SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act
of 1934
(Amendment No. )
Filed by the Registrant[ ]
Filed by a Party other than the Registrant[X]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
EXECUTIVE TELECARD, LTD.
(Name of Registrant as Specified in Its Charter)
GORSUCH KIRGIS L.L.C.
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on
which the filing fee is calculated and state how it was
determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date
of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
EXECUTIVE TELECARD, LTD.
8 AVENUE C
NANUET, NEW YORK 10954
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 26, 1996
--------------------------------
To the Stockholders of Executive TeleCard, Ltd.:
NOTICE HEREBY IS GIVEN that the Annual Meeting of Stockholders (the
"Meeting") of Executive TeleCard, Ltd., a Delaware corporation (the
"Company"), will be held on Friday, July 26, 1996 at the Westchester
Marriott, 670 White Plains Road, Tarrytown, New York 10591 at 10:00 a.m.
Eastern Time, and thereafter as it may from time to time be adjourned, for
the purposes stated below:
1. The election of six (6) directors of the Company to serve until
the next annual meeting of stockholders and until their successors have
been duly elected and qualified;
2. The ratification of the appointment of BDO Seidman, LLP as the
independent certified public accountants of the Company for the fiscal
year ending March 31, 1997;
3. The approval of an amendment to the Company's Certificate of
Incorporation increasing the authorized number of shares of the Company's
Common Stock to 100,000,000 shares;
4. The approval of an amendment to the Company's Certificate of
Incorporation authorizing the issuance of up to 5,000,000 shares of a new
class of preferred stock;
5. The approval of an amendment to the Company's Certificate of
Incorporation adding a provision that requires any action required or
permitted to be taken by the stockholders to be effected at a duly called
annual or special meeting of stockholders and not by a consent in writing
by stockholders;
6. The approval and ratification of the Company's 1995 Employee
Stock Option and Appreciation Rights Plan;
7. The approval and ratification of the Company's 1995 Directors
Stock Option and Appreciation Rights Plan; and
8. The transaction of such other business as may properly come
before the Meeting or any adjournment thereof.
All stockholders of the Company are cordially invited to attend the
Meeting. Only holders of record of the Company's $.001 par value Common
Stock at the close of business on June 14, 1996, will be entitled to
notice of and to vote at the Meeting and any adjournment or adjournments
thereof. The stock transfer books of the Company will not be closed.
All stockholders, whether or not they expect to be present at the
Meeting in person, are urged to sign and date the enclosed Proxy and
return it promptly in the enclosed postage-paid envelope which requires no
additional postage if mailed in the United States. The giving of a Proxy
will not affect your right to vote in person if you attend the Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
June 27, 1996 Edward J. Gerrity, Jr.
Chairman of the Board
<PAGE>
EXECUTIVE TELECARD, LTD.
8 AVENUE C
NANUET, NEW YORK 10954
Telephone: (914) 627-2060
Telecopier: (914) 627-3631
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 26, 1996
The enclosed Proxy is solicited by and on behalf of the Board of
Directors of Executive TeleCard, Ltd., a Delaware corporation (the
"Company"), for use at the Annual Meeting of Stockholders for fiscal 1996
(the "Meeting") to be held on July 26, 1996 at 10:00 a.m. Eastern Time, at
the Westchester Marriott, 670 White Plains Road, Tarrytown, New York 10591
and any adjournment thereof. It is anticipated that this Proxy Statement
and the accompanying Proxy will be mailed to the Company's stockholders on
June 27, 1996.
Any person signing and returning the enclosed Proxy may revoke it at
any time before it is voted by (i) giving a later dated written revocation
of Proxy to the Company, (ii) providing a later dated amended Proxy to the
Company, or (iii) voting in person at the Meeting. The expense of
soliciting Proxies, including the cost of preparing, assembling and
mailing this Proxy material to stockholders, will be borne by the Company.
It is anticipated that solicitations of Proxies for the Meeting will be
made only by use of the mails; however, the Company may use the services
of its directors, officers and employees to solicit Proxies personally or
by telephone, without additional salary or compensation to them therefor.
Brokerage houses, custodians, nominees and fiduciaries will be requested
to forward the proxy soliciting materials to the beneficial owners of the
Company's shares held of record by such persons, and the Company will
reimburse such persons for the reasonable out-of-pocket expenses incurred
by them in that connection.
All shares represented by valid Proxies will be voted in accordance
therewith at the Meeting.
SHARES OUTSTANDING AND VOTING RIGHTS
All voting rights are vested exclusively in the holders of the
Company's $.001 par value common stock ("Common Stock"), and only
stockholders of record at the close of business on Friday, June 14, 1996,
are entitled to notice of and to vote at the Meeting or any adjournment
thereof. On June 14, 1996, the Company had 14,408,626 shares of its
Common Stock outstanding, each share of which is entitled to one vote on
all matters to be voted upon at the Meeting, including the election of
Directors. Cumulative voting in the election of Directors is not
permitted. All references in this Proxy Statement to share numbers
include any stock dividends distributed through March 31, 1996, where
applicable. Such references do not, however, include a proposed 10% stock
dividend to stockholders of record as of June 14, 1996 which dividend will
be effective only if the stockholders approve the proposal for the
increase in the authorized number of shares of Common Stock. See
"Proposal to Increase Authorized Shares of Common Stock" below.
A majority of the Company's outstanding Common Stock represented in
person or by Proxy and entitled to vote will constitute a quorum at the
Meeting. Any stockholder present in person or by Proxy who abstains from
voting on any particular matter described herein will be counted for
purposes of determining a quorum. For purposes of voting on the matters
described herein, at any meeting of stockholders at which a quorum is
present, the affirmative vote of a plurality of the shares of Common Stock
present or represented by Proxy at the Meeting is required to elect the
six nominees for Directors. The affirmative vote of a majority of the
shares of Common Stock outstanding and entitled to vote will be required
to approve the amendments to the Certificate of Incorporation. The
affirmative vote of a majority of the shares present or represented by
Proxy at the Meeting will be required to approve the other matters at the
Meeting. In such a case, the aggregate number of votes cast by all
stockholders present in person or by Proxy will be used to determine
whether a motion will carry. Accordingly, an abstention from voting on a
matter by a stockholder present in person or by Proxy at the Meeting will
have no effect on the item on which the stockholder abstains from voting.
In addition, although broker "non-votes" will be counted for purposes of
determining a quorum, they will have no effect on the vote on matters at
the Meeting. All valid Proxies received may be voted at the discretion of
the Proxies named therein for adjournments or postponements or other
matters that may properly come before the Meeting. The Proxies may
exercise their discretion to vote all valid Proxies for an adjournment or
postponement in the absence of a quorum, to the extent necessary to
facilitate the tabulation process, in the event of a judicial occurrence
that impacts the Meeting, in the event that the accuracy or adequacy of
any material disclosures are materially in doubt, or to the extent
necessary to address any alleged deficiency or dispute that may arise at
the Meeting.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth the number and percentage of shares of
the Company's Common Stock owned beneficially, as of May 28, 1996, by any
person who is known to the Company to be the beneficial owner of 5% or
more of such Common Stock. Information as to beneficial ownership is
based upon statements furnished to the Company by such persons.
<TABLE>
<CAPTION
Number of Shares Percent of
Name and Address Owned of Record Common Stock
of Beneficial Owner and Beneficially(1) Outstanding
<S> <C> <C>
Network Data Systems
Limited(2)(3) 1,565,976 10.9%
44 The Fairways II
Cranberry Village
Colingwood, Ontario L9Y 459
(1) For purposes of this table, "beneficial ownership" is used as defined
in Rule 13d-3 of the Securities and Exchange Act of 1934, as amended.
(2) Pursuant to an agreement between the Company and NDS dated March 27,
1995 (the "Settlement Agreement"), NDS has granted to the Company an
irrevocable proxy for two years beginning April 1995 to attend
general and special meetings of the stockholders of the Company with
full power to vote all of the Company's shares beneficially owned or
controlled by NDS in favor of the nominees for Director proposed by
the Board. The Settlement Agreement resolved certain claims and
potential claims by and between the Company and NDS arising out of
the purchase and sale of Company stock by NDS. Pursuant to the
Settlement Agreement, NDS paid the sum of $350,000 to the Company and
agreed not to compete with the Company or solicit Company employees
for three years.
(3) Includes 336,420 shares (53.4% of 630,000 shares) of the Company's
Common Stock owned by Residual Corporation. NDS is the shareholder
of record of 11,348,500 shares (53.4%) of the outstanding shares of
Residual. If all of the 630,000 shares of the Company owned by
Residual were included, the number of shares held by NDS would
increase to 1,859,556 (12.9%). NDS disclaimed beneficial ownership
of the shares owned by Residual in its statement filed with the
Company. If the shares owned by Residual were not included, NDS
would hold 1,229,556 shares (8.53%).
</TABLE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the number and percentage of shares of
the Company's Common Stock owned beneficially, as of May 28, 1996, by each
Director and nominee for Director of the Company, by each Executive
Officer of the Company, and by all Directors and Executive Officers of the
Company as a group. Information as to beneficial ownership is based upon
statements furnished to the Company by such persons. For purposes of this
disclosure, the amount of the Company's Common Stock beneficially owned is
the aggregate number of shares of Common Stock outstanding on such date
plus an amount equal to the aggregate amount of Common Stock which could
be issued upon the exercise of stock options within 60 days of such date
by each individual.
<TABLE>
<CAPTION>
Amount of
Shares
Name and Address Beneficially Percent
of Beneficial Owner Owned of Class
<S> <C> <C>
Edward J. Gerrity, Jr. 68,810(1) *
7 Sunset Lane
Rye, New York 10580
Anthony Balinger 22,100(1) *
Room 2503-A, CLI Building
313-317 Hennessy Road
Wanchai, Hong Kong
Stig Sonnerberg 10,000(1) *
Stavgardsgatan 76
516130 Bromma, Sweden
David W. Warnes 10,000(1) *
1330 Charleston Road
Mountain View, California 94043
Richard A. Krinsley 25,620(2) *
201 West Lyon Farm
Greenwich, Connecticut 06831
Ebrahim Ali Abdul Aal 137,802(2) *
Alia Commercial Centre, 9th Floor
Diplomatic Area
P.O. Box 20620
Manama, State of Bahrain
Robert N. Schuck 103,309(3)(4) *
85 Somerset Road
Norwood, New Jersey 07648
Allen Mandel 69,910(1) *
9362 S. Mountain Brush Street
Highlands Ranch, Colorado 80126
All Named Executive Officers
and Directors as a Group 447,551 3.1%
(8 persons)(5)
- - ------------------------
* Less than 1%
(1) Consists solely of options to purchase Common Stock.
(2) Includes options to purchase 10,000 shares of Common Stock.
(3) Includes options to purchase 76,769 shares of Common Stock and 11,645
shares held by Mr. Schuck and 14,895 shares held by Mr. Schuck's
wife.
(4) Does not include 1,229,556 shares of Common Stock owned of record by
Network Data Systems, Ltd. ("NDS"). Mr. Schuck owns approximately
6.6% of NDS' issued and outstanding common stock. See "Security
Ownership of Certain Beneficial Owners" above. Mr. Schuck also owns
75,000 shares of Residual Corporation's common stock (less than 1% of
its issued and outstanding common stock). See "Transactions with
Management and Others".
(5) Includes options to purchase 277,589 shares of Common Stock.
</TABLE>
ELECTION OF DIRECTORS
The Board of Directors recommends the election as Directors of the
six (6) nominees listed below. The Board's recommendation as nominees
includes all of the Directors elected at the last annual meeting of
stockholders. The six nominees, if elected, will hold office until the
next annual meeting of stockholders and until their successors are elected
and qualified or until their earlier death, resignation or removal. IT IS
INTENDED THAT SHARES REPRESENTED BY PROXIES IN THE ACCOMPANYING FORM WILL
BE VOTED "FOR" THE ELECTION OF THE NOMINEES NAMED BELOW UNLESS A CONTRARY
DIRECTION IS INDICATED. If at the time of the Meeting any of the nominees
named below should be unable to serve, which event is not expected to
occur, the discretionary authority provided in the Proxy will be exercised
to vote for such substitute nominee or nominees, if any, as shall be
designated by the Board of Directors.
The following table sets forth the name and age of each nominee for
Director, indicating all positions and offices with the Company currently
held by him, and the period during which he has served as a Director:
<TABLE>
<CAPTION>
Director
Name of Nominee Age Position With the Company Since
<S> <C> <C> <C>
Edward J. Gerrity, Jr. 72 Chairman of the Board 1987
Anthony Balinger 42 President and Chief Operating
Officer, Director 1995
Stig Sonnerberg 45 Director and Senior
Vice President 1995
David W. Warnes 50 Director 1995
Richard A. Krinsley 66 Director 1995
Ebrahim Ali Abdul Aal 55 Director 1995
</TABLE>
None of the nominees hold directorships in any other company having
a class of securities registered under the Securities Exchange Act of
1934, as amended, or in any company registered as an investment company
under the Investment Company Act of 1940, as amended, except Mr. Krinsley
who is a director of Scholastic, Inc., a publicly traded company.
MEETINGS AND COMMITTEES OF THE BOARD
The Board is entrusted with managing the business and affairs of the
Company. Pursuant to the powers bestowed upon the Board by the Bylaws,
the Board may establish committees from among its members. In addition,
the Bylaws provide that the Board must annually appoint officers of the
Company to manage the affairs of the Company on a day to day basis as set
forth in the Bylaws or as otherwise directed by the Board. The Company
does not have a Nominating Committee. During fiscal 1996, there were a
total of five meetings held by the Board of Directors. Both Messrs.
Warnes and Abdul Aal attended two of the four meetings held after their
election on June 30, 1995. Mr. Warnes was a resident of Sweden and Mr.
Abdul Aal is a resident of the State of Bahrain and Board meetings were
usually held in New York. Notwithstanding their failure to attend two
meetings in fiscal 1995 because of the geographical distance involved, the
Company believes that both Mr. Warnes and Mr. Abdul Aal have been and will
continue to be effective Directors of the Company.
The Executive Committee oversees activities in those areas not
assigned to other committees of the Board and has the full power and
authority of the Board to the extent permitted by Delaware law. The
Company's Executive Committee is presently comprised of Messrs. Gerrity,
Sonnerberg and Balinger, with Mr. Gerrity serving as Chair. The Executive
Committee held one meeting in fiscal 1996.
The Audit Committee's duties include selection of the firm of
certified public accountants to audit and report on the financial
statements of the Company for the fiscal year for which they are
appointed, monitoring the effectiveness of the audit and the Company's
financial and accounting organization and financial reporting, and
consulting with the independent auditors concerning the adequacy of
internal controls. The Company's Audit Committee is presently comprised
of Messrs. Sonnerberg, Krinsley and Abdul Aal, with Mr. Sonnerberg serving
as Chair. The Audit Committee held one meeting during fiscal 1996.
The Stock Option Committee makes recommendations to the Board with
respect to the grant of stock options and eligibility requirements,
including grants under and the requirements of the Company's stock option
plans (collectively, the "Option Plans"). At the beginning of fiscal
1996, the Company's Stock Option Committee was comprised of Messrs.
Sonnerberg, Balinger and Gerrity. Mr. Warnes replaced Mr. Gerrity on
December 14, 1995. The Stock Option Committee held three meetings during
fiscal 1996.
During fiscal 1996, the Compensation Committee was comprised of
Messrs. Gerrity, Sonnerberg and Krinsley. This Committee, which is
responsible for approving all compensation for senior officers and
employees, held no meetings during fiscal 1996.
In June 1996 the Compensation Committee will be merged into the
Stock Option Committee and the combined committee, which will be known as
the Compensation Committee, will assume the functions formerly performed
by both committees. The Committee will be comprised of Messrs.
Sonnerberg, Krinsley and Warnes, with Mr. Warnes serving as Chair.
A committee of the Board known as the Special Committee of
Independent Directors (the "Independent Committee") was established in
November 1994 for the purpose of investigating the facts and circumstances
giving rise to various legal and regulatory matters involving the Company
and the Board at or about that time. The Independent Committee was
empowered to make recommendations to the Board that the Company undertake
necessary and appropriate actions in order to investigate and respond to
legal and regulatory matters, including without limitation instituting,
maintaining, defending and seeking dismissal of legal actions, responding
to regulatory inquires and engaging the services of professional advisors
to assist it in carrying out such responsibilities. When the Independent
Committee's work came to be limited to advising the Board with respect to
material litigation involving the Company, by a unanimous resolution of
the Board on June 30, 1995, the Independent Committee was renamed the
Independent Special Litigation Committee (the "Litigation Committee").
The Litigation Committee is presently comprised of Messrs. Gerrity and
Sonnerberg, with Mr. Gerrity as Chair. The Litigation Committee held one
meeting during fiscal 1996.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Set forth below are the names of all Directors and Executive
Officers of the Company, their ages, all positions and offices held by
each such person, the period during which he has served as such, and the
principal occupations and employment of each such person during the last
five years:
EDWARD J. GERRITY, JR., age 72, has been a Director of the Company
since its inception. He is a business consultant and President of Ned
Gerrity & Associates, a consulting firm, begun in 1985. Mr. Gerrity also
serves as Chairman of the Company's Board of Directors. Mr. Gerrity
served as an officer of ITT Corp. from 1961 to 1985. While at ITT Corp.,
he was a member of the Management Policy Committee, Director of Corporate
and Government Relations on a worldwide basis and a Director of several
ITT Corp. subsidiaries. He retired from ITT Corp. in February 1985. Mr.
Gerrity was the President of American National Collection Corp., a New
York corporation, from 1993 to 1995 and he was a director of Residual
Corporation (formerly International 800 Telecom Corp.), a publicly held
company, from 1987 until October 1994. See "Transactions with Management
and Others" below.
ANTHONY BALINGER, age 42, has been a Director of the Company since
March 15, 1995, and has served as the Company's President and Chief
Operating Officer since April 25, 1995. He has held a variety of
positions at the Company since his arrival in 1993, including Director of
the Company's Asia-Pacific Operations. Mr. Balinger started his career in
1971 with British Telecom as a digital systems design engineer. In 1983,
he joined the Cable & Wireless Federation, an international alliance of
companies that provide telephone, cable and wireless operations in over 50
countries, where he performed much of the early design work for the
Mercury Communications Optical Fiber National Digital Network. In 1989,
Mr. Balinger moved to New York where he headed the Banking and Finance
division for Cable & Wireless Americas, Inc. from 1989 to 1992. In 1992,
while still at Cable & Wireless, Mr. Balinger was appointed International
Product Manager for Optus Communications, where he remained until he
joined the Company.
STIG SONNERBERG, age 45, has been a Director of the Company since
March 29, 1995. He has been Senior Vice President of European Operations
since November 1995. He has been the Manager for Corporate Account
Development for American Express Scandinavia and First Card AB (a credit
card company offering services linked to Swedish corporations) since
January 1994. First Card AB was the Company's first credit card customer
and is still a customer of the Company. Prior to 1994, Mr. Sonnerberg was
the Marketing Manager and then the Manager for Product Development for two
years for First Card, Stockholm. During 1989, Mr. Sonnerberg was employed
by Nyman & Schultz, Stockholm, as a Product Manager, Charge Cards. He was
a Manager at American Express in 1988 for Travel Sweden and in 1987 for
Travel Stockholm. Between the years of 1981 and 1986, Mr. Sonnerberg held
various positions with SJT Travel in Stockholm. Mr. Sonnerberg is a
citizen of Sweden.
DAVID W. WARNES, age 50, has been a Director since June 30, 1995.
He currently holds the positions of President and Chief Executive Officer
of Vitacom, which provides satellite communications in the Far East and
Latin America, a company he joined in October 1995 as Chief Operating
Officer. From August 1994 until October 1995 he was Assistant Managing
Director (Deputy CEO) of Tele2, Sweden, a member of the Cable & Wireless
Federation. From 1992 to 1994, Mr. Warnes was Vice President Operations
of Tele2, and in that role launched card services for Tele2 with the
Company. Mr. Warnes has been in the telecommunications industry since
1962. From 1962 to 1992, he held various management positions at Mercury
Communications Ltd., Cable & Wireless and Commonwealth Telecommunications
Organization. Mr. Warnes is a Chartered Engineer, is a Fellow of the
Institute of Electrical Engineers and has extensive telecommunications
engineering experience.
RICHARD A. KRINSLEY, age 66, has been a Director of the Company
since June 30, 1995. Mr. Krinsley retired in 1991 as the Executive Vice
President and Publisher of Scholastic, Inc., a publicly held company
traded on Nasdaq. He is presently, and has been since 1991, a member of
Scholastic's Board of Directors. While employed by Scholastic between
1983 and 1991, Mr. Krinsley, among many other duties, served on that
company's management committee. From 1961 to 1983, Mr. Krinsley was
employed by Random House where he held, among other positions, the post of
Executive Vice President. At Random House, Mr. Krinsley also served on
that company's executive committee. Mr. Krinsley earned a B.A. in 1952
from the University of Michigan.
EBRAHIM ALI ABDUL AAL, age 55, has been a Director of the Company
since June 30, 1995. He has been the Chairman and Managing Director of
the Ebrahim Abdul Aal Group of Companies since 1987, which he founded, as
well as Interlink W.L.L. The Abdul Aal group of companies specializes in
a wide range of fields, including communications, electronics, financial
consulting, safety and security, construction and petroleum development.
In that capacity, Mr. Abdul Aal, among other things, analyzes market
trends enabling Middle Eastern and international corporations to develop
new markets in the Middle East. From 1984 to 1987, Mr. Abdul Aal was the
Managing Director and Chief Executive Officer of another diversified
business group, TAJ Group W.L.L., in Bahrain. Mr. Abdul Aal was the
founder and proprietor of Abdul Aal Construction Services from 1976 to
1983. He holds a bachelor's degree in business administration from the
Gulf University in Bahrain. He is a citizen of Bahrain.
ROBERT N. SCHUCK, age 59, was a Director of the Company from its
inception until June 30, 1995. In September 1988 he was appointed as a
Vice President of the Company, and subsequently as Executive Vice
President, until June 30, 1995, when he resigned from that position in
connection with the then ongoing proxy contest. He acted as a consultant
to the Company pursuant to a written consulting agreement until he was
reappointed as Executive Vice President on September 27, 1995. Pursuant
to that agreement, Mr. Schuck is responsible for, among other things,
negotiating revenue sharing arrangements and enhancement agreements with
Postal, Telegraph and Telephone authorities, card companies, Company
customers and business partners. Mr. Schuck is a director of the
following corporations: B.C. Communications, Inc., Power Tech Systems,
Inc., and Solar Age Industries, Inc. He is also a director and president
of HITK Corporation. He also serves as Executive Vice President of most
of the Company's principal subsidiaries. He was formerly a director and
officer of Residual Corporation. See "Transactions with Management and
Others" below.
ALLEN MANDEL, age 57, was named Senior Vice President in 1991 and a
Director of the Company in 1990. He resigned from the Board of Directors
on March 29, 1995 and as Senior Vice President on August 18, 1995 in
connection with the then ongoing proxy contest. Mr. Mandel was engaged to
serve as a consultant to the Company concerning accounting and financial
matters on August 18, 1995 and was renamed an officer of the Company on
September 27, 1995, when he became Executive Vice President - Finance and
Administration. Mr. Mandel is a Certified Public Accountant. He was an
officer of Residual Corporation from 1990 to March 1995. See
"Transactions with Management and Others" below.
Directors are elected annually and hold office until the next annual
meeting of stockholders and until their successors are elected and
qualified. Executive Officers serve at the pleasure of the Board or until
the next annual meeting of stockholders. There are no family
relationships between the Company's Directors and Executive Officers.
CERTAIN LITIGATION
As a result of, or in connection with, the 1995 proxy contest for
the Company, the Company was involved in certain litigation adverse to now
former officers and directors of the Company as follows:
THEODORE MAYER LITIGATION. (Mayer v. Executive TeleCard, Ltd., No.
95 Civ. 5403 (RWS), U.S.D.C., S.D.N.Y.; Mayer v. Executive TeleCard, Ltd.,
No. 14459, Chancery Court of Delaware, New Castle County; Executive
TeleCard, Ltd. v. Mayer, No. 95 Civ. 9641 (LLS), U.S.D.C., S.D.N.Y.)
Theodore Mayer, a former officer of the Company, brought an action
in federal district court in New York for reimbursement of attorneys fees,
which he claims to be approximately $44,000, expended in litigation
between the Company and the dissident shareholder group based upon the
indemnification provisions of the Company's Bylaws. While an officer of
the Company and thereafter, Mayer was involved in the dissident challenge
for control of the Company in 1994 by, among other things, providing the
dissidents with confidential information of the Company. Mayer's actions
formed the basis for a counterclaim by the Company against Mayer for,
among other things, breach of fiduciary duty to the Company.
Mr. Mayer also brought an action in Delaware Chancery Court for
reimbursement of $57,000 in attorney's fees pursuant to the
indemnification provisions of the Company's Bylaws relating to class
action litigation brought against Mayer in the Northern District of
Illinois. Mayer has brought a motion for summary judgment, claiming that,
as a matter of law, he is entitled to reimbursement, to which the Company
has filed a response. The motion is presently pending.
Finally, the Company has brought an action in federal district court
in New York pursuant to Section 16(b) of the Securities Exchange Act
against Mayer alleging short-swing trading by Mayer while he was an
executive officer of the Company. Mr. Mayer's liability could exceed
$300,000. Discovery in this case commenced in the third week of March
1996 and is ongoing.
DARYL ENGELMAN LITIGATION. (Engelman v. Executive TeleCard, Ltd.,
Claim No. 77 116 0137 95, American Arbitration Association; Executive
TeleCard, Ltd. v. Engelman, No. 96-B-46, U.S.D.C., D. Colo.; Executive
TeleCard, Ltd. v. Engelman, et. al, No. 95 Civ. 9505, U.S.D.C., S.D.N.Y.,
Executive Telecard, Ltd. v. Engelman, No. 96 CV 1659, Colo. Dist. Ct.
(Denver)).
In the late fall of 1995, Daryl Engelman, the former president of
the Company, initiated an arbitration proceeding against the Company based
upon his termination in the spring of 1995, alleging that the termination
followed a change of control of the Company. An arbitration award in
excess of $195,000, as well as a grant of option to purchase 25,000 shares
of the Company's Common Stock at the fair market value on March 2, 1993,
was rendered in favor of Mr. Engelman. An action to vacate this award has
been filed in federal district court in Colorado, and is currently
pending.
While president of the Company, Mr. Engelman employed Dan Mell as a
vice president and financial officer of the Company without board
approval, which is required by the Bylaws of the Company. The Board of
Directors refused to ratify Mell's employment. As a consequence, Mell
sued the Company and obtained a judgment of approximately $35,000 based
upon Engelman's execution of an employment agreement with Mell. The
Company has filed an action against Engelman in Colorado state court for
the amount of the judgment obtained by Mell.
During the proxy contest, Mr. Engelman, while still president of the
Company, joined with the dissidents in their attempt to seize control of
the Company and took actions which were, in the Company's view, violative
of his duties as an officer of the Company and contrary to the Company's
interests. John Nugent, a nominee of the dissidents and a consultant to
the Company, also engaged in certain actions which the Company believes
constituted both self-dealing and breaches of his duty to the Company as a
consultant and interfered with the Company's business relationship with at
least one major potential customer.
The Company commenced litigation against Mr. Engelman and Mr.
Nugent, who both supported the dissident shareholders in 1994, alleging
that they conspired together to attempt to seize control of the Company in
breach of their fiduciary duties. (Claims in that action previously
asserted against Walter Krauth have recently dropped in connection with a
global settlement with Mr. Krauth. For further information concerning the
settlement with Mr. Krauth, see Item 3, Legal Proceedings, of Part I of
the Company's Annual Report on Form 10-K for the year ended March 31,
1996.) A motion by Mr. Nugent to dismiss on jurisdictional grounds was
recently denied.
The litigation was filed by the Company in federal district court in
New York and is at an initial stage. In a related action entitled
Executive TeleCard, Ltd. v. Carl Corcoran, defendant Corcoran is also
being sued by the Company for breach of his fiduciary duty based upon
actions taken by him as an officer and director of the Company in
attempting to assist the dissident shareholders in seizing control of the
Company.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table summarizes the compensation for the three fiscal
years ended March 31, 1996, 1995 and 1994 of the Company's Chief Operating
Officer and next mostly highly compensated Executive Officers whose salary
and bonus exceed $100,000.
<TABLE>
<CAPTION>
Annual Compensation
Other
Annual
Name and Salary Bonus Compensation
Principal Position Year ($) ($) ($)
<S> <C> <C> <C> <C>
Anthony Balinger 1996 $ 86,673 $ 0 $27,000(1)
President and COO(2) 1995 70,000 0 27,000(1)
1994 40,883 0 15,750(1)
Robert N. Schuck 1996 $101,635 $ 0 $ 0
Executive Vice 1995 100,000 0 0
President(3) 1994 100,000 10,000 0
Allen Mandel 1996 $101,635 $ 0 $ 0
Executive Vice 1995 100,000 0 0
President(3) 1994 100,000 0 0
Daryl Engelman 1996 $ 15,846 $ 0 $ 0
former President 1995 91,981 0 2,126
and COO(3)(4) 1994 88,000 10,000 9,000
</TABLE>
<TABLE>
<CAPTION>
Restricted Securities
Name and Stock Underlying
Principal Position Year Awards($) Options/SARs(#)
<S> <C> <C> <C>
Anthony Balinger 1996 $0 10,000
President and COO 1995 0 0
1994 0 12,100
Robert N. Schuck 1996 $0 50,000
Executive Vice 1995 0 8,800
President 1994 0 17,968
Allen Mandel 1996 $0 50,000
Executive Vice 1995 0 6,600
President 1994 0 13,310
Daryl Engelman 1996 $0 25,000
former President 1995 0 3,300
and COO (former)(4) 1994 0 13,310
- - ---------------------
(1) Consists of an annual housing allowance paid to Mr. Balinger while
he resides in Hong Kong.
(2) In fiscal 1995, Mr. Balinger's salary was paid by a Hong Kong
subsidiary of the Company, which received funds from Service 800,
S.A., a subsidiary of Residual Corporation ("Residual"), that was
acquired by the Company from Residual on March 31, 1995 pursuant to
an Asset Purchase Agreement. See "Transactions with Management and
Others" below.
(3) In fiscal 1994 and 1995, the salaries and bonuses of Messrs. Schuck,
Mandel and Engelman were paid by Fintel Services Inc. pursuant to a
Service Agreement between the Company and Residual. See
"Transactions with Management and Others" below.
(4) Mr. Engelman's employment was terminated by the Company on April 25,
1995. The options received by Mr. Engelman in fiscal 1996 were
based on an arbitration award after Mr. Engelman's termination and
expired on or about April 3, 1996. See "Certain Litigation" above.
</TABLE>
Option/SAR Grants in Last Fiscal Year
The following table sets forth the information concerning individual
grants of stock options and stock appreciation rights ("SARs") during the
last fiscal year to each of the named Executive Officers.
Individual Grants
<TABLE>
<CAPTION>
Percent of
Number of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees in Base Price Expiration
Name Granted (#)(1) Fiscal Year(2) ($/share) Date
<S> <C> <C> <C> <C>
Anthony Balinger 10,000(3) 2.0% $6.00 12/15/05
Robert N. Schuck 50,000(4) 9.9% $6.00 12/15/05
Allen Mandel 50,000(4) 9.9% $6.00 12/15/05
Daryl Engelman 25,000(5) 0%(5) $5.353(5) 03/31/96
</TABLE>
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumable
Annual Rates of Stock
Price Appreciation for
Option Term
Name 5%($) 10%($)
<S> <C> <C>
Anthony Balinger $ 37,800 $ 95,400
Robert N. Schuck $189,000 $477,000
Allen Mandel $189,000 $477,000
Daryl Engelman $ 84,310 $212,783
- - -----------------------
(1) All of the options and related SARs granted in fiscal 1996 to the
named Executive Officers, except Mr. Engelman, have a ten year term
and were not exercisable until June 15, 1996.
(2) A total of 506,700 options were granted to employees of the Company
in fiscal 1996, not including Mr. Engelman's options.
(3) All of the options granted to Mr. Balinger were incentive stock
options granted in tandem with SARs.
(4) Of the grants to Messrs. Schuck and Mandel, 16,666 were incentive
stock options granted in tandem with SARs and 33,334 were
nonqualified stock options granted in tandem with SARs.
(5) Mr. Engelman's employment was terminated by the Company on April 25,
1995. The options received by Mr. Engelman were based on an
arbitration award after Mr. Engelman's termination and were not
included in the total for all employees in fiscal 1996. None of
these options were exercised by Mr. Engelman prior to their
expiration on or about April 3, 1996. See "Certain Litigation"
above.
</TABLE>
Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option/SAR Values
The following table sets forth information concerning each exercise
of stock options during the last fiscal year by each of the named
Executive Officers and the fiscal year end value of unexercised options.
<TABLE>
<CAPTION>
Number of Securities
Shares Value Underlying Unexercised
Acquired on Realized Options/SARs at
Name Exercise(#) ($) Fiscal Year End(#)(1)(2)
Exercisable Unexercisable
<S> <C> <C> <C> <C>
Anthony Balinger 0 $0 12,100 10,000
Robert N. Schuck 0 $0 26,769 50,000
Allen Mandel 0 $0 19,910 50,000
Daryl Engelman 0 $0 25,000(3) 0
</TABLE>
<TABLE>
<CAPTION>
Value of Unexercised "In the
Money" Options at Fiscal
Year-End ($)(2)
Exercisable Unexercisable
<S> <C> <C>
Anthony Balinger $0 $30,000
Robert N. Schuck $35,661 $150,000
Allen Mandel $25,538 $150,000
Daryl Engelman $91,175 $0
_______________________
(1) Represents the aggregate number of stock options held as of March 31,
1996, including those which can and those which cannot be exercised
pursuant to the terms and provisions of the Company's current stock
option plans.
(2) Values were calculated by multiplying the closing transaction price
of the Common Stock as reported on the Nasdaq National Market on
March 31, 1996 of $9.00 by the respective number of shares of Common
Stock and subtracting the exercise price per share, without any
adjustment for any termination or vesting contingencies.
(3) Mr. Engelman's options expired after fiscal year end 1996 on or about
April 3, 1996.
</TABLE>
Directors' Compensation
During the fiscal year ended March 31, 1996, each non-officer member
of the Board received a Directors fee of $1,500 for each regular Board
meeting attended; Directors who are also officers did not receive such
fees. All Directors of the Company are also reimbursed for expenses
incurred in connection with attendance at Board meetings. Mr. Gerrity,
who spent a considerable amount of time working on matters related to the
Independent Committee, received $5,000 in February 1995 for those efforts.
The other members of that committee did not receive any compensation.
Under the Company's Directors Stock Option and Appreciation Rights Plan,
each Director will receive an annual grant of ten year options to purchase
10,000 shares at an exercise price equal to the fair market value of the
Company's Common Stock on the date of grant. On December 15, 1996, each
of Messrs. Gerrity, Sonnerberg, Warnes, Krinsley, Balinger and Abdul Aal
received an option to purchase 10,000 shares of Common Stock exercisable
at $6.00 per share, the fair market value on the date of grant. In
addition, Mr. Gerrity was granted an option on the same date to purchase
40,000 shares of Common Stock at $6.00 per share.
Employment Agreements
On March 2, 1993, the Company entered into a three year employment
agreement with Daryl Engelman pursuant to which Mr. Engelman was to serve
as Vice President-Operations and Chief Operating Officer of the Company.
The employment agreement provided for a salary of $88,000, relocation
expenses, a $10,000 signing bonus and reimbursement of certain expenses.
Mr. Engelman's salary was increased to $95,000 as of December 5, 1994. On
December 19, 1994, Mr. Engelman became President and Chief Operating
Officer of the Company. On April 25, 1995, the Board terminated Mr.
Engelman as President and Chief Operating Officer. Mr. Engelman brought
an arbitration against the Company in which he asserted that the Board's
termination of his employment agreement constituted a breach of contract
and that the Company failed to pay him compensation earned and unpaid at
the time of his termination. An arbitration award in excess of $195,000
was granted to Engelman. The Company has filed an action in federal
district court to vacate the arbitration award on various grounds. See
"Certain Litigation" above.
Effective June 30, 1995, the Company entered into a two year
employment agreement with Anthony Balinger, the President and Chief
Operating Officer of the Company. Mr. Balinger's employment agreement
provides for a salary of $100,000 per annum and reimbursement of certain
expenses, including a housing allowance of $27,000 per annum. Mr.
Balinger's employment agreement also provides for payment of the greater
of $120,000 or the balance of his salary to the end of his employment term
if the Company breaches the agreement or if Mr. Balinger is terminated
without cause or resigns following either a material reduction in duties
or salary, or a liquidation, dissolution, consolidation, or merger of the
Company, or a transfer of all, or substantially all, of the Company's
assets. In addition, Mr. Balinger would receive the number of
unrestricted shares of the Company's Common Stock equal to the total
number of outstanding stock options held by him on the fifth day following
termination or in lieu of exercising or retaining his right to exercise
any outstanding stock options then held, he may elect to surrender to the
Company his rights in such options (whether or not exercisable) and
receive an amount in cash per share equal to the mean between the high and
low selling price of such stock on the Nasdaq National Market or such
other market as the Company's Common Stock is traded. "Cause" is defined
as a material fraud or a criminal conviction for any act by Mr. Balinger
that is directly contrary to the Company's interest. The agreement
further provides that the Company will not relocate Mr. Balinger from Hong
Kong without his written consent. If Mr. Balinger consents to be
relocated, the Company will reimburse him for the cost of such relocation.
Effective September 27, 1995, the Company entered into a three year
employment agreement with Robert N. Shuck pursuant to which Mr. Schuck
agreed to serve as an Executive Vice President of the Company. Mr.
Schuck's employment agreement provides for a salary of $100,000 per annum
and reimbursement of certain expenses. Mr. Schuck's salary was increased
to $105,000 as of December 15, 1995. Mr. Schuck's employment agreement
also provides for payment of the greater of $120,000 or the balance of his
salary to the end of his employment term if the Company breaches the
agreement or if Mr. Schuck is terminated without cause or resigns
following either a material reduction in duties or salary, or a
liquidation, dissolution, consolidation, or merger of the Company, or a
transfer of all, or substantially, all of the Company's assets. In
addition, Mr. Schuck would receive the number of unrestricted shares of
the Company's Common Stock equal to the total number of outstanding stock
options held by him on the fifth day following termination or in lieu of
exercising or retaining his right to exercise any outstanding stock
options then held, he may elect to surrender to the Company his rights in
such options (whether or not exercisable) and receive an amount in cash
per share equal to the mean between the high and low selling price of such
stock on the Nasdaq National Market or such other market as the Company's
Common Stock is traded. "Cause" is defined as a material fraud or a
criminal conviction for any act by Mr. Schuck that is directly contrary to
the Company's interest. Mr. Schuck may voluntarily terminate his
employment by giving 60 days written notice to the Company. During the
term of his employment, Mr. Schuck may not accept employment with any
major long distance telephone carrier that provides international calling
cards, including, but not limited to, British Telecom, MCI, AT&T and
Sprint. His agreement also provides that Mr. Schuck will receive stock
options to purchase shares of the Company in an amount not less than the
greater of any stock options granted to the President or Chief Executive
Officer or a Director of the Company under any stock option plan in effect
during the term of his employment. In addition, the Company will pay for
a term life insurance policy for Mr. Schuck in the amount of $300,000
payable to his designated beneficiary. Also, to the extent that Mr.
Schuck consents to a relocation from New Jersey, the Company will
reimburse him for the cost of such relocation.
Mr. Allen Mandel, who is located at the Company's facilities in
Denver, Colorado, has an employment agreement substantially similar to Mr.
Schuck's.
Effective March 15, 1995, the Company entered into a two year
agreement with Edward J. Gerrity, Jr. Mr. Gerrity's agreement provides
for a salary of $100,000 per annum and reimbursement of certain expenses.
The agreement also provides that Mr. Gerrity will be granted options to
purchase shares of Common Stock equal to the greater of any stock options
granted to the Executive Vice President and/or a director of the Company
under any stock option plan effective during his employment. If Mr.
Gerrity consents to a relocation, the Company will reimburse him for the
cost of such relocation from New York. If Mr. Gerrity dies or becomes
disabled during the term of his employment, the Company will pay him or
his estate any compensation due him up to the end of the term of the
agreement, plus registered and unrestricted shares of the Company's Common
Stock equal to the number of stock options granted but unexercised by him
at the time of his death or disability. The agreement will terminate at
the earliest of the end of its term or the voluntary departure of Mr.
Gerrity from the employ of the Company. The Company and Mr. Gerrity may
renew or extend the term of the agreement upon mutually agreeable terms.
Effective November 1, 1995, the Company entered into a three year
employment agreement with Stig Sonnerberg pursuant to which Mr. Sonnerberg
agreed to serve as Senior Vice President and Director of European
Operations of the Company. Mr. Sonnerberg's employment agreement provides
for a salary of $60,000 per annum, plus the amount of tax assessable
against his salary in Sweden, payment of $34,600 per annum to a pension
plan of Mr. Sonnerberg's choice (in lieu of participation in any
retirement or pension plan of the Company), and reimbursement of certain
expenses. Mr. Sonnerberg's agreement also provides for payment of the
greater of $120,000 or the balance of his salary to the end of his
employment term if the Company breaches the agreement or if Mr. Sonnerberg
is terminated without cause or resigns following either a material
reduction in duties or salary, or a liquidation, dissolution,
consolidation, or merger of the Company, or a transfer of all, or
substantially all, of the Company's assets. In addition, Mr. Sonnerberg
would receive the number of unrestricted shares of the Company's Common
Stock equal to the total number of outstanding stock options held by him
on the fifth day following termination or in lieu of exercising or
retaining his right to exercise any outstanding stock options then held,
he may elect to surrender to the Company his rights in such options
(whether or not exercisable) and receive an amount in cash per share equal
to the mean between the high and low selling price of such stock on the
Nasdaq National Market or such other market as the Company's Common Stock
is traded. "Cause" is defined as dishonesty, gross neglect of duties,
conviction of a felony, engaging directly or indirectly in any competing
business, or willful misconduct. The agreement provides that the Company
will not relocate Mr. Sonnerberg from Bromma, Sweden without his written
consent and that if Mr. Sonnerberg consents to be relocated, the Company
will reimburse him for the cost of such relocation.
Termination Agreements
Messrs. Balinger, Schuck, Mandel, Gerrity and Sonnerberg have also
entered into termination agreements with the Company in addition to their
respective employment agreements. All of the termination agreements have
substantially identical terms and conditions. If the termination
agreement is triggered, then any benefits payable under their respective
employment agreements would be increased to the amounts payable under the
termination agreements rather than being in addition to the amounts set
forth in their respective employment agreements. In the event that any of
those officers' employment is terminated without cause or following a
change of control, such officer will receive three times their annual
compensation (less the amount, if any, necessary to avoid all excises
taxes otherwise applicable pursuant to Section 4999 of the Internal
Revenue Code of 1986). In addition, the Company will continue to cover
all noncash benefits plans of the Company or any successor plans or
programs in effect on the date of acquisition of control for twenty-four
months after termination for the employee and the employee's eligible
family members.
Change of control is defined (i) (a) as any consolidation or merger
in which the Company is not the continuing or surviving company or
pursuant to which shares of the Company's Common Stock would be converted
into cash, securities or other property, other than a merger of the
Company in which the holders of the Company's Common Stock immediately
prior to the merger have the same proportionate ownership of common stock
of the surviving corporation immediately after the merger, or (b) any
sale, lease, exchange or other transfer of all or substantially all, of
the assets of the Company, or (ii) the approval by stockholders of the
Company of any plan or proposal for the liquidation or dissolution of the
Company, or (iii) any acquisition by any person (as such term is used in
Sections 13(d) and 14(d)(2) of the Securities Exchange Act) whereby such
person shall become the beneficial owner of 20% or more of the Company's
outstanding Common Stock, or (iv) during any period of two consecutive
years, individuals who at the beginning of such period constitute the
entire Board of Directors shall cease for any reason to constitute a
majority thereof unless the election, or the nomination for election by
the Company's stockholders, of each new director was approved by at least
three-fourths of the directors then still in office who were directors at
the beginning of the period.
"Cause" is defined as material fraud or a criminal conviction
involving moral turpitude or an act of the employee that is directly
contrary to the Company's interests. The terms of the termination
agreements are for the later of three years from the date of the
respective employment agreements or two years from the date of a change in
control of the Company.
All of the foregoing agreements have been entered into by the
individual employees and Executive Telecard, S.A., a Turks and Caicos
corporation, the principal operating subsidiary of the Company.
Performance Graph
The following chart graphs the performance of the cumulative total
return to stockholders (stock price appreciation plus the assumed
reinvestment and dividends) during the five years prior to fiscal 1996 in
comparison to returns of the Standard & Poor's Composite stock price index
(the "S&P 500 Index") and a peer group index (weighted by average market
capitalization). The peer group index is the Standard & Poor's
Telecommunications (Long Distance) Index (the "S&P Telecom (Long
Distance) Index"), which consists of American Telephone & Telegraph, MCI
Communications and Sprint Corp. The Company believes that the companies
constituting the selected peer group are companies of comparable focus
with the Company. The line graph and table cover the five year period
from March 1991 through March 1996 and represent the total value of a $100
investment in each security/market index on the last trading day of March,
1991.
COMPARATIVE FIVE-YEAR TOTAL CUMULATIVE RETURNS
EXECUTIVE TELECARD, LTD., S&P 500 INDEX AND
S&P TELECOMMUNICATIONS (LONG DISTANCE)
[Performance Graph]
<TABLE>
<CAPTION>
Company/Index Mar-91 Mar-92 Mar-93 Mar-94 Mar-95Mar-96
<S> <C> <C> <C> <C> <C> <C>
Executive Telecard, Ltd. 100 105.55 194.95 309.09 154.55 322.12
S&P Telecommunications 100 120.94 171.75 165.51 165.46 211.58
(Long Distance)
S&P 500 Index 100 111.04 127.95 129.84 150.05 198.22
</TABLE>
Joint Report on Executive Compensation
by the Compensation Committee
and
Stock Option Committee
The compensation policies of Executive TeleCard, Ltd. (the "Company")
are designed to provide competitive levels of compensation through a
combination of salary, bonuses, benefits and various equity incentives,
such as stock options and stock appreciation rights. Accordingly, the
Compensation Committee and the Stock Option Committee (the "Committees")
made the following adjustments to the compensation awarded to the
Company's three executive officers at their respective meetings on
December 15, 1995. Because the members of both Committees believed that
the Company's poor financial results in fiscal 1995 were largely
attributable to the problems caused by the proxy contest and related
litigation, there is little if any correlation between the Committees'
actions with respect to the executive officers' compensation and those
results.
Salary Increases: The Compensation Committee increased the base
salaries for Messrs. Mandel and Schuck by $5,000 to $105,000. The members
of that Committee believe that those increases fairly compensate Messrs.
Mandel and Schuck for the considerable diligence, skills, and devotion to
the Company's business which they exhibited in the face of adversity
during 1995. Since Mr. Balinger had recently received a salary increase
in connection with his June 1995 employment agreement, the Compensation
Committee did not adjust Mr. Balinger's salary at its December 15, 1995
meeting.
Stock Options and Stock Appreciation Rights: Stock options, often
together with Stock Appreciation Rights ("SARs"), are granted to executive
officers and others by the Stock Option Committee as a means of providing
long term equity incentives. The members of the Stock Option Committee
believe that stock options and SARs not only encourage performance by the
Company's executive officers but they align the interests of the Company's
executive officers with the interests of the Company's shareholders.
Accordingly, the Stock Option Committee in December of 1995 granted
options to purchase 50,000 shares of the Company's common stock and
corresponding SARs to each of Allen Mandel and Robert Schuck. Mr.
Balinger, who serves on the Board of Directors and served on the Stock
Option Committee, was not eligible for a discretionary grant by that
Committee and therefore received only the automatic formula grant of
10,000 options granted to all directors. This Committee also made
additional grants to non-executive officers, including a grant of 40,000
options and SARs to Edward J. Gerrity, a member of the Board of Directors
who devoted considerable time and effort to the Company as a consultant in
1995, particularly with regard to seeking a resolution of the proxy
contest.
In addition to their recognition of the extraordinary efforts and
personal sacrifices made by Messrs. Schuck and Mandel on behalf of the
Company during the proxy contest, the Stock Option Committee considered
the effect of that dispute on the stock options previously granted to the
executive officers, which expired during the pendency of the proxy contest
and, as a practical matter, could not have been exercised at that time.
The grants were made on December 15, 1995 and, in accordance with
Securities Exchange Act Rule 16b-3, will not be exercisable until six
months after the date of grant. All options and SARs were granted at an
exercise price equal to the fair market value of the Company's common
stock on the date of grant. Because the exercise prices of the expired
options was considerably lower than the newly granted options, the Stock
Option Committee also considered the amount of the personal losses
suffered by loyal employees of the Company in making its determination as
to how many current options to grant to those same employees.
Cash Bonus Awards: No cash bonus awards were paid to any executive
officer during fiscal 1996.
Stig Sonnerberg David W. Warnes
Anthony Balinger Edward J. Gerrity, Jr.
Richard W. Krinsley
Dated: June 11, 1996
TRANSACTIONS WITH MANAGEMENT AND OTHERS
The Company was formed in 1987 as a wholly-owned subsidiary of
International 800 Telecom Corp., a public company, which changed its name
to Residual Corporation ("Residual") in February 1994. The Company became
a public company in March 1989 by way of a dividend in kind of Residual's
common stock.
In January 1989, the Company entered into a ten year agreement with
Residual (the "Service Agreement") pursuant to which Residual provided the
Company with essentially all personnel, office space and other facilities
required by the Company for general and operational administrative
purposes, excluding attorneys fees, accounting fees, marketing expenses,
advertising and promotion, stockholder relations and other certain items.
Salaries of the Company's Executive Officers in the United States in
fiscal 1994 and 1995 were paid by Fintel Services, Inc. ("Fintel"), which
was then a wholly-owned subsidiary of Residual. Pursuant to the Service
Agreement, the Company was obligated to pay Residual 10% of its annual
gross revenue per year until 1999.
Pursuant to an Agreement for Sale and Purchase of Assets dated as
March 31, 1995 between the Company and Residual (the "Asset Purchase
Agreement"), the Company acquired substantially all of the subsidiaries of
Residual, including Fintel, and certain intellectual property rights
including trademarks and service marks relating to those companies.
Because the Asset Purchase Agreement effected a transfer of the Service
Agreement to a wholly owned subsidiary of the Company, the Company,
through its subsidiary, became responsible for payment of salaries and
bonuses to its Executive Officers. The Asset Purchase Agreement prohibits
Residual from competing with the Company for six years and from soliciting
the Company's employees for three years. Under the terms of the Asset
Purchase Agreement, the Company transferred 697,827 shares of the
Company's restricted stock to Residual in accordance with a fairness
opinion rendered by Griffin Capital Management Corporation. In connection
with the transaction, the Company, through its acquisition of Service 800,
SA, also assumed approximately $12,722,000 in indebtedness due to the
Company as of March 31, 1995 incurred by Residual and/or Service 800, SA.
William V. Moore, formerly Chairman of the Board, Chief Executive
Officer and President of the Company, serves as the Chairman of Residual's
Board of Directors and its President. Robert N. Schuck, Executive Vice
President, and a former Director and Secretary of the Company, formerly
served as a Director, Treasurer and an Executive Vice President of
Residual. Allen Mandel, Executive Vice President, and a former Director
and Senior Vice President of the Company, formerly served as a Senior Vice
President of Residual. Daryl Engelman, a former Director and former
President and Chief Operating Officer of the Company, also formerly served
as the Chief Operating Officer and Vice President of Residual. Edward J.
Gerrity, Jr., the Chairman of the Board, was a Director of Residual until
October 1994.
Pursuant to an agreement between the Company and Network Data Systems
Limited ("NDS") dated March 27, 1995 (the "Settlement Agreement"), NDS
paid the sum of $350,000 to the Company and agreed not to compete with the
Company or solicit Company employees for three years. NDS also granted to
the Company an irrevocable proxy for two years beginning April 1995 to
attend general and special meetings of the stockholders of the Company
with full power to vote all of the Company's shares beneficially owned or
controlled by NDS in favor of the nominees for Director proposed by the
Board. The Settlement Agreement resolved certain claims and potential
claims by and between the Company and NDS arising out of the purchase and
sale of Company stock by NDS. Notwithstanding this Settlement Agreement,
an action has been brought on behalf of the Company against NDS for
recovery of short swing profits in excess of the $350,000 paid to the
Company. Morales v. Executive Telecard, Ltd. and Network Data Systems,
Ltd., 95 Civ. 10202 (KW) U.S.D.C. S.D.N.Y. See Item 3, Legal Proceedings,
of Part I of the Company's Annual Report on Form 10-K for the period ended
March 31, 1996.
Compensation Committee and Stock Option Committee Transactions
During fiscal 1996, the Compensation Committee was comprised of
Messrs. Gerrity, Sonnerberg and Krinsley. Mr. Sonnerberg was appointed as
Senior Vice President of European Operations in November 1995. The
Compensation Committee held no meetings during fiscal 1996. At the
beginning of fiscal 1996, the Stock Option Committee, which has
historically made recommendations to the Board of Directors regarding the
grant of stock options, consisted of Messrs. Gerrity, Balinger and
Sonnerberg. Mr. Warnes replaced Mr. Gerrity on December 14, 1995. In
June 1996 the Compensation Committee and the Stock Option Committee will
be merged and the combined committee will be known as the Compensation
Committee, which committee will administer the 1995 Employee Stock Option
and Appreciation Rights Plan and the 1995 Directors Stock Option and
Appreciation Rights Plan. See "Proposal to Approve and Ratify the
Employee Stock Option and Appreciation Rights Plan" and "Proposal to
Approve and Ratify the Directors Stock Option and Appreciation Rights
Plan" below. The combined Committee will be comprised of Messrs.
Sonnerberg, Krinsley and Warnes.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
APPOINTMENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Effective May 23, 1995, the Company engaged the services of BDO
Seidman, LLP to serve as the Company's independent certified public
accountants. The Company's stockholders first approved the engagement of
BDO Seidman, LLP at the June 30, 1995 annual meeting of stockholders. BDO
Seidman, LLP has audited and reported on the Company's financial
statements for the fiscal years ended March 31, 1995 and 1996. The Board
of Directors, by resolution, has approved the engagement of BDO Seidman,
LLP for the 1997 fiscal year and believes that such engagement is in the
best interests of the Company and its stockholders. Representatives of
BDO Seidman, LLP will be present at the Meeting and will have the
opportunity to respond to questions and make a statement thereat if they
so desire.
Prior to May 23, 1995, the firm of Goldstein, Karlewicz & Goldstein
("GKG") was the Company's independent public accountant. The report of
GKG on the financial statements of the Company for the period ended March
31, 1994 was not qualified and did not contain an adverse opinion,
disclaimer of opinion, qualification or modification as to uncertainty.
There were no disagreements with GKG during the period on any matter of
accounting principles or practices, financial statement disclosure, or
auditing scope or procedure which, if not resolved, would have caused GKG
to make reference thereto in connection with its report.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION
OF THE APPOINTMENT OF BDO SEIDMAN, LLP AS THE INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDING MARCH
31, 1997.
PROPOSAL TO INCREASE AUTHORIZED SHARES OF COMMON STOCK
The Board of Directors adopted a resolution May 14, 1996, asking the
stockholders to amend Article IV of the Company's Restated Certificate of
Incorporation to increase the number of authorized shares to 100,000,000.
As of May 28, 1996, there are currently 20,000,000 authorized shares of
Common Stock, and 14,408,626 of those shares (72.0%) are issued and
outstanding (not including 906,487 shares reserved for exercises of
outstanding options). Pursuant to the proposal, the amendment would
result in approximately 85,591,374 authorized but unissued shares (85.6%).
The Board believes that these shares will be sufficient for issuance from
time to time as may be required for various purposes, including the
issuance of Common Stock in connection with any proposed financing
transactions and the issuance of or reservation of Common Stock for
employee or Director stock options or stock bonuses. Shareholders should
note, however, that notwithstanding the increase in authorized shares, the
potential dilutive effect from issuance of authorized shares by the Board
of Directors would be significantly greater since up to 85.6% of the
voting power and economic value of the Common Stock could be issued
without further stockholder approval as opposed to only 28.0% at this
time. Naturally, if the Board of Directors subsequently declares a stock
dividend or stock split, the Company's capital will be greater and the
number of authorized and unissued shares will be less than as indicated
above. In this connection, on May 14, 1996, the Board of Directors
approved a 10% stock dividend for the stockholders of record on June 14,
1996. However, this stock dividend will only take effect if the
stockholders approve this proposal for an increase in the number of
authorized shares of Common Stock. While the Company has no plans to
effect any stock split or stock dividend at this time, it may declare
additional stock dividends like the June 14, 1996 dividend in the future.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" INCREASING THE
NUMBER OF AUTHORIZED SHARES OF COMMON STOCK TO 100,000,000.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
PROPOSAL FOR THE AUTHORIZATION
OF NEW CLASS OF PREFERRED STOCK
The Board of Directors adopted a resolution on May 14, 1996, to amend
Article IV of the Company's Restated Certificate of Incorporation to
authorize the issuance of a new class of 5,000,000 shares of preferred
stock ("Preferred Stock"). The amendment provides that the Company's
Board of Directors will have the authority to divide the Preferred Stock
into one or more series of stock and to fix and determine the relative
rights and preferences of the various series, including but not limited
to: the rate of dividend, if any; whether dividends will be cumulative or
noncumulative; whether preferred stockholders will participate in
dividends declared on Common Stock, if any; whether Preferred Stock may be
redeemed, and the terms of any such redemption; the amount payable upon
shares in the event of voluntary or involuntary liquidation; the terms on
which Preferred Stock may be converted to Common Stock, if any; and the
voting rights, if any, of holders of Preferred Stock.
The Board of Directors is asking for this authorization of the
Preferred Stock in order to provide the Company's management the maximum
amount of flexibility in structuring any transactions whereby the Company
would raise additional capital or acquire assets important to the growth
of its business, including but not limited to an infusion of new equity
capital to finance some of that growth or potential strategic investments.
The Board of Directors believes that the flexible capital structure
created by the proposed increase in authorized shares of Common Stock,
coupled with the proposed authorization of the Preferred Stock, is
important to the Company's long-term business prospects and stockholder
value.
Shareholders should be aware, however, that (1) there is no plan,
agreement, arrangement, or understanding as of the date hereof for the
sale of Preferred Stock to any person; (2) because the various rights of
preferred stockholders, if any, can be specified by the Board of
Directors, it is possible that the Preferred Stock may be used by the
Company's Board of Directors as an anti-takeover device in the event of a
hostile takeover bid; and (3) if issued, the Preferred Stock will almost
certainly dilute the voting power, and possibly the net tangible value per
share, of existing Common Stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE AMENDMENT OF
ARTICLE IV OF THE COMPANY'S RESTATED CERTIFICATE OF
INCORPORATION TO AUTHORIZE THE ISSUANCE OF UP TO 5,000,000
SHARES OF PREFERRED STOCK, THE RIGHTS AND PREFERENCES OF WHICH
WILL BE DETERMINED BY THE BOARD OF DIRECTORS.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
PROPOSAL TO DISALLOW WRITTEN CONSENT OF STOCKHOLDERS
On May 14, 1996, the Board of Directors adopted a resolution to amend
the Company's Restated Certificate of Incorporation to add a provision
that requires any action required or permitted to be taken by the
stockholders of the Company to be effected at a duly called annual or
special meeting of stockholders and not by a consent in writing by
stockholders. In addition, the Board resolved that this provision may not
be amended except by the affirmative vote of the holders of at least
sixty-six and two-thirds percent (66-2/3%) of the issued and outstanding
shares of the Company's stock entitled to vote thereon. Delaware law
provides that if holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such
action sign a written consent approving the action, such action may be
taken without a meeting, without prior notice (except for the notice of
change in a majority of directors required by Securities Exchange Act Rule
14f-1 in connection with transactions subject to Sections 13(d)
(acquisitions of 5% of an issuer's outstanding shares) or Section 14(d)
(tender offers) of that Act) and without a vote. Thus, in many cases,
action may be taken by written consent of stockholders holding a majority
of the shares of common stock outstanding. The Board of Directors
believes it is in the best interests of the stockholders of the Company to
amend the Restated Certificate of Incorporation to provide that the
stockholders of the Company will always have the opportunity to consider
and vote on any matters on which they are entitled to vote at any annual
or special meeting of the stockholders. This would prevent a group of
stockholders from taking action by written consent without notice to other
stockholders. The Board of Directors believes that, by requiring a two-
thirds vote to amend this new provision, the Company's minority
stockholders are protected from unfair actions by all but the very largest
groups of other stockholders.
EFFECT OF STOCKHOLDER APPROVAL OF AMENDMENTS
If the stockholders approve any of the amendments as discussed above,
the approved amendments would be effective upon the filing by the Company
of Restated Certificate of Incorporation with the Delaware Secretary of
State shortly after the Meeting.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
PROPOSAL TO APPROVE AND RATIFY THE EMPLOYEE STOCK OPTION
AND APPRECIATION RIGHTS PLAN
The Employee Stock Option and Appreciation Rights Plan (the "Employee
Plan") was adopted by the Board of Directors on December 14, 1995. It is
now proposed to have the stockholders approve and ratify the Employee
Plan. Pursuant to the Employee Plan, eligible persons will receive grants
of options or stock appreciation rights. The Company believes the
Employee Plan is important to provide incentive and rewards in recognition
of their services by such persons and other contributions which are
critical to the success of the Company and to induce such persons to
continue to provide services to the Company in the future. The Employee
Plan provides for the grant of both incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986 (the "Code")
and nonqualified stock options.
Below is a summary description of the Employee Plan:
Description of the Employee Plan
Administration
Prior to June 1996, the Stock Option Committee administered the
Employee Plan. When the Employee Plan was adopted, the Stock Option
Committee was comprised of Messrs. Sonnerberg, Balinger and Gerrity. In
June 1996, the former Compensation Committee will be merged into the Stock
Option Committee and the combined committee, which will be known as the
Compensation Committee, will assume the functions formerly performed by
both committees. Thus, the Employee Plan will be administered by the new
Compensation Committee of the Board of Directors of the Company (the
"Committee"). The Committee will consist of Messrs. Sonnerberg, Krinsley
and Warnes. Members of the Committee are not eligible to receive grants
under the Employee Plan. Subject to the Employee Plan, the Committee has
the authority to determine to whom stock options or stock appreciation
rights may be granted, the time or times at which options and rights are
granted, the number of shares covered by each such grant, and the duration
of the options or rights. All decisions, determinations and
interpretations made by the Committee are binding on participants of the
Employee Plan.
Underlying Securities
The securities underlying stock options and stock appreciation rights
under the Employee Plan are shares of the Company's $.001 par value Common
Stock. Pursuant to the Employee Plan, the maximum number of shares of
Common Stock that may be issued upon exercise or payment will not exceed
1,000,000 shares. Pursuant to the terms of the Employee Plan, shares
subject to stock options or stock appreciation rights which for any reason
expire or are terminated unexercised as to such shares may again be the
subject of a grant under the Employee Plan. In addition, for purposes of
calculating the maximum number of shares which may be issued under the
Employee Plan, only shares issued as a result of the exercise of stock
appreciation rights are counted and any shares tendered as payment of the
exercise price of an option will be added back to the Employee Plan.
The market value of the total shares authorized as of May 28, 1996
was $14,625,000.
Eligible Employees and Others
Stock options and stock appreciation rights may be granted under the
Employee Plan to key employees of, and advisors and consultants to, the
Company or any of its subsidiaries or other entities in common control
with the Company. Options granted under the Employee Plan that are
incentive stock options ("ISOs") within the meaning of Section 422 of the
Internal Revenue Code (the "Code") may only be granted to employees
(including employee-directors) of the Company. Advisors and consultants
may receive grants only if they provide bona fide services that are not
rendered in connection with the offer or sale of securities or in a
capital-raising transaction. Members of the Committee are not eligible to
receive grants under the Employee Plan. No employee may be granted more
than 300,000 options over any two year period under the Employee Plan.
As of May 28, 1996, the Company had approximately 118 employees and
other persons eligible to receive grants under the Employee Plan.
Plan Benefits
Set forth below in tabular form are the benefits or amounts to be
received by or allocated to each of the named persons or groups under the
Employee Plan during fiscal 1997. The Committee determines the number of
stock options or stock appreciation rights which may be granted to key
officers of, and advisors and consultants to, the Company or any of its
subsidiaries or other entities in common control with the Company under
the Employee Plan. Because such number, if any, is entirely in the
discretion of the Committee, the benefits or amounts to be received by or
allocated to those persons, are not determinable. The members of the
Committee are not eligible to receive stock options or stock appreciation
rights under the Employee Plan.
<TABLE>
<CAPTION
Employee Plan
Name and Position Dollar Value ($) Number of Units
<S> <S> <C>
Anthony Balinger, President
and Chief Operating Officer -0- -0-
Robert N. Schuck, Executive $300,000 50,000
Vice President
Allen Mandel, Executive Vice $300,000 50,000
President
Executive Officer Group (3 persons) $600,000 100,000
Non-Executive Officer Director
Group (5 persons)(1) -0- -0-
Nominee for Director Group
(6 persons)(1) -0- -0-
Associate of Director, Executive
Officer or Nominee Group (0 persons) -0- -0-
5% or More Recipient Group (0 persons) -0- -0-
Non-Executive Officer Employee
Group (114 persons) -0- -0-
__________________________
(1) The number of stock options is an estimate based on the stock options
actually granted to the named Executive Officers in fiscal 1996.
While the options were granted at the fair market value on
December 15, 1995, the value is shown as an amount equal to the
exercise price times the number of stock options granted. All of the
options granted to the named Executive Officers in fiscal 1996 are
not exercisable until June 15, 1996.
</TABLE>
Option Price and Duration
The exercise price per share of options granted under the Employee
Plan is the fair market value of the Common Stock on the date of grant, or
in the case of ISOs granted to employees holding more than 10% of the
total combined voting power of all classes of stock of the Company, 110%
of the fair market value of the Common Stock on the date of grant.
Unless otherwise prescribed by the Committee, options granted under
the Employee Plan expire ten (10) years from the date of grant, or in the
case of ISOs granted to employees holding more than 10% of the total
combined voting power of all classes of stock of the Company, five (5)
years from the date of grant.
Exercise of Options and Payment for Stock
Options are exercisable in accordance with the terms and conditions
of the grant to the participant. At least six months must have elapsed
from the date of grant to the date on which the option is exercised unless
the Committee otherwise consents in writing. The exercise price of
options may be paid in cash or, with the approval of the Committee, in
shares of the Company's Common Stock (valued at the fair market value of
the shares on the date of exercise) or by a combination thereof. An
option may also be exercised by tender to the Company of written notice
together with advice of the delivery of an order to a broker to sell part
or all of the shares of Common Stock subject to such exercise notice and
an irrevocable order to such broker to deliver to the Company (or its
transfer agent) sufficient proceeds from the sale of such shares to pay
the exercise price and any withholding taxes.
Any ISO grant includes a provision that the optionee must hold the
stock received upon exercise of such ISO for a minimum of two years from
the date of grant of the ISO and one year from the date of exercise of
such ISO, absent the written approval, consent or waiver of the Committee.
Notwithstanding any other provision of the Employee Plan, in
accordance with the Code, to the extent that the aggregate fair market
value (determined at the time the ISO is granted) of the shares of Common
Stock are exercisable for the first time by an employee in any calendar
year under any and all stock option plans of the Company, or its
subsidiary corporations, exceeds $100,000, such options will be treated as
nonqualified options.
Stock Appreciation Rights
Stock appreciation rights may be granted by the Committee only in
connection with an option granted under the Employee Plan and any rights
so granted will be alternative to the related option. A stock
appreciation right entitles its holder to receive in shares of Common
Stock the excess of the fair market value (at the date of exercise) of a
share of Common Stock over the option price provided for in the related
option.
Exercise of Stock Appreciation Rights
A stock appreciation right is exercisable at the same time or times
that the related option is exercisable. At least six months must have
elapsed from the date of grant to the date on which a right related to an
option is exercised unless the Committee otherwise consents in writing.
Exercise of a stock appreciation right is effected by written notice to
the Company. The Company will pay the stock appreciation right in shares
of Common Stock equal to the excess of the fair market value (at the date
of exercise) of a share of Common Stock over the option price provided for
in the related option. The exercise of a stock appreciation right
automatically results in the cancellation of the related option on a
share-for-share basis.
Nontransferability
During a participant's lifetime, an option may be exercisable only by
the participant and options granted under the Employee Plan and the rights
and privileges conferred thereby are not subject to execution, attachment
or similar process and may not be transferred, assigned, pledged or
hypothecated in any manner (whether by operation of law or otherwise)
other than by will or by the applicable laws of descent and distribution.
Amendment, Suspension and Termination
The Board of Directors may at any time terminate the Employee Plan or
make such amendments as it deems advisable and in the best interests of
the Company, except that, without the approval of the stockholders, (i)
the total number of shares available for grants under the Employee Plan
may not be increased, (ii) the authority to administer the Plan by the
Committee may not be withdrawn, (iii) the maximum term of the options may
not be extended, (iv) the minimum option price of ISOs may not be
decreased, (v) the price to optionees to whom options have been granted
may not be changed, or (vi) the class of individuals eligible to
participate in the Employee Plan may not be modified. No termination or
amendment will, without the participant's consent, affect or impair any of
the rights under any option. Unless earlier terminated by the Committee,
the Employee Plan will terminate on December 15, 2005, and no stock option
or stock appreciation right may be granted after that date.
Federal Income Tax Consequences
A. Incentive Stock Options. The following general rules are
applicable for Federal income tax purposes under existing law to employees
of the Company who receive and exercise ISOs granted under the Employee
Plan:
1. Generally, no taxable income results to the optionee upon
the grant of an ISO or upon the issuance of shares to him or her upon
exercise of the ISO.
2. No tax deduction is allowed to the Company upon either
grant or exercise of an ISO under the Employee Plan.
3. If shares acquired upon exercise of an ISO are not disposed
of prior to the later of (i) two years following the date the Option was
granted or (ii) one year following the date the shares are transferred to
the optionee pursuant to the exercise of the Option, the difference
between the amount realized on any subsequent disposition of the shares
and the exercise price will generally be treated as long-term gain or loss
to the optionee.
4. If shares acquired upon exercise of an ISO are disposed of
before the expiration of one or both of the requisite holding periods (a
"disqualifying disposition"), then in most cases the lesser of (i) any
excess of the fair market value of the shares at the time of exercise of
the Option over the exercise price or (ii) the actual gain on disposition,
will be treated as compensation to the optionee and will be taxed as
ordinary income in the year of such disposition.
5. In any year that an optionee recognizes compensation income
on a disqualifying disposition of shares acquired by exercising an ISO,
the Company will generally be entitled to a corresponding deduction for
income tax purposes.
6. Any excess of the amount realized by the optionee as the
result of a disqualifying disposition over the sum of (i) the exercise
price and (ii) the amount of ordinary income recognized under the above
rules will be treated as either long-term or short-term capital gain,
depending upon the time elapsed between receipt and disposition of such
shares.
7. The bargain element at the time of exercise of an ISO,
i.e., the amount by which the fair market value of the Common Stock
acquired upon exercise of the ISO exceeds the exercise price, may be
taxable to the optionee under the "alternative minimum tax" provisions of
the Code.
B. Nonqualified Options. Nonqualified Options are taxed in
accordance with Section 83 of the Code and the Regulations issued
thereunder. The following general rules are applicable to United States
holders of such options and to the Company for Federal income tax purposes
under existing law:
1. The optionee does not realize any taxable income upon the
grant of a Nonqualified Option, and the Company is not allowed a business
expense deduction by reason of such grant.
2. The optionee will recognize ordinary compensation income at
the time of exercise of a Nonqualified Option in an amount equal to the
excess, if any, of the fair market value of the shares on the date of
exercise over the exercise price. The Company will require employees to
make appropriate arrangements for the withholding of taxes on this amount.
3. When the optionee sells the shares, he or she will
recognize a capital gain or loss in an amount equal to the difference
between the amount realized upon the sale of the shares and his or her
basis in the shares (i.e., the exercise price plus the amount taxed to the
optionee as compensation income). If the optionee holds the shares for
longer than one year, this gain or loss will be a long-term capital gain
or loss.
4. In general, the Company will be entitled to a tax deduction
in the year in which compensation income is recognized by the optionee.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL AND
RATIFICATION OF THE EMPLOYEE STOCK OPTION AND APPRECIATION
RIGHTS PLAN.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
PROPOSAL TO APPROVE AND RATIFY THE DIRECTORS STOCK OPTION
AND APPRECIATION RIGHTS PLAN
The Directors Stock Option and Appreciation Rights Plan (the
"Director Plan") was adopted by the Board of Directors on December 14,
1995. It is now proposed to have the stockholders approve and ratify the
Director Plan. Pursuant to the Director Plan, members of the Board of
Directors (including Directors who are employees) will receive grants of
options or stock appreciation rights. The Company believes the Director
Plan is important to promote the financial success and progress of the
Company and to induce such persons to continue to serve as members of the
Board of Directors in the future. The Director Plan provides for the
grant of both incentive stock options (within the meaning of Section 422
of the Internal Revenue Code of 1986 (the "Code") and nonqualified stock
options.
Below is a summary description of the Director Plan:
Description of the Director Plan
Administration
Prior to June 1996, the Stock Option Committee administered the
Director Plan. When the Director Plan was adopted, the Stock Option
Committee was comprised of Messrs. Sonnerberg, Balinger and Warnes. In
June 1996, the former Compensation Committee will be merged into the Stock
Option Committee and the combined committee, which will be known as the
Compensation Committee, will assume the functions formerly performed by
both committees. Thus, the Director Plan will be administered by the
Compensation Committee of the Board of Directors of the Company (the
"Committee"). The Committee will consist of Messrs. Sonnerberg, Krinsley
and Warnes. Members of the Committee may receive grants only pursuant to
the formula grants described below under the Director Plan. Subject to
the Director Plan, the Committee has the authority to determine to whom
stock options or stock appreciation rights may be granted, the time or
times at which options and rights are granted, the number of shares
covered by each such grant, and the duration of the options or rights.
All decisions, determinations and interpretations made by the Committee
are binding on participants of the Director Plan.
Underlying Securities
The securities underlying stock options and stock appreciation rights
under the Director Plan are shares of the Company's $.001 par value Common
Stock. Pursuant to the Director Plan, the maximum number of shares of
Common Stock that may be issued upon exercise or payment will not exceed
870,000 shares. Pursuant to the terms of the Director Plan, shares
subject to stock options or stock appreciation rights which for any reason
expire or are terminated unexercised as to such shares may again be the
subject of a grant under the Director Plan. In addition, for purposes of
calculating the maximum number of shares which may be issued under the
Director Plan, only shares issued as a result of the exercise of stock
appreciation rights are counted and any shares tendered as payment of the
exercise price of an option will be added back to the Director Plan.
The market value of the total shares authorized as of May 28, 1996
was $12,723,750.
Eligible Directors
Stock options and stock appreciation rights may be granted under the
Director Plan to members of the Board of Directors of the Company
(including Directors who are employees). Options granted under the
Director Plan that are incentive stock options ("ISOs") within the meaning
of Section 422 of the Internal Revenue Code (the "Code") may only be
granted to Directors who are employees of the Company. Directors who are
not employees may only granted nonqualified stock options. Members of the
Committee may only receive grants pursuant to the formula described below
under the Director Plan. Subject to the Director Plan, no Director who is
an employee may be granted more than 300,000 options over any two year
period under the Director Plan.
As of May 28, 1996, six persons, including two employees, are
eligible to receive grants under the Director Plan.
Grants to Directors
Members of the Board of Directors are entitled to receive an
automatic grant of ten year options and a corresponding stock appreciation
right to purchase 10,000 shares of Common Stock on the third Friday in
December in each calendar year exercisable at the fair market value of the
shares on the date of grant. Directors who are employees are granted ISOs
to the extent permitted by law, while Directors who are not employees are
granted nonqualified stock options.
Plan Benefits
Set forth below in tabular form are the benefits or amounts to be
received by or allocated to each of the named persons or groups under the
Director Plan during fiscal 1997. The Committee determines the number of
stock options or stock appreciation rights which may be granted to members
of the Board of Directors of the Company under the Director Plan. Because
such number, if any, is entirely in the discretion of the Committee, the
benefits or amounts to be received by or allocated to those persons,
except for the formula described above, are not determinable. The members
of the Committee are not eligible to receive stock options or stock
appreciation rights under the Director Plan.
<TABLE>
<CAPTION>
Director Plan
Name and Position Dollar Value ($) Number of Units
<S> <C> <C>
Anthony Balinger, President,
Chief Operating Officer and
Director $60,000 10,000
Robert N. Schuck, Executive -0- -0-
Vice President
Allen Mandel, Executive Vice -0- -0-
President
Executive Officer Group
(3 persons named above) $60,000 10,000
Non-Executive Officer Director
Group (5 persons)(1) $300,000 50,000
Nominee for Director Group
(6 persons)(1) $360,000 60,000
Associate of Director, Executive
Officer or Nominee Group (0 persons) -0- -0-
5% or More Recipient Group (0 persons) -0- -0-
Non-Executive Officer Employee
Group (1 person) $60,000 10,000
- - --------------------
(1) The number of options is estimated based on the number of options
received in fiscal 1995 by the six nominees for Director named in
this Proxy Statement. The total amount of options for fiscal 1996,
other than the formula grant, is indeterminable at this time. While
the options were granted at the fair market value of the underlying
Common Stock on December 15, 1995, the value of the options is shown
as an amount equal to the exercise price of $6.00 on the date of
grant times the number of options granted on that date.
</TABLE>
Option Price and Duration
The exercise price per share of options granted under the Director
Plan is the fair market value of the Common Stock on the date of grant, or
in the case of ISOs granted to Directors who are employees holding more
than 10% of the total combined voting power of all classes of stock of the
Company, 110% of the fair market value of the Common Stock on the date of
grant.
Unless otherwise prescribed by the Committee or the formula grants,
options granted under the Director Plan expire ten (10) years from the
date of grant, or in the case of ISOs granted to Directors who are
employees holding more than 10% of the total combined voting power of all
classes of stock of the Company, five (5) years from the date of grant.
Exercise of Options and Payment for Stock
Options are exercisable in accordance with the terms and conditions
of the grant to the participant. At least six months must have elapsed
from the date of grant to the date on which the option is exercised unless
the Committee otherwise consents in writing. The exercise price of
options may be paid in cash or, with the approval of the Committee, in
shares of the Company's Common Stock (valued at the fair market value of
the shares on the date of exercise) or by a combination thereof. An
option may also be exercised by tender to the Company of a written notice
together with advice of the delivery of an order to a broker to sell part
or all of the shares of Common Stock subject to such exercise notice and
an irrevocable order to such broker to deliver to the Company (or its
transfer agent) sufficient proceeds from the sale of such shares to pay
the exercise price and any withholding taxes.
Any ISO grant includes a provision that the optionee must hold the
stock received upon exercise of such ISO for a minimum of two years from
the date of grant of the ISO and one year from the date of exercise of
such ISO, absent the written approval, consent or waiver of the Committee.
Notwithstanding any other provision of the Director Plan, in
accordance with the Code, to the extent that the aggregate fair market
value (determined at the time the ISO is granted) of the shares of Common
Stock are exercisable for the first time by any Director who is an
employee in any calendar year under any and all stock option plans of the
Company, or its subsidiary corporations, exceeds $100,000, such options
will be treated as nonqualified options.
Stock Appreciation Rights
Stock appreciation rights may be granted by the Committee only in
connection with an option granted under the Director Plan and any rights
so granted will be alternative to the related option. A stock
appreciation right entitles its holder to receive in shares of Common
Stock the excess of the fair market value (at the date of exercise) of a
share of Common Stock over the option price provided for in the related
option.
Exercise of Stock Appreciation Rights
A stock appreciation right is exercisable at the same time or times
that the related option is exercisable. At least six months must have
elapsed from the date of grant to the date on which a right related to an
option is exercised unless the Committee otherwise consents in writing.
Exercise of a stock appreciation right is effected by written notice to
the Company. The Company will pay the stock appreciation right in shares
of Common Stock equal to the excess of the fair market value (at the date
of exercise) of a share of Common Stock over the option price provided for
in the related option. The exercise of a stock appreciation right
automatically results in the cancellation of the related option on a
share-for-share basis.
Nontransferability
During a participant's lifetime, an option may be exercisable only by
the participant and options granted under the Director Plan and the rights
and privileges conferred thereby are not subject to execution, attachment
or similar process and may not be transferred, assigned, pledged or
hypothecated in any manner (whether by operation of law or otherwise)
other than by will or by the applicable laws of descent and distribution.
Amendment, Suspension and Termination
The Board of Directors may at any time terminate the Director Plan or
make such amendments as it deems advisable and in the best interests of
the Company, except that, without the approval of the stockholders, (i)
the total number of shares available for grants under the Director Plan
may not be increased, (ii) the authority to administer the Plan by the
Committee may not be withdrawn, (iii) the maximum term of the options may
not be extended, (iv) the minimum option price of ISOs may not be
decreased, (v) the price to optionees to whom options have been granted
may not be changed, or (vi) the class of individuals eligible to
participate in the Director Plan may not be modified. No termination or
amendment will, without the participant's consent, affect or impair any of
the rights under any option. Unless earlier terminated by the Committee,
the Director Plan will terminate on December 15, 2005, and no stock option
or stock appreciation right may be granted after that date.
Federal Income Tax Consequences
See "Federal Tax Consequences" under the "Proposal to Approve and
Ratify the Employee Stock Option and Appreciation Rights Plan" above for a
description of federal tax consequences for incentive stock options and
nonqualified stock options.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL AND
RATIFICATION OF THE DIRECTOR STOCK OPTION AND APPRECIATION
RIGHTS PLAN.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
OTHER BUSINESS
As of the date of this Proxy Statement, management of the Company was
not aware of any other matter to be presented at the Meeting other than as
set forth herein. However, if any other matters are properly brought
before the Meeting, the shares represented by valid Proxies will be voted
with respect to such matters in accordance with the judgment of the
persons voting them.
ANNUAL REPORT
The Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1996 accompanies this Proxy Statement. The audited financial
statements of the Company are included in such Form 10-K. Copies of the
exhibits to that Form 10-K are available from the Company upon written
request of a stockholder and payment of the Company's out-of-pocket
expenses.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
FOR THE ANNUAL MEETING TO BE HELD IN JULY 1997
Any proposal from a stockholder of the Company intended to be
presented at the annual meeting of stockholders of the Company to be held
in July 1997 must be sent to the attention of Harold Reisner, Investor
Relations, Executive Telecard, Ltd., 8 Avenue C., Nanuet, New York 10954,
no later than February 24, 1997 in order to be included in the Company's
proxy statement and proxy relating to that meeting. Such proposal must
comply with all requirements of the proxy solicitation rules of the
Securities and Exchange Commission.
SECTION 16(a) REPORTING UNDER THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's executive
officers and directors, and persons who own more than ten percent of the
common stock of the Company, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission and the exchange on
which the common stock is listed for trading. Those persons are required
by regulations promulgated under the Exchange Act to furnish the Company
with copies of all reports filed pursuant to Section 16(a). When he was
first elected to the Company's Board of Directors in June of 1995, Mr.
Abdul Aal, a resident of the state of Bahrain, was unfamiliar with the
United States laws regarding directors' duty to report trades in the
Company's stock and to pay over to the Company any profits earned on
"short-swing" trading of the Company's stock irrespective of whether such
trades are made on the basis of any insider or nonpublic information.
Accordingly, companies affiliated with Mr. Abdul Aal made a number of such
trades in 1995 which may be considered to be violations of Section 16(b).
Mr. Abdul Aal has agreed to cooperate with the Company in compiling the
information regarding these trades, to repay the Company any profits with
interest as required by law and to make the appropriate filings with the
Commission. The Company is diligently pursuing an immediate resolution of
this matter. In addition, in the course of the difficult and protracted
proxy contest in 1995, certain of the Company's Executive Officers and
Directors failed to make timely filings of ownership reports required by
Section 16(a) with the Securities and Exchange Commission. Messrs.
Balinger and Sonnerberg failed to timely file reports on Form 3 for their
appointments as a Director in March and Mr. Krinsley failed to timely
report on Form 3 his appointment as a Director in June 1995. Messrs.
Gerrity, Balinger, Mandel, Sonnerberg, Krinsley, Schuck and Warnes also
failed to timely file reports on Forms 4 or 5 for their grants of options
to purchase Common Stock of the Company in December 1995. All of these
reports were filed in June 1996. The Company has, with the assistance of
legal counsel, instituted a strict new policy for continuous reminders to
the Company's Executive Officers and Directors to inform the Company of
any transactions in the Company's Common Stock and to file the appropriate
forms under the Exchange Act in a timely manner.
The plaintiff in Morales v. Executive Telecard and Network Data
Systems, Ltd. has alleged that, notwithstanding the Settlement Agreement
between the Company and Network Data Systems, Ltd. ("NDS"), NDS has still
not filed all of the reports required by Section 16(a) and is liable to
the Company for additional insider trading profits. See "Transactions
with Management and Others".
BY ORDER OF THE BOARD OF DIRECTORS
June 27, 1996 Edward J. Gerrity, Jr.
Chairman of the Board
<PAGE>
APPENDIX
EXECUTIVE TELECARD, LTD.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Edward J. Gerrity, Jr. and Anthony
Balinger, each with the power to appoint his substitute, and hereby
authorizes them to represent and to vote as designated below, all the
shares of common stock of Executive Telecard, Ltd. held of record by the
undersigned on June 14, 1996, at the Annual Meeting of Stockholders to be
held on July 26, 1996 or any adjournment thereof.
1. ELECTION OF DIRECTORS.
[ ] FOR all nominees listed below (except as marked to the
contrary)
[ ] WITHHOLD AUTHORITY to vote for all the nominees listed below
Edward J. Gerrity, Jr. Anthony Balinger
Stig Sonnerberg David W. Warnes
Richard A. Krinsley Ebrahim Ali Abdul Aal
(INSTRUCTION: To withhold authority to vote for an individual
nominee, cross out that nominee's name above.)
2. PROPOSAL TO RATIFY THE APPOINTMENT OF BDO SEIDMAN, LLP AS THE
INDEPENDENT CERTIFIFED PUBLIC ACCOUNTANTS OF THE COMPANY FOR THE FISCAL
YEAR ENDING MARCH 31, 1997.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. PROPOSAL TO APPROVE AN AMENDMENT TO THE COMPANY'S CERTIFICATE
OF INCORPORATION INCREASING THE AUTHORIZED NUMBER OF SHARES OF THE
COMPANY'S COMMON STOCK TO 100,000,000 SHARES.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. PROPOSAL TO APPROVE AN AMENDMENT TO THE COMPANY'S CERTIFICATE
OF INCORPORATION AUTHORIZING THE ISSUANCE OF UP TO 5,000,000 SHARES OF A
NEW CLASS OF PREFERRED STOCK.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. PROPOSAL TO APPROVE AN AMENDMENT TO THE COMPANY'S CERTIFICATE
OF INCORPORATION ADDING A PROVISION THAT REQUIRES ANY ACTION REQUIRED OR
PERMITTED TO BE TAKEN BY THE STOCKHOLDERS TO BE EFFECTED AT A DULY CALLED
ANNUAL OR SPECIAL MEETING OF STOCKHOLDERS AND NOT BY A CONSENT IN WRITING
BY STOCKHOLDERS.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
6. PROPOSAL TO APPROVE AND RATIFY THE COMPANY'S 1995 EMPLOYEE
STOCK OPTION AND APPRECIATION RIGHTS PLAN.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
7. PROPOSAL TO APPROVE AND RATIFY THE COMPANY'S 1995 DIRECTORS
STOCK OPTION AND APPRECIATION RIGHTS PLAN.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
8. To transact such other business as may properly come before the
Meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE,
THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2, 3, 4, 5, 6 AND 7. THIS PROXY
CONFERS DISCRETIONARY AUTHORITY IN RESPECT TO MATTERS NOT KNOWN OR
DETERMINED AT THE TIME OF THE MAILING OF THE NOTICE OF ANNUAL MEETING OF
STOCKHOLDERS TO THE UNDERSIGNED.
The undersigned hereby acknowledges receipt of the Notice of Annual
Meeting of Stockholders and Proxy Statement furnished herewith.
Dated: , 1996
----------------------------------------
Signature(s) of Shareholder(s)
Signature(s) should agree with the name(s)
stenciled hereon. Executors, administrators,
trustees, guardians and attorneys should
indicate when signing. Attorneys should
submit powers of attorney.
PLEASE SIGN AND RETURN THIS PROXY IN THE ENCLOSED PRE-ADDRESSED
ENVELOPE. THE GIVING OF A PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN
PERSON IF YOU ATTEND THE MEETING OR TO SUBMIT A LATER DATED REVOCATION OR
AMENDMENT TO THIS PROXY ON ANY OF THE ISSUES SET FORTH ABOVE.
