SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Fiscal Year Ended March 31, 1997
[ ] Transition Report Pursuant to Section 13 or 14(d) of the Securities
Exchange Act of 1934
For the transition period from to
EXECUTIVE TELECARD, LTD.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3486421
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
One Blue Hill Plaza, Suite 1650, Pearl River, New York 10965
(Address of principal executive offices)
Registrant's phone number including area code:
(914) 627-2060
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.001 Par Value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in the definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant based on the closing sale price on such stock as of June 10,
1997 amounted to approximately $121,385,956.
The number of shares outstanding of each of the registrant's classes of
common stock as of June 10, 1997 was 17,286,563 shares, all of one class of
$.001 par value Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
None.
The undersigned Registrant hereby amends the following items, exhibits
or other portions of its Form 10-K for the period ended March 31, 1997 as
set forth below:
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names of all Directors and Executive Officers
of the Company, their ages, all positions and offices held by each such
person, the period during which he has served as such, and the principal
occupations and employment of each such person during the last five years:
EDWARD J. GERRITY, JR., age 73, has been a Director of the Company
since its inception. He is a business consultant and President of Ned
Gerrity & Associates, a consulting firm, begun in 1985. Mr. Gerrity also
serves as Chairman of the Company's Board of Directors. Mr. Gerrity served
as an officer of ITT Corp. from 1961 to 1985. While at ITT Corp., he was a
member of the Management Policy Committee, Director of Corporate and
Government Relations on a worldwide basis and a Director of several ITT
Corp. subsidiaries. He retired from ITT Corp. in February 1985. Mr.
Gerrity was the President of American National Collection Corp., a New York
corporation, from 1993 to 1995 and he was a director of Residual
Corporation (formerly International 800 Telecom Corp.), a publicly held
company, from 1987 until October 1994. See "Item 13 - Certain
Relationships and Related Transactions" below.
ANTHONY BALINGER, age 43, has been a Director of the Company since
March 15, 1995, and has served as the Company's President since April 25,
1995. He was appointed as Chief Executive Officer on January 3, 1997. He
has held a variety of positions at the Company since his arrival in
September 1993, including Chief Operating Officer and 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. Mr. Balinger is a Director and 45% shareholder of Executive
Card Services HK Ltd. which provides printing services to an affiliate of
the Company in Hong Kong. See "Item 13 - Certain Relationships and Related
Transactions" below.
STIG SONNERBERG, age 46, has been a Director of the Company since
March 29, 1995. He has served as Senior Vice President of European
Operations since November of 1995. Prior to that time, he had been the
Manager for Corporate Account Development for American Express Scandinavia
and First Card AB (a credit card company offering services linked to
Swedish corporations) since January 1994. First Card AB was the Company's
first credit card customer and is still a customer of the Company. Prior
to 1994, Mr. Sonnerberg was the Marketing Manager and then the Manager for
Product Development for two years for First Card, Stockholm. During 1989,
Mr. Sonnerberg was employed by Nyman & Schultz, Stockholm, as a Product
Manager, Charge Cards. He was a Manager at American Express in 1988 for
Travel Sweden and in 1987 for Travel Stockholm. Between the years of 1981
and 1986, Mr. Sonnerberg held various positions with SJT Travel in
Stockholm. Mr. Sonnerberg is a citizen of Sweden.
DAVID W. WARNES, age 51, 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 67, has been a Director of the Company since
June 30, 1995. Mr. Krinsley retired in 1991 as the Executive Vice President
and Publisher of Scholastic, Inc., a publicly held company traded on the
Nasdaq Stock Market. 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 56, 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 61, 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 B.C.
Communications, Inc. and Solar Age Industries, Inc. and 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 "Item 13 -
Certain Relations and Related Transactions" below.
ALLEN MANDEL, age 58, 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 and Chief Financial Officer. Mr. Mandel is a Certified
Public Accountant. He was an officer of Residual Corporation from 1991 to
March 1995. See "Item 13 - Certain Relations and Related Transactions"
below.
RONALD L. JENSEN, age 66, has been a Director of the Company since
June 10, 1997. He has served as Chairman of the Board of UICI of Irving,
Texas, a publicly traded company which offers financial services, and its
predecessor company, since December 1983. Mr. Jensen served as President
of UICI until January 1995 and for the preceding five years except for a
three month period in 1992. Mr. Jensen is also the sole owner of United
Group Association, Inc., a management company. He also serves as a member
of the Board of Directors of Matrix Telecom, Inc., U.S. Metroline Services,
Inc., U.S. Telco, Inc. and as an executive officer of Sun Network
Technologies, LLC. Mr. Jensen was appointed as a Director of the Company
in connection with his purchase of 1,425,000 shares of the Company's Common
Stock in June of 1997. The Company has agreed that, if he is elected as a
Director by the stockholders of the Company at the 1997 annual meeting of
stockholders, the Board of Directors will elect him Chairman of the Board
of the Company. See "Item 13 - Certain Relations and Related Transactions"
below.
RONALD W. HOWARD, age 49, has been a Director of the Company since
June 10, 1997. He has served as a consultant to United Group Association,
Inc., a management company ("UGA") in a financial and management advisory
capacity since November, 1996. In this capacity Mr. Howard has been
actively involved with six telecommunications companies. Prior to his
consulting with UGA, Mr. Howard was Executive Vice President of Associates
First Capital Corporation, a financial services company, from August 1990
to July 1996. He has also held other positions of progressive
responsibility in sales, marketing, finance, and general management in the
financial services industry. His professional career began in 1967 with
General Electric Capital Corporation followed by management positions with
Meritor Credit Corporation, Ford Consumer Finance Company and Associates
First Capital. Additionally, from 1993 to 1996, Mr. Howard served as
Chairman of Associates Investment Corporation, an industrial loan chartered
bank located in Salt Lake City, Utah. Mr. Howard also serves as a member
of the Board of Directors of Matrix Telecom, Inc., U.S. Metroline Services,
Inc., U.S. Telco, Inc. and as an executive officer of Sun Network
Technologies, LLC. Mr. Howard earned a Bachelor of Science degree in
Marketing from Sacred Heart University, in Fairfield, Connecticut. Mr.
Howard was appointed as a member of the Board of Directors of the Company
as a result of Mr. Jensen's June 1997 purchase of 1,425,000 shares of the
Company's Common Stock and Mr. Jensen's right to appoint himself and one
additional person to the Board. See "Item 13 - Certain Relationships and
Related Transactions" below.
WILLIAM H. SHEILS, age 43, was appointed as Senior Vice President -
Sales and Marketing On November 12, 1995 when he joined the Company. He
became Chief Operating Officer on August 1, 1996. Mr. Sheils served in
both positions until he left the Company on July 15, 1997. Prior to that
time. he was General Manager, Sales and Marketing, from March 1993 to
February 1996 and Regional Commercial Manager - Europe from April 1990 to
February 1993 at Cable and Wireless.
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.
None of the Directors or Executive Officers 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, and Mr. Jensen who is the Chairman of the Board of UICI, a
publicly traded company.
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.)
Mayer, a former treasurer of the Company, brought two civil actions
for attorneys fees pursuant to the indemnification provisions of the
Company's bylaws and under Delaware law, totaling approximately $100,000.
In the New York action, the Company filed counterclaims for breach of
fiduciary duty to the Company based upon Mayer's actions and activities in
promoting and provoking the dissident shareholders to commence the proxy
contest. In the Delaware action, a judgment was entered against the
Company for $56,000 plus interest, which judgment has been satisfied by the
Company. A judgment was also entered against the Company in the New York
action which was appealed by the Company. The Company brought an action
against Mayer in the United States District Court for the Southern District
of New York pursuant to Section 16(b) of the Securities Exchange Act for
short-swing trading while Mayer was an executive officer of the Company.
On July 17, 1997, the Company agreed to dismiss its Section 16(b) action
and agreed to settle all of Mr. Mayer's claims against the Company,
including the outstanding claims for indemnification in the New York
action, for $10,000.
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, certain of the Company's Executive Officers
failed to make timely filings of ownership reports required by Section
16(a) with the Securities and Exchange Commission. Mr. Schuck failed to
timely report on Form 4 his purchase of 2,800 additional shares of the
Company's common stock in January 1997. Messrs. Balinger, Mandel and
Schuck failed to file timely reports on Form 5 for their grants of options
to purchase Common Stock in December 1996. All of these reports were filed
in July 1997. When the information has been compiled for Mr. Abdul Aal,
his reports on Forms 3, 4 and 5 will also be filed accordingly.
The plaintiff in Morales v. Executive Telecard and Network Data
Systems, Ltd. has alleged that, notwithstanding a 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 "Item 13 - Certain
Relationships and Related Transactions" below.
ITEM 11 - COMPENSATION OF EXECUTIVE OFFICERS OF THE REGISTRANT
Summary Compensation Table
The following table summarizes the compensation for the three fiscal
years ended March 31, 1997, 1996 and 1995 of the Company's Chief Executive
Officer and next mostly highly compensated Executive Officers whose salary
and bonus exceed $100,000.
<TABLE>
<CAPTION>
Annual Compensation
Other
Annual
Name and Salary Bonus Compensation
Principal Position Year ($) ($) ($)
<C> <C> <C> <C> <C>
Anthony Balinger 1997 $109,612 $ 8,000 $28,500(1)
President and CEO(2)1996 86,673 0 27,000(1)
1995 70,000 0 27,000(1)
Robert N. Schuck 1997 $105,404 $ 0 $ 0
Executive Vice 1996 101,635 0 0
President(3) 1995 100,000 0 0
Allen Mandel 1997 $105,404 $ 0 $ 0
Executive Vice 1996 101,635 0 0
President(3) 1995 100,000 0 0
Daryl Engelman 1997 $ 0 $ 0 $ 0
former President 1996 15,846 0 0
and COO(3)(4) 1995 91,981 0 2,126
William H. Sheils 1997 $106,038 $ 0 $60,390(5)
Former Senior 1996 $ 0 0 $ 0
Vice President and 1995 $ 0 0 $ 0
COO(6)
</TABLE>
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
Securities
Restricted Underlying
Name and Stock Options/SARs
Principal Position Awards($) (#)
<S> <C> <C>
Anthony Balinger $0 50,000
President and CEO(2) 0 11,000
0 0
Robert N. Schuck $0 40,000
Executive Vice 0 55,000
President(3) 0 9,680
Allen Mandel $0 40,000
Executive Vice 0 55,000
President(3) 0 7,260
Daryl Engelman $0 0
former President 0 25,000
and COO(3)(4) 0 3,300
William H. Sheils $0 0
Former Senior 0 11,000
Vice President and 0 0
COO(6)
</TABLE>
- - ------------------
(1) Consists of an annual housing allowance paid to Mr. Balinger while he
resided in Hong Kong and while he resides in the United States.
(2) In fiscal 1995, Mr. Balinger's salary was paid by a Hong Kong
subsidiary of the Company, which received funds from Service 800,
S.A., a subsidiary of Residual Corporation ("Residual"), that was
acquired by the Company from Residual on March 31, 1995 pursuant to an
Asset Purchase Agreement. See "Item 13 - Certain Relationships and
Related Transactions" below.
(3) In fiscal 1995, the salaries of Messrs. Schuck, Mandel and Engelman
were paid by Fintel Services Inc. pursuant to a Service Agreement
between the Company and Residual. See "Item 13 - Certain
Relationships and Related Transactions" below.
(4) Mr. Engelman's employment was terminated by the Company on April 25,
1995. The options received by Mr. Engelman in fiscal 1996 were based
on an arbitration award after Mr. Engelman's termination and expired
on or about April 3, 1996. In addition, the options received in
fiscal 1995 expired after Mr. Engelman's termination.
(5) Consists of reimbursements of $3,211 for day care expenses, $5,688 for
a car lease and insurance, and $51,491 for relocation and temporary
living costs.
(6) Mr. Sheils' employment by the Company was terminated on July 15, 1997.
Option/SAR Grants in Last Fiscal Year
The following table sets forth the information concerning individual
grants of stock options and stock appreciation rights ("SARs") during the
last fiscal year to each of the named Executive Officers.
<TABLE>
<CAPTION>
Individual Grants
Percent of
Number of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees in Base Price Expiration
Name Granted (#)(1) Fiscal Year(2) ($/share) Date
<S> <C> <C> <C> <C>
Anthony Balinger 40,000(3) 14.3% $5.75 12/18/06
10,000(3) $6.25 12/20/06
Robert N. Schuck 40,000(4) 11.5% $5.75 12/18/06
Allen Mandel 40,000(4) 11.5% $5.75 12/18/06
Daryl Engelman 0 N/A N/A N/A
William H. Sheils 0 N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumable
Annual Rates of Stock
Price Appreciation for
Option Term
Name 5%($) 10%($)
<S> <C> <C>
Anthony Balinger $144,900 $365,700
$39,375 $99,375
Robert N. Schuck $144,900 $365,700
Allen Mandel $144,900 $365,700
Daryl Engelman N/A N/A
William H. Sheils $34,363 $86,727
</TABLE>
- - ------------------
(1) All of the options and related SARs granted in fiscal 1997 to the
named Executive Officers have a ten year term and were not exercisable
until June 1997.
(2) A total of 348,500 options were granted to employees of the Company in
fiscal 1997.
(3) Of the options granted to Mr. Balinger, 17,391 were incentive stock
options granted in tandem with SARs and 32,609 were nonqualified stock
options granted in tandem with SARs.
(4) Of the grants to Messrs. Schuck and Mandel, 17,391 were incentive
stock options granted in tandem with SARs and 22,609 were nonqualified
stock options granted in tandem with SARs.
Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option/SAR Values
The following table sets forth information concerning each exercise of
stock options during the last fiscal year by each of the named Executive
Officers and the fiscal year end value of unexercised options.
<TABLE>
<CAPTION>
Shares Value Number of Securities Underlying
Acquired on Realized Unexercised Options/SARs at
Name Exercise (#) ($) Fiscal Year-End($)(1)(2)
Exercisable Unexercisable
<S> <C> <C> <C> <C>
Anthony Balinger 0 $0 24,310 50,000
Robert N. Schuck 0 $0 84,446 40,000
Allen Mandel 0 $0 76,901 40,000
Daryl Engelman 0 $0 0 0
William H. Sheils 0 $0 11,000 0
</TABLE>
<TABLE>
<CAPTION>
Value of Unexercised
"In-the-Money"
Options at Fiscal
Name Year-End($)(2)
Exercisable Unexercisable
<S> <C> <C>
Anthony Balinger $1,375 $15,000
Robert N. Schuck $6,875 $15,000
Allen Mandel $6,875 $15,000
Daryl Engelman $0 $0
William H. Sheils $7,376 $0
</TABLE>
- - -------------------
(1) Represents the aggregate number of stock options held as of March 31,
1997, 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, 1997 of $6.125 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) Per his employment agreement, Mr. Sheils' option ended immediately
upon termination of his employment on July 15, 1997.
DIRECTORS' COMPENSATION
During the fiscal year ended March 31, 1997, each non-officer member
of the Board received a Director's 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. 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 20, 1997, each of
Messrs. Gerrity, Sonnerberg, Warnes, Krinsley, Balinger and Abdul Aal
received an option to purchase 10,000 shares of Common Stock exercisable at
$6.25 per share, the fair market value on the date of grant. In addition,
Mr. Balinger was granted an option on December 18, 1996 to purchase 40,000
shares of Common Stock at $5.75 per share. Also, in connection with his
new employment agreement with the Company, Mr. Balinger received a grant of
10,000 shares of Common Stock to vest April 15, 1997. See "Employment
Agreements" below.
EMPLOYMENT AGREEMENTS
Effective February 1, 1997, the Company entered into a three year
employment agreement with Anthony Balinger, the President and Chief
Executive Officer of the Company. Mr. Balinger's employment agreement
provides for a minimum salary of $150,000 per annum, reimbursement of
certain expenses, a bonus of 10,000 shares of Common Stock payable on April
15, 1997, and an annual bonus of 10,000 shares of Common Stock for each
annual increase of $1 million in the operating profit of the Company over
the preceding fiscal year, beginning with the fiscal year ending March 31,
1998. In addition, the Company will pay for a term life insurance policy
for Mr. Balinger in the amount of $300,000 payable to his designated
beneficiary.
Mr. Balinger's employment agreement also provides for payment of the
greater of $125,000 or the balance of his salary to the end of his
employment term if the Company terminates Mr. Balinger without Cause. In
addition, in such a case, Mr. Balinger would receive the number of
unrestricted shares of the Company's Common Stock equal to the number of
stock options held by him on the fifth day following such termination. In
lieu of taking stock for any stock options then held, he may elect to
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 on the date of termination.
"Cause" is defined as any criminal conviction for an offense by Mr.
Balinger involving the misappropriation of funds or material property of
the Company, or willful repeated refusal to follow directives of the Board
for the performance of material duties which Mr. Balinger is required to
perform under the agreement.
In the event there is an early termination of Mr. Balinger's
employment following a Change of Control, Mr. Balinger would be entitled a
lump cash payment equal to five times the "base amount" of his then
compensation and replacement of his stock options, whether or not vested,
with shares of the Company's Common Stock. In lieu of the replacement of
his stock options, he may surrender his rights to such options and receive
cash consideration. "Change of Control" is defined as the sale or transfer
of all or substantially of the Company's assets, the merger, consolidation
or other business combination with the effect that the stockholders hold
50% or less of the combined voting power of the surviving corporation, the
replacement of a majority of the Board which is not approved by the Board
or the purchase by a person or group of 15% or more of the combined voting
power having the right to elect the Board. If any payment or distribution
by the Company to or for Mr. Balinger's benefit (a "Base Payment") would be
subject to the Excise Tax imposed by Section 4999 of the Internal Revenue
Code of 1986, as amended (the "Code"), then he would be entitled to receive
an additional payment in an amount such that the net amount retained by
him, after the calculation and deduction of an Excise Tax on the Base
Payment and any federal, state and local income taxes and Excise Tax on the
gross-up payment, shall be equal to the Base Payment.
In the event that Mr. Balinger's employment is terminated for Cause
not following a Change of Control, he is entitled to his base salary, any
unpaid vested bonus and/or incentive profit previously determined by the
Board and reimbursement of all expenses he has incurred on behalf of the
Company. Mr. Balinger may voluntarily terminate his employment by giving 60
days written notice to the Company. In addition, the Company has agreed to
pay for health, dental and disability insurance, certain travel benefits
for himself or his family, and various other benefits.
Effective February 1, 1997, 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 minimum salary of $125,000 per
annum, reimbursement of certain expenses, a bonus of 10,000 shares of
Common Stock payable on April 15, 1997, and an annual bonus of 10,000
shares of Common Stock for each annual increase of $1 million in the
operating profit of the Company over the preceding fiscal year, beginning
with the fiscal year ending March 31, 1998.
Mr. Schuck's employment agreement also provides for payment of the
greater of $125,000 or the balance of his salary to the end of his
employment term if he is terminated by the Company without Cause or if Mr.
Schuck terminates his employment for diminution of his position, duties,
responsibilities, benefits or compensation as a Executive Vice President of
the Company or the geographic relocation of his position at the Company.
In addition, in such case, Mr. Schuck would receive the number of
unrestricted shares of the Company's Common Stock equal to the number of
stock options held by him on the fifth day following such termination. In
lieu of taking stock for any stock options then held, he may elect to
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 on the date of termination.
Mr. Schuck may voluntarily terminate his employment by giving 60 days
written notice to the Company. In the event Mr. Schuck does not
voluntarily terminate his employment or is not terminated for Cause, before
the first anniversary of the agreement, he is entitled to receive the
following retirement benefits: (A)(i) continuation of his life, health,
dental and disability insurance (the "Benefits") for four years; (ii)
retirement compensation equal to 75% of his current salary payable over a
three year period; and (iii) registered shares of the Company's Common
Stock equal in number to 80% of all stock options, whether vested or
unvested, held by Mr. Schuck as of the date of his retirement. In the
event Mr. Schuck does not voluntarily terminate his employment or is not
terminated for Cause, before the second anniversary of the agreement, he is
entitled to receive the following retirement benefits: (B)(i) continuation
of the Benefits for five years; (ii) retirement compensation equal to 90%
of his current salary payable over a three year period; and (iii)
registered shares of the Company's Common Stock equal in number to 100% of
all stock options, whether vested or unvested, held by Mr. Schuck as of the
date of his retirement. In the event Mr. Schuck does not voluntarily
terminate his employment or is not terminated for Cause, before the third
anniversary of the agreement, he is entitled to receive the following
retirement benefits: (C)(i) continuation of the Benefits for ten years;
(ii) retirement compensation equal to 100% of his current salary payable
over a seven year period; and (iii) registered shares of the Company's
Common Stock equal in number to 100% of all stock options, whether vested
or unvested, held by Mr. Schuck as of the date of his retirement. In the
event Mr. Schuck is terminated by the Company other than for Cause or upon
a Change of Control, the Benefits vest upon such termination or Change of
Control.
Upon a Change of Control, Mr. Schuck is also entitled to a lump sum
cash payment equal to seven times the base amount of his compensation and
replacement of stock options with shares of the Company's Common Stock. In
lieu of the replacement of his stock options with an equal number of
unrestricted shares of common stock, he may surrender his rights to such
options and receive cash consideration. If any payment or distribution by
the Company to or for Mr. Schuck's benefit (a "Base Payment") would be
subject to the Excise Tax imposed by Section 4999 of the Internal Revenue
Code of 1986, as amended (the "Code"), then he would be entitled to receive
an additional payment in an amount such that the net amount retained by
him, after the calculation and deduction of an Excise Tax on the Base
Payment and any federal, state and local income taxes and Excise Tax on the
gross-up payment, shall be equal to the Base Payment. If Mr. Schuck is
terminated by the Company for Cause, he is entitled to his base salary, any
unpaid vested bonus and/or incentive profit previously determined by the
Board and all his expense reimbursements. "Cause" and "Change of Control"
are defined in the same way as in Mr. Balinger's agreement.
Effective September 27, 1995, the Company entered into a three year
employment agreement with Allen Mandel pursuant to which Mr. Mandel agreed
to serve as an Executive Vice President of the Company. Mr. Mandel's
employment agreement provides for a minimum salary of $100,000 per annum
and reimbursement of certain expenses. Mr. Mandel's salary was increased
to $105,000 as of December 15, 1995. Mr. Mandel'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. Mandel is terminated without Cause or resigns following
either a material reduction in duties or salary, or a liquidation,
dissolution, consolidation, or merger of the Company, or a transfer of all,
or substantially, all of the Company's assets. In addition, Mr. Mandel
would receive the number of unrestricted shares of the Company's Common
Stock equal to the total number of stock options held by him on the fifth
day following such a termination. In lieu of taking shares of stock for
any stock options then held, he may elect to 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. Mandel that is directly contrary to
the Company's interest. Mr. Mandel may voluntarily terminate his
employment by giving 60 days written notice to the Company. His agreement
also provides that Mr. Mandel will receive stock options to purchase shares
of the Company in an amount not less than the greater of any stock options
granted to the President or Chief Executive Officer or a Director of the
Company under any stock option plan in effect during the term of his
employment. During the term of his employment, Mr. Mandel 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. In addition, the Company will pay for a
term life insurance policy for Mr. Mandel in the amount of $300,000 payable
to his designated beneficiary.
Effective March 15, 1995, the Company entered into a two year
agreement with Edward J. Gerrity, Jr. Mr. Gerrity's agreement provided for
a salary of $100,000 per annum and reimbursement of certain expenses. The
agreement also provided that Mr. Gerrity would 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 consented to a relocation, the Company would reimburse him for the
cost of such relocation from New York. If Mr. Gerrity died or became
disabled during the term of his employment, the Company would 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 would 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 could
renew or extend the term of the agreement upon mutually agreeable terms.
The agreement expired March 15, 1997.
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 was relocated by the Company to England in the fall of 1996.
Mr. Sonnerberg's agreement also provides for payment of the greater of
$120,000 or the balance of his salary to the end of his employment term if
the Company breaches the agreement or if Mr. Sonnerberg is terminated
without cause or resigns following either a material reduction in duties or
salary, or a liquidation, dissolution, consolidation, or merger of the
Company, or a transfer of all, or substantially all, of the Company's
assets. In addition, Mr. Sonnerberg would receive the number of
unrestricted shares of the Company's Common Stock equal to the total number
of outstanding stock options held by him on the fifth day following
termination or in lieu of exercising or retaining his right to exercise any
outstanding stock options then held, he may elect to surrender to the
Company his rights in such options (whether or not exercisable) and receive
an amount in cash per share equal to the mean between the high and low
selling price of such stock on the Nasdaq National Market or such other
market as the Company's Common Stock is traded. "Cause" is defined as
dishonesty, gross neglect of duties, conviction of a felony, engaging
directly or indirectly in any competing business, or willful misconduct.
TERMINATION AGREEMENTS
Messrs. 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 in the termination agreements as (i) (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) 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, except the employment agreements with
Messrs. Balinger and Schuck, were entered into by the individual employees
and Executive Telecard, S.A., a Turks and Caicos corporation, the principal
operating subsidiary of the Company. The agreements with Messrs. Balinger
and Schuck were entered into with 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 1997 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 1992 through March 1997 and represent the total value of a $100
investment in each security/market index on the last trading day of March,
1992.
COMPARATIVE FIVE-YEAR TOTAL CUMULATIVE RETURNS
EXECUTIVE TELECARD, LTD., S&P 500 INDEX AND
S&P TELECOMMUNICATIONS (LONG DISTANCE)
Company/Index Mar-92 Mar-93 Mar-94 Mar-95 Mar-96 Mar-97
Executive Telecard,
Ltd. 100 184.71 292.84 146.44 305.18 228.46
S&P Telecommunications 100 142.01 136.85 136.81 174.94 168.02
(Long Distance)
S&P 500 Index 100 115.23 116.93 135.13 178.51 213.89
Report on Executive Compensation
by the Compensation Committee
July 29, 1997
On July 29, 1996, the functions of the Company's Compensation and
Stock Option Committees were combined into a single committee, the
Compensation Committee (the "Committee"), comprised of Messrs. Abdul Aal,
Warnes and Krinsley, with Mr. Warnes serving as Chairman. The new
Committee adheres to the Company's previously announced compensation
policies for executive officers which 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. The Committee also believes it is important to induce long term
commitments from key executives by entering into long term agreements with
the Company's top officers.
In making its decisions with respect to executive compensation in
fiscal 1997, the Committee considered the dramatically improved financial
results achieved by the Company in fiscal 1996 over fiscal 1995, including
but not limited to the increase in revenues to $30.3 million in 1996 from
$23 million the previous year and the $2.85 million profit achieved in 1996
versus the $4.6 million loss recorded in 1995. The Committee also
considered the various other challenges faced by the Company's executive
officers in fiscal 1996, including but not limited to the development of
the Company's new Internet product, the marked expansion of the Company's
international long distance network, the assumption by the Company of
administrative and other responsibilities which had previously been borne
by Residual Corporation as well as the burdens imposed by the defense of
the remaining litigation engendered by the 1995 proxy contest.
Employment Agreements: The Committee authorized new employment
agreements with Messrs. Balinger and Schuck effective February 1, 1997. In
exchange for three year commitments to the Company, the new agreements
provide these two officers with varying degrees of specified benefits,
including life, disability, health and dental insurance, retirement
benefits, post-employment relocation costs and travel expense
reimbursements. The agreements with both officers also provide for an
initial bonus grant of 10,000 shares of the Company's Common Stock pursuant
to the Stock Grant Plan and for future grants of additional shares of
stock on a formula basis to reward the executives for profitability
increases during the term of the agreements.
Salary Increases: In December of 1995, the Compensation Committee
increased the base salaries for Messrs. Mandel and Schuck by $5,000 to
$105,000. Because Mr. Balinger had received a salary increase in June of
1995, he did not get an increase in December of 1995. Based on the
Company's positive results in fiscal 1996, the Committee increased the
minimum salary payable to Messrs. Balinger and Schuck under their February
1, 1997 employment agreements to $150,000 and $125,000, respectively,
although Mr. Balinger's new agreement does not provide for the $28,500
housing allowance he had received in fiscal 1997.
Stock Options and Stock Appreciation Rights: Stock options, often
together with Stock Appreciation Rights ("SARs"), are granted to executive
officers and others by the Committee as a means of providing long term
equity incentives. The members of the 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 Committee in
December of 1996 granted options to purchase 40,000 shares of the Company's
common stock and corresponding SARs to each of Allen Mandel, Robert Schuck
and Anthony Balinger. This Committee made additional stock option grants
to thirty-nine other persons who are not executive officers, including a
grant of 5,000 options and corresponding SARs to Stig Sonnerberg, Senior
Vice President and a member of the Board of Directors.
The grants were made on December 18, 1996 and, in accordance with
Securities Exchange Act Rule 16b-3, were not 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.
Bonus Awards: The only cash bonus award paid to any executive
officer during fiscal 1997 was an $8,000 bonus paid to Mr. Balinger in
December of 1996.
David W. Warnes
Richard W. Krinsley
Ebrahim Ali Abdul Aal
Dated: July 29, 1997
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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 July 25, 1997, 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.
Number of Shares Percent of
Name and Address Owned of Record Common Stock
of Beneficial Owner and Beneficially(1) Outstanding
Ronald L. Jensen 1,425,000 8.2%
5215 N. O'Connor, #300
Irving, Texas
Network Data Systems Limited(2) 1,616,360 9.4%
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) Includes 440,121 shares of the Company's Common Stock owned by
Residual Corporation (64.8% of 679,199 shares). NDS is the
shareholder of record of 14,559,000 shares (64.8%) of the outstanding
shares of Residual. If all of the 679,199 shares of the Company owned
by Residual were included, the number of shares held by NDS would
increase to 1,855,438 (10.7%). NDS has disclaimed beneficial
ownership of all of the shares owned by Residual in its statement
filed with the Company. If none of the shares owned by Residual were
included, NDS would beneficially own 1,176,239 shares (6.8%).
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 July 25, 1997, by each
Director and 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.
Name and Address Amount of Shares Percent
of Beneficial Owner Beneficially Owned of Class
Edward J. Gerrity, Jr. 86,791(1) *
7 Sunset Lane
Rye, New York 10580
Anthony Balinger 95,310(2) *
One Blue Hill Plaza, #1650
Pearl River, New York 10965
Stig Sonnerberg 26,000(3) *
13-21 High Street
Guilford
Surrey GU1 3DG England
David W. Warnes 21,000(3) *
1330 Charleston Road
Mountain View, California 94043
Richard A. Krinsley 45,182(4) *
201 West Lyon Farm
Greenwich, Connecticut 06831
Ebrahim Ali Abdul Aal 161,582(4) *
Alia Commercial Centre, 9th Floor
Diplomatic Area
P.O. Box 20620
Manama, State of Bahrain
Robert N. Schuck 169,241(5)(6) 1.0%
85 Somerset Road
Norwood, New Jersey 07648
Allen Mandel 116,901(3) *
9362 S. Mountain Brush Street
Highlands Ranch, Colorado 80126
Ronald L. Jensen 1,425,000 8.2%
5215 N. O'Connor, #300
Irving, Texas 75039
Ronald W. Howard -0- -0-
5215 N. O'Connor, #300
Irving, Texas 75039
All Named Executive Officers and 2,137,007 12.0%
Directors as a Group
(10 persons)(7)
_______________________
* Less than 1%
(1) Includes 1,100 shares held by Mr. Gerrity as a Trustee and options to
purchase 85,691 shares of Common Stock.
(2) Includes options to purchase 74,310 shares of Common Stock.
(3) Consists solely of options to purchase Common Stock.
(4) Includes options to purchase 21,000 shares of Common Stock.
(5) Includes options to purchase 124,446 shares of Common Stock, 28,410
shares held by Mr. Schuck and 16,385 shares held by Mr. Schuck's
spouse, Constance Schuck. Does not include 39,930 shares held by
Power Tech Systems, Inc., a publicly held company. Mrs. Schuck is a
director and treasurer of Power Tech Systems, Inc. Both Mr. Schuck
and Mrs. Schuck disclaim beneficial ownership of the shares held by
Power Tech Systems, Inc.
(6) Does not include 1,176,239 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 "Item 13 - Certain
Relationships and Related Transactions " below.
(7) Includes options to purchase 490,348 shares of Common Stock.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company was formed in 1987 as a wholly-owned subsidiary of
International 800 Telecom Corp., a publicly traded company, which changed
its name to Residual Corporation ("Residual") in February 1994. The
Company became a public company in March 1989 by way of a dividend in kind
of Residual's common stock.
In January 1989, the Company entered into a ten year agreement with
Residual (the "Service Agreement") pursuant to which Residual provided the
Company with essentially all personnel, office space and other facilities
required by the Company for general and operational administrative
purposes, excluding attorneys fees, accounting fees, marketing expenses,
advertising and promotion, stockholder relations and certain other 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 697,828 shares of the Company's
restricted stock to Residual. 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. The Company received
a fairness opinion on the transaction from Griffin Capital Management
Corporation.
William V. Moore, formerly Chairman of the Board, Chief Executive
Officer and President of the Company, serves as the Chairman of Residual's
Board of Directors and its President. Robert N. Schuck, Executive Vice
President, and a former Director and Secretary of the Company, formerly
served as a Director, Treasurer and an Executive Vice President of
Residual. Allen Mandel, Executive Vice President, and a former Director
and Senior Vice President of the Company, formerly served as a Senior Vice
President of Residual. Daryl Engelman, a former Director and former
President and Chief Operating Officer of the Company, also formerly served
as the Chief Operating Officer and Vice President of Residual. Edward J.
Gerrity, Jr., the Chairman of the Board, was a Director of Residual until
October 1994.
Pursuant to an agreement between the Company and Network Data Systems
Limited ("NDS") dated March 27, 1995 (the "Settlement Agreement"), NDS paid
the sum of $350,000 to the Company and agreed not to compete with the
Company or solicit Company employees for three years. NDS also granted to
the Company an irrevocable proxy for two years beginning April 1995 to
attend general and special meetings of the stockholders of the Company with
full power to vote all of the Company's shares beneficially owned or
controlled by NDS in favor of the nominees for Director proposed by the
Board. The Settlement Agreement resolved certain claims and potential
claims by and between the Company and NDS arising out of the purchase and
sale of Company stock by NDS. Notwithstanding this Settlement Agreement,
an action has been brought on behalf of the Company against NDS for
recovery of short swing profits in excess of the $350,000 paid to the
Company. Morales v. Executive Telecard, Ltd. and Network Data Systems,
Ltd., 95 Civ. 10202 (KW) U.S.D.C. S.D.N.Y.
On February 5, 1997, the Company's Board of Directors declared a
dividend distribution of Preference Share Purchase Rights (the"Rights"),
thereby creating a Stockholder Rights Plan (the "Rights Plan"). The Rights
were issued to stockholders of record on February 28, 1997. Under the
Rights Plan, if any person or group acquires ownership of 15% or more of
the Company's outstanding Common Stock, the "flip-in" provision of the
Rights will be triggered and the Rights will entitle stockholders, except
the acquiror, to buy a number of additional shares of Common Stock having a
market value of twice the exercise price of each Right (a 50% discount to
current market price). Following the acquisition by a person or group of
15% or more of the Company's Common Stock, but only prior to the
acquisition by a person or group of a 50% stake, the Board will also have
the ability to exchange the Rights (other than Rights held by such person
or group), in whole or in part, for one share of Common Stock (or one one-
hundredth of a share of the new series of participating preference stock)
per Right. This provision will have an economically dilutive effect on the
acquiror, and provide a corresponding benefit to the remaining Rightholders
that is comparable to the flip-in without requiring Rightholders to go
through the process and expense of exercising their Rights. The rights
will expire on February 28, 2007.
The Rights are not intended to prevent a takeover of the Company and
will not do so. They are designed, however, to deter any attempt to
acquire the Company in a manner or on terms not approved by the Board. The
Rights were implemented to deal with the very serious problem of another
person or company using abusive tactics to deprive the Company's Board and
its stockholders of any real opportunity to determine the destiny of the
Company or of their right to share in the full measure of the Company's
long-term potential.
The Rights may be redeemed by the Board for one cent per Right prior
to the accumulation, through open-market purchases, a tender offer or
otherwise, of 15% or more of the Company's shares by a single acquiror or
group. Because of the redemption feature, the Rights should not interfere
with any merger or business combination approved by the Board prior to that
time.
The issuance of the Rights had no dilutive effect, did not affect
reported earnings per share, is not taxable to the Company or the
stockholders, and did not change the way in which stockholders can
presently trade the Company's shares.
Pursuant to a stock purchase agreement between the Company and Ronald
L. Jensen ("Jensen") dated June 10, 1997 (the "Purchase Agreement"), Mr.
Jensen purchased 1,425,000 shares of the Company's Common Stock for
$7,500,000. The Company agreed to appoint Mr. Jensen and one of his
designees as members of the Board of Directors. In addition, the Company
agreed that both Mr. Jensen and his designee would be nominated and
recommended for re-election at the next annual meeting of stockholders. In
the event that Mr. Jensen is elected at such meeting, the Company has
agreed to cause him to be elected as Chairman of the Board at the earliest
practical date following the meeting.
Both Mr. Jensen and his designee, Ronald W. Howard, were elected as
Directors on June 10, 1997. As a term of the Agreement, Mr. Jensen agreed
that, if the Company commenced a public offering of its securities, he
would enter into a lock-up agreement with the managing underwriter similar
in form and substance to lock-up agreements executed by other Executive
Officers and Directors of the Company. Mr. Jensen also agreed that so long
as he is a member of the Company's Board of Directors and for a period of
one year thereafter, he would not, without the express written consent of
all members of the Company's Board of Directors, directly or indirectly:
(a) make, or in any way participate in, any "solicitation" or "proxies"
(as such terms are defined or used in Regulation 14A under the Exchange
Act) or become a "participant" in any "election contest" (as such terms are
defined or used in Rule 14a-11 under the Exchange Act); or (b) publicly
oppose any duly authorized Board of Directors action or recommendation.
For the same period, Mr. Jensen agreed he would not, directly or
indirectly, transfer, assign, pledge, sell, hypothecate or otherwise
dispose (a "disposition") of any capital stock of the Company owned by him
without the express written consent of all other members of the Company's
Board of Directors, except (1) transfers to members of his immediate family
or charitable trusts set up for the benefit of such family members provided
that such family member or trust agrees to be bound by the provisions of
the Purchase Agreement including the lock-up agreement and these transfer
restrictions, or (2) if either the following conditions are satisfied with
respect to such disposition: (i) such disposition is made pursuant to
Rule 144 of the Securities Act and is in accordance with provisions (e),
(f) and (g) thereof; or (ii) such disposition is made pursuant to an
effective registration statement under the Securities Act. Any transfer of
shares of the Common Stock in violation of these provisions may be
suspended on the books of the Company. Under the Purchase Agreement, Mr.
Jensen is entitled to "piggyback" rights to require the registration of his
Common Stock on certain registration statements filed by the Company with
the Securities and Exchange Commission for a three year period commencing
on the one year anniversary of June 10, 1997. The Company has agreed to
pay all expenses with respect to registration pursuant to the "piggyback"
registration rights.
During fiscal 1997, Executive Card Services HK Ltd. ("Executive Card")
was paid $321,000 by the Company for producing calling cards for an
affiliate of the Company. Anthony Balinger is a Director and 45%
shareholder of Executive Card, but he is not involved in the day-to-day
operations of the company.
ITEM 14 - EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-
K
a) 1. The financial statements are included in Part II,
Item 8 beginning at Page F-1:
2. Financial Statement Schedule
Schedule II Valuation and Qualifying Accounts
b) Reports on Form 8-K:
None
c) Exhibits: *
3.1 Restated Certificate of Incorporation as amended July
26, 1996 and August 29, 1996 filed as Exhibit 3.1 to the
Company's Form 10-Q for the period ended September 30, 1996 and
incorporated herein by reference.
3.2 Bylaws as amended March 15, 1995 and July 26, 1996
filed as Exhibit 3.2 to the company's Form 10-Q for the period
ended September 30, 1996 and incorporated herein by reference.
3.3 Amendments to Bylaws filed as Exhibit 3.1 to the
company's Form 8-K dated February 5, 1997 and incorporated herein
by reference.
4.1 Rights Agreement dated as of February 18, 1997 between the
Company and American Stock Transfer & Trust Company, which
includes the form of Certificate of Designations setting forth
the terms of the Series A Participating Preference Stock, par
value $.001 per share, as Exhibit A, the form of right
Certificate as Exhibit B and the Summary of Rights to Purchase
Preference Shares as Exhibit C filed as Exhibit 1 to the
Company's Registration Statement on Form 8-A (No. 1-10210) and
incorporated herein by reference.
4.2 Form of Letter from the Board of Directors of the Company to
Stockholders mailed with copies of the Summary of Rights filed as
Exhibit 2 to the Company's Registration Statement on Form 8-A
(No. 1-10210) and incorporated herein by reference.
10.1 Management Agreement with International 800 Telecom Corp.
filed as Exhibit 10.2 to the Company's Form S-1 Registration
Statement (No. 33-25572) and incorporated herein by reference.
10.2 Dominant Carrier Agreement with MCI filed as Exhibit 10.3 to
the Company's Form S-1 Registration Statement (No. 33-25572) and
incorporated herein by reference.
10.3 Sales Agent Agreements filed as Exhibit 10.4 to the
Company's Form S-1 Registration Statement (No. 33-25572) and
incorporated herein by reference.
10.4 Section 214 License filed as Exhibit 10.5 to the Company's
Form S-1 Registration Statement (No. 33-25572) and incorporated
herein by reference.
10.5 Damiel Elektronik Development Agreement filed as Exhibit
10.6 to the Company's Form S-1 Registration Statement (No. 33-
25572) and incorporated herein by reference.
10.6 Loan Agreement Between International 800 Telecom Corp.,
Service 800 SA, the Company and Executive TeleCard SA filed as
Exhibit 1 to the Company's Form 10-K for the period ended March
31, 1992 and incorporated herein by reference.
10.7 Security Agreement Between International 800 Telecom Corp.
and the Company filed as Exhibit 2 to the Company's Form 10-K for
the period ended March 31, 1992 and incorporated herein by
reference.
10.8 Assignment Between International 800 Telecom Corp. and the
Company filed as Exhibit 3 to the Company's Form 10-K for the
period ended March 31, 1992 and incorporated herein by reference.
10.9 Agreement for Sale and Purchase of Assets Between the
Company and Residual Corporation filed as Exhibit 99.18 to the
Company's Form 8-K dated April 24, 1995 and incorporated herein
by reference.
10.10 Deed of Trust and Security Agreement between the Company and The
Capitol Life Insurance Company dated December 21, 1992 for the
4260 East Evans Avenue, Denver, Colorado offices filed as Exhibit
10.10 to the Company's Form 10-K for the period ended March 31,
1996 and incorporated herein by reference.
10.11 Directors and Employees 1993 Stock Option Plan filed as Exhibit
10.11 to the Company's Form 10-K for the period ended March 31,
1996 and incorporated herein by reference.
10.12 Agreement between Executive TeleCard S.A. (Switzerland) and
Telstra Corporation Limited (Australia) for Enhancement of
Telecom Australia Calling Card dated August 3, 1993 files as
Exhibit 10.12 to the Company's Form 10-K for the period ended
March 31, 1996 and incorporated herein by reference. This
Agreement is subject to a grant of confidential treatment filed
separately with the U.S. Securities and Exchange Commission.
10.13 Employment Agreement between Executive TeleCard, S. A. and Edward
J. Gerrity, Jr. dated March 15, 1995 and Termination Agreement
dated August 31, 1995 filed as Exhibit 10.13 to the Company's
Form 10-K for the period ended March 31, 1996 and incorporated
herein by reference.
10.14 Settlement Agreement between the Company and Network Data Systems
Limited dated March 27, 1995 filed as Exhibit 10.14 to the
Company's Form 10-K for the period ended March 31, 1996 and
incorporated herein by reference
10.15 Employment Agreement and Termination Agreement between Executive
Telecard, S.A. and Anthony Balinger dated June 30, 1995. filed as
Exhibit 10.15 to the Company's Form 10-K for the period ended
March 31, 1996 and incorporated herein by reference
10.16 Employment Agreement and Termination Agreement between Executive
Telecard, S.A. and Robert N. Schuck dated September 28, 1995.
filed as Exhibit 10.16 to the Company's Form 10-K for the period
ended March 31, 1996 and incorporated herein by reference
10.17 Employment Agreement between Executive TeleCard, S. A. and Allen
Mandel dated September 28, 1995 filed as Exhibit 10.17 to the
Company's Form 10-K for the period ended March 31, 1996 and
incorporated herein by reference.
10.18 Employment Agreement between Executive TeleCard, S. A. and Stig
Sonnerberg dated November 1, 1995 filed as Exhibit 10.18 to the
Company's Form 10-K for the period ended March 31, 1996 and
incorporated herein by reference.
10.19 Office Building Lease between Executive TeleCard, S. A. and
Provident Life and Accident Insurance Company dated December 15,
1995 for the 1720 South Bellaire, Denver, Colorado offices and
First Amendment to the Lease dated April 19, 1996 filed as
Exhibit 10.19 to the Company's Form 10-K for the period ended
March 31, 1996 and incorporated herein by reference.
10.20 Promissory Note and Stock Option Agreement between the Company
and World Wide Export, Ltd. dated February 28, 1996 filed as
Exhibit 10.20 to the Company's Form 10-K for the period ended
March 31, 1996 and incorporated herein by reference.
10.21 Promissory Note and Stock Option Agreement between the Company
and Seymour Gordon dated February 28, 1996 filed as Exhibit 10.21
to the Company's Form 10-K for the period ended March 31, 1996
and incorporated herein by reference.
10.22 Term Loan Agreement between Executive TeleCard, SA, the Company
and Internationale Nederlanden (U. S.) Capital Corporation dated
June 28, 1996 filed as Exhibit 10.1 to the Company's Form 10-Q
for the period ended June 30, 1996 and incorporated herein by
reference.
10.23 Promissory Note and Stock Option Agreement between the Company
and Network Data Systems, Limited dated June 27, 1996 filed as
Exhibit 10.2 to the Company's Form 10-Q for the period ended June
30, 1996 and incorporated herein by reference.
10.24 Amendment to Term Loan Agreement by Executive TeleCard S. A., the
Company, and ING (U. S.) Capital Corporation dated November 22,
1996 filed as Exhibit 10 to the Company's Form 10-Q for the
period ended December 31, 1996 and incorporated herein by
reference.
10.25 Settlement Agreement and Mutual Release dated as of May 28, 1996
between Executive TeleCard, Ltd. and Walter K. Krauth, Jr. filed
as Exhibit 10 to the Company's Form 8-K dated May 28, 1996 and
incorporated herein by reference.
10.26 Directors and Employees 1993 Stock Option Plan filed as Exhibit
4.3a to the Company's Form S-8 Registration Statement (No. 333-
15057) and incorporated herein by reference.
10.27 1995 Employee Stock Option and Appreciation Rights Plan filed as
Exhibit 4.3b to the Company's Form S-8 Registration Statement
(No. 333-15057) and incorporated herein by reference.
10.28 1995 Directors Stock Option and Appreciation Rights Plan filed as
Exhibit 4.3c to the Company's Form S-8 Registration Statement
(No. 333-15057) and incorporated herein by reference.
21 Subsidiaries of the Registrant
23 Consent of BDO Seidman, LLP
27 Financial Data Schedule
* All exhibits have been previously filed with the Company's Form 10-K for
the period ended March 31, 1997 or with other documents or reports
previously filed by the Company.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
EXECUTIVE TELECARD, LTD.
Dated: July 29, 1997 BY: /s/Anthony Balinger
Anthony Balinger, President and
Principal Executive Officer
Pursuant to the requirement of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and
in capacities and on the dates indicated.
Dated: July 29, 1997 BY: /s/Anthony Balinger
Anthony Balinger, Director
Dated: July 29, 1997 BY: /s/Edward J. Gerrity
Edward J. Gerrity, Chairman and
Director
Dated: July 29, 1997 BY: /s/Allen Mandel
Allen Mandel, Executive Vice
President and Principal
Financial Officer
Dated: July 29, 1997 BY: /s/Scott R. Danitz
Scott R. Danitz,
Controller, Treasurer,
and Principal Accounting
Officer
Dated: July 29, 1997 BY: /s/Stig Sonnerberg
Stig Sonnerberg, Director
Dated: July 29, 1997 BY: /s/Richard Krinsley
Richard Krinsley, Director
Dated: July 29, 1997 BY: /s/David Warnes
David Warnes, Director
Dated: , 1997 BY:
Ronald W. Howard, Director
Dated: , 1997 BY:
Ronald L. Jensen, Director
Dated: July 29, 1997 BY: /s/Ebrahim Ali Abdul Aal
Ebrahim Ali Abdul Aal,
Director
