<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934.
COMMISSION FILE NO. 0-23087
STARTEC GLOBAL COMMUNICATIONS CORPORATION
STARTEC EMPLOYEE 401(k) PLAN
STARTEC GLOBAL COMMUNICATIONS CORPORATION
10411 Motor City Drive
Bethesda, MD 20817
(301)365-8959
DELAWARE 52-2099559
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
<PAGE>
STARTEC GLOBAL COMMUNICATIONS CORPORATION
STARTEC EMPLOYEE 401(k) PLAN
FORM 11-K
AS OF DECEMBER 31, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL STATEMENTS
<S> <C> <C>
Item 1. Report of Independent Public Accountants ...........................................1
Item 2. Financial Statements
Statement of Net Assets Available for Benefits with Fund Information
As of December 31, 1998 ...................................................... 2
Statement of Changes in Net Assets Available for Benefits with Fund Information
For the year ended December 31, 1998 ......................................... 3
Item 3. Notes to Financial Statements ..................................................... 4
Item 4. Supplemental Schedules
Item 27(a) - Schedule of Assets Held for Investment Purposes
as of December 31, 1998.......................................................... 8
Item 27(d) - Schedule of Reportable Transactions
for the year ended December 31, 1998............................................. 9
Item 27(e) - Schedule of Nonexempt Transactions
for the year ended December 31, 1998............................................ 10
Schedules Omitted Because There Were No Such Items
for the Year ended December 31, 1998:
Loans or Fixed-Income Obligations
Leases in Default or Classified as Uncollectible
</TABLE>
<PAGE>
Item 1
The Report of Independent Public Accountants
To the Trustees of the
Startec Employee 401(k) Plan:
We have audited the accompanying statement of net assets available for benefits
with fund information of the Startec Employee 401(k) Plan (the "Plan") as of
December 31, 1998, and the related statement of changes in net assets available
for benefits with fund information for the year then ended. These financial
statements and the schedules referred to below are the responsibility of the
Plan administrator. Our responsibility is to express an opinion on these
financial statements and schedules based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan as of
December 31, 1998, and the changes in net assets available for benefits for the
year then ended in conformity with generally accepted accounting principles.
Our audit was performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of assets
held for investment purposes (Schedule I), reportable transactions (Schedule
II), and nonexempt transactions (Schedule III) are presented for the purpose
of additional analysis and are not a required part of the basic financial
statements but are supplementary information required by the Department of
Labor's Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974. These supplemental schedules are the
responsibility of the Plan administrator. The fund information in the
statement of net assets available for benefits and the statement of changes
in net assets available for benefits is presented for purposes of additional
analysis rather than to present the net assets available for plan benefits
and changes in net assets available for plan benefits of each fund. The
supplemental schedules and fund information have been subjected to the
auditing procedures applied in the audit of the basic financial statements
and, in our opinion, are fairly stated in all material respects in relation
to the basic financial statements taken as a whole.
Arthur Andersen LLP
Washington, D.C.
June 28, 1999
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Item 2
Startec Employee 401(k) Plan
Statement of Net Assets Available for Benefits With Fund Information
As of December 31, 1998
<TABLE>
<CAPTION>
<S> <C>
Assets:
Investments, participant directed, at fair value-
John Hancock Growth and Income Fund $ 84,211
John Hancock Emerging Growth Fund 69,651
John Hancock Financial Industries Fund 51,992
John Hancock Global Technology Fund 41,465
John Hancock High Yield Bond Fund 17,615
John Hancock Money Market Fund 15,451
John Hancock Sovereign Investors Fund 446
--------
Total Investments 280,831
--------
Contributions Receivable 31,001
--------
Net assets available for benefits $311,832
--------
--------
</TABLE>
The accompanying notes are an integral part of this statement.
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<PAGE>
Startec Employee 401(k) Plan
Statement of Changes in Net Assets Available for Benefits With Fund Information
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
John John John John John
Hancock Hancock Hancock Hancock Hancock
Growth and Emerging Financial Global High Yield
Income Growth Industries Technology Bond
Fund Fund Fund Fund Fund
---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Additions to net assets attributed to:
Investment income-
Net appreciation (depreciation) in fair
value of investments $3,309 $9,578 $2,119 $9,829 $(1,498)
Interest and dividend income 3,787 1,193 504 212 611
---------- -------- ---------- ---------- ----------
7,096 10,771 2,623 10,041 (887)
---------- -------- ---------- ---------- ----------
Contributions-
Participants' 56,523 49,975 42,301 26,331 14,019
Employer's 1,278 1,109 940 611 326
Rollover 19,051 7,832 6,328 4,241 4,241
---------- -------- ---------- ---------- ----------
76,852 58,916 49,569 31,183 18,586
---------- -------- ---------- ---------- ----------
Total additions 83,948 69,687 52,192 41,224 17,699
Deductions from net assets attributed to:
Benefits paid to participants - - - - (15)
Interfund transfers, net 263 (36) (200) 241 (69)
---------- -------- ---------- ---------- ----------
Net increase in net assets 84,211 69,651 51,992 41,465 17,615
Net assets available for benefits, beginning of
year - - - - -
---------- -------- ---------- ---------- ----------
Net assets available for benefits, end of year $84,211 $69,651 $51,992 $41,465 $17,615
---------- -------- ---------- ---------- ----------
---------- -------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
John John
Hancock Hancock
Money Sovereign
Market Investors Contributions
Fund Fund Receivable Total
-------- --------- ------------- --------
<S> <C> <C> <C> <C>
Additions to net assets attributed to:
Investment income-
Net appreciation (depreciation) in fair
value of investments $ - $ (19) $ - $ 23,318
Interest and dividend income 284 33 - 6,624
-------- --------- ------------- --------
284 14 - 29,942
-------- --------- ------------- --------
Contributions-
Participants' 17,621 575 29,540 236,885
Employer's 333 27 1,461 6,085
Rollover 718 - - 42,411
-------- --------- ------------- --------
18,672 602 31,001 285,381
-------- --------- ------------- --------
Total additions 18,956 616 31,001 315,323
Deductions from net assets attributed to:
Benefits paid to participants (3,476) - - (3,491)
Interfund transfers, net (29) (170) - -
-------- --------- ------------- --------
Net increase in net assets 15,451 446 31,001 311,832
Net assets available for benefits, beginning of
year - - - -
-------- --------- ------------- --------
Net assets available for benefits, end of year $15,451 $446 $31,001 $311,832
-------- --------- ------------- --------
-------- --------- ------------- --------
</TABLE>
The accompanying notes are an integral part of this statement.
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<PAGE>
Item 3
Startec Employee 401(k) Plan
Notes to Financial Statements
As of December 31, 1998
1. DESCRIPTION OF THE PLAN:
GENERAL
The following description of the Startec Employee 401(k) Plan (the "Plan") is
provided for general information purposes only. Participants should refer to
the Plan document for a complete description of the Plan's provisions. The
Plan is a defined contribution plan covering all eligible employees, as
defined, which was adopted on January 1, 1998. Employees become eligible to
participate in the Plan on the first day of the month following employment.
The Plan is subject to the provisions of the Employee Retirement Income
Security Act of 1974 ("ERISA").
CONTRIBUTIONS
Participants may contribute, subject to certain restrictions, up to 15 percent
of their compensation to the Plan. These contributions are invested at the
participant's direction into funds administered by John Hancock Funds, Inc.
("John Hancock" or the "Custodian").
Startec Global Communications Corporation (the "Company" or the "Sponsor")
may make discretionary contributions and/or matching contributions, subject
to certain restrictions. There is no minimum hour of service requirement to
receive employer contributions if the participant is employed on the last day
of the Plan year. If the participant leaves the Company prior to the end of
the Plan year, the participant must have completed at least 500 hours of
service during the Plan year in order to receive employer matching
contributions and/or discretionary contributions. In December 1998, the
Company began matching up to five percent of participants' contributions to
the Plan, which is initially invested in the Company's common stock, but may
be transferred at the participant's discretion into other investment vehicles
offered under the Plan. No matching contributions were invested in the
Company's common stock as of December 31, 1998. Prior to December 1998, the
Company matched three percent of the participants' contributions into
investment vehicles designated by the participants. The Company did not make
a discretionary contribution for the plan year ended December 31, 1998.
PARTICIPANT ACCOUNTS
Each participant's account is credited with the participant's contribution, the
Company's contribution, and an allocation of the Plan's earnings. The benefit to
which a participant is entitled is the benefit that can be provided from the
participant's vested account.
VESTING
Participants are immediately vested in their contributions plus actual earnings
thereon. Generally, a participant becomes vested at the rate of 20 percent per
year in all employer contributions.
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FORFEITURES
A participant's nonvested employer contribution may be forfeited if
employment is terminated for any reason other than disability, death, or
normal retirement. If forfeiture occurs, the forfeited amount is first used
to reduce the Plan's administrative expenses and is then used to reduce
future employer contributions. There were no forfeitures for the year ended
December 31, 1998.
BENEFITS
Participants are generally eligible to receive funds from their accounts
under the following circumstances:
- - Attainment of normal retirement age
- - Termination of employment
- - Incurrence of financial hardship, as defined
- - Death or disability
If a participant's vested interest in the account is no more than $5,000,
benefits will be paid in a lump-sum amount. If a participant's vested balance is
more than $5,000, payouts will be in the form of an annuity unless the annuity
option is waived.
PARTICIPANT LOANS
Participants may borrow up to 50 percent of their vested account or $50,000,
whichever is less, with a minimum loan requirement of $1,000. Loans must be
repaid within five years and are repaid in equal installments through payroll
deductions. Loan repayments of principal and interest are invested based on the
participants' current investment elections. The loans are secured by the balance
in the participant's account and bear interest at a rate equal to one percentage
point above the prime lending rate, as defined. The interest rate remains fixed
for the term of the loan. There were no participant loans outstanding as of
December 31, 1998.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires the Plan's management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, and changes
therein, and disclosure of contingent assets and liabilities. Actual results
could differ from those estimates.
BASIS OF ACCOUNTING
The financial statements have been prepared on the accrual basis of accounting
in accordance with generally accepted accounting principles.
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<PAGE>
INVESTMENT VALUATION AND INCOME RECOGNITION
The Plan's investments are stated at fair value. John Hancock uses quoted market
prices to value investments in the Plan. Purchases and sales of securities are
recorded on a trade-date basis. Interest income is recorded on the accrual
basis. Dividends are recorded on the ex-dividend date.
PAYMENT OF BENEFITS
Benefits are recorded when paid.
ADMINISTRATIVE EXPENSES
Administrative expenses of the Plan are paid by the Company in accordance with
the Plan document. Administrative fees paid by the Company totaled $1,394 for
1998.
3. PLAN TERMINATION:
While it has expressed no intent to do so, the Company has the right under the
Plan to discontinue contributions and terminate the Plan at any time. Upon
termination of the Plan, all participants would become fully vested and the
assets of the Plan would be distributed in accordance with the Plan document.
4. INVESTMENTS:
Upon enrollment in the Plan, a participant may direct investments in any of
eight investment fund options. Participants may change their investment options
quarterly. The fund descriptions are as follows:
JOHN HANCOCK GROWTH AND INCOME FUND - This fund invests in a diversified
portfolio of stocks, bonds, and money market instruments. The fund's investment
objective is to seek the highest total return without undue market risk.
JOHN HANCOCK EMERGING GROWTH FUND - This fund invests primarily in common stocks
of emerging companies with market capitalization less than $1 billion.
JOHN HANCOCK FINANCIAL INDUSTRIES FUND - This fund invests primarily in common
stocks of U.S. and foreign financial services companies.
JOHN HANCOCK GLOBAL TECHNOLOGY FUND - This fund invests in common stocks of
foreign and U.S. technology companies.
JOHN HANCOCK HIGH YIELD BOND FUND - This fund invests primarily in lower-rated,
higher-yielding debt securities. The fund's investment objective is to maximize
current income without assuming undue risk.
JOHN HANCOCK MONEY MARKET FUND - This fund invests primarily in U.S.
dollar-denominated money market securities. The fund's investment objective is
to seek the maximum current income that is consistent with maintaining liquidity
and preserving capital.
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<PAGE>
JOHN HANCOCK SOVEREIGN INVESTORS FUND - This fund invests primarily in a
diversified portfolio of stocks. The fund's investment objective is to seek
long-term growth of capital and income without undue market risk.
STARTEC GLOBAL COMMUNICATIONS CORPORATION COMMON STOCK - Funds are invested in
the common stock of the Company that is traded publicly on the National
Association of Securities Dealer Automated Quotations ("NASDAQ") under the
ticker symbol "STGC."
The following investments represent five percent or more of net assets available
for benefits as of December 31, 1998:
<TABLE>
<CAPTION>
<S> <C>
John Hancock Growth and Income Fund $84,211
John Hancock Emerging Growth Fund 69,651
John Hancock Financial Industries Fund 51,992
John Hancock Global Technology Fund 41,465
John Hancock High Yield Bond Fund 17,615
John Hancock Money Market Fund 15,451
</TABLE>
5. INCOME TAX STATUS:
The Company has not obtained a favorable determination letter from the Internal
Revenue Service stating that the Plan is designed in accordance with applicable
requirements of the Internal Revenue Code (the "IRC"). However, the Company
believes that the Plan is designed and is currently being operated in compliance
with the applicable requirements of the IRC.
6. PROHIBITED TRANSACTION:
Effective February 3, 1997, the Department of Labor regulations require
employers who sponsor pension plans to remit employee contributions as of the
earliest date on which such contributions can reasonably be segregated from the
employer's general assets, but in no event more than 15 business days following
the month in which the participant contribution was withheld or received by the
employer. Failure to remit or untimely remittance of participant contributions
may constitute a use of plan assets for the benefit of the employer or a
prohibited extension of credit. The Company did not remit participants'
contributions in a timely manner on several occasions during the year ended
December 31, 1998. Late remittances by the employer to the Plan are presented on
the accompanying schedule of nonexempt transactions (Schedule III). The Company
will pay all excise taxes and interest on behalf of the Plan to the Department
of Labor concurrent with the Plan's Form 5500 filing in order to resolve these
nonexempt transactions.
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<PAGE>
Item 4
Schedule I
Startec Employee 401(k) Plan
Item 27(a) - Schedule of Assets Held for Investment Purposes
As of December 31, 1998
<TABLE>
<CAPTION>
Identity of Issue, Borrower,
Lessor or Similar Party Description Cost Market Value
---------------------------- ----------- ------- ------------
<S> <C> <C> <C>
John Hancock Mutual Fund Growth and Income Fund $ 80,902 $ 84,211
John Hancock Mutual Fund Emerging Growth Fund 60,073 69,651
John Hancock Mutual Fund Financial Industries Fund 49,873 51,992
John Hancock Mutual Fund Global Technology Fund 31,636 41,465
John Hancock Mutual Fund High Yield Bond Fund 19,113 17,615
John Hancock Mutual Fund Money Market Fund 15,451 15,451
John Hancock Mutual Fund Sovereign Investors Fund 465 446
-------- --------
Total $257,513 $280,831
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of this schedule.
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<PAGE>
Schedule II
Startec Employee 401(k) Plan
Item 27(d) - Schedule of Reportable Transactions
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
Expense Market Value Net Gain or
Incurred of Asset on (Loss) on
Purchase Selling Lease with Cost of Transaction Each
Identity of Party Involved Description of Asset Price Price Rental Transaction Asset Date Transaction
- -------------------------- ------------------------- -------- ------- ------ ----------- ------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John Hancock Mutual Fund Growth and Income Fund $76,853 $ - $ - $ - $76,853 $76,853 $ -
John Hancock Mutual Fund Emerging Growth Fund 58,916 - - - 58,916 58,916 -
John Hancock Mutual Fund Financial Industries Fund 49,569 - - - 49,569 49,569 -
John Hancock Mutual Fund Global Technology Fund 31,184 - - - 31,184 31,184 -
John Hancock Mutual Fund High Yield Bond Fund 18,586 - - - 18,586 18,586 -
John Hancock Mutual Fund Money Market Fund 18,672 - - - 18,672 18,672 -
John Hancock Mutual Fund Sovereign Investors Fund 603 - - - 603 603 -
</TABLE>
The accompanying notes are an integral part of this schedule.
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<PAGE>
Schedule III
Startec Employee 401(k) Plan
Item 27(e) - Schedule of Nonexempt Transactions
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
Relationship to Plan, Description of Transactions, including Interest
Employer, or Other Maturity Date, Rate of Interest, Collateral, Amount Incurred on
Identity of Party Involved Party-In-Interest and Par or Maturity Value Loaned Loan
- ----------------------------- -------------------- ---------------------------------------------- ------ -----------
<S> <C> <C> <C> <C>
Startec Global Communications Sponsor Lending of money from the Plan to the employer
Corporation (contributions not remitted on a timely basis
to the Plan), as follows:
Deemed loan dated March 18, 1998,
maturing April 14, 1998, with interest
at 8.91% per annum. $10,212 $ 48
Deemed loan dated April 3, 1998,
maturing April 14, 1998, with interest
at 8.91% per annum. 10,420 18
Deemed loan dated April 20, 1998,
maturing April 22, 1998, with interest
at 8.91% per annum. 10,176 5
Deemed loan dated May 5, 1998,
maturing June 17, 1998, with interest
at 8.91% per annum. 10,074 77
Deemed loan dated May 20, 1998,
maturing June 17, 1998, with interest
at 8.91% per annum. 10,047 50
Deemed loan dated June 3, 1998,
maturing June 17, 1998, with interest
at 8.91% per annum. 10,406 26
Deemed loan dated July 3, 1998,
maturing August 14, 1998, with interest
at 8.91% per annum. 10,162 75
Deemed loan dated July 20, 1998,
maturing August 14, 1998, with interest
at 8.91% per annum. 11,536 54
Deemed loan dated August 5, 1998,
maturing August 14, 1998, with interest
at 8.91% per annum. 11,153 19
Deemed loan dated August 19, 1998,
maturing October 1, 1998, with interest
at 8.91% per annum. 12,428 95
Deemed loan dated September 3, 1998,
maturing October 1, 1998, with interest
at 8.91% per annum. 12,777 63
Deemed loan dated September 18, 1998,
maturing October 1, 1998, with interest
at 8.91% per annum. 12,031 27
Deemed loan dated October 20, 1998,
maturing December 7, 1998, with interest
at 8.91% per annum. 12,618 106
Deemed loan dated November 4, 1998,
maturing December 7, 1998, with interest
at 8.91% per annum. 12,663 72
Deemed loan dated November 18, 1998,
maturing December 7, 1998, with interest
at 8.91% per annum. 12,850 41
Deemed loan dated December 3, 1998,
maturing December 7, 1998, with interest
at 8.91% per annum. 14,888 7
Deemed loan dated December 18, 1998,
maturing January 4, 1999, with interest
at 8.91% per annum. 15,002 41
Deemed loan dated May 20, 1998,
maturing June 18, 1999, with interest
at 8.91% per annum. 610 43
Deemed loan dated October 1, 1998,
maturing June 18, 1999, with interest
at 8.91% per annum. 104 5
-------- -----
$200,157 $ 872
-------- -----
-------- -----
</TABLE>
The accompanying notes are an integral part of this schedule.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Trustees have duly caused this annual report to be signed on its behalf by
the undersigned thereunto duly authorized.
STARTEC GLOBAL COMMUNICATIONS
CORPORATION
STARTEC EMPLOYEE 401(k) PLAN
By /s/ Prabhav V. Maniyar
-------------------------
Prabhav V. Maniyar
Trustee, STARTEC Employee 401(k) Plan
Date: June 29, 1999
