SCHEDULE 14(a) 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:
(X) Preliminary Proxy Statement ( ) Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
( ) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
EXECUTONE INFORMATION SYSTEMS, INC.
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
(X) $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
( ) $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 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
( ) Fee paid previously with preliminary materials.
( ) Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule, or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
PROXY STATEMENT
EXECUTONE Information Systems, Inc.
478 Wheelers Farms Road
Milford, Connecticut 06460
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
June 27, 1995
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 27,
1995, at 3:00 P.M., for the following purposes:
(1) To elect five directors of the Company for the coming year;
(2) To approve a proposed amendment to the Company's Articles of
Incorporation to increase the total number of authorized
shares of Common Stock from 60,000,000 to 80,000,000 shares;
(3) To approve the amendment of the Company's 1986 Employee Stock
Option Plan to extend the term of the Plan and allocate an
additional 1,000,000 shares for issuance under options under
the Plan; and
(4) 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 April 26,
1995 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
Milford, Connecticut
April 28, 1995
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>
EXECUTONE Information Systems, Inc.
478 Wheelers Farms Road
Milford, Connecticut 06460
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
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 27, 1995.
This Proxy Statement and the enclosed form of proxy are being mailed to
shareholders commencing on or about April 28, 1995.
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, in favor of the proposal
to amend the Articles of Incorporation and in favor of the proposal to
amend the 1986 Employee Stock Option 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 26,
1995, the record date for the meeting, was 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 26, 1995, or 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 26, 1995 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,
478 Wheelers Farms Road, Milford, Connecticut 06460, 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 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% of the number of directors last elected by the
shareholders. The Articles prohibit the Board, 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
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. The
election of each nominee for director requires the affirmative vote of
the holders of a plurality of the shares of Common Stock cast in the
election of directors. Votes that are withheld and shares held in
street name ("Broker Shares") that are not voted in the election of
directors will not be included in determining the number of votes cast.
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.
Director
Name Age Principal Occupation Since
Alan Kessman 48 President, Chief Executive Officer and 1983
Chairman of the Board of 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 57 Vice Chairman of the Company since 1983
1988; formerly President and Chief
Executive Officer of Vodavi Technology
Corporation ("Vodavi"), one of the
Company's predecessor corporations,
from 1987 until July 1988.
Thurston R. Moore 48 Partner, Hunton & Williams 1990
(Attorneys), Richmond, Virginia, since
1981. Mr. Moore also serves as a
director of Sealey Optical Laboratory,
Inc., an optical lens business.
4
<PAGE>
Richard S. Rosenbloom 62 David Sarnoff Professor of Business 1992
Administration, Harvard Business
School, since 1980. Mr. Rosenbloom is
a director of Lex Service PLC and
Arrow Electronics, Inc.
William R. Smart 74 Senior Vice President of Cambridge 1992
Strategic Management Group in
Cambridge, Massachusetts since 1984.
From 1984 to 1992, Chairman of the
Board, Electronic Associates, Inc.
Mr. Smart is a director of National
Datacomputer Company and American
International Petroleum Company.
William J. Spencer 64 President and Chief Executive Officer 1989
of Sematech, Inc. in 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.
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. As of March 31, 1995, options to purchase 48,000 shares of
Common Stock were outstanding and options to purchase 52,000 shares were
available for future grant under the Directors' Stock Option Plan.
During 1994, each director was granted options for 3,000 shares at a per
share exercise price of $2.50, 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 23, 1992 and September 24, 1992, Richard S. Rosenbloom and
William R. Smart 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 1994, the Board of Directors met on five occasions. All
directors attended more than 75% of the total number of meetings
of the Board and of all committees of which they were members during
1994, except Mr. Spencer who attended 70% of such meetings. 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 audit report and the adequacy of internal
controls. The Audit Committee met on one occasion during 1994. The
members of the Audit Committee during 1994 were Messrs. Rosenbloom and
Spencer.
The Compensation Committee recommends to the full Board 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 four times during 1994.
The members of the Compensation Committee during 1994 were Messrs.
Moore, Rosenbloom, Smart and Spencer.
6
<PAGE>
PROPOSAL NO. 2
PROPOSED AMENDMENT TO EXECUTONE'S ARTICLES OF
INCORPORATION TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK
The Board of Directors recommends the amendment of the Company's
Articles of Incorporation in order to increase the number of shares of
Common Stock authorized for issuance from 60,000,000 to 80,000,000
shares. As of March 31, 1995, the Company had 46,430,758 shares of
Common Stock outstanding and 4,266,966 shares reserved for issuance upon
the exercise of currently outstanding options and warrants.
The Board of Directors and management of the Company believe that
additional shares of Common Stock should be authorized in order to
provide flexibility by having authorized, unissued and unreserved shares
of Common Stock available for proper corporate purposes. Such shares
could be issued as authorized from time to time by the Board of
Directors without further authorization by vote or consent of the
shareholders and on such terms and for such consideration as may be
determined by the Board of Directors. The additional shares of Common
Stock might be issued to provide additional funds for working capital
and capital expenditures, and for other purposes, including future
financings of or acquisitions by the Company, in connection with various
employee benefit plans and for stock dividends or stock splits.
Holders of Common Stock are not entitled to preemptive rights, and
to the extent that any additional shares of Common Stock may be issued
on other than a pro rata basis to current stockholders, the additional
shares could potentially be issued at times and under circumstances that
could have a dilutive effect on earnings per share and on the equity
ownership and voting power of the present holders of Common Stock. The
Company, however, would receive valuable consideration for any
additional shares of Common Stock issued, thereby reducing or
eliminating the economic effect to each shareholder of such dilution.
In recommending the proposed increase in the authorized number of
shares of Common Stock, the Board of Directors does not perceive it to
be nor intend it to function as an anti-takeover provision. Although the
flexibility of the Board of Directors to issue additional Common Stock
could enhance the Board's ability to negotiate on behalf of the
stockholders in a takeover situation and also could be used by the
incumbent Board of Directors to make a change in control more difficult,
the Board of Directors has no present intention of issuing any shares of
Common Stock for any anti-takeover purpose. Neither the management of
the Company nor the Board of Directors is aware of any existing or
planned effort on the part of any party to accumulate material amounts
of any class of its capital stock, or to acquire control of the Company
by means of merger, tender offer, solicitation of proxies in opposition
to management or otherwise, or to change the Company's management, nor
is the Company aware of any person having made any offer to acquire any
material amount of capital stock or assets of the Company.
Vote Required
Adoption of the proposed amendment to the Articles of Incorporation
requires the affirmative vote of the holders of a majority of the
outstanding shares of Common Stock. Abstentions and Broker Shares that
are not voted on the matter will have the same effect as a negative
vote. A copy of the proposed amendment is attached as Exhibit A.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL NO. 2
7
<PAGE>
PROPOSAL NO. 3
AMENDMENT OF 1986 EMPLOYEE STOCK OPTION PLAN
Description of Proposed Amendments
The Board of Directors of the Company, on the recommendation of the
Compensation Committee, has unanimously approved two amendments to the
Company's 1986 Employee Stock Option Plan (the "Plan") to increase the
aggregate number of shares issuable pursuant to the Plan from 7,500,000
shares to an aggregate of 8,500,000 shares.
Since the Plan would otherwise terminate in 1996, the Board of
Directors also has unanimously approved the amendment of the Plan to
extend the termination date by five years to December 31, 2001.
Reasons for Proposed Amendments
The purpose of the Plan is to advance the interests of EXECUTONE by
enabling employees to acquire an equity interest in the Company.
Management of the Company believes that the availability of stock
options for grant to employees aids in attracting, motivating and
retaining high-caliber employees. The Plan is intended to qualify as an
employee stock option plan under Sections 421 and 423 of the Internal
Revenue Code (the "Code"), as amended, which means that options having
certain beneficial tax attributes may be granted thereunder. The Board
believes these provisions further the intent of the Plan to encourage
employee stock ownership and provide a valuable employee benefit
throughout all levels of the Company.
Summary of the Plan
Administration. The 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
promulgated under the Securities Exchange Act of 1934. The Committee
interprets the Plan and prescribes rules, regulations and forms relating
to the Plan's administration. The Compensation Committee of the Board
of Directors is currently the Committee for the Plan.
Shares Subject to the Plan. After giving effect to the proposed
amendment, a total of 8,500,000 shares of Common Stock, par value $.01
per share, will be reserved for issuance upon exercise of stock options
granted under the Plan, including a total of 4,169,902 already issued,
and a total of 3,330,098 that are currently issuable under options
outstanding under the Plan as of March 31, 1995. After giving effect to
the amendments, approximately 1,000,000 shares will be available for
issuance upon exercise of options that may be granted in the future.
The Plan provides for appropriate adjustment in the event of stock
dividends, stock splits, recapitalizations and other changes in capital
structure.
Eligibility. All full-time employees (including officers) of the
Company or any subsidiary are eligible to be granted options under the
Plan.
Nontransferability. Options granted under the Plan are not
transferable other than by will or the laws of descent and distribution,
and such options are exercisable during a participant's lifetime only by such
participant.
Termination of Employment or Death. If the employment of a
participant in the Plan is terminated voluntarily by the employee or if
such termination is for cause, all options held by such person will
expire immediately. If such employment terminates other than
8
<PAGE>
voluntarily or for cause, options then outstanding may be exercised
within 30 days of termination of employment or, in the case of
disability or death, within 30 days of the date of disability or death.
Amendment and Termination. The Board of Directors may at any time
terminate the Plan, or from time to time make such modifications or
amendments to the 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 entitled
to vote, increase the aggregate number of shares as to which options may
be granted, or change the corporations or class of corporations whose
employees are eligible to receive options under the Plan, or make any
other change that would materially increase the benefits of the Plan to
the participants.
Vote Required
Adoption of the proposed amendments to the Plan requires the
affirmative vote of the holders of a majority of the outstanding shares
of Common Stock entitled to vote. 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 will
have the same effect as a negative vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL NO. 3
9
<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, 1995 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.
Shares of Common Stock Percentage of
Name of Beneficial Owner Beneficially Owned Common Stock (1)
Stanley M. Blau (2) . . . . . . . . . 761,358 1.7
Entities Associated with Hambrecht &
Quist Group (3) . . . . . . . . . 5,591,931 12.0
One Bush Street
San Francisco, CA 94104
Alan Kessman (4) . . . . . . . . . . 1,823,332 3.9
Thurston R. Moore (5) . . . . . . . . 92,335 *
Entities Associated with
Edmund H. Shea, Jr. (6) 3,238,059 7.0
655 Brea Canyon Road
Walnut Creek, CA 91789
Richard S. Rosenbloom (7) . . . . . . 34,000 *
William R. Smart (8) . . . . . . . . 40,000 *
William J. Spencer . . . . . . . . . 15,000 *
All Directors and Officers as a Group
(21 persons) (9) . . . . . . . . . 7,735,528 15.8
* Less than 1%
(1) Based upon 46,430,758 shares of Common Stock outstanding as of
March 31, 1995. In cases where the beneficial ownership of the
individual or group includes options, warrants, or convertible
securities, the percentage is based on the 46,430,758 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 375,500 shares subject to options exercisable within 60
days of April 26, 1995. Includes 21,000 shares subject to options
not exercisable within 60 days of April 26, 1995.
(3) The Hambrecht & Quist entities share power to vote and dispose of
all of such shares. Does not include 281,364 shares of Common
Stock individually owned by William R. Hambrecht of which
Hambrecht & Quist Group disclaims beneficial ownership.
(4) Includes 198,188 shares subject to options exercisable within 60
days of April 26, 1995. Includes 40,000 shares subject to options
not exercisable within 60 days of April 26, 1995. Includes
765,503 shares as to which voting and dispositive power is
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<PAGE>
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 Company's
Debentures (of which Mr. Kessman owns $100,000 principal amount or
.5% of the principal amount outstanding).
(5) Includes 3,800 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. Includes 15,000 shares subject to options, all of which
are exercisable within 60 days of April 26, 1995.
(6) Includes 14,004 shares of Common Stock issuable upon conversion of
the Company's 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 34,000 shares subject to options
and warrants, 33,250 of which are exercisable within 60 days of
April 26, 1995.
(8) Mr. Smart beneficially owns 34,000 shares subject to options and
warrants, of which 24,168 are exercisable within 60 days of April 26,
1995.
(9) Includes 1,925,337 shares subject to options or warrants
exercisable within 60 days of April 26, 1995. Includes 354,862
shares subject to options or warrants not exercisable within 60
days of April 26, 1995. Also includes 82,541 shares of Common
Stock issuable upon conversion of the Company's Debentures (of which the
group beneficially owns $887,000 principal amount, or 4.6% of the
principal amount outstanding). Includes 924,978 shares as to which
voting and dispositive power is shared and 378,433 shares as to
which beneficial ownership is disclaimed.
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EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the compensation by the Company of
the Chief Executive Officer and the four most highly compensated other
executive officers of the Company for services in all capacities to the
Company and its subsidiaries during the past three fiscal years.
<TABLE>
Annual Compensation Long-Term
Compensation
Other Awards
Annual of All Other
Name and Salary ($) Bonus ($) Compensa- Options/ Compensation
Principal Position Year (1) (4) tion ($)(2) SARs(#) ($) (3)
<S> <C> <C> <C> <C> <C> <C>
1994 391,100 100,000 8,506 -0- 6,978
Alan Kessman
Chairman of the 1993 374,850 150,764 -- 50,000 263,491
Board,
President and 1992 370,731 73,707 29,957 40,000 5,460
Chief
Executive
Officer
1994 243,154 39,600 10,000 -0- 55,597
Michael W.
Yacenda 1993 225,879 58,684 -- 32,000 160,388
Executive Vice
President 1992 226,494 20,011 14,555 26,000 4,172
1994 201,738 7,713 -- -0- 3,276
Stanley M. Blau
Vice Chairman 1993 193,973 37,083 -- 20,000 22,645
1992 194,502 12,853 8,169 20,000 3,141
1994 211,539 23,088 10,000 -0- 4,199
Shlomo Shur
Senior Vice 1993 203,390 38,885 -- 25,000 4,750
President
Advanced 1992 199,117 15,901 11,101 20,000 3,809
Technology
12
1994 205,888 38,025 10,000 -0- 4,899
Andrew
Kontomerkos 1993 193,973 37,083 -- 20,000 6,060
Senior Vice
President 1992 194,502 12,853 8,169 15,000 4,127
Hardware
Engineering and
Production
</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
could have been 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. All
credits shown in this column were used to exercise stock
options in 1993 or 1994. See Note 3.
(3) This category includes for 1994 stock option credits used to
pay the exercise price of employee stock options exercised
during 1994 by Mr. Yacenda in the amount of $50,549. This
category includes for 1993 stock option credits used to pay
the exercise price of employee stock options exercised
during 1993 in the following amounts: Mr. Kessman $256,240;
Mr. Yacenda, $155,250, and Mr. Blau, $19,200. The credits
were granted in 1988, 1992 and 1994 (see note 2 above). The
column does not include 1992 or 1994 credits used in 1993 or
1994 that were reported as "Other Annual Compensation" for
1992 or 1994. This category also includes for each
individual a matching contribution by the Company under the
Company's 401(k) plan in the amount of $660 each for 1994
and 1993 and $600 each for 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 1994: Mr. Kessman, $7,424; Mr Yacenda, $4,774; Mr. Shur,
$4,196; Mr. Blau, $2,820; and Mr. Kontomerkos, $4,849; 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.
(4) Includes special bonus awarded to certain Company employees
following successful implementation of measures to overcome
the effect of a fire at the facilities of one of the
Company's major suppliers in China in December 1993. Special
bonuses totalling $50,000, $30,000, $15,000 and $20,000 were
awarded to Messrs. Kessman, Yacenda, Shur and Kontomerkos,
respectively.
Employment Agreement
The Company and Mr. Kessman entered into an employment continuity
agreement in January, 1995 that provides certain benefits to Mr. Kessman
in the event of the termination of Mr. Kessman's employment following a
change in control in the Company, including a lump sum payment equal to
2.99 times his then current base salary plus the average of any bonuses
awarded to Mr. Kessman during the two fiscal years preceding the
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termination of his employment. Under the terms of the agreement, a
change in control includes the acquisition of beneficial ownership of
20% of the Company's voting securities by any person or group. The
agreement continues through the length of Mr. Kessman's employment with
the Company.
Option Grants in Last Fiscal Year
There were no grants of stock options made during the year ended
December 31, 1994 to the Chief Executive Officer or any of the four most
highly compensated other executive officers of the Company. There were
no grants of stock appreciation rights made to any officers during 1994,
and there are no outstanding stock appreciation rights.
Aggregated Option Exercises in Last Fiscal Year and Fiscal
Year-End Option Values
The following table sets forth each exercise of stock options made
during the year ended December 31, 1994 by the Chief Executive Officer
and the four most highly compensated other executive officers and the
fiscal year-end value of unexercised options held by those individuals
as of December 31, 1994. There were no exercises or holdings of stock
appreciation rights by any officers during 1994, and there are no
outstanding stock appreciation rights.
<TABLE>
Number of
Unexercised Value of
Options Unexercised In-the
at Fiscal Money Options at Fiscal
Year-End (#) Year-End ($) (1)
Shares Acquired Exercisable/ Exercisable/
Name on Exercise (#) Value Realized ($) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Alan Kessman 319,184 538,904 12,500/225,668 32,813/480,679
Michael W. 95,477 174,449 131,523/119,750 291,332/244,797
Yacenda
Stanley M. Blau 69,226 185,981 360,500/36,000 764,000/62,875
Shlomo Shur 28,945 56,603 309,430/57,500 710,889/108,484
Andrew Kontomerkos 25,700 58,079 306,925/48,500 709,624/93,125
</TABLE>
(1) Based upon the last sale price on December 31, 1994 of $3.25
per share of Common Stock.
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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 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 four 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 profitability goals.
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 1994, as in previous years, 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.
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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 other 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. Based upon his evaluation, Mr. Kessman recommends
salary increases to the Committee for its approval. In 1994,
merit increases in salary for executives ranged from 4% to 8%.
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 1994 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 pretax income
targets or goals were achieved by the Company. The bonus
incentive was structured so that if the Company fully achieved
or exceeded 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 pretax income goals (above 50%
attainment) would result in partial bonus payments.
In 1994 the pretax income performance was below the 50%
threshold and hence no pretax bonus incentive was paid.
The Committee reserves the right to make discretionary bonus
awards in appropriate circumstances where an executive might
merit a bonus based on other considerations.
In early 1995, the Committee determined that 15 executives,
including Mr. Kessman, had made especially significant
contributions to the successful program to offset the major
costly effects on product distribution following a fire at a
factory of one of the Company's major suppliers in China in
December 1993, and awarded them a special bonus relative to
their respective contributions. The amounts awarded to Mr.
Kessman, Mr. Yacenda, Mr. Shur and Mr. Kontomerkos are set
forth in the Summary Compensation Table.
8. In 1994, the Committee approved an increase in salary and
bonus eligibility for Mr. Kessman in recognition of Mr.
Kessman's continued implementation of strategic plan decisions
that the Committee believes will ultimately benefit the
Company's shareholders. In recognition of the unique role Mr.
Kessman has
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played and continues to play in the development and growth of
the Company, the Board in 1995 concluded a continuity of
employment agreement with Mr. Kessman. See "Executive
Compensation--Employment Agreement."
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.
No options were granted in 1994 to Mr. Kessman or the four
highest paid other executive officers.
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.
THURSTON MOORE
RICHARD ROSENBLOOM
WILLIAM SMART
WILLIAM SPENCER
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee in 1994 were 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.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires that
the Company's directors and executive officers, and persons who own more
than 10% of a registered class of the Company's equity securities, file
with the Securities and Exchange commission
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initial reports of ownership and reports of change in ownership of
Common Stock and other equity securities of the Company. Officers,
directors and greater than 10% shareholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms
that they file.
To the Company's knowledge, based solely on review of the copies of
such reports furnished to the Company, and written representations that
no other reports were required, during the fiscal year ended December
31, 1992, all Section 16(a) filing requirements applicable to its
officers, directors and greater than 10% beneficial owners were complied
with, except that Mr. Smart inadvertently reported one transaction 30
days late.
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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 and
(iv) a peer group index constructed by the Company (the "Peer Group").
The Peer Group consists of the following companies:
Aspect Telecommunications Inter-Tel, Inc.
Boston Technology, Inc. InterVoice, Inc.
Brite Voice Systems Inc. Microlog Corporation
Centigram Communications Corp. Mitel Corporation
Comdial Corporation Norstan, Inc.
Davox Corporation Octel Communications Corp.(1)
Digital Sound Corporation Syntellect, Inc.
Digital Systems International, Inc. Teknekron Communications
Systems, Inc.
Electronic Information Systems TIE Communications, Inc.
The Peer Group includes companies who compete with the Company in
the general voice processing equipment area as well as those active 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 Peer Group accurately reflects the mix of businesses in
which the Company is currently engaged and will be engaged in the
foreseeable future.
The Peer Group is not identical to the Survey group used to
evaluate compensation of executives described in the Compensation
Committee Report. The Peer Group above does not provide 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 the 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.
(1) In 1994, Octel Communications Corp. acquired VMX, Inc., a company
formerly included in the Peer Group.
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20
Comparison of Five-Year Cumulative Return
Among EXECUTONE (including the Common
Stock ("XTON") and the Debenture ("XTONG"),
the NASDAQ (US) Index and the Company's
Peer Group
Weighted Average
Cumulative Total Returns 1989 1990 1991 1992 1993 1994
XTON $100 $15 $22 $48 $77 $87
NASDAQ (US) $100 $34 $112 $203 $280 $279
PEER GROUP $100 $42 $58 $72 $124 $111
XTONG $100 $85 $136 $158 $181 $177
[PERFORMANCE GRAPH]
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Hunton & Williams regularly acts as counsel to the Company. Mr.
Moore, a director of the Company, is a partner at Hunton & Williams.
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.
The Executive Stock Incentive Plan (the "Incentive Plan") approved
by shareholders at the 1994 Annual Meeting was implemented in June 1994
with 30 employees participating. Under the terms of the Incentive Plan
eligible employees were granted the right to purchase shares of the
Company's Common Stock at a price of $3.1875 per share. Participating
employees financed the purchases of these shares through loans by the
Company's bank lenders at the prime rate less 1/4%. The loans are
fully-recourse to the participating employees but are guaranteed by
letters of credit from the Company to the lending banks. The Company
holds the purchased Common Stock as security for the repayment of the
loans. The following table contains information about borrowings in
excess of $60,000 by executive officers during 1994 pursuant to the
Incentive Plan that are guaranteed by the Company.
Highest Amount of Unpaid
Indebtedness Between Indebtedness at
Name 6/30/94 and 3/31/95 (1) 3/31/95 (1)
Alan Kessman $1,912,500 $1,912,500
Michael W. Yacenda $1,115,625 $1,115,625
Shlomo Shur $ 557,813 $ 557,813
Andrew Kontomerkos $ 557,813 $ 557,813
Barbara C. Anderson $ 318,750 $ 318,750
James E. Cooke, III $ 318,750 $ 318,750
Anthony R. $ 446,250 $ 446,250
Guarascio
Israel J. Hersh $ 95,625 $ 95,625
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Robert W. Hopwood $ 318,750 $ 318,750
Mark M. Hughes $ 318,750 $ 318,750
David E. Lee $ 318,750 $ 318,750
Frank J. Rotatori $ 191,250 $ 191,250
James H. Stirling $ 478,125 $ 478,125
_____________________
(1) Amounts shown are exclusive of accrued interest.
SHAREHOLDER PROPOSALS - 1996 ANNUAL MEETING
Shareholders are entitled to present proposals for action at the
1996 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 1996
Annual Meeting of Shareholders must be received at the Company's offices
on or before December 28, 1995 in order to be considered for inclusion
in the Company's Proxy Statement and form of proxy relating to such
meeting.
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OTHER MATTERS
The Board of Directors has designated Arthur Andersen & Co.,
independent accountants, as auditors for the Company for the fiscal year
ending December 31, 1994. Representatives of Arthur Andersen & Co. will
be present at the annual meeting with an opportunity to make a statement
and will be available to respond to appropriate questions relating to
the 1994 audit of the Company's financial statements.
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
telegraph, 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 28, 1995
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Exhibit A
AMENDMENT TO ARTICLE III OF ARTICLES OF INCORPORATION
OF EXECUTONE INFORMATION SYSTEMS, INC.
The proposed amendment is to amend the first sentence of Article
III of the Company's Articles of Incorporation to read as follows:
The Corporation shall have the authority to issue 80,000,000
shares of Common Stock, par value $.01 per share, and
1,000,000 million shares of Preferred Stock, par value $.01
per share.
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EXECUTONE INFORMATION SYSTEMS, INC. PROXY
478 WHEELERS FARMS ROAD, MILFORD, CONNECTICUT 06460
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 26, 1995, at the Annual Meeting of Shareholders
(the "Meeting") to be held on June 27, 1995, at 3:00 p.m., or any
contination or adjournment thereof.
1. Election of Directors
<TABLE>
<S> <C>
FOR all nominees listed below WITHHOLD AUTHORITY for all nominees
(except 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 the Company's Articles of
Incorporation to increase the total number of authorized shares of
Common Stock from 60,000,000 to 80,000,000 shares.
FOR ( ) AGAINST ( ) ABSTAIN ( )
3. Proposal to approve the amendment of the 1986 Employee Stock Option
Plan to extend the term of this Plan and allocate an additional
1,000,000 shares for issuance under options under the Plan.
FOR ( ) AGAINST ( ) ABSTAIN ( )
4. In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the Meeting.
FOR ( ) AGAINST ( ) ABSTAIN ( )
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
THE 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 AND 3.
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.
