Form of Letter to Stockholders
[EXECUTIVE TELECARD, LTD. LETTERHEAD]
February [ ], 1997
To Our Stockholders:
The Company has recently declared a dividend distribution of
Preference Share Purchase Rights (the "Rights"), thereby creating a Stockholder
Rights Plan (the "Plan"). This letter describes the Plan and the reasons of the
Company's Board of Directors (the "Board") for adopting it.
The Rights contain provisions to protect stockholders in the event
of an unsolicited attempt to acquire the Company, including a gradual
accumulation of shares in the open market, a partial or two-tier tender offer
that does not treat all stockholders equally, a squeeze-out merger and other
abusive takeover tactics which the Board believes are not in the best interests
of stockholders. These tactics unfairly pressure stockholders, squeeze them out
of their investment without giving them any real choice and deprive them of the
full value of their shares.
Over 1,700 companies, including approximately half of the Business
Week 1000 companies and Fortune 500 companies, have issued rights to protect
their stockholders against these tactics. We consider the Plan to be the best
available means of protecting both your right to retain your equity investment
in Executive TeleCard, Ltd. and the full value of that investment, while not
foreclosing a fair acquisition bid for the Company.
The Rights are not intended to prevent a takeover of the Company and
will not do so. However, they should deter any attempt to acquire the Company in
a manner or on terms not approved by the Board. The Rights are designed to deal
with the very serious problem of another person or company using abusive tactics
to deprive the Company's Board and its stockholders of any real opportunity to
determine the destiny of the Company.
The Rights may be redeemed by the Board for one cent per Right prior
to the accumulation, through open-market purchases, a tender offer or otherwise,
of 15% or more of the Company's shares by a single acquiror or group. Because of
the redemption feature, the Rights should not interfere with any merger or
business combination approved by the Board prior to that time.
The Board believes that the issuance of the Rights does not in any
way weaken the financial strength of the Company or interfere with its business
plans. The issuance of the Rights has
no dilutive effect, will not affect reported earnings per share, is not taxable
to the Company or to you, and will not change the way in which you can presently
trade the Company's shares. As explained in detail below, the Rights will only
be exercisable if and when the problem arises which they were created to deal
with. They will then operate to protect you against being deprived of your right
to share in the full measure of your Company's long-term potential.
The Board was aware when it acted that some people have advanced
arguments that securities of the sort we are issuing deter legitimate
acquisition proposals. We carefully considered these views and concluded that
the arguments are speculative and do not justify leaving stockholders without
any protection against unfair treatment by an acquiror, who, after all, is
seeking his own company's advantage, not yours. The Board believes that these
Rights represent a sound and reasonable means of addressing the complex issues
of corporate policy created by the current takeover environment.
The Rights were issued on February 28, 1997 to stockholders of
record on that date and will expire in ten years. Initially, the Rights will not
be exercisable, certificates will not be sent to you, and the Rights will
automatically trade with the common shares. However, ten days after a person or
group acquires 15% or more of the Company's shares, or ten business days (or
such later date as may be determined by the Board prior to a person or group
acquiring 15% or more of the Company's shares) after a person or group announces
an offer the consummation of which would result in such person or group owning
15% or more of the shares (even if no purchases actually occur), the Rights will
become exercisable and separate certificates representing the Rights will be
distributed. We expect that the Rights will begin to trade independently from
the Company's shares at that time. At no time will the Rights have any voting
power.
When the Rights first become exercisable, unless a holder is a
person or group who has acquired 15% or more of the Company's shares, that
holder will be entitled to buy from the Company one one-hundredth of a share of
a new series of participating preference stock for $70.00. If the Company is
involved in a merger or other business combination with a person or group or
affiliate at any time after that person or group has acquired 15% or more of the
Company's shares, the Rights will entitle a holder to buy a number of shares of
common stock of the acquiring company having a market value of twice the
exercise price of each Right. For example, if at the time of the business
combination the acquiring company's stock has a per share value of $60, the
holder of each Right would be entitled to receive 4 shares of the acquiring
company's common stock for $120, i.e., at a 50% discount.
-2-
If any person or group acquires 15% or more of the Company's
outstanding common stock, the "flip-in" provision of the Rights will be
triggered and the Rights will entitle a holder (other than such person or any
member of such group) to buy a number of additional shares of common stock of
the Company having a market value of twice the exercise price of each Right.
Thus, if at the time of the 15% acquisition the Company's stock were to have a
market value per share equal to $10, the holder of each Right (other than such
person or any member of such group) would be entitled to receive 4 shares of the
Company's common stock for $20.
Following the acquisition by any person or group of 15% or more of
the Company's common stock, but only prior to the acquisition by a person or
group of a 50% stake, the Board will also have the ability to exchange the
Rights (other than Rights held by such person or group), in whole or in part,
for one share of common stock (or one one-hundredth of a share of the new series
of participating preference stock) per Right. This provision will have an
economically dilutive effect on the acquiror, and provide a corresponding
benefit to the remaining rightsholders, that is comparable to the flip-in
without requiring rightsholders to go through the process and expense of
exercising their Rights.
While, as noted above, the distribution of the Rights will not be
taxable to you or the Company, stockholders may recognize taxable income upon
the occurrence of certain subsequent events.
In addition to authorizing the purchase rights, your Board today
authorized the new series of participating preference stock purchasable upon
exercise of the Rights. The shares of the new series of participating preference
stock will be nonredeemable. Each preference share will be entitled to an
aggregate dividend equal to the greater of $1 per share or 100 times the
dividend declared on the common shares. In the event of liquidation, the holders
of the preference shares will be entitled to receive an aggregate liquidation
payment equal to the greater of $100 or 100 times the payment made per share of
common stock. Each preference share will have 100 votes, voting together with
the common shares. Finally, in the event of any merger, consolidation or other
transaction in which common shares are exchanged, each preference share will be
entitled to receive 100 times the amount of consideration received per common
share. These rights are protected by customary anti-dilution provisions. In the
event of issuance of preference shares upon exercise of the Rights, in order to
facilitate trading a depositary receipt may be issued for each one one-hundredth
of a preference share. The dividend, liquidation and voting rights, and the
nonredemption feature, of the preference shares are designed so that the value
of the one-hundredth interest in a preference share purchasable with each right
will approximate the value of one share of common stock.
-3-
In declaring the Rights dividend, we have expressed our confidence
in the future of the Company and our determination that you, our stockholders,
be given every opportunity to participate fully in that future.
On behalf of the Board of Directors,
By_________________________________
-4-