SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended Commission File Number
December 31, 1996 1-10210
--------------------- ----------------------
EXECUTIVE TELECARD, LTD.
- --------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3486421
-------- ---------
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
ONE BLUE HILL PLAZA, SUITE 1650, PEARL RIVER, NEW YORK 10965
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(Address of principal executive offices)
Registrant's telephone number, including area code: (914) 627-2060
------------------------
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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 _____
The number of shares outstanding of each of the registrant's classes of
common stock, as of February 1, 1997 is 15,860,407 shares, all of one
class of $.001 par value Common Stock.
EXECUTIVE TELECARD, LTD.
FORM 10-Q
QUARTER ENDED DECEMBER 31, 1996
TABLE OF CONTENTS
FINANCIAL INFORMATION PAGE
Item 1 - Consolidated Financial Statements
Consolidated Balance Sheets as of December
31, 1996 and March 31, 1996 3, 4
Consolidated Statements of Operations for the
three months ended December 31, 1996 and 1995 5
Consolidated Statements of Operations for the
nine months ended December 31, 1996 and 1995 6
Consolidated Statements of Cash Flows for the
three months ended December 31, 1996 and 1995 7
Consolidated Statements of Cash Flows for the
nine months ended December 31, 1996 and 1995 8
Notes to Consolidated Financial Statements 9-12
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 13-15
OTHER INFORMATION
Item 1 - Legal Proceedings 16
Item 2 - Changes in Securities 16
Item 3 - Defaults upon Senior Securities 16
Item 4 - Submission of Matters to a Vote of
Security Holders 16
Item 5 - Other Information 16
Item 6 - Exhibits and Reports on Form 8-K 16
SIGNATURES 17
EXECUTIVE TELECARD, LTD.
PART I: FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND MARCH 31, 1996
ASSETS
DECEMBER 31, 1996 MARCH 31, 1996
----------------- --------------
UNAUDITED) (NOTE 1)
CURRENT:
Cash and cash equivalents $2,168,781 $950,483
Trade accounts receivable, less
allowance of $165,000 and
$239,000 for doubtful accounts 6,756,871 5,850,345
Accounts receivable from
related parties 87,072 732,794
Other current assets 504,694 123,482
------------ ------------
Total current assets 9,517,418 7,657,104
PROPERTY AND EQUIPMENT - net of
accumulated depreciation
and amortization 10,609,803 8,415,091
OTHER:
Intangible assets - net 193,280 222,265
Deposits 529,278 251,490
Other assets 191,773 186,124
----------- ------------
Total other assets 914,331 659,879
----------- ------------
TOTAL ASSETS $21,041,552 $16,732,074
----------- ------------
See Notes to Consolidated Financial Statements
EXECUTIVE TELECARD, LTD.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND MARCH 31, 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
DECEMBER 31, 1996 MARCH 31, 1996
----------------- --------------
(UNAUDITED) (NOTE 1)
CURRENT:
Note payable $6,000,000 $ -
Accounts payable 1,810,398 2,428,882
Accounts payable to related
parties - 66,321
Accrued expenses 2,027,967 4,293,496
Customer deposits 319,940 302,205
Unearned income 156,080 288,262
Current maturities of
long-term debt 492,502 162,250
----------- -----------
Total current liabilities 10,806,887 7,541,416
LONG-TERM DEBT, less current
maturities 1,332,208 2,150,649
----------- -----------
Total liabilities 12,139,095 9,692,065
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock - $.001 par value;
5,000,000 shares authorized
Common stock - $.001 par value;
100,000,000 shares authorized,
15,860,407 and 15,849,488
outstanding 15,861 15,849
Additional paid-in capital 16,047,812 15,901,574
Accumulated deficit (7,243,063) (8,960,196)
Accumulated translation
adjustment 81,847 82,782
------------ -----------
Total stockholders' equity 8,902,457 7,040,009
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $21,041,552 $16,732,074
------------ -----------
See Notes to Consolidated Financial Statements
EXECUTIVE TELECARD, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1996 and 1995
(UNAUDITED)
THREE MONTHS THREE MONTHS
ENDED ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
(Note 1)
NET REVENUE $8,278,029 $8,117,676
COST OF REVENUE 4,297,676 4,821,847
------------ -----------
GROSS PROFIT 3,980,353 3,295,829
------------ -----------
COSTS AND EXPENSES:
Selling, general and
administrative 3,109,402 1,965,650
Depreciation and
amortization 414,463 402,653
----------- ------------
Total costs and expenses 3,523,865 2,368,303
----------- ------------
Income from operations 456,488 927,526
----------- ------------
OTHER INCOME (EXPENSE):
Interest expense (244,589) (46,574)
Interest income 17,902 574
Foreign currency transaction
gain (loss) (19,879) 13,668
---------- -----------
Total other expense (246,566) (32,332)
---------- -----------
Income before taxes on income 209,922 895,194
Taxes on income 32,000 87,000
---------- -----------
NET INCOME $ 177,922 $ 808,194
---------- -----------
NET INCOME PER SHARE $ 0.01 $ 0.05
---------- -----------
WEIGHTED AVERAGE NUMBER OF
SHARES AND SHARE EQUIVALENTS
OUTSTANDING 15,860,407 15,847,011
---------- -----------
See Notes to Consolidated Financial Statements
EXECUTIVE TELECARD, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED DECEMBER 31, 1996 and 1995
(UNAUDITED)
NINE MONTHS NINE MONTHS
ENDED ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
(Note 1)
NET REVENUE $25,421,903 $22,788,871
COST OF REVENUE 13,091,764 14,244,099
------------ -----------
GROSS PROFIT 12,330,139 8,544,772
------------ -----------
COSTS AND EXPENSES:
Selling, general and
administrative 8,565,268 5,407,917
Depreciation and amortization 1,211,217 1,153,885
----------- -----------
Total costs and expenses 9,776,485 6,561,802
----------- ----------
Income from operations 2,553,654 1,982,970
----------- ----------
OTHER INCOME (EXPENSE):
Interest expense (552,704) (132,214)
Interest income 47,997 962
Foreign currency transaction
gain (loss) (18,815) (46,886)
Other income - 350,000
----------- ----------
Total other income (expense) (523,522) 171,862
----------- ----------
Income before taxes on income 2,030,132 2,154,832
Taxes on income 313,000 215,000
----------- ----------
NET INCOME $1,717,132 $1,939,832
----------- ----------
NET INCOME PER SHARE $ 0.11 $ 0.12
----------- ----------
Weighted average number of
shares and share equivalents
outstanding 15,858,298 15,787,699
----------- ----------
See Notes to Consolidated Financial Statements
EXECUTIVE TELECARD, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
(UNAUDITED)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
THREE MONTHS THREE MONTHS
ENDED ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- ------------------
(Note 1)
OPERATING ACTIVITIES:
Net income $177,922 $808,194
Adjustments to reconcile
net income to net cash
flows provided by
(used in) operating
activities:
Depreciation and amortization 414,463 402,653
Provision for bad debts - 24,436
Changes in operating assets and
liabilities:
Accounts receivable (669,451) (452,084)
Other assets (45,121) (144,637)
Accounts payable (472,883) 324,703
Accrued expenses (629,667) (648,891)
Other liabilities 31,711 (65,772)
----------- -----------
Cash provided by (used in)
operating activities (1,193,026) 248,602
----------- -----------
INVESTING ACTIVITIES:
Acquisitions of property and
equipment (521,923) (1,521,418)
Other assets (192,721) 299,320
----------- -----------
Cash used in investing activities (714,644) (1,222,098)
----------- -----------
FINANCING ACTIVITIES:
Principal payments on long-term debt (75,566) (34,177)
Proceeds from long-term debt 214,604 -
----------- -----------
Cash provided by financing
activities 139,038 (34,177)
----------- -----------
Effect of exchange rate
changes on cash (152) 30,694
----------- -----------
Net increase (decrease) in cash
and cash equivalents (1,768,784) (976,979)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 3,937,565 2,225,354
----------- -----------
Cash and cash equivalents, end
of period $2,168,781 $1,248,375
---------- ----------
See Notes to Consolidated Financial Statements
EXECUTIVE TELECARD, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED DECEMBER 31, 1996 AND 1995
(UNAUDITED)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
NINE MONTHS NINE MONTHS
ENDED ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- ------------------
(Note 1)
OPERATING ACTIVITIES:
Net income $1,717,132 $1,939,832
Adjustments to reconcile
net income to net cash flows
provided by (used in) operating
activities:
Depreciation and amortization 1,211,217 1,153,885
Provision for bad debts 104,836 177,141
Changes in operating assets and
liabilities:
Accounts receivable (393,911) (1,852,967)
Other assets (403,692) (11,748)
Accounts payable (684,805) 1,023,348
Accrued expenses (2,133,644) (1,465,317)
Other liabilities (114,447) (68,518)
---------- ----------
Cash provided by operating
activities (697,314) 895,656
---------- ----------
INVESTING ACTIVITIES:
Acquisitions of property and
equipment (3,303,656) (2,591,143)
Other assets (305,974) 112,340
---------- ----------
Cash used in investing activities (3,609,630) (2,478,803)
FINANCING ACTIVITIES: ---------- ----------
Principal payments on long-term
debt (1,693,014) (104,610)
Proceeds from long-term debt 1,219,191
Issuance of capital stock - 337,851
Proceeds from note payable 6,000,000 1,000,000
---------- ----------
Cash provided by financing
activities 5,526,177 1,233,241
---------- ----------
Effect of exchange rate changes
on cash (935) (135,951)
---------- ----------
Net increase (decrease) in cash
and cash equivalents 1,218,298 (485,857)
CASH AND CASH EQUIVALENTS,
beginning of period 950,483 1,734,232
---------- ----------
CASH AND CASH EQUIVALENTS,
end of period $2,168,781 $1,248,375
---------- ----------
See Notes to Consolidated Financial Statements
EXECUTIVE TELECARD, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1 - BASIS OF PRESENTATION
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The accompanying consolidated financial statements have been prepared
in accordance with United States generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments considered necessary for a
fair presentation have been included. Operating results for the three
and nine months ended December 31, 1996 are not necessarily indicative
of the results that may be expected for the year ended March 31, 1997.
For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's Form 10-K for the year
ended March 31, 1996.
The accompanying consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries. All material
intercompany transactions and balances have been eliminated in
consolidation.
The functional currency for the Company's foreign operations is the
applicable local currency. The translation of the applicable foreign
currency into United States Dollars is computed for balance sheet
accounts using current exchange rates in effect at the balance sheet
date and for revenue and expense accounts using a weighted average
exchange rate during the period. The gains and losses resulting from
such translation are included in stockholders' equity.
Certain items included in the Consolidated Statement of Operations for
the nine months ended December 31, 1995 have been reclassified to
conform to the current year's presentation.
NOTE 2 - NET INCOME (LOSS) PER SHARE
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Net income (loss) per share and common equivalent share is computed
using the weighted average number of shares outstanding during each
period. Warrants and options outstanding to purchase common stock are
included as common stock equivalents when dilutive.
EXECUTIVE TELECARD, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 3 - RELATED PARTY TRANSACTION
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During April 1995, an agreement between the Company and a corporate
stockholder was finalized to resolve certain claims and potential
claims between the two parties. The claims arose out of negotiated
transactions whereby sales of the Company's restricted stock had
occurred at prices at or below the quoted market price. Under the
agreement, the corporate stockholder granted the Company an irrevocable
proxy to vote all of the shares beneficially owned or controlled by the
stockholder in favor of the director nominees proposed by the Board, to
pay the Company the sum of $350,000 and not to compete with, nor
solicit employees of, the Company for a period of three years. The sum
of $350,000 has been included in other income for the nine months ended
December 31, 1995.
NOTE 4 - NOTE PAYABLE
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In June 1996, the Company borrowed $6,000,000 from a financial
institution. The note is payable in June 1997 and carries an interest
rate equal to the lender's prime rate plus 2.5% which was 10.75% for
the period ended December 31, 1996. In November 1996, the Company
secured from the same financial institution a $4,000,000 multiple draw
down term loan expiring June 1997. Draws against the loan carry an
interest rate equal to the lender's prime rate plus 2.5%. At December
31, 1996 no draws were made against the loan. Any unused portion of
the loan is subject to a commitment fee of .5%. Interest on the notes
and the commitment fee is payable quarterly. In connection with these
notes, the lender was granted warrants to purchase 100,000 shares of
the Company's common stock at a price of $14.88 per share and 66,667
shares of the company's common stock at a price of $7.88 per share.
These warrants expire on December 31, 2001. The value assigned to such
warrants when granted in connection with the above note agreements is
amortized over the term of the notes. At December 31, 1996 these
warrants have not been exercised.
The notes are subject to certain financial covenants and are secured by
the assets of the Company.
Proceeds from the $6,000,000 loan were used to retire a $1,000,000 note
payable which was outstanding at March 31, 1996.
EXECUTIVE TELECARD, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 5 - LONG TERM DEBT
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At December 31, 1996 and March 31, 1996, long term debt consisted of the
following:
DECEMBER 31, MARCH 31,
1996 1996
(UNAUDITED) (NOTE 1)
---------------- ---------------
12% unsecured term note
payable to a stockholder,
interest payable monthly,
principal due and payable
December 27, 1997 (1) $500,000 $ -
12% unsecured term note payable
to a foreign corporation,
interest payable monthly,
principal due and payable
September 28, 1997 (2) - 1,000,000
12% unsecured term note payable
to a stockholder, interest
payable monthly, principal due
and payable August 28, 1997 (3) - 500,000
Capitalized lease obligations 1,162,892 648,202
9% mortgage note, payable $1,586
monthly, including interest,
through November 1997, with a
December 1997 balloon payment,
secured by deed of trust on
the related land and building 161,818 164,697
---------- ----------
Total 1,824,710 2,312,899
Less current maturities 492,502 162,250
---------- ----------
Total long term debt $1,332,208 $2,150,649
---------- ----------
(1) In connection with this transaction, the Company issued options to
purchase 50,000 shares of the Company's common stock at a price of
$12.13 per share, expiring June 27, 1999.
(2) In connection with this transaction, the Company issued options to
purchase 110,000 shares of the Company's common stock at a price of
$5.40 per share, expiring February 28, 1999. The term note payable
was retired in June 1996.
(3) In connection with this transaction, the Company issued options to
purchase 55,000 shares of the Company's common stock at a price of
$5.40 per share, expiring February 28, 1999. The term note payable
was retired in June 1996.
The value assigned to such options when granted in connection with the
above note agreements is being amortized over the term of the respective
notes. At December 31, 1996, options issued in connection with these
transactions have not been exercised.
EXECUTIVE TELECARD, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 6 - COMMON STOCK
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On May 14, 1996 the Board of Directors declared a stock split,
effected in the form of a ten percent (10%) stock dividend, subject
to shareholders approving an increase in the number of authorized
shares of common stock. As a result of that approval on July 26,
1996, shareholders received the dividend on August 5, 1996.
On June 30, 1995, the Board of Directors declared a stock split,
effected in the form of a ten percent (10%) stock dividend, which was
distributed on August 25, 1995 to shareholders of record on August
10, 1995.
All references to common share and per share amounts in the
accompanying financial statements have been retroactively adjusted to
reflect the effect of these stock dividends.
(Balance of Page Left Blank Intentionally)
EXECUTIVE TELECARD, LTD.
DECEMBER 31, 1996
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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Net revenue increased by 12% to $25,421,903 for the nine months ended
December 31, 1996 as compared to $22,788,871 for the comparable
period last year. For the three months ended December 31, 1996, net
revenue increased by 2% to $8,278,029 from $8,117,676 for the three
months ended December 31, 1995. The decrease in growth percentage
from previous quarters is primarily attributable to overload on
network capacity and the decision to defer several programs. An
upgrade to the entire network database system has now been completed
and the Company believes it is once again in position to launch new
programs and products.
Cost of revenue for the nine months was $13,091,764, a decrease of 8%
from the prior year's amount of $14,244,099. For the three months
ended December 31, 1996, cost of revenue was $4,297,676, a decrease
of 11% from the prior year's amount of $4,821,847. As a percentage
of revenue, these costs decreased 12% from 63% for the nine months
ended December 31, 1995 to 51% for the current period. For the three
months ended December 31, 1996, these costs were 52% compared to 59%
for the prior period, a decrease of 7%. These reductions in costs
reflect general rate decreases and volume discounts negotiated with
domestic and foreign telephone carriers based upon the continued
increase in volume of traffic generated over their networks.
Selling, general and administrative expenses increased by $3,157,351
(58%) to $8,565,268, during the nine months ended December 31, 1996
versus $5,407,917 for the comparable period last year. For the three
months ended December 31, 1996, selling, general and administrative
expenses were $3,109,402, an increase of $1,143,752 (58%) over the
$1,965,650 reported for the prior period. This increase is primarily
attributable to the addition of personnel and related employee costs
necessary to manage the increasing business volume, provide
additional marketing and promotion for the Company's calling card
services, develop new business services (primarily Internet related),
and maintain quality customer support and assistance. As a
percentage of revenue, selling, general and administrative expenses
increased from 24% to 34% for the nine months and from 24% to 38% for
the three months ended December 31, 1996 compared to the same periods
last year. As additional revenue is realized from the Company's
current marketing and new business development expenditures, selling,
general and administration expenses as a percentage of revenue are
expected to decrease.
EXECUTIVE TELECARD, LTD.
DECEMBER 31, 1996
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
- --------------------------------------------------------------------------
Depreciation and amortization expense increased by $57,332 to
$1,211,217 as compared to $1,153,885 for the nine months and by
$11,810 to $414,463 compared to $402,653 for the three months ended
December 31, 1995. This increase primarily relates to equipment
placed in service during the current period.
Interest expense increased by $420,490 to $552,704 for the nine
months ended December 31, 1996, from $132,214 and for the three
months ended December 31, 1996, interest expense increased $198,015
to $244,589 versus $46,574 for the comparable period last year. This
increase primarily relates to interest payments on term notes payable
including the $6 million borrowed from a financial institution during
June 1996.
LIQUIDITY AND CAPITAL RESOURCES
During the quarter ended December 31, 1996, cash and cash equivalents
decreased $1,768,784 to $2,168,781. The decrease in cash and cash
equivalents consisted of the following components: (i) net cash
flows used in operating activities in the amount of $1,193,026, which
resulted from a decrease in accrued expenses of $629,667, as well as
a decrease in accounts payable of $472,883, further accompanied by an
increase in accounts receivable of $669,451, which were primarily
offset by net income for the quarter of $177,922 and depreciation and
amortization of $414,463, (ii) net cash flows used in investing
activities in the amount of $714,644, which are related primarily to
$521,923 in acquisitions of new equipment for further expansion of
the Company's global network, with an additional increase of other
assets of $192,721, related to deposits on orders for equipment to
further the expansion of the global network, (iii) cash flows
provided by financing activities of $214,604 partially offset by
principal payment on long term debt of $75,566, and (iv) the effect
of exchange rate changes on cash which served to decrease cash and
cash equivalents.
The $6,500,000 proceeds from notes issued during the quarter ended
June 30, 1996 and included as cash flows provided by financing
activities for the nine months ended December 31, 1996, were used to
provide additional working capital, capital for the acquisition of
additional property and equipment planned for the year, and to retire
long-term debt of $1,500,000.
The Company's future plans to fund its working capital needs consist
of the following: (i) use of funding available through an additional
$4,000,000 multiple draw down term loan agreement obtained from a
financial institution, (ii) issuance of additional shares of common
or preferred stock, (iii) the creation of a long term debt facility,
and (iv) cash flow generated from operations. There can be no
assurance that the Company will be successful in its efforts to raise
such additional capital.
EXECUTIVE TELECARD, LTD.
DECEMBER 31, 1996
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
- --------------------------------------------------------------------------
Certain statements in this Quarterly Report on Form 10-Q are "forward
looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 and involve known and unknown risk,
uncertainties and other factors that may cause the Company's actual
results, performance or achievements to be materially different from
the results, performance or achievements expressed or implied by the
forward looking statement. Factors that impact such forward looking
statements include, among others, changes in worldwide general
economic conditions, changes in interest rates, currency rates and
worldwide competition.
(Balance of Page Left Blank Intentionally)
EXECUTIVE TELECARD, LTD.
DECEMBER 31, 1996
ITEM 1 - LEGAL PROCEEDINGS
- --------------------------------------------------------------------------
Daryl Engleman 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. ENGLEMAN, No. 96 CV 1659, Colo. Dist. Ct.
(Denver); ENGELMAN V. EXECUTIVE TELECARD, LTD., ET
AL., No. 96 CV 2534, Colo. Dist Ct. (Denver)).
In December of 1996, the Company and Daryl K.
Engelman, the former President of the Company,
entered into an agreement settling all claims between
them. Under the terms of the settlement agreement,
the Company agreed to release its claims against Mr.
Engelman, pay him $45,000 and indemnify him against
certain future expenses in exchange for a release of
all of his various claims against the Company, its
officers, directors and affiliates (including his
rights to an earlier arbitration award for
approximately $195,000 which had been challenged by
the Company) and his agreement to cooperate fully
with the Company in any pending or future litigation
requiring his involvement or assistance.
ITEM 2 - CHANGE IN SECURITIES
- --------------------------------------------------------------------------
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
- --------------------------------------------------------------------------
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- --------------------------------------------------------------------------
None
ITEM 5 - OTHER INFORMATION
- --------------------------------------------------------------------------
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------
a) Exhibits
10. Amendment to Term Loan Agreement by
Executive TeleCard S.A., the Company, and ING
(U.S.) Capital Corporation dated November 22,
1996.
27. Financial Data Schedule
b) Reports on Form 8-K
EXECUTIVE TELECARD, LTD.
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed in its behalf by the undersigned, thereunto duly authorized.
EXECUTIVE TELECARD, LTD.
(Registrant)
Date: February 13, 1997 By /s/ Timothy A. Peach
Timothy A. Peach
Controller, Treasurer
and Chief Accounting Officer
EXHIBIT INDEX
EXHIBIT METHOD OF FILING
- ------- ----------------
10 Amendment to Term Loan
Agreement by Executive
TeleCard S.A., the Company,
and ING (U.S.) Capital
Corporation dated
November 22, 1996 Filed herewith electronically
27 Financial Data Schedule Filed herewith electronically
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<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> DEC-31-1996
<CASH> 2,169
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0
0
<COMMON> 15,861
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<TOTAL-LIABILITY-AND-EQUITY> 21,042
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AMENDMENT TO TERM LOAN AGREEMENT
This AMENDMENT TO TERM LOAN AGREEMENT (this "Amendment") is entered
into as of the 22nd day of November, 1996 by EXECUTIVE TELECARD, S.A., a
corporation incorporated under the laws of the Turks and Caicos Islands
("Borrower"), EXECUTIVE TELECARD, LTD., a Delaware corporation ("Parent"),
and ING (U.S.) CAPITAL CORPORATION, a Delaware corporation (formerly known
as Internationale Nederlanden (U.S.) Capital Corporation) ("Lender").
WHEREAS, Borrower, Parent and Lender have entered into that certain
Term Loan Agreement dated as of June 28, 1996, as heretofore amended or
modified (the "Loan Agreement"); and
WHEREAS, Borrower and Parent have requested that Lender make
additional loans available to Borrower, and Lender has agreed to do so on
the terms and subject to the conditions set forth in this Amendment.
NOW, THEREFORE, in consideration of the above recitals, and the
agreements, conditions and covenants contained in this Amendment, the
parties hereto agree as follows:
1. DEFINITIONS. Capitalized terms used and not otherwise defined
in this Amendment shall have the meanings given such terms in the Loan
Agreement.
2. AMENDMENTS TO LOAN AGREEMENT. Upon the "Effective Date" as
defined below, the Loan Agreement is amended as follows:
(a) AMENDMENTS TO SUBSECTION 1.1. Subsection 1.1 of the Loan
Agreement is hereby amended to delete the definitions of "Loan", "Note"
and "Warrant Agreement", and to add the following definitions in
applicable alphabetical order:
"Amendment" means the Amendment to Term Loan Agreement
dated as of November 22, 1996 among Borrower, Parent and Lender.
"Amendment Effective Date" means the date on which the
Amendment becomes effective in accordance with its terms.
"Loan" means, collectively, the Tranche A Loan and the
Tranche B Loans.
"New Warrant Agreement" means the Common Stock Warrant
Agreement by and between Parent and Lender executed and delivered on
the Amendment Effective Date.
"Note" means, collectively, the Tranche A Note and the
Tranche B Note.
"Notice of Borrowing" means a request for a Tranche B Loan
in the form attached hereto as EXHIBIT I.
"Tranche A Loan" means the term loan in the principal
amount of $6,000,000 made by Lender to Borrower on the Closing Date.
"Tranche A Note" means the promissory note evidencing the
Tranche A Loan, in the form attached hereto as EXHIBIT G.
"Tranche B Commitment" means $4,000,000.
"Tranche B Loans" means the term loans made by Lender to
Borrower pursuant to Section 2.1(B) of this Agreement, in the
aggregate principal amount not to exceed $4,000,000.
"Tranche B Note" means the promissory note evidencing the
Tranche B Loan, in the form attached hereto as EXHIBIT H.
"Warrant Agreement" means, collectively, the Common Stock
Warrant Agreement by and between Parent and Lender executed and
delivered on the Closing Date, as amended, and the New Warrant
Agreement.
(b) AMENDMENT TO SUBSECTION 2.1. Subsection 2.1 of the
Loan Agreement is deleted in its entirety and replaced by the following:
"2.1 TERM LOANS.
(A) Subject to the terms and conditions of this Agreement
and in reliance upon the representations and warranties of Parent and
Borrower herein set forth, Lender agreed to lend to Borrower on the
Closing Date the Tranche A Loan in the amount of $6,000,000. The
Tranche A Loan shall be funded in one drawing.
(B) Subject to the terms and conditions of this Agreement
and in reliance upon the representations and warranties of Parent and
Borrower herein set forth, Lender agrees to lend to Borrower, from
time to time from the Amendment Effective Date to (but excluding) the
Maturity Date, the Tranche B Loans in the aggregate amount not to
exceed $4,000,000. The Tranche B Loans may be funded in multiple
drawings, subject to the provisions of SUBSECTION 2.10.
(C) Amounts borrowed under this SUBSECTION 2.1 and repaid
may not be reborrowed. The Loan shall be due and payable in full,
together with all interest accrued thereon, on the Maturity Date."
(c) AMENDMENT TO SUBSECTION 2.3. The following
subsections are added to subsection 2.3 of the Loan Agreement:
"(C) On the Amendment Effective Date Borrower shall pay to
Lender a facility fee for the Tranche B Loans in the amount of
$20,000.
(D) Borrower shall pay to Lender an unused commitment fee
equal to one half of one percent (.5%) per annum on the amount of the
Tranche B Commitment LESS the amount of the Tranche B Loans made
hereunder, such fee to be computed on the basis of a 360 day year for
the actual number of days elapsed in the period during which it
accrues and to be payable quarterly in arrears on the last day of
each calendar quarter."
(d) AMENDMENT TO SUBSECTION 2.4.
(1) The following subjection 2.4(B)(3) is hereby added to the
Loan Agreement.
"(3) PREPAYMENTS FROM ISSUANCE OF INDEBTEDNESS.
Immediately upon receipt by Parent or any of its Subsidiaries of
proceeds from the issuance of any Indebtedness other than that
permitted under SUBSECTION 6.2, Borrower shall prepay the Loan in an
amount equal to 100% of the proceeds of such Indebtedness, net of
customary costs and expenses of issuance."
(2) Subsection 2.4(B)(3) of the Loan Agreement is renumbered as
subsection (4) and amended to add the following: "All prepayments of
principal shall be applied first to the Tranche A Loan and then to the
Tranche B Loans."
(e) ADDITION OF SUBSECTION 2.10. The following subsection
2.10 is added to the Loan Agreement:
"2.10 TRANCHE B LOANS.
(A) NOTICE OF BORROWING. If Borrower desires to borrow a
Tranche B Loan, Borrower shall deliver a Notice of Borrowing to
Lender no later than noon (New York time) on the Business Day prior
to the date on which Borrower desires that the Tranche B Loan be
funded. Subject to satisfaction of the conditions set forth in
SUBSECTION 2.10(B), Lender shall fund the Tranche B Loan by wiring
proceeds to the account of Borrower designated in the Notice of
Borrowing.
(B) CONDITIONS TO TRANCHE B LOANS.
(1) Borrower shall have delivered a Notice of
Borrowing in accordance with SUBSECTION 2.10(A).
(2) The representations and warranties of Parent,
Borrower and their Subsidiaries contained in the Loan Documents shall
be accurate and complete in all respects as if made on and as of the
date on which the Tranche B Loan is funded, except to the extent that
such representations by their express terms speak as of an earlier
date.
(3) There shall not have occurred any Default which
has not been cured or waived or any Event of Default which has not
been waived by Lender.
(4) No event or circumstance shall have occurred
since June 30, 1996 that, in the opinion of Lender, constitutes or
would reasonably be expected to constitute a Material Adverse
Effect."
(5) Borrower shall be in compliance with SUBSECTION
5.14, after giving effect to the Tranche B Loan requested in the
Notice of Borrowing.
(f) ADDITION OF SUBSECTION 5.14. The following subsection
5.14 is added to the Loan Agreement:
"5.14 LEVERAGE RATIO. Parent shall maintain a ratio of
total Indebtedness of Parent and its Subsidiaries on a consolidated
basis to trailing four quarter EBITDA, calculated as of the end of
the most recent fiscal quarter, of not more than 2 to 1."
(g) AMENDMENT TO SUBJECTION 6.1. Subsection 6.1 is
amended to delete the amount $5,500,000 and replace is with $9,500,000.
(h) SUBSTITUTION OF COMPLIANCE CERTIFICATE. The form of
Compliance Certificate attached to the Agreement as Exhibit A is replaced
with the form attached to this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF PARENT AND BORROWER. To
induce Lender to enter into this Amendment and to make the Tranche B
Loans, each of Parent and Borrower represents and warrants to lender that
the following statements are true, correct and complete:
(a) Each of the representations and warranties of the Loan
Parties contained in the Loan Documents are true in all material
respects on and as of the date hereof, except to the extent that any
representation and warranty relates only to an earlier date, in which
case it was true and correct as of such date.
(b) This Amendment, the Amendment Documents (as defined in
paragraph 4 below), and the borrowing of the Tranche B Loans have
been duly authorized, and this Amendment constitutes, and upon
execution and delivery of the Amendment Documents in accordance with
the provisions hereof the Amendment Documents will constitute, legal,
valid and binding agreements and obligations of the applicable Loan
Parties enforceable in accordance with their respective terms.
(c) No Default or Event of Default has occurred and is
continuing.
(d) No event or circumstance has occurred since June 30,
1996 which constitutes a Material Adverse Effect.
(e) The Indebtedness of Borrower represented by the
Tranche B Note is within the definition of "Senior Obligations" as
defined in the agreement for the Subordinated Debt.
(f) Each Loan Party has performed in all material respects
all agreements and satisfied in all material respects all conditions
which any Loan Document provides shall be performed or satisfied by
it on or before the Effective Date.
4. EFFECTIVE DATE. This Amendment shall become effective as
of the date on which the following conditions shall have been satisfied
and Lender has delivered a notice thereof to Borrower (the "Effective
Date"):
(a) Borrower shall have paid the fee due pursuant to
SUBSECTION 2.3(c).
(b) Borrower and Parent shall have executed and delivered
this Amendment. Counterparts hereof executed by the parties hereto;
(c) The applicable Loan Parties shall have executed and
delivered the following (collectively, the "Amendment Documents"):
(1) The Tranche B Note;
(2) The Confirmation of Guaranties and Security
Interests, duly executed by all Subsidiaries of Parent;
(3) The New Warrant Agreement, and the warrant issued
thereunder; and
(4) An amendment to the Warrant Agreement executed on
the Closing Date extending the exercise period to December 31,
2001.
(d) Lender shall have received each of the following:
(1) A certificate of the Secretary of Assistant
Secretary of Borrower certifying the resolutions of the Board of
Directors of Borrower authorizing the execution, delivery and
performance of this Amendment and the Amendment Documents to
which it is a party;
(2) A certificate of the Secretary or Assistant
Secretary of Parent certifying the resolutions of the Board of
Directors of Parent authorizing the execution, delivery and
performance by Parent of this Amendment, and the Amendment
Documents to which it is a party; and
(3) Legal opinions of counsel to Borrower and Parent,
in form and substance satisfactory to Lender and its counsel.
5. MISCELLANEOUS. This Amendment and the Amendment Documents
are Loan Documents. As of the Effective Date, all references in the Loan
Documents to the Loan Agreement shall mean the Loan Agreement as amended
by this Amendment. The headings herein are for convenience of reference
only and shall not alter or otherwise affect the meaning hereof. Except
to the extent specifically amended or modified hereby, the provisions of
the Loan Agreement and the other Loan Documents shall not be amended,
modified, impaired or otherwise affected hereby and the Loan Agreement and
all of the Obligations are hereby confirmed in full force and effect. The
execution, delivery and effectiveness of this Amendment shall not operate
as a waiver of any right, power or remedy of Lender under the Loan
Agreement or any other Loan Document, nor constitute a waiver of any
provision of Loan Agreement or any other Loan Document, including, without
limitation, any Events of Default or failure of conditions.
6. COUNTERPARTS. This Amendment may be executed in any number
of counterparts and by the different parties hereto in separate
counterparts, each of which when so executed and delivered shall be an
original, but all of which shall together constitute one and the same
instrument.
7. GOVERNING LAW. This Amendment shall be governed by, and
shall be construed and enforced in accordance with, the internal laws of
the State of New York, without regard to conflicts of laws principles.
WITNESS the due execution hereof by the respective duly
authorized officers of the undersigned as of the date first above written.
"Borrower" EXECUTIVE TELECARD, S.A.
THE COMMON SEAL OF a Turks and Caicos Islands
EXECUTIVE TELECARD, S.A. Corporation
was hereunto affixed in
the presence of:
By: /s/ Allen Mandel
By: /s/John Gitlin Allen Mandel
John Gitlin Director
Director
"Parent" EXECUTIVE TELECARD, LTD.
By: /s/Allen Mandel
Name: Allen Mandel
Title: Executive Vice President
FEIN: 13-3486421
"Lender" ING (U.S.) CAPITAL CORPORATION
By: /s/Loring Guessous
Name: Loring Guessous
Title: Senior Vice President
