SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, For Use of the
Commission Only
[X] Definitive Proxy Statement (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
International Telecommunication Data Systems, Inc.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other than the Registrant)
Payment of Filing Fee (Check the appropriate box)
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials:
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<PAGE>
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement no.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
225 High Ridge Road
Stamford, Connecticut 06905
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 13, 1998
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Stockholders of
International Telecommunication Data Systems, Inc., a Delaware corporation (the
"Corporation"), will be held on Monday, April 13, 1998 at 10:00 a.m. at the
offices of the Corporation, 225 High Ridge Road, Stamford, Connecticut (the
"Meeting") for the purpose of considering and voting upon the following
matters:
1. To elect two Class II Directors for the ensuing three years;
2. To approve and adopt the Corporation's 1998 Stock Incentive Plan;
3. To ratify the selection of Ernst & Young LLP as the Corporation's
independent public accountants for the current year; and
4. To transact such other business as may properly come before the Meeting
or any adjournment thereof.
The Board of Directors has fixed the close of business on Friday, February
27, 1998 as the record date for the determination of stockholders entitled to
notice of and to vote at the Meeting and at any adjournments thereof.
By order of the Board of Directors,
LEWIS D. BAKES, Secretary
March 6, 1998
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE PROMPTLY COMPLETE, DATE,
SIGN AND RETURN THE ENCLOSED PROXY AND MAIL IT IN THE ENCLOSED ENVELOPE IN
ORDER TO ENSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED BE AFFIXED IF
THE PROXY IS MAILED IN THE UNITED STATES.
<PAGE>
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
225 High Ridge Road
Stamford, Connecticut 06905
PROXY STATEMENT
For Annual Meeting of Stockholders
To Be Held April 13, 1998
----------------
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of International Telecommunication Data
Systems, Inc. (the "Corporation") at the Annual Meeting of Stockholders to be
held on Monday, April 13, 1998 at 10:00 a.m. at the offices of the Corporation,
225 High Ridge Road, Stamford, Connecticut and at any adjournment of that
meeting (the "Meeting").
All proxies will be voted in accordance with the instructions of the
stockholder. If no choice is specified, the proxies will be voted in favor of
the matters set forth in the accompanying Notice of Meeting. Any proxy may be
revoked by a stockholder at any time before its exercise by delivery of a
written revocation or a subsequently dated proxy to the Secretary of the
Corporation or by voting in person at the Meeting. Attendance at the Meeting
will not itself be deemed to revoke a Proxy unless the stockholder gives
affirmative notice at the Meeting that the stockholder intends to revoke the
Proxy and vote in person.
On February 27, 1998, the record date for determination of stockholders
entitled to vote at the Meeting, there were outstanding and entitled to vote an
aggregate of 13,422,007 shares of Common Stock of the Corporation, $.01 par
value per share (the "Common Stock"). Each share entitles the record holder to
one vote on each of the matters to be voted upon at the Meeting.
The share numbers and prices per share presented in this Proxy Statement
have been adjusted to give effect to the three-for-two split of the Common
Stock of the Corporation, effected in the form of a stock dividend, which will
be distributed on or about March 9, 1998 to Shareholders of record on February
23, 1998.
A copy of the Corporation's Annual Report to Stockholders for the year
ended December 31, 1997, which contains financial statements and other
information of interest to stockholders and accompanies this Notice and Proxy
Statement, is being mailed to stockholders on or about March 10, 1998.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of December 31, 1997
with respect to the beneficial ownership of shares of Common Stock by (i) each
person known to the Corporation to own beneficially more than 5% of the
outstanding shares of Common Stock, (ii) the directors and director nominees of
the Corporation, (iii) the Chief Executive Officers and the other executive
officers listed in the Summary Compensation Table below, and (iv) the directors
and executive officers of the Corporation as a group.
<PAGE>
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial Ownership(2)
-------------------------------
Name and Address(1) Number of
of Beneficial Owner Shares Percent of Class
------------------- ---------- ----------------
<S> <C> <C>
Essex Investment Management Company ..................................... 2,127,979 16.6%
125 High Street
Boston, MA 02110
Mark D. Spitzer(3) ...................................................... 1,262,902 9.9%
440 Michigan Rd.
New Canaan, CT 06840
Dresdner RCM Global Investors LLC; ...................................... 1,268,550 9.9%
RCM Limited L.P.;
RCM General Corporation
4 Embarcadero Center
San Francisco, CA 94111(4)
Joseph A. Juliano(5) .................................................... 28,635 *
Peter P. Bassermann(6) .................................................. 9,375 *
Charles L. Bakes(7) ..................................................... 1,169,241 9.1%
Lewis D. Bakes(8) ....................................................... 1,360,939 10.6%
Barry K. Lewis(9) ....................................................... 34,080 *
Peter L. Masanotti(10) .................................................. 46,327 *
Stuart L. Bell(11) ...................................................... 39,375 *
Stephen J. Saft(12) ..................................................... 2,250 *
All directors and executive officers as a group (9 persons)(13) ......... 1,491,011 11.6%
</TABLE>
- ----------------
* Less than 1%
(1) The address of each person for whom no address is included in the table is
225 High Ridge Road, Stamford, Connecticut 06905.
(2) The number of shares beneficially owned by each director and executive
officer is determined under rules promulgated by the Securities and
Exchange Commission, and the information is not necessarily indicative of
beneficial ownership for any other purpose. Under such rules, beneficial
ownership includes any shares as to which the individual has sole or
shared voting power or investment power and also any shares which the
individual has the right to acquire within 60 days after December 31, 1997
through the exercise of any stock option or other right. The inclusion
herein of such shares, however, does not constitute an admission that the
named stockholder is beneficial owner of such shares. Unless otherwise
indicated, each person or entity named in the table has sole voting power
and investment power (or shares such power with his or her spouse) with
respect to all shares of capital stock listed as owned by such person or
entity. Percentage of Class is based on 12,786,739 shares of Common Stock
outstanding as of December 31, 1997, plus any shares which the person in
question has the right to acquire within 60 days after December 31, 1997.
(3) Represents beneficial ownership as of January 31, 1998 and includes 15,000
shares held in the name of the Mark D. Spitzer Family Foundation.
(4) According to Schedule 13G filed with the Securities and Exchange
Commission, Dresdner RCM Global Investors LLC ("Dresdner") is an
investment adviser of which RCM Limited L.P. ("RCM Limited") is the
managing agent; RCM General Corporation ("RCM General") is the General
Partner of RCM Limited. RCM General and RCM Limited disclaim beneficial
ownership of the shares except to the extent they are deemed to have
beneficial ownership of shares beneficially owned by Dresdner.
(5) Includes 1,500 shares issuable pursuant to outstanding options exercisable
within 60 days after December 31, 1997.
2
<PAGE>
(6) Represents 9,375 shares issuable pursuant to outstanding options
exercisable within 60 days after December 31, 1997.
(7) Represents 1,169,241 shares beneficially owned by Mr. C. Bakes's wife, as
to which shares Mr. C. Bakes disclaims beneficial ownership.
(8) Represents 1,351,849 shares beneficially owned by Mr. L. Bakes's wife and
9,090 shares held by or in trust for the benefit of his children. Mr. L.
Bakes disclaims beneficial ownership of all of such shares.
(9) Includes 8,625 shares issuable pursuant to outstanding options exercisable
within 60 days after December 31, 1997.
(10) Includes 42,202 shares beneficially owned by Mr. Masanotti's wife, as to
which shares Mr. Masanotti disclaims beneficial ownership. Also includes
4,125 shares issuable pursuant to outstanding options exercisable within 60
days after December 31, 1997.
(11) Includes 9,375 shares issuable pursuant to outstanding options exercisable
within 60 days after December 31, 1997.
(12) Represents 2,250 shares beneficially owned by Mr. Saft's wife, as to which
shares Mr. Saft disclaims beneficial ownership.
(13) Includes 33,000 shares issuable pursuant to outstanding options exercisable
after December 31, 1997.
Votes Required
The holders of a majority of the shares of Common Stock issued and
outstanding and entitled to vote at the Meeting shall constitute a quorum for
the transaction of business at the Meeting. Shares of Common Stock present in
person or represented by proxy (including shares which abstain or do not vote
with respect to one or more of the matters presented for stockholder approval)
will be counted for purposes of determining whether a quorum exists at the
Meeting.
The affirmative vote of the holders of a plurality of the votes cast by
the stockholders entitled to vote at the Meeting is required for the election
of the Class II Directors. The affirmative vote of the holders of a majority of
the shares of Common Stock present or represented by proxy and voting on the
matter is required for the approval of the Corporation's 1998 Stock Incentive
Plan and the ratification of the appointment of the Corporation's independent
accountants.
Shares which abstain from voting as to a particular matter, and shares
held in "street name" by brokers or nominees who indicate on their proxies that
they do not have discretionary authority to vote such shares as to a particular
matter, will not be counted as votes in favor of such matter, and will also not
be counted as votes cast or shares voting on such matter. Accordingly,
abstentions and "broker non-votes" will have no effect on the voting on the
election of the Class II Directors, the approval of the Corporation's 1998
Stock Incentive Plan or the ratification of the appointment of independent
accountants.
ELECTION OF DIRECTORS
The Corporation has a classified Board of Directors consisting of two
Class I Directors, two Class II Directors, and one Class III Director. The term
of office of the Class II Directors expires at the 1998 Annual Meeting. The
Class I and Class III Directors will serve until the annual meeting of
stockholders to be held in 2000 and 1999, respectively, and until their
successors are elected and qualified. The Board of Directors proposes that the
nominees described below, both of whom are currently serving as Class II
Directors, be elected to a new term of three years and until their successors
are elected and qualified.
The persons named in the enclosed proxy will vote to elect, as Class II
Directors, Lewis D. Bakes and Peter P. Bassermann, the nominees named below,
unless the proxy is marked otherwise. Each of the nominees has indicated his
willingness to serve, if elected; however, if any nominee should be unable to
serve, the person acting under the proxy may vote the proxy for a substitute
nominee. The Board of Directors has no reason to believe that any of the
nominees will be unable to serve if elected.
For each member of the Board of Directors, including those who are
nominees for election as Class II Directors, listed below is information given
by each concerning his principal occupation and business experience for the
past five years, the names of other publicly held companies of which he serves
as a director and his age and length of service as a director of the
Corporation.
3
<PAGE>
<TABLE>
<CAPTION>
Director Principal Occupation, Other Business Experience
Name Age Since During Past Five Years and Other Directorships
- --------------------- ----- --------- ---------------------------------------------------------------
<S> <C> <C> <C>
Nominees for Terms Expiring in 2001 (Class II Directors)
Lewis D. Bakes 40 1990 Chairman of the Board since February 1998; Executive Vice
President and Chief Operating Officer of the Corporation since
1990.
Peter P. Bassermann 48 1997 President and Chief Executive Officer of the Corporation since
1997; President of SNET Mobility of Southern New England
Telecommunications Corporation, a wireless carrier, from 1987
to 1997.
Director Whose Term Expires in 1999 (Class III Director)
Peter L. Masanotti 43 1997 Executive Vice President since 1998; Vice President and
General Counsel of the Corporation since 1996; Attorney with
Kleban & Samor, P.C. from 1980 to 1996.
Directors Whose Terms Expire in 2000 (Class I Directors)
Stuart L. Bell 44 1996 Vice Chairman of the Board of Interval International, a
vacation exchange company, since 1997; director of Harbinger
Corporation, an electronic commerce company, since 1995;
director of Alarmguard Holdings, Inc., a home and office
security company, since 1997; Chairman of the Board of
Innovative Medical Research, Inc., a medical research company,
from 1995 to 1998; Assistant to the Chief Executive Officer of
Cendant Corporation, formerly CUC International, a
membership services company, from 1995 to 1998, and; Chief
Financial Officer, Treasurer and Executive Vice President,
Office of the President, of Cendant Corporation from 1975 to
1995.
Stephen J. Saft 53 1997 Attorney with Kleban & Samor, P.C. since 1979.
</TABLE>
For information relating to shares of Common Stock owned by each of the
directors, see "Security Ownership of Certain Beneficial Owners and
Management."
Board and Committee Meetings
The standing Audit Committee of the Board of Directors is responsible for
reviewing financial reports, accounting procedures and the scope and results of
the annual audit of the Corporation's financial statements. The Audit Committee
met twice during 1997. The current members of the Audit Committee are Messrs.
Bell and Saft.
The standing Compensation Committee of the Board of Directors is
responsible for reviewing compensation issues and making decisions concerning
the compensation (including stock option grants) of the Corporation's executive
officers. The Compensation Committee did not formally meet during 1997 but
participated in discussions concerning compensation with the entire Board of
Directors. The current members of the Compensation Committee are Messrs. Bell
and Saft.
The Board of Directors met eight times during 1997. Each director attended
at least 75% of the aggregate of the number of Board meetings and the number of
meetings held by all committees on which he then served.
4
<PAGE>
Director Compensation
Directors are not entitled to compensation in their capacities as
directors. All of the directors are reimbursed for their expenses incurred in
connection with their attendance at Board and committee meetings.
On June 2, 1997, the Corporation granted to Mr. Bell an option to purchase
up to 15,000 shares of Common Stock at an exercise price of $11.50 per share.
The option becomes exercisable in four equal annual installments beginning June
2, 1998.
On June 2, 1997, the Corporation granted to Mr. Saft an option to purchase
up to 37,500 shares of Common Stock at an exercise price of $11.50 per share.
The option becomes exercisable in four equal annual installments beginning June
2, 1998.
Compensation of Executive Officers
Employment Agreements
The Corporation has an employment agreement with Lewis D. Bakes, Executive
Vice President and Chief Operating Officer, dated January 1, 1998 which is
effective until December 31, 2000 unless earlier terminated or automatically
renewed for additional one-year terms. The agreement provides for an annual
base salary of $275,000 (plus increases determined in the discretion of the
Corporation and performance bonuses to be determined in the discretion of the
Board of Directors). Mr. Bakes is bound by a covenant not to complete during
his employment with the Corporation and for one year thereafter. Upon a change
in control, as defined in the agreement, Mr. Bakes is entitled to receive a
lump sum payment equal to 36 months of base salary and immediate vesting of all
outstanding stock options.
The Corporation has an employment agreement with Peter P. Bassermann,
President and Chief Executive Officer, dated September 3, 1997, as amended on
January 1, 1998. The agreement provides for an annual base salary of $275,000
per annum (plus performance bonuses to be determined in the discretion of the
Board of Directors). The agreement will continue in full force and effect until
December 31, 2000 unless sooner terminated or renewed for additional one-year
terms by agreement of the parties. The agreement contains a covenant not to
compete which is effective during Mr. Bassermann's employment with the
Corporation and for one year thereafter. Upon execution of the agreement, Mr.
Bassermann was granted options to purchase 150,000 shares of Common Stock. Upon
a change in control, as defined in the agreement, Mr. Bassermann is entitled to
receive a lump sum payment in an amount equal to 36 months of base salary and
immediate vesting of all outstanding stock options.
The Corporation has an employment agreement, dated as of October 5, 1996,
with Joseph A. Juliano, Executive Vice President of Strategic Product
Management. The agreement terminates on October 31, 2000, unless sooner
terminated as provided therein. The agreement provides for an annual base salary
of $175,000 per year (plus a performance bonus of up to 10% of Mr. Juliano's
annual base salary, in the discretion of the Board of Directors). Pursuant to
the agreement, Mr. Juliano received on the commencement of his employment 36,000
shares of restricted Common Stock, of which 25% became vested on April 1, 1997
and an additional 25% becomes vested on October 31 of each of 1998, 1999 and
2000, provided that all options will immediately vest upon the sale of the
Corporation. The agreement also contains a non-competition provision pursuant to
which Mr. Juliano is prohibited from competing with the Corporation during his
employment with the Corporation and for one year thereafter.
The Corporation has an employment agreement, dated June 1994, as amended
in September, 1996 and again in April, 1997, with Barry K. Lewis, Senior Vice
President of Customer Services. The agreement, which is effective until July 4,
1999, unless sooner terminated as provided therein, provides for an annual base
salary of $145,000 per year (plus performance bonuses to be determined in the
discretion of the Board of Directors). The agreement also contains a non-
competition provision pursuant to which Mr. Lewis is prohibited from competing
with the Corporation during his employment with the Corporation and for one
year thereafter.
The Corporation has entered into an employment agreement with Peter L.
Masanotti, Executive Vice President Operations and General Counsel, dated July
5, 1996, as amended in August, 1997 and again in January, 1998. The agree-
5
<PAGE>
ment is effective until December 31, 2000 unless earlier terminated or
automatically renewed for additional one-year terms, and provides that Mr.
Masanotti will receive an annual base salary of $250,000 (plus increases
determined in the discretion of the Corporation and performance bonuses to be
determined in the discretion of the Board of Directors). Mr. Masanotti may not
compete with the Corporation during his employment with the Corporation and for
one year thereafter. Upon a change in control of the Corporation, as defined in
the agreement, Mr. Masanotti is entitled to receive a lump sum payment in an
amount equal to 36 months of base salary and immediate vesting of all
outstanding stock options.
Summary Compensation Table
The following table sets forth the compensation for the fiscal years ended
December 31, 1995, 1996 and 1997 for the Corporation's Chief Executive Officers
and its four most highly compensated executive officers (other than the Chief
Executive Officers) whose total annual salary and bonus exceeded $100,000 in
1997 (the Chief Executive Officers and such other executive officers are
hereinafter referred to as the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation Awards
-------------------------- ---------------------------------
Restricted Securities All Other
Fiscal Stock Underlying Compensation
Name and Principal Position Year Salary ($) Bonus ($) Awards ($) Options (#) ($)
- ----------------------------- -------- ------------ ----------- ----------------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Peter P. Bassermann ......... 1997 $ 55,000 -- -- 150,000 --
President, Chief Executive
Officer and Director(1)
Charles L. Bakes ............ 1997 120,000 -- -- -- --
Chairman, President, Chief 1996 362,136 $ 87,084 -- -- --
Executive Officer and 1995 239,950 308,825 -- -- --
Director(2)
Peter L. Masanotti .......... 1997 133,250 -- -- 84,000 --
Executive Vice President, 1996 51,442 -- $341,220(3) 21,000 --
General Counsel and Director 1995 -- -- -- -- --
Lewis D. Bakes .............. 1997 150,000 -- -- -- --
Executive Vice President, 1996 376,647 87,083 -- -- --
Chief Operating Officer, 1995 321,172 290,913 -- -- --
Secretary and Director
Barry K. Lewis .............. 1997 145,278 -- -- 52,500 --
Senior Vice President of 1996 129,588 -- 293,145(4) 21,000 $275,000(5)
Customer Services 1995 115,000 7,500 -- -- --
Joseph A. Juliano ........... 1997 177,288 -- -- 52,500 --
Executive Vice President of 1996 27,596 -- 372,000(6) 15,000 --
Strategic Product Management 1995 -- -- -- --
</TABLE>
- ----------------
(1) Mr. Bassermann replaced Mr. C. Bakes as Chief Executive Officer in
September, 1997.
(2) Mr. C. Bakes resigned as President and Chief Executive Officer in
September, 1997 and resigned as Chairman in February, 1998.
(3) Represents 42,652 shares of restricted stock which were valued at $909,636
as of December 31, 1997. To the extent dividends are paid on shares of
Common Stock, dividends will be paid on all shares of restricted stock.
6
<PAGE>
(4) Represents 27,499 shares of restricted stock which were valued at $586,473
as of December 31, 1997.
(5) Mr. Lewis received a one-time payment of $275,000 on November 7, 1996
pursuant to the terms of his employment agreement with the Corporation.
(6) Represents 36,000 shares of restricted stock which were valued at $767,760
as of December 31, 1997.
Option Grants Table
The following table sets forth certain information concerning grants of
stock options made during fiscal 1997 to each of the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------------------------
Potential Realizable
Value at Assumed
Number of Percentage of Annual Rates of Stock
Securities Total Options Exercise Price Appreciation for
Underlying Granted to Price Per Option Term(2)
Options Employees in Share Expiration --------------------------------
Name Granted(#) Fiscal Year ($/Sh) Date(1) 5% ($) 10% ($)
- ----------------------------- ---------------- --------------- ---------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Peter P. Bassermann ......... 150,000(3) 7.1% $16.25 09/03/07 $1,532,930 $3,884,747
Charles L. Bakes ............ -- -- -- -- -- --
Peter L. Masanotti .......... 37,500(4) 1.8% 7.75 04/08/07 309,826 665,493
15,000(5) 0.7% 11.50 06/02/07 108,484 274,920
31,500(5) 1.5% 15.50 08/28/07 307,057 778,144
Lewis D. Bakes .............. -- -- -- -- -- --
Barry K. Lewis .............. 37,500(4) 1.8% 7.75 04/08/07 309,826 665,493
15,000(5) 0.7% 11.50 06/02/07 108,484 274,920
Joseph A. Juliano ........... 37,500(4) 1.8% 7.75 04/08/07 309,826 665,493
15,000(5) 0.7% 11.50 06/02/07 108,484 274,920
</TABLE>
- ----------------
(1) The expiration date of an option is the tenth anniversary of the date on
which the option was originally granted.
(2) The amounts shown in these columns represent hypothetical gains that could
be achieved for the respective options if exercised at the end of the
option term. These gains are based on assumed rates of stock appreciation
of 5% and 10%, compounded annually from the date the respective options
were granted to their expiration date. The gains shown are net of the
option exercise price, but do not include deductions for taxes or other
expenses associated with the exercise. Actual gains, if any, on stock
option exercises will depend on the future performance of the Common
Stock, the optionholders' continued employment, and the date on which the
options are exercised.
(3) Options become exercisable in 16 quarterly installments beginning on the
date of grant.
(4) Options become exercisable in four equal annual installments beginning on
the first anniversary of the date of grant.
(5) Options become exercisable in two equal annual installments beginning on
the first anniversary of the date of grant.
7
<PAGE>
Aggregated Option Exercises and Year-End Option Table
The following table sets forth certain information concerning each
exercise of a stock option during the fiscal year ended December 31, 1997 by
each of the Named Executive Officers and the number and value of unexercised
options held by each of the Named Executive Officers on December 31, 1997:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Shares Value of Unexercised
Underlying Option at in the Money Options
Fiscal Year-End (#) at Fiscal Year-End($)(1)
---------------------- -------------------------
Shares
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable
- ----------------------------- -------------- -------------- ---------------------- -------------------------
<S> <C> <C> <C> <C>
Peter P. Bassermann ......... -- -- 9,375/140,625 $47,625/714,375
Charles L. Bakes ............ -- -- -- 0/0
Peter L. Masanotti .......... 4,500 $45,501 4,125/96,375 56,017/1,008,397
Lewis D. Bakes .............. -- -- -- 0/0
Barry K. Lewis .............. -- -- 8,625/64,875 117,127/824,752
Joseph A. Juliano ........... 5,250 48,312 1,500/60,750 20,370/768,735
</TABLE>
- ----------------
(1) Based on the difference between each option exercise price and the fair
market value of the Common Stock as of December 31, 1997 ($21.33 per
share, as quoted on the Nasdaq National Market) multiplied by the number
of shares underlying the options.
Option Repricing
The following table sets forth certain information concerning all
repricings of options held by any executive officer of the Corporation since
October 24, 1996 (the date on which the Corporation became a reporting company
under the Securities Exchange Act of 1934):
10-YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
Length of Original
Number of Exercise Price per Option Term
Shares Subject Share at Time of Remaining at Date of
to Option Repricing or New Exercise Price Repricing or
Executive Officer Date Repriced (#) Amendment ($) Per Share ($)(1) Amendment
- -------------------------- -------- ---------------- -------------------- -------------------- ---------------------
<S> <C> <C> <C> <C> <C>
Peter L. Masanotti ....... 5/2/97 37,500 $ 9.83 $ 7.75 9.9 years
5/2/97 3,000 14.00 7.75 9.6 years
5/2/97 18,000 9.33 7.75 9.4 years
Joseph A. Juliano ........ 5/2/97 37,500 9.83 7.75 9.9 years
5/2/97 3,000 14.00 7.75 9.6 years
5/2/97 12,000 9.33 7.75 9.4 years
Barry K. Lewis ........... 5/2/97 37,500 9.83 7.75 9.9 years
5/2/97 3,000 14.00 7.75 9.6 years
5/2/97 18,000 9.33 7.75 9.4 years
James V. O'Neill ......... 5/2/97 3,000 14.00 7.75 9.6 years
5/2/97 9,000 9.33 7.75 9.4 years
</TABLE>
- ----------------
(1) The exercise price per share is equal to the market price per share of the
Common Stock at the time of the repricing.
8
<PAGE>
Report of the Board of Directors on Executive Compensation
The Corporation's Board of Directors, in consultation with the members of
the Compensation Committee, was responsible for establishing compensation for
1997 with respect to the Corporation's executive officers, including the Chief
Executive Officer. The Board of Directors sought to achieve two primary goals
in connection with the Corporation's executive compensation programs and
decisions regarding individual compensation. First, the Board of Directors
structured executive compensation programs in a manner that it believed would
enable the Corporation to attract and retain key executives. In order to ensure
continuity of certain key members of management, the Board of Directors
approved multi-year employment contracts for executive officers. Second, the
Corporation's executive compensation programs are intended to provide
executives with an equity interest in the Corporation so as to link a portion
of the compensation of the Corporation's executives with the performance of the
Corporation's Common Stock.
The compensation programs for the Corporation's executives established by
the Board of Directors consist of a base salary, an annual cash bonus and/or a
stock-based equity incentive award.
In establishing base salaries for the executive officers, including the
Chief Executive Officer, the Board of Directors monitored salaries at other
companies, particularly those that are in the same industry as the Corporation
or related industries and/or located in the same general geographic area as the
Corporation, considered historic salary levels of the individual and the nature
of the individual's responsibilities and compared the individual's base salary
with those of other executives at the Corporation. To the extent determined to
be appropriate, the Board of Directors also considered the Corporation's
financial performance and the individual's performance.
In establishing bonuses for the executive officers, including the Chief
Executive Officer, the Board of Directors considered a combination of
individual and corporate performance during the past year.
A number of the executive officers hold a substantial security interest in
the Corporation. For those executive officers who do not hold such an interest,
the Board of Directors has used restricted stock grants and stock options as a
significant element of the compensation package. It is not currently the policy
of the Board of Directors or the Compensation Committee to grant stock options
to executives annually, and the timing of grants to executives, if any, will
depend upon a number of factors, including new hires of executives, the
executives' current stock and option holdings and such other factors as the
Board of Directors or the Compensation Committee deems relevant. When granting
stock options, it has generally been the policy of the Board of Directors to
fix the exercise price of such options at 100% of the fair market value of the
Common Stock on the date of grant.
Option Repricing
As noted above, the Board of Directors of the Corporation uses stock
options as a significant element of the compensation package of executive
officers, because they align the motivations and rewards of executive officers
with those of the Corporation's stockholders and because of the important
retentive value served by the vesting schedule of the options. The Board of
Directors believes that for these same reasons, stock options are a critical
component of the compensation package of all key employees of the Corporation.
Moreover, in light of the intense competition among companies for highly
skilled engineering, sales and managerial personnel, the Board of Directors
believes that it is extremely difficult to attract and retain high quality
employees without a meaningful stock option package to offer such employees.
The market value of the Common Stock of the Corporation, which was above
$13.33 per share from mid-November 1996 to early March 1997, steadily decreased
from March to May, and generally hovered around $7.33 and $8.00 per share
during late April and early May 1997. As a result of this decline, virtually
all of the outstanding stock options of the Corporation had exercise prices in
excess of the market value of the Common Stock. After several meetings and
discussions with members of management, the Board of Directors concluded that
the motivational and retentive value of the outstanding stock options of the
Corporation had been significantly diminished, and that it was critical for the
Corporation to restore the value of outstanding stock options as a means of
motivating and retaining employees in order to promote the successful
implementation of the Corporation's growth strategies.
9
<PAGE>
Accordingly, on May 2, 1997, the Board of Directors approved a stock
option exchange program, pursuant to which employees of the Corporation holding
stock options under the Corporation's 1996 Stock Incentive Plan were given the
opportunity to exchange the unexercised portion of such options for new options
covering an equal number of shares and having an exercise price of $7.75 per
share (the fair market value of the Common Stock on such date). Other than the
exercise price, these new options had the same terms as the options cancelled
in exchange therefor.
In its deliberations over whether to authorize this stock option exchange
program, the Committee considered at length the potential disadvantages of such
an exchange program, including its dilutive effect on, and possible negative
reactions among, the existing stockholders of the Corporation. While fully
cognizant of the potential disadvantages of the stock option exchange program,
it was the conclusion of the Board of Directors that, given the dependence of
the Corporation on skilled employees and the intense competition for such
employees, the Corporation could not realistically hope to implement its new
business strategies and return to profitability unless the stock option
exchange program was implemented.
Section 162(m)
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), enacted in 1993, generally disallows a tax deduction to public
companies for compensation over $1,000,000 paid to its chief executive officer
and its four other most highly compensated executive officers. Qualifying
performance-based compensation will not be subject to the deduction limit if
certain requirements are met. In this regard, the Corporation has limited the
number of shares subject to stock options which may be granted to Corporation
employees in a manner that complies with the performance-based requirements of
Section 162(m). It does not appear that the Section 162(m) limitation will have
a significant impact on the Corporation in the near term. While the Committee
does not currently intend to qualify its annual bonus awards as a
performance-based plan, it will continue to monitor the impact of Section
162(m) on the Corporation.
BOARD OF DIRECTORS
Charles L. Bakes
Lewis D. Bakes
Peter P. Bassermann
Stuart L. Bell
Peter L. Masanotti
Stephen J. Saft
Compensation Committee Interlocks and Insider Participation
The Corporation's Board of Directors, in consultation with the
Compensation Committee, was responsible for establishing compensation for 1997
with respect to the Corporation's executive officers, including the Chief
Executive Officer. Peter P. Bassermann, Lewis D. Bakes and Peter L. Masanotti,
executive officers of the Corporation, are members of the Board of Directors.
Charles L. Bakes was a member of the Board of Directors during 1997 and served
as Chief Executive Officer until September, 1997 and as Chairman of the Board
until he resigned in February, 1998.
The current members of the Corporation's Compensation Committee are
Messrs. Bell and Saft. No executive officer of the Corporation has served as a
director or member of the Compensation Committee (or other committee serving an
equivalent function) of any other entity, whose executive officers served as a
director of or member of the Compensation Committee of the Corporation.
10
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Certain Transactions
Since January 1, 1997, the Corporation has entered into or engaged in the
following transactions with the following directors, officers and stockholders
who beneficially own more than 5% of the outstanding Common Stock of the
Corporation ("5% Stockholders"), and affiliates of such directors, officers and
5% Stockholders:
The Corporation loaned Mr. Masanotti, a director and executive officer of
the Corporation, and his wife $50,000 on December 19, 1996 and $110,000 on April
10, 1997. The loans, which are due on June 18, 1998 and April 9, 1999,
respectively, were used for the payment of taxes, have an annual interest rate
of 8.5% and are secured by a pledge in favor of the Corporation of Common Stock
held by Mrs. Masanotti. The amounts of indebtedness outstanding as of January
20, 1998 were $54,635 and $116,232, respectively.
On December 31, 1996 and January 1, 1997, the Corporation loaned Mr.
Juliano, an executive officer of the Corporation, an aggregate of $106,000, at
an interest rate of 8.5% per annum pursuant to three promissory notes. Of the
total amount, $40,000 was due on February 28, 1997 and was repaid in February
1997. Of the remaining $66,000 outstanding, $54,000 is payable on November 2,
1998 and $12,000 is payable on demand by the Corporation. The $54,000 is
secured by a pledge in favor of the Corporation of 36,000 shares of restricted
Common Stock held by Mr. Juliano.
For a description of employment agreements between the Corporation and
Named Executive Officers, see "Compensation of Executive Officers--Employment
Agreements" above. For a description of stock options granted to certain
directors of the Corporation, see "Director Compensation" above.
11
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Stock Performance Graph
The following graph compares the cumulative total stockholder return on
the Common Stock of the Corporation between October 24, 1996 (the date the
Corporation's Common Stock commenced public trading) and December 31, 1997 with
the cumulative total return of (i) the Standard & Poor's 500 Index (the "S&P
500 Index") and (ii) the Standard and Poor's Computers Index (Software and
Services) (the "S&P Computers Index"), over the same period. This graph assumes
the investment of $100.00 on October 24, 1996 in the Corporation's Common
Stock, the S&P 500 Index and the S&P Computers Index, and assumes any dividends
are reinvested.
COMPARISON OF 14 MONTH CUMULATIVE TOTAL RETURN*
Among International Telecommunication Data Systems, Inc.,
The S&P 500 Index and the S&P Computers (Software & Services) Index
[PLOT POINTS FOR GRAPHIC (SEE BELOW)]
<TABLE>
<CAPTION>
Oct. 24, 1996 Dec. 31, 1996 Dec. 31, 1997
--------------- --------------- --------------
<S> <C> <C> <C>
INTERNATIONAL TELECOMMUNICATION DATA
SYSTEMS, INC. $100 $152 $200
S&P 500 INDEX $100 $108 $144
S&P COMPUTERS INDEX $100 $111 $155
</TABLE>
*$100 INVESTED ON 10/24/96 IN STOCK OR ON 9/30/96 IN INDEX -- INCLUDING
REINVESTMENT OF DIVIDENDS, FISCAL YEAR ENDING DECEMBER 31.
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RATIFICATION OF THE SELECTION OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected the firm of Ernst & Young LLP as the
Corporation's independent auditors for the current fiscal year. Ernst & Young
LLP served as the Corporation's independent auditors for the year ended
December 31, 1997. Although stockholder approval of the Board of Directors'
selection of Ernst & Young LLP is not required by law, the Board of Directors
believes that it is advisable to give stockholders an opportunity to ratify
this selection. If this proposal is not approved at the Annual Meeting, the
Board of Directors may reconsider its selection.
A representative of Ernst & Young LLP is expected to be present at the
Annual Meeting and will have the opportunity to make a statement if he or she
desires to do so and will also be available to respond to appropriate questions
from stockholders.
PROPOSAL TO APPROVE THE CORPORATION'S 1998 STOCK INCENTIVE PLAN
On February 2, 1998 the Board of Directors adopted the 1998 Stock
Incentive Plan (the "1998 Plan"), subject to stockholder approval. Up to
1,125,000 shares of Common Stock (subject to adjustment in the event of stock
splits and other similar events) may be issued pursuant to awards granted under
the 1998 Plan.
Approval of the 1998 Plan requires the affirmative vote of the holders of
a majority of shares of Common Stock present or represented by proxy and voting
on the matter at the Annual Meeting.
The Board of Directors believes that the future success of the Corporation
depends, in large part, upon the ability of the Corporation to maintain a
competitive position in attracting, retaining and motivating key personnel. The
Board believes that stock options are a significant element of the compensation
offered to the employees of the Corporation and that stock options are
instrumental to the Corporation's efforts to remain competitive in attracting,
retaining and motivating highly skilled personnel. Prior to the initial public
offering of the Common Stock of the Corporation in October, 1996, none of the
employees of the Corporation had stock options. Since October, 1996 the Board
of Directors has granted options to approximately 328 employees of the
Corporation, including 129 employees of ITDS Intelicom Services, Inc. upon the
acquisition of such company in January 1998. In addition, the Board of
Directors has offered stock options to several recently hired executive
officers and key employees. As a result of the stock options granted since
October 1996, the Corporation has available for future issuance under its
existing stock incentive plans approximately 46,500 shares of Common Stock.
Accordingly, the Board of Directors believes adoption of the 1998 Plan is in
the best interests of the Corporation and its stockholders and recommends a
vote FOR this proposal.
Summary of the 1998 Plan
The following summary of the 1998 Plan is qualified in its entirety by
reference to the 1998 Plan, a copy of which is filed with the Corporation's
Annual Report on Form 10-K.
Description of Awards
The 1998 Plan provides for the grant of incentive stock options intended
to qualify under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), nonstatutory stock options, restricted stock awards and other
stock-based awards, including the grant of shares based upon certain
conditions, the grant of securities convertible into Common Stock and the grant
of stock appreciation rights (collectively "Awards").
Incentive Stock Options and Nonstatutory Stock Options. Optionees receive
the right to purchase a specified number of shares of Common Stock at a
specified option price and subject to such other terms and conditions as are
specified in connection with the option grant. Subject to the limitations
described below, options may be granted at an exercise price which may be less
than, equal to or greater than the fair market value of the Common Stock on the
date of grant. Under present law, however, incentive stock options and options
intended to qualify as performance-based compensation under Section 162(m) of
the Code may not be granted at an exercise price less than the fair market
value of the Common Stock on the date of grant (or less than 110% of the fair
market value in the case of incentive stock options granted to optionees
holding more than 10% of the voting power of the Corporation). Options may not
be granted for a term in
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<PAGE>
excess of ten years. The 1998 Plan permits the Board to determine the manner of
payment of the exercise price of options, including payment by cash, check or,
in connection with a "cashless exercise", through a broker, by surrender to the
Corporation of shares of Common Stock, by delivery to the Corporation of a
promissory note, or by any other lawful means.
Restricted Stock Awards. Restricted stock Awards entitle recipients to
acquire shares of Common Stock, subject to the right of the Corporation to
repurchase all or part of such shares from the recipient in the event that the
conditions specified in the applicable Award are not satisfied prior to the end
of the applicable restriction period established for such Award.
Other Stock-Based Awards. Under the 1998 Plan, the Board has the right to
grant other Awards based upon the Common Stock having such terms and conditions
as the Board may determine, including the grant of shares based upon certain
conditions, the grant of securities convertible into Common Stock and the grant
of stock appreciation rights.
Eligibility to Receive Awards
Officers, employees, directors, consultants and advisors of the
Corporation and its subsidiaries are eligible to be granted Awards under the
1998 Plan. Under present law, however, incentive stock options may only be
granted to employees. The maximum number of shares with respect to which an
Award may be granted to any participant under the 1998 Plan may not exceed
200,000 shares per calendar year. The 1998 Plan also limits to 100,000 the
number of shares of Common Stock subject to Awards that can be issued for less
than fair market value as determined on the date of grant.
As of February 13, 1998, approximately 674 persons were eligible to
receive Awards under the 1998 Plan, including the Corporation's nine executive
officers and two non-employee directors. The granting of Awards under the 1998
Plan is discretionary, and the Corporation cannot now determine the number or
type of Awards to be granted in the future to any particular person or group.
On February 24, 1998, the last reported sale price of the Corporation's
Common Stock on the Nasdaq National Market was $27.50.
Administration
The 1998 Plan is administered by the Board of Directors. The Board has the
authority to adopt, amend and repeal the administrative rules, guidelines and
practices relating to the 1998 Plan and to interpret the provisions of the 1998
Plan. Pursuant to the terms of the 1998 Plan, the Board of Directors may
delegate authority under the 1998 Plan to one or more committees of the Board,
and subject to certain limitations, to one or more executive officers of the
Corporation. The Board has authorized the Compensation Committee to administer
certain aspects of the 1998 Plan, including the granting of options to
executive officers. Subject to any applicable limitations contained in the 1998
Plan, the Board of Directors, the Compensation Committee, or any other
committee or executive officer to whom the Board delegates authority, as the
case may be, selects the recipients of Awards and determines (i) the number of
shares of Common Stock covered by options and the dates upon which such options
become exercisable, (ii) the exercise price of options, (iii) the duration of
options, and (iv) the number of shares of Common Stock subject to any
restricted stock or other stock-based Awards and the terms and conditions of
such Awards, including conditions for repurchase, issue price and repurchase
price.
The Board of Directors is required to make appropriate adjustments in
connection with the 1998 Plan and any outstanding Awards to reflect stock
dividends, stock splits and certain other events. In the event of a merger,
liquidation or certain other acquisition events, the Board of Directors is
authorized to provide for outstanding Options or other stock-based Awards to be
assumed or substituted for, to make the Awards fully exercisable prior to
consummation of the Acquisition Event or to provide for a cash out of the value
of any outstanding options. If any Award expires or is terminated, surrendered,
canceled or forfeited, the unused shares of Common Stock covered by such Award
will again be available for grant under the 1998 Plan.
14
<PAGE>
Amendment or Termination
No Award may be made under the 1998 Plan after February 2, 2008, but
Awards previously granted may extend beyond that date. The Board of Directors
may at any time amend, suspend or terminate the 1998 Plan, except that no Award
designated as subject to Section 162(m) of the Code by the Board of Directors
after the date of such amendment shall become exercisable, realizable or vested
(to the extent such amendment was required to grant such Award) unless and
until such amendment shall have been approved by the Corporation's
stockholders.
Federal Income Tax Consequences
The following is a summary of the United States federal income tax
consequences that generally will arise with respect to Awards granted under the
1998 Plan and with respect to the sale of Common Stock acquired under the 1998
Plan.
Incentive Stock Options
In general, a participant will not recognize taxable income upon the grant
or exercise of an incentive stock option. Instead, a participant will recognize
taxable income with respect to an incentive stock option only upon the sale of
Common Stock acquired through the exercise of the option ("ISO Stock"). The
exercise of an incentive stock option, however, may subject the participant to
the alternative minimum tax.
Generally, the tax consequences of selling ISO Stock will vary with the
length of time that the participant has owned the ISO Stock at the time it is
sold. If the participant sells ISO Stock after having owned it for at least two
years from the date the option was granted (the "Grant Date") and one year from
the date the option was exercised (the "Exercise Date"), then the participant
will recognize long-term capital gain in an amount equal to the excess of the
sale price of the ISO Stock over the exercise price.
If the participant sells ISO Stock for more than the exercise price prior
to having owned it for at least two years from the Grant Date and one year from
the Exercise Date (a "Disqualifying Disposition"), then all or a portion of the
gain recognized by the participant will be ordinary compensation income and the
remaining gain, if any, will be a capital gain. This capital gain will be a
long-term capital gain if the participant has held the ISO Stock for more than
one year prior to the date of sale.
If a participant sells ISO Stock for less than the exercise price, then
the participant will recognize capital loss equal to the excess of the exercise
price over the sale price of the ISO Stock. This capital loss will be a
long-term capital loss if the participant has held the ISO Stock for more than
one year prior to the date of sale.
Nonstatutory Stock Options
As in the case of an incentive stock option, a participant will not
recognize taxable income upon the grant of a nonstatutory stock option. Unlike
the case of an incentive stock option, however, a participant who exercises a
nonstatutory stock option generally will recognize ordinary compensation income
in an amount equal to the excess of the fair market value of the Common Stock
acquired through the exercise of the option ("NSO Stock") on the Exercise Date
over the exercise price.
With respect to any NSO Stock, a participant will have a tax basis equal
to the exercise price plus any income recognized upon the exercise of the
option. Upon selling NSO Stock, a participant generally will recognize capital
gain or loss in an amount equal to the excess of the sale price of the NSO
Stock over the participant's tax basis in the NSO Stock. This capital gain or
loss will be a long-term gain or loss if the participant has held the NSO Stock
for more than one year prior to the date of the sale.
Restricted Stock Awards
A participant will not recognize taxable income upon the grant of a
restricted stock Award, unless the participant makes an election under Section
83(b) of the Code (a "Section 83(b) Election"). If the participant makes a
Section 83(b) Election within 30 days of the date of the grant, then the
participant will recognize ordinary compensation income, for the year in which
15
<PAGE>
the Award is granted, in an amount equal to the difference between the fair
market value of the Common Stock at the time the Award is granted and the
purchase price paid for the Common Stock. If a Section 83(b) Election is not
made, the participant will recognize ordinary compensation income, at the time
that the forfeiture provisions or restrictions on transfer lapse, in an amount
equal to the difference between the fair market value of the Common Stock at
the time of such lapse and the original purchase price paid for the Common
Stock. The participant will have a basis in the Common Stock acquired equal to
the sum of the price paid and the amount of ordinary compensation income
recognized.
Upon the disposition of the Common Stock acquired pursuant to a restricted
stock Award, the participant will recognize a capital gain or loss equal to the
difference between the sale price of the Common Stock and the participant's tax
basis in the Common Stock. The gain or loss will be a long-term gain or loss if
the shares are held for more than one year. For this purpose, the holding
period shall begin just after the date on which the forfeiture provisions or
restrictions lapse if a Section 83(b) Election is not made, or just after the
Award is granted if a Section 83(b) Election is made.
Other Stock-Based Awards
The tax consequences associated with any other stock-based Award granted
under the 1998 Plan will vary depending on the specific terms of such Award.
Among the relevant factors are whether or not the Award has a readily
ascertainable fair market value, whether or not the Award is subject to
forfeiture provisions or restrictions on transfer, the nature of the property
to be received by the participant under the Award and the participant's holding
period and tax basis for the Award or underlying Common Stock.
Maximum Income Tax Rates on Capital Gain and Ordinary Income
Long-term capital gain will be taxable at a maximum rate of 20% if
attributable to Common Stock held for more than eighteen months and at a
maximum rate of 28% if attributable to Common Stock held for more than one year
but not more than eighteen months. Short-term capital gain and ordinary income
will be taxable at a maximum rate of 39.6%. Phaseouts of personal exemptions
and reductions of allowable itemized deductions at higher levels of income may
result in slightly higher marginal tax rates. Ordinary compensation income will
also be subject to a Medicare tax and, under certain circumstances, a social
security tax.
Tax Consequences to the Corporation
The grant of an Award under the 1998 Plan will have no tax consequences to
the Corporation. Moreover, in general, neither the exercise of an incentive
stock option nor the sale of any Common Stock acquired under the 1998 Plan will
have any tax consequences to the Corporation. The Corporation generally will be
entitled to a business-expense deduction, however, with respect to any ordinary
compensation income recognized by a participant under the 1998 Plan, including
in connection with a restricted stock Award or as a result of the exercise of a
nonstatutory stock option or a Disqualifying Disposition, or Section 83(b)
Election. Any such deduction will be subject to the limitations of Section
162(m) of the Code. The Corporation will have a withholding obligation with
respect to any ordinary compensation income recognized by participants under
the 1998 Plan who are employees or otherwise subject to withholding in
connection with a restricted stock Award or the exercise of a nonstatutory
stock option.
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<PAGE>
OTHER MATTERS
Matters to be Considered at the Meeting
The Board of Directors knows of no other business which will be presented
for consideration at the Meeting other than that described above. However, if
any other business should come before the Meeting, it is the intention of the
persons named in the enclosed Proxy to vote, or otherwise act, in accordance
with their best judgment on such matters.
Solicitation of Proxies
The Corporation will bear the costs of soliciting proxies. In addition to
solicitations by mail, the Corporation's directors, officers and regular
employees may, without additional remuneration, solicit proxies by telephone,
telegraph, facsimile and personal interviews. The Corporation will also request
brokerage houses, custodians, nominees and fiduciaries to forward copies of the
proxy material to those persons for whom they hold shares and request
instructions for voting the proxies. The Corporation will reimburse such
brokerage houses and other persons for their reasonable expenses in connection
with this distribution.
Stockholder Proposals for 1998 Annual Meeting
Any proposal that a stockholder intends to present at the 1998 Annual
Meeting of Stockholders must be submitted to the Secretary of the Corporation
at its offices, 225 High Ridge Road, Stamford, Connecticut 06905, no later than
November 6, 1998 in order to be considered for inclusion in the Proxy Statement
relating to that meeting.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely on its review of copies of reports filed by the Corporation's
directors and executive officers and persons beneficially owning more than 10%
of the Corporation's Common Stock pursuant to Section 16(a) of the Securities
Exchange Act of 1934, as amended, or written representations from certain
Reporting Persons, the Corporation believes that during 1997 all filings
required to be made by its Reporting Persons were timely made. A gift made in
1996 to a trust for the benefit of Mr. L. Bakes's children was not initially
disclosed as beneficially owned by Mr. Bakes; the trust shares have been
properly added to his beneficial ownership for 1997.
By Order of the Board of Directors,
Lewis D. Bakes, Secretary
March 6, 1998
THE BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. YOUR PROMPT RESPONSE
WILL GREATLY FACILITATE ARRANGEMENTS FOR THE MEETING AND YOUR COOPERATION IS
APPRECIATED. STOCKHOLDERS WHO ATTEND THE MEETING MAY VOTE THEIR STOCK
PERSONALLY EVEN THOUGH THEY HAVE SENT IN THEIR PROXIES.
17
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Appendix
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
1998 STOCK INCENTIVE PLAN
1. Purpose
The purpose of this 1998 Stock Incentive Plan (the "Plan") of
International Telecommunication Data Systems, Inc., a Delaware corporation
(the "Company"), is to advance the interests of the Company's stockholders by
enhancing the Company's ability to attract, retain and motivate persons who
make (or are expected to make) important contributions to the Company by
providing such persons with equity ownership opportunities and
performance-based incentives and thereby better aligning the interests of such
persons with those of the Company's stockholders. Except where the context
otherwise requires, the term "Company" shall include any present or future
subsidiary corporations of International Telecommunication Data Systems, Inc.
as defined in Section 424(f) of the Internal Revenue Code of 1986, as amended,
and any regulations promulgated thereunder (the "Code").
2. Eligibility
All of the Company's employees, officers, directors, consultants and
advisors are eligible to be granted options, restricted stock, or other
stock-based awards (each, an "Award") under the Plan. Any person who has been
granted an Award under the Plan shall be deemed a "Participant".
3. Administration, Delegation
(a) Administration by Board of Directors. The Plan will be administered by
the Board of Directors of the Company (the "Board"). The Board shall have
authority to grant Awards and to adopt, amend and repeal such administrative
rules, guidelines and practices relating to the Plan as it shall deem advisable.
The Board may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it shall
deem expedient to carry the Plan into effect and it shall be the sole and final
judge of such expediency. All decisions by the Board shall be made in the
Board's sole discretion and shall be final and binding on all persons having or
claiming any interest in the Plan or in any Award. No director or person acting
pursuant to the authority delegated by the Board shall be liable for any action
or determination relating to or under the Plan made in good faith.
(b) Delegation to Executive Officers. To the extent permitted by applicable
law, the Board may delegate to one or more executive officers of the Company the
power to make Awards and exercise such other powers under the Plan as the Board
<PAGE>
may determine, provided that the Board shall fix the maximum number of shares
subject to Awards and the maximum number of shares for any one Participant to be
made by such executive officers.
(c) Appointment of Committees. To the extent permitted by applicable law,
the Board may delegate any or all of its powers under the Plan to one or more
committees or subcommittees of the Board (a "Committee"). During the periods
when the common stock, $.01 par value per share, of the Company (the "Common
Stock") is registered under the Securities Exchange Act of 1934 (the "Exchange
Act"), the Board may appoint one such Committee of not less than two members,
each member of which shall be an "outside director" within the meaning of
Section 162(m) of the Code and a "non-employee director" as defined in Rule
16b-3 promulgated under the Exchange Act." All references in the Plan to the
"Board" shall mean the Board or a Committee of the Board or the executive
officer referred to in Section 3(b) to the extent that the Board's powers or
authority under the Plan have been delegated to such Committee or executive
officer.
4. Stock Available for Awards
(a) Number of Shares. Subject to adjustment under Section 4(c), Awards may
be made under the Plan for up to 1,125,000 shares of Common Stock provided that
Awards for no more than 100,000 shares of Common Stock (other than options
granted with an exercise price equal to 100% of fair market value) may be issued
in any one calendar year. If any Award expires or is terminated, surrendered or
canceled without having been fully exercised or is forfeited in whole or in part
or results in any Common Stock not being issued, the unused Common Stock covered
by such Award shall again be available for the grant of Awards under the Plan,
subject, however, in the case of Incentive Stock Options (as hereinafter
defined), to any limitation required under the Code. Shares issued under the
Plan may consist in whole or in part of authorized but unissued shares or
treasury shares.
(b) Per-Participant Limit. Subject to adjustment under Section 4(c), the
maximum number of shares with respect to which an Award may be granted to any
Participant under the Plan shall be 200,000 per calendar year. The
per-participant limit described in this Section 4(b) shall be construed and
applied consistently with Section 162(m) of the Code.
(c) Adjustment to Common Stock. In the event of any stock split, stock
dividend, recapitalization, reorganization, merger, consolidation, combination,
exchange of shares, liquidation, spin-off or other similar change in
capitalization or event, or any distribution to holders of Common Stock other
than a normal cash dividend, (i) the number and class of securities available
under this Plan, (ii) the number and class of security and exercise price per
share subject to each outstanding Option, (iii) the repurchase price per
security subject to each outstanding Restricted
- 2 -
<PAGE>
Stock Award, and (iv) the terms of each other outstanding stock-based Award
shall be appropriately adjusted by the Company (or substituted Awards may be
made, if applicable) to the extent the Board shall determine, in good faith,
that such an adjustment (or substitution) is necessary and appropriate. If this
Section 4(c) applies and Section 8(e)(1) also applies to any event, Section
8(e)(1) shall be applicable to such event, and this Section 4(c) shall not be
applicable.
5. Stock Options
(a) General. The Board may grant options to purchase Common Stock (each, an
"Option") and determine the number of shares of Common Stock to be covered by
each Option, the exercise price of each Option and the conditions and
limitations applicable to the exercise of each Option, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable. An Option which is not intended to be an Incentive Stock
Option (as hereinafter defined) shall be designated a "Nonstatutory Stock
Option".
(b) Incentive Stock Options. An Option that the Board intends to be an
"incentive stock option" as defined in Section 422 of the Code (an "Incentive
Stock Option") shall only be granted to employees of the Company and shall be
subject to and shall be construed consistently with the requirements of Section
422 of the Code. The Company shall have no liability to a Participant, or any
other party, if an Option (or any part thereof) which is intended to be an
Incentive Stock Option is not an Incentive Stock Option.
(c) Exercise Price. The Board shall establish the exercise price at the
time each Option is granted and specify it in the applicable option agreement.
(d) Duration of Options. Each Option shall be exercisable at such times and
subject to such terms and conditions as the Board may specify in the applicable
option agreement. No Option will be granted for a term in excess of 10 years.
(e) Exercise of Option. Options may be exercised only by delivery to the
Company of a written notice of exercise signed by the proper person together
with payment in full as specified in Section 5(f) for the number of shares for
which the Option is exercised.
(f) Payment Upon Exercise. Common Stock purchased upon the exercise of an
Option granted under the Plan shall be paid for as follows:
(1) in cash or by check, payable to the order of the Company;
(2) except as the Board may otherwise provide in an Option Agreement,
by (i) delivery of an irrevocable and unconditional undertaking by a
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<PAGE>
creditworthy broker to deliver promptly to the Company sufficient funds to pay
the exercise price, (ii) delivery by the Participant to the Company of a copy of
irrevocable and unconditional instructions to a creditworthy broker to deliver
promptly to the Company cash or a check sufficient to pay the exercise price, or
(iii) delivery of shares of Common Stock owned by the Participant valued at
their fair market value as determined by the Board in good faith ("Fair Market
Value"), which Common Stock was owned by the Participant at least six months
prior to such delivery;
(3) to the extent permitted by the Board and explicitly provided in an
Option Agreement (i) by delivery of a promissory note of the Participant to the
Company on terms determined by the Board, or (ii) by payment of such other
lawful consideration as the Board may determine; or
(4) any combination of the above permitted forms of payment.
6. Restricted Stock
(a) Grants. The Board may grant Awards entitling recipients to acquire
shares of Common Stock, subject to the right of the Company to repurchase all or
part of such shares at their issue price or other stated or formula price (or to
require forfeiture of such shares if issued at no cost) from the recipient in
the event that conditions specified by the Board in the applicable Award are not
satisfied prior to the end of the applicable restriction period or periods
established by the Board for such Award (each, "Restricted Stock Award").
(b) Terms and Conditions. The Board shall determine the terms and
conditions of any such Restricted Stock Award, including the conditions for
repurchase (or forfeiture) and the issue price, if any. Any stock certificates
issued in respect of a Restricted Stock Award shall be registered in the name of
the Participant and, unless otherwise determined by the Board, deposited by the
Participant, together with a stock power endorsed in blank, with the Company (or
its designee). At the expiration of the applicable restriction periods, the
Company (or such designee) shall deliver the certificates no longer subject to
such restrictions to the Participant or if the Participant has died, to the
beneficiary designated, in a manner determined by the Board, by a Participant to
receive amounts due or exercise rights of the Participant in the event of the
Participant's death (the "Designated Beneficiary"). In the absence of an
effective designation by a Participant, Designated Beneficiary shall mean the
Participant's estate.
7. Other Stock-Based Awards
The Board shall have the right to grant other Awards based upon the Common
Stock having such terms and conditions as the Board may determine, including the
grant of shares based upon certain conditions, the grant of securities
convertible into
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<PAGE>
Common Stock and the grant of stock appreciation rights.
8. General Provisions Applicable to Awards
(a) Transferability of Awards. Except as the Board may otherwise determine
or provide in an Award, Awards shall not be sold, assigned, transferred, pledged
or otherwise encumbered by the person to whom they are granted, either
voluntarily or by operation of law, except by will or the laws of descent and
distribution, and, during the life of the Participant, shall be exercisable only
by the Participant. References to a Participant, to the extent relevant in the
context, shall include references to authorized transferees.
(b) Documentation. Each Award under the Plan shall be evidenced by a
written instrument in such form as the Board shall determine. Each Award may
contain terms and conditions in addition to those set forth in the Plan.
(c) Board Discretion. Except as otherwise provided by the Plan, each type
of Award may be made alone or in addition or in relation to any other type of
Award. The terms of each type of Award need not be identical, and the Board need
not treat Participants uniformly.
(d) Termination of Status. The Board shall determine the effect on an Award
of the disability, death, retirement, authorized leave of absence or other
change in the employment or other status of a Participant and the extent to
which, and the period during which, the Participant, the Participant's legal
representative, conservator, guardian or Designated Beneficiary may exercise
rights under the Award.
(e) Acquisition Events
(1) Consequences of Acquisition Events. Upon the occurrence of an
Acquisition Event (as defined below), or the execution by the Company of any
agreement with respect to an Acquisition Event, the Board shall take any one or
more of the following actions with respect to then outstanding Awards: (i)
provide that outstanding Options shall be assumed, or equivalent Options shall
be substituted, by the acquiring or succeeding corporation (or an affiliate
thereof), provided that any such Options substituted for Incentive Stock Options
shall satisfy, in the determination of the Board, the requirements of Section
424(a) of the Code; (ii) upon written notice to the Participants, provide that
all then unexercised Options will become exercisable in full as of a specified
time (the "Acceleration Time") prior to the Acquisition Event and will terminate
immediately prior to the consummation of such Acquisition Event, except to the
extent exercised by the Participants between the Acceleration Time and the
consummation of such Acquisition Event; (iii) in the event of an Acquisition
Event under the terms of which holders of Common Stock will
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<PAGE>
receive upon consummation thereof a cash payment for each share of Common Stock
surrendered pursuant to such Acquisition Event (the "Acquisition Price"),
provide that all outstanding Options shall terminate upon consummation of such
Acquisition Event and each Participant shall receive, in exchange therefor, a
cash payment equal to the amount (if any) by which (A) the Acquisition Price
multiplied by the number of shares of Common Stock subject to such outstanding
Options (whether or not then exercisable), exceeds (B) the aggregate exercise
price of such Options; (iv) provide that all Restricted Stock Awards then
outstanding shall become free of all restrictions prior to the consummation of
the Acquisition Event; and (v) provide that any other stock-based Awards
outstanding (A) shall become exercisable, realizable or vested in full, or shall
be free of all conditions or restrictions, as applicable to each such Award,
prior to the consummation of the Acquisition Event, or (B), if applicable, shall
be assumed, or equivalent Awards shall be substituted, by the acquiring or
succeeding corporation (or an affiliate thereof).
An "Acquisition Event" shall mean: (a) any merger or consolidation which
results in the voting securities of the Company outstanding immediately prior
thereto representing immediately thereafter (either by remaining outstanding or
by being converted into voting securities of the surviving or acquiring entity)
less than 50% of the combined voting power of the voting securities of the
Company or such surviving or acquiring entity outstanding immediately after such
merger or consolidation; (b) any sale of all or substantially all of the assets
of the Company; or (c) the complete liquidation of the Company.
(2) Assumption of Options Upon Certain Events. The Board may grant
Awards under the Plan in substitution for stock and stock-based awards held by
employees of another corporation who become employees of the Company as a result
of a merger or consolidation of the employing corporation with the Company or
the acquisition by the Company of property or stock of the employing
corporation. The substitute Awards shall be granted on such terms and conditions
as the Board considers appropriate in the circumstances.
(f) Withholding. Each Participant shall pay to the Company, or make
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in connection with Awards to such Participant no later than the date
of the event creating the tax liability. The Board may allow Participants to
satisfy such tax obligations in whole or in part in shares of Common Stock,
including shares retained from the Award creating the tax obligation, valued at
their Fair Market Value. The Company may, to the extent permitted by law, deduct
any such tax obligations from any payment of any kind otherwise due to a
Participant.
(g) Amendment of Award. The Board may amend, modify or terminate any
outstanding Award, including but not limited to, substituting therefor another
Award of the same or a different type, changing the date of exercise or
realization,
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<PAGE>
and converting an Incentive Stock Option to a Nonstatutory Stock Option,
provided that the Participant's consent to such action shall be required unless
the Board determines that the action, taking into account any related action,
would not materially and adversely affect the Participant.
(h) Conditions on Delivery of Stock. The Company will not be obligated to
deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan until (i) all
conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or
stock market rules and regulations, and (iii) the Participant has executed and
delivered to the Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any applicable laws, rules
or regulations.
(i) Acceleration. The Board may at any time provide that any Options shall
become immediately exercisable in full or in part, that any Restricted Stock
Awards shall be free of all restrictions or that any other stock-based Awards
may become exercisable in full or in part or free of some or all restrictions or
conditions, or otherwise realizable in full or in part, as the case may be.
9. Miscellaneous
(a) No Right To Employment or Other Status. No person shall have any claim
or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
time to dismiss or otherwise terminate its relationship with a Participant free
from any liability or claim under the Plan, except as expressly provided in the
applicable Award.
(b) No Rights As Stockholder. Subject to the provisions of the applicable
Award, no Participant or Designated Beneficiary shall have any rights as a
stockholder with respect to any shares of Common Stock to be distributed with
respect to an Award until becoming the record holder of such shares.
(c) Effective Date and Term of Plan. The Plan shall become effective on the
date on which it is adopted by the Board, but no Award granted to a Participant
designated as subject to Section 162(m) by the Board shall become exercisable,
vested or realizable, as applicable to such Award, unless and until the Plan has
been approved by the Company's stockholders. No Awards shall be granted under
the Plan after the completion of ten years from the earlier of (i) the date on
which the Plan was adopted by the Board or (ii) the date the Plan was approved
by the
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<PAGE>
Company's stockholders, but Awards previously granted may extend beyond that
date.
(d) Amendment of Plan. The Board may amend, suspend or terminate the Plan
or any portion thereof at any time, provided that no Award granted to a
Participant designated as subject to Section 162(m) by the Board after the date
of such amendment shall become exercisable, realizable or vested, as applicable
to such Award (to the extent that such amendment to the Plan was required to
grant such Award to a particular Participant), unless and until such amendment
shall have been approved by the Company's stockholders.
(e) Stockholder Approval. For purposes of this Plan, stockholder approval
shall mean approval by a vote of the stockholders in accordance with the
requirements of Section 162(m) of the Code.
(f) Governing Law. The provisions of the Plan and all Awards made hereunder
shall be governed by and interpreted in accordance with the laws of the State of
Delaware, without regard to any applicable conflicts of law.
<PAGE>
PROXY PROXY
INTERNATIONAL TELECOMMUNICATION DATA SYSTEMS, INC.
ANNUAL MEETING OF STOCKHOLDERS--April 13, 1998
The undersigned, having received notice of the meeting and management's
Proxy Statement therefor, and revoking all prior proxies, hereby appoint(s)
Peter P. Bassermann, Stuart L. Bell and John H. Chory, Esq., and each of them
(with full power of substitution), as proxies of the undersigned to attend the
Annual Meeting of Stockholders of International Telecommunication Data Systems,
Inc. (the "Company") to be held on Monday, April 13, 1998, and any adjourned
sessions thereof, and there to vote and act upon the following matters in
respect of all shares of Common Stock of the Company which the undersigned
would be entitled to vote or act upon, with all powers the undersigned would
possess if personally present.
Attendance of the undersigned at the meeting or at any adjourned session
thereof will not be deemed to revoke this proxy unless the undersigned shall
affirmatively indicate thereat the intention of the undersigned to vote said
shares in person. If the undersigned hold(s) any of the shares of the Company
in a fiduciary, custodial or joint capacity or capacities, this proxy is signed
by the undersigned in every such capacity as well as individually.
In their discretion, the named Proxies are authorized to vote upon such
other matters as may properly come before the meeting, or any adjournment
thereof.
PLEASE SIGN AND DATE THIS PROXY ON THE REVERSE SIDE
<PAGE>
A [X] Please mark your votes as in this example.
WITHHOLD
FOR AUTHORITY Nominees: Lewis D. Bakes
[ ] [ ] Peter P. Bassermann
1. To elect
Class II
Directors:
(INSTRUCTION: To withhold authority for any individual nominee, write the
nominee's name in the space provided below.)
- ----------------------------------------
<TABLE>
<S> <C> <C> <C>
FOR AGAINST ABSTAIN
2. To approve the Corporation's 1998 Stock Incentive Plan. [ ] [ ] [ ]
FOR AGAINST ABSTAIN
3. To ratify the selection of Ernst & Young LLP as the Company's [ ] [ ] [ ]
independent auditors for the current fiscal year.
</TABLE>
The shares represented by this proxy will be voted as directed by the
undersigned. If no direction is given with respect to any election to office or
proposal specified above, this proxy will be voted for such election to office
or proposal.
This proxy is solicited on behalf of the Board of Directors of the
Company.
Signature(s): ______________ Signature(s): ____________ Dated: _______________
NOTE: Please sign name(s) exactly as appearing hereon. When signing as
attorney, executor, administrator or other fiduciary, please give your
full title as such. Joint owners should each sign personally. If a
corporation, sign in full corporate name, by authorized officer. If a
partnership, please sign in partnership name, by authorized person.
