<PAGE>
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
_x_ Definitive proxy statement
___ Definitive additional materials
___ Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
Executone Information Systems, Inc.
(Name of Registrant as Specified in its Charter)
Executone Information Systems, Inc.
(Name of Person(s) Filing the Proxy Statement)
Payment of filing fee (check the appropriate box):
_x_ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1) or
14a-6(j)(2).
___ $500 per each party to the controversy pursuant to Exchange
Act Rule 14a-6(i)(3).
___ Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
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:*
- - -------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- - -------------------------------------------------------------------
* Set forth the amount on which the filing fee is calculated and
state how it was determined.
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[Logo]
EXECUTONE INFORMATION SYSTEMS, INC.
6 THORNDAL CIRCLE
DARIEN, CONNECTICUT 06820
---------------------------
PROXY STATEMENT
---------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
JUNE 23, 1994
To the Shareholders of
EXECUTONE INFORMATION SYSTEMS, INC.:
Notice is hereby given that the Annual Meeting of Shareholders of EXECUTONE
Information Systems, Inc. (the 'Company') will be held at the Ramada Plaza, 700
Main Street, Stamford, Connecticut 06901 on June 23, 1994, at 3:00 P.M., for the
following purposes:
(1) To elect six directors of the Company for the coming year;
(2) To approve the amendment of the Company's 1984 Employee Stock
Purchase Plan to extend the Plan and allocate additional shares for
purchase thereunder;
(3) To approve the amendment of 1990 Directors' Stock Option Plan to
modify the vesting schedule of initial option grants thereunder;
(4) To approve the adoption of the 1994 Executive Stock Incentive
Plan; and
(5) To transact such other business as may properly come before the
meeting and any continuation or adjournment thereof.
Only shareholders of record at the close of business on April 25, 1994 are
entitled to notice of and to vote at the meeting or any continuation or
adjournment thereof.
BARBARA C. ANDERSON
Vice President, General Counsel
and Secretary
Darien, Connecticut
April 29, 1994
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY, WHICH IS SOLICITED BY THE BOARD OF DIRECTORS OF THE
COMPANY, AND RETURN IT IN THE SELF-ADDRESSED ENVELOPE PROVIDED FOR THIS PURPOSE.
THE PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS EXERCISED, BY WRITTEN NOTICE
TO SUCH EFFECT RECEIVED BY THE COMPANY, BY SUBMITTING A SUBSEQUENTLY DATED PROXY
OR BY ATTENDING THE MEETING AND VOTING IN PERSON.
<PAGE>
[Logo]
EXECUTONE INFORMATION SYSTEMS, INC.
6 THORNDAL CIRCLE
DARIEN, CONNECTICUT 06820
---------------------------
PROXY STATEMENT
---------------------------
The Board of Directors of EXECUTONE Information Systems, Inc., a Virginia
corporation (the 'Company' or 'EXECUTONE'), is furnishing this Proxy Statement
to all shareholders of record and solicits their proxies for the Annual Meeting
of Shareholders to be held on June 23, 1994. This Proxy Statement and the
enclosed form of proxy are being mailed to shareholders commencing on or about
April 29, 1994.
All proxies duly executed and received will be voted on all matters
presented at the meeting in accordance with the instructions contained in such
proxies. In the absence of specific instructions, proxies received will be voted
in favor of the election of the named nominees to the Company's Board of
Directors and in favor of the proposals to amend the 1984 Employee Stock
Purchase Plan, to amend the 1990 Directors' Stock Option Plan and to adopt the
1994 Executive Stock Incentive Plan. Management does not know of any other
matters that will be brought before the meeting. In the event that any other
matter should come before the meeting or any nominee is not available for
election, the persons designated in the enclosed proxy will have discretionary
authority to vote all proxies not marked to the contrary with respect to such
matters in accordance with their best judgment. Proxies may be revoked at any
time prior to the exercise thereof by written notice to such effect addressed to
and received by the Company at its corporate offices at the address given above,
Attention: Corporate Secretary, by delivery of a subsequently dated proxy or by
a vote cast in person at the meeting.
The total number of shares of Common Stock of the Company, $.01 par value
per share (the 'Common Stock'), outstanding as of April 25, 1994, the record
date for the meeting, was 43,890,842 shares. The Common Stock is the only class
of securities of the Company entitled to vote at the meeting, and each
outstanding share has one vote. A majority of the shares of Common Stock
outstanding and entitled to vote as of April 25, 1994, or 21,945,422 shares,
must be present at the meeting in person or by proxy in order to constitute a
quorum for the transaction of business. Only holders of record of Common Stock
as of the close of business on April 25, 1994 will be entitled to vote.
A list of shareholders entitled to vote at the meeting will be available
for examination by any shareholder at the Company's offices, 6 Thorndal Circle,
Darien, Connecticut 06820, for a period of ten days prior to the meeting and
also will be available at the meeting.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Each director to be elected at the meeting will serve for a term of one
year or until his successor shall be elected and qualified. Under the Company's
Articles of Incorporation (the 'Articles'), the Board of Directors has the
authority to amend the Bylaws to increase or decrease the number of directors so
long as the number is not increased or decreased by more than 30 percent of the
number of directors last elected by the shareholders. The Articles prohibit the
Board of Directors, in exercising that right, from reducing any incumbent's term
or reducing quorum and voting requirements for the incumbent directors.
The Bylaws give the Board of Directors the flexibility to increase the size
of the Board and appoint new directors should suitable candidates come to its
attention before the next annual meeting of shareholders. Consequently, the
Board of Directors has the ability to respond to changing requirements and to
take timely advantage of the availability of especially well-qualified
candidates. Any such
<PAGE>
appointees to the Board of Directors cannot serve past the next annual meeting
without shareholder approval.
The following persons have been nominated by the Board of Directors as
candidates for election as directors, and proxies not marked to the contrary
will be voted in favor of their election. Certain information regarding each
nominee and each director continuing in office is set forth below, including
each individual's principal occupation and business experience during at least
the last five years, and the year in which the individual was elected a director
of the Company or one of its predecessor companies.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION SINCE
- - -------------------------------- --- --------------------------------------------------------------- --------
<S> <C> <C> <C>
Alan Kessman.................... 47 President, Chief Executive Officer and Chairman of the Board of 1983
the Company since 1988; formerly President, Chief Executive
Officer and Chairman of the Board of ISOETEC Communications,
Inc. ('ISOETEC'), one of the Company's predecessor
corporations, since 1983. From 1981 to 1983, Mr. Kessman
served as a Corporate Vice President of Rolm Corporation.
Stanley M. Blau................. 56 Vice Chairman of the Company since 1988; formerly President and 1983
Chief Executive Officer of Vodavi Technology Corporation
('Vodavi'), one of the Company's predecessor corporations,
from 1987 until July 1988. Prior to June 1987, Mr. Blau was
the President and Chairman of the Board of Consolidated
Communications, Inc., a supplier of used and refurbished
telecommunications equipment.
Thurston R. Moore............... 47 Partner, Hunton & Williams (Attorneys), Richmond, Virginia, 1990
since 1981. Mr. Moore also serves as a director of Sealey
Optical Laboratory, Inc., an optical lens business, and The
Metropolitan Foundation and as a trustee of the Mary Morton
Parsons Foundation and the Virginia Space Business
Roundtable.
Richard S. Rosenbloom........... 61 David Sarnoff Professor of Business Administration, Harvard 1992
Business School, since 1980. Prior thereto, Associate Dean
for Research and Course Development, Harvard Business School.
Mr. Rosenbloom is a director of Lex Service PLC and Arrow
Electronics, Inc.
William J. Spencer.............. 63 President and Chief Executive Officer of Sematech, Inc. in 1989
Austin, Texas, since 1990. From 1981 to 1991, Group Vice
President for Office Systems of Xerox Corporation. Mr.
Spencer is a director of Adobe Systems.
William R. Smart................ 73 Senior Vice President of Cambridge Strategic Management Group 1992
in Cambridge, Massachusetts since 1984. From 1984 to 1992,
Chairman of the Board, Electronic Associates, Inc. Mr. Smart
is a director of American International Petroleum Company.
</TABLE>
The election of each nominee for director requires the affirmative vote of
the holders of a plurality of the shares of Common Stock voted in the election
of directors. Votes that are withheld and shares held in 'street name', or
'broker shares', that are not voted in the election of directors will not be
included in determining the number of votes cast.
2
<PAGE>
DIRECTOR COMPENSATION
Each non-employee director receives an annual retainer of $10,000, payable
in equal quarterly installments. In addition, each non-employee director is
granted annually an option to purchase 3,000 shares of the Company's Common
Stock under the terms and conditions of the Company's 1990 Directors' Stock
Option Plan approved by the shareholders on June 20, 1990. See 'Proposal 3:
AMENDMENT OF 1990 DIRECTORS' STOCK OPTION PLAN.' During 1993, each director was
granted options for 3,000 shares at a per share exercise price of $2.00, the
closing market price on the date of grant. The Company also reimburses directors
for their travel and accommodation expenses incurred in attending Board
meetings.
On June 30, 1989, William J. Spencer was granted warrants to purchase
25,000 shares of the Company's Common Stock at $3.00 per share, the closing
market price on that date. The warrants vested ratably over a three-year period
and expire on June 30, 1994. Mr. Spencer received these warrants upon being
elected to serve on the Company's Board of Directors.
On June 23, 1992 and September 24, 1992, Richard S. Rosenbloom and William
R. Smart, respectively, were each granted warrants to purchase 25,000 shares of
the Company's Common Stock at $1.25 and $1.16, respectively, the closing market
prices on those dates. The warrants vest ratably over a three-year period and
expire on June 23, 1997 and September 24, 1997, respectively. Messrs. Rosenbloom
and Smart received these warrants upon being elected to serve on the Company's
Board of Directors.
BOARD AND COMMITTEE ACTIVITIES
During 1993, the Board of Directors met on four occasions. All directors
attended more than 75 percent of the total number of meetings of the Board and
of all committees of which they were members during 1993. The Board has two
standing committees, an Audit Committee and a Compensation Committee.
The function of the Audit Committee is to recommend the selection of
auditors and to review the plan for the audit, the audit report and the adequacy
of internal controls. The Audit Committee met on one occasion during 1993. The
members of the Audit Committee are Messrs. Rosenbloom and Spencer.
The Compensation Committee recommends to the full Board of Directors the
compensation arrangements, stock option grants and other benefits for executive
management of the Company as well as the incentive plans to be adopted by the
Company. The Compensation Committee met five times during 1993. The members of
the Compensation Committee are Messrs. Moore, Rosenbloom, Smart and Spencer.
PROPOSAL NO. 2
AMENDMENT OF 1984 EMPLOYEE STOCK PURCHASE PLAN
DESCRIPTION OF PROPOSED AMENDMENTS
The Board of Directors of the Company, on the recommendation of the
Compensation Committee, has unanimously approved an amendment to the Company's
1984 Employee Stock Purchase Plan (the 'Purchase Plan') to increase the
aggregate number of shares issuable pursuant to such plan from 1,750,000 shares
to an aggregate of 2,750,000 shares. An increase in the number of authorized
shares is needed to enable the Company to continue to offer the Purchase Plan to
employees. As of January 1, 1994, all of the 1,750,000 shares currently
authorized for issuance under the Purchase Plan had been purchased by the
Company's employees during the ten years the Plan has been in effect. An
additional 53,708 shares were subscribed for during the offering period ended
December 31, 1993 but are not available for issuance unless and until they are
authorized by the shareholders. It is anticipated that the increase of 1,000,000
shares will provide sufficient shares to continue the Purchase Plan for an
additional five years based on current employee subscription levels.
3
<PAGE>
Since the Purchase Plan would otherwise terminate in 1994, the Board of
Directors also has unanimously approved the amendment of the Purchase Plan to
extend the termination date by five years to December 31, 1999.
The purpose of the Purchase Plan is to advance the interests of EXECUTONE
by enabling employees to acquire an equity interest in the Company. The Purchase
Plan is intended to qualify as an employee stock purchase plan under Section 423
of the Internal Revenue Code (the 'Code'), as amended. Since 1991, the Purchase
Plan has limited the number of shares each employee may purchase to 1,000 during
each six-month offering period, and prohibited resale of shares acquired under
the Purchase Plan for one year following purchase. The Board believes these
provisions further the intent of the Plan to encourage employee stock ownership.
SUMMARY OF THE PURCHASE PLAN
Administration. The Purchase Plan is administered by a committee (the
'Committee') consisting of at least three persons chosen by the Board of
Directors who are 'disinterested' persons as defined in Rule 16b-3 under the
Securities Exchange Act of 1934. The Committee interprets the Purchase Plan and
prescribes rules, regulations and forms relating to the Plan's administration.
The Compensation Committee of the Board is currently the Committee for the
Purchase Plan.
Shares Subject to the Plan. After giving effect to the proposed amendment,
a total of 2,750,000 shares of Common Stock, par value $.01 per share, will be
reserved for issuance under the Purchase Plan, including a total of 1,803,708
already issued or which employees have subscribed for as of December 31, 1993.
After giving effect to the amendment, and the issuance of shares subscribed for
through December 31, 1993, an aggregate of approximately 950,000 shares will be
available under the Purchase Plan for purchase by employees in future offerings.
The Purchase Plan provides for appropriate adjustment in the event of stock
dividends, stock splits, recapitalizations and other changes in capital
structure.
Purchase Terms. The Purchase Plan is implemented by a series of semi-annual
offerings commencing each January 1 and July 1. Participants in the Purchase
Plan may purchase up to a maximum of 1,000 shares of Common Stock each offering
period through payroll deductions of up to a maximum of 10% of gross salary. At
the end of each six-month offering period, the amount so withheld is used to
purchase shares of Common Stock on behalf of the participant. The price per
share is 85% of the lower of the fair market value of a share of Common Stock at
the beginning or at the end of such offering period.
Eligibility. All full-time employees (including officers) of EXECUTONE are
eligible to participate in the Purchase Plan. Employees who, as a result of
purchases under the Purchase Plan, would own (taking into account any other
options) 5% or more of EXECUTONE's outstanding stock, however, are not eligible
to participate in the Purchase Plan. The maximum amount of stock that may be
purchased by any participating employee in any year may not exceed a fair market
value of $25,000 (determined when the option is granted), or 2,000 shares,
whichever is less.
Termination of Employment. If the employment of a participant in the
Purchase Plan is terminated voluntarily by the employee or if such termination
is for cause or by reason of death, all options with respect to the then
applicable six-month offering period will expire immediately, and the total
amount withheld from such employee during such offering period will be repaid to
the employee. If such employment terminates other than by reason of death,
voluntarily or for cause, options then outstanding with respect to the then
applicable six-month offering period may be exercised at the end of the offering
period.
Amendment and Termination. The Board of Directors may at any time terminate
the Purchase Plan, or from time to time make such modifications or amendments to
the Purchase Plan as it may deem advisable. However, the Board of Directors may
not, without approval by the affirmative vote of the holders of a majority of
the outstanding shares of Common Stock present or represented at a meeting and
entitled to vote, increase the aggregate number of shares which may be sold
thereunder, or change the corporations or class of corporations whose employees
are eligible to receive options under
4
<PAGE>
the Purchase Plan, or make any other change that would prevent an option from
qualifying as an option granted under an 'employee stock purchase plan' as
defined in the Code as in effect at the time.
VOTE REQUIRED
Adoption of the proposed amendments to the Purchase Plan requires the
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock present or represented by properly executed and delivered proxies
at the meeting. Abstentions and broker shares voted as to any matter at the
meeting will be included in determining the number of votes present or
represented at the meeting, and therefore an abstention or a broker share
non-vote on Proposal No. 2 will have the same effect as a negative vote. Broker
shares that are not voted on any matter at the meeting will not be included in
determining the number of shares present or represented at the meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE 'FOR' PROPOSAL NO. 2.
PROPOSAL NO. 3
AMENDMENT OF 1990 DIRECTORS' STOCK OPTION PLAN
DESCRIPTION OF PROPOSED AMENDMENT
The Board of Directors of the Company, on the recommendation of the
Compensation Committee, has unanimously approved an amendment to the Company's
1990 Directors' Stock Option Plan (the 'Directors' Plan') to modify the vesting
schedule for certain options granted and to be granted thereunder.
The Directors' Plan currently provides that the initial grants of options
to directors thereunder, upon the adoption of the Directors' Plan in 1990 or
upon the first election of a director to the Board of Directors, shall vest and
become exercisable in installments of 20% of the shares covered thereby each
year, commencing one year from the date of grant. Since each option granted
under the Directors' Plan expires five years from the date of grant, initial
options granted under this provision expire on the same date that the last 20%
installment vests and becomes exercisable. Options granted under the employee
option plans of the Company generally vest in 25% installments per year
commencing one year from the date of grant, so that there is a one-year exercise
period for the final 25% of the shares before the option expires at five years.
For these reasons, the Board of Directors has approved and recommends to
the shareholders for approval an amendment to the Directors' Plan to provide
that initial option grants under the Directors' Plan will vest and become
exercisable in installments of 25% of the shares covered by the option each
year, commencing one year from the date of grant. If the amendment is approved
by the shareholders, the Company would amend the four currently outstanding
initial options held by the outside directors, Messrs. Moore, Rosenbloom, Smart
and Spencer, to change the vesting schedule of such options to conform to the
amended Directors' Plan. This will mean that Messrs. Moore and Spencer would be
fully vested, as of June 20, 1994, in the initial 3,000-share options granted to
them in 1990, and Messrs. Rosenbloom and Smart will become 50% vested in 1994 in
their initial 3,000-share options granted in 1992.
SUMMARY OF THE DIRECTORS' PLAN
The Directors' Plan was adopted and approved by the shareholders of the
Company at the 1990 Annual Meeting of Shareholders. Under the Directors' Plan,
100,000 shares of Common Stock have been reserved for issuance under options
granted to non-employee directors of the Company. The purposes of the Directors'
Plan are to provide outside directors of the Company with non-cash compensation
in order to attract the best available individuals for service as directors, to
encourage their continued service on the Board and to encourage stock ownership
by the directors. All grants under the Directors' Plan are automatic and
non-discretionary and must contain the vesting provisions provided in the Plan.
The Directors' Plan is administered by the Board of Directors, and all questions
of interpretation or application of the Directors' Plan are determined by the
Board.
5
<PAGE>
Participation in the Plan. Options under the Directors' Plan may be granted
only to non-employee directors. The Directors' Plan provides for grants of
options to be made in two ways:
(a) Each non-employee director is automatically granted an option to
purchase 3,000 shares upon the date on which such individual first becomes
a director, whether through election by the shareholders of the Company or
by appointment by the Board of Directors; and
(b) Each non-employee director receives, upon reelection each year, an
automatic grant of an option to purchase 3,000 shares.
Terms of Options. Each option granted under the Directors' Plan is
evidenced by a written stock option agreement and is subject to the terms and
conditions listed below. The option agreement may contain such other terms,
provisions and conditions not inconsistent with the Directors' Plan as may be
determined by the Board.
(a) Exercise of the Option. The 3,000-share option granted to non-employee
directors upon their reelection each year is exercisable immediately. The
initial 3,000-share option granted to the directors in office upon adoption of
the Directors' Plan and to new non-employee directors upon their initial
election to the Board is exercisable in five 20% installments commencing one
year from the date of grant. See 'Description of Proposed Amendment' above.
Options granted under the Directors' Plan expire five years following the date
of the grant. An option is exercised by tendering payment of the purchase price,
in cash, by check or, in certain cases, by surrendering other shares of the
Company's Common Stock having a fair market value equal to the exercise price.
(b) Exercise Price. The per share exercise price for shares to be issued
pursuant to exercise of an option under the Directors' Plan is 100% of the fair
market value per share of the Company's Common Stock on the date of grant of the
option.
(c) Termination of Employment. If an optionee ceases to serve as a
director, for any reason other than death, he may, but only within seven months
after the date he ceases to be a director of the Company, exercise his option to
the extent that he was entitled to exercise it at the date of such termination.
To the extent that he was not entitled to exercise the option at the date of
such termination, or if he does not exercise such option within the time
specified, the option terminates. In the event of the death of a director during
the term of his service as such, any option held by the director may be
exercised within seven months following the date of death by the director's
estate or a person who acquired the right to exercise the option by bequest or
inheritance, but only to the extent the right to exercise had accrued at the
date of death.
(d) Liquidation or Acquisition. In the event of a proposed liquidation or
dissolution of the Company, options under the Directors' Plan shall terminate
unless otherwise provided by the Board. In such event, the Board, in its sole
discretion, may determine to make options immediately exercisable as to all
shares. In the event of a proposed sale of all or substantially all of the
assets of the Company, or the merger of the Company with or into another
corporation, options shall be assumed or equivalent options shall be substituted
by such successor corporation or its affiliate. If such successor corporation
refuses to assume the option or to substitute an equivalent option, the Board
shall provide for the optionee to have the right to exercise the option as to
all of the shares subject to the option.
(e) Suspension or Termination of Option. In the event that the President of
the Company or his designee reasonably believes that a participant in the
Directors' Plan has committed an act of serious misconduct, the President may
suspend the optionee's right to exercise any option pending a determination by
the Board. Further, if the Board determines that an optionee has committed such
an act of misconduct, all of the director's outstanding options under the
Directors' Plan may be cancelled. The Board shall act fairly in making any such
determination.
Options Outstanding. As of April 25, 1994, 36,000 options had been granted
under the Directors' Plan.
Capital Changes. In the event of any changes made in the Company's
capitalization which result in an exchange of Common Stock for a greater or
lesser number of shares without receipt of consideration, appropriate adjustment
shall be made in the exercise price and in the number of shares
6
<PAGE>
subject to options outstanding under the Directors' Plan, as well as in the
number of shares reserved for issuance under the Directors' Plan.
Amendment and Termination of the Plan. The Board may at any time amend or
terminate the Directors' Plan without approval of the shareholders; provided,
however, that shareholder approval is required for any amendment to the
Directors' Plan which (i) increases the number of shares which may be issued
under the Directors' Plan (other than pursuant to a stock split, combination,
etc.), (ii) changes the designation of the class of persons eligible to be
granted options or (iii) materially increases the benefits accruing to
participants under the Directors' Plan. Any amendment or termination of the
Directors' Plan is subject to the rights of optionees under outstanding option
agreements. The Directors' Plan terminates by its own terms on June 20, 2000.
Tax Information -- Options. Options granted pursuant to the Directors' Plan
are 'non-statutory options' and will not qualify for any special tax benefits to
the optionees.
An optionee does not recognize any taxable income at the time the option is
granted. Upon exercise of the option, the optionee will generally recognize
ordinary income for federal tax purposes measured by the excess, if any, of the
fair market value of the shares over the exercise price. Because shares held by
directors are subject to restrictions on resale under Section 16(b) of the
Securities Exchange Act of 1934, the date of taxation may be deferred unless the
optionee files an election with the Internal Revenue Service pursuant to Section
83(b) of the Code within thirty days after the date of exercise.
Upon a resale of shares acquired pursuant to an option under the Directors'
Plan, any difference between the sale price and the exercise price, to the
extent not recognized as ordinary income as provided above, will be treated as
capital gain or loss and will qualify for long-term capital gain or loss
treatment if the shares have been held for more than one year.
The Company will be entitled to a tax deduction in the amount and at the
time that the optionee recognizes ordinary income with respect to shares
acquired upon exercise of an option under the Directors' Plan. The Company is
not required to withhold any amount for tax purposes on any such income
recognized by the optionee.
The foregoing summary of the effect of federal income taxation upon the
optionee and the Company with respect to the grant of options under the
Directors' Plan does not purport to be complete, and reference should be made to
the applicable provisions of the Code. In addition, this summary does not
discuss the provisions of the income tax laws of any municipality, state or
foreign country in which the participant may reside.
VOTE REQUIRED
Adoption of the proposed amendment to the Directors' Plan requires the
affirmative vote of the holders of the outstanding shares of Common Stock
present or represented by properly executed and delivered proxies at the
meeting. Abstentions and broker shares voted as to any matter at the meeting
will be included in determining the number of votes present or represented at
the meeting and therefore an abstention or non-vote by broker shares on Proposal
No. 3 will have the same effect as a negative vote. Broker shares that are not
voted on any matter at the meeting will not be included in determining the
number of shares present or represented at the meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE 'FOR' PROPOSAL NO. 3.
7
<PAGE>
PROPOSAL NO. 4
APPROVAL OF 1994 EXECUTIVE STOCK INCENTIVE PLAN
SUMMARY OF THE PROPOSED EXECUTIVE PLAN
The 1994 Executive Stock Incentive Plan (the 'Executive Plan') was approved
by the Compensation Committee and adopted by the Board of Directors of the
Company on April 21, 1994. The Executive Plan is now being submitted to the
Company's shareholders for their approval.
The principal features of the Executive Plan are summarized below. A copy
of the Executive Plan is attached hereto as Exhibit A and the following summary
is qualified in its entirety by reference to the text of the Executive Plan.
Purposes of the Executive Plan. The primary purpose of the Executive Plan
is to encourage a higher level of Common Stock ownership by key executives of
the Company and through such ownership to cause the personal financial interests
of the executives to more closely parallel those of the Company's shareholders
generally. A secondary purpose is to provide the executives with an element of
incentive compensation tied to appreciation in the value of the Company's Common
Stock and thereby to attract and retain the best available executive talent
without undue growth in fixed compensation such as salary.
Administration. The Executive Plan will be administered by a committee of
at least three members of the Board of Directors who are not eligible for
participation in the Executive Plan and are 'disinterested' within the meaning
of Rule 16b-3 under the Securities Exchange Act of 1934, which committee is
currently the Compensation Committee of the Board. The Committee will have full
authority to determine all questions of eligibility and participation levels
under the Executive Plan, to adopt, amend or rescind rules relating to
administration of the Plan, and to interpret the provisions of the plan in its
sole discretion. All decisions of the Committee will be final and binding. The
Committee will have authority to waive provisions of the Executive Plan and
agreements entered into under the Plan, in its discretion, in circumstances it
deems to be in the best interests of the Company and its shareholders.
Common Stock Subject to the Executive Plan. The maximum number of shares of
Common Stock that may be purchased by executives under the Executive Plan is
3,000,000 shares. The Company intends to provide shares for sale under the
Executive Plan solely through repurchases of previously issued Common Stock,
either in open market purchases or private transactions. Therefore, the
Executive Plan will not result in any net increase in the amount of Common Stock
outstanding, but will increase the percentage of ownership by the Company's
management and will restrict trading of the shares owned by management subject
to the Executive Plan for up to five years, as more fully described below.
Shares will be sold by the Company at their fair market value at the time of
sale under the Executive Plan.
Eligibility and Participation. Shares may be sold under the Executive Plan
only to officers and to other key executives. Participants will be selected by
the Committee from the class of eligible employees.
It is currently anticipated that participation will not exceed 75
individuals. The Committee shall also determine the level of participation to be
offered to each participant, based on the level of responsibility of the
executive and on the level of Common Stock ownership deemed by the Committee to
be recommended for an individual in the participant's position.
The primary purpose of the Executive Plan is to increase Common Stock
ownership by senior management. In this regard, the Committee has adopted
guidelines as to recommended stock ownership by senior executives. These
guidelines state that each eligible executive should own, or acquire within the
next five years, Common Stock having a market value equal to an amount from one
to four times his or her annual salary, depending on the executive's position.
The level of benefits to be provided to particular executives under the
Executive Plan has not yet been determined by the Committee.
8
<PAGE>
Terms of Stock Purchases. Participants who are selected by the Committee
will pay the purchase price for the shares, which will be the fair market value
on the date of purchase, by delivery to the Company of a five-year full-recourse
promissory note accruing interest at the same rate as is paid from time to time
by the Company on its bank borrowings. The shares purchased will be pledged to
the Company to secure repayment of the note, and the certificates will be held
by the Company until released pursuant to the terms of the Executive Plan, as
described below. Upon payment of the purchase price, the Participant shall have
all rights of a shareholder of the Company, subject to the restrictions on sale
of the purchased shares contained in the Executive Plan and described below.
If possible, the Company will arrange for a bank or other financial
institution to loan the purchase price for the shares to the executive; in such
event, the Company would guarantee the loans rather than be the direct lender,
and would hold the shares as security for the obligation of the executive.
The participant's promissory note shall be payable five years from the date
of purchase, but must be prepaid if the shares are to be sold as permitted under
certain circumstances under the Plan, as described more fully below. An amount
equal to 15% of the interest accrued on the note will be payable by the
participant each year; the balance of the accrued interest will be added to and
be payable upon payment of the principal of the note or, in the case of a bank
loan, will be advanced by the Company and be repayable by the participant upon
payment of the note. In addition, each participant is required to reduce the
principal of the note by 25% of the amount of any annual bonus payments made to
the participant by the Company while the note is outstanding.
Permitted Sales of Purchased Shares. Generally, the shares purchased under
the Executive Plan may not be sold for five years or until the fair market value
of the Common Stock equals or exceeds the long-term target price of $10.00 per
share for at least twenty consecutive trading days. In the event of the death or
disability of the participant before the end of the five-year period, the
participant's estate or the participant may sell the shares upon repayment of
the principal and all unpaid accrued interest of the note, or retain ownership
of the shares. In addition, if the participant's employment terminates following
a change in control, as defined in the Executive Plan, the shares may be sold by
the participant upon payment of the principal and all accrued interest. Upon
termination of the participant's employment for any other reason, the Company
shall have the option, but shall not be obligated to, repurchase any or all of
the Executive Plan shares then owned by the participant and pledged to the
Company, for the amount of the participant's note plus an amount equal to all
interest actually paid by the participant with respect to the shares to be
repurchased. However, if the participant's employment terminates due to a
reorganization or restructuring, a number of shares equal to 10% of the shares
originally purchased for each full year of employment since the purchase, will
be exempted from the Company's repurchase option. Any Executive Plan shares not
repurchased by the Company upon a termination of employment may be retained by
the participant or sold upon payment of the principal and all accrued interest
on the note.
The Executive Plan permits limited sales of purchased shares each year
subject to the following conditions. A number of shares may be sold each year
that will provide net proceeds (after provision for commissions, taxes, and
accrued interest that will be due on the next interest payment date) sufficient
to pay down a specified percentage of the note plus a prorata portion of the
accrued interest. The amounts of principal that may be so amortized are 10%
after the first year, 15% after the second year, 20% after the third year and
25% after the fourth year. The purpose of the limited sale provision is to
provide for gradual repayment of the loan amount by the participant and thereby
reduce the Company's financial exposure.
TAX CONSEQUENCES OF THE EXECUTIVE PLAN
The federal income tax consequences of the Executive Plan, under the Code,
as amended and as currently in effect, are as follows.
A participant who purchases shares under the Executive Plan will not
recognize any income for federal tax purposes at the time of purchase.
The interest actually paid on the participant's note may be deductible by
the participant for federal income tax purposes subject to certain investment
interest limitations. The interest accrued but deferred
9
<PAGE>
and added to the participant's note will not constitute income to the
participant nor entitle the Company to a federal income tax deduction for
compensation expense unless such interest is forgiven. All interest accrued on
amounts loaned by the Company, whether paid currently or deferred, will
constitute income to the Company in the year accrued.
There will be no federal income tax consequences to either the participant
or the Company upon the lapsing of the restrictions on resale of the purchased
stock. Upon sale of the purchased stock by the participant, the participant will
recognize income or loss depending upon the relation of the sale price of the
stock to the participant's tax basis in the stock. The participant's gain or
loss will be long-term capital gain or loss if the stock has been held for one
year or more, or will be a short-term capital gain or loss if held for less than
one year.
The foregoing applies only to U.S. federal income tax. Each participant in
the Executive Plan should seek professional tax advice on the anticipated
federal and state tax consequences in light of the participant's personal tax
situation.
The Executive Plan is not a stock bonus, pension or profit-sharing plan and
is not subject to or qualifiable under Section 401(a) of the Code or any of the
provisions of the Employee Retirement Income Security Act of 1974 (ERISA).
VOTE REQUIRED
Approval of the Executive Plan requires the affirmative vote of the holders
of a majority of the outstanding shares of Common Stock present or represented
by properly executed and delivered proxies at the meeting. Abstentions and
broker shares voted as to any matter at the meeting will be included in
determining the number of votes present or represented at the meeting, and
therefore abstentions or broker non-votes on Proposal No. 4 will have the same
effect as a negative vote. Broker shares that are not voted on any matter at the
meeting will not be included in determining the number of shares present or
represented at the meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE 'FOR' PROPOSAL NO. 4.
10
<PAGE>
OWNERSHIP OF EQUITY SECURITIES BY DIRECTORS,
OFFICERS AND PRINCIPAL SHAREHOLDERS
The following table sets forth the number of shares of Common Stock
beneficially owned as of March 31, 1994 by each current director of the Company,
by all current directors and officers of the Company as a group and by each
person known to the Company to be a beneficial owner of more than five percent
of the Company's outstanding Common Stock. Unless otherwise noted, the owner has
sole voting and dispositive power with respect to the securities.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK PERCENTAGE OF
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED COMMON STOCK(1)
- - --------------------------------------------------------------------- ---------------------- ---------------
<S> <C> <C>
Stanley M. Blau(2)................................................... 761,108 1.7%
GoldStar Telecommunication Co., Ltd. ................................ 2,205,755 5.0%
600 Hogae-Dong, Anyang-City
Kyunggi-Do, Korea 430-081..........................................
Entities Associated with Hambrecht & Quist Group(3) ................. 6,160,772 13.9%
One Bush Street
San Francisco, CA 94104
Alan Kessman(4)...................................................... 1,238,103 2.8%
Thurston R. Moore(5)................................................. 91,335 *
Entities Associated with Edmund H. Shea, Jr.(6) ..................... 3,627,510 8.3%
655 Brea Canyon Road
Walnut Creek, CA 91789
Richard S. Rosenbloom(7)............................................. 31,000 *
William R. Smart(8).................................................. 33,000 *
William J. Spencer(9)................................................ 37,000 *
All Directors and Officers as a Group (17 persons)(10)............... 5,386,268 11.5%
</TABLE>
- - ------------
* Less than 1%
(1) Based upon 43,876,915 shares of Common Stock outstanding as of March 31,
1994. In cases where the beneficial ownership of the individual or group
includes options, warrants, or convertible securities, the percentage is
based on the 43,876,915 shares actually outstanding plus the shares of
Common Stock issuable upon exercise or conversion of any such options,
warrants, or convertible securities held by the individual or group. The
percentage does not reflect or assume the exercise or conversion of any
options, warrants or convertible securities not owned by the individual or
group in question.
(2) Includes 417,726 shares subject to options exercisable within 60 days of
April 25, 1994. Includes 48,000 shares subject to options not exercisable
within 60 days of April 25, 1994.
(3) Consists of 5,671,882 shares of Common Stock beneficially owned by entities
controlled by Hambrecht & Quist Group or its affiliates and 488,890 shares
of Common Stock issuable upon exercise of warrants to purchase Common
Stock. The Hambrecht & Quist entities share power to vote and dispose of
all of such shares.
(4) Includes 22,500 shares subject to options exercisable within 60 days of
April 25, 1994. Includes 253,188 shares subject to options not exercisable
within 60 days of April 25, 1994. Includes 765,503 shares as to which
voting and dispositive power is shared. Includes 187,500 shares held in a
revocable trust for Mr. Kessman's children, over which Mr. Kessman has no
control and as to which shares he disclaims any beneficial ownership.
Includes 9,412 shares of Common Stock issuable upon conversion of the
Debentures (of which Mr. Kessman owns $100,000 principal amount or .5% of
the principal amount outstanding).
(5) Includes 5,800 shares owned by Mr. Moore's spouse, as to which shares Mr.
Moore disclaims any beneficial ownership, and 5,825 shares with respect to
which voting and dispositive power is shared.
(footnotes continued on next page)
11
<PAGE>
(footnotes continued from previous page)
Includes 12,000 shares subject to options, 11,400 of which are exercisable
within 60 days of April 25, 1994.
(6) Includes 14,004 shares of Common Stock issuable upon conversion of the
Debentures, of which entities affiliated with Mr. Shea beneficially own
less than 1% of the outstanding principal amount or $148,792 principal
amount. The Shea entities share the power to vote and dispose of all of
such shares.
(7) Mr. Rosenbloom beneficially owns 31,000 shares subject to options and
warrants, 20,866 of which are exercisable within 60 days of April 25, 1994.
(8) Includes 31,000 shares subject to options and warrants, of which 11,933 are
exercisable within 60 days of April 25, 1994.
(9) Mr. Spencer beneficially owns 37,000 shares subject to options and
warrants, 36,400 of which are exercisable within 60 days of April 25, 1994.
(10) Includes 1,871,297 shares subject to options or warrants exercisable within
60 days of April 25, 1994. Includes 839,088 shares subject to options or
warrants not exercisable within 60 days of April 25, 1994. Also includes
83,482 shares of Common Stock issuable upon conversion of the Debentures
(of which the group beneficially owns $887,000 principal amount, or 4.6% of
the principal amount outstanding). Includes 924,978 shares as to which
voting and dispositive power is shared and 378,433 shares as to which
beneficial ownership is disclaimed.
12
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation by the Company of the Chief
Executive Officer and the four most highly compensated other executive officers
of the Company for services in all capacities to the Company and its
subsidiaries during the past three fiscal years.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ------------
-------------------------------------------- AWARDS OF
OTHER ANNUAL OPTIONS/ ALL OTHER
NAME AMD PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($) COMPENSATION($)(2) SARS(#)(3) COMPENSATION($)(4)
- - ---------------------------------- ----- ------------ -------- ------------------ ------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Alan Kessman ..................... 1993 374,850 150,764 -- 50,000 250,991
Chairman of the Board, President 1992 370,731 73,707 29,957 40,000 5,460
and Chief Executive Officer 1991 351,596 35,000 -- 50,000 --
Michael W. Yacenda ............... 1993 225,879 58,684 -- 32,000 145,833
Executive Vice President 1992 226,494 20,011 14,555 26,000 4,172
1991 215,000 -- -- 35,000 --
Stanley M. Blau .................. 1993 193,973 37,083 -- 20,000 22,645
Vice Chairman 1992 194,502 12,853 8,169 20,000 3,141
1991 184,631 -- -- 24,000 --
Shlomo Shur ...................... 1993 203,390 38,885 -- 25,000 4,750
Senior Vice President, Advanced 1992 199,117 15,901 11,101 20,000 3,809
Technology 1991 184,631 -- -- 35,000 --
Andrew Kontomerkos ............... 1993 193,973 37,083 -- 20,000 6,060
Senior Vice President, Hardware 1992 194,502 12,853 8,169 15,000 4,127
Engineering and Production 1991 184,631 -- -- 24,000 --
</TABLE>
- - ------------
(1) All 1992 salary amounts represent 27 bi-weekly pay periods rather than the
customary 26 pay periods due to pay date scheduling, and therefore are
correspondingly higher than the 1992 salary for 52 weeks.
(2) This category represents employee stock option credits that can be used
after July 1, 1993 and prior to December 31, 1994 to pay the exercise price
of employee stock options held by the employee. Stock purchased with the
1992 option credits must be held for one year.
(3) This category does not include options issued in January 1991 in exchange
for cancellation of then outstanding options originally issued from 1986
through 1990 in the following share amounts: Mr. Kessman, 646,250; Mr.
Yacenda, 391,250; Mr. Blau, 102,726; Mr. Shur, 291,875; and Mr. Kontomerkos,
298,125.
(4) This category includes stock option credits used during 1993 to pay the
exercise price of employee stock options exercised during 1993 in the
following amounts: Mr. Kessman $243,740; Mr. Yacenda, $140,695, and Mr.
Blau, $19,200. The credits were granted in 1988 and 1992 (see note 2 above).
The column does not include 1992 credits used in 1993 that were reported as
'Other Annual Compensation' for 1992. This category includes for each
individual a matching contribution by the Company under the Company's 401(k)
plan in the amount of $660 each for 1993 and $600 each for 1991 and 1992.
This column also includes premiums paid by the Company for long-term
disability and life insurance for the individuals in the following amounts
in 1993: Mr. Kessman, $6,591; Mr. Yacenda, $4,478; Mr. Blau, $2,785; Mr.
Shur, $4,090; Mr. Kontomerkos, $5,400; and in the following amounts in 1992:
Mr. Kessman, $4,860; Mr. Yacenda, $3,572; Mr. Blau, $2,541; Mr. Shur,
$3,209; and Mr. Kontomerkos, $3,527.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth the individual grants of stock options made
during the year ended December 31, 1993 to the Chief Executive Officer and the
four most highly compensated other
13
<PAGE>
executive officers of the Company. There were no grants of stock appreciation
rights made to any officers during 1993, and there are no outstanding stock
appreciation rights.
<TABLE>
<CAPTION>
POTENTIAL
REALIZED VALUE
INDIVIDUAL GRANTS AT ASSUMED
------------------------------------------------------- ANNUAL RATES OF
% OF TOTAL STOCK PRICE
OPTIONS EXERCISE OR APPRECIATION FOR
GRANTED TO BASE OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION ----------------
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- - ----------------------------------------- ---------- ------------ ----------- ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Alan Kessman............................. 50,000 6.5 $2.00 6/17/98 27,628 61,051
Michael W. Yacenda....................... 32,000 4.2 $2.00 6/17/98 17,682 39,072
Stanley M. Blau.......................... 20,000 2.6 $2.00 6/17/98 11,051 24,420
Shlomo Shur.............................. 25,000 3.3 $2.00 6/17/98 13,814 30,525
Andrew Kontomerkos....................... 20,000 2.6 $2.00 6/17/98 11,051 24,420
</TABLE>
All options reported in the above table expire in five years. All options
vest 25% per year over four years commencing one year from the date of grant.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth each exercise of stock options made during
the year ended December 31, 1993 by the Chief Executive Officer and the four
most highly compensated officers and the fiscal year-end value of unexercised
options held by those individuals as of December 31, 1993. There were no
exercises or holdings of stock appreciation rights by any officers during 1993,
and there are no outstanding stock appreciation rights.
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
NUMBER OF IN-THE-MONEY OPTIONS
UNEXERCISED OPTIONS AT FISCAL YEAR-
AT FISCAL YEAR-END(#) END($)(1)
--------------------- ---------------------
SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) VALUE REALIZED($) UNEXERCISABLE UNEXERCISABLE
- - --------------------------------- --------------- ----------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Alan Kessman..................... 278,878 341,089 120,664/436,708 242,352/796,869
Michael W. Yacenda............... 172,500 341,550 90,750/256,000 181,173/460,655
Stanley M. Blau.................. 25,000 49,550 375,151/90,575 670,249/150,289
Shlomo Shur...................... 0 0 221,751/174,124 437,236/308,634
Andrew Kontomerkos............... 0 0 219,167/161,958 434,138/292,939
</TABLE>
- - ------------
(1) Based upon the last sale price on December 31, 1993 of $2.88 per share of
Common Stock.
14
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
It is the responsibility of the Compensation Committee of the Board of
Directors to administer the Company's incentive plans, review the performance of
management and approve the compensation of the Chief Executive Officer and other
executive officers of the Company.
The Compensation Committee believes that the Company's success depends on
the coordinated efforts of individual employees working as a team toward defined
common goals. The objectives of the Company's compensation program are to align
executive compensation with business objectives, to reward individual and team
performance furthering the business objectives, and to attract, retain and
reward employees who will contribute to the long-term success of the Company
with competitive salary and incentive plans.
Specifically, executive compensation decisions are based on the following
factors:
1. The total direct compensation package for the Company's executives
is made up of three elements: base salary, a short-term incentive program
in the form of a performance-based bonus, and a long-term incentive program
in the form of stock options and other inducements to acquire and own the
Company's stock.
2. The Committee believes that the total compensation of all
executives should have a large incentive element that is dependent upon
overall Company performance measured against objectives established at the
beginning of the fiscal year. In the past three years, the Company has
adopted a more aggressive incentive pay for performance posture. During
this period, the emphasis on competitive base salaries has been lowered.
Bonus and stock opportunities represent a greater portion of the total
compensation package, in an attempt to further the Company's goal of
linking compensation more closely to the Company's performance. The
percentage of direct compensation that is dependent upon the Company's
attainment of its objectives also generally increases as the responsibility
of the officer in question for the overall corporate performance increases.
3. Total compensation levels, i.e., base salary, bonus potential, and
number of stock options, are established by individual levels of
responsibility and regular reference to competitive compensation levels for
executives performing similar functions and having equivalent levels of
responsibility. However, whether actual bonuses are paid to each executive
depends upon the achievement of Company goals, which include factors such
as profitability, cash flow, and asset management. In the case of certain
executives who have direct responsibility for individual business units, a
portion of the incentive compensation for such executives may consist of
bonuses tied to the performance against predetermined targets of the
individual business units for which they are responsible.
4. In 1993, as in 1992, the Compensation Committee reviewed various
executive compensation data developed by the Company's Human Resources
Department with an independent consultant from salary and bonus
compensation information reported in a nationally recognized independent
compensation survey (the 'Survey') for a group of companies in the
Company's industry or similar industries and of comparable size and
complexity. The Committee compared the salary and bonus levels of the
Survey group to the existing salary and bonus compensation of the Company's
management.
5. The Committee views the 50th percentile of the Survey data as
average compensation for comparable positions and believes it is the
minimum level necessary for the Company to be competitive in attracting and
retaining qualified executives in its industry and geographic locations.
Therefore, the salaries for the Chief Executive Officer and the four
highest paid executive officers have been established at approximately the
50th percentile for comparable positions in the Survey companies.
6. Merit increases in base salary for executives other than Mr.
Kessman are reviewed on an individual basis by Mr. Kessman and increases
are dependent upon a favorable evaluation by Mr. Kessman of individual
executive performance relative to individual goals, the functioning of the
executive's team within the corporate structure, success in furthering the
corporate strategy and goals, and individual management skills. In 1993,
merit increases in salary for all executives were limited to 4%.
15
<PAGE>
7. In addition to base salary and merit increases, the Compensation
Committee considers incentive bonuses for its executive officers, including
the Chief Executive Officer, both prospectively based upon the attainment
of specific performance goals, and retrospectively based upon the
Committee's discretionary judgment as to the performance during the year of
the Company and its executive officers or other considerations deemed
appropriate at the time. To establish 1993 bonus potential for executive
officers, including the Chief Executive Officer, the Compensation Committee
reviewed recommendations by the Chief Executive Officer based on data
provided by the Survey and analyzed by the independent consultant for
comparable positions. The Committee provided that each officer would be
eligible for a bonus equal to a percentage of his or her salary consistent
with the Survey data if certain pre-established pre-tax income targets or
goals were achieved by the Company. The bonus incentive was structured so
that if the Company fully achieved its predetermined goals, total cash
compensation of the executive (salary and bonus) would increase to
approximately the 75th percentile of the Survey salary data. Partial
achievement of the pre-tax income goals (above 50% attainment) would result
in partial bonus payments.
In early 1994 the Company paid bonuses for 1993 to Mr. Kessman and the
other executive officers, based upon the Company's partial achievement of
its pre-tax income targets, in accordance with the criteria established in
early 1993 by the Committee.
The Committee reserves the right to make discretionary bonus awards in
appropriate circumstances where an executive might merit a bonus based on
other considerations.
8. In 1993, the Committee approved a merit increase and bonus
eligibility for Mr. Kessman in recognition of Mr. Kessman's continued
implementation of strategic plan decisions which the Committee believes
will enhance the Company's prospects for long-term growth and the ultimate
benefit of the Company's shareholders, his leadership and his contributions
to the goals of reducing the Company's debt and improving cash flow.
9. All executives, including the Chief Executive Officer, are eligible
for annual stock option grants under the employee stock option plans
applicable to employees generally, as approved by the Compensation
Committee. The number of options granted to any individual depends on
individual performance, salary level and competitive data. In addition, in
determining the number of stock options granted to each senior executive,
the Compensation Committee reviews the unvested options of each executive
to determine the future benefits potentially available to the executive.
The number of options granted will depend in part on the total number of
unvested options deemed necessary to create a long-term incentive on the
part of the executive to remain with the Company in order to realize future
benefits.
In conclusion, the Compensation Committee believes that the base salary,
bonus and stock options of the Company's Chief Executive Officer and other
executives are appropriate in light of competitive pay practices and the
Company's performance against short and long-term performance goals.
<TABLE>
<S> <C>
THURSTON MOORE WILLIAM SMART
RICHARD ROSENBLOOM WILLIAM SPENCER
</TABLE>
16
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are Thurston Moore, Richard
Rosenbloom, William Smart and William Spencer.
No member of the Committee is a former or current officer or employee of
the Company or any subsidiary, except that Mr. Moore has acted as an Assistant
Secretary of the Company. Mr. Moore is a partner in the law firm of Hunton &
Williams, which regularly acts as counsel to the Company.
No executive officer of the Company served as a director or a member of the
Compensation Committee or of the equivalent body of any entity, any one of whose
executive officers serve on the Compensation Committee or the Board of Directors
of the Company.
PERFORMANCE GRAPH
The graph below compares, for the last five fiscal years, the yearly
percentage change in cumulative total returns (assuming reinvestment of
dividends and interest) of (i) the Company's Common Stock, (ii) the Company's
Debentures, (iii) the NASDAQ Stock Market, (iv) a peer group index constructed
by the Company in 1993 (the '1993 Peer Group') and (v) a peer group constructed
by the Company in 1994 (the '1994 Peer Group').
The 1993 Peer Group consists of the following companies: Comdial
Corporation, Inter-Tel, Inc., Mitel Corporation, and TIE/Communications, Inc.
These four companies were selected because their major lines of business most
closely match the major lines of business in which the Company was primarily
engaged prior to 1993.
The new 1994 Peer Group consists of the following companies:
<TABLE>
<S> <C>
Aspect Telecommunications Corp. InterVoice, Inc.
Boston Technology, Inc. Microlog Corporation
Brite Voice Systems Inc. Mitel Corporation
Centigram Communications Corp. Norstan, Inc.
Comdial Corporation Octel Communications Corp.
Davox Corporation Syntellect Inc.
Digital Sound Corporation Teknekron Communications Systems, Inc.
Digital Systems International, Inc. TIE/Communications, Inc.
Electronic Information Systems, Inc. VMX, Inc.
Inter-Tel, Inc.
</TABLE>
In addition to the members of the 1993 Peer Group, the 1994 Peer Group
includes companies who compete with the Company in several more specialized
areas, such as ACD (automatic call distribution), voice mail, interactive voice
response systems, and predictive dialing systems, as well as additional general
voice processing companies. The Company believes that the mix of the companies
in the new 1994 Peer Group more accurately reflects the mix of businesses in
which the Company is currently engaged and will be engaged in the future. The
Company also believes that a group of 19 companies is more balanced and less
subject to individual price fluctuations and specialized situations, and
therefore will be more reflective of the stock performance of the companies in
the Company's industry.
Neither Peer Group is identical to the Survey group used to evaluate
compensation of executives described in the Compensation Committee Report.
Neither Peer Group provides sufficient compensation data for the Committee's
purposes, and the Survey group includes non-public entities for whom stock price
data for the performance graph is unavailable.
Although AT&T and Northern Telcom are the Company's principal competitors
in supplying voice processing equipment, software and services to the
under-300-desktop market, the business in which the Company is primarily
engaged, both of those companies are much larger than the Company and derive
most of their revenues from other lines of business and so have not been
included in either the 1993
17
<PAGE>
Peer Group or the 1994 Peer Group. The returns of each Peer Group issuer have
been weighted in the graph below to reflect that issuer's stock market
capitalization at the beginning of each calendar year.
EXECUTONE INFORMATION SYSTEMS, INC.
PEER GROUP COMPOSITE PERFORMANCE GRAPH
[PERFORMANCE CHART]
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURNS
--------------------------------------------
1988 1989 1990 1991 1992 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
DEBENTURES.............................................................. 100 118 40 133 240 331
NASDAQ.................................................................. 100 121 103 165 192 219
1993 PEER GROUP......................................................... 100 66 28 21 40 121
COMMON STOCK............................................................ 100 125 19 27 60 96
1994 PEER GROUP......................................................... 100 81 34 40 50 85
</TABLE>
18
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1992, affiliates of Hambrecht & Quist Group rendered certain
investment banking services to the Company in connection with the exchange offer
by the Company of Preferred Stock and Warrants for its Debentures (the 'Exchange
Offer'). Hambrecht & Quist Guaranty Finance, an affiliate of Hambrecht & Quist
Group ('HQGF'), purchased a $2,000,000 loan participation interest from the
Company in connection with the Exchange Offer transactions. The loan
participation accrued interest at 14.5% per year. The loan and accrued interest
would have been repayable in three equal installments beginning April 1, 1994
and ending April 1, 1995. As of January 1, 1993, pursuant to an option contained
in the loan agreement, HQGF converted the loan into 200,000 shares of Preferred
Stock and forfeited all accrued interest. In 1993, HQGF converted all of its
Preferred Stock into Common Stock. Entities associated with Hambrecht & Quist
beneficially own in the aggregate more than 5% of the Common Stock of the
Company. See 'Ownership of Equity Securities by Directors, Officers and
Principal Shareholders'. The Company's management believes that the transactions
with Hambrecht & Quist Group and HQGF were on terms as favorable to the Company
as could be expected from unaffiliated third parties.
GoldStar Telecommunication Co., Ltd, which beneficially owns 5% of the
Company's Common Stock, is a party to two manufacturing agreements with the
Company that provide the Company with certain distribution rights. The Company's
management believes that the manufacturing contracts with GoldStar are not
material to the Company and are on terms as favorable to the Company as could be
expected from an unaffiliated third party.
SHAREHOLDER PROPOSALS -- 1995 ANNUAL MEETING
Shareholders are entitled to present proposals for action at the 1995
Annual Meeting of Shareholders if they comply with the applicable requirements
of the Company's Bylaws then in effect and with the requirements of the proxy
rules as promulgated by the Securities and Exchange Commission. Any proposals
intended to be presented at the 1995 Annual Meeting of Shareholders must be
received at the Company's offices on or before December 29, 1994, in order to be
considered for inclusion in the Company's Proxy Statement and form of proxy
relating to such meeting.
OTHER MATTERS
Management knows of no other business which will be presented to the
meeting. If other matters properly come before the meeting, the persons named as
proxies will vote on them in accordance with their best judgment.
The cost of this solicitation of proxies will be borne by the Company. In
addition to the use of the mail, some of the officers and regular employees of
the Company may solicit proxies by telephone and facsimile, and may also verify
the accuracy of marked proxies by contacting record and beneficial owners of
Common Stock, and the Company will request brokerage houses, banks and other
custodians, nominees and fiduciaries to forward soliciting material to the
beneficial owners of Common Stock held of record by such persons. The Company
will reimburse such persons for expenses incurred in forwarding such soliciting
material. It is contemplated that additional solicitation of proxies will be
made in the same manner under the engagement and direction of Morrow & Company,
at an anticipated cost to the Company of $5,000, plus reimbursement of
out-of-pocket expenses.
By Order of the Board of Directors
BARBARA C. ANDERSON
Vice President, General Counsel
and Secretary
April 29, 1994
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<PAGE>
EXHIBIT A
EXECUTONE INFORMATION SYSTEMS, INC.
1994 EXECUTIVE STOCK INCENTIVE PLAN
1. PURPOSES OF THE PLAN
The primary purpose of this 1994 Executive Stock Incentive Plan is to
encourage and assist the key executives of the Company to acquire and own
greater amounts of Common Stock of the Company and, through such ownership, to
align the interests of the executives more closely with the interests of the
Company's shareholders generally. A secondary purpose of the Plan is to provide
the executives with an element of incentive compensation tied to appreciation in
value of the Company's Common Stock and thereby to attract and retain the best
available executives, without undue growth in the levels of fixed compensation
such as salary.
2. DEFINITIONS
The following terms shall have the meanings set forth below when used
herein:
'Accrued Interest' shall mean the interest on the Loan Amount accrued at
the rate equal to the interest rate paid or payable from time to time by the
Company on its general revolving credit facility or general purpose bank
borrowings, or in the circumstances described in Section 5(g) of the Plan, the
interest on the Loan Amount accrued at the rate determined by the Bank lender.
'Board' shall mean the Board of Directors of the Company.
'Cause' shall mean serious misconduct such as embezzlement, fraud,
dishonesty, breach of fiduciary duty, deliberate and repeated disregard of
Company policies or rules, improper disclosure or use of the Company's trade
secrets or confidential information, or competition with the Company.
'Change of Control Event' shall mean (i) any person, including a 'group' as
defined in Section 13(d) (3) of the Exchange Act, becomes the owner or
beneficial owner of Company securities having 20% or more of the combined voting
power of the then outstanding Company securities that may be cast for the
election of the Company's Directors (other than as a result of an issuance of
securities initiated by the Company, or open market purchases approved in
advance by the Board of Directors of the Company, as long as the majority of the
Board at the time the purchases are made are Directors who were members of the
Board immediately prior to the purchases being made and approved such
purchases); or (ii) as the direct or indirect result of, or in conjunction with,
a cash tender or exchange offer, a merger or other business combination, a sale
of assets, a contested election, or any combination of these or similar
transactions, the persons who were Directors of the Company before such
transactions cease to constitute a majority of the Company's Board, or any
successor's board, within two years of the last of such transactions. For
purposes of the Plan, the date of a Change of Control Event is the date on which
an event described in (i) or (ii) occurs. If a Change of Control occurs on
account of a series of transactions, the date of a Change of Control Event is
the date of the last of such transactions.
'Code' shall mean the Internal Revenue Code of 1986, as amended.
'Committee' shall mean the committee appointed by the Board to administer
the Plan, which shall consist of at least three Directors who are not Eligible
Employees, and which shall initially be the Compensation Committee of the Board.
'Common Stock' shall mean the Common Stock, par value $.01 per share, of
the Company, or any security into which such Common Stock is changed or
converted in a reorganization, recapitalization, merger or other similar
transaction.
'Company' shall mean EXECUTONE Information Systems, Inc., a Virginia
corporation.
'Director' shall mean a member of the Board.
'Eligible Employee' shall mean an officer of the Company or any other
regular employee of the Company or any Parent or Subsidiary of the Company who
holds a key position or performs an important function in the implementation of
the Company's long-term plans.
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'Exchange Act' shall mean the Securities Exchange Act of 1934, as amended.
'Fair Market Value' shall mean the last sale price of the Common Stock as
reported by NASDAQ on the day in question, or if the Common Stock is not
reported on NASDAQ, the last sale price, or the average of the bid and asked
prices, as otherwise reported on the principal exchange or market on which the
Common Stock is traded, or if such prices are unavailable, the fair market value
as determined by the Board of Directors in its sole discretion.
'Interest Deferral' shall mean the amount of Accrued Interest on the Loan
Amount, payment of which is deferred by the Company and added to the Loan
Amount.
'Interest Payment' shall mean 15% of the annual Accrued Interest on the
Loan Amount, which is to be paid by the Participant under the Plan.
'Interest Payment Date' shall mean each December 31 on which any Loan
Amount is outstanding.
'Loan Amount' shall mean the dollar amount owed to the Company by the
Participant pursuant to the Plan, including all unpaid portions of the Purchase
Price for Purchased Shares and all Interest Deferrals and other Accrued Interest
not paid by the Participant.
'Note' shall mean the full-recourse promissory note of the Participant
representing the Purchase Price and certain Accrued Interest as provided in the
Plan.
'Parent' shall mean a 'parent corporation', whether now or hereafter
existing, as defined in Section 424 (e) of the Code.
'Participant' shall mean an Eligible Employee who is selected by the
Committee for participation and participates in the Plan.
'Plan' shall mean this 1994 Executive Stock Incentive Plan.
'Pledge Agreement' shall mean a pledge agreement executed by a Participant
and the Company pursuant to the Plan.
'Purchase Price' shall mean the price paid for the Purchased Shares by the
Participant.
'Purchased Shares' shall mean the Shares of Common Stock purchased by a
Participant under the Plan.
'Securities Act' shall mean the Securities Act of 1933, as amended.
'Share' shall mean a share of Common Stock, as adjusted in accordance with
Section 9 of the Plan.
'Subsidiary' shall mean a 'subsidiary corporation', whether now or
hereafter existing, as defined in Section 424 (f) of the Code.
3. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Committee, which shall have full
authority to determine all questions of eligibility and participation levels, to
adopt, amend and rescind rules relating to the Plan, to approve the forms of
Note and Pledge Agreement, and to interpret the provisions of the Plan in its
sole discretion. All decisions, determinations and interpretations of the
Committee shall be final and binding on all Participants. The Committee shall
have authority to waive any provisions of the Plan, and to amend or waive any
provisions of any Note or Pledge Agreement delivered pursuant to the Plan, as it
deems in its sole discretion to be appropriate and in the best interests of the
Company and its shareholders.
4. COMMON STOCK SUBJECT TO THE PLAN
Subject to the provisions of Section 9 of the Plan, the maximum aggregate
number of Shares that may be purchased and sold under the Plan is 3,000,000
Shares. The Shares may be authorized and newly issued Common Stock or Shares
reacquired by or on behalf of the Company; provided, however, that it is the
intent of the Plan that the number of Shares sold under the Plan not exceed the
number of previously issued Shares reacquired by the Company or on behalf of the
Company, or purchased by the Participants, for purposes of the Plan and that
there be no net dilution of existing shareholders of the
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Company as a result of the Plan. Any Shares issued under the Plan that are
subsequently reacquired by the Company from the Participant shall, unless the
Plan shall have been terminated, again become available for purchase under the
Plan.
5. PARTICIPATION IN THE PLAN
(a) The Committee may, at the time of adoption of the Plan and approval by
the Company's shareholders, and thereafter during the term of the Plan, in its
discretion grant to any number of Eligible Employees rights to purchase a
specified number of Shares of Common Stock to be issued by the Company under the
Plan. Eligible Employees who are so selected may elect to participate in the
Plan and purchase such Shares by executing a full-recourse Note, payable to the
Company and in a form acceptable to the Company, in the amount of the Loan
Amount and delivering such Note to the Company together with the certificates
for the Purchased Shares and a Pledge Agreement in a form acceptable to the
Committee.
(b) The Company shall hold the certificates for all Purchased Shares as
security for payment of the Loan Amount. Certificates for Purchased Shares may
be released to a Participant or other owner of the Purchased Shares only upon
payment of the Loan Amount then outstanding with respect to such Purchased
Shares, or as provided in Section 6(c) hereof.
(c) No Participant shall have any rights as a shareholder with respect to
any Purchased Shares until a Note in the amount of the Purchase Price has been
executed and delivered to the Company or the Purchase Price has otherwise been
paid. Upon such delivery of the Note or other payment of the Purchase Price, the
Participant shall have all rights of a shareholder of the Company, subject only
to the limitations and provisions of the Plan, the Note, the Pledge Agreement
and applicable law.
(d) The Purchase Price shall be the Fair Market Value of the Purchased
Shares on the date the Note and the Pledge Agreement are executed and delivered
to the Company. Such date shall be the date of purchase for purposes of the
Plan.
(e) Except as otherwise provided in Section 6(c), the Loan Amount including
all Interest Deferrals shall be payable prorata upon sale of any Purchased
Shares, but in any event shall be payable in full five years following the date
of the Note. Each Participant shall make an Interest Payment on each Interest
Payment Date. The balance of the Accrued Interest shall be added to the Loan
Amount as the Interest Deferral as of the Interest Payment Date.
(f) Each Participant shall be required to reduce the Loan Amount each year
by an amount equal to 25% of any bonus or incentive paid to the Participant by
the Company based on the Company's annual financial results. Such payment shall
be made to the Company within 10 days of the Participant's receipt of payment of
any such bonus or incentive.
(g) In the event that the Company elects to have a bank or other financial
institution ('Bank') loan the Purchase Price to a Participant, then the Note
shall be delivered and payable to the Bank, shall be in a form acceptable to the
Bank, and shall accrue interest at an interest rate determined by the Bank from
time to time. Interest shall be in an amount and shall be due and payable at the
times determined by the Bank, the Participant shall pay the Interest Payment,
and the Company shall pay the balance of the Accrued Interest as required by the
Bank. All Accrued Interest paid by the Company shall be repaid to the Company by
the Participant and shall be represented by a personal promissory note payable
to the Company on the same terms as the Note. The Company shall guarantee or
otherwise secure the Participant's borrowings from the Bank under the Plan and
to secure such guarantee shall hold the Purchased Shares subject to a Pledge
Agreement. To the extent practicable, all other provisions of the Plan shall
apply to purchases of Shares that are financed by a Bank to the same extent as
such provisions would apply to purchases under the Plan that are financed by the
Company.
6. RESTRICTIONS ON RESALE
(a) Except as provided in Section 6(c), the Participant shall not be
permitted to sell any Purchased Shares without first paying in full the Loan
Amount and all Accrued Interest that has not been previously paid with respect
to the Purchased Shares to be sold.
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(b) In addition to the restriction of Section 6(a), the Participant may not
sell any Purchased Shares
(i) except pursuant to subsection (c) hereof; or
(ii) until the first to occur of (A) five years from the date of
purchase of the Purchased Shares; (B) the Fair Market Value of the Common
Stock shall equal or exceed $10.00 per share, as such price may be adjusted
pursuant to Section 9 (the 'Target Price') for at least twenty consecutive
trading days; (C) the Participant dies or is permanently disabled; (D) a
Change of Control Event; or (E) the termination of employment of the
Participant, with respect to any Purchased Shares not repurchased by the
Company pursuant to the Plan.
(c) Notwithstanding anything to the contrary herein, each year the
Participant shall be permitted to sell a portion of his or her Purchased Shares
equal to the number of Shares that at the Participant's sale price will result
in net proceeds to the Participant (after payment of sales commissions, all
other expenses and all taxes on any gain realized on the sale) and after
deducting the estimated amount of the next Interest Payment that will be due
from Participant (the 'Net Proceeds') equal to the following percentages of the
outstanding Loan Amount.
<TABLE>
<CAPTION>
PERCENTAGE
OF LOAN AMOUNT
--------------
<S> <C>
After one year.................................................... 10 %
After two years................................................... Additional 15 %
After three years................................................. Additional 20 %
After four years.................................................. Additional 25 %
</TABLE>
All such Net Proceeds shall be paid to the Company to reduce the Loan
Amount.
(d) Nothing in the Plan shall prevent any Participant from selling his or
her Purchased Shares in any merger, consolidation, tender offer or exchange
offer for cash or any combination of cash or securities provided the Loan Amount
is paid in full upon such sale, or from exercising a right to sell Purchased
Shares under any provision of the Plan, to the extent not previously exercised,
at any time after that right has accrued.
(e) If, pursuant to any provision of the Plan, the Participant has the
right to sell any Purchased Shares upon repayment of the Loan Amount relating to
such Shares, then the Participant shall in such case be permitted to retain
ownership of any or all of such Purchased Shares provided such Loan Amount is
paid to the Company. Any part of the Loan Amount may be prepaid at any time;
provided, however, that the restrictions on resale of the Purchased Shares shall
continue except to the extent that the Purchased Shares could be resold under
this Section 6.
(f) In addition to the restrictions on resale imposed by the Plan, all
Purchased Shares may be resold by the Participant only in compliance with all
applicable federal and state securities laws as from time to time in effect,
including without limitation the registration provisions of the Securities Act
and Section 16 of the Exchange Act.
7. TERMINATION OF EMPLOYMENT
(a) Upon termination of employment of a Participant due to the
Participant's death, title to the Participant's Purchased Shares shall be
transferred to the Participant's estate and may be disposed of by will or by the
laws of descent or distribution, subject to the Note and the Pledge Agreement.
The Purchased Shares may be sold or otherwise disposed of by the estate or any
beneficiary who owns the Shares, upon payment of the Loan Amount associated with
such Shares, including all Interest Deferrals and any other Accrued Interest
included therein, or ownership thereof may be retained subject to the Note and
Pledge Agreement.
(b) Upon termination of employment of a Participant due to the
Participant's permanent disability, the Participant may retain ownership of such
Shares subject to the Note and Pledge Agreement, or may sell or otherwise
dispose of any of the Purchased Shares, upon payment of the Loan Amount
associated with such Purchased Shares, including all Interest Deferrals and
other Accrued Interest included therein.
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(c) Upon termination of employment of a Participant due to the
Participant's resignation, or due to termination of the Participant's employment
by the Company for Cause, the Company shall have the right and option, but shall
not be obligated, to repurchase all or any portion of the Purchased Shares then
owned by the Participant for the Loan Amount at the time of purchase plus the
amount of any Interest Payments made by the Participant with respect to such
Shares. In the event and to the extent that the Company does not exercise its
option to repurchase the Participant's Purchased Participant shall be entitled
to retain title to any Shares not repurchased by the Company, subject to the
Note and the Pledge Agreement, or, upon payment to the Company of the Loan
Amount then outstanding with respect to the Purchased Shares (including all
Interest Deferrals and other Accrued Interest included therein) shall have the
right to sell any or all of the Purchased Shares or to retain ownership of such
Shares.
(d) Upon termination of employment of a Participant by the Company for
reasons other than Cause, including but not limited to reorganization or
restructuring or elimination of the Participant's position, then the Company
shall have the right and option, but shall not be obligated, to repurchase the
Purchased Shares then owned by the Participant at the Loan Amount applicable to
such Shares plus the amount of any Interest Payments made by the Participant
with respect to such Shares; provided, however, that there shall be exempted
from this right to repurchase a number of such Shares equal to (i) 10% of the
total number of Purchased Shares originally purchased by the Participant,
multiplied by (ii) the number of full years (12-month periods) the Participant
was employed by the Company from the date of the Participant's initial purchase
under the Plan until the Participant's termination of employment. The
Participant shall be entitled to retain title to such exempted Shares and any
other Shares not repurchased by the Company, subject to the Note and the Pledge
Agreement, or, upon payment to the Company of the Loan Amount then outstanding
with respect to the Shares (including all Interest Deferrals and other Accrued
Interest included therein), shall have the right to sell any or all of the
retained Purchased Shares or to retain ownership of such Shares.
(e) Upon any termination of employment of a Participant following a Change
of Control Event, then the Company shall have no option to repurchase any of the
Purchased Shares and the Participant shall be entitled to retain title to the
Purchased Shares subject to the Note and the Pledge Agreement, or, upon payment
to the Company of the Loan Amount then outstanding with respect to the Shares
(including all Interest Deferrals and other Accrued Interest included therein),
the Participant shall have the right to retain any or all of the Purchased
Shares or to sell any or all of the Purchased Shares.
(f) The Participant's obligations pursuant to the Note with respect to the
Loan Amount from time to time outstanding, and the Company's security interest
in any Purchased Shares not sold pursuant to this subsection, shall continue
notwithstanding the Participant's termination of employment.
8. NONTRANSFERABILITY OF RIGHTS.
No rights of any Participant hereunder may be sold, assigned, pledged,
hypothecated or otherwise disposed of in any manner other than by will or the
laws of descent and distribution. The rights of a Participant under the Plan may
be exercised during the lifetime of the Participant only by the Participant.
9. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
(a) Subject to any required action by the shareholders of the Company, the
total number of Shares authorized for purchase under the Plan, the number of
Purchased Shares, and the Target Price, shall be proportionately adjusted for
any increase or decrease in the number of issued and outstanding Shares
resulting from a stock split, reverse stock split, stock dividend,
recapitalization or reclassification of the Common Stock, or any other increase
or decrease in the number of issued Shares effected without receipt of
consideration by the Company other than a conversion of convertible securities
of the Company. Such adjustment shall be made by the Board, whose determination
in that respect shall be final and binding. Except as expressly provided in the
Plan, no issuance by the Company of Common Stock, any other stock of any class,
or any securities convertible into Common Stock or other stock of
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any class, shall affect or cause any adjustment in the number of Shares or
Purchased Shares subject to the Plan or the Target Price.
(b) In the event of a sale of all or substantially all of the assets of the
Company, the merger or consolidation of the Company into or with another
corporation, or the dissolution or liquidation of the Company, the holder of
Purchased Shares shall have the same rights as the holder of other Shares and
shall be changed or converted into the same number and kind of shares of stock
or the same amount of property, cash or securities as any other holder. In the
event that the Company is the surviving corporation in any such sale, merger or
consolidation, the changed or converted shares shall continue to be subject to
the provisions of the Plan and any Note and Pledge Agreement relating to the
Purchased Shares, except as otherwise provided in Sections 6 and 7 of the Plan.
In any event described in this subsection (b), any conversion of Purchased
Shares into cash or cash and securities of another company shall be subject to
the repayment in full of the Note.
10. CONDITIONS TO ISSUANCE AND SALE OF SHARES
Shares shall not be issued and sold under the Plan unless the issuance and
sale of such Shares complies with all applicable laws including without
limitation the Securities Act, the Exchange Act, state securities laws, all
rules and regulations thereunder, and the requirements of any stock exchange on
which the Shares may then be listed or traded. The Company shall at all times
reserve and keep available for issuance Shares sufficient to satisfy the
requirements of the Plan. The Company shall not have any liability to any
Participant or Eligible Employee arising from its inability to issue or sell
Shares due to failure to satisfy any such conditions.
11. TERM OF THE PLAN
The Plan shall become effective upon its adoption by the Board and approval
by the shareholders of the Company. The Plan shall continue in effect for a term
of ten years unless sooner terminated under Section 12 hereof.
12. AMENDMENT AND TERMINATION OF THE PLAN
(a) The Board may amend or terminate the Plan from time to time in such
respects as the Board may deem advisable; provided, however, that any amendments
requiring shareholder approval under the Code, Rule 16 b-3 under the Exchange
Act, or other applicable law shall be approved by such shareholders as provided
in Section 13 hereof.
(b) Except as provided in Section 9, no amendment or termination of the
Plan shall affect the rights of Participants or the Company pursuant to any
transactions, instruments or agreements, previously entered into under the Plan,
unless otherwise mutually agreed in writing by a Participant and the Company
with the prior approval of the Committee.
13. SHAREHOLDER APPROVAL
Adoption of the Plan is subject to approval by the affirmative vote, at a
duly held shareholders' meeting, of the holders of a majority of the outstanding
Shares present in person or by proxy and entitled to vote thereon.
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EXECUTONE INFORMATION SYSTEMS, INC. PROXY
6 THORNDAL CIRCLE, DARIEN, CONNECTICUT 06820
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Alan Kessman, Michael W. Yacenda and
Barbara C. Anderson, or any of them, with full power of substitution in each,
Proxies, to vote all the shares of Common Stock of EXECUTONE Information
Systems, Inc. held of record by the undersigned at the close of business on
April 25, 1994, at the Annual Meeting of Shareholders (the 'Meeting') to be held
on June 23, 1994, at 3:00 p.m., or any continuation or adjournment thereof.
1. Election of Directors
<TABLE>
<S> <C>
FOR all nominees listed below (except WITHHOLD AUTHORITY for all nominees
as marked to contrary below) [ ] listed below [ ]
</TABLE>
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE
SUCH NOMINEE'S NAME FROM THE LIST BELOW.)
ALAN KESSMAN STANLEY M. BLAU THURSTON R. MOORE
RICHARD S. ROSENBLOOM WILLIAM R. SMART WILLIAM J. SPENCER
2. Proposal to approve the amendment of the 1984 Employee Stock Purchase Plan to
extend the Plan and allocate additional shares for purchase thereunder.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. Proposal to approve the amendment of 1990 Directors' Stock Option Plan to
modify the vesting schedule of initial option grants thereunder.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. Proposal to approve the adoption of the 1994 Executive Stock Incentive Plan.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
5. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Meeting.
<PAGE>
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2, 3 AND 4.
Dated: ____________________________
Signature: ________________________
Signature if held jointly: ________
WHEN SHARES ARE HELD BY JOINT
TENANTS, BOTH SHOULD SIGN. WHEN
SIGNING AS ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN,
PLEASE GIVE FULL TITLE AS SUCH. IF
A CORPORATION, PLEASE SIGN IN FULL
CORPORATE NAME BY THE PRESIDENT OR
OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN
PARTNERSHIP NAME BY AUTHORIZED
PERSON.
