-1-
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 Commission File
Ended Number
June 30, 1998 1-10210
EXECUTIVE TELECARD, LTD.
(Exact name of registrant as specified in its charter)
Delaware 13-3486421
(State or other (I.R.S. Employer
jurisdiction of Identification
incorporation of No.)
organization)
1720 South Bellaire Street, Denver, Colorado 80222
(Address of principal executive offices)
Registrant's telephone number, including area code:
(303) 6912115
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 August 1, 1998 is 17,725,466
shares, all of one class of $.001 par value Common Stock.
EXECUTIVE TELECARD, LTD.
FORM 10-Q
QUARTER ENDED JUNE 30, 1998 TABLE OF CONTENTS
Page
Part Item Condensed Consolidated Financial
I 1 Statements
Condensed Consolidated Balance Sheets as 3 - 4
of June 30, 1998 and March 31, 1998
Condensed Consolidated Statements of 5
Operations for the three months ended
June 30, 1998 and 1997
Condensed Consolidated Statements of Cash 6
Flows for the three months ended June 30, 1998 and
1997
Notes to Condensed Consolidated Financial 7 - 10
Statements
Item 2 Management's Discussion and Analysis of 11 - 14
Financial Condition and Results of
Operations
Part Item Legal Proceedings 15
II 1
Item Changes in Securities 15
2
Item Defaults Upon Senior Securities 15
3
Item Submission of Matters to a Vote of 15
4 Security Holders
Item Other Information 15
5
Item Exhibits and Reports on Form 8-K 15
6
Signatures 16
<TABLE>
Executive TeleCard, Ltd. Condensed
Consolidated Balance Sheets
As of June 30, 1998 and March 31, 1998
<S> <C> <C>
June 30, 1998 March 31, 1998
(Unaudited)
ASSETS
Current:
Cash and cash equivalents $1,536,320 $2,391,206
Restricted cash (Note 2) 300,000 -
Trade accounts receivable, less
allowance of $1,608,455 and
$1,472,197 for doubtful accounts 7,549,759 7,719,853
Other current assets 302,955 376,604
Total current assets 9,689,034 10,487,663
Property and equipment, 11,781,617 11,911,310
net of accumulated
depreciation and
amortization
Advances to companies being 950,000 -
acquired (Note 3)
Total other assets 818,447 501,483
Total assets $23,239,098 $22,900,456
See notes to condensed consolidated financial statements.
</TABLE>
<TABLE>
Condensed Consolidated Balance Sheets As of June 30, 1998 and
March 31, 1998
<S> <C> <C>
June 30, 1998 March 31, 1998
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current:
Accounts payable 1,681,165 1,135,800
Accrued expenses 4,163,860 4,222,806
Income taxes payable 2,008,618 2,004,944
Other current
liabilities 496,218 680,565
Total current
liabilities 8,349,861 8,044,115
Long-term debt,
Less current maturities 8,776,577 7,735,581
Total liabilities 17,126,438 15,779,696
Stockholders' equity:
Preferred stock, $.001 par - -
value, 5,000,000 shares
authorized; none issued
Common stock, $.001 par value,
100,000,000 shares authorized;
17,346,766 outstanding 17,347 17,347
Additional paid-in capital 25,046,830 25,046,830
Stock to be subscribed
(350,000 shares) 3,500,000 3,500,000
Accumulated deficit (22,451,517) (21,443,417)
Total stockholders' equity 6,112,660 7,120,760
Total liabilities and
stockholders' equity 23,239,098 22,900,456
See notes to condensed consolidated financial statements.
</TABLE>
<TABLE>
Condensed Consolidated Statements of Operations Three Month Ended
June 30, 1998 and 1997
(Unaudited)
<S> <C> <C>
Three Months Three Months
Ended Ended
June 30, 1998 June 30, 1997
Revenue 7,686,335 8,559,551
Cost of revenue 4,040,483 4,445,496
Gross profit 3,645,852 4,114,055
Costs and expenses:
Selling, general
and administrative 3,625,522 3,370,272
Depreciation and amortization 687,326 634,622
Total costs and expenses 4,312,848 4,004,894
Income (loss) from operations (666,996) 109,161
Other expense:
Proxy related litigation - (199,886)
expense
Other, principally interest (341,104) (372,196)
expense
Total other expense (341,104) (572,082)
Loss before taxes on income (1,008,100) (462,921)
Income taxes - 35,000
Net loss $(1,008,100) $(497,921)
Net loss per share:
Basic (0.06) (0.03)
Diluted (0.06) (0.03)
See notes to condensed consolidated financial statements.
</TABLE>
<TABLE>
Condensed Consolidated Statements of Cash Flows Three Months
Ended June 30, 1998 and 1997
(Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
<S> <C> <C>
Three Months Three Months
Ended Ended
June 30, 1998 June 30, 1997
Operating activities:
Net loss (1,008,100) (497,921)
Adjustments to reconcile net loss to
net cash flows provided by
(used in) operating activities:
Depreciation and amortization 687,326 634,622
Provision for bad debts 140,000 100,268
Other, net 51,484 115,000
Changes in operating assets and
liabilities:
Accounts receivable 33,386 (1,227,535)
Other assets 70,837 (244,267)
Accounts payable 549,039 (288,812)
Accrued expenses (58,946) 341,272
Other liabilities (136,277) 4,408
Cash provided by (used in)
Operating activities 328,749 (1,062,965)
Investing activities:
Acquisitions of property
And equipment (539,433) (1,293,841)
Increase on restricted cash (300,000) -
Advances to companies being
Acquired (950,000) -
Other assets (335,644) (241,677)
Cash used in investing activities (2,125,077) (1,052,164)
Financing activities:
Proceeds from long-term debt 1,000,000 812,213
Proceeds from issuance of common
stock - 7,500,000
Principal payments on long-term
debt (58,558) (3,100,482)
Cash provided by financing activities 941,442 5,211,731
Net increase (decrease) in cash and
cash equivalents (854,886) 3,096,602
Cash and cash equivalents,
Beginning of period 2,391,206 2,172,480
Cash and cash equivalents,
end of period 1,536,320 5,269,082
See notes to condensed consolidated financial statements.
</TABLE>
Note 1 - Basis of Presentation
The accompanying condensed 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 months ended
June 30, 1998 are not necessarily indicative of the
results that may be expected for the year ended December 31,
1998. 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, 1998.
(On February 26, 1998, the stockholders of the Company
approved a change in the Company's fiscal year from March 31,
to a fiscal year ending December 31, commencing April 1, 1998,
so that the Company will have a nine month transition
period from April 1, 1998 through December 31, 1998).
The accompanying condensed financial statements include the
accounts of the Company and its wholly-owned subsidiaries.
All material intercompany transactions and balances have been
eliminated in consolidation.
Note 2 - Restricted Cash
Restricted cash consists of $0.3 million on deposit with a
financial institution to secure a letter of credit issued to a
transmission vendor and related to a new agreement whereby the
Company will perform platform and transmission services
Note 3 - Advances To Companies Being Acquired
This amount consists of funds advanced to two companies that
are in the process of being acquired. If the first acquisition
is not completed, $0.5 million would be payable to the
Company within one year of the termination of such acquisition.
Although the agreement has not been completed, the Company
believes that if the second acquisition is not consummated
due to any reason other than breach by the Company, the
Company has the right to be reimbursed for the entire amount
other than $150,000.
Note 4 - Basic Net Income (Loss) Per Share
Earnings per share are calculated in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share". The weighted average shares outstanding
for calculating basic earnings (loss) per share was
17,346,766 for the three months ended June 30, 1998 and
16,301,068 for the three months ended June 30, 1997. Common
stock options and warrants of 203,782 and 173,783 for the
three months ended June 30, 1998 and 1997, respectively, were not
included in diluted
earnings (loss) per share as the effect was antidilutive
due to the Company recording a loss for the periods.
Options and warrants to purchase 1,534,814 shares of
common stock at exercise prices from $3.19 to $6.94 per share
were outstanding at June 30, 1998 but were not included in
the computation of diluted earnings per share because the
exercise prices were greater than the average market price of
the common shares. Options and warrants to purchase 458,181
shares of common stock at exercise prices from $7.00 to
$14.88 per share were outstanding at June 30, 1997 but were not
included in the computation of diluted earnings per share
because the exercise prices were greater than the average
market price of the common shares.
Note 5 - Comprehensive Income
Effective April 1, 1998, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income." This statement requires the
reporting of comprehensive income in addition to net income.
Comprehensive income is a more inclusive financial reporting
methodology that includes disclosure of certain financial
information that historically has not been recognized in
the calculation of net income. The impact of other
comprehensive income items was immaterial for the three
months ended June 30, 1998 and 1997.
Note 6 - Long Term Debt
<TABLE>
At June 30, 1998 and March 31, 1998, long-term
debt consisted of the following:
<S> <C> <C>
June 30, 1998 March 31, 1998
8.875% unsecured term note $ 7,113,876 $ 7,062,392
payable to a
telecommunications company,
net of unamortized discount
of $386,124 interest and principal
payable in August 1999. (1).
8% mortgage note, payable 308,944 310,000
monthly, including interest
through March 2010, with an April
2010 balloon payment; secured
by deed of trust on the related
land and building.
8.875% unsecured term note 1,000,000 -
payable to a stockholder,
interest and principal
payable in December 1999 (2).
Capitalized lease 549,752 607,209
obligations.
Total 8,972,527 7,979,601
Less current maturities 195,950 244,020
Total long-term debt $ 8,776,577 $ 7,735,581
</TABLE>
(1) In connection with this transaction, the lender was
granted warrants to purchase 500,000 shares of the
Company's common stock at a price of $3.03 per share. The
warrants expire on February 23, 2001. At June 30, 1998, these
warrants have not been exercised.
(2) In June 1998, the Company borrowed $1.0 million from an
existing stockholder. In connection with this
transaction, the lender was granted warrants to purchase 67,000
shares of the Company's common stock at a price of $3.03 per
share. The warrants expire in June 2001. The stockholder also
received as consideration for the loan the repricing and
extension of a warrant for 55,000 shares which is now
exercisable on or before February 2001 at a price of $3.75 per
share. At June 30, 1998, these warrants have not been
exercised.
Note 7 - Common Stock
On June 3, 1997, the Board of Directors approved the sale of
1,425,000 shares of the Company's common stock for $7.5
million to one individual. Proceeds of $3.0 million from the
sale were used to reduce long-term debt. The remainder of the
proceeds were used for working capital or invested in obligations
through a financial institution.
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
Statements included in Management's Discussion and Analysis of
Financial Condition and Results of Operations which are not
historical in nature are intended to be, and are hereby
identified as, "forward-looking statements" for purposes of the
safe harbor provided by the Private Securities Litigation
Reform Act of 1995. Forward-looking statements maybe
identified by words including "believes,"
"anticipates," "expects" and similar expressions. The
Company cautions readers that forward-looking statements,
including without limitation, those relating to the
Company's business operations, revenues, working capital,
liquidity, and income, are subject to certain risks and
uncertainties that would cause actual results to differ
materially from those indicated in the forward-looking
statements, due to several important factors such as the
rapid technological and market changes that create
significant business risks in the market for the Company's
services, the intensely competitive nature of the Company's
industry and the possible adverse effects of such
competition, the Company's need for significant additional
financing and the Company's dependence on strategic
relationships, among others, and other risks and factors
identified from time to time in the Company's reports filed with
the Securities and Exchange Commission, including the risk
factors set forth under the caption "The Business Rick
Factors" in the Company's Annual Report on Form 10-K for the
year ended March 31, 1998.
Results of Operations
Overview. For the quarter ended June 30, 1998, the Company
incurred an operating loss of $0.7 million (1997
operating income of $0.1 million), on revenues of $7.7
million (1997 - $8.6). The operating loss included non-cash
charges for depreciation, amortization and provision for bad
debts totaling $0.8 million (1997 - $0.7 million). The net loss
for the quarter was $1.0 million (1997 - $0.5 million).
Revenue. The decline in revenue of $0.9 million is
principally attributable to a significant decrease in
activity by the Company's Asian customers and by a decrease in
activity by the Company's non-Asian customers in Asia. Some
European customers contributed to the decline, which was
substantially offset by increased revenue from North American
customers. Lower per minute revenue resulting from new
pricing programs put into effect in the first half of 1998 were
largely offset by increased overall customer usage. However, the
Company has substantially increased its investment in marketing
and sales staff and expects this investment to produce its
initial impact in the fourth calendar quarter of 1998.
Gross Profit. Gross profit was 47% in the quarter ended June
30, 1998 versus 48% in the comparable quarter of 1997. When
compared to the gross profit of 45% for the previous fiscal
quarter and 43% for the full previous fiscal year, the current
quarter represents an improving trend due to an ongoing program
implemented in early 1998 to reduce transmission costs.
Cost of revenue may be expected to fluctuate in the next
few quarters as new pricing and contractual arrangements
are put in place and as the Company continues to improve
its network structure.
Selling, General and Administrative. These expenses
increased to $3.6 million for the quarter ended June 30, 1998
(1997 - $3.4 million) principally due to a $0.4 million
increase in marketing and sales costs referred to above. This
increase was somewhat offset by the effect of cost reduction in
other areas.
Other Expense - Net. Other expenses declined by $0.2
million as a result of the settlement of proxy related
litigation in the prior fiscal year.
Liquidity and Capital Resources
Unrestricted cash and cash equivalents were $1.5 million at June
30, 1998 compared to $2.4 million at March 31, 1998. Accounts
receivable at June 30, 1998 totaled $7.5 million compared to
$7.7 million at March 31, 1998. During the quarter ended
June 30, 1998, cash provided by operating activities was
$0.3 million and cash used in investing activities,
principally advances on acquisitions and
capital expenditures, was $2.1 million. Included in the
latter category is a $0.3 million deposit into a restricted
account to secure a letter of credit issued to a
transmission vendor and related to a pending contract
whereby the Company will provide platform and transmission
services for a major prepaid card company. Offsetting
these uses of cash was a borrowing of $1.0 million from an
existing stockholder in June 1998.
Through July 31, 1998, the
Company advanced $1.4 million to two companies which the
Company is in the process of acquiring. Additionally, as
of July 31, 1998, the Company had additional cash commitments
of $0.4 million related to these acquisitions in progress and
cash commitments for capital expenditures of $1.0 million to
service the previously mentioned pending contract. Accordingly,
the Company's cash resources are limited. In addition to
continued implementation of its cost containment program, more
aggressive receivable collection efforts are being continued
in the quarter ending September 30, 1998. Should these
initiatives and anticipated revenue growth not result in
positive cash flow by December 31, 1998, the Company intends
to institute more significant cost cutting measures.
Current Funding Requirements. Management estimates that based upon
current expectations the Company will require
additional funding of up to $30 million for the execution of its
business plan, the principal requirements being the
financing of its acquisition program and capital expenditures for
new service offerings. To assist it in raising the required
capital, the Company has engaged two investment banking
firms. The Company's financing plan consists of: (i) raising
a significant amount of equity capital in the form of
convertible preferred stock through a private placement
principally with institutional investors; (ii) establishing
a credit facility to finance capital equipment needs; and (iii)
obtaining a loan facility secured by accounts receivable.
Although the Company is actively pursuing these sources of
capital, there can be no assurance that it will be successful
in these efforts. Should the Company be
unsuccessful in securing adequate capital, it will be required to
modify or curtail its plans for growth.
In June 1998, the Company entered into an Agreement and Plan of
Merger (the "IDX Merger Agreement") to acquire 100% of the stock
of IDX, International Inc. in return for 500,000 shares of
Series B Convertible Preferred Stock of the Company and
warrants plus $5 million in cash (subject to certain
deductions and adjustments). The transaction is subject to the
Company raising the required financing.
The Company has also executed letters of intent to acquire,
subject to obtaining financing, substantially all of the
assets of two other companies. The cash element of the
aggregate purchase prices for these potential acquisitions is
$3.5 million and liabilities to be assumed, principally longterm,
total approximately $4.6 million. In addition, the Company
will issue 375,000 warrants to purchase common stock.
Existing Obligations. In February 1998, the Company entered
into a loan agreement with IDT Corporation ("IDT"), a
multinational telecommunications carrier, the principal
amount of which is $7.5 million. The loan matures in August
1999 and bears interest at the rate of 8 7/8%, which is due at
maturity. As part of this agreement, the Company also issued
to IDT warrants to purchase 500,000 shares of the Company's
common stock at $3.03 per share, exercisable for a period of
three years. The proceeds of this loan were used to repay in
full, term loans in the amount of $7.0 million and balances
of certain capital leases totaling $0.4 million.
In June 1998, the Company borrowed $1.0 million from an
existing stockholder. The loan bears interest at 8 7/8% and is
payable upon maturity in December 1999. Under the terms of the
agreement, the stockholder received warrants to purchase
67,000 shares of common stock at a price of $3.03 per share,
exercisable for a period of three years. The
stockholder also received as consideration for the loan the
repricing and extension of a warrant for 55,000 shares which is
now exercisable on or before February 29, 2001 at a price
of $3.75 per share.
In anticipation of the year 2000 ("Year 2000"), the Company is
in the process of reviewing software that is internally
developed and/or externally purchased or licensed for
compliance with Year 2000 processing requirements. An
initial review indicates that the Company's primary Unixbased
operating systems are not at risk. Other systems, with the
exception of banking interfaces, are primarily externally
developed "off-the-shelf" software. Correspondence with
vendors which supply the Company with its e-mail, office
support software, and the accounting package that the Company
will be converting to in calendar 1998 indicate that these
packages are Year 2000 compliant. The Company presently
believes that with modifications to existing software and
conversion to new software, the Year 2000 issue will not pose
significant operational problems for the Company's computer
systems. However, if such modifications and conversions are not
completed timely, the Year 2000 problem may have a material
impact on the operations of the Company. In accordance
with Emerging Issues Task Force Opinion No. 96-14, "Accounting
for the Costs Associated with Modifying Computer Software for
the Year 2000," the Company will expense all costs as incurred.
Item 1 Legal Proceedings
See Item 3 of the Company's Annual Report on Form
10K for the year ended March 31, 1998 for
a description of material pending
legal proceedings.
Item 2 Changes 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
3. Certificate of Correction
dated July 31, 1998
10.1 Consulting Agreement for John Koonce
dated April 13, 1998
10.2 Compensation Agreement for Roger
Greenwald dated June 1, 1998
27. Financial Data Schedule
b) Reports on Form 8-K
(i) A report on Form 8-K dated June 24,
1998 under Item 2 was filed with the
Commission on June 24, 1998 to report
the signing of a definitive
agreement to acquire IDX International, Inc.
(ii) A report on Form 8-K dated
August 12, 1998 under Item 2 was filed
with the Commission on August 12, 1998 to
report the signing of a definitive
agreement to acquire Connectsoft
Communications Corporation.
c) Employment Agreement for Chairman of Finance
Committee
d) Compensation Agreement for Vice President of
Marketing & Sales
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: August 12, 1998 By /S/
Anne Haas
Controller, Treasurer
(Principal Accounting Officer)
Date: August 12, 1998 By /S/
Christopher J. Vizas
Chairman of the Board of Directors,
and Chief Executive Officer
(Principal Executive Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 1836320
<SECURITIES> 0
<RECEIVABLES> 9158214
<ALLOWANCES> 1608455
<INVENTORY> 0
<CURRENT-ASSETS> 9689034
<PP&E> 24153621
<DEPRECIATION> 12372004
<TOTAL-ASSETS> 23239098
<CURRENT-LIABILITIES> 8349861
<BONDS> 0
0
0
<COMMON> 17347
<OTHER-SE> 6095313
<TOTAL-LIABILITY-AND-EQUITY> 23239098
<SALES> 0
<TOTAL-REVENUES> 7686335
<CGS> 0
<TOTAL-COSTS> 4040483
<OTHER-EXPENSES> 4312848
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 326343
<INCOME-PRETAX> (1008100)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1008100)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1008100)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
CERTIFICATE OF CORRECTION
TO
CERTIFICATE OF AMENDMENT FILED JULY 31, 1996
TO THE
RESTATED CERTIFICATE OF INCORPORATION
OF
EXECUTIVE TELECARD, LTD.
EXECUTIVE TELECARD, LTD., a corporation organized on
February 19, 1987 and existing under and by virtue of the General
Corporation Law of the State of Delaware (the "Corporation")
DOES HEREBY CERTIFY:
FIRST: That the Certificate of Amendment to the Restated
Certificate of Incorporation, filed by the Corporation with the
Secretary of State of Delaware on July 31, 1996 (the
"Certificate of Amendment"), is an inaccurate record of the
corporate action therein referred to, insofar as the Certificate
of Amendment struck out and replaced all of Article V of the
Corporation's Restated Certificate of Incorporation (the
"Restated Certificate of Incorporation") when in fact Article VI
of the Restated Certificate of Incorporation should have been so
struck out and replaced rather than Article V.
SECOND: That, in order to reflect accurately the corporate
action referred to therein, the Certificate of Amendment
referred to above is hereby corrected, pursuant to Section
103(f) of the General Corporation Law of the State of
Delaware, by striking out the following in its entirety:
"RESOLVED, that the Board of Directors declares it advisable
and recommends that the Restated Certificate of
Incorporation of the Corporation be amended by striking out all
of Article V of the Restated Certificate of Incorporation and
inserting in place thereof:
"Meetings of stockholders may be held within or without the
State of Delaware as the by-laws may provide. The books of the
Corporation may be kept, subject to any provision contained in
Delaware statutes, outside the State of Delaware at such
place(s) as may be designated from time to time by the Board of
Directors or in the by-laws of the Corporation. Any action
required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called Annual or Special
Meeting of such stockholders and may not be effected by a consent
in writing by any such holders. This Article VI may not be
amended except by the affirmative vote of the holders of at least
sixty-six and two-thirds percent (66 2/3%) of the shares of stock
of the Corporation issued and outstanding and entitled to vote."
and inserting in place thereof the following in its entirety:
"RESOLVED, that the Board of Directors declares it advisable
and recommends that the Restated Certificate of
Incorporation of the Corporation be amended by striking out all
of Article VI of the Restated Certificate of Incorporation and
inserting in place thereof:
"Meetings of stockholders may be held within or without the
State of Delaware as the by-laws may provide. The books of the
Corporation may be kept, subject to any provision contained in
Delaware statutes, outside the State of Delaware at such
place(s) as may be designated from time to time by the Board of
Directors or in the by-laws of the Corporation. Any action
required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called Annual or Special
Meeting of such stockholders and may not be effected by a consent
in writing by any such holders. This Article VI may not be
amended except by the affirmative vote of the holders of at least
sixty-six and two-thirds percent (66 2/3%) of the shares of stock
of the Corporation issued and outstanding and entitled to vote."
THIRD: That, pursuant to Section 103(f) of the General
Corporation Law of the State of Delaware, this Certificate of
Correction shall be effective as of July 31, 1996.
IN WITNESS WHEREOF, said EXECUTIVE TELECARD, LTD. has caused
this Certificate of Correction to be signed by its Vice
President of Legal Affairs and General Counsel and attested by
its Secretary as of July 31, 1998.
EXECUTIVE TELECARD, LTD.
By: /s/
W. P. Colin Smith, Jr.
Vice President of Legal Affairs
and General Counsel
ATTEST:
/s/
W. P. Colin Smith, Jr.
Secretary
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered
into this 13th day of April, 1998, by and between John Koonce
(the "Employee") and Executive TeleCard, Ltd., a Delaware
corporation (the "Company").
WHEREAS, the Company wishes to engage the Employee as a
consultant, and the Employee has agreed to serve as a consultant,
in accordance with the terms and conditions set forth herein.
1. SCOPE OF SERVICES; LOCATION OF SERVICES
The Employee shall serve as principal financial advisor to the
Company and, in such capacity, shall provide his services to the
Company, for eight working days of his time per month, in the
development and implementation of a plan to finance the growth of
the Company (the "Financing Plan"), where the Financing Plan is
to be proposed by the Chief Executive Officer of the Company (the
"CEO") to the Board of Directors of the Company (the "Board") and
approved by the Board, as well as to assist with other financial
matters relating to the Company reasonably requested by the CEO
(the "Services"). In connection with the performance of the
Services, the Employee shall report to the CEO. During the term
of this Agreement, the Executive shall perform the Services at
the Company's various offices (particularly at its principal
office in Denver, Colorado).
2. COMPENSATION
a. The Company shall pay the Employee for the Services at a
rate of $8,000 per month (the "Monthly Fee") for working eight
days per month. If agreed between the Employee and the CEO that
the Employee will work for less than eight days per month, the
Company shall pay him a Monthly Fee that has been reduced on a
pro rata basis as determined by the CEO. The Monthly Fee is
payable biweekly in accordance with the normal periodic pay
period commencing April 13, 1998. The Company shall reimburse
the Employee for reasonable out-of-pocket expenses in accordance
with the Company's normal reimbursement policies for employee and
consultant expenses.
b. The Employee shall be eligible to receive a bonus at the end
of the one year period commencing on the date hereof of up to
$100,000 (the "Bonus"). The Bonus shall be based on the
achievement of certain financial performance targets, to be
determined by the CEO and the Board of Directors of the Company
and to be expressed in gross revenues and EBITDA (earnings before
interest, taxes, depreciation and amortization) (the "Performance
Targets"), and on the achievement of the goals of the Financing
Plan. The Bonus shall be payable as follows:
(i) If the Company meets one hundred percent (100%)
or more of the Performance Targets, the Employee shall receive
fifty percent (50%) of the Bonus.
(ii)If the Company meets at least seventy (70%) but
less than one hundred percent (100%) of the Performance Targets
(and therefore does not receive the 50% specified in clause (i)
(above), the Employee shall receive twenty-five percent (25%)
of the Bonus.
(iii) If the Company achieves the goals of the
Financing Plan, the Employee shall receive fifty percent (50%) of
the Bonus.
Additionally, in the event the Company outperforms the goals of
the Financing Plan, the Employee shall be eligible to receive an
additional bonus to be determined by the Compensation Committee
of the Board of Directors of the Company in its sole discretion.
The bonus earned by the Employee, if any, pursuant to this
Section 3(b) shall be payable on the 30th day following the one
year anniversary of the date hereof and shall be payable in a
single lump sum.
4. STOCK OPTIONS
In consideration of the Employee's acceptance of service
hereunder, the Employee shall be granted options to purchase an
aggregate of 75,000 shares of the Company's common stock, at an
exercise price to be equal to the closing price of the Company's
common stock as listed on The Nasdaq National Market on April 13,
1998 (the "Grant Date"), such option to vest upon (1) the first
anniversary of the Grant Date and (ii) meeting the goals of the
Financing Plan through March 1999, and such option to be subject
to the terms and conditions of the Company's 1995 Director Stock
Option and Appreciation Rights Plan and on terms to be set forth
in one of the Company's standard forms of stock option agreement
to be entered into between the Company and the Executive.
The term of such option shall be five years from the Grant Date.
5. BENEFITS
In addition to the benefits noted below, the Employee shall be
entitled to participate, on the same basis as executive employees
of the Company, in any stock option, stock purchase, pension,
thrift, profit-sharing, group life insurance, medical coverage,
education, or other retirement or employee pension or welfare
plan or benefits that the Company has adopted or may adopt for
the benefit of its employees. The Employee shall be entitled to
participate in any fringe benefits which are now or may be or
become applicable to the Company's executive employees generally.
Such employee benefits presently include the following: Medical
coverage, including health, dental and vision insurance,
commences at the beginning of the month following 30 days from
the date on which the Employee commences service with the
Company, and the Employee is responsible for 25% of the expense
of the Employee's medical coverage, with the Company responsible
for the remaining 75%. The Employee is eligible to participate
in the Company's 125 Flexible Spending Plan at the beginning of
the month following 30 days of service. The Employee's life
insurance is equal to two (2) times the Base Salary.
The Employee is eligible to contribute to the Company's 401k
Plan. Upon commencing service with the Company, the
Employee is eligible to immediately roll over any of
Employee's preexisting 401k Plan holdings.
Additionally, if the Employee shall become disabled or
incapacitated to the extent that the Employee is unable to
perform the Employee's duties and responsibilities hereunder, the
Employee shall be entitled to receive disability benefits of the
type provided for executive employees of the Company.
6. INVENTIONS AGREEMENT
The Employee shall execute the Company's standard Proprietary
Information and Inventions Agreement (the "Inventions
Agreement"), which Inventions Agreement is incorporated herein by
reference; provided, however, that where this Agreement and the
Inventions Agreement provide terms, remedies and restrictions
which differ, the terms, remedies and restrictions most
beneficial to the Company shall apply.
7. RESTRICTIVE COVENANTS
a. During Employee's service under this Agreement and for a
period of six months after termination of such service other than
a termination by the Company without cause, the Employee shall
not at any time (i) compete on his own behalf or on behalf of any
other person or entity, with the Company or any of its affiliates
within all territories in which the Company does business with
respect to the business of the Company or any of its affiliates
as such business shall be conducted on the date hereof or during
the service of the Employee under this Agreement; (ii) solicit or
induce, on his own behalf or on behalf of any other person or
entity, any employee of the Company or any of its affiliates to
leave the employ of the Company or any of its affiliates; or
(iii) solicit or induce, on his own behalf or on behalf of any
other person or entity, any customer of the Company or any of its
affiliates to reduce its business with the Company or any of its
affiliates.
b. The Employee shall not at any time during or subsequent
to his service by the Company, on his own behalf or on behalf of
any other person or entity, disclose any proprietary information
of the Company or any of its affiliates to any other person or
entity other than on behalf of the Company or in conducting its
business, and the Employee shall not use any such proprietary
information for his own personal advantage or make such
proprietary information available to others for use, unless such
information shall have come into the public domain other than
through unauthorized disclosure.
c. The Employee shall not, during the term of this
Agreement, have any other paid employment (other than with a
subsidiary of the Company) that is inconsistent with this
Agreement or that interferes with the Employee's ability to
perform his duties and responsibilities hereunder.
d. The ownership by the Employee of not more than 5% of a
corporation, partnership or other enterprise shall not constitute
a violation hereof.
e. If any portion of this Section 7 is found by a court of
competent jurisdiction to be invalid or unenforceable, but would
be valid and enforceable if modified, this Section 7 shall apply
with such modifications necessary to make this Section 7 valid
and enforceable. Any portion of this Section 7 not required to
be so modified shall remain in full force and effect and not be
affected thereby. The Employee agrees that the Company shall
have the right of specific performance in the event of a breach
by the Employee of this Section 7.
8. TERM AND TERMINATION
a. Services are to provided under this Agreement through March
31, 1999, unless sooner terminated in accordance with the
provisions set forth below or extended by written agreement of
the parties.
b. Either party may terminate this Agreement at its
convenience upon twenty (20) days written notice to the other
party.
c. Either party may terminate this Agreement in the event that
the other party fails to perform any material covenant or
otherwise breaches any material term of this Agreement (i)
immediately upon written notice to the other party if the
nonperformance or breach is incapable of cure, or (ii) upon the
expiration of twenty (20) days after such notice is the
nonperformance or breach is capable of cure and has not been
cured. Upon any termination pursuant to this paragraph, the non
breaching party shall have all remedies provided by law.
d. The Employee's engagement under this Agreement shall
terminate immediately upon the occurrence of any of the
following: (i) death, (ii) disability which precludes his
performance of the Services or (iii) willful misconduct injurious
to the material business interests of the Company.
e. The parties' respective rights and obligations under
Sections 6 and 7 shall survive the termination or expiration of
this Agreement.
9. MISCELLANEOUS
a. Entire Agreement. This Agreement constitutes the entire
agreement between the parties pertaining to the subject matter
hereof and supersedes all prior and contemporaneous agreements,
negotiations and understandings, oral or written. This Agreement
may be modified only by an instrument in writing duly executed by
both parties.
b. Assignment. This Agreement and the rights and obligations
hereunder shall not be assigned or otherwise transferred by
either party without the prior written consent of the other
party, and any purported assignment or other transfer without
such consent shall be void and of no force or effect.
c. Notices. All notices required or permitted hereunder shall
be in writing and shall be sent by nationally recognized
overnight courier service, telecopy or by registered or certified
mail, return receipt requested, as follows: if to the Employee,
to: John Koonce, 11416 Empire Lane, Rockville,MD 20852 Telephone
No.: (301) 881-2352
if to the Company, to:
Executive TeleCard, Ltd., 1720 S. Bellaire Street, 10th Floor
Denver, Colorado 80222 Facsimile No.: (303) 782-9610 Attention:
CEO
or to such other address as such party shall have designated by
notice hereunder. Unless otherwise specified, notices shall be
deemed given when the return receipt is received.
d. Waiver. Any waiver of any right or default hereunder shall
be effective only in the instance given and shall not operate as
or imply a waiver of any similar right or default on any
subsequent occasion.
e. Severability. No determination by a court of competent
jurisdiction that any term or provision of this Agreement is
invalid or otherwise unenforceable shall operate to invalidate or
render unenforceable any other term or provision of this
Agreement and all remaining provisions shall be enforced in
accordance with their terms.
f. Governing Law. This Agreement shall be governed by the
substantive laws of the State of Colorado. Each party
irrevocably consents to the personal jurisdiction of, and venue
in, the state and federal courts within the State of Colorado.
g. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all
of which together shall constitute one and the same Agreement.
IN WITNESS WHEREOF, the Employee has executed this Agreement and
the Company has caused this Agreement to be executed by its duly
authorized officer as of the date first set forth above.
JOHN KOONCE
By:
EXECUTIVE TELECARD, LTD.
By:
Chairman and Chief Executive Officer
4
EMPLOYMENT AGREEMENT
THIS AGREEMENT (this "Agreement") is entered into as of
June 1, 1998, between EXECUTIVE TELECARD, LTD., a Colorado
corporation with principal offices located in Denver, Colorado
(the "Company"), and Roger Greenwald (the "Executive").
WHEREAS, the parties desire to enter into this Agreement
setting forth the terms and conditions for the relationship of the
Executive with the Company.
NOW, THEREFORE, it is AGREED as follows:
1. Term. The Executive is hereby contracted as Vice
President of Marketing of the Company, for a period commencing on
June 1, 1998 and ending on December 31, 1998. This contract can be
extended at any time during its term by the mutual agreement of
the parties for a period ending on December 31, 2000. As Vice
President of the Company, the Executive shall render executive,
policy, and other management services to the Company of the type
customarily performed by persons serving in such capacities. The
Executive shall be responsible for the management of the marketing
and sales functions of the Company, and the Executive's duties
shall include the supervision of all aspects of such activities of
the Company. The Company's employees in the marketing and sales
departments shall be subject to the Executive's orders and
direction. The Executive shall report directly to the Company's
Chairman and Chief Executive Officer, and shall also perform such
duties as the Chairman and Chief Executive Officer of the Company
may from time to time reasonably direct.
2. Location of Services. During the term of this
agreement, the Executive shall perform services at the Company's
various offices and, in particular, he will spend at least 50% of
his time at the principal offices of the Company, currently
located in Denver, Colorado.
3. Fees. The Company shall pay the Executive a
monthly fee of $12,000. The monthly Fee shall not be decreased at
any time during the term of this Agreement.
4. Bonuses. The Executive shall be eligible to earn a
performance bonus if he remains as an Executive through the term
of this agreement. If goals are met or exceeded for the Bonus
Period, the Executive shall earn a bonus equal to 100% of total
monthly fees. If goals are met or exceeded the Executive shall
earn a bonus equal to $84,000. If only certain of such goals are
met, or goals are met only in part, for such Bonus Period, the
Executive shall earn a bonus equal to an amount to be recommended
by the Chief Executive and determined by the Board of Directors,
in its sole discretion, but not less than $21,000. Bonus shall be
payable to the Executive by February 1, 1999. The Board of
Directors may, in its sole discretion, award additional or greater
bonuses to the Executive based upon achievement of other Company
objectives during the Bonus Period.
5. Participation in Employee Benefit Plans. (NA)
The Executive shall promptly be reimbursed for any expenses which
he may incur in connection with his services hereunder in
accordance with the Company's normal reimbursement policies as
established from time to time.
6. Stock Options. Subject to approval by the
Compensation Committee of the Board of Directors, the Executive
shall be granted options to purchase an aggregate of 25,000 shares
of the Company's common stock, at an exercise price to be equal to
80% of the closing price of the Company's common stock as listed
on The Nasdaq National Market on the day preceding the date of
this agreement.
(i) options to purchase 25,000 shares shall vest
50% on the 60th day after the date hereof and
50% on December 31, 1998.
Each of the options will have a term of five years
from the date of grant. To the extent eligible, the options will
be issued as incentive stock options within the meaning and
subject to the limitations of Section 422 of the Internal Revenue
Code. Vesting of all options will immediate in the event that the
current Chairman and Chief Executive Officer (Christopher J.
Vizas) ceases to be the Chief Executive Officer of the Company.
7. Standards. The Executive shall perform the duties
and responsibilities under this Agreement in accordance with such
reasonable standards as may be established from time to time by
the Company's Chairman and Chief Executive Officer. The
reasonableness of such standards shall be measured against
standards for executive performance generally prevailing in the
Company's industry.
8. Voluntary Absences; Vacations. (NA)
9. Disability. (NA)
10. Termination of Agreement.
(a) The Chairman or the Board of Directors may
terminate the agreement at any time, subject
to payment of the compensation described
below.
(b) Within the first 4 months of the agreement,
50% of fees due through term plus minimum
bonus amount of $21,000.
After 4 months, 100% of fees due through term
and bonus amount of $21,000.
11. Restrictive Covenants.
(a) During the term of this Agreement and for a
period of 6months after termination of agreement the Executive
shall not at any time (i)compete on his own behalf or on behalf of
any other person or entity, with the Company or any of its
affiliates within all territories in which the Company does
business with respect to the business of the Company or any of its
affiliates as such business shall be conducted on the date hereof
or during the employment of the Executive under this Agreement;
(ii) solicit or induce, on his own behalf or on behalf of any
other person or entity, any employee of the Company or any of its
affiliates to leave the employ of the Company or any of its
affiliates; or (iii) solicit or induce, on his own behalf or on
behalf of any other person or entity, any customer of the Company
or any of its affiliates to reduce its business with the Company
or any of its affiliates.
(b) The Executive shall not at any time during or
subsequent to his employment by the Company, on his own behalf or
on behalf of any other person or entity, disclose any proprietary
information of the Company or any of its affiliates to any other
person or entity other than on behalf of the Company or in
conducting its business, and the Executive shall not use any such
proprietary information for his own personal advantage or make
such proprietary information available to others for use, unless
such information shall have come into the public domain other than
through unauthorized disclosure.
(c) The ownership by the Executive of not more
than 5% of a corporation, partnership or other enterprise shall
not constitute a violation hereof.
(d) If any portion of this Section 11 is found by
a court of competent jurisdiction to be invalid or unenforceable,
but would be valid and enforceable if modified, this Section 11
shall apply With such modifications necessary to make this Section
11 valid and enforceable. Any portion of this Section 11 not
required to be so modified shall remain in full force and effect
and not be affected thereby. The Executive agrees that the Company
shall have the right of specific performance in the event of a
breach by the Executive of this Section 11.
12. No Assignments. This Agreement is personal to each
of the parties hereto. No party may assign or delegate any rights
or obligations hereunder without first obtaining the written
consent of the other party hereto. However, in the event of the
death of the Executive all rights to receive payments hereunder
shall become rights of the Executive's estate.
13. Other Contracts. The Executive, during the term of
this Agreement, may from time to time engage in other paid
consultant activities, for the following entities: The Management
Network Group, Duke Power and Sovereign Communications. The
assignments, if any, will not impact performance and will be
cleared for approval with the Chairman.
14. Amendments or Additions. No amendments or
additions to this Agreement shall be binding unless in writing and
signed by all parties hereto.
15. Section Headings. The section headings used in
this Agreement are included solely for convenience and shall not
affect, or be used in connection with, the interpretation of this
Agreement.
16. Severability. The provisions of this Agreement
shall be deemed severable and the invalidity or unenforceability
of any provision shall not affect the validity or enforceability
of the other provisions hereof.
17. Governing Law. This Agreement shall be governed by
the laws of the State of Colorado (other than the choice of law
rules thereof).
EXECUTIVE TELECARD, LTD.
By:
Roger Greenwald
