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:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] 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):
[X] $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:
[ ] 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 that 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 24, 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 24, 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 [______________] 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 the 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 such persons 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 traded
company, from 1987 until October 1994. See "Compensation Committee and
Stock Option Committee Transactions" 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 still is 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 traded company
listed 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 "Compensation Committee and Stock
Option Committee Transactions" 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
"Compensation Committee and Stock Option Committee Transactions" 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 By-laws. 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 By-laws 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 By-laws 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 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 $0 25,000
former President 1995 0 3,300
and COO (former)(4) 1994 0 13,310
- ---------------------
(1) Consists of an annual housing allowance paid to Mr. Balinger while he
resides in Hong Kong.
(2) In fiscal 1995, Mr. Balinger's salary was paid by a Hong Kong
subsidiary of the Company, which received funds from Service 800,
S.A., a subsidiary of Residual Corporation ("Residual"), that was
acquired by the Company pursuant an Asset Purchase Agreement. See
"Transactions with Management and Others" below.
(3) In fiscal 1994 and 1995, the salaries and bonuses of Messrs. Schuck,
Mandel and Engelman were paid by Fintel Services Inc. pursuant to a
Service Agreement between the Company and Residual. See
"Transactions with Management and Others" below.
(4) Mr. Engelman's employment was terminated by the Company on April 25,
1995. The options received by Mr. Engelman in fiscal 1996 were based
on an arbitration award after Mr. Engelman's termination and expired
no later than April 3, 1996. See "Certain Litigation" above.
</TABLE>
Option/SAR Grants in Last Fiscal Year
The following table sets forth the information concerning individual
grants of stock options and stock appreciation rights ("SARs") during the
last fiscal year to each of the named Executive Officers.
Individual Grants
<TABLE>
<CAPTION>
Percent of
Number of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees in Base Price Expiration
Name Granted (#)(1) Fiscal Year(2) ($/share) Date
<S> <C> <C> <C> <C>
Anthony Balinger 10,000(3) 1.6% $6.00 12/15/05
Robert N. Schuck 50,000(4) 8.1% $6.00 12/15/05
Allen Mandel 50,000(4) 8.1% $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 $212,783
- -----------------------
(1) All of the options and related SARs granted in fiscal 1996 to the
named Executive Officers, except Mr. Engelman, have a ten year term
and are not exercisable until June 15, 1996.
(2) A total of 618,200 options were granted to employees of the Company
in fiscal 1996, not including Mr. Engelman's options.
(3) All of the options granted to Mr. Balinger were incentive stock
options granted in tandem with SARs.
(4) Of the grants to Messrs. Schuck and Mandel, 16,666 were incentive
stock options granted in tandem with SARs and 33,334 were
nonqualified stock options granted in tandem with SARs.
(5) Mr. Engelman's employment was terminated by the Company on April 25,
1995. The options received by Mr. Engelman were based on an
arbitration award after Mr. Engelman's termination and were not
included in the total for all employees in fiscal 1996. None of
these options were exercised by Mr. Engelman prior to their
expiration no later than April 3, 1996. See "Certain Litigation"
above.
</TABLE>
Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option/SAR Values
The following table sets forth information concerning each exercise
of stock options during the last fiscal year by each of the named
Executive Officers and the fiscal year end value of unexercised options.
<TABLE>
<CAPTION>
Number of Securities
Shares Value Underlying Unexercised
Acquired on Realized Options/SARs at
Name Exercise(#) ($) 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 $0 25,000(3) 0
</TABLE>
<TABLE>
<CAPTION>
Value of Unexercised "In the
Money" Options at Fiscal
at Year End ($)(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 no later
than 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 his 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 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
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 of at least the
greater of any stock options granted to the President or Chief Executive
Officer or a Director of the Company under any stock option 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 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) as (a) 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) an 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-95 Mar-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 named
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 upon 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 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.
There are currently 20,000,000 authorized shares of Common Stock, and
14,408,626 of those shares (72.0%) are issued and outstanding (excluding
728,119 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
$14,625,000.
Eligible Employees and Others
Stock options and stock appreciation rights may be granted under the
Employee Plan to key employees of, and advisors and consultants to, the
Company or any of its subsidiaries or other entities in common control
with the Company. Options granted under the Employee Plan that are
incentive stock options ("ISOs") within the meaning of Section 422 of the
Internal Revenue Code (the "Code") may only be granted to employees
(including employee-directors) of the Company. Advisors and consultants
may receive grants only if they provide bona fide services that are not
rendered in connection with the offer or sale of securities or in a
capital-raising transaction. Members of the Committee are not eligible to
receive grants under the Employee Plan. No employee may be granted more
than 300,000 options over any two year period under the Employee Plan.
As of May 28, 1996, the Company had approximately 118 employees and
other persons eligible to receive grants under the Employee Plan.
Plan Benefits
Set forth below in tabular form are the benefits or amounts to be
received by or allocated to each of the named persons or groups under the
Employee Plan during fiscal 1997. The Committee determines the number of
stock options or stock appreciation rights which may be granted to key
officers of, and advisors and consultants to, the Company or any of its
subsidiaries or other entities in common control with the Company under
the Employee Plan. Because such number, if any, is entirely in the
discretion of the Committee, the benefits or amounts to be received by or
allocated to those persons, are not determinable. The members of the
Committee are not eligible to receive stock options or stock appreciation
rights under the Employee Plan.
Employee Plan
<TABLE>
<CAPTION>
Name and Position Dollar Value ($) Number of Units
<S> <C> <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 24, 1996 Edward J. Gerrity, Jr.
Chairman of the Board
<PAGE>
APPENDICES
EXECUTIVE TELECARD, LTD.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Edward J. Gerrity, Jr. and
________________, 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 THAT 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.
<PAGE>
Executive TeleCard, Ltd.
1995 Employee Stock Option and
Appreciation Rights Plan
Article I.
Establishment & Purpose
Section 1.1 Executive Telecard, Ltd. (the "Company"), a Delaware
corporation, hereby establishes a stock option and appreciation rights
plan to be named the Executive TeleCard, Ltd. 1995 Employee Stock Option
and Appreciation Rights Plan (the "Plan"). All options granted on or after
the date that this Plan has been approved and adopted by the Company's
board of directors shall be governed by the terms and conditions of this
Plan unless the terms of such an option specifically indicate that it is
not to be so governed. With respect to persons subject to Section 16 of
the Securities Exchange Act (the "Exchange Act"), transactions under this
Plan are intended to comply with all applicable conditions of Rule 16b-3
or its successors under the Exchange Act ("Rule 16b-3"). To the extent
that any provision of this Plan or any action by the Committee fails to
comply with Rule 16b-3, such provision or action shall be deemed to be
null and void, to the extent permitted by law and deemed advisable by the
Committee.
Section 1.2 The purpose of this Plan is to provide persons who
are key employees, advisors and consultants of or to the Company (or any
of its subsidiaries or other entities in common control with the Company)
with incentives and rewards in recognition of their services and other
contributions which have been critical to the success of the Company, and
to induce such individuals to continue to provide service to the Company
in the future. The Plan provides for the grant of Options to purchase
shares of common stock of the Company (the "Common Stock") which: a)
qualify as incentive stock Options ("Incentive Options") under Section 422
of the Internal Revenue Code of 1986, as amended (the "Code") to
employees, and b) do not so qualify ("Non-Qualified Options"), to all Plan
participants. This Plan also provides for the grant of stock appreciation
rights ("Rights") to all Plan participants in connection with the grant of
Options hereunder. Incentive Options and Non-Qualified Options may be
collectively referred to as "Options" as the context may require.
Section 1.3 Options may be granted pursuant to this Plan to any
Plan participant for a period commencing on the effective date of the Plan
and ending not later than the tenth (10th) anniversary of the date that
this Plan is adopted by the Board of Directors, provided, however, that
the term of options granted during that period may extend beyond such
tenth year anniversary date.
Article II.
Administration
Section 2.1 All determinations under the Plan concerning the
selection of persons eligible to receive awards hereunder and with respect
to the timing, pricing and amount of an award hereunder shall be made by a
Committee of the Board of Directors (the "Committee") who shall be
charged with administration of this Plan. The Committee shall be
comprised of not less than two members of the Board of Directors, each of
whom is a "disinterested person." A "disinterested person" within the
meaning of Rule 16b-3 as in effect upon the date this Plan is adopted by
the Board of Directors is a person who has not been granted or awarded
equity securities (within the meaning of the Exchange Act) under any other
plan of the Company (or any affiliate thereof) at any time within one year
prior to such person's service as a member of the Committee, or during
such service except as otherwise permitted by Rule 16b-3(c). The
Committee shall select one of its members to serve as the chairman
thereof, and shall hold its meeting at such times and places as it may
determine. At any such meeting, a majority of the total number of members
of the Committee shall be necessary to constitute a quorum. Either the
affirmative vote of a majority of the members present at any meeting at
which a quorum is present, or the unanimous approval in writing of the
total number of members of the Committee, shall be necessary to constitute
action by the Committee.
Section 2.2 The provisions of this Plan relating to Incentive
Options are also intended to comply in every respect with Section 422 of
the Code ("Section 422") and the regulations promulgated thereunder. In
the event that any future statute or regulation shall modify Section 422,
the Plan and any stock option agreement relating to the grant of any
Incentive Option pursuant to this Plan, which option is outstanding and
unexercised at the time that any modifying statute or regulation becomes
effective, shall also be deemed to incorporate by reference such
modification, and no notice of such modification need be given to the
Optionee (as hereinafter defined). Any stock option grant relating to an
Incentive Option shall provide that the Optionee (as hereinafter defined)
hold the stock received upon exercise of such Incentive Option for a
minimum of two years from the date of grant of the Incentive Option and
one year from the date of exercise of such Incentive Option, absent the
written approval, consent or waiver of the Committee.
Section 2.3 If any provision of this Plan is determined to
disqualify the shares of Common Stock purchasable upon exercise of an
Incentive Option granted under this Plan from the special tax treatment
provided by Section 422, such provision shall be deemed to incorporate by
reference the modification required to qualify such shares of Common Stock
for said tax treatment.
Section 2.4 The Company shall grant options under this Plan in
accordance with determinations made by the Committee pursuant to the
provisions of this Plan. No member of the Committee shall be eligible to
participate in this Plan. All Options granted pursuant to this Plan shall
be clearly identified as Incentive Options or Non-Qualified Options. The
Committee may from time to time adopt (and thereafter amend or rescind)
such rules and regulations for carrying out the provisions of this Plan
and take such action in the administration of this Plan, not inconsistent
with the provisions hereof, as it shall deem proper. The interpretation
and construction of any provision of this Plan by the Committee (unless
otherwise determined by the Board of Directors) shall be final, conclusive
and binding upon all persons.
Section 2.5 Each Option granted pursuant to this Plan shall be
exerciseable for a period of ten years from the date of grant subject to
the limitations on exercise and restrictions upon transfer of the shares
of Common Stock to be issued upon exercise of the Option as are set forth
elsewhere herein or as are imposed by applicable laws including without
limitation applicable federal and state securities laws. Except as
otherwise provided in this section, all Options issued pursuant to this
section shall be subject to the other terms and conditions of this Plan;
to the extent such terms and conditions are inconsistent with this section
this section shall control.
Section 2.6 The Committee may, in its discretion, grant in
connection with any Option, at any time prior to the exercise thereof, the
right (previously defined as a "Right" or collectively, the "Rights") to
surrender all or part of the Option to the extent that such Option is
exerciseable and receive in exchange an amount payable in shares of Common
Stock valued at the then fair market value, determined in accordance with
Section 5.1(b) herein, equal to the difference (the "Spread") between the
then fair market value of the shares of Common Stock issuable upon the
exercise of the Option (or portions thereof surrendered) and the option
price payable upon the exercise of the Option (or portions thereof
surrendered). Such rights shall be subject to the following conditions:
(a) the Rights will expire at the same time as the underlying Option; (b)
the Rights shall be for 100 percent of the Spread; (c) the Rights are
transferable only when the underlying Option is transferable and under the
same conditions; (d) the Rights may be exercised only when the underlying
Option is eligible to be exercised; and (e) the Rights may be exercised
only when the Spread is positive, i.e., when the market price of the
Common Stock subject to the Option exceeds the exercise price of the
Option.
Section 2.7 No member of the Committee shall be liable for any
action or determination made in good faith with respect to administration
of this Plan or the Options granted hereunder. A member of the Committee
shall be indemnified by the Company, pursuant to the Company's by-laws,
for any expenses, judgments or other costs incurred as a result of a
lawsuit filed against such member claiming any rights or remedies arising
out of such member's participation in and administration of this Plan.
Article III.
Total Number of Shares to be Optioned
Section 3.1 There shall be reserved for issuance or transfer upon
exercise of the Options to be granted from time to time under this Plan an
aggregate of one million (1,000,000) shares of Common Stock of the Company
(subject to adjustment as provided in Article VIII hereof). The shares of
Common Stock issued upon exercise of any Option granted under this Plan
may be shares of Common Stock previously issued and reacquired by the
Company at any time or authorized but unissued shares of Common Stock, as
the Board of Directors from time to time may determine.
Section 3.2 In the event that any Options outstanding under this
Plan for any reason expire or are terminated without having been exercised
in full or shares of Common Stock subject to Options are surrendered in
whole or in part pursuant to Rights granted under Section 2.6 hereof
(except to the extent that shares of Common Stock are issued as payment to
the holder of the Option upon such surrender) the unpurchased shares of
Common Stock subject to such Option and any such surrendered shares shall
again be available for issuance under this Plan.
Section 3.3 No Options shall be granted pursuant to this Plan to
any Optionee after the tenth anniversary of the earlier of: (a) the date
that this Plan is adopted by the Board of Directors or (b) the date that
this Plan is approved by the stockholders of the Company.
Article IV.
Eligibility
Section 4.1 Any key employee, advisor and consultant of or to the
Company (or any of its subsidiaries or other entities in common control
with the Company) shall be eligible to be granted Options hereunder (any
such persons granted Options pursuant to this Plan are referred to herein
as "Optionees"). For purposes of determining who is an employee with
respect to eligibility for Incentive Options, Section 422 of the Code
shall govern. The Committee may determine (in its sole discretion) that
any person who would otherwise be eligible to be granted Options shall,
nonetheless, be ineligible to receive any award under this Plan. No
Employee shall be eligible to receive more than 300,000 under the Plan in
any three (3) year period.
Section 4.1 The Committee shall have sole discretion, subject to
the express provisions of the Plan, to determine which employees, advisors
or consultants, shall be granted Options, the number of shares subject to
each Option, the time or times when an Option may be exercised (whether in
whole or in installments), the terms of a vesting or forfeiture schedule,
if any, the type of Option issued, the manner in which Options may be
exercised and whether Rights under Section 2.6 hereof shall be granted,
and all other terms and conditions related to the Options and Rights
(which need not be identical); provided, however, that each such Option
shall be exerciseable for a period of at least ten (10) years from the
date of grant, unless sooner terminated pursuant the terms of this Plan
and further provided that no Option will be granted which has terms or
conditions inconsistent with those stated in Articles V and VI hereof.
Article V.
Terms & Conditions of Options
Section 5.1 Each Option granted under this Plan shall be subject
to the following terms and conditions:
(a) The price at which each share of Common Stock covered by an
Option may be purchased shall be determined by the Board of Directors
or the Committee, provided that the option price for any Incentive
Option shall not be less than equal to the "fair market value" of the
shares of Common Stock at the time of grant determined in accordance
with Section 5.1(b) below. Notwithstanding the foregoing, if an
Incentive Option to purchase shares of Common Stock is granted
pursuant to the Plan to an Optionee who, on the date of the grant,
directly or indirectly owns more than 10 percent of the voting power
of all classes of capital stock of the Company (or its parent of
subsidiary), not including the shares of Common Stock obtainable upon
exercise of the Option, the minimum exercise price of such Option
shall be not less than one hundred ten percent (110%) of the "fair
market value" of the shares of Common Stock on the date of grant
determined in accordance with Section 5.1(b) below.
(b) the "fair market value" shall be determined by the Committee
which determination shall be binding upon the Company and its
directors. The determination of the fair market value shall be based
upon the following: (i) if the shares of Common Stock are not listed
and traded upon a recognized securities exchange and there is no
report of stock prices with respect to the shares of Common Stock
published by a recognized stock quotation service then the Committee
shall set the fair market value based upon the recent purchases and
sales of the shares of Common Stock in arms length transactions; or
(ii) if the shares of Common Stock are not then listed and traded
upon a recognized securities exchange or listed for quotation on the
NASDAQ National Market System, and there are reports of stock prices
by a recognized quotation service, upon the basis of the last
reported sales or transaction price of such stock on the date of
grant as reported by a recognized quotation service, or, if there is
no last reported sale or transaction price on that day, then upon the
basis of the mean of the last reported closing bid and closing asked
prices for such stock on that day or on the date nearest preceding
that day; or (iii) if the shares of Common Stock shall then be listed
and traded upon a recognized securities exchange or listed for
quotation on the NASDAQ National Market System, upon the basis of the
last reported sale or transaction price at which shares of Common
Stock were traded on such recognized securities exchange on the date
of grant or, if the shares of Common Stock were not traded on such
date, upon the basis of the last reported sale or transaction price
on the date nearest preceding that date. The Committee shall also
consider such other factors relating to the fair market value of the
shares of Common Stock as it shall deem appropriate.
(c) For the purpose of determining whether an Optionee owns more
than 10 percent of the voting power of all classes of stock of the
Company, an Optionee is considered to own those shares which are
owned directly or indirectly through brothers and sisters (including
half-blooded siblings), spouse, ancestors and lineal descendants; and
proportionately as a shareholder of a corporation, a partner of a
partnership, and/or a beneficiary of a trust or an estate that owns
shares of the Company.
(d) Notwithstanding any other provision of this Plan, in accordance
with the provision of Section 422(d) of the Code, to the extent that
the aggregate fair market value (determined at the time the Option is
granted) of the shares of Common Stock of the Company with respect to
which Incentive Options (without reference to this provision) are
exerciseable for the first time by any individual in any calendar
year under any and all stock option plans of the Company, its
subsidiary corporations and its parent (if any ) exceeds $100,000,
such Options shall be treated as Non-Qualified Options.
(e) An Optionee may, at the Committee's discretion, be granted more
than one Incentive Option or Non-Qualified Option during the duration
of this Plan, and may be issued a combination of Non-Qualified
Options and Incentive Options.
(f) The duration of any Option and any Right related thereto granted
to a 10% or less stockholder or any non-qualified Option, shall, by
it's terms, be exercised within ten (10) years after the date of
grant and any Incentive Option granted to a greater than 10%
stockholder shall, by it's terms, be exercised within five (5) years
after the date that the Option is granted.
(g) An Option and any Right related thereto shall not be
transferable by the Optionee other than by will, or by the laws of
descent and distribution. An Option may be exercised during the
Optionee's lifetime only by the Optionee.
(h) At least six months shall have elapsed from the date on which an
Option is granted hereunder to the date on which any share of Common
Stock underlying such Option is sold or any Right related thereto is
exercised unless the Committee otherwise consents in wiring.
Article VI.
Employment or Service of Optionee
Section 6.1 If the service of an Optionee is terminated for cause,
the rights of such Optionee, both accrued and future, under any then
outstanding Option or Right shall terminate immediately. "Cause" shall
mean incompetence in the performance of duties, disloyalty, dishonesty,
theft, embezzlement, unauthorized disclosure of patents, processes or
trade secrets of the Company, individually or as an employee, partner,
associate, officer or director of any organization. The determination of
the existence and the proof of "cause" shall be made by the Board of
Directors , such determination shall be binding on the Optionee and the
Company.
Section 6.2 If the employment or service of the Optionee is
terminated by the Optionee or the Company for any reason other than for
cause, death, or for disability, as defined in Section 22(e) (3) of the
Code, the option rights of such Optionee under any then outstanding
Options or Rights shall, subject to the provisions of Section 5.1(h)
hereof, be exerciseable by such Optionee at any time prior to the
expiration of the Option or within three months after the date of such
termination, whichever period of time is shorter, but only to the extent
of the accrued right to exercise the Option or Right at the date of such
termination.
Section 6.3 In the case of an Optionee who becomes disabled, as
defined by Section 22(e)(3) of the Code, the option rights of such
Optionee under any then outstanding Option or Right shall, subject to the
provisions of Section 5.1(h) hereof, be exercised by such Optionee at any
time prior to the expiration of the Option or within one year after the
date of termination of employment or service due to disability, whichever
period of time is shorter, but only to the extent of the accrued right to
exercise the Option or Right at the date of such termination.
Section 6.4 In the event of the death of an Optionee, the rights
of such Optionee under any then outstanding Option or Right shall be
exerciseable by the person or persons to whom these rights pass by will or
by the laws of decent and distribution, at anytime prior to the expiration
of the Option or Right or within three years after the date of death,
whichever period of time is shorter, but only to the extent of the accrued
right to exercise the Option or Right at the date of death. If a person
or estate acquires the right to exercise an Option or Right by bequest or
inheritance, the Committee may require reasonable evidence as to the
ownership of such Option, and may require such consents and releases of
taxing authorities as the Committee may deem advisable.
Section 6.5 Options or Rights granted under this Plan shall not be
affected by any change of duties or position, so long as the Optionee
continues in the service of the Company.
Section 6.6 Nothing contained in this Plan, or in any Option or
Right granted pursuant to this Plan, shall confer upon any Optionee any
right with respect to continuance of employment or service by the Company
nor interfere in any way with the right of the Company to terminate the
Optionee's employment or service or change the Optionee's compensation at
any time.
Article VII.
Purchase of Shares
Section 7.1 Except as provided in this Article VII, an Option
shall be exercised by tender to the Company of the full exercise price of
the shares of Common Stock with respect to which the Option is being
exercised and written notice of such exercise. The right to purchase
shares of Common Stock shall be cumulative so that, once the right to
purchase any shares has accrued, such shares or any part thereof may be
purchased at any time thereafter until the expiration or termination of
the Option. A partial exercise of an Option shall not affect the right of
the Optionee to exercise the Option from time to time, in accordance with
this Plan, as to the remaining number of shares of Common Stock subject to
the Option. The purchase price of the shares shall be in United States
dollars, payable in cash or by certified bank check. Notwithstanding the
foregoing, in lieu of cash, an Optionee may, with the approval of the
Committee, exercise his or her Option by tendering to the Company shares
of Common Stock of the Company owned by him or her and having an aggregate
fair market value at least equal to the full exercise price. The fair
market value of any shares of Common Stock so surrendered shall be
determined by the Committee in accordance with Section 5.1(b) hereof.
Section 7.2 Except as provided in Article VI above, an Option may
not be exercised unless the holder thereof is an employee, consultant or
advisor of the Company at the time of exercise.
Section 7.3 No Optionee, or Optionee's executor, administrator,
legatee, or distributee or other permitted transferee, shall be deemed to
be a holder of any shares of Common Stock subject to an Option for any
purpose whatsoever unless and until a stock certificate or certificates
for such shares are issued to such person under the terms of this Plan.
No adjustment shall be made for dividends (ordinary or extraordinary,
whether in cash, securities or other property) or distributions or other
rights for which the record date is prior to the date such stock
certificate is issued, except as provided in Article VIII hereof.
Section 7.4 If: (i) the listing, registration or qualification of
the Options issued hereunder, or of any securities issuable upon exercise
of such Options (the "Common Stock") upon any securities exchange or
quotation system or under federal or state law is necessary as a condition
of or in connection with the issuance or exercise of the Options, or (ii)
the consent or approval of any governmental regulatory body is necessary
as a condition of or in connection with the issuance or exercise of the
Options, the Company shall not be obligated to deliver the certificates
representing the Subject Securities or to accept or to recognize an Option
exercise unless and until such listing, registration, qualification,
consent or approval shall have been effected or obtained. The Company
will take reasonable action to so list, register or qualify the Options
and the Subject Securities, or effect or obtain such consent or approval,
so as to allow for their issuance.
Section 7.5 Any Optionee may be required to represent to the
Company as a condition of his or her exercise of Options issued under this
Plan that: (i) the Common Stock acquired upon exercise of his or her
Option are being acquired by him or her for investment purposes only and
not with a view to distribution or resale, unless counsel for the Company
is then of the view that such a representation is not necessary and is not
required under the Securities Act of 1933, as amended (the "Securities
Act"), or any other applicable statue, law, regulation or rule; and (ii)
that the Optionee shall make no exercise or disposition of an Option or of
the Common Stock in contravention of the Securities Act, the Exchange Act
or the rules and regulations thereunder. Optionees may also be required
to provide (as a condition precedent to exercise of an Option, such
documentation as may be reasonably required by the Company to assure
compliance with applicable law and the terms and conditions of this Plan
and the subject Option.
Section 7.6 An Option may also be exercised by tender to the
Company of a written notice of exercise 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. All documentation and procedures to be followed in
connection with such a "cashless exercise" shall be approved in advance by
the Committee.
Article VIII.
Change in Number of Outstanding Shares of
Stock, Adjustments, Reorganizations, etc.
Section 8.1 In the event that the outstanding shares of Common
Stock of the Company are hereafter increased or decreased or changed into
or exchanged for a different number of shares or kind of shares or other
securities of the Company or of another corporation by reason or
reorganization, merger, consolidation, re-capitalization,
reclassification, stock split, combination of shares or a dividend payable
in capital stock , appropriate adjustment shall be made by the Committee
in the number and kind of shares for the purchase of which Options may be
granted under this Plan, including the maximum number that may be granted
to any one person. In addition, the Committee shall make appropriate
adjustments in the number and kind of shares as to which outstanding
Options, or portions thereof then unexercised shall be exerciseable, to
the extent that the Optionee's proportionate interest shall be maintained
as before the occurrence to the unexercised portion of the Option and
with a corresponding adjustment in the option price per share. Any such
adjustment made by the Committee shall be conclusive.
Section 8.2 The grant of an Option pursuant to this Plan shall not
affect in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge or to consolidate or to dissolve, liquidate or sell,
or transfer all or any part of its business or assets.
Section 8.3 Upon the dissolution or liquidation of the Company, or
upon a reorganization, merger or consolidation of the Company as a result
of which the outstanding securities of the class then subject to Options
hereunder are changed into or exchanged for cash or property or securities
not of the Company's issue, or upon a sale of substantially all the
property of the Company to an association, person, party, corporation,
partnership, or "control group" as that term is construed for the purposes
of the Exchange Act, this Plan shall terminate unless provision be made in
writing in connection with such transaction for the continuance of this
Plan or for the substitution for such Option or Options covering the stock
of a successor employer corporation, or a present or a subsidiary thereof,
with appropriate adjustments as to the number and kind of shares and
prices, in which event this Plan and the Options theretofore granted shall
continue in the manner and under the terms so provided. If this Plan
shall terminate pursuant to the foregoing sentence, all persons owning any
unexercised portions of the Options then outstanding shall have the right
, at such time prior to the consummation of the transaction causing such
termination as the Company shall designate, to exercise the unexercised
portions of such Options, including the portions thereof which would, but
for this Section 8.3, not yet be exerciseable.
Section 8.4 If, while any Options remain outstanding under the
Plan, (i) the "beneficial ownership" (as defined Rule 13d-3 under the
Exchange Act) of securities representing more than 20% of the combined
voting power of the Company is acquired by a person (as defined in section
13(d) of the Exchange Act, other than the Company or an affiliate of the
Company), (ii) the stockholders of the company approve a definitive
agreement to merge or consolidate the Company with another company or to
sell or otherwise dispose of all or substantially all of it's assets, or
(iii) during any period of two consecutive years, individuals who at the
beginning of such period constitute the members of the board of directors
cease to constitute at least a majority of the members of the board of
directors at any time during such period for any reason (other than in the
case of a director whose election by the Board or nomination by the
Company's stockholders was approved by a vote of at least two thirds of
the directors then still in office who are either directors at the
beginning of the period or whose election or nomination for election was
previously so approved), then all Options then outstanding shall become
fully vested and exerciseable on the date of such event.
Article IX.
Duration, Amendment & Termination
Section 9.1 The Board of Directors may at any time terminate this
Plan or make such amendments hereto as it shall deem advisable and in the
best interests of the Company, without action on the part of the
stockholders of the Company, unless such approval is required pursuant to
Section 422 of the Code or the regulations thereunder or Rule 16b-3 under
the Exchange Act; provided, however, that no such termination or amendment
shall without the consent of the individual to whom any Option shall
heretofore have been granted, affect or impair the rights of such
individual under such Option, and provided further, that unless the
holders of a majority of all classes of the Company's outstanding voting
stock entitled to vote thereon shall have first approved thereof, no
amendment of this Plan shall be made whereby: (a) the total number of
shares of Common Stock which may be issued pursuant to the exercise of
Options under this Plan to all individuals, or any of them, shall be
increased, except by operation of the adjustment provisions of Article
VIII hereof, (b) the authority to administer this Plan by the Committee
shall be withdrawn, (c) the maximum term of the Options shall be extended,
(d) the minimum option price of Incentive Options shall be decreased, (e)
the price to Optionees to whom Options have been granted shall be changed
or (f) the class of individuals eligible to participate in this Plan is
modified. Pursuant to Section 422(b) of the Code, no Incentive Option may
be granted pursuant to this Plan after ten years from the date this Plan
is adopted or the date this Plan is approved by the stockholders of the
Company, whichever is earlier.
Article X.
Restrictions
Section 10.1 Any shares of Common Stock issued pursuant to exercise
of Options granted under this Plan shall be subject to such restrictions
on transfer and limitations as shall, in the opinion of the Committee, be
necessary or advisable to assure compliance with the laws, rules and
regulations of the United States government or any state or jurisdiction
thereof. In addition, the Committee may impose such other restrictions
upon the exercise of an Option or upon the sale or other disposition of
the shares of Common Stock deliverable upon exercise thereof as the
Committee may, in its sole discretion, determine. By accepting an award
pursuant to the Plan, each Optionee shall thereby agree to any such
restrictions.
Section 10.2 Any certificate issued to evidence shares of Common
Stock issued pursuant to exercise of an Option shall bear such legends and
statements as the Committee, the Board of Directors or counsel to the
Company shall deem advisable to assure compliance with the laws, rules and
regulations of the United States government or any state or jurisdiction
thereof. No shares of Common Stock will be delivered pursuant to exercise
of the Option granted under this Plan until the Company has obtained such
consents or approvals from such regulatory bodies of the Untied States
Government of any state or jurisdiction thereof as the Committee, the
Board of Directors or counsel to the Company deems necessary or advisable.
Article XI.
Application of Funds
Section 11.1 The proceeds received by the Company from the issuance
and sale of Common Stock upon exercise of Options granted pursuant to the
Plan are to be added to the general funds of the Company and used for its
corporate purposes as determined by the Board of Directors.
Article XII.
Effectiveness of Plan
Section 12.1 This Plan shall become effective upon adoption by the
Board of Directors, and Options may be issued hereunder from and after
that date subject to the provisions of Section 3.3 above. This Plan must
be approved by the Company's stockholders in accordance with the
applicable provisions (relating to the issuance of stock or options) of
the Company's governing documents and state law or, if no such approval is
prescribed therein, by the affirmative vote of the holders of a majority
of the votes cast at a duly held stockholders' meeting at which a quorum
representing a majority of all the Company's outstanding voting stock is
present and voting (in person or by proxy) or, without regard to any
required time period for approval, by any other method permitted by
Section 422 of the Code and the regulations thereunder. If such
stockholder approval is not obtained within one year of the adoption of
this Plan by the Board of Directors or within such other time period
required under Section 422 of the Code and the regulations thereunder,
this Plan shall remain in force, provided however, that all Options issued
and issuable hereunder shall automatically be deemed to be Non-Qualified
Options and provided further that no Option granted to any person subject
to Section 16 of the Exchange Act shall be exerciseable until such time as
stockholder approval of this Plan has been obtained.
EXECUTIVE TELECARD, LTD.
By: /s/ Edward J. Gerrity, Jr.
Edward J. Gerrity, Jr.
Its: Chairman of the Board
(CORPORATE SEAL)
ATTEST:
By:
Secretary
<PAGE>
Executive TeleCard, Ltd.
1995 Directors Stock Option and
Appreciation Rights Plan
Article I.
Establishment & Purpose
Section 1.1 Executive Telecard, Ltd. (the "Company"), a
Delaware corporation, hereby establishes a stock option and appreciation
rights plan to be named the Executive TeleCard, Ltd. 1995 Directors Stock
Option and Appreciation Rights Plan (the "Plan"). All options granted on
or after the date that this Plan has been approved and adopted by the
Company's board of directors shall be governed by the terms and conditions
of this Plan unless the terms of such an option specifically indicate that
it is not to be so governed. With respect to persons subject to Section
16 of the Securities Exchange Act of 1934 (the "Exchange Act"),
transactions under this Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the Exchange Act ("Rule
16b-3").
Section 1.2 The purpose of this Plan is to provide
persons who are members of the board of directors (including
employee-directors) of the Company (the "Board of Directors") with
incentives and rewards in recognition of their services and other
contributions which have been critical to the success of the Company, and
to induce such individuals to continue to provide service to the Company
in the future. The Plan provides for the grant of options to purchase
shares of common stock of the Company, $.001 par value per share (the
"Common Stock") which: a) qualify as incentive stock options ("Incentive
Options") under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code") to directors who are employees; and b) do not so
qualify ("Non-Qualified Options") to directors, including those who are
not employees. This Plan also provides for the grant of stock
appreciation rights ("Rights") to all plan participants in connection with
the grant of options hereunder. Incentive Options and Non-Qualified
Options may be collectively referred to hereafter as the "Options" as the
context may require.
Section 1.3 Options may be granted pursuant to this Plan
to any Plan participant for a period commencing on the effective date of
this Plan (pursuant to Section 12 hereof) and ending not later than the
tenth (10th) anniversary of the date that this Plan is adopted by the
Board of Directors.
Article II.
Administration
Section 2.1 A Committee of the Board of Directors
Committee (the "Committee") shall be charged with administration of this
Plan. The Committee shall be comprised of not less than two members of
the Board of Directors, each of whom is a "disinterested person." A
"disinterested person" within the meaning of Rule 16b-3 as in effect upon
the date this Plan is adopted by the Board of Directors, is a person who
has not been granted or awarded equity securities (within the meaning of
the Exchange Act) under any other plan of the Company (or any affiliate
thereof) at any time within one year prior to such person's service as a
member of the Committee, or during such service except as otherwise
permitted by Rule 16b-3(c). The Committee shall select one of its members
to serve as the chairman thereof, and shall hold its meeting at such times
and places as it may determine. At any such meeting, a majority of the
total number of members of the Committee shall be necessary to constitute
a quorum. Either the affirmative vote of a majority of the members
present at any meeting at which a quorum is present, or the unanimous
approval in writing of the total number of members of the Committee, shall
be necessary to constitute action by the Committee.
Section 2.2 The provisions of this Plan relating to
Incentive Options are also intended to comply in every respect with
Section 422 of the Code ("Section 422") and the regulations promulgated
thereunder. In the event that any future statute or regulation shall
modify Section 422, this Plan and any stock option grant relating to the
grant of any Incentive Option pursuant to this Plan, which option is
outstanding and unexercised at the time that any modifying statute or
regulation becomes effective and is subject to such modification, shall be
deemed to incorporate by reference such modification, and no notice of
such modification need be given to the Optionee (as hereinafter defined).
Any stock option grant relating to an Incentive Option shall provide that
the Optionee (as hereinafter defined) hold the stock received upon
exercise of such Incentive Option for a minimum of two years from the date
of grant of the Incentive Option and one year from the date of exercise of
such Incentive Option, absent the written approval, consent or waiver of
the Committee.
Section 2.3 If any provision of this Plan is determined
to disqualify the shares of Common Stock purchasable upon exercise of an
Incentive Option granted under this Plan from the special tax treatment
provided by Section 422, such provision shall be deemed to incorporate by
reference the modification required to qualify such shares of Common Stock
for said tax treatment.
Section 2.4 The Committee shall grant options to members
of the board of directors with terms and conditions not inconsistent with
this Plan pursuant to the non-discretionary formula set forth in Section
2.6 hereof. All Options granted pursuant to this Plan shall be clearly
identified as Incentive Options or Non-Qualified Options. The Committee
may from time to time adopt (and thereafter amend or rescind) such rules
and regulations for carrying out the provisions of this Plan and take such
action in the administration of this Plan, not inconsistent with the
provisions hereof, as it shall deem proper. The Committee shall have sole
discretion, subject to the express provisions of this Plan, to determine
the type of Option issued and the manner in which Options may be
exercised, and all other terms and conditions related to the Options and
Rights not specifically provided in the non-discretionary formula provided
in Section 2.6 hereof, including such terms and provisions which may be
amended from time to time as shall be required, in the judgment of the
Committee to conform to any change in any law or regulation applicable
hereto, and to make all other determinations deemed necessary or advisable
for the administration of this Plan. The interpretation and construction
of any provision of this Plan by the Committee (unless otherwise
determined by the Board of Directors) shall be final, conclusive and
binding upon all persons.
Section 2.5 The Committee shall grant in connection with
the grant of Options at the time of such grant, the right (previously
defined as a "Right" or collectively, the "Rights") to surrender all or
part of the Option to the extent that such Option is exercisable and
receive in exchange an amount payable in shares of Common Stock valued at
the then fair market value, determined in accordance with Section 5.1(b)
herein, equal to the difference (the "Spread") between the then fair
market value of the shares of Common Stock issuable upon the exercise of
the Option (or portions thereof surrendered) and the option price payable
upon the exercise of the Option (or portions thereof surrendered). Such
rights shall be subject to the following conditions: (a) the Rights will
expire at the same time as the underlying Option; (b) the Rights shall be
for 100 percent of the Spread; (c) the Rights are transferable only when
the underlying Option is transferable and under the same conditions; (d)
the Rights may be exercised only when the underlying Option is eligible to
be exercised; and (e) the Rights may be exercised only when the Spread is
positive, i.e., when the market price of the Common Stock subject to the
Option exceeds the exercise price of the Option.
Section 2.6 Directors of the Company shall receive
Options and Rights hereunder on a non-discretionary basis in accordance
with the following formula: On the third Friday in December in each
calendar year, each member of the Board of Directors then serving shall
receive an Option to purchase ten thousand (10,000) shares of Common Stock
at an exercise price equal to the fair market value per share of such
shares on that date as determined in accordance with Section 5.1(b) of
this Plan and a corresponding Right. Directors who are employees shall
receive Incentive Stock Options, to the extent by the Code. Directors who
are not employees shall receive Non-Qualified Stock Options. Each such
Option shall be exercisable for a period of ten (10) years from the date
of grant unless sooner terminated pursuant to the terms of this Plan.
Each such Option shall be subject to the limitations on exercise and
restrictions upon transfer of the shares of Common Stock to be issued upon
exercise of the Option as are set forth elsewhere herein or as are imposed
by applicable laws including without limitation applicable federal and
state securities laws. Except as otherwise provided in this section, all
Options issued pursuant to this section shall be subject to the other
terms and conditions of this Plan. To the extent such terms and
conditions are inconsistent with this section this section shall control.
To the extent required pursuant to Rule 16b-3 as such rule relates to
formula awards, this section shall not be amended more than once every six
months other than to comport with changes in the Code, the Employee
Retirement Income Security Act or the rules thereunder.
Section 2.7 No member of the Committee shall be liable
for any action or determination made in good faith with respect to
administration of this Plan or the Options granted hereunder. A member of
the Committee shall be indemnified by the Company, pursuant to the
Company's by-laws, for any expenses, judgments or other costs incurred as
a result of a lawsuit filed against such member claiming any rights or
remedies arising out of such Director's participation in and
administration of this Plan.
Article III.
Total Number of Shares to be Optioned
Section 3.1 There shall be reserved for issuance or
transfer upon exercise of the Options to be granted from time to time
under this Plan an aggregate of eight hundred seventy thousand (870,000)
shares of Common Stock of the Company (subject to adjustment as provided
in Article VIII hereof). The shares of Common Stock issued upon exercise
of any Option granted under this Plan may be shares of Common Stock
previously issued and reacquired by the Company at any time or authorized
but unissued shares of Common Stock, as the Board of Directors from time
to time may determine.
Section 3.2 In the event that any Options outstanding
under this Plan for any reason expire or are terminated without having
been exercised in full or shares of Common Stock subject to Options are
surrendered in whole or in part pursuant to Rights granted under Section
2.6 hereof (except to the extent that shares of Common Stock are issued as
payment to the holder of the Option upon such surrender) the unpurchased
shares of Common Stock subject to such Option and any such surrendered
shares shall again be available for issuance under this Plan.
Section 3.3 No Options shall be granted pursuant to this
Plan to any Optionee after the tenth anniversary of the earlier of: (a)
the date that this Plan is adopted by the Board of Directors or (b) the
date that this Plan is approved by the stockholders of the Company.
Article IV.
Eligibility
Section 4.1 Subject to Section 2.6 above, Options may be
granted pursuant to this Plan to directors of the Company (or any of its
subsidiaries) as selected by the Committee. Incentive Options may be
granted pursuant to this Plan only to directors who are also employees of
the Company (or any of its subsidiaries) as selected by the Committee.
Persons granted Options pursuant to the Plan are referred to herein as
"Optionees." For purposes of determining who is an employee with respect
to eligibility for Incentive Options, Section 422 of the Code shall
govern. The Committee may determine (in its sole discretion) that any
person who would otherwise be eligible to be granted Options shall,
nonetheless, be ineligible to receive any award under this Plan. No
employee Director shall be eligible to receive more than 300,000 Options
under this Plan in any two (2) year period.
Section 4.2 No Options may be granted to any member of
the Committee or a member of the Board of Directors, other than pursuant
to a non-discretionary formula such as and including that which is set
forth in Section 2.6 above which meets the conditions in Rule 16b-3 under
the Exchange Act, nor may any Options be granted to a member of the
Committee if such member has, during the one year prior to such person's
service as a member of the Committee of this Plan or during such service,
received any equity securities pursuant to any plan of the Company or its
affiliates, other than pursuant to a non-discretionary formula such as and
including that which is set forth in Section 2.6 above which meets the
conditions in Rule 16b-3 under the Exchange Act. To the extent that any
provisions of this Plan or actions by the Committee fail to so comply, it
shall be deemed to be null and void, to the extent permitted by law and
deemed advisable by the Committee.
Article V.
Terms & Conditions of Options
Section 5.1 Each Option granted under this Plan shall be
subject to the following terms and conditions:
(a) The price at which each share of Common
Stock covered by an Option may be purchased shall be determined by the
Board of Directors or the Committee, provided that the option price for
any Incentive Option shall not be less than equal to the "fair market
value" of the shares of Common Stock at the time of grant determined in
accordance with Section 5.1(b) below. Notwithstanding the foregoing,
if an Incentive Option to purchase shares of Common Stock is granted
pursuant to the Plan to an Optionee who, on the date of the grant,
directly or indirectly owns more than 10 percent of the voting power of
all classes of capital stock of the Company (or its parent of
subsidiary), not including the shares of Common Stock obtainable upon
exercise of the Option, the minimum exercise price of such Option shall
be not less than one hundred ten percent (110%) of the "fair market
value" of the shares of Common Stock on the date of grant determined in
accordance with Section 5.1(b) below.
(b) the "fair market value" shall be determined
by the Committee which determination shall be binding upon the Company
and its directors. The determination of the fair market value shall be
based upon the following: (i) if the shares of Common Stock are not
listed and traded upon a recognized securities exchange and there is no
report of stock prices with respect to the shares of Common Stock
published by a recognized stock quotation service then the Committee
shall set the fair market value based upon the recent purchases and
sales of the shares of Common Stock in arms length transactions; or
(ii) if the shares of Common Stock are not then listed and traded upon
a recognized securities exchange or listed for quotation on the NASDAQ
National Market System, and there are reports of stock prices by a
recognized quotation service, upon the basis of the last reported sales
or transaction price of such stock on the date of grant as reported by
a recognized quotation service, or, if there is no last reported sale
or transaction price on that day, then upon the basis of the mean of
the last reported closing bid and closing asked prices for such stock
on that day or on the date nearest preceding that day; or (iii) if the
shares of Common Stock shall then be listed and traded upon a
recognized securities exchange or listed for quotation on the NASDAQ
National Market System, upon the basis of the last reported sale or
transaction price at which shares of Common Stock were traded on such
recognized securities exchange on the date of grant or, if the shares
of Common Stock were not traded on such date, upon the basis of the
last reported sale or transaction price on the date nearest preceding
that date. The Committee shall also consider such other factors
relating to the fair market value of the shares of Common Stock as it
shall deem appropriate.
(c) For the purpose of determining whether an
Optionee owns more than 10 percent of the voting power of all classes
of stock of the Company, an Optionee is considered to own those shares
which are owned directly or indirectly through brothers and sisters
(including half-blooded siblings), spouse, ancestors and lineal
descendants; and proportionately as a shareholder of a corporation, a
partner of a partnership, and/or a beneficiary of a trust or an estate
that owns shares of the Company.
(d) Notwithstanding any other provision of this
Plan, in accordance with the provision of Section 422(d) of the Code,
to the extent that the aggregate fair market value (determined at the
time the Option is granted) of the shares of Common Stock of the
Company with respect to which Incentive Options (without reference to
this provision) are exercisable for the first time by any individual in
any calendar year under any and all stock option plans of the Company,
its subsidiary corporations and its parent (if any ) exceeds $100,000,
such Options shall be treated as Non-Qualified Options.
(e) An Optionee may, at the Committee's
discretion, be granted more than one Incentive Option or Non-Qualified
Option during the duration of this Plan, and may be issued a
combination of Non-Qualified Options and Incentive Options.
(f) Any Incentive Option granted to 10 percent
or less stockholder or any Non-Qualified Option shall, by its terms, be
exercised within ten years after the date the Option is granted and any
Incentive Option granted to a greater than 10 percent stockholder
shall, by its terms, be exercised within five years after the date the
Option is granted.
(g) An Option and any Right related thereto
shall not be transferable by the Optionee other than by will, or by the
laws of descent and distribution. An Option may be exercised during
the Optionee's lifetime only by the Optionee.
(h) At least six months shall have elapsed from
the date on which an Option is granted hereunder to the date on which
any share of Common Stock underlying such Option is sold or any Right
related thereto is exercised unless the Committee otherwise consents in
writing.
Article VI.
Employment or Service of Optionee
Section 6.1 If the service of an Optionee is terminated
for cause, the rights of such Optionee, both accrued and future, under any
then outstanding Option or Right shall terminate immediately. "Cause"
shall mean incompetence in the performance of duties, disloyalty,
dishonesty, theft, embezzlement, unauthorized disclosure of patents,
processes or trade secrets of the Company, individually or as an employee,
partner, associate, officer or director of any organization. The
determination of the existence and the proof of "cause" shall be made by
the Board of Directors. Such determination shall be binding on the
Optionee and the Company.
Section 6.2 If the employment or service of the Optionee
is terminated by the Optionee or the Company for any reason other than for
cause, death, or for disability, as defined in Section 22(e) (3) of the
Code, the option rights of such Optionee under any then outstanding
Options shall, subject to the provisions of Section 5.1(h) hereof, be
exercisable by such Optionee at any time prior to the expiration of the
Option or within three months after the date of such termination,
whichever period of time is shorter, by only to the extent of the accrued
right to exercise the Option at the date of such termination.
Section 6.3 In the case of an Optionee who becomes
disabled, as defined by Section 22(e)(3) of the Code, the option rights of
such Optionee under any then outstanding Option or Right may, subject to
the provisions of Section 5.1(h) hereof, be exercised by such Optionee at
any time prior to the expiration of the Option or within one year after
the date of termination of employment or service due to disability,
whichever period of time is shorter, but only to the extent of the accrued
right to exercise the Option or Right at the date of such termination.
Section 6.4 In the event of the death of an Optionee,
the rights of such Optionee under any then outstanding Option or Right
shall be exercisable by the person or persons to whom these rights pass by
will or by the laws of decent and distribution, at anytime prior to the
expiration of the Option or within three years after the date of death,
whichever period of time is shorter, but only the extent of the accrued
right to exercise the Option or Right at the date of death. If a person
or estate acquires the right to exercise a Option or Right by bequest or
inheritance, the Committee may require reasonable evidence as to the
ownership of such Option, and may require such consents and releases of
taxing authorities as the Committee may deem advisable.
Section 6.5 With the exception of Non-Qualified Options
issued pursuant to Section2.6 hereof, the Committee may also provide that
a director who is also an employee must continuously be employed by the
Company for such period of time as the Committee, in its discretion, deems
advisable before the right to exercise any portion of an Option or Right
granted to such employee will accrue, and may also set such other targets,
restrictions or other terms relating to the employment of the Optionee
which targets, restrictions, or terms must be fulfilled or complied with,
as the case may be, prior to the exercise of any portion of an Option or
Right granted to any employee-director.
Section 6.6 Options or Rights granted under this Plan
shall not be affected by any change of duties or position, so long as the
Optionee continues in the service of the Company.
Section 6.7 Nothing contained in this Plan, or in any
Option or Right granted pursuant to this Plan, shall confer upon any
Optionee any right with respect to continuance of employment or service by
the Company nor interfere in any way with the right of the Company to
terminate the Optionee's employment or service or change the Optionee's
compensation at any time.
Article VII.
Purchase of Shares
Section 7.1 Except as provided in this Article VII, an
Option shall be exercised by tender to the Company of the full exercise
price of the shares of Common Stock with respect to which the Option is
being exercised and written notice of such exercise. The right to
purchase shares of Common Stock shall be cumulative so that, once the
right to purchase any shares has accrued, such shares or any part thereof
may be purchased at any time thereafter until the expiration or
termination of the Option. A partial exercise of an Option shall not
affect the right of the Optionee to exercise the Option from time to time,
in accordance with this Plan, as to the remaining number of shares of
Common Stock subject to the Option. The purchase price of the shares
shall be in United States dollars, payable in cash or by certified bank
check. Notwithstanding the foregoing, in lieu of cash, an Optionee may,
with the approval of the Committee, exercise his or her Option by
tendering to the Company shares of Common Stock of the Company owned by
him or her and having an aggregate fair market value at least equal to the
full exercise price. The fair market value of any shares of Common Stock
so surrendered shall be determined by the Committee in accordance with
Section 5.1(b) hereof.
Section 7.2 Except as provided in Article VI above, an
Option may not be exercised unless the holder thereof is a director of the
Company at the time of exercise.
Section 7.3 No Optionee, or Optionee's executor,
administrator, legatee, or distributee or other permitted transferee,
shall be deemed to be a holder of any shares of Common Stock subject to an
Option for any purpose whatsoever unless and until a stock certificate or
certificates for such shares are issued to such person under the terms of
this Plan. No adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or
distributions or other rights for which the record date is prior to the
date such stock certificate is issued, except as provided in Article VIII
hereof.
Section 7.4 If: (i) the listing, registration or
qualification of the Options issued hereunder, or of any securities
issuable upon exercise of such Options (the "Common Stock") upon any
securities exchange or quotation system or under federal or state law is
necessary as a condition of or in connection with the issuance or of
exercise of the Options, or (ii) the consent or approval of any
governmental regulatory body is necessary as a condition of or in
connection with the issuance or exercise of the Options, the Company shall
not be obligated to deliver the certificates representing the Subject
Securities or to accept or to recognize an Option exercise unless and
until such listing, registration, qualification, consent or approval shall
have been effected or obtained. The Company will take reasonable action
to so list, register or qualify the Options and the Subject Securities, or
effect or obtain such consent or approval, so as to allow for their
issuance.
Section 7.5 Any Optionee may be required to represent to
the Company as a condition of his or her exercise of Options issued under
this Plan that: (i) the Common Stock acquired upon exercise of his or her
Option are being acquired by him or her for investment purposes only and
not with a view to distribution or resale, unless counsel for the Company
is then of the view that such a representation is not necessary and is not
required under the Securities Act of 1933, as amended (the "Securities
Act"), or any other applicable statue, law, regulation or rule; and (ii)
that the Optionee shall make no exercise or disposition of an Option or of
the Common Stock in contravention of the Securities Act, the Exchange Act
or the rules and regulations thereunder. Optionees may also be required
to provide (as a condition precedent to exercise of an Option, such
documentation as may be reasonably required by the Company to assure
compliance with applicable law and the terms and conditions of this Plan
and the subject Option.
Section 7.6 An Option may also be exercised by tender to
the Company of a written notice of exercise 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. All documentation and procedures to be followed in
connection with such a "cashless exercise" shall be approved in advance by
the Committee.
Article VIII.
Change in Number of Outstanding Share of
Stock, Adjustments,Reorganizations, etc.
Section 8.1 In the event that the outstanding shares of
Common Stock of the Company are hereafter increased or decreased or
changed into or exchanged for a different number of shares or kind of
shares or other securities of the Company or of another corporation by
reason or reorganization, merger, consolidation, re-capitalization,
reclassification, stock split, combination of shares or a dividend payable
in capital stock , appropriate adjustment shall be made by the Committee
in the number and kind of shares for the purchase of which Options may be
granted under this Plan, including the maximum number that may be granted
to any one person. In addition, the Committee shall make appropriate
adjustments in the number and kind of shares as to which outstanding
Options, or portions thereof then unexercised shall be exercisable, to the
extent that the Optionee's proportionate interest shall be maintained as
before the occurrence to the unexercised portion of the Option and with a
corresponding adjustment in the option price per share. Any such
adjustment made by the Committee shall be conclusive.
Section 8.2 The grant of an Option pursuant to this Plan
shall not affect in any way the right or power of the Company to make
adjustments, reclassifications, reorganizations or changes of its capital
or business structure or to merge or to consolidate or to dissolve,
liquidate or sell, or transfer all or any part of its business or assets.
Section 8.3 Upon the dissolution or liquidation of the
Company, or upon a reorganization, merger or consolidation of the Company
as a result of which the outstanding securities of the class then subject
to Options hereunder are changed into or exchanged for cash or property or
securities not of the Company's issue, or upon a sale of substantially all
the property of the Company to an association, person, party, corporation,
partnership, or "control group" as that term is construed for the purposes
of the Exchange Act, this Plan shall terminate unless provision be made in
writing in connection with such transaction for the continuance of this
Plan or for the substitution for such Option or Options covering the stock
of a successor employer corporation, or a present or a subsidiary thereof,
with appropriate adjustments as to the number and kind of shares and
prices, in which event this Plan and the Options theretofore granted shall
continue in the manner and under the terms so provided. If this Plan
shall terminate pursuant to the foregoing sentence, all persons owning any
unexercised portions of the Options then outstanding shall have the right
, at such time prior to the consummation of the transaction causing such
termination as the Company shall designate, to exercise the unexercised
portions of such Options, including the portions thereof which would, but
for this Section 8.3, not yet be exercisable.
Section 8.4 If, while any Options remain outstanding
under the Plan, (i) the "beneficial ownership" (as defined Rule 13d-3
under the Exchange Act) of securities representing more than 20% of the
combined voting power of the Company is acquired by a person (as defined
in section 13(d) of the Exchange Act, other than the Company or an
affiliate of the Company), (ii) the stockholders of the company approve a
definitive agreement to merge or consolidate the Company with another
company or to sell or otherwise dispose of all or substantially all of
it's assets, or (iii) during any period of two consecutive years,
individuals who at the beginning of such period constitute the members of
the board of directors cease to constitute at least a majority of the
members of the board of directors at any time during such period for any
reason (other than in the case of a director whose election by the Board
or nomination by the Company's stockholders was approved by a vote of at
least two thirds of the directors then still in office who are either
directors at the beginning of the period or whose election or nomination
for election was previously so approved), then all Options then
outstanding shall become fully vested and exercisable on the date of such
event.
Article IX.
Duration, Amendment & Termination
Section 9.1 The Board of Directors may at any time
terminate this Plan or make such amendments hereto as it shall deem
advisable and in the best interests of the Company, without action on the
part of the stockholders of the Company, unless such approval is required
pursuant to Section 422 of the Code or the regulations thereunder or Rule
16b-3 under the Exchange Act; provided, however, that no such termination
or amendment shall without the consent of the individual to whom any
Option shall heretofore have been granted, affect or impair the rights of
such individual under such Option, and provided further, that unless the
holders of a majority of all classes of the Company's outstanding voting
stock entitled to vote thereon shall have first approved thereof, no
amendment of this Plan shall be made whereby: (a) the total number of
shares of Common Stock which may be issued pursuant to the exercise of
Options under this Plan to all individuals, or any of them, shall be
increased, except by operation of the adjustment provisions of Article
VIII hereof, (b) the authority to administer this Plan by the Committee
shall be withdrawn, (c) the maximum term of the Options shall be extended,
(d) the minimum option price of Incentive Options shall be decreased, (e)
the price to Optionees to whom Options have been granted shall be changed
or (f) the class of individuals eligible to participate in this Plan is
modified. Pursuant to Section 422(b) of the Code, no Incentive Option may
be granted pursuant to this Plan after ten years from the date this Plan
is adopted or the date this Plan is approved by the stockholders of the
Company, whichever is earlier.
Article X.
Restrictions
Section 10.1 Any shares of Common Stock issued pursuant
to exercise of Options granted under this Plan shall be subject to such
restrictions or transfer and limitations as shall, in the opinion of the
Committee, be necessary or advisable to assure compliance with the laws,
rules and regulations of the United States government or any state or
jurisdiction thereof. In addition, except for those Non-Qualified Options
issued pursuant to Section 2.6 above, the Committee may impose such other
restrictions upon the exercise of an Option or upon the sale or other
disposition of the shares of Common Stock deliverable upon exercise
thereof as the Committee may, in its sole discretion, determine. By
accepting an award pursuant to the Plan, each Optionee shall thereby agree
to any such restrictions.
Section 10.2 Any certificate issued to evidence shares of
Common Stock issued pursuant to exercise of an Option shall bear such
legends and statements as the Committee, the Board of Directors or counsel
to the Company shall deem advisable to assure compliance with the laws,
rules and regulations of the United States government or any state or
jurisdiction thereof. No shares of Common Stock will be delivered
pursuant to exercise of the Option granted under this Plan until the
Company has obtained such consents or approvals from such regulatory
bodies of the Untied States Government of any state or jurisdiction
thereof as the Committee, the Board of Directors or counsel to the Company
deems necessary or advisable.
Article XI.
Application of Funds
Section 11.1 The proceeds received by the Company from
the issuance and sale of Common Stock upon exercise of Options granted
pursuant to the Plan are to be added to the general funds of the Company
and used for its corporate purposes as determined by the Board of
Directors.
Article XII.
Effectiveness of Plan
Section 12.1 This Plan shall become effective upon
adoption by the Board of Directors, and Options may be issued hereunder
from and after that date subject to the provisions of Section 3.3 above.
This Plan must be approved by the Company's stockholders in accordance
with the applicable provisions (relating to the issuance of stock or
options) of the Company's governing documents and state law or, if no such
approval is prescribed therein, by the affirmative vote of the holders of
a majority of the votes cast at a duly held stockholders' meeting at which
a quorum representing a majority of all the Company's outstanding voting
stock is present and voting (in person or by proxy) or, without regard to
any required time period for approval, by any other method permitted by
Section 422 of the Code and the regulations thereunder. If such
stockholder approval is not obtained within one year of the adoption of
this Plan by the Board of Directors or within such other time period
required under Section 422 of the Code and the regulations thereunder,
this Plan shall remain in force, provided however, that all Options issued
and issuable hereunder shall automatically be deemed to be Non-Qualified
Options and provided further that no Option granted to any person subject
to Section 16 of the Exchange Act shall be exercisable until such time as
stockholder approval of this Plan has been obtained.
IN WITNESS WHEREOF, pursuant to the approval or adoption of this Plan
by the Board of Directors, this Plan is executed and adopted this 14th day
of December, 1995.
EXECUTIVE TELECARD, LTD.
By: /s/ Edward J. Gerrity, Jr.
Edward J. Gerrity, Jr.
Its: Chairman of the Board
(CORPORATE SEAL)
ATTEST:
By:
Secretary
