
to cover fixed charges by approximately $17.4 million. The Indenture limits, but
does not prohibit, the incurrence of Indebtedness by the Company and certain of
its subsidiaries and does not limit the amount of Indebtedness that may be
incurred to finance the cost of Telecommunications Assets (as defined in the
Indenture). In the event of a bankruptcy, liquidation, dissolution or similar
proceeding with respect to the Company, the holders of any secured indebtedness
will be entitled to proceed against the collateral that secures such secured
indebtedness and such collateral will not be available for satisfaction of any
amounts owed under the Notes. The Company anticipates that it and its
subsidiaries will incur substantial additional Indebtedness in the future. See
"-- Future Capital Needs; Uncertainty of Additional Funding; Discretion in Use
of Proceeds of the Notes Offering."
The level of the Company's indebtedness could have important consequences
to investors, including the following: (i) the debt service requirements of any
additional indebtedness could make it more difficult for the Company to make
payments of interest on the Notes; (ii) the ability of the Company to obtain any
necessary financing in the future for working capital, capital expenditures,
debt service requirements or other purposes may be limited; (iii) a substantial
portion of the Company's cash flow from operations, if any, must be dedicated to
the payment of principal and interest on its indebtedness and other obligations
and will not be available for use in its business; (iv) the Company's level of
indebtedness could limit its flexibility in planning for, or reacting to,
changes in its business; (v) the Company may become more highly leveraged than
some of its competitors, which may place it at a competitive disadvantage; and
(vi) the Company's high degree of indebtedness will make it more vulnerable in
the event of a downturn in its business.
The Company must substantially increase its net cash flow in order to meet
its debt service obligations, and there can be no assurance that the Company
will be able to meet such obligations, including interest payments on the Notes
after May 15, 2001 and principal due at maturity. If the Company is unable to
generate sufficient cash flow or otherwise obtain funds necessary to make
required payments, or if it otherwise fails to comply with the various covenants
under its indebtedness, it would be in default under the terms thereof, which
would permit the holders of such indebtedness to accelerate the maturity of such
indebtedness and could cause defaults under other indebtedness of the Company.
Such defaults could result in a default on the Notes and could delay or preclude
payments of interest or principal thereon. Any such default could have a
material adverse effect on the Company.
HOLDING COMPANY STRUCTURE; RELIANCE ON SUBSIDIARIES FOR DISTRIBUTIONS
Upon consummation of the Reorganization, Startec Global will be a holding
company, the principal assets of which will be the outstanding capital stock of
its operating subsidiaries. As a holding company, the Company's internal sources
of funds to meet its cash needs, including payment of principal and interest on
the Notes, will be dividends from its subsidiaries, intercompany loans and other
permitted payments from its direct and indirect subsidiaries, as well as its own
credit arrangements, if any. Such operating subsidiaries of the Company will be
legally distinct from the Company and will have no obligation, contingent or
otherwise, to pay amounts due with respect to the Notes or other indebtedness of
the Company or to make funds available for such payments, and will not guarantee
the Notes (except
8
<PAGE>
in limited circumstances). Additionally, the Company is in the process of
organizing operating subsidiaries in jurisdictions outside the United States.
The ability of the Company's operating subsidiaries to pay dividends, repay
intercompany loans or make other distributions to Startec Global may be
restricted by, among other things, the availability of funds, the terms of the
indebtedness incurred by such operating subsidiaries, as well as statutory and
other legal restrictions. The failure to pay any such dividends, repay
intercompany loans or make any such other distributions would restrict Startec
Global's ability to repay the Notes or other indebtedness of the Company and its
ability to utilize cash flow from one subsidiary to cover shortfalls in working
capital at another subsidiary, and could otherwise have a material adverse
effect upon the Company's business, financial condition and results of
operations.
Following the Reorganization, the Company will be a holding company that
will conduct its business through its subsidiaries and, accordingly, claims of
creditors of such subsidiaries will generally have priority on the assets of
such subsidiaries over the claims of the Company and the holders of the
Company's indebtedness (including the Notes). As a result, the Notes and certain
other indebtedness of the Company will be effectively subordinated to all then
existing and future indebtedness and other liabilities and commitments of the
Company's subsidiaries, including trade payables. As of June 30, 1998, after
giving pro forma effect to the Reorganization, the Company's consolidated
subsidiaries would have had aggregate liabilities of $25.1 million, including
approximately $647,000 of Indebtedness. Any right of the Company to receive
assets of any subsidiary upon the liquidation or reorganization of such
subsidiary (and the consequent rights of the holders of the Notes or certain
other creditors of the Company to participate in those assets) will be
effectively subordinated to the claims of such subsidiary's creditors, except to
the extent that the Company is itself recognized as a creditor, in which case
the claims of the Company would still be subordinate to any security in the
assets of such subsidiary and any indebtedness of such subsidiary senior to that
held by the Company. In addition, holders of secured indebtedness of the Company
would have a claim on the assets securing such indebtedness that is prior to the
holders of the Notes and would have a claim that is pari passu with the holders
of the Notes to the extent such security did not satisfy such indebtedness.
After the consummation of the Reorganization, the Company will have no
significant assets other than its equity interests in the Company's
subsidiaries, which may be pledged in the future to secure one or more credit
facilities.
HISTORY OF LOSSES; NEGATIVE EBITDA; UNCERTAINTY OF FUTURE OPERATING RESULTS
Although the Company has experienced significant revenue growth in recent
years, the Company had an accumulated deficit of approximately $7.2 million as
of June 30, 1998 and its operations have generated a net loss in three of the
last four fiscal years and negative cash used in operating activities in each of
the last four fiscal years. The Company expects to generate negative EBITDA and
significant operating losses and net losses for the foreseeable future as a
result of its significant debt service requirements and the additional costs it
expects to incur in connection with the development and expansion of its
network, the expansion of its marketing programs and its entry into new markets
and the introduction of new telecommunications services. Furthermore, the
Company expects that its operations in new target markets will experience
negative cash flows until an adequate customer base and related revenues have
been established. The Company must substantially increase its net cash flow in
order to meet its debt service obligations. There can be no assurance that the
Company's revenue will continue to grow or be sustained in future periods or
that the Company will be able to achieve and sustain profitability or positive
cash flow from operating activities in any future period. In the event the
Company cannot achieve and sustain operating profitability or positive cash flow
from operations, it may not be able to meet its debt service obligations or
working capital requirements, which could have a material adverse effect on the
Company's business, financial condition, and results of operations. See "--
Future Capital Needs; Uncertainty of Additional Funding; Discretion in Use of
Proceeds of the Notes Offering."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING; DISCRETION IN USE OF
PROCEEDS OF THE NOTES OFFERING
The implementation of the Company's strategic plan, including the
development and expansion of its network facilities, expansion of its marketing
programs and funding of operating losses and working capital needs, will require
significant investment. The Company expects that the net proceeds of the
9
<PAGE>
Notes Offering, together with cash on hand and cash flow from operations, will
provide the Company with sufficient capital to fund currently planned capital
expenditures and anticipated operating losses until approximately the end of the
first quarter of 2000. Based on its current plans, however, the Company will
require approximately $40 million of additional capital to complete its network
deployment plans through the end of 2000. Moreover, there can be no assurance
that the Company will not need additional financing sooner than currently
anticipated. The need for additional financing will depend on a variety of
factors, including the rate and extent of the Company's expansion in existing
and new markets, the cost of an investment in additional switching and
transmission facilities and ownership rights in fiber optic cable, the
incurrence of costs to support the introduction of additional or enhanced
services, and increased sales and marketing expenses. In addition, the Company
may need additional financing to fund unanticipated working capital needs or to
take advantage of unanticipated business opportunities, including acquisitions,
investments or strategic alliances. The amount of the Company's actual future
capital requirements also will depend upon many factors that are not within the
Company's control, including competitive conditions and regulatory or other
government actions. In the event that the Company's plans or assumptions change
or prove to be inaccurate or the net proceeds of the Notes Offering, together
with cash on hand and internally generated funds, prove to be insufficient to
fund the Company's growth and operations as currently anticipated through the
end of the first quarter of 2000, then some or all of the Company's development
and expansion plans could be delayed or abandoned, or the Company may be
required to seek additional financing or to sell assets. In addition, although
the deposit of the Pledged Securities assures holders of the Notes that they
will receive all scheduled cash interest payments on the Notes through May 15,
2001, the Company may require additional financing in order to pay interest on
the Notes thereafter and to repay the Notes at maturity.
The Company expects that it will seek to raise additional capital from
public and/or private equity and/or debt sources to fund the shortfall in its
cash resources expected to occur at the end of the first quarter of 2000. There
can be no assurance, however, that the Company will be able to obtain additional
financing or, if obtained, that it will be able to do so on a timely basis or on
terms favorable to the Company. If the Company is able to raise additional funds
through the incurrence of debt, it would likely become subject to additional
restrictive financial covenants. In the event that the Company is unable to
obtain such additional capital or is unable to obtain such additional capital on
acceptable terms, the Company may be required to reduce the scope of its
expansion, which could adversely affect the Company's business, financial
condition and results of operations, its ability to compete and its ability to
meet its obligations under the Notes.
Although the Company intends to implement the capital spending plan
described in this Prospectus, it is possible that unanticipated business
opportunities may arise which the Company's management may conclude are more
favorable to the long-term prospects of the Company than those contemplated by
the current capital spending plan. The Company's management has significant
discretion in its decisions with respect to when and how to utilize the proceeds
of the Notes Offering.
INTENSE COMPETITION
The international telecommunications industry is intensely competitive and
subject to rapid change precipitated by changes in the regulatory environment
and advances in technology. The Company's success depends upon its ability to
compete with a variety of other telecommunications providers in the United
States and in each of its international markets, including the respective PTT in
many of the countries in which the Company operates or plans to operate in the
future. Other competitors of the Company include large, facilities-based,
multinational carriers such as AT&T, Sprint and MCI World- Com and smaller
facilities-based wholesale long distance service providers in the United States
and overseas that have emerged as a result of deregulation, switched-based
resellers of international long distance services, and global alliances among
some of the world's largest telecommunications carriers, such as Global One
(Sprint, Deutsche Telekom and France Telecom). The telecommunications industry
is also being impacted by a large number of mergers and acquisitions including
recent announcements regarding a proposed joint venture between the
international operations of AT&T and British Telecom, the proposed acquisition
of TCI by AT&T, and the proposed mergers of SBC and Ameritech and GTE and Bell
Atlantic. International telecommunications providers such as the Company compete
for resi-
10
<PAGE>
dential customers on the basis of price, customer service, transmission quality,
breadth of service offerings and value-added services, and compete for carrier
customers primarily on the basis of price and network quality. Residential
customers frequently change long distance providers in response to competitors'
offerings of lower rates or promotional incentives, and, in general, because the
Company is currently a dial-around provider, its customers can switch carriers
at any time. In addition, the availability of dial-around long distance services
has made it possible for residential customers to use the services of a variety
of competing long distance providers without the necessity of switching
carriers. However, as a result of revisions to FCC regulations, beginning on
July 1, 1998, all telecommunications companies were required to migrate from
their existing five digit CIC codes to new seven-digit CIC codes. Though the
Company has experienced no material impact on its residential business since
July 1998 as a result of the migration, the migration to seven-digit CIC Codes
may adversely affect revenues from the Company's residential customers as a
result of actual or perceived difficulties in making long distance calls using
the longer code. The Company's carrier customers generally also use the services
of a number of international long distance telecommunications providers, and
these carrier customers are especially price sensitive. In addition, many of the
Company's competitors enjoy economies of scale that can result in a lower cost
structure for termination and network costs, which could cause significant
pricing pressures within the international communications industry. Several long
distance carriers in the United States have introduced pricing strategies that
provide for fixed, low rates for both international and domestic calls
originating in the United States. Such a strategy, if widely adopted, could have
an adverse effect on the Company's business, financial condition and results of
operations if increases in telecommunications usage do not result or are
insufficient to offset the effects of such price decreases. In recent years,
prices for international long distance services have decreased substantially,
and are expected to continue to decrease, in most of the markets in which the
Company currently competes or which it may enter in the future. The intensity of
such competition has recently increased, and the Company expects that such
competition will continue to intensify as the number of new entrants increases
as a result of the competitive opportunities created by the Telecommunications
Act of 1996 (the "1996 Telecommunications Act"), implementation by the FCC of
the commitment of the United States to the World Trade Organization ("WTO") and
changes in legislation and regulation in various foreign markets. There can be
no assurance that the Company will be able to compete successfully in the
future.
The telecommunications industry is also experiencing change as a result of
rapid technological evolution, marked by the introduction of new product and
service offerings and increasing satellite and undersea cable transmission
capacity for services similar to those provided by the Company. Such
technologies include satellite-based systems, such as those proposed by Iridium
LLC and Globalstar, L.P., utilization of the Internet for international voice
and data communications, and digital wireless communication systems such as
Personal Communications Systems ("PCS"). The Company is unable to predict which
of many possible future product and service offerings will be important to
maintain its competitive position or what expenditures will be required to
develop and provide such products and services.
RISKS OF INTERNATIONAL TELECOMMUNICATIONS BUSINESS; ENTRY INTO DEVELOPING
MARKETS
To date, the Company has generated substantially all of its revenues from
international long distance calls originating in the United States. However, the
Company's expansion strategy will require it to commence operations in a number
of foreign countries, which will expose the Company to the risks inherent in
doing business on an international level. These risks include unexpected changes
in regulatory requirements or administrative practices; value added tax,
tariffs, customs, duties and other trade barriers; difficulties in staffing and
managing foreign operations; problems in collecting accounts receivable;
political risks; fluctuations in currency exchange rates; foreign exchange
controls which restrict or prohibit repatriation of funds; technology export and
import restrictions or prohibitions; delays from customs brokers or government
agencies; seasonal reductions in business activity during the summer months in
Europe and certain other parts of the world; potential adverse tax consequences
resulting from operating in multiple jurisdictions with different tax laws; and
other factors which could materially adversely impact the Company's current and
planned operations. Moreover, the international telecommunications industry is
changing rapidly due to deregulation, technological improvements, expansion of
11
<PAGE>
telecommunications infrastructure and the globalization of the world's
economies. There can be no assurance that one or more of these factors will not
vary in a manner that could have a material adverse effect on the Company.
A key component of the Company's business strategy is its planned expansion
into international markets, including markets in which it has limited or no
operating experience. The Company intends to pursue arrangements with foreign
correspondents to gain access to and terminate its traffic in those markets. In
many of these markets, the government may control access to the local networks
and otherwise exert substantial influence over the telecommunications market,
either directly or through ownership or control of the PTT. In addition, in many
international markets, the PTTs control access to the local networks, enjoy
better brand name recognition and customer loyalty and possess significant
operational economies, including a larger backbone network and operating
agreements with other PTTs. Pursuit of international growth opportunities may
require significant investments for extended periods of time before returns, if
any, on such investments are realized. Obtaining licenses in certain targeted
countries may require the Company to commit significant financial resources,
which investments may not yield positive net returns in such markets for
extended periods of time, if ever. Further, there can be no assurance that the
Company will be able to obtain all or any of the permits and licenses required
for it to operate, obtain access on a timely basis (or at all) to local
transmission facilities or sell and deliver competitive services in these
markets. Incumbent U.S. carriers serving international markets also may have
better brand recognition and customer loyalty, and significant operational
advantages over the Company. The Company has limited recourse if its foreign
partners fail to perform under their arrangements with the Company, or if
foreign governments, PTTs or other carriers take actions that adversely affect
the Company's ability to gain entry into those markets.
The Company is also subject to the Foreign Corrupt Practices Act ("FCPA"),
which generally prohibits U.S. companies and their intermediaries from bribing
foreign officials for the purpose of obtaining or maintaining business. Although
Company policy prohibits such actions, the Company may be exposed to liability
under the FCPA as a result of past or future actions taken without the Company's
knowledge by agents, strategic partners and other intermediaries.
SUBSTANTIAL GOVERNMENT REGULATION
As a multinational telecommunications company, the Company is subject to
varying regulation in each jurisdiction in which it provides services, and it
may be affected indirectly by the laws of other jurisdictions insofar as they
affect foreign carriers with which the Company does business. The FCC and the
PSCs generally have the authority to condition, modify, cancel, terminate or
revoke the Company's operating authority for failure to comply with federal or
state law. Fines or other penalties also may be imposed for such violations.
Because regulatory frameworks in many countries are relatively new, it is
difficult to assess the potential for enforcement action in such countries. Any
regulatory enforcement action by U.S. or foreign authorities could have a
material adverse effect on the Company's business, financial conditions and
results of operations.
United States Domestic Regulations
In the United States, the Company's provision of services is subject to the
Communications Act of 1934, as amended, and FCC regulations thereunder, as well
as the applicable law and regulations of the various states. Regulatory
requirements have recently changed and will continue to change. Among other
things, such changes may affect the ability of the Company to compete with other
service providers, continue providing the same services, or introduce new
services. The impact on the Company's operations of any changes in applicable
regulatory requirements cannot be predicted.
Federal and State Transactional Approvals. The FCC and certain PSCs require
telecommunications carriers to obtain prior approval for providing certain
telecommunications services, assignment or transfer of control of licenses,
corporate reorganizations, acquisition of operations, and assignment of assets.
Such requirements may have the effect of delaying, deterring or preventing a
change in control of the Company. Six of the states in which the Company is
certificated provide for prior approval or notification of the issuance of
securities by the Company. Because of time constraints, the Company may not
12
<PAGE>
have obtained such approval from all of the states prior to consummation of the
Exchange Offer. The Company's intrastate revenues for the second quarter of 1998
for each of these states was less than $5,000. After consultation with
regulatory counsel, the Company believes that such approvals will be granted and
that obtaining such approvals subsequent to the Exchange Offer should not result
in any material adverse consequences to the Company, although there can be no
assurance that such consequences will not result.
Access Charges. Under alternative rate structures being considered by the
FCC, LECs would be permitted to allow volume discounts in the pricing of
interstate access charges that long distance carriers such as the Company pay to
originate and terminate calls. The RBOCs and other LECs also have been seeking
greater pricing flexibility and reduction of intrastate access charges from the
PSCs. Although the outcome of these proceedings is uncertain, if LECs are
permitted to utilize more flexible rate structures, smaller long distance
carriers like the Company could be placed at a significant cost disadvantage
with respect to larger competitors.
Universal Service. The Company and its U.S. competitors are required to
make FCC-mandated contributions to a universal service fund to subsidize
telecommunications services for low-income persons and certain other users. The
level of such contributions for 1998 and future years is unclear, and there can
be no assurance that the Company will be able to pass these costs on fully to
its customers or that doing so will not result in a loss of customers. Although
the Company has filed a request for forebearance/exemption from the universal
service fund with the FCC, there can be no assurance that this request will be
granted.
United States International Regulations
WTO Agreement. Pursuant to an agreement on basic telecommunications
services concluded under the auspices of the World Trade Organization (the "WTO
Agreement"), 86 countries comprising more than 90% of the global market for
telecommunications services have agreed to permit varying degrees of competition
from foreign carriers. The WTO Agreement is expected to be implemented by most
signatory countries in 1998, although there may be substantial delays. The
Company believes that the WTO Agreement will increase opportunities for the
Company and its competitors. The precise scope and timing of the implementation
of the WTO Agreement, however, remain uncertain, and there can be no assurance
that the WTO Agreement will result in beneficial regulatory liberalization.
On November 26, 1997, the FCC adopted a new order (the "Foreign
Participation Order") to implement U.S. obligations under the WTO Agreement. The
Foreign Participation Order establishes an open entry standard for carriers from
WTO member countries, generally facilitating market entry for such applicants by
eliminating certain existing tests. These tests remain in effect, however, for
carriers from non-WTO member countries. Petitions for reconsideration of the
Foreign Participation Order are pending at the FCC. Implementation of the
Foreign Participation Order could increase competition in the Company's markets.
United States International Settlements Policy and Foreign Entry and
Affiliate Rules. The FCC's International Settlements Policy ("ISP") governs the
settlement between U.S. carriers and their foreign correspondents of the cost of
terminating their calls in the other's network. U.S. international carriers,
including the Company, are subject to the FCC's international accounting
"benchmark" rates, which are the FCC's ceilings for prices that U.S. carriers
should pay for international settlements. The FCC could find that certain
settlement rate terms of the Company's foreign carrier agreements do not meet
the ISP requirements, absent a waiver. Although the FCC generally has not issued
penalties in this area, it could, among other things, issue a cease and desist
order or impose fines if it finds that these agreements conflict with the ISP.
The Company does not believe that any such fine or order would have a material
adverse effect on the Company. The FCC is currently considering whether to
discontinue applying the ISP to arrangements between U.S. carriers and certain
foreign carriers. The Company cannot predict the outcome of this proceeding or
its possible impact on the Company.
In the recently-adopted International Settlement Rates Order, the FCC
conditioned facilities-based authorizations for service on a route on which a
carrier has a foreign affiliate upon the foreign affiliate offering all other
U.S. carriers a settlement rate at or below the relevant benchmark. The FCC also
13
<PAGE>
conditioned any authorization to provide switched services over either
facilities-based or resold international private lines upon the condition that
at least half of the facilities-based international message telephone service
("IMTS") traffic on the subject route is settled at or below the relevant
benchmark rate. Under the Foreign Participation Order, however, if the subject
route does not comply with the benchmark requirement, a carrier can demonstrate
that the foreign country provides "equivalent" resale opportunities.
Accordingly, the Company is permitted to resell private lines for the provision
of switched services to any country that either has been found to comply with
the benchmarks or to offer equivalent resale opportunities, but must obtain
prior FCC approval in order to provide resold private lines to any country in
which it has an affiliated carrier that has not been found by the FCC to lack
market power. The International Settlement Rates Order has been appealed before
the courts and the FCC. These proceedings are still pending. The Company cannot
predict the outcome of these preceding or their possible impact on the Company.
Alternative Routing Through Transiting, Refiling and ISR. The FCC is
currently considering whether to limit or prohibit certain procedures whereby a
carrier routes, through facilities in a third or intermediate country, traffic
originating from one country and destined for another country. The FCC has
permitted third country calling under certain pricing and settlement rules,
where all countries involved consent to this type of routing arrangement,
referred to as "transiting." Under certain arrangements referred to as
"refiling," however, traffic appears to originate in the intermediate country
and the carrier in the ultimate destination country does not necessarily
recognize or consent to the receipt of traffic from the originating country. The
FCC to date has made no pronouncement as to whether refile arrangements, which
avoid settlements between the actual originating and destination countries,
comport either with U.S. or ITU regulations. A 1995 petition for a declaratory
ruling on these issues remains pending. To the extent that the Company utilizes
transiting or refiling, an FCC determination with respect to the permissibility
of, or conditions on, these international routing arrangements could have a
material adverse effect on the Company's business, financial condition or
results of operations.
United States Regulation of Internet Telephony. The Company knows of no
domestic or foreign laws that prohibit voice communications over the Internet.
In December 1996, the FCC initiated a Notice of Inquiry (the "Internet NOI")
regarding whether to impose regulations or surcharges upon providers of Internet
access and Information Services. In April 1998, the FCC filed a report with
Congress stating that Internet access falls into the category of information
services, and hence should not be subject to common carrier regulation,
including the obligation to pay access charges, but that the record suggests
that some forms of Internet Telephony may be more like telecommunications
services then information services, and hence subject to common carrier
regulation. In addition, federal legislation that would either regulate or
exempt from regulation services provided over the Internet has been proposed.
PSCs may also retain jurisdiction to regulate the provision of intrastate
Internet telephone services. The Company cannot predict the likelihood that
state, federal or foreign governments will impose additional regulation or
charges on Internet Telephony or other Internet-related services, nor can it
predict the impact that future regulation will have on the Company's operations.
There can be no assurances that any such regulation will not materially
adversely affect the Company's business, financial condition or results of
operation.
European Union Regulations
EU member states are required to adopt national legislation to implement EU
directives aimed at liberalizing telecommunications markets in their countries.
Some EU member states have so far failed to implement such directives properly.
This could limit, constrain or otherwise adversely affect the Company's ability
to provide certain services. Even if a national government enacts appropriate
regulations within the time frame established by the EU, there may be
significant resistance to the implementation of such legislation from incumbent
telecommunications operators, regulators, trade unions and other sources. For
example, in France, the telecommunications workers union has stated its
objection to the current move towards liberalization. In some EU member states,
telecommunications operators that do not operate their own infrastructure are
subject to less favorable terms of interconnection to the local PTT.
Furthermore, the ease with which new entrants may obtain telecommunications
licenses varies
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greatly among EU member states. The above factors could have a material adverse
effect on the Company's operations by preventing the Company from expanding its
operations as currently intended, as well as a material adverse effect on the
Company's business, financial condition and results of operations. The Company's
provision of services in Western Europe may also be affected if any EU member
state imposes greater restrictions on non-EU international service than on such
service within the EU. Moreover, the EU regime on data protection is fairly
strict with respect to the processing of personal data, which may adversely
affect the Company's marketing in Europe.
Other Jurisdictions
The Company intends to expand its operations into other jurisdictions as
such markets are liberalized and the Company is able to offer a full range of
switched public telephone services to its customers. In countries that enact
legislation intended to deregulate the telecommunications sector or that have
made commitments to open their markets to competition in the WTO Agreement,
there may be significant delays in the adoption of implementing regulations and
uncertainties as to the implementation of the liberalization programs which
could delay or make more expensive the Company's entry into such additional
markets. The ability of the Company to enter a particular market and provide
telecommunications services, particularly in developing countries, is dependent
upon the extent to which the regulations in a particular market permit new
entrants. In some countries, regulators may make subjective judgments in
awarding licenses and permits, without any legal recourse for unsuccessful
applicants. In the event the Company is able to gain entry to such a market, no
assurances can be given that the Company will be able to provide a full range of
services in such market, that it will not have to significantly modify its
operations to comply with changes in the regulatory environment in such market,
or that any such changes will not have a material adverse effect on the
Company's business, results of operations or financial condition.
MANAGEMENT OF GROWTH
The Company's recent growth and expansion and its strategy to continue such
growth and expansion has placed, and is expected to continue to place, a
significant strain on the Company's management, operational and financial
resources and increased demands on its systems and controls. The Company's
growth also has increased responsibilities for its management personnel. In
order to manage its growth effectively, the Company must continue to expand its
network and infrastructure, enhance its management, financial and information
systems, attract additional managerial, technical and customer service
personnel, and train and manage its personnel base. Competition for qualified
employees in the telecommunications industry is intense and, from time to time,
there are a limited number of persons with knowledge of and experience in
particular sectors of the industry who may be available to the Company.
Inaccuracies in the Company's forecasts of traffic could result in insufficient
or excessive transmission facilities and disproportionately high fixed expenses.
In addition, as the Company increases its service offerings and expands its
target markets in the U.S. and overseas, there will be additional demands on its
customer service, marketing and administrative resources. Failure of the Company
to successfully manage its expansion could materially adversely affect the
Company's business, financial condition and results of operations.
RESPONSE RATES; RESIDENTIAL CUSTOMER ATTRITION
The Company is significantly affected by the residential customer response
rates to its marketing campaigns and residential customer attrition rates.
Decreases in residential customer response rates or increases in the Company's
residential customer attrition rates could have a material adverse impact on the
Company's business, financial condition and results of operations. Additionally,
the FCC mandated that as of July 1, 1998, all telecommunications companies must
migrate from their existing five-digit CIC codes (10+XXX) to seven-digit CIC
codes (10+10+XXX). This mandate has necessitated changes in the dialing patterns
of the Company's residential customers in order to use the Company's dial-around
services. Though the Company has experienced no material impact on its
residential business since July 1, 1998 as a result of the migration, actual or
perceived difficulties in making long distance calls using the longer code could
have a material adverse effect on the Company's residential business.
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RISKS ASSOCIATED WITH EXPANSION AND OPERATION OF THE NETWORK
The success of the Company is largely dependent upon its ability to
operate, expand, manage and maintain its network so that it is able to deliver
high quality, uninterrupted telecommunications services. In particular, the
Company's ability to increase revenues will depend on its ability to expand the
capacity of, and eliminate bottlenecks that have developed from time to time on,
the Company's network. Any failure of the Company's network or other systems or
hardware that causes interruptions in the Company's operations could have a
material adverse effect on the Company, including adverse effects on its
customer relationships. The Company's operations are also dependent on its
ability to successfully integrate new technologies and equipment into the
network. Increases in the Company's traffic, the build-out of its network, and
the integration of new technologies and equipment into the network will place
additional strains on the Company's systems, and there can be no assurance that
the Company will not experience system failures. In addition, while the Company
performs the majority of the maintenance of its owned transmission facilities,
it depends upon services provided by Nortel under a service and support contract
to resolve problems with its New York City-based switch that the Company is
unable to resolve. The Company also depends upon third parties for maintenance
of facilities which it leases and fiber optic cable lines in which the Company
has an IRU or other use arrangement. Frequent, significant or prolonged system
failures, or difficulties experienced by customers in accessing or maintaining
connection with the Company's network could substantially damage the Company's
reputation, result in customer attrition and have a material adverse effect on
its business, financial condition or results of operations.
DEPENDENCE ON KEY CUSTOMERS; BAD DEBT EXPOSURE
Although the composition of the Company's carrier customer base varies from
period to period, during the year ended December 31, 1997, the Company's five
largest carrier customers accounted for approximately 47% of the Company's net
revenues, with WorldCom and Frontier accounting for approximately 23% and 14%,
respectively. In addition, for the six months ended June 30, 1998, the Company's
five largest carrier customers accounted for approximately 33% of the Company's
net revenues, with WorldCom accounting for approximately 19% of net revenues
during that period. No other carrier customer accounted for more than 10% of the
Company's net revenues during 1997 or the first six months of 1998. The
Company's agreements and arrangements with its carrier customers generally may
be terminated on short notice without penalty, and do not require the carriers
to maintain their current levels of use of the Company's services. The Company's
carrier customers tend to be price sensitive and often move their business based
solely on incremental changes in price. Carriers also may terminate their
relationship with the Company or substantially reduce their use of the Company's
services for a variety of other reasons, including problems with transmission
quality and customer service, changes in the regulatory environment, increased
use of the carriers' own transmission facilities, and other factors which may be
beyond the Company's control. In addition, the effect of proposed mergers and
alliances in the telecommunications industry may potentially reduce the number
of customers that purchase wholesale international long distance services from
the Company. A loss of a significant amount of carrier business could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The concentration of carrier customers also increases the risk of
non-payment or difficulties in collecting the full amounts due from customers.
The Company's four largest carrier customers represented approximately 44% and
31% of gross accounts receivable as of December 31, 1997 and June 30, 1998,
respectively. The Company performs initial and ongoing credit evaluations of its
carrier customers in an effort to reduce the risk of non-payment. There can be
no assurance that the Company will not experience collection difficulties or
that its allowances for non-payment will be adequate in the future. If the
Company experiences difficulties in collecting accounts receivable from its
significant carrier customers, its business, financial condition and results of
operations could be materially adversely affected. In addition, although the
Company reserves for the risk of non-payment with respect to its residential
customers taken as a whole, the Company does not believe that the risk of
non-payment with respect to any single or concentrated group of residential
customers is significant.
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DEPENDENCE ON AVAILABILITY OF TRANSMISSION FACILITIES
Historically, substantially all of the telephone calls made by the
Company's customers have been carried and terminated through transmission lines
of facilities-based long distance carriers, which provide the Company
transmission capacity through a variety of lease and resale arrangements
("off-net"). For both the year ended December 31, 1997 and the six months ended
June 30, 1998, 95% of the Company's traffic was terminated off-net. The
Company's ability to maintain and expand its business is dependent, in part,
upon the Company's ability to maintain satisfactory relationships with these
carriers, many of which are, or may in the future become, competitors of the
Company. The Company's lease arrangements generally do not have long terms and
its resale agreements generally permit price adjustments on short notice, which
makes the Company vulnerable to adverse price and service changes or
terminations. Although the Company believes that its relationships with these
carriers generally are satisfactory, the failure to maintain satisfactory
relationships with one or more of these carriers could have a material adverse
effect upon the Company's business, financial condition and results of
operations. During the fiscal year ended December 31, 1997, WorldCom and Pacific
Gateway Exchange accounted for approximately 13% and 12%, respectively, of the
Company's acquired transmission capacity (on a cost of services basis). During
the six months ended June 30, 1998, Pacific Gateway Exchange accounted for
approximately 11% of the Company's acquired transmission capacity (on a cost of
services basis). No other supplier accounted for 10% or more of the Company's
acquired transmission capacity during 1997 or the first six months of 1998.
The future profitability of the Company will depend in part on its ability
to obtain and utilize transmission facilities on a cost effective basis.
Presently, the terms of the Company's agreements for transmission lines subject
the Company to the possibility of unanticipated price increases and service
cancellations. Although the rates the Company is charged generally are less than
the rates the Company charges its customers for connecting calls through these
lines, to the extent these costs increase, the Company may experience reduced
or, in certain circumstances, negative margins for some services. As its traffic
volume increases in particular international markets, however, the Company
intends to reduce its use of variable usage arrangements and, to the extent
feasible and cost-justified, enter into fixed leasing arrangements on a
longer-term basis and/or construct or acquire additional transmission facilities
of its own. To the extent the Company enters into such fixed arrangements and/or
increases its owned transmission facilities and incorrectly projects traffic
volume in particular markets, it would experience higher fixed costs without any
concomitant increase in revenue.
The Company owns IRUs in, and has other access rights to, a number of
undersea fiber optic cable systems, and the acquisition of additional IRUs in,
and other access rights to, undersea fiber optic cable transmission lines is a
key element of the Company's business strategy. Because undersea fiber optic
lines typically take several years to plan and construct, international long
distance service providers generally make investments based on forecasts of
anticipated traffic. Inaccuracies in the Company's forecasts of traffic could
result in insufficient or excessive investments by the Company in undersea cable
and disproportionately high fixed expenses. The Company will be subject to
similar risks with respect to its decisions to invest in and acquire satellite
earth stations. The Company generally does not control the planning or
construction of undersea fiber optic cable transmission lines, and must seek
access to such facilities through partial ownership positions or through lease
and other access arrangements on negotiated terms that may vary with industry
and market conditions. There can be no assurance that undersea fiber optic cable
transmission lines will be available to the Company to meet its current and/or
projected international traffic volume, or that such lines will be available on
satisfactory terms.
DEPENDENCE ON FOREIGN CALL TERMINATION ARRANGEMENTS
The Company currently offers U.S.-originated international long distance
service globally through a network of operating agreements, resale arrangements,
transit and refile agreements, and various other foreign termination
arrangements. The Company's ability to terminate traffic in its targeted foreign
markets is an essential component of its service. The ability to terminate
traffic on a cost-effective basis is an essential component of the Company's
business plan. Accordingly, the Company is dependent upon its operating
agreements and other termination arrangements. The Company's strategy is based
on its ability
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to enter into and maintain: (i) operating agreements with PTTs in countries that
have yet to become deregulated so it will be able to terminate traffic in, and
receive return traffic from, those countries; (ii) operating agreements with
PTTs and emerging carriers in foreign countries whose telecommunications markets
have been deregulated so it will be able to terminate traffic in those
countries; and (iii) interconnection agreements with the PTT in each of the
countries in which the Company has operating facilities so it will be able to
terminate traffic in each such country. Although to date the Company has
negotiated and maintained operating agreements and termination arrangements
sufficient for its current business and traffic levels, there can be no
assurance that the Company will be able to negotiate additional operating
agreements or termination arrangements or maintain such existing or additional
agreements or arrangements in the future. Cancellation of certain operating
agreements or other termination arrangements could have a material adverse
effect on the Company's business, financial condition and results of operations.
Moreover, the failure to enter into additional operating agreements and
termination arrangements could limit the Company's ability to increase its
services to its current target markets, gain entry into new markets, or
otherwise increase its revenues and control its costs.
DEPENDENCE ON EFFECTIVE INFORMATION SYSTEMS; YEAR 2000 TECHNOLOGY RISKS
In the normal course of its business, the Company must record and process
significant amounts of data quickly and accurately in order to bill for the
services it provides to customers, to ensure that it is properly charged by
vendors for services it uses and to achieve operating efficiencies and otherwise
manage its growth. Although the Company believes that its current management
information systems are sufficient to meet its present demands, these systems
have not grown at the same rate as the Company's business and it is anticipated
that additional investments in these systems will be needed. There can be no
assurance, however, that the Company will not encounter difficulties in the
acquisition, implementation, integration and ongoing use of any additional
management information systems resources, including possible delays,
cost-overruns or incompatibility with the Company's current information systems
resources or its business needs. In addition, the LECs currently provide billing
services for long distance providers such as the Company, although they are not
obligated to do so. As a result, any change in billing practices by the LECs,
including termination of billing services for long distance providers, may
disrupt the Company's operations and materially and adversely affect its
business, results of operations and financial condition.
A significant percentage of the software that runs many computer systems
relies on two-digit date codes to perform computations and decision-making
functions. Commencing on January 1, 2000, these computer programs may fail to
properly interpret these two-digit date codes, misinterpreting "00" as the year
1900 rather than 2000, which could result in processing errors or system
failures. The Company's management is currently in the process of assessing the
nature and extent of the potential impact of the Year 2000 issue on its systems
and applications, including its billing, credit and call tracking systems, and
intends to take steps to prevent failures in its systems and applications
relating to Year 2000. The majority of the Company's operating systems are
relatively new and have been certified to the Company as being Year 2000
compliant. Despite the fact that the majority of the Company's systems have been
certified as Year 2000 compliant, there can be no assurance that the Company's
systems will not be adversely affected by the Year 2000 issue. In addition,
computers used by the Company's vendors providing services to the Company or
computers used by the Company's customers that interface with the Company's
computer systems may have Year 2000 problems, any of which may adversely affect
the ability of those vendors to provide services to the Company, or in the case
of the Company's carrier customers, to make payments to the Company. If any of
such systems fails or experiences processing errors, such failures or errors may
disrupt or corrupt the Company's systems. The Company is utilizing its current
management information systems staff to conduct its third party compliance
analysis and has sent requests to 12 of its top telephony carrier customers and
vendors requesting a detailed written description of the status of their Year
2000 compliance efforts. Although management has not yet finalized its analysis,
it does not expect that the costs to properly address the Year 2000 issue will
have a material adverse effect on its results of operations or financial
position. Failure of any of the Company's systems or applications or the failure
of, or errors in, the computer systems of its vendors or carrier customers could
materially adversely affect the Company's business, financial condition and
results of operations.
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EFFECT OF RAPID TECHNOLOGICAL CHANGES
The telecommunications industry is characterized by rapid and significant
technological advancements and introductions of new products and services
employing new technologies. Improvements in transmission equipment, the
development of switching technology or advances in Internet Telephony allowing
the simultaneous transmission of voice, data and video, and the commercial
availability of domestic and international switched voice, data and video
services at prices lower than comparable services offered by the Company are all
possible developments that could adversely affect the Company. The Company's
profitability will depend on its ability to anticipate and adapt to rapid
technological changes, acquire or otherwise access new technology, and offer, on
a timely and cost-effective basis, services that meet evolving industry
standards. There can be no assurance that the Company will be able to adapt to
such technological changes, continue to offer competitive services at
competitive prices or obtain new technologies on a timely basis on satisfactory
terms or at all. Failure to adapt to rapid technological changes could have a
material adverse effect on the Company's business, financial condition and
results of operations.
RISKS ASSOCIATED WITH STRATEGIC ALLIANCES, ACQUISITIONS AND INVESTMENTS
As part of its business strategy, the Company may enter into joint ventures
or strategic alliances with, or acquire or make strategic investments in,
businesses that it believes are complementary to the Company's current and
planned operations. Any joint ventures, strategic alliances, investments or
acquisitions would be accompanied by the risks commonly encountered in such
transactions, including those associated with assimilating the operations and
personnel of acquired companies, potential disruption of the Company's ongoing
business, inability of management to maximize the financial and strategic
position of the Company by the successful incorporation of the acquired
technology, know-how, and rights into the Company's business, maintenance of
uniform standards, controls, procedures and policies, and impairment of
relationships with employees and customers as a result of changes in management.
There can be no assurance that the Company would be successful in overcoming
these risks or any other problems encountered with joint ventures, strategic
alliances, investments or acquisitions.
Expansion through joint ventures or similar arrangements may involve
additional risks for the Company. The Company may not have a majority or
controlling ownership interest in the joint venture entity, may not control the
joint venture's board of directors or similar governing authority, and may not
otherwise control its operations or assets. There is also a risk that the
Company's joint venture partner or partners may have economic, business or legal
interests or goals that are not consistent with those of the joint venture or
the Company, or that such goals will diverge over time. In addition, there is a
risk that a joint venture partner may be unable to meet its economic or other
obligations to the joint venture, in which case it may become necessary for the
Company to fulfill those obligations.
Further, if the Company were to proceed with one or more significant joint
ventures, strategic alliances, acquisitions or investments in which the
consideration given by the Company consists of cash, the Company may incur
Indebtedness or use a substantial portion of its available cash to consummate
such transactions. Many of the businesses that might become attractive
acquisition candidates for the Company may have significant goodwill and
intangible assets, and acquisitions of these businesses, if accounted for as a
purchase, would typically result in substantial amortization charges to the
Company. The financial impact of acquisitions, investments, joint ventures and
strategic alliances could have a material adverse effect on the Company's
business, financial condition and results of operations.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant degree upon the continued
contributions of its management team and technical, marketing and customer
service personnel including, in particular, Ram Mukunda, President, Chief
Executive Officer and Treasurer, and Prabhav V. Maniyar, Senior Vice President,
Chief Financial Officer and Secretary, of the Company. Messrs. Mukunda and
Maniyar have employment agreements with the Company. The Company maintains "key
man" life insurance on Mr. Mukunda.
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The Company's success also depends on its ability to attract and retain
additional qualified management, technical, marketing and customer service
personnel. Competition for qualified employees in the telecommunications
industry is intense and, from time to time, there are a limited number of
persons with knowledge of and experience in particular sectors of the industry
who may be available to the Company. The process of locating personnel with the
combination of skills and attributes required to implement the Company's
strategies is often lengthy, and there can be no assurance that the Company will
be successful in attracting and retaining such personnel, especially management
personnel and personnel for foreign offices. The loss of the services of key
personnel, or the inability to attract additional qualified personnel, could
have a material adverse effect on the Company's operations, its ability to
implement its business strategies, and its efforts to expand. Any such event
could have a material adverse effect on the Company's business, financial
condition or results of operations.
CONTROL OF COMPANY BY CURRENT STOCKHOLDERS
As of October 31, 1998, the executive officers and directors of the Company
beneficially owned 4,084,491 shares of Common Stock, representing approximately
45.6% of the outstanding shares Common Stock, including options to purchase an
aggregate of 10,000 shares of Common Stock. Of these amounts, Mr. Mukunda
beneficially owns 3,583,675 shares of Common Stock. The Company's executive
officers and directors as a group, or Mr. Mukunda, acting individually, will be
able to exercise significant influence over such matters as the election of the
directors of the Company and other fundamental corporate transactions such as
mergers, asset sales and the sale of the Company.
RISKS RELATED TO USE OF STARTEC NAME
Certain other telecommunications companies and related businesses use names
or hold registered trademarks that include the word "star." In addition, several
other companies in businesses that the Company believes are not
telecommunications-related use variations of the "star-technology" word
combination (e.g., Startek and Startech). Although the Company holds a
registered trademark for "STARTEC," there can be no assurance that its continued
use of the STARTEC name will not result in litigation brought by companies using
similar names or, in the event the Company should change its name, that it would
not suffer a loss of goodwill. Further, the Company has filed for federal
registration of the trademark "Startec Global Communications Corporation."
Although no guarantee can be made that this application will be successful and
mature into a federal trademark registration, the established rights in and
registration of STARTEC provides the basis for expanding the trademark rights to
include the supplemental terms "Global Communications Group."
ABSENCE OF PUBLIC MARKET FOR THE WARRANTS
There is no existing public market for the Warrants and there can be no
assurance that an active public market for the Warrants will develop as a result
of the offering of the Warrants by any Selling Holder or, if a such a market
develops, it will be maintained. The Company does not intend to apply for
quotation of the Warrants on the Nasdaq Stock Market or for listing of the
Warrants on any national securities exchange. Future trading prices of the
Warrants will depend on many factors, including the Company's operating results,
the market for similar securities and the performance of the Common Stock.
POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the completion of the initial public offering of the Common Stock
on October 9, 1997 there had been no public market for the Common Stock.
Historically, the market prices for securities of emerging companies in the
telecommunications industry have been highly volatile. Future announcements
concerning the Company or its competitors, including those with respect to
results of operations, technological innovations, government regulations,
proprietary rights or significant litigation, may have a significant impact on
the market price of the Common Stock. In addition, the stock market recently has
experienced significant price and volume fluctuations that particularly have
affected telecommunications
20
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companies and have resulted in changes in the market prices of the stocks of
many companies which may not have been directly related to the operating
performance of those companies. Such market fluctuations may materially
adversely affect the market price of the Common Stock. See "Price Range of
Common Stock."
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock and has no
plans to do so in the foreseeable future. The declaration and payment of any
dividends in the future will be determined by the Board of Directors, in its
discretion, and will depend on a number of factors, including the Company's
earnings, capital requirements and overall financial condition. In addition, the
Company's ability to declare and pay dividends is substantially restricted under
the terms of the Indenture and under the Signet Facility. See "Dividend Policy."
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USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Warrants or
the Warrant Shares by the Selling Holders. To the extent that any Warrants are
exercised, the Company will receive the proceeds from such exercises. The
Company intends to use the proceeds, if any, from the exercise of the Warrants
for the purchase of telecommunications and related network equipment and general
corporate purposes. The net proceeds to the Company from the Notes Offering,
after deducting discounts, commissions and expenses paid by the Company, were
approximately $154.4 million. The Company applied approximately $52.4 million of
such net proceeds to purchase the Pledged Securities. The Company intends to
apply approximately $102.0 million to fund capital expenditures through the end
of the first quarter of 2000 to expand and develop the Company's network,
including the purchase and installation of switches and related network
equipment (including software and hardware upgrades for current equipment), the
acquisition of fiber optic cable facilities, and investments in and the
acquisition of satellite earth stations.
PRICE RANGE OF COMMON STOCK
The Common Stock has been quoted on the Nasdaq National Market under the
symbol "STGC" since the completion of the Company's initial public offering on
October 9, 1997. The following table sets forth, for each of the periods
indicated, the high and low closing prices per share of the Common Stock on the
Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
---------- ----------
<S> <C> <C>
1997
Fourth Quarter (from October 9) ............. $22 3/8 $14 1/2
1998
First Quarter ............................... 26 3/8 18 3/8
Second Quarter .............................. 28 1/2 9 3/8
Third Quarter ............................... 14 1/2 5 3/4
Fourth Quarter (through November 6) ......... 12 1/2 4 5/16
</TABLE>
As of October 31, 1998, there were approximately 40 record holders of the
Common Stock. On November 6, 1998, the last reported sale price of the Common
Stock on the Nasdaq National Market was $11.50 per share.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock, nor does it expect to do so in the foreseeable future. It is anticipated
that all future earnings, if any, generated from operations will be retained by
the Company to develop and expand its business. Any future determination with
respect to the payment of dividends will be at the sole discretion of the Board
of Directors and will depend upon, among other things, the Company's operating
results, financial condition and capital requirements, the terms of
then-existing indebtedness, general business conditions and such other factors
as the Board of Directors deems relevant. In addition, the terms of the
Indenture and the Signet Facility place significant limitations on the payment
of cash dividends.
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DESCRIPTION OF CAPITAL STOCK
The Company is currently authorized to issue 20,000,000 shares of Common
Stock, par value $.01 per share, and 100,000 shares of Preferred Stock, par
value $1.00 per share. Upon completion of the Reorganization, the Company will
be authorized to issue 40,000,000 shares of Common Stock, par value $.01 per
share, and 1,000,000 shares of preferred stock, par value $1.00 per share.
As of October 31, 1998, there were 8,964,815 shares of Common Stock
outstanding, held of record by 40 stockholders. In addition, as of October 31,
1998, options, warrants and other rights to purchase an aggregate of 1,140,976
shares of Common Stock were outstanding, of which 454,480 were currently
exercisable.
The holders of Common Stock are entitled to one vote per share on all
matters to be voted on by stockholders, including the election of directors.
There are no cumulative voting rights in the election of directors. Subject to
the prior rights of holders of Preferred Stock, if any, the holders of Common
Stock are entitled to receive such dividends, if any, as may be declared from
time to time by the Board of Directors in its discretion from funds legally
available therefor. Upon liquidation or dissolution of the Company, the
remainder of the assets of the Company will be distributed ratably among the
holders of Common Stock after payment of liabilities and the liquidation
preferences of any outstanding shares of Preferred Stock. The Common Stock has
no preemptive or other subscription rights and there are no conversion rights or
redemption or sinking fund provisions with respect to such shares. All of the
outstanding shares of Common Stock are fully paid and nonassessable.
The Board of Directors has the authority to issue up to 100,000 shares of
Preferred Stock in one or more series and to fix the price, rights, preferences,
privileges and restrictions thereof, including dividend rights, dividend rates,
conversion rights, voting rights, terms of redemption, redemption prices,
liquidation preferences and the number of shares constituting a series or the
designation of such series, without any further vote or action by the Company's
stockholders. The issuance of Preferred Stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of delaying, deferring or preventing a change in
control of the Company without further action by the stockholders and may
adversely affect the market price of, and the voting and other rights of, the
holders of Common Stock. There are no shares of Preferred Stock outstanding, and
the Company has no current plans to issue any shares of Preferred Stock.
REGISTRATION RIGHTS
Certain holders of outstanding warrants (other than the Warrants) and
shares of Common Stock have the right to request the Company to register their
shares under the Securities Act. First Union, as the successor to Signet Bank
under a Secured Revolving Line of Credit Facility Agreement and related
agreements, has the right to request the Company to register 269,900 shares of
Common Stock underlying their warrants on two occasions. In addition, the
holders of warrants to purchase Common Stock that were issued to the
representatives of the underwriters of the Company's initial public offering
have the right to request the Company to register the 150,000 shares of Common
Stock underlying their warrants on one occasion following the vesting of those
warrants in October 1998. First Union, the holders of the representatives'
warrants and a beneficial owner of 3,000 shares of Common Stock also have
"piggy-back" registration rights with respect to certain registered offerings of
securities by the Company that are registered under the Securities Act. Each of
these parties waived their registration rights in connection with the Notes
Offering, including in connection with the Warrant Registration Statement.
CERTAIN PROVISIONS OF THE COMPANY'S ARTICLES OF INCORPORATION, BYLAWS, MARYLAND
LAW AND DELAWARE LAW
Amended and Restated Articles of Incorporation and Bylaws
The Company's Articles of Incorporation (the "Maryland Charter") includes
certain provisions which may have the effect of delaying, deterring or
preventing a future takeover or change in control of the Company, by proxy
contest, tender offer, open-market purchases or otherwise, unless such takeover
or change in control is approved by the Company's Board of Directors. Such
provisions may also make the removal of directors and management more difficult.
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In this regard, the Maryland Charter provides that the number of directors
shall be five but may not be fewer than three nor more than twenty-five members.
The Maryland Charter divides the Board of Directors into three classes, with one
class having an initial term of one year, one class having an initial term of
two years, and one class having an initial term of three years. Each class is to
be as nearly equal in number as possible. At each annual meeting of
stockholders, directors will be elected to succeed those directors whose terms
have expired, and each newly elected director will serve for a three-year term.
In addition, the Maryland Charter provides that any director or the entire Board
may be removed by stockholders only for cause and with the approval of the
holders of 80% of the total voting power of all outstanding securities of the
Company then entitled to vote generally in the election of directors, voting
together as a single class. The Maryland Charter also provides that all
vacancies on the Board of Directors, including those resulting from an increase
in the number of directors, may be filled solely by a majority of the remaining
directors; provided, however, that if the vacancy occurs as a result of the
removal of a director, the stockholders may elect a successor at the meeting at
which such removal occurs.
The classification of directors and the provisions in the Maryland Charter
that limit the ability of stockholders to remove directors and that permit the
remaining directors to fill any vacancies on the Board, will have the effect of
making it more difficult for stockholders to change the composition of the Board
of Directors. As a result, at least two annual meetings of stockholders will be
required, in most cases, for the stockholders to change a majority of the
directors, whether or not a change in the Board of Directors would be beneficial
to the Company and its stockholders and whether or not a majority of the
Company's stockholders believes that such a change would be desirable.
The Maryland Charter also contains provisions relating to the stockholders'
ability to call meetings of stockholders, present stockholder proposals, and
nominate candidates for the election of directors. The Bylaws provide that
special meetings of stockholders can be called only by the Chairman of the Board
of Directors, the President, the Board of Directors, or by the Secretary at the
request of holders of at least 25% of all votes entitled to be cast. These
provisions may have the effect of delaying consideration of a stockholder
proposal until the next annual meeting unless a special meeting is called. In
addition, the Maryland Charter establishes procedures requiring advanced notice
with regard to stockholder proposals and the nomination of candidates for
election as directors (other than by or at the direction of the Board of
Directors or a committee of the Board of Directors). Pursuant to these
procedures, stockholders desiring to introduce proposals or make nominations for
the election of directors must provide written notice, containing certain
specified information, to the Secretary of the Company not less than 60 nor more
than 90 days prior to the meeting. If less than 30 days notice or prior public
disclosure of the date of the meeting is given, the required notice regarding
stockholder proposals or director nominations must be in writing and received by
the Secretary of the Company no later than the tenth day following the day on
which notice of the meeting was mailed. The Company may reject a stockholder
proposal or nomination that is not made in accordance with such procedures.
The Maryland Charter also includes certain "super-majority" voting
requirements, which provide that the affirmative vote of the holders of at least
80% of the aggregate combined voting power of all classes of capital stock
entitled to vote thereon, voting as one class, is required to amend certain
provisions of the Maryland Charter, including those provisions relating to the
number, election, term of and removal of directors; the amendment of the Bylaws;
and the provision governing applicability of the Maryland Control Share Act
(summarized below). The effect of these provisions will be to make it more
difficult to amend provisions of the charter, even if such amendments are
favored by a majority of stockholders. In addition, the Maryland Charter
includes provisions which require the vote of a simple majority of the Company's
issued and outstanding Common Stock to approve certain significant corporate
transactions, including the sale of all or substantially all of the Company's
assets, rather than the vote of two-thirds of the issued and outstanding Common
Stock.
Upon completion of the Reorganization, the Company will be governed by a
Delaware charter (the "Delaware Charter") will be the charter documents of the
Company. Although the provisions of the Delaware Charter are similar in many
respects to those of the Maryland Charter, the Reorganization includes
implementation of provisions in the Delaware Charter that affect the rights of
stockholders and management. In addition, certain other changes altering the
rights of stockholders and powers of man-
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agement could be implemented in the future by amendment of the Company's
Certificate of Incorporation following stockholder approval, and certain changes
could be implemented by amendment of the Bylaws without stockholder approval.
Change in Authorized Stock. The Maryland Charter authorizes a total of
20,100,000 shares of stock, of which 20,000,000 are shares are classified as
common stock, $.01 par value, and 100,000 shares are classified as preferred
stock, $1.00 par value ("Preferred Stock"). Of the authorized shares of
Preferred Stock, 25,000 shares are classified as Series A Junior Participating
Preferred Stock in connection with the adoption by the Board of a Preferred
Stock Purchase Rights Agreement dated as of March 26, 1998 ("Rights Plan"). The
Board of Directors has the authority to classify and issue the remaining shares
of Preferred Stock in one or more series and to fix the price, rights,
preferences, privileges and restriction thereof. The Delaware Charter authorizes
the Company to classify and issue an aggregate of 41,000,000 shares of stock, of
which 40,000,000 shares shall be common stock, $.01 par value per share, and
1,000,000 shares shall be preferred stock, $1.00 par value per share.
Elimination of Stockholders' Power to Call Special Stockholders' Meeting
and to Act by Unanimous Written Consent. The Delaware Charter provides that
stockholders may act only at an annual or special meeting of stockholders and
not by written consent. Although the current Bylaws authorize the stockholders
of the Company to take action by unanimous written consent without a meeting,
this method of obtaining stockholder approval has not been used since the
Company became a public company in 1997. Because of the large number of
stockholders of the Company and its current practice of soliciting proxies and
holding meetings, the Company does not expect to use this procedure in the
future. In addition, the Delaware Bylaws of the Company provide that a special
meeting of the stockholders may only be called by the Board of Directors, the
Chairman of the Board of Directors, or the President. The Maryland Bylaws
authorize a special meeting of the stockholders to be called by the Board of
Directors, the President, or the holders of stock entitled to cast not less than
25% of the votes at such meeting. Although such a provision is permitted by
Delaware law, the Delaware Bylaws will prohibit stockholders from calling a
special meeting. As a result, after the Reorganization, the stockholders of the
Company will be permitted to act only at a duly called annual or special meeting
of the stockholders.
The provisions prohibiting stockholder action by written consent will give
all stockholders of the Company the opportunity to participate in determining
any proposed stockholder action and will prevent the holders of a majority of
the voting power of the Company from using the written consent procedure to take
stockholder action. Persons attempting hostile takeovers of corporations have
attempted to use written consent procedures to deal directly with stockholders
and avoid negotiations with the boards of directors of such corporations. The
provisions eliminating the right of stockholders to call a special meeting would
mean that a stockholder could not force stockholder consideration of a proposal
over the opposition of the Board of Directors by calling a special meeting of
the stockholders prior to such time as the Board of Directors believed such
consideration to be appropriate. By eliminating the use of the written consent
procedure and the ability of stockholders to call a special meeting, the Company
intends to encourage persons seeking to acquire control of the Company to
initiate an acquisition through arm's-length negotiations with the Company's
management and its Board of Directors.
The provisions restricting stockholder action by written consent and the
elimination of the stockholders' ability to call special meetings may have the
effect of delaying consideration of a stockholder proposal until the next annual
meeting unless a special meeting is called by the Board of Directors. Because
elimination of the procedures for stockholders to act by written consent or to
call special meetings could make more difficult an attempt to obtain control of
the Company, such action could have the effect of discouraging a third party
from making a tender offer or otherwise attempting to obtain control of the
Company. Because tender offers for control usually involve a purchase price
higher than the prevailing market price, the provisions restricting stockholder
action by written consent and the elimination of the stockholders' ability to
call special meetings may have the effect of preventing or delaying a bid for
the Company's shares that could be beneficial to the Company and its
stockholders. Elimination of the written consent procedure also means that a
meeting of the stockholders would be required in order for the Company's
stockholders to replace the Board of Directors. The restriction on the ability
of stockholders to call a special meeting means that a proposal to replace the
Board of
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Directors could be delayed until the next annual meeting. These provisions thus
will make the removal of directors more difficult.
Maryland and Delaware Law
Section 3-601, et seq. of the Maryland General Corporation Law (the
"Business Combination Statute"), and Section 3-701 et seq. of the Maryland
General Corporation Law with respect to acquisitions of "control shares" may
also have the effect of delaying, deterring or preventing a future takeover or
change in control of the Company, by proxy contest, tender offer, open-market
purchases or otherwise.
Under the Business Combination Statute, certain "business combinations"
(including mergers or similar transactions subject to a statutory stockholder
vote and additional transactions involving transfers of assets or securities in
specified amounts) between a Maryland corporation subject to the Business
Combination Statute and an Interested Stockholder (as defined in the Business
Combination Statute), or an affiliate thereof are prohibited for five years
after the most recent date on which the Interested Stockholder became an
Interested Stockholder unless an exemption is available. Thereafter, any such
business combination must be recommended by the board of directors of the
corporation and approved by the affirmative vote of at least: (i) 80% of the
votes entitled to be cast by all holders of outstanding shares of voting stock
of the corporation; and (ii) two-thirds of the votes entitled to be cast by
holders of voting stock of the corporation other than voting stock held by the
Interested Stockholder who will or whose affiliate will be a party to the
business combination voting together as a single voting group, unless the
corporation's stockholders receive a minimum price (as described in the Business
Combination Statute) for their stock and the consideration is received in cash
or in the same form as previously paid by the Interested Stockholder for its
shares. The Business Combination Statute defines an "Interested Stockholder" as
any person who is the beneficial owner, directly or indirectly, of 10% or more
of the outstanding voting stock of the corporation after the date on which the
corporation had 100 or more beneficial owners of its stock; or any affiliate or
associate of the corporation who, at any time within the two-year period
immediately prior to the date in question was the beneficial owner of 10% or
more of the voting power of the then-outstanding stock of the corporation.
These provisions of the Business Combination Statute do not apply, unless
the corporation's charter or Bylaws provide otherwise, to a corporation that on
July 1, 1983 had an existing Interested Stockholder, unless, at any time
thereafter, the Board of Directors elects to be subject to the law. These
provisions of the Business Combination Statute also would not apply to business
combinations that are approved or exempted by the Board of Directors of the
corporation prior to the time that any other Interested Stockholder becomes an
Interested Stockholder. A Maryland corporation may adopt an amendment to its
charter electing not to be subject to the special voting requirements of the
Business Combination Statute. Any such amendment would have to be approved by
the affirmative vote of at least 80% of the votes entitled to be cast by all
holders of outstanding shares of voting stock of the corporation voting together
as a single voting group, and 66 2/3% of the votes entitled to be cast by
persons (if any) who are not Interested Stockholders of the corporation or
affiliates or associates of Interested Stockholders voting together as a single
voting group. The Company has not adopted such an amendment to its charter.
In addition to the Business Combination Statute, Section 3-701 et seq. of
the Maryland General Corporation Law provides that "control shares" of a
Maryland corporation acquired in a "control share acquisition" have no voting
rights except to the extent approved by the stockholders at a special meeting by
the affirmative vote of two-thirds of all the votes entitled to be cast on the
matter, excluding all interested shares. "Control shares" are voting shares of
stock which, if aggregated with all other such shares previously acquired by the
acquiror, or in respect of which the acquiror is able to exercise or direct the
exercise of voting power, would entitle the acquiror, directly or indirectly, to
exercise or direct the exercise of the voting power in electing directors within
any one of the following ranges of voting power: (i) 20% or more but less than
33 1/3%; (ii) 33 1/3% or more but less than a majority or (iii) a majority or
more of all voting power. Control shares do not include shares the acquiror is
then entitled to vote as a result of having previously obtained stockholder
approval. A "control share acquisition" means the acquisition, directly or
indirectly, by any person, of ownership of, or the power to direct the exercise
of voting power with respect to, issued and outstanding control shares.
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A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses and
delivery of an "acquiring person statement"), may compel a corporation's board
of directors to call a special meeting of stockholders to be held within 50 days
of a demand to consider the voting rights to be accorded the shares acquired or
to be acquired in the control share acquisition. If no request for a meeting is
made, the corporation may itself present the question at any stockholders'
meeting. Unless the charter or bylaws provide otherwise, if the acquiring person
does not deliver an acquiring person statement within 10 days following a
control share acquisition then, subject to certain conditions and limitations,
the corporation may redeem any or all of the control shares (except those for
which voting rights have previously been approved) for fair value determined,
without regard to the absence of voting rights for the control shares, at any
time during a period commencing on the 11th day after the control share
acquisition and ending 60 days after a statement has been delivered. Moreover,
unless the charter or bylaws provide otherwise, if voting rights for control
shares are approved at a stockholders' meeting and the acquiror becomes entitled
to exercise or direct the exercise of a majority or more of all voting power,
other stockholders may exercise appraisal rights. The fair value of the shares
as determined for purposes of such appraisal rights may not be less than the
highest price per share paid by the acquiror in the control share acquisition.
The control share acquisition statute does not apply to shares acquired in a
merger, consolidation or share exchange if the corporation is a party to the
transaction, or to acquisitions approved or exempted by the charter or bylaws of
the corporation. The shares of Common Stock held by Ram Mukunda and his family
are not subject to the restrictions imposed by the Maryland Control Share Act.
Following the Reorganization, the Company will be subject to the provisions
of the Delaware General Corporation Law, which contains provisions similar to
the Maryland laws summarized above. The following is a summary of certain
similarities and differences between Delaware law and Maryland law. The
discussion is not exhaustive and is qualified in its entirety by reference to
the specific provisions of Delaware law and Maryland law.
Redemption Retirement. Delaware law prohibits the purchase or redemption of
stock when the capital of a corporation is or will be impaired; except that a
corporation may purchase or redeem out of capital any of its own shares which
are entitled upon any distribution of its assets, whether by dividend or in
liquidation, to a preference over another class or series of its stock. Maryland
law, on the other hand, prohibits the purchase or redemption of stock if the
corporation would be unable to pay its indebtedness as the indebtedness becomes
due in the usual course of business, or if the corporations's total assets are,
or would be, less than the sum of the total liabilities plus, unless the charter
provides otherwise, the amount needed to satisfy preferential rights.
Dividends. Delaware law provides that a corporation can pay dividends out
of capital surplus or out of net profits for the current or immediately
preceding fiscal year. Maryland law, however, restricts the payment of dividends
if the corporation is, or would be unable to, pay its indebtedness as the
indebtedness becomes due in the usual course of business or the corporation's
total assets are, or would be, less than the sum of the total liabilities plus,
unless the charter provides otherwise, the amount needed to satisfy preferential
rights of stockholders whose preferential rights are superior to those receiving
the distribution.
Dissenters' Rights. Under Delaware law and Maryland law, a dissenting
stockholder of a corporation participating in certain transactions such as
certain mergers or consolidations, may, under varying circumstances, receive
cash in the amount of the fair value of such stockholder's shares (as determined
by a court) in lieu of the consideration such stockholder otherwise would have
received in such transaction. Delaware law does not generally require such
dissenters' rights of appraisal with respect to (i) a sale of assets, (ii) an
amendment of the certificate of incorporation (unless otherwise provided for in
the certificate of incorporation), (iii) a merger or consolidation by a
corporation, the shares of which are either listed on a national securities
exchange or designated as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers, Inc. or held
of record by more than 2,000 stockholders, if such stockholders received shares
of the surviving corporation or of another listed or widely-held corporation, or
(iv) stockholders of a corporation surviving a merger if no vote of the
stockholders of the surviving corporation is required to approve the merger.
Maryland law has similar provisions, but under Maryland law, dissenters' rights
of appraisal would apply: (i) with respect to a sale of all or substantially all
of a corporation's assets (except a transfer of assets by a corporation to one
or more persons if all of the equity interests
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of the person or persons are owned directly or indirectly by the transferor, in
which event dissenters' rights of appraisal would not apply) or (ii) if a
corporation amends its charter in a way that would alter express contractual
rights of any outstanding stock and substantially adversely affect the existing
stockholder's rights unless the corporation's charter reserves the right to do
so. Under Maryland law, a stockholder does not generally have appraisal rights
in a merger or consolidation if such stockholder's stock is listed on a national
exchange or if such stockholder's stock is that of the surviving corporation in
the merger and the merger does not change such stock.
Inspection of Stockholder List. The rights of stockholders of a Maryland
corporation and a Delaware corporation to inspect and copy corporation records
differ in certain respects. Under Maryland law, any stockholder may inspect the
bylaws, minutes of the proceedings of stockholders, annual statements of
affairs, and voting trust agreements of the corporation at the corporation's
principal office. Any stockholder may also present a written request for a
statement showing all stock and securities issued by the corporation during a
specified period of not more than 12 months before the date of the request, the
consideration received per share or unit and the value of any consideration
other than money as set forth in a resolution of the board of directors. In
addition, stockholders of record who own and have owned for at least six months
at least five percent of the outstanding stock of any class may inspect and copy
the corporation's books of account and its stock ledger, and request an account
of the corporation's affairs with no statutory restriction upon the purpose of
such inspection. Under Delaware law, on the other hand, any stockholder may upon
written demand under oath stating the stockholder's purpose, inspect and copy
for any proper purpose the corporation's stock ledger, list of stockholders, and
its other books and records. A proper purpose is one reasonably related to such
person's interest as a stockholder. Accordingly, for stockholders holding less
than five percent of the outstanding stock of any class, the right of inspection
of some records may be broader under Delaware law than under Maryland law. For
some stockholders, however, the Maryland rights of inspection that are available
may be less restrictive with respect to the purpose for which the right may be
exercised, and the lack of access to stockholder records under Delaware law
could result in the impairment of the stockholder's ability to coordinate
opposition to management proposals, including proposals with respect to a change
in control of the corporation.
Limitation of Liability. Under Delaware law, directors' liability for
monetary damages cannot be limited by the charter for (i) breaches of their duty
of loyalty to the Company and its stockholders; (ii) acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law; (iii) monetary damages relating to willful or negligent violations
regarding the prohibition on the payment of unlawful dividends or unlawful stock
purchases or redemptions; or (iv) transactions from which a director derives
improper personal benefit. The liability of officers may not be limited under
Delaware law, unless the officers are also directors. Under Maryland law, the
charter of a corporation may include any provision expanding or limiting the
liability of its directors and officers to the corporation and its stockholders.
Restrictions on Voting of Securities. Maryland law provides for
control-share voting restrictions. If applicable, the Maryland law restriction
provides that the voting rights of the persons who make a "control-share"
acquisition of a corporation's stock (at least 20% of the voting power of the
corporation) are eliminated unless the acquisition is exempt from the
restriction or the holders of two-thirds of the non-control share stock of the
corporation vote in favor of the acquisition. In contrast, Delaware Law does not
provide for a similar control-share voting restriction.
Voting Requirements for Business Combination. Maryland law requires a vote
of two-thirds of all stockholders entitled to vote to approve a business
combination, although, as permitted by Maryland law, the Maryland Charter
provides for the effectiveness and validity of such an action if authorized by
the affirmative vote of a majority of the total number of votes entitled to be
cast thereon. Delaware law and the Delaware Charter require the vote of a
majority of the shares represented at a stockholder meeting for all corporate
actions requiring stockholder approval. In addition, Delaware law requires that
certain transactions between a corporation and an "interested stockholder"
(generally, a stockholder acquiring 15% or more of the voting stock of a
corporation) may not occur for three years following the date such person became
an interested stockholder unless (i) prior to such date the board of directors
of the corporation approved either the business combination or the transaction
that resulted in the stockholder becoming an interested stockholder; (ii) upon
consummation of the transaction that resulted in the stockholder becoming
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an interested stockholder, the interested stockholder owns at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced (excluding shares controlled by the interested stockholder); (iii) the
business combination is approved by the board of directors and authorized at an
annual or special meeting of stockholders by two-thirds of the outstanding
voting stock not held by the interested stockholder; or (iv) an exemption is
available. In contrast, Maryland law provides that, unless the Board of
Directors has approved the acquisition of voting stock pursuant to which a
person becomes an interested stockholder (generally, a stockholder acquiring 10%
or more of the voting stock of a corporation), a Maryland corporation may not
engage in certain business combinations with any interested stockholder for five
years following the most recent date on which the interested stockholder became
an interested stockholder. Moreover, Maryland law provides that business
combinations with an interested stockholders after such five-year period must be
recommended by the board of directors and approved by (i) at least 80% of the
outstanding shares of the voting stock of the corporation and (ii) at least
two-thirds of the outstanding shares of voting stock (other than voting stock
held by an interested stockholder or an affiliate thereof), unless certain value
and other standards are met or an exemption is available.
STOCKHOLDER RIGHTS PLAN
The Board of Directors has adopted a stockholder rights plan (the "Plan").
In implementing the Plan, the Board of Directors declared a dividend of one
right (collectively, the "Rights") for each outstanding share of Common Stock.
Each Right, when exercisable, would entitle the holder thereof to purchase
1/1,000th of a share of Series A Junior Participating Preferred Stock (the
"Preferred Stock") at a price of $175 per 1/1,000th share.
Subject to certain limited exceptions, the Rights will be exercisable only
if a person or group, other than an Exempt Person, as defined in the Plan,
becomes the beneficial owner of 10% or more of the Common Stock or announces a
tender or exchange offer which would result in its ownership of 10% or more of
the Common Stock. Ten days after a public announcement that a person has become
the beneficial owner of 10% or more of the Common Stock, or ten days following
the commencement of a tender offer or exchange offer which would result in a
person becoming the beneficial owner of 10% or more of the Common Stock (the
earlier of which is called the "Distribution Date"), each holder of a Right,
other than the acquiring person, would be entitled to purchase a certain number
of shares of Common Stock for each Right at one-half of the then-current market
price. If the Company is acquired in a merger, or 50% or more of the Company's
assets are sold in one or more related transactions, each Right would entitle
the holder thereof to purchase common stock of the acquiring company at one half
of the then-market price of such common stock.
At any time after a person or group becomes the beneficial owner of 10% or
more of the Common Stock, the Board of Directors may exchange one share of
Common Stock for each Right, other than Rights held by the acquiring person.
Generally, the Board of Directors may redeem the Rights at any time until 10
days following the public announcement that a person or group of persons has
acquired beneficial ownership of 10% or more of the outstanding Common Stock.
The Rights will expire on March 25, 2008.
Until a Right is exercised, the holder thereof will have no rights as a
stockholder of the Company, including without limitation, the right to vote or
to receive dividends. In addition, other than those provisions relating to the
principal economic terms of the Rights (other than an increase in the purchase
price), any of the provisions of the Plan may be amended by the Board of
Directors prior to the Distribution Date.
Upon the completion of the Reorganization, the Company's rights and
obligations under the Plan will continue.
LISTING
The Common Stock is quoted on the Nasdaq Stock Market under the symbol
"STGC."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Continental Stock
Transfer & Trust Company.
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DESCRIPTION OF WARRANTS
The Warrants were issued pursuant to the Warrant Agreement between the
Company and First Union National Bank, as Warrant Agent. The following summary
of certain provisions of the Warrants and the Warrant Agreement does not purport
to be complete and is qualified in its entirety by reference to the Warrants and
the Warrant Agreement, including the definitions therein of certain terms used
below. Capitalized terms used in this Description of Warrants and not otherwise
defined herein have the meanings ascribed to such terms in the Warrants and the
Warrant Agreement. A copy of the Warrant Agreement, including the form of the
Warrants, has been filed as an exhibit to the Warrant Registration Statement of
which this Prospectus forms a part.
GENERAL
Each Warrant, when exercised, will entitle the holder thereof to receive
1.25141 fully paid and non-assessable shares of Common Stock of the Company at
the Exercise Price of $24.20 per share. The Exercise Price and the number of
shares of Common Stock issuable upon exercise of a Warrant are both subject to
adjustment in certain circumstances described below. The Warrants will be
exercisable to purchase an aggregate of 200,226 shares of Common Stock.
The Warrants may be exercised at any time and from time to time on or after
November 15, 1998 and expire on May 15, 2008. Under the Warrant Agreement, the
Company is obligated to give notice of expiration not less than 90 nor more than
120 days prior to the Expiration Date to the registered holders of the then
outstanding Warrants. If the Company fails to give such notice, the Warrants
will nevertheless expire and become void on the Expiration Date. The Warrants
were not separately tradable from the Notes prior to the Separation Date, which
occurred on or about October 12, 1998.
In order to exercise all or any of the Warrants, the holder thereof is
required to surrender to the Warrant Agent the related registered certificate
issued by the Company representing the Warrants (the "Warrant Certificate") with
the accompanying form of election to purchase properly completed and executed,
and to pay in full the Exercise Price for each share of Common Stock or other
securities issuable upon exercise of such Warrants. The exercise procedure for
Warrants held in book-entry form will be governed by the Depositary's standing
procedure for such exercise. The Exercise Price may be paid (i) in cash or by
certified or official bank check or by wire transfer to an account designated by
the Company for such purpose or (ii) without the payment of cash, by reducing
the number of shares of Common Stock that would be obtainable upon the exercise
of a Warrant and payment of the Exercise Price in cash so as to yield a number
of shares of Common Stock upon the exercise of such Warrant equal to the product
of (a) the number of shares of Common Stock for which such Warrant is
exercisable as of the date of exercise (if the Exercise Price were being paid in
cash) and (b) the Cashless Exercise Ratio (the "Cashless Exercise"). The
"Cashless Exercise Ratio" shall equal a fraction, the numerator of which is the
excess of the Current Market Value (as defined herein) per share of Common Stock
on the Exercise Date over the Exercise Price per share as of the Exercise Date
and the denominator of which is the Current Market Value per share of the Common
Stock on the Exercise Date. Upon surrender of a Warrant Certificate representing
more than one Warrant in connection with the holder's option to elect a Cashless
Exercise, the number of shares of Common Stock deliverable upon a Cashless
Exercise shall be equal to the number of shares of Common Stock issuable upon
the exercise of Warrants that the holder specifies are to be exercised pursuant
to a Cashless Exercise multiplied by the Cashless Exercise Ratio. All provisions
of the Warrant Agreement shall be applicable with respect to a surrender of a
Warrant Certificate pursuant to a Cashless Exercise for less than the full
number of Warrants represented thereby. Upon surrender of the Warrant
Certificate and payment of the Exercise Price, the Company will deliver or cause
to be delivered to or upon the written order of such holder, a stock certificate
representing 1.25141 shares of Common Stock of the Company for each Warrant
evidenced by such Warrant Certificate, subject to adjustment as described
herein. If less than all of the Warrants evidenced by a Warrant Certificate are
to be exercised, a new Warrant Certificate will be issued for the remaining
number of Warrants. No fractional shares of Common Stock will be issued upon
exercise of the Warrants. The Company will pay to the holder of the Warrant at
the time of exercise an amount in cash equal to the Current Market Value of any
such fractional share of Common Stock.
30
<PAGE>
The holders of unexercised Warrants are not entitled, by virtue of being
such holders, to receive dividends, to vote, to consent, to exercise any
preemptive rights or to receive notice as stockholders of the Company in respect
of any stockholders meeting for the election of directors of the Company or any
other purpose, or to exercise any other rights whatsoever as stockholders of the
Company.
No service charge will be made for registration of transfer or exchange
upon surrender of any Warrant Certificate at the office of the Warrant Agent
maintained for that purpose. The Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration or transfer or exchange of Warrant Certificates.
In the event a bankruptcy or reorganization is commenced by or against the
Company, a bankruptcy court may hold that unexercised Warrants are executory
contracts which may be subject to rejection by the Company with approval of the
bankruptcy court. As a result, holders of the Warrants may not, even if
sufficient funds are available, be entitled to receive any consideration or may
receive an amount less than they would be entitled to receive if they had
exercised their Warrants prior to the commencement of any such bankruptcy or
reorganization.
NOTWITHSTANDING THE FOREGOING, THE EXERCISE OF THE WARRANTS (AND THE
OWNERSHIP OF COMMON STOCK ISSUABLE UPON THE EXERCISE THEREOF) MAY BE LIMITED BY
THE COMPANY IN ORDER TO ENSURE COMPLIANCE WITH THE FCC'S RULES AND THE WARRANTS
WILL NOT BE EXERCISABLE BY ANY HOLDER IF SUCH EXERCISE WOULD CAUSE THE COMPANY
TO BE IN VIOLATION OF THE COMMUNICATIONS ACT OR THE FCC'S RULES, REGULATIONS OR
POLICIES. SEE "RISK FACTORS -- POTENTIAL ADVERSE EFFECTS OF REGULATION."
ADJUSTMENTS
The number of shares of Common Stock of the Company issuable upon the
exercise of the Warrants and the Exercise Price will be subject to adjustment in
certain circumstances, including:
(i) the payment by the Company of dividends and other distributions on
its Common Stock payable in Common Stock or other equity interests of the
Company;
(ii) subdivisions, combinations and certain reclassifications of the
Common Stock of the Company;
(iii) the issuance to all holders of Common Stock of rights, options
or warrants entitling them to subscribe for additional shares of Common
Stock, or of securities convertible into or exercisable or exchangeable for
additional shares of Common Stock at an offering price (or with an initial
conversion, exercise or exchange price plus such offering price) which is
less than the Current Market Value per share of Common Stock;
(iv) the distribution to all holders of Common Stock of any assets of
the Company (including cash), debt securities of the Company or any rights
or warrants to purchase any securities (excluding those rights and warrants
referred to in clause (iii) above and cash dividends and other cash
distributions from current or retained earnings);
(v) the issuance of shares of Common Stock for a consideration per
share which is less than the Current Market Value per share of Common
Stock; and
(vi) the issuance of securities convertible into or exercisable or
exchangeable for Common Stock for a conversion, exercise or exchange price
per share which is less than the Current Market Value per share of Common
Stock.
The events described in clauses (v) and (vi) above are subject to certain
exceptions described in the Warrant Agreement, including, without limitation,
certain bona fide public offerings and private placements and certain issuances
of Common Stock pursuant to employee stock incentive plans.
31
<PAGE>
No adjustment in the Exercise Price will be required unless and until such
adjustment would result, either by itself or with other adjustments not
previously made, in an increase or decrease of at least 1% in the Exercise Price
or the number of shares of Common Stock issuable upon exercise of Warrants
immediately prior to the making of such adjustment; provided, however, that any
adjustment that is not made as a result of this paragraph will be carried
forward and taken into account in any subsequent adjustment. In addition, the
Company may at any time reduce the Exercise Price (but not to an amount that is
less than the par value of the Common Stock) for any period of time (but not
less than 20 business days) as deemed appropriate by the Board of Directors of
the Company.
In case of certain consolidations or mergers of the Company, or the sale of
all or substantially all of the assets of the Company to another Person, each
Warrant will thereafter be exercisable for the right to receive the kind and
amount of shares of stock or other securities or property to which such holder
would have been entitled as a result of such consolidation, merger or sale had
the Warrants been exercised immediately prior thereto. However, if (i) the
Company consolidates, merges or sells all or substantially all of its assets to
another person and, in connection therewith, the consideration payable to the
holders of Common Stock in exchange for their shares is payable solely in cash
or (ii) there is a dissolution, liquidation or winding-up of the Company, then
the holders of the Warrants will be entitled to receive distributions on an
equal basis with the holders of Common Stock or other securities issuable upon
exercise of the Warrants, as if the Warrants had been exercised immediately
prior to such event, less the Exercise Price. Upon receipt of such payment, if
any, the Warrants will expire and the rights of holders thereof will cease. In
the case of any such consolidation, merger or sale of assets, the surviving or
acquiring person and, in the event of any dissolution, liquidation or winding-up
of the Company, the Company must deposit promptly with the Warrant Agent the
funds, if any, required to pay the holders of the Warrants. After such funds and
the surrendered Warrant Certificates are received, the Warrant Agent is required
to deliver a check in such amount as is appropriate (or, in the case of
consideration other than cash, such other consideration as is appropriate) to
such Persons as it may be directed in writing by the holders surrendering such
Warrants.
In the event of a taxable distribution to holders of Common Stock of the
Company which results in an adjustment to the number of shares of Common Stock
or other consideration for which a Warrant may be exercised, the holders of the
Warrants may, in certain circumstances, be deemed to have received a
distribution subject to United States federal income tax as a dividend.
RESERVATION OF SHARES
The Company has authorized and will reserve for issuance such number of
shares of Common Stock as will be issuable upon the exercise of all outstanding
Warrants. Such shares of Common Stock, when issued and paid for in accordance
with the Warrant Agreement, will be duly and validly issued, fully paid and
nonassessable, free of preemptive rights and free from all taxes, liens, charges
and security interests.
PROVISION OF FINANCIAL STATEMENTS AND REPORTS
The Company will be required (a) to provide to each holder of a Warrant,
without cost to such holder, copies of such annual and quarterly reports and
documents that the Company files with the Commission (to the extent such filings
are accepted by the Commission and whether or not the Company has a class of
securities registered under the Exchange Act) or that the Company would be
required to file were it subject to Section 13 or 15 of the Exchange Act, within
15 days after the date of such filing or the date on which the Company would be
required to file such reports or documents and (b) if filing such reports and
documents with the Commission is not accepted by the Commission or is prohibited
under the Exchange Act, to supply at the Company's cost copies of such reports
and documents to any prospective holder promptly upon request.
AMENDMENT
Any amendment or supplement to the Warrant Agreement that has an adverse
effect on the interests of the holders of the Warrants will require the written
consent of the holders of a majority of the then outstanding Warrants (excluding
any Warrants held by the Company or any of its Affiliates).
32
<PAGE>
Notwithstanding the foregoing, the Company and the Warrant Agent, without the
consent of the holders of the Warrants, may, from time to time, amend or
supplement the Warrant Agreement for certain purposes, including to cure any
ambiguities, defects or inconsistencies or to make any change that does not
adversely affect the rights of any holder. The consent of each holder of the
Warrants affected will be required for any amendment pursuant to which the
Exercise Price would be increased or the number of shares of Common Stock
issuable upon exercise of the Warrants would be decreased (other than pursuant
to adjustments provided for in the Warrant Agreement) or the exercise period
with respect to the Warrants would be shortened.
REGISTRATION RIGHTS
The Warrant Agreement provides, for the benefit of the Holders of the
Warrants, that the Company file with the Commission the Warrant Registration
Statement on an appropriate form under the Securities Act and use its reasonable
best efforts to cause the Warrant Registration Statement to be declared
effective by the Commission not later than November 17, 1998. The Warrant
Agreement requires the Company, subject to certain limited exceptions, to use
its reasonable best efforts to keep the Warrant Registration Statement
continuously effective, supplemented and amended to ensure that it is available
for its intended use by the holders of the Transfer Restricted Warrant
Securities (as defined herein) entitled to this benefit and to ensure that the
Warrant Registration Statement conforms and continues to conform with the
requirements of the Securities Act and the policies, rules and regulations of
the Commission, as announced from time to time until the second anniversary of
the date on which the last Warrant exercised at a time when the Warrant
Registration Statement was not effective or when the use of the prospectus
contained therein was suspended or such shorter period ending when all the
Warrants and/or Warrant Shares have been sold pursuant to the Warrant
Registration Statement; provided, however, that during such period, the holders
may be prevented or restricted by the Company from effecting sales pursuant to
the Warrant Registration Statement under certain circumstances as more fully
described in the Warrant Agreement. A holder of Warrants or Warrant Shares
acquired upon an exercise of Warrants at a time when the Warrant Registration
Statement is not effective or available for use generally will be required to be
named as a selling securityholder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions of the Securities Act in connection with such sales and will be bound
by the provisions of the Warrant Agreement applicable to such Holder (including
certain indemnification and contribution obligations).
If the Warrant Registration Statement (i) has not become effective on or
before November 17, 1998 or (ii) such registration statement becomes effective
but shall thereafter cease to be effective or fails to be usable for its
intended purpose without being succeeded within five business days by a
post-effective amendment to such Warrant Registration Statement that cures such
failure and that is itself immediately declared effective (each such event being
a "Warrant Registration Default"), the Company shall pay to the holders of
Warrants and/or Warrant Shares that in either case are Transfer Restricted
Warrant Securities an amount in cash in the amount of $1.00 per Warrant or
Warrant Share ("Warrant Liquidated Damages") for the first 90-day period (or
portion thereof) following such Warrant Registration Default, such amount to
increase by an additional $0.50 per Warrant or Warrant Share with respect to
each subsequent 90-day period (or portion thereof) until all Warrant
Registration Defaults have been cured, up to a maximum rate of Warrant
Liquidated Damages of $2.50 per Warrant or Warrant Share. All accrued and unpaid
Warrant Liquidated Damages shall be paid to the holders of record of the
Warrants or Warrant Shares entitled thereto on the last day of each calendar
quarter during which any such payment shall have become due.
The Warrant Agreement further provides that upon the occurrence of an
Exercise Event, the holders of at least 25% of the Warrants will be entitled to
require the Company to use its reasonable best efforts to effect one
registration under the Securities Act in respect of an underwritten sale of
Warrant Shares (a "Demand Registration"), subject to certain limitations, unless
an exemption from the registration requirements of the Securities Act is then
available for the sale of such Warrant Shares. Upon a demand, the Company will
prepare, file and use its reasonable best efforts to cause to be effective
within 120 days of such demand a registration statement in respect of all
Warrant Shares that request to be included in such registration statement (a
"Demand Registration Statement"); provided
33
<PAGE>
that in lieu of filing such Demand Registration Statement, the Company may
purchase all of the Warrant Shares the holders of which have requested their
inclusion in the Demand Registration Statement at their Current Market Value.
Warrants and/or Warrant Shares shall be defined as "Transfer Restricted
Warrant Securities," until the earlier to occur of (i) the date on which such
Warrants and/or Warrant Shares have been registered under the Securities Act and
disposed of in accordance with the Warrant Registration Statement or (ii) the
date on which such Warrant and/or Warrant Share is eligible for distribution to
the public pursuant to Rule 144 under the Securities Act.
"Current Market Value" per share of Common Stock or any other security at
any date is defined to mean (i) if the security is not of a class registered
under the Exchange Act, (a) the value of the security determined in good faith
by the Board and certified in a board resolution, based on the most recently
completed arm's length transaction between the Company and a Person other than
an Affiliate of the Company, the closing of which occurred on such date or
within the six-month period preceding such date, or (b) if no such transaction
shall have occurred on such date or within such six-month period, the value of
the security as determined by an Independent Financial Expert (as defined in the
Warrant Agreement); or (ii) if such security is of a class registered under the
Exchange Act, the average of the last reported sale price of the Common Stock
(or the equivalent in an over-the-counter market) for each Business Day (as
defined in the Warrant Agreement) during the period commencing 15 Business Days
before such date and ending one day prior to such date, or if the security is of
a class registered under the Exchange Act for less than 15 Business Days before
such date, the average of the daily closing bid prices (or such equivalent) for
all the Business Days before such date for which daily closing bid prices are
available (provided, however, that if the closing bid price is not determinable
for at least 10 Business Days in such period, then clause (i) above and not this
clause (ii) shall used to determine Current Market Value); provided, however,
that if the Warrant Shares requested to be included in a Demand Registration
Statement shall be underlying an unexercised Warrant, then Current Market Value
shall be calculated as aforesaid, but shall have deducted therefrom the exercise
price of the related Warrant.
"Exercise Event" is defined to mean, with respect to each Warrant as to
which such event is applicable, the earlier of: (i) a Change of Control (as
defined in the Indenture) and (ii) any date when the Company (A) consolidates or
merges into or with another Person (but only where the holders of Common Stock
receive consideration in exchange for all or part of such Common Stock other
than common stock of the surviving Person) or (B) sell all or substantially its
assets to another Person if the Common Stock (or other securities) thereafter
issuable upon exercise of the Warrants is not registered under the Exchange Act;
provided, that the events in (A) and (B) will not be deemed to have occurred if
the consideration for the Common Stock in either such transaction consists
solely of cash.
34
<PAGE>
SELLING SECURITYHOLDERS
The following table sets forth certain information as of November 6, 1998
with respect to the Selling Holders. Because the Selling Holders may sell some
or all of their Warrants or Warrant Shares, the Company cannot estimate the
aggregate amount of Warrants and/or Warrant Shares that may be owned by each
Selling Holder in the future. The information included in the table was obtained
from the Warrant Agent. This information may change from time to time, and, if
required, such changes will be set forth in a supplement or supplements to this
Prospectus.
Unless otherwise set forth below, none of the Selling Holders has, or
within the past three years has had, any position, office or material
relationship with the Company or its predecessors.
<TABLE>
<CAPTION>
SECURITIES BENEFICIALLY OWNED
PRIOR TO THE OFFERING
---------------------------------
NUMBER OF NUMBER OF
NAME WARRANTS WARRANTS SHARES(1)
- ----------------------------------------------- ----------- -------------------
<S> <C> <C>
Bank of New York (The) ........................ 7,000 8,759
Bankers Trust Company ......................... 32,830 41,083
Bear, Stearns Securities Corp. ................ 10,500 13,139
Boston Safe Deposit and Trust Company ......... 1,930 2,415
Brown Brothers Harriman & Co. ................. 16,400 20,523
Chase Manhattan Bank .......................... 13,800 17,269
Chase Manhattan Bank/Chemical ................. 50 62
Citibank, N.A. ................................ 7,000 8,759
First Union National Bank (Main)(2) ........... 500 625
First Union National Bank(2) .................. 1,300 1,626
Goldman Sachs & Co(3) ......................... 1,000 1,251
Investors Bank & Trust/N.F. Custody ........... 3,400 4,254
Lehman Brothers, Inc(3) ....................... 29,150 36,478
Northern Trust Company (The) .................. 310 387
PNC Bank, National Association ................ 190 237
State Street Bank and Trust Company ........... 34,390 43,035
Swiss American Securities, Inc. ............... 50 62
U.S. Bank National Association ................ 200 250
</TABLE>
- ----------
(1) Represents the number of whole shares of the Company's Common Stock which
may be acquired upon the exercise of the Warrants assuming that all of the
Warrants held by such beneficial owner are exercised. Each Warrant is
exercisable for 1.25141 shares of Common Stock at an exercise price of
$24.20 per share.
(2) Serves as Trustee under the Indenture and Warrant Agent under the Warrant
Agreement.
(3) Goldman Sachs & Co and Lehman Brothers, Inc were Initial Purchasers in the
Notes Offering.
PLAN OF DISTRIBUTION
The Warrants and the Warrant Shares may be offered and sold from time to
time to purchasers directly by the Selling Holders or to or through
underwriters, broker-dealers or agents, who may receive compensation in the form
of underwriting discounts, concessions or commissions from the Selling Holders
or the purchasers of such securities for whom they may act as agents. The
Selling Holders and any underwriters, broker-dealers or agents that participate
in the distribution of Warrants or the Warrant Shares may be deemed to be
"underwriters" within the meaning of the Securities Act, and any profit on the
sale of the Warrants or the Warrant Shares and any discounts, commissions,
concessions or other compensation received by any such underwriter,
broker-dealer or agent may be deemed to be underwriting discounts and
commissions under the Securities Act.
The Warrants and the Warrant Shares may be sold from time to time by the
Selling Holders in one or more transactions at fixed prices, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices, at varying prices determined at the time of sale or at negotiated
prices.
35
<PAGE>
The sale of the Warrants and the Warrant Shares may be effected in transactions
(which may involve crosses or block transactions) (i) on any national securities
exchange or automated quotation service on which the Warrants or the Warrant
Shares may be listed or quoted at the time of sale, (ii) in the over-the-counter
market, (iii) in transactions otherwise than on such exchanges or automated
quotation services or in the over-the-counter market, (iv) through the writing
of options or (v) through a combination of such methods of sale. In addition,
any Warrants or Warrant Shares that qualify for sale pursuant to Rule 144 under
the Securities Act may be sold pursuant to such Rule rather than pursuant to
this Prospectus. At the time a particular offering of the Warrants or the
Warrant Shares is made, a supplement to this Prospectus (a "Prospectus
Supplement") will, to the extent required, be distributed which will set forth
the aggregate amount of Warrants or Warrant Shares being offered and the terms
of the offering, including the name or names of any underwriters, broker-dealers
or agents, any discounts, commissions and other terms constituting compensation
from the Selling Holders and any discounts, commissions or concessions allowed
or reallowed or paid to broker-dealers. Each broker-dealer receiving the
Warrants or Warrant Shares for its own account pursuant to this Prospectus must
acknowledge that it will deliver the Prospectus and any Prospectus Supplement in
connection with any sale of such Warrants or Warrant Shares.
The Company's Common Stock is listed on the Nasdaq National Market under
the symbol "STGC." Application has been made to have the Warrant Shares approved
for quotation on the Nasdaq National Market. Prior to this offering, there has
been no public market for the Warrants and there can be no assurance that an
active public market for the Warrants will develop or that, if a such a market
develops, it will be maintained. The Company does not intend to apply for
quotation of the Warrants on the Nasdaq Stock Market or for listing of the
Warrants on any national securities exchange.
To comply with the securities laws of certain jurisdictions, to the extent
applicable, the Warrants and Warrant Shares may be offered or sold in such
jurisdictions only through registered or licensed brokers or dealers. In
addition, in certain jurisdictions the Warrants and Warrant Shares may not be
offered or sold unless they have been registered or qualified for sale in such
jurisdictions or an exemption from registration or qualification is available
and is complied with.
The Selling Holders will be subject to applicable provisions of the
Securities Exchange Act of 1934 and the rules and regulations promulgated
thereunder, which provisions may limit the timing of purchases and sales of any
of the Warrants or Warrant Shares by the Selling Holders. The foregoing may
affect the marketability of such securities.
Pursuant to the Warrant Agreement, certain expenses of the registration of
the Warrants and Warrant Shares will be paid by the Company, including, without
limitation, Commission filing fees, the fees and expenses of counsel and the
costs of compliance with state securities or "blue sky" laws; provided, however,
that the Selling Holders will pay all underwriting discounts, selling
commissions and transfer taxes, if any, applicable to any sales of the Warrants
and Warrant Shares. The Company has agreed to indemnify the Selling Holders
against certain civil liabilities, including certain liabilities under the
Securities Act, and the Selling Holders will be entitled to contribution in
connection with any registration of the Warrants and Warrant Shares and any
sales pursuant thereto. The Company will be indemnified by the Selling Holders
severally against certain civil liabilities, including certain liabilities under
the Securities Act, and will be entitled to contribution in connection with any
registration of the Warrants and Warrant Shares and any sales pursuant thereto.
LEGAL MATTERS
The validity of the securities offered hereby will be passed on for the
Company by Schnader Harrison Segal & Lewis LLP, Washington, D.C.
EXPERTS
The audited financial statements and schedule incorporated by reference in
this Prospectus and elsewhere in the Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
36
<PAGE>
GLOSSARY OF TERMS
Access charges: The fees paid by long distance carriers to LECs for
originating and terminating long distance calls on their local networks.
Accounting or Settlement rate: The per minute rate negotiated between
carriers in different countries for termination of international long distance
traffic in, and return traffic to, the carriers' respective countries.
Call reorigination: A form of dial up access that allows a user to access a
telecommunications company's network by placing a telephone call and waiting for
an automated callback. The callback then provides the user with dial tone which
enables the user to place a call.
CLEC: Competitive Local Exchange Carrier.
Correspondent agreement: Agreement between international long distance
carriers that provides for the termination of traffic in, and return traffic to,
the carriers' respective countries at a negotiated per minute rate and provides
for a method by which revenues are distributed between the two carriers (also
known as an "operating agreement").
CST: Companhia Santomensed De Telecommunicacoes.
Dedicated access: A means of accessing a network through the use of a
permanent point-to-point circuit typically leased from a facilities-based
carrier. The advantage of dedicated access is simplified premises-to-anywhere
calling, faster call set-up times and potentially lower access costs (provided
there is sufficient traffic over the circuit to generate economies of scale).
Dial up access: A form of service whereby access to a network is obtained
by dialing a toll-free number or a paid local access number.
Direct access: A method of accessing a network through the use of private
lines.
EU (European Union): Austria, Belgium, Denmark, Finland, France, Germany,
Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden,
and the United Kingdom.
Facilities-based carrier: A carrier which transmits a significant portion
of its traffic over owned or leased transmission facilities.
FCC: Federal Communications Commission.
Fiber optic: A transmission medium consisting of high-grade glass fiber
through which light beams are transmitted carrying a high volume of
telecommunications traffic.
International gateway: A switching facility that provides connectivity
between international carriers and performs any necessary signaling conversions
between countries.
ISP (International Settlements Policy): A policy that governs the
settlements between U.S. carriers and their foreign correspondents of the cost
of terminating each other's network.
IRU (Indefeasible Rights of Use): The rights to use a telecommunications
system, usually an undersea cable, with most of the rights and duties of
ownership, but without the right to control or manage the facility and,
depending upon the particular agreement, without any right to salvage or duty to
dispose of the cable at the end of its useful life.
ISDN (Integrated Services Digital Network): A hybrid digital network
capable of providing transmission speeds of up to 128 kilobits per second for
both voice and data.
ISR (International Simple Resale): The use of international leased lines
for the resale of switched telephony to the public, bypassing the current system
of accounting rates.
ITO (Incumbent Telecommunications Operator): The dominant carrier in each
country, often government-owned or protected; commonly referred to as the
Postal, Telephone and Telegraph Company, or PTT.
G-1
<PAGE>
ITU: The International Telecommunications Union.
LEC (Local Exchange Carrier): Companies from which the Company and other
long distance providers must purchase "access services" to originate and
terminate calls in the United States
Local connectivity: Physical circuits connecting the switching facilities
of a telecommunications services provider to the interexchange and transmission
facilities of a facilities-based carrier.
Local exchange: A geographic area determined by the appropriate regulatory
authority in which calls generally are transmitted without toll charges to the
calling or called party.
Long distance carriers: Long distance carriers provide services between
local exchanges on an interstate or intrastate basis. A long distance carrier
may offer services over its own or another carrier's facilities.
MAOU (Minimum Assignable Ownership Units): Capacity on a telecommunications
systems, usually an undersea fiber optic cable, required on an ownership basis.
PBX (Public Branch Exchange): Switching equipment that allows connection
of private extension telephones to the PSTN or to a private line.
P.O.P. site (Point-of-Presence): An installaltion consisting of scaleable
interconnection, compression, and related telecommunications equipment that
aggregates traffic from a specific region and routes it to a switch. It is also
the area in which calls are terminated just before the calls are connected to
the local phone company's lines.
PSTN (Public Switched Telephone Network): A telephone network which is
accessible by the public at large through private lines, wireless systems and
pay phones.
PTT (Postal, Telephone and Telegraph Company): A foreign telecommunication
carrier that has been dominant in its home market and which may be wholly or
partially government-owned.
Private line: A dedicated telecommunications connection between end-user
locations.
Proportional return traffic: Under the terms of operating agreements,
foreign partners are required to deliver to the U.S.-based carriers traffic
flowing to the United States in the same proportion as the U.S.-based carriers
delivered U.S.-originated traffic to the foreign carriers.
RBOC (Regional Bell Operating Company): The seven local telephone companies
established by the 1982 agreement between AT&T and the United States Department
of Justice.
Resale: Resale by a provider of telecommunications services of services
sold to it by other providers or carriers on a wholesale basis.
SNO: A second network operator is a private carrier in a
recently-deregulated foreign nation in which the number of private carriers is
limited.
Switch: Equipment that accepts instructions from a caller in the form of a
telephone number. Like an address on an envelope, the numbers tell the switch
where to route the call. The switch opens or closes circuits or selects the
paths or circuits to be used for transmission of information. Switching is a
process of interconnecting circuits to form a transmission path between users.
Switches allow telecommunications service providers to connect calls directly to
their destination, while providing advanced features and recording connection
information for future billing.
Switched minutes: The number of minutes of telephone traffic carried on a
network using switched access.
Voice telephony: A term used by the EU, defined as the commercial provision
for the public of the direct transport and switching of speech in real-time
between public switched network termination points, enabling any user to use
equipment connected to such a network termination point in order to communicate
with another termination point.
WTO: World Trade Organization.
G-2
<PAGE>
======================================= =======================================
NO DEALER, SALES REPRESENTATIVE OR
ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN 160,000 WARRANTS
AUTHORIZED BY THE COMPANY OR THE TO PURCHASE
SELLING HOLDERS. THIS PROSPECTUS DOES COMMON STOCK
NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THOSE TO WHICH IT
RELATES NOR DOES IT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY SUCH SECURITIES TO ANY 200,226 SHARES
PERSON IN ANY JURISDICTION IN WHICH IT OF COMMON STOCK
WOULD BE UNLAWFUL TO MAKE SUCH AN OFFER
OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION [STARTEC GLOBAL COMMUNICATIONS
CONTAINED HEREIN IS CORRECT AS OF ANY CORPORATION LOGO]
TIME SUBSEQUENT TO THE DATE HEREOF.
--------------------------------
TABLE OF CONTENTS
PAGE
----
Available Information ............. ii
Incorporation of Certain STARTEC GLOBAL
Information by Reference ....... ii COMMUNICATIONS CORPORATION
Note Regarding Forward-Looking
Statements ..................... iii
Prospectus Summary ................ 1
Risk Factors ...................... 8
Use of Proceeds ................... 22
Price Range of Common Stock ....... 22
Dividend Policy ................... 22 ------------------------------------
Description of Capital Stock ...... 23 PROSPECTUS
Description of Warrants ........... 30 November 12, 1998
Selling Securityholders ........... 35 ------------------------------------
Plan of Distribution .............. 35
Legal Matters ..................... 36
Experts ........................... 36
Glossary of Terms ................. G-1
======================================= =======================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an estimate (except for the SEC registration
fees and the Nasdaq National Market Listing Fee) of the fees and expenses, all
of which will be borne by the Registrant, in connection with the sale and
distribution of the securities being registered.
<TABLE>
<S> <C>
SEC registration fees . .................... $ 1,143
Nasdaq National Market Listing Fee ......... 4,004
Legal fees and expenses .................... 35,000
Accounting fees and expenses ............... 20,000
Printing expenses .......................... 25,000
Miscellaneous .............................. 2,500
------
Total ..................................... $87,647
======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 2-418 of the Corporations and Associations Article of the Annotated
Code of Maryland permits a corporation to indemnify its present and former
officers and directors, among others, against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection with
any proceeding to which they may be made a party by reason of their services in
those or other capacities, unless it is established that (a) the act or omission
of the director or officer was material to the matter giving rise to the
proceeding and (i) was committed in bad faith or (ii) was the result of active
and deliberate dishonesty; or (b) the director or officer actually received an
improper personal benefit in money, property, or services; or (c) in the case of
any criminal proceeding, the director or officer had reasonable cause to believe
that the act or omission was unlawful. Maryland law permits a corporation to
indemnify a present and former officer to the same extent as a director, and to
provide additional indemnification to an officer who is not also a director. In
addition, Section 2-418(f) of the Corporations and Associations Article of the
Annotated Code of Maryland permits a corporation to pay or reimburse, in advance
of the final disposition of a proceeding, reasonable expenses (including
attorney's fees) incurred by a present or former director or officer made a
party to the proceeding by reason of his service in that capacity, provided that
the corporation shall have received (a) a written affirmation by the director or
officer of his good faith belief that he has met the standard of conduct
necessary for indemnification by the corporation; and (b) a written undertaking
by or on his behalf to repay the amount paid or reimbursed by the corporation if
it shall ultimately be determined that the standard of conduct was not met.
The Registrant has provided for indemnification of directors, officers,
employees, and agents in Article VIII of its charter. This provision reads as
follows:
(a) To the maximum extent permitted by the laws of the State of
Maryland in effect from time to time, any person who is or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that such person (i) is or was a director or officer of
the Corporation or of a predecessor of the Corporation, or (ii) is or was a
director or officer of the Corporation or of a predecessor of the
Corporation and is or was serving at the request of the Corporation as a
director, officer, partner, trustee, employee or agent of another foreign
or domestic corporation, limited liability company, partnership, joint
venture, trust, other enterprise, or employee benefit plan, shall
II-1
<PAGE>
be indemnified by the Corporation against judgments, penalties, fines,
settlements and reasonable expenses (including, but not limited to
attorneys' fees and court costs) actually incurred by such person in
connection with such action, suit or proceeding, or in connection with any
appeal thereof (which reasonable expenses may be paid or reimbursed in
advance of final disposition of any such suit, action or proceeding).
(b) To the maximum extent permitted by the laws of the State of
Maryland in effect from time to time, any person who is or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that such person (i) is or was an employee or agent of
the Corporation or of a predecessor of the Corporation, or (ii) is or was
an employee or agent of the Corporation or of a predecessor of the
Corporation and is or was serving at the request of the Corporation as a
director, officer, partner, trustee, employee or agent of another foreign
or domestic corporation, limited liability company, partnership, joint
venture, trust, other enterprise, or other employee benefit plan, may (but
need not) be indemnified by the Corporation against judgments, penalties,
fines, settlements and reasonable expenses (including, but not limited to,
attorneys' fees and court costs) actually incurred by such person in
connection with such action, suit or proceeding, or in connection with any
appeal thereof (which reasonable expenses may be paid or reimbursed in
advance of final disposition of any such suit, action or proceeding).
(c) Neither the amendment nor repeal of this Article, nor the adoption
or amendment of any other provision of the charter or bylaws of the
Corporation inconsistent with this Article, shall apply to or affect in any
respect the applicability of this Article with respect to indemnification
for any act or failure to act which occurred prior to such amendment,
repeal or adoption.
(d) The foregoing right of indemnification and advancement of expenses
shall not be deemed exclusive of any other rights of which any officer,
director, employee or agent of the Corporation may be entitled apart from
the provisions of this Article.
Under Maryland law, a corporation is permitted to limit by provision in its
charter the liability of directors and officers, so that no director or officer
of the corporation shall be liable to the corporation or to any stockholder for
money damages except to the extent that (i) the director or officer actually
received an improper benefit in money, property, or services, for the amount of
the benefit or profit in money, property or services actually received, or (ii)
a judgment or other final adjudication adverse to the director or officer is
entered in a proceeding based on a finding in the proceeding that the director's
or officer's action, or failure to act, was the result or active and deliberate
dishonesty and was material to the cause of action adjudicated in the
proceeding. The Registrant has limited the liability of its directors and
officers for money damages in Article VII of its charter, as amended. This
provision reads as follows:
No director or officer of the Corporation shall be liable to the
Corporation or to any stockholder for money damages except to the extent that
(i) the director or officer actually received an improper personal benefit in
money, property, or services, for the amount of the benefit or profit in money,
property or services actually received, or (ii) a judgment or other final
adjudication adverse to the director or officer is entered in a proceeding based
on a finding in the proceeding that the director's or officer's action, or
failure to act, was the result of active and deliberate dishonesty and was
material to the cause of action adjudicated in the proceeding. Neither the
amendment nor repeal of this Article, nor the adoption or amendment of any
provision of the charter or bylaws of the Corporation inconsistent with this
Article, shall apply to or affect in any respect the applicability of the
preceding sentence with respect to any act or failure to act which occurred
prior to such amendment, repeal or adoption.
Upon completion of the Reorganization described in the Prospectus the
Delaware Charter will provide that the Company shall indemnify any person who is
or was a director, officer, employee or agent of the Company, or is or was
serving at the request of the the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise to the fullest extent permitted by the Delaware
General Corporation Law ("DGCL"), as the same may hereafter be amended, or as
otherwise permitted by law.
II-2
<PAGE>
Section 145 of the DGCL permits a corporation to indemnify its directors
and officers against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlements actually and reasonably incurred by them in
connection with any action, suit or proceeding brought by third parties, if such
directors or officers acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of the corporation and,
with respect to any criminal action or proceeding, had no reason to believe
their conduct was unlawful. In a derivative action, i.e., one by or in the right
of the corporation, indemnification may be made only for expenses actually and
reasonably incurred by directors and officers in connection with the defense or
settlement of an action or suit, and only with respect to a matter as to which
they shall have acted in good faith and in a manner they reasonably believed to
be in or not opposed to the best interests of the corporation, except that no
indemnification shall be made if such person shall have been adjudged liable to
the corporation, unless and only to the extent that the court in which the
action or suit was brought shall determine upon application that the defendant
officers or directors are fairly and reasonable entitled to indemnity for such
expenses despite such adjudication of liability.
As permitted by Section 102(b)(7) of the DGCL, the Delaware Charter
provides that no director of the Company will be liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Company; (2) for acts or omissions not in good faith or which involve
intentional misconduct or knowing violation of the law; (3) under Section 174 of
the DGCL regarding improper dividends; or (4) for any transaction from which a
director derived an improper benefit.
The Company currently maintains, and intends to maintain in the future, at
its expense, a policy of insurance which insures its directors and officers,
subject to certain exclusions and deductions as are usual in such insurance
policies, against certain liabilities which may be incurred in such capacities.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS:
EXHIBIT
NUMBER DESCRIPTION
- --------- ------------------------------------------------------------------
1.1+ -- Purchase Agreement, dated May 18, 1998, among the Company, Lehman
Brothers Inc., Goldman, Sachs & Co. and ING Barings (U.S.)
Securities, Inc. (the "Initial Purchasers").
4.1+ -- Warrant Agreement, dated as of May 21, 1998 by and between the
Company and First Union National Bank, as Warrant Agent.
4.5+ -- Form of Warrant (included as Exhibit A to Exhibit 4.1)
5.1 -- Opinion of Schnader Harrison Segal & Lewis, LLP.
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of Schnader Harrison Segal & Lewis LLP (included in the
opinion filed as Exhibit 5.1).
24.1* -- Power of Attorney (included on signature page hereof).
- ----------
* Previously filed.
+ Incorporated by reference from the Company's Registration Statement on Form
S-4 (SEC File No. 333-61779).
(B) CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
Schedules are omitted because they are not applicable, not required, or the
required information is included in the Financial Statements or the Notes
thereto.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement (i) to
include any prospectus required by Section 10(a)(3) of the Securities Act
of 1933, (ii) to reflect in the Prospectus any facts or events arising
after the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 per cent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective Registration Statement, and (iii) to include any material
information with respect to the plan of distribution not previously
disclosed in the Registration Statement or any material change to such
information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) the undersigned Registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
(d) The undersigned Registrant hereby undertakes that insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this pre-effective
Amendment No. 1 on Form S-3 to the Registration Statement on Form S-1 to be
signed on its behalf by the undersigned, thereunto duly authorized, in Bethesda,
Maryland on November 10, 1998.
STARTEC GLOBAL COMMUNICATIONS CORPORATION
By: /s/ Ram Mukunda
------------------------------
Name: Ram Mukunda
Title: President, Chief Executive Officer
and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------- ------------------------------------- ------------------
<S> <C> <C>
/s/ Ram Mukunda President, Chief Executive Officer, November 10, 1998
- ------------------------- Treasurer and Director (Principal
Ram Mukunda Executive Officer)
/s/ Prabhav V. Maniyar Senior Vice President, Chief November 10, 1998
- ------------------------- Financial Officer, Secretary and
Prabhav V. Maniyar Director (Principal Financial and
Accounting Officer)
* Director November 10, 1998
- -------------------------
Nazir G. Dossani
* Director November 10, 1998
- -------------------------
Richard K. Prins
* Director November 10, 1998
- -------------------------
Vijay Srinivas
* By: /s/ Ram Mukunda
- -------------------------
Ram Mukunda
Attorney-in-fact
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- --------- ------------------------------------------------------------------
1.1+ -- Purchase Agreement, dated May 18, 1998, among the Company, Lehman
Brothers Inc., Goldman, Sachs & Co. and ING Barings (U.S.)
Securities, Inc. (the "Initial Purchasers").
4.1+ -- Warrant Agreement, dated as of May 21, 1998 by and between the
Company and First Union National Bank, as Warrant Agent.
4.5+ -- Form of Warrant (included as Exhibit A to Exhibit 4.1)
5.1 -- Opinion of Schnader Harrison Segal & Lewis, LLP.
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of Schnader Harrison Segal & Lewis LLP (included in the
opinion filed as Exhibit 5.1).
24.1* -- Power of Attorney (included on signature page hereof).
- ----------
* Previously filed.
+ Incorporated by reference from the Company's Registration Statement on Form
S-4 (SEC File No. 333-61779).
EXHIBIT 5.1
SCHNADER HARRISON
SEGAL & LEWIS LLP
Attorneys at Law
1300 I Street, N.W. - 11th Floor East
Washington, D.C. 20005
202-216-4200
202-775-8741 Fax
November 9, 1998
Startec Global Communications Corporation
10411 Motor City Drive
Bethesda, MD 20817
Re: Registration Statement
Gentlemen:
We have acted as counsel to Startec Global Communications Corporation, a
Maryland corporation (the "Company"), with respect to the Company's Registration
Statement (as originally filed on Form S-1, and as amended to comply with Form
S-3, the "Registration Statement") filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Act") relating to
(i) 160,000 warrants to purchase Common Stock, $.01 par value, of the Company
(the "Warrants"), which may be offered and sold from time to time by certain
selling securityholders named in the Prospectus contained in the Registration
Statement or in supplements thereto; (ii) 200,226 shares of Common Stock
issuable upon exercise of the Warrants (the "Warrants Shares"), which may be
offered and sold from time to time by certain selling securityholders named in
the Prospectus contained in the Registration Statement or in supplements
thereto; and (iii) the offer and sale of the Warrant Shares by the Company
pursuant to exercises of the Warrants.
As counsel for the Company, we have examined the Registration Statement,
the Warrant Agreement dated as of May 21, 1998, by and between the Company and
First Union Bank (as Warrant Agent), and originals or copies, certified or
otherwise identified to our satisfaction, of such other documents, corporate
records, certificates of public officials and other instruments as we have
deemed necessary for the purposes of rendering this opinion. In our examination,
we have, with your approval, assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals and the conformity
with the originals of all documents submitted to us as copies. As to various
questions of fact material to such opinion, we have relied, to the extent we
deemed appropriate, upon representations, statements and certificates of
officers and representatives of the Company and others. We have not
independently verified such information or assumptions.
<PAGE>
Based upon, subject to and limited by the foregoing and the other
qualifications herein, and assuming that the Warrant Agreement has been duly
authorized, executed and delivered by, and represents the valid and binding
obligation of the Warrant Agent, we are of the opinion that: (i) the Warrants
are validly issued, fully paid and non-assessable, and constitute valid and
legally binding obligations of the Company in accordance with their terms and
the terms of the Warrant Agreement; and (ii) the Warrant Shares have been duly
authorized for issuance by the Company, and when the Registration Statement has
become effective under the Act, and upon the issuance and delivery of the
Warrant Shares in accordance with the terms of the Warrants and the Warrant
Agreement, the Warrant Shares will be validly issued, fully paid and
non-assessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and we consent to the use of our name under the caption "Legal
Matters" in the Prospectus forming a part of the Registration Statement. In
giving this consent, we do not admit that we come within the category of persons
whose consent is required under Section 7 of the Act or the rules promulgated
thereunder.
Very truly yours,
/s/ Schnader Harrison Segal & Lewis LLP
SCHNADER HARRISON
SEGAL & LEWIS LLP
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement on Form S-3 of our reports dated
March 4, 1998 included in Startec Global Communications Corporations's Form 10-K
for the year ended December 31, 1997 and to all references to our firm included
in this registration statement.
ARTHUR ANDERSEN LLP
Washington, D.C.,
November 9, 1998
