EXECUTONE INFORMATION SYSTEMS INC, 10-K405/A, 1996-04-30

EXECUTONE INFORMATION SYSTEMS INC
10-K405/A, 1996-04-30
TELEPHONE INTERCONNECT SYSTEMS

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FORM 10-K/A

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)

For the fiscal year ended December 31, 1995

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

For the transition period from ____________ to _____________

Commission File Number: 0-11551

EXECUTONE INFORMATION SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

Virginia 86-0449210
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(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification No.)

478 Wheelers Farms Road, Milford, Connecticut 06460
- ------------------------------------------------------------ ------------------
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (203)876-7600

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
N/A None

Securities registered pursuant to Section 12(g) of the Act:

COMMON STOCK, PAR VALUE $.01 PER SHARE
7 1/2% CONVERTIBLE SUBORDINATED DEBENTURES, DUE MARCH 15, 2011
- --------------------------------------------------------------------------------
(Title of Class)

- --------------------------------------------------------------------------------

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]

The aggregate market value of the common stock held by nonaffiliates of the
registrant (assuming for this purpose that all executive officers and directors
of the registrant are affiliates) as of March 29, 1996 was $125,909,320, based
on the last sale price for the common stock on that date.

The number of shares outstanding of the registrant's only class of common stock,
$.01 par value per share, as of March 29, 1996, was 51,865,163.

DOCUMENTS INCORPORATED BY REFERENCE

The following documents are incorporated by reference into the Part of this Form
10-K indicated below:

Part II - 1995 Annual Report to Shareholders

TABLE OF CONTENTS

Item
Page

PART I

<S> <C> <C>
1. Business 1
2. Properties 15
3. Legal Proceedings 15
4. Submission of Matters to a Vote of Security Holders 16
Executive Officers of the Registrant 17

PART II

5. Market for Registrant's Common Equity and Related
Stockholder Matters 20
6. Selected Financial Data 20
7. Management's Discussion and Analysis of Financial Condition 20
and Results of Operations
8. Financial Statements and Supplementary Data 20
9. Changes in and Disagreements with Accountants on 20
Accounting and Financial Disclosure

PART III

10. Directors and Executive Officers of the Registrant 20
11. Executive Compensation 22
12. Security Ownership of Certain Beneficial Owners and Management 28
13. Certain Relationships and Related Transactions 31

PART IV

14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 32

</TABLE>

PART I

ITEM 1. BUSINESS

General

EXECUTONE Information Systems, Inc. ("EXECUTONE" or the "Company")
designs, manufactures, sells, installs and supports voice processing systems and
healthcare communications systems. EXECUTONE also provides cost-effective
long-distance telephone service through its INFOSTAR'r'/LD+ program. Products
are sold under the EXECUTONE'r', INFOSTAR'r', IDS'TM', LIFESAVER'TM' and
INFOSTAR/ILS'TM' brand names through a worldwide network of direct sales and
service offices and independent distributors.

EXECUTONE's executive offices are located at 478 Wheelers Farms Road,
Milford, Connecticut 06460, telephone (203) 876-7600. The Common Stock of
EXECUTONE is traded on the NASDAQ National Market System under the symbol
"XTON", and its Convertible Subordinated Debentures due 2011 trade on the NASDAQ
system under the symbol "XTONG".

Recent Developments

On April 10, 1996, the Company entered into an agreement to sell the
Company's direct sales and service organization, including its network services
division, to a new acquisition company led by Bain Capital, Inc. and including
Triumph Capital Group (the "Buyer"). The purchase price will consist of $61.5
million in cash, a $5.9 million junior subordinated note due July 1, 2004, with
interest at 7.5% per year, and warrants to purchase 8% of the equity issued as
of the closing in the new company. The sale is expected to close on May 31,
1996, subject to the Buyer's financing and other conditions.

The purchase and sale agreement also provides that the Company and the
Buyer will enter into a five-year exclusive distributor agreement pursuant to
which the Buyer will sell and service EXECUTONE'r' and INFOSTAR'r' telephone
products to business and commercial locations that require up to 400 telephones.

The sale will include the Company's National Service Center. The sale
does not include the Pittsburgh direct sales and service office, which the
Company has separately agreed to sell to one of its existing independent
distributors for approximately $1.3 million in cash and notes. The sale also
does not include any of the healthcare communications division, the call center
management division, the videoconferencing division, the National Accounts or
Federal Systems marketing groups or the recently acquired Unistar business.

On April 10, 1996, the Company also announced that it had given notice
of its intention to terminate its distribution agreement with GPT Video Systems
due to failures by GPT to deliver properly functioning videoconferencing
products on a timely basis. The Company has not yet finalized its plans for its
videoconferencing division.

On December 19, 1995, the Company acquired 100% of the common stock of
Unistar Gaming Corp., a Delaware corporation ("Unistar"). Unistar, through its
subsidiary Unistar Entertainment, Inc., has an exclusive five-year contract to
design, develop, finance, and manage the National Indian Lottery (the "NIL" or
"Lottery"). The NIL will be a national telephone lottery authorized by federal
law and by a compact between the State of Idaho and the Coeur d'Alene Indian
Tribe of Idaho ("Coeur d'Alene Tribe"). In return for providing these management
services, Unistar will be paid a fee equal to 30% of the profits of the NIL.

The Registrant acquired 100% of Unistar for 3.7 million shares of Common
Stock, 250,000 shares of Cumulative Convertible Preferred Stock, Series A
("Series A Preferred Stock") and 100,000 shares of Cumulative Contingently
Convertible Preferred Stock, Series B ("Series B Preferred Stock").

The Series A Preferred Stock has voting rights equal to one share of
Common Stock and will earn dividends equal to 18.5% of the consolidated Retained
Earnings of Unistar as of the end of a fiscal period, less any dividends paid to
the holders of the Series A Preferred Stock prior to such date. The Series B
Preferred Stock has voting rights equal to one share of Common Stock and will
earn dividends equal to 31.5% of the consolidated Retained Earnings of Unistar
as of the end of a fiscal period, less any dividends paid to the holders of the
Series B Preferred Stock prior to such date. All dividends on Preferred Stock
are payable (I) when and as declared by the Board of Directors, (ii) upon
conversion or redemption of the Series A and Series B Preferred Stock or (iii)
upon liquidation. The Series A and Series B Preferred Stock is redeemable for a
total of 13.3 million shares of Common Stock (Series A Preferred Stock for 4.925
million shares and Series B Preferred Stock for 8.375 million shares) at the
Company's option. The Series A Preferred Stock is convertible for up to 4.925
million shares of Common Stock and the Series B Preferred Stock is contingently
convertible for up to 8.375 million shares of Common Stock (a total of an
additional 13.3 million shares of Common Stock) if Unistar meets certain revenue
and profit parameters. Shareholder approval is required before any of the Series
B Preferred Stock can be converted or redeemed. The Company intends to submit
the terms of the Series B Preferred Stock to its shareholders for approval at
the 1996 Annual Meeting.

The telephone operations of the NIL cannot begin until the resolution of
a pending legal proceeding. Certain states have attempted to block the NIL by
filing Section 1084 letters preventing long-distance carriers from providing
telephone service to the NIL. The Coeur d'Alene Tribe has initiated legal action
to argue that the Lottery is authorized by the Indian Gaming Regulatory Act
("IGRA") passed in 1988, that IGRA preempts state and federal statutes, and that
the states lack authority to issue the Section 1084 notification letters to any
carrier. On February 28, 1996, the Coeur d"Alene tribal court ruled that all
requirements of IGRA have been satisfied, that the Section 1084 letters are
invalid, and that the long distance carrier is obligated to provide telephone
service for the NIL. Although the ruling is likely to be appealed to the tribal
supreme court and ultimately to U.S. Federal District Court, the Company
believes the initial ruling and the Coeur d'Alene Tribe's position will be
upheld.

In July 1995, the Company reorganized its core business into five
divisions: Computer Telephony, Healthcare Communication Systems, Call Center
Management, Videoconferencing Products, and Network Services. The business of
Executone, Inc. acquired by the Company in 1988 was a telephone equipment
business that focused its direct selling effort on office sites with fewer than
20 phones, with an emphasis on selling additional hardware to generate revenues
in the form of moves, adds and changes ("MAC") and service, mainly on a time and
material basis. The average system size in the customer base at that time was in
the 8-10 phone range. It was originally expected in 1988 that the MAC and
service revenues generated by the customer base would be increasingly profitable
as the base of customers grew. Since 1988, the Company has expanded its product
line to the high-end user, with larger customers and more sophisticated products
to serve customers' total communications needs. The strategy the Company is now
pursuing is to focus on software solutions versus the hardware orientation of
the business purchased in the 1988 acquisition. With the IDS platform, which was
developed after the acquisition, the Company's product lines now provide
sophisticated software applications, including integrated voice mail, call
center applications (ACD, IVR's and predictive dialers), infrared locator
systems, nurse call systems and computer telephony interfaces that drive its
telephony products.

The development in the nature and complexity of our product lines has
changed the way the Company has to market its products. Unlike many companies in
its industry that focus on one particular product to one market, the Company
provides multiple products and applications to its particular market niche. This
requires the Company to have expertise in each particular market segment in
which it competes because the Company's competitors are primarily one-product
companies or divisions who are experts in their particular market niche.
Therefore, the Company consolidated the sales, marketing and product development
functions for each market segment under a divisional management structure,
headed by a division president. The sales force has been restructured such that
each sales person is assigned to a specific division and will sell only within
that division's market segment. The specialization of the sales force included
the addition of sales representatives with the necessary product and market
expertise, as well as substantial retraining for the remaining sales
representatives.

Business Strategy

EXECUTONE is a vertically integrated voice processing and healthcare
communications company. The Company controls the major elements of its business,
ranging from product design, manufacturing and marketing to distribution,
installation, service and support. Revenues are derived from both from new
installations and from the Company's existing customer base through additions,
changes, upgrades or relocation of previously installed systems, maintenance
contracts, service charges and sales of network services. The Company's products
and services are marketed and sold through a worldwide network of Company direct
sales and service offices and independent distributors. The Company is organized
into five divisions focusing on different products and market segments: computer
telephony, healthcare communication systems, call center management,
videoconferencing products, and network (voice, data and

video) services.

The objective of the computer telephony division is to offer value-added
products and services. The Company's integrated digital telephone systems
emphasize flexible software applications, such as data switching and computer
telephone interface, designed to enhance the customer's ability to communicate,
obtain and manage information. The Company's telephone systems provide the
platform for its other voice processing software applications, such as automatic
call distribution.

The healthcare communications systems division provides to its
healthcare facility customers integration of voice and data between nurse and
patient communication systems and hospital information systems, resulting in
increased flexibility and efficiency in hospital operations, and improved
patient care. EXECUTONE has been a recognized name in this market for many years
with its LIFESAVER'TM' and CARE/COM'r'II-E nurse call systems. The Company is
also creating software applications specific to hospital and nursing homes to
help resolve other labor intensive tasks.

The healthcare communications division also markets the INFOSTAR/ILS'TM'
locator system, released in early 1994. The INFOSTAR/ILS system can improve
productivity, save time and expense for users and eliminate overhead paging by
instantly locating staff and equipment in a facility. Each person or piece of
equipment wears an individually coded badge that transmits infrared signals to
sensors placed throughout the facility, which forward the location information
to a central processing unit. The location data can be accessed on local display
stations. The ILS'TM' system can be integrated with the Company's telephone
systems and the LIFESAVER'TM' nurse call system to provide additional
productivity improvements for hospital environments. The ILS system is also
marketed by the computer telephony division for office environments.

The call center management division develops and sells sophisticated
telephony products that integrate a computerized digital telephone system
platform with high-volume inbound, outbound and internal call processing
systems. Such systems include automatic call distribution systems, predictive
dialing systems, scripting software to assist agents handling calls, and
interactive voice response systems. Certain of these systems also provide data
interface with host or mainframe computers. These systems are sold to call
center customers that have a need for systems to efficiently and
cost-effectively receive or place their customer or prospect calls, distribute
those calls to available live operators, obtain information from callers, record
and distribute messages from callers, and produce management reports on call
activity.

The videoconferencing division is the exclusive distributor of products
of GPT Video Systems ("GPT") in the United States. The division also provides
videoconferencing network services such as multipoint conferencing, network
bridging and network design to its videoconferencing customers.

The network services division offers cost-effective voice, data and
video long-distance service, least-cost routing, network design and network
support

services, enabling customers to make more efficient and cost-effective use of
their telecommunications systems. Services are sold primarily to telephony
customers in the United States.

In 1995, the Company acquired Unistar. Unistar, through its subsidiary
Unistar Entertainment, Inc., has an exclusive five-year contract with the Coeur
d'Alene Tribe of Idaho to design, develop, finance, and manage the National
Indian Lottery (the "NIL" or the "Lottery"). The NIL will be a national
telephone lottery authorized by the federal Indian Gaming Regulatory Act
("IGRA") and a compact between the State of Idaho and the Coeur d'Alene Tribe.
In return for providing these management services to the NIL, Unistar will be
paid a fee equal to 30% of the profits of the NIL. Through Unistar, the Company
will provide development and management of the network design and call center
applications for the Lottery's operations. It is anticipated that calls to
purchase lottery tickets will be made via 800 number lines and processed by
interactive voice response systems, as well as live agents located on the Coeur
d'Alene Reservation using ACD software to manage a high volume of calls. The
Lottery will require an extensive telephone network to handle the anticipated
call volume.

The telephone operations of the NIL cannot begin until resolution of a
pending legal proceeding. See "Legal Proceedings."

Computer Telephony Products

The Company offers a complete line of applications-oriented computer
telephony systems, ranging from those satisfying the basic voice communications
needs of small businesses to those capable of meeting the complex voice and data
communications demands of much larger business locations that need fully
featured telecommunications systems. The Company markets the IDS'TM' Integrated
Digital System, along with an expanding line of software applications and
features operating on that platform. The Company's largest telephone platform is
the IDS'TM'/System 648 digital system, which can accommodate up to 648
nonblocking voice ports and 648 nonblocking data ports. The Company believes its
installed telephone equipment base exceeds 3 million desktops.

In 1996, the Company introduced its TAPI telephone, designed to support
any desktop application using the TAPI standard for computer-telephone
integration, in order to speed inbound and outbound call handling and increase
productivity. The TAPI telephone can eliminate time spent searching for
telephone numbers, looking up PBX feature codes, misdialing or searching for
information to handle a call.

The Company's telephone systems are characterized by flexible software
and a hardware design that makes them readily adaptable to evolving technology
and customer requirements. The Company attributes the market acceptance of its
systems to cost-effective design and to the sophistication of its software
options. The software in each system provides such features as automatic
dialing, add-on conferencing, call forwarding, last number redialing, message
waiting, paging capability, internal diagnostic routines and other commonly used
communications features. The Company's systems also include an integrated
automated attendant feature to answer and transfer calls quickly and efficiently

without operator intervention, and a video display terminal and management
reports that permit the monitoring of calls and improve the efficiency of
directing calls to the appropriate extensions. The Company's telephone systems
also support sophisticated applications such as voice mail and call center
products as well as the Company's locator system.

The Company also offers a voice mail system that can be integrated with
the IDS'TM' telephone systems and with telephone systems manufactured by others.
The voice message or voice mail system receives, records, stores, distributes,
transfers and replays messages from both external and internal callers and can
supplement other call center systems.

The Company develops its application-specific software options using
high-level programming languages to facilitate further enhancements and
portability. EXECUTONE's software includes remote capabilities built into
certain systems that enable the Company to customize and update selected
features continuously, which increases the value of such systems and lengthens
their useful lives. Certain of the Company's systems are capable of having
service diagnostics, updates and modifications performed on a remote basis. The
ability to provide such off-site servicing increases the efficiency of customer
support and service.

Healthcare Communication Products

The Company develops, manufactures, markets and services a line of
specialized internal communications systems that are used primarily in the
healthcare industry. These internal communications systems are
microprocessor-based patient-to-nurse communication systems, intercoms, paging
and sound equipment, and room status indicators.

The Company's LIFESAVER'TM' nurse call system is an advanced system
integrating voice and data communication between nurse and patient and providing
enhanced self-diagnostics. The LIFESAVER'TM' system is a state-of-the-art
communications network that provides routine and emergency signaling, voice
communications and data transmission. The nurse console offers menu-driven
functions and step-by-step user prompts. The system is highly flexible, offering
many programmable features that allow customization of its operations to the
hospital's needs. A single system can serve more than 300 patient beds (150
rooms) and up to eight nurse control stations, and up to eight systems can be
networked for centralized operation.

The CARE/COM'r' II-E nurse call system represents the first step in
EXECUTONE's plan to bring the benefits of a totally integrated communications
system to the healthcare market on the Company's IDS digital platform. The
CARE/COM'r' lI-E system provides patient-to-staff and staff-to-staff voice
communication on an automatic three-level call priority basis. This new system
can currently support 72 patient stations per system, with the ability to
integrate three systems together and support 216 patient stations. A three-line
LCD display Nurse Control Station allows simple call processing and system
operation. The system is highly flexible to meet the individually defined needs
of today's hospitals

and long-term care facilities.

The LIFESAVER'TM' nurse call system integrates with the Company's
locator system.

The Healthcare Division also markets the INFOSTAR'r'/PRS patient
reporting system, an automated voice storage system that allows the efficient
transfer of patient information between nurses. Patient reports are password-
protected for confidentiality and admission, discharge and transfer information
are also supported. The system uses standard telephone instruments and provides
full voice messaging capability. The INFOSTAR'r'/PRS system reduces report time,
provides continuity at shift changes, and improves report quality.

In 1995, the Healthcare Division began marketing the Communicator system
manufactured by Dialogic Communications Corporation, in which the Company has an
equity investment. The Communicator product is a P.C.-based, automated callout
system that rapidly locates personnel to fulfill routine or emergency staffing
needs, searching multiple locations until responses are sufficient to satisfy
the staffing need. The system also provides real-time management reports of
employee eligibility, availability, and responses. Using the Communicator
system, hospitals can improve staffing efficiency, avoid miscommunication, and
enhance productivity.

Locator Systems

The Company's INFOSTAR/ILS'TM' locator system is an integrated system
using infrared transmitter badges to communicate location data to sensors
installed throughout a facility. The badges transmit regularly at
user-programmed intervals and can be worn by staff personnel or attached to
equipment. The location data is collected by the sensors and forwarded to a
central processing unit that organizes the data so it can be accessed at
one or more display stations. The display of staff and equipment location
information can be in the form of a list or in the form of a map of the facility
using icons. The display can be filtered to show only particular staff members,
groups of personnel, particular pieces of equipment or groups of equipment.
The system can be integrated with either the IDS telephone systems, allowing
the activation of features and display of information on the telephone set, or
the Company's nurse call systems, allowing the activation of features and
display of information at the nurse control station and patient stations. The
INFOSTAR/VLS'TM' version of this product allows outside callers to locate
personnel within a facility, find out who the person is with, complete the call,
or leave a voice message. The ILS and VLS systems can also be integrated to
other manufacturers' PBXs. Nortel has now made ILS available to its dealer
network for sale by its dealers in conjunction with Nortel PBXs.

Call Center Management Products

The Company's call center management products consist of the following
systems, which can be integrated with the Company's computer telephone systems
and with each other to provide large-volume inbound, outbound and internal call
management. Computer-telephone integration ("CTI") technology

integrates the IDS'TM' call processing function with information in a customer's
computer database. Primarily used by large incoming call centers to
automatically identify incoming callers and by outbound centers to contact and
provide records of contacts, CTI limits the amount of time that an agent spends
contacting or identifying the caller, thereby providing better customer service,
reducing the number of required agents and reducing telephone line and
transmission expense.

Predictive Dialers and Scripting Products - The INFOSTAR'r'/Predictive
Dialer is an automated call system designed to boost productivity in outbound
call centers. The system integrates telephone, data collection and transaction
processing functions for those customers who require high volume contact by
telephone to transact business, such as sales, credit and collections, blood
banks and fund-raising. Working with the host computer and the IDS'TM' telephone
system platform, the dialer automatically dials telephone numbers pulled from
the host computer database and detects "live" calls. Available representatives
receive these calls and, through CTI, can view screen information about the
customer from the database immediately after the customer answers the phone. The
system predicts the availability of agents in order to reduce abandoned calls
and increase agent productivity, and reduces agent contact with busy signals, no
answers, wrong numbers and answering machines. Management reports provide
instant and historical feedback on call distribution, list management, data
input integrity and file maintenance. Scripting software allows the call center
to create a script to guide its agents through various call scenarios and prompt
the input of desired information.

Automatic Call Distribution ("ACD") - ACD systems are designed to
increase responsiveness to inbound callers and increase agent productivity. ACD
systems provide the capability to distribute or route incoming calls to
available agents based upon management's specifications, and allow the
supervisor of the call processing group to monitor call traffic on-line via a
computer terminal. The Company produces ACD software for call centers of up to
500 agents in multiple shifts (225 in any single shift), in five levels of
sophistication, the highest of which is "Custom Plus ACD." Custom Plus ACD
provides the capability to store and retrieve call data for a limited period,
print out standard call traffic reports, customize reports to the needs of a
specific application, monitor traffic with color screens and graphics, and
greatly enhance the ability to store and retrieve historical call data.

Interactive Voice Response - The Company's interactive voice response
("IVR") systems provide businesses with automated handling of routine
calls. Voice response systems allow callers to input and retrieve information
into or from computers by means of the dialpads on their telephones. The
caller is guided by voice prompts to input data by dialing numbers, which the
IVR system converts into computer keystrokes. The IVR system can also convert
computer screen information into voice prompts, allowing callers to retrieve
information from computers. The voice response product provides advanced
computer access applications and advanced facilities, such as ISDN, that
interface with the Company's IDS'TM' family of telephone systems and other
advanced voice processing applications.

Videoconferencing Systems and Services

The Videoconferencing Division markets videoconferencing equipment in
the United States and provides video network services including video
networking, network design, multipoint conferencing, and video network bridging.
The Company provides its videoconferencing customers with a "turnkey" solution
including equipment installation, network services, maintenance and customer
support.

Network Services

The Company markets INFOSTAR'r'/LD+ long-distance telephone service to
its customers. INFOSTAR'r'/LD+ provides a complete service to the Company's
customers from the initial sale through billing and customer support. The
Company has contracted with major carriers including Sprint, Worldcom and
Teleport Communications to carry the long-distance traffic for both voice and
data on their networks. The Company has also signed agreements to provide
alternative local access in select cities throughout the U.S. This program
offers many features including six-second billing rates, accounting codes,
international service, 800 service, "T-1" access and specialized management
reporting.

The Company also provides the following network services:

Network Designer - The Company can perform a computer-generated analysis
of a customer's calling patterns in order to recommend the optimum configuration
of its network. Recommendations would include the long-distance carriers and the
number of lines needed.

Least Cost Routing ("LCR") - LCR stores current tariff tables for the
appropriate long-distance carriers employed by the customer and automatically
selects the least expensive carrier for each specific call at the moment the
call is placed.

Data Switching - Data switching provides the capability to switch data
between mainframe, minicomputers, personal computers, terminals and peripherals
through the telephone systems.

Centrex Capability and Applications - The Company's telephone systems
can be programmed to function in conjunction with and enhance the features of
Centrex services offered by the local telephone companies.

Sales and Marketing

Developing and maintaining a strong relationship with the end-user
customer is the focus of the Company's marketing strategy. The Company's
distribution network consists of (1) 70 Company-owned direct sales and service
locations in the major markets in the United States; (2) domestic independent
distributors with approximately 110 locations operating under exclusive and
nonexclusive agreements throughout the United States and Canada; (3) a National

Accounts Division that uses the sales, installation, service and support
capabilities of EXECUTONE's distribution network to serve multiple offices and
departments of companies; (4) a Federal Systems Division that uses the
distribution network to serve offices of the U. S. Government and its agencies;
(5) vertical marketing organizations of the healthcare communications, call
center, network and videoconferencing divisions; and (6) 20 independent
distributors operating in sixteen other foreign countries.

For those distributors that have exclusive distribution rights for
specified products, retention of such rights is subject to satisfaction of
established criteria for sales and service to customers on an ongoing basis. The
divesting of or acquisition of customer bases to or from distributors in
specific geographic territories may occur in the normal course of the Company's
business.

EXECUTONE's National Accounts Division provides uniformity in pricing,
coordination, installation, billing and service for National Accounts Division
customers such as Electronic Data Systems, Airborne Express, Paychex, Inc., W.
W. Grainger, Home Quarters Warehouse, Inc., Bridgestone/Firestone, Carlson
Companies, Fidelity Investments and TCI Cable. The Division coordinates the
sales, installation, service and support functions of direct and independent
sales offices to serve the multiple offices and departments of large companies.

The Company's Federal Systems Division addresses the special procurement
and administrative requirements of the U.S. Government. Sales are made through a
combination of master contracts and competitively solicited proposals for large
or complex telecommunications requirements. Federal Systems coordinates the
installation, service and support activities of direct and independent sales
offices to provide ongoing support to federal agency offices nationwide.

Backlog consists primarily of products that have been ordered and that
will be shipped or installed within 30 to 60 days of the order (other than call
center and healthcare orders, which have a longer lead time), or systems the
installation of which is not yet required by the customer. Backlog as of
December 31, 1995, was $ 33,091,000 compared to $29,390,000 at December 31,
1994, and the Company expects virtually all of such backlog to be filled within
the current fiscal year.

Customer Support and Service

The Company operates a National Service Center that diagnoses system
problems for many of the end-user customers of its direct sales and service
offices, coordinates field service personnel and programs certain corrections
remotely from a centralized location at its corporate headquarters. The National
Service Center helps the Company in providing consistent customer service and
support while improving the productivity of the Company's technicians. All
service calls received from customers are controlled from initial diagnosis to
ultimate disposition through an internally-developed and maintained proprietary
software package. The National Service Center maintains detailed customer
records and also markets and monitors certain products and services such as
maintenance contracts. It is the primary point of contact for customer needs,
questions or

requests. Additionally, the National Service Center provides the Company with
statistical data and reports regarding a product's performance, which can be
used to make enhancements and improvements. This data is also available for each
of the Company's locations and each of its technicians.

EXECUTONE warrants parts and labor on its systems, typically for one
year, and provides maintenance and service after warranty expiration either on a
contract or time and materials basis. Most of the Company's products are
repaired at its 56,000-square foot repair facility located in Poway, California.

Product Development and Engineering

As of March 1, 1996, EXECUTONE employed over 100 individuals engaged in
product design and development. The Company's product development program is
designed to anticipate and respond to customer needs through development of new
products and enhancement of existing products. During 1995, the Company's
engineering efforts focused on applications-oriented software products,
including new releases of voice messaging, call center and healthcare
communications software. EXECUTONE continually strives to reduce production
costs by incorporating new technology into its design and manufacturing
operations. For the years ended December 31, 1995, 1994, and 1993,
Company-sponsored product development and engineering expenditures (including
product management and testing) amounted to approximately $14.7 million, $12.2
million, and $9.9 million, respectively.

Manufacturing

Most of EXECUTONE's telephone products are manufactured by Wong's
Electronics Company, Ltd. ("Wong's") in Hong Kong or China, by Quality
Telecommunication Products, also referred to as Compania Dominicana de Telefonos
("Codetel"), in the Dominican Republic, and by the Company directly in Poway,
California. Many of the printed circuit boards for the Company's products are
manufactured, and many products are assembled into systems and system
components, in the United States.

The Company's Manufacturing Services Agreement with Wong's currently
expires in February 1997 but is automatically extended each year for an
additional one-year term unless either party gives notice of termination three
months prior to expiration of the current term. The contract may be terminated
earlier by either party in the event of a material breach by the other party.

If the agreement between Wong's and EXECUTONE should be terminated for
any reason, or if Wong's is unable to ship or has to reduce shipments, or if
restrictions are imposed materially limiting the importation of products
produced by foreign manufacturers, the Company could be affected adversely until
satisfactory alternative sources are in place. The profitability of EXECUTONE's
operations could be affected to the extent it is unable to reflect the direct
and indirect costs of products purchased from Wong's in its pricing policies.
The prices for products purchased by EXECUTONE from its suppliers are payable in
U.S. dollars.

The majority of EXECUTONE's specialized healthcare and internal
communication systems are produced in the United States at the Company's
facility in Poway, California or at domestic subcontractors. The functions of
repair, warehousing and distribution of the Company's products are performed at
the Company's facilities in Poway.

Trademarks, Patents and Copyrights

Management believes that the continued success of EXECUTONE is dependent
upon the ability to design, develop and market new products and new or enhanced
applications. The patentability of such new products or applications is
evaluated and patent applications are filed where necessary to protect unique
developments. The Company currently holds eight utility patents, expiring at
various times between 2007 and 2012, has 13 U.S. patent applications pending,
and seven patent applications pending in numerous foreign countries.

The Company has registered or applied to register its trademarks when it
believes registration to be important to its ongoing business operations. The
Company also generally claims copyright protection for software, circuit
designs, schematics and technical documentation used in connection with its
products, and relies upon trade secret, contract and copyright laws to protect
its proprietary rights in its software, designs and documentation.

Certain of EXECUTONE's products incorporate technology and software
licensed from independent third parties. Generally, these licenses require
payment of a royalty for each system sold that incorporates the licensed
technology or require that the Company purchase the product from the licensor.

Government Regulation

Many of the Company's systems are designed to be connected to the public
telecommunications network and as such are required to comply with certain rules
of the Federal Communications Commission ("FCC") pertaining to
telecommunications equipment. The Company's network services are generally
required to be tariffed and are subject to regulation by the public utility
commissions of the various states and by the FCC. The Company has not
experienced any material adverse effect on its business or operations as a
result of such regulation and compliance.

Certain uses of outbound call processing systems are regulated by
federal and state law. Among other things, the FCC has adopted rules pursuant to
the Federal Telephone Consumer Protection Act to protect residential telephone
subscribers' privacy rights to avoid receiving telephone solicitations to which
they object. Certain states have enacted similar laws limiting access to
telephone subscribers who object to receiving solicitations. Although compliance
with these laws may limit the potential use of the Company's predictive dialer
systems in some respects, the Company's systems can be programmed to operate
automatically in full compliance with these laws through the use of appropriate
calling lists and calling campaign time parameters.

To the extent the Company markets its products internationally, it is
required to comply with applicable foreign law, including certification of its
products by appropriate government regulatory organizations.

Competition

The market segments in which the Company offers its products and
services are highly competitive. The under 300-desktop voice processing segment
in the United States, the primary market for the Company's telephony division,
is served by many domestic and foreign communications equipment manufacturers
and distributors, including Lucent Technologies (the former equipment business
of AT&T), Nortel (formerly named Northern Telecom), and the Regional Bell
Operating Companies (the "RBOCs"), as well as numerous specialized software
companies. The Company believes that it may be third in telephone system
shipments to the under 300-desktop voice processing market, after AT&T/Lucent
and Nortel, based on industry surveys of 1994 data. However, such information
may not be sufficient to make an exact assessment of the Company's competitive
position relative to its competitors. Similarly, the Company faces strong
competition in network services, including AT&T, MCI, Sprint, and numerous long
distance resellers. Although the Company can be competitive on price compared to
several of these companies, many of EXECUTONE's competitors have substantially
more capital, technology and marketing resources than the Company.

Competition in the Company's market segments is expected to increase
significantly with passage in February 1996 of the Telecommunications Act of
1996 (the "Act"). Under the Act, long-distance companies, cable companies and
others will be permitted to compete with local telephone companies to offer
local service. The RBOCs and other local telephone companies will be permitted
to offer long-distance services if their local market meets certain criteria to
measure the existence of local competition.

The Company believes its call center division is in a good competitive
position although to date it has not penetrated a significant portion of this
market. The Company believes it is currently the only vendor that supplies
inbound, outbound and administrative call processing integrated with a telephone
system platform.

The Company's principal competitors in healthcare communications are
Hill-Rom Company, DuKane and Rauland-Borg. The Company believes it has a strong
competitive position in nurse call and locator products.

The Company believes that it has several competitors in
videoconferencing but is not yet able to estimate its competitive position
relative to such competitors.

The Company competes by offering a full array of integrated
telecommunication products and services to its customers. The Company also
competes on the basis of the quality of its products, its customer service,
nationwide distribution and installation, and price.

Employees

As of March 1, 1996, EXECUTONE employed approximately 2,400 persons,
directly and through its subsidiaries. Approximately 5% of the employees of the
Company and its subsidiaries are represented by unions, all of which are
represented by the International Brotherhood of Electrical Workers. Management
believes that the Company's relations with its employees are good.

ITEM 2. PROPERTIES

EXECUTONE's principal offices are located in two leased buildings in
Milford, Connecticut. The Company has sales offices, warehouses, manufacturing
and distribution facilities throughout the United States. As of December 31,
1995, the Company utilized 73 facilities in the United States with an aggregate
of approximately 792,000 square feet for its ongoing operations.

The Company's facilities are occupied under lease agreements except for
one facility. This Company-owned building is approximately 15,000 square feet,
and is used for a direct sales and service office. The current annual rent for
the Company's facilities is approximately $9.2 million. The Company has one
facility totaling approximately 14,000 square feet of space that is no longer
used in ongoing operations and is subleased.

The Company believes its facilities are adequate and generally suitable
for its business requirements at the present time and for the immediate future.
The following is a brief description of the primary facilities of the Company.

<TABLE>
<CAPTION>
Use Location Approximate Size
- --- -------- ----------------
<S> <C> <C>
Corporate and Direct Sales Milford, Connecticut 150,000 square feet
Headquarters; National Customer
Service Center; and Research,
Development and Engineering
Facility

Distribution, Production & Poway, California 115,000 square feet
Repair Center and Warehouse

Direct Sales and Service Major cities across U.S. 496,000 square feet
Offices, including warehouses
</TABLE>

ITEM 3. LEGAL PROCEEDINGS

On October 16, 1995, the Coeur d 'Alene Tribe filed an action entitled
Coeur d'Alene Tribe v. AT&T Corp. in the Tribal Court, located in Plummer, Idaho
(Case No. C195-097), requesting a ruling that the NIL is legal under IGRA, that
IGRA preempts state laws on the subject of Indian gaming, and the NIL cannot be
blocked by state action, and an injunction preventing AT&T from refusing to
provide telephone service to the NIL. This action was necessary because several
network carriers have been sent Section 1084 letters under the Federal
Communications Act by states opposed to the NIL. These letters state that the
NIL is illegal under state and federal laws and prohibit the carriers from
carrying network traffic for the NIL. The telephone operations of the NIL cannot
begin until resolution of this proceeding and agreement of a network carrier to
carry the network traffic of the NIL. On February 28, 1996, the Tribal Court
ruled that all

requirements of IGRA have been satisfied, that the Section 1084 letters are
invalid, and that AT&T is obligated to provide telephone service for the NIL.
Although AT&T has stated that it will appeal the ruling to the tribal supreme
court and ultimately to U.S. federal court, the Company believes the initial
ruling and the Coeur d'Alene Tribe's position will be upheld. However, this
litigation, as well as other litigation which could be brought by states opposed
to the NIL, could delay commencement of operations, and it is impossible at this
time to predict when the NIL will commence operations. The Company does not
believe the outcome of this litigation will have a material adverse effect on
the Company's consolidated financial position, results of operations or
liquidity.

The Company currently is a named defendant in a number of lawsuits and
is a party to a number of other proceedings that have arisen in the normal
course of its business. Those lawsuits and proceedings relate primarily to the
collection of indebtedness owed to the Company, the performance of products sold
by the Company, and various contract disputes. In the opinion of the Company,
these proceedings are not expected to have a material adverse effect on the
consolidated financial position, results of operations or liquidity of the
Company and, to the extent they are not covered by insurance, reserves adequate
to satisfy such liabilities have been established.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of security holders in the fourth
quarter of the fiscal year covered by this report.

EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers of the Company are as follows:

<TABLE>
<CAPTION>
Name Age Position With Company
- ---- --- ---------------------
<S> <C> <C>
Alan Kessman 49 Chairman of the Board, President and Chief
Executive Officer

Stanley M. Blau 58 Vice Chairman of the Board

Michael W. Yacenda 44 Executive Vice President

Barbara C. Anderson 44 Vice President, General Counsel and
Secretary

James E. Cooke III 47 Vice President, National Accounts

Anthony R. Guarascio 42 Vice President, Finance and Chief
Financial Officer

Israel J. Hersh 42 Vice President, Software Engineering

Elizabeth Hinds 54 Vice President, Human Resources

Robert W. Hopwood 52 Vice President, Customer Care

Andrew Kontomerkos 50 Senior Vice President, Hardware Engineering and
Production

David E. Lee 49 Vice President, Business Development

John T. O'Kane 66 Vice President, MIS

Frank J. Rotatori 53 Vice President, Healthcare Sales

Shlomo Shur 46 Senior Vice President, Advanced Technology

Alan Kessman has served as Chairman and Chief Executive Officer of the
Company since 1988. Prior to that, he had served as President and Chief
Executive Officer of ISOETEC Communications, Inc., a predecessor of the Company
("ISOETEC"), since 1983. From 1978 to 1983, Mr. Kessman served as President of
three operating subsidiaries of Rolm Corporation, and from 1981 to 1983, he
served as a Corporate Vice President of Rolm Corporation, responsible for sales
and service in the eastern United States.

Stanley M. Blau has served as Vice Chairman of EXECUTONE since 1988.
Prior thereto, from June 1987 to July 1988, Mr. Blau was the President and Chief
Executive Officer of Vodavi Technology Corporation, a predecessor of the Company
("Vodavi"). Mr. Blau was formerly the President and Chairman of the Board of
Consolidated Communications, Inc., a telecommunications products

supply company he founded in 1973.

Michael W. Yacenda has served as Executive Vice President of EXECUTONE
since January 1990. Prior to that time, he was Vice President, Finance and Chief
Financial Officer of the Company from July 1988 to January 1990. He served as a
Vice President of ISOETEC from 1983 to 1988. From 1974 to 1983, Mr. Yacenda was
employed by Arthur Andersen & Co., a public accounting firm. Mr. Yacenda is a
certified public accountant.

Barbara C. Anderson has been Vice President, General Counsel and
Secretary since 1990. From 1985 to 1989, she was Corporate Counsel of United
States Surgical Corporation, a manufacturer of medical devices.

James E. Cooke III has served as Vice President, National Accounts since
February 1995. Prior to that time, from 1992 until 1995, Mr. Cooke served as
Division Manager of Operations for the Company, and from 1988 through 1991, Mr.
Cooke was a District Manager for the Company. From 1985 until 1988, Mr. Cooke
was the President of an interconnect company, and from 1981 to 1985, he was a
General Manager and a Regional Manager of the Jarvis Corporation. For eight
years prior to that time, he worked at Xerox Corporation in various sales and
management positions.

Anthony R. Guarascio has been Vice President, Finance and Chief
Financial Officer since January 1994, and prior thereto was Vice President and
Corporate Controller since January 1990. From 1984 until 1990, Mr. Guarascio was
the Corporate Controller of the Company and ISOETEC.

Israel J. Hersh has been Vice President, Software Engineering since
February 1995. Mr. Hersh joined the Company as Director of Software Development
in 1984, and was promoted to Senior Director of Software Engineering in January
1994. Prior to his employment with the Company, Mr. Hersh was a manager of the
software development department for T-Bar, Inc. Mr. Hersh has a B.S. in
Electrical Engineering from Tel Aviv University and a MS in Electrical
Engineering from Bridgeport University.

Elizabeth Hinds has been Vice President, Human Resources since January
1995. Prior to joining the Company, Ms. Hinds was Vice President, Human
Resources of Chilton Company, a wholly-owned subsidiary of Capital
Cities/American Broadcasting Company, Inc. ("CC/ABC"), from February 1993 until
January 1995. Ms. Hinds was the Director of Human Resources for CC/ABC from June
1987 until February 1993.

Robert W. Hopwood has served as Vice President, Customer Care since
January 1990. From 1983 until 1990, Mr. Hopwood was the Director of Technical
Operations of the Company and ISOETEC.

Andrew Kontomerkos has been Senior Vice President, Hardware Engineering
and Production since January 1994, and prior thereto was Vice President,
Hardware Engineering since 1988. He served as a Vice President of ISOETEC since
1983. From 1982 to 1983, he was a Vice President and founder

of SAM Communications, Inc., a telecommunications research and development
company which was one of the predecessors to ISOETEC; that corporation was
merged into ISOETEC in 1983. From 1979 to 1982, Mr. Kontomerkos was Director of
Telecommunications Systems Development of TIE/communications, Inc., a
manufacturer of telecommunications systems.

David E. Lee has been Vice President, Business Development since
February 1995. Prior thereto, from October 1990 to February 1995, Mr. Lee was
Division Manager for the Network Services Division of the Company. From 1984
until 1990, Mr. Lee held various management positions within the Company. Mr.
Lee served as Director, International Finance of GTE Corporation from 1983 to
1984 and prior thereto, he held various financial management positions within
GTE Corporation.

John T. O'Kane has served as Vice President, MIS since January 1990.
From 1988 until 1990, Mr. O'Kane was Director of MIS for the Company. Prior to
that time and since 1981, he was the Vice President of MIS for Executone, Inc.,
a predecessor of the Company.

Frank J. Rotatori has been Vice President, Healthcare Sales since
February 1995. Prior thereto he was Vice President, European Operations since
February 1994, and prior thereto was Director of Call Center Management Products
during 1992 and 1993, Vice President-Direct Sales from 1990 through 1991 and
Vice President-Customer Service of the Company from 1988 to 1990. Mr. Rotatori
joined ISOETEC in 1986 as a regional manager. From 1982 to 1986, he served as
General Manager and Eastern Regional Manager for Rolm Corporation. For 13 years
prior to that time, he worked at Xerox Corporation in various manufacturing,
accounting, sales and service management positions.

Shlomo Shur has been Senior Vice President, Advanced Technology since
January 1994, and prior thereto was Vice President, Software Engineering since
1988. He served as a Vice President of ISOETEC from 1983 to 1988. From 1982 to
1983, he was Vice President and a founder of SAM Communications, Inc., a
telecommunications research and development company which was one of the
predecessors to ISOETEC; that corporation was merged into ISOETEC in 1983. From
1978 to 1982, Mr. Shur was Manager, Software Development for TIE/communications,
Inc., a manufacturer of telecommunications systems.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Incorporated by reference to "Stock Data" in the Registrant's 1995
Annual Report to Shareholders.

ITEM 6. SELECTED FINANCIAL DATA

Incorporated by reference to "Selected Financial Data" in the
Registrant's 1995 Annual Report to Shareholders.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Incorporated by reference to "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the Registrant's 1995 Annual
Report to Shareholders.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Financial Statements are incorporated by reference to the Financial
Statements in the Registrant's 1995 Annual Report to Shareholders. The Schedule
appears at pages S-1 through S-2 of this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors

The following persons are currently serving as directors and have been
nominated by the Board of Directors as candidates for re-election as directors
at the Annual Meeting of Shareholders to be held on July 30, 1996. Certain
information regarding each director is set forth below, including each
individual's principal occupation and business experience during at least the
last five years, other directorships in other public companies, and the year in
which the individual was elected a

director of the Company or one of its predecessor companies.

</TABLE>
<TABLE>
<CAPTION>
Director
Name Age Principal Occupation Since

<S> <C> <C> <C>
Alan Kessman 49 President, Chief Executive Officer 1983
and 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 58 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 49 Partner, Hunton & Williams 1990
(Attorneys), Richmond, Virginia,
since 1981.

Richard S. Rosenbloom 63 David Sarnoff Professor of Business 1992
Administration, Harvard Business
School, since 1980. Mr. Rosenbloom
is a director of Arrow Electronics,
Inc.

Jerry M. Seslowe 50 Managing Director of Resource 1996
Holdings Ltd., an investment and
financial consulting firm, since
prior to 1991.

William R. Smart 75 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 Data Computer
Company and American International
Petroleum Company.
</TABLE>

Executive Officers

See Part 1 for information and identification of executive officers 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 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, 1995, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than 10% beneficial owners were complied with.

ITEM 11. EXECUTIVE COMPENSATION

Director Compensation

Each non-employee director receives an annual retainer of $10,000, payable
in equal quarterly installments. The Company also reimburses directors for their
travel and accommodation expenses incurred in attending Board meetings.

In addition, each non-employee director is granted annually an option to
purchase 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. During June 1995, each outside director was granted a five-year
option for 3,000 shares at a per share exercise price of $2.50, the closing
market price on the date of grant. Each non-employee director was also granted
an additional five-year option ( for 12,300 shares at $3.15 per share in the
case of Mr. Seslowe, and 13,300 shares at $3.00 per share in the case of the
other non-employee directors) pursuant to an amendment to the Plan approved by
the Board of Directors in November 1995, subject to approval by the shareholders
of the Company at the 1996 Annual Meeting. These options were granted at a price
equal to 120% of the closing market price of the Common Stock on the date of
grant. The number of shares granted to each director under the amended Plan is
determined by reference to an annual formula designed to award each director
five-year options having a value of $10,000 based on the Black-Scholes option
valuation model and the current price of the Company's Common Stock.

As of March 31, 1996, options to purchase 39,000 shares of Common Stock
were outstanding under the 1990 terms of the Plan, and options to purchase an
additional 52,200 shares were outstanding under the amendment to the Directors'
Stock Option Plan subject to shareholder approval of the amendment at the 1996
Annual Meeting of Shareholders. Under the Plan as amended, subject to
shareholder approval, options to purchase 140,800 shares were available for
future grant under the Directors' Stock Option Plan.

On February 1, 1996, June 23, 1992 and September 24, 1992, Jerry M.
Seslowe, Richard S. Rosenbloom and William R. Smart were each granted warrants
to purchase 25,000 shares of the Company's Common Stock at $2.63, $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 February 1, 2001,
June 23, 1997 and September 24, 1997, respectively. Messrs. Seslowe, Rosenbloom
and Smart received these warrants upon being elected to serve on the Company's
Board of Directors.

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.

Annual Compensation Long-Term Compensation
Other Awards All
Annual of Other(3)
Name and Bonus($) Compensa- Options/ Compensation
Principal Position Year Salary($) (1) tion($)(2) SARs(#) ($)
<S> <C> <C> <C> <C> <C> <C>

Alan Kessman 1995 400,000 -0- 1,100 -0- 10,328
</TABLE>

Chairman of the
Board, 1994 391,100 100,000 8,506 -0- 6,978
President and
Chief 1993 374,850 150,764 -0- 50,000 263,491
Executive Officer

Michael W. 1995 256,000 -0- 1,100 -0- 6,353
Yacenda
Executive Vice 1994 243,154 39,600 10,000 -0- 55,597
President
1993 225,879 58,684 -0- 32,000 160,388

Stanley M. Blau 1995 197,789 -0- -0- 15,000 3,367
Vice Chairman
1994 201,738 7,713 -0- 15,000 3,276

1993 193,973 37,083 -0- 20,000 22,645

Shlomo Shur 1995 215,700 -0- -0- -0- 5,514
Senior Vice
President 1994 211,539 23,088 10,000 -0- 4,199
Advanced
Technology 1993 203,390 38,885 -0- 25,000 4,750

Andrew 1995 214,000 -0- -0- -0- 5,535
Kontomerkos
Senior Vice 1994 205,888 28,025 10,000 -0- 4,899
President
Hardware 1993 193,973 37,083 -0- 20,000 6,060
Engineering and
Production
</TABLE>

(1) 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.

(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 each year. This column also
includes premiums paid by the Company for long-term disability and life
insurance for the individuals in the following amounts in 1995: Mr.
Kessman, $9,668; Mr. Yacenda, $5,693; Mr. Shur, $4,854; Mr. Blau, $2,707;
and Mr. Kontomerkos, $4,875; 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; and 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.

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 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

The following table sets forth the individual grants of stock options made
during the year ended December 31, 1995 to the Chief Executive Officer and the
four most highly compensated other executive officers of the Company. There were
no grants of stock appreciation rights made to any officers during 1995, and
there are no outstanding stock appreciation rights.

Potential Realized Value
at Assumed Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term
- ------------------------------------------------------------------------------ -----------------------------
% of Total
Options Exercise
Granted to or Base
Options Employees in Price Expiration
Name Granted (#) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- ------------------------------------------------------------------------------ -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Alan Kessman 0 0 0 0 0 0
Michael W. Yacenda 0 0 0 0 0 0
Stanley M. Blau 15,000 2.5 $3.13 3/23/00 12,950 28,617
Shlomo Shur 0 0 0 0 0 0
Andrew Kontomerkos 0 0 0 0 0 0
</TABLE>

The option reported in the above table expires in five years, and vests 25% per
year over four years.

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, 1995 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, 1995. There
were no exercises or holdings of stock appreciation rights by any officers
during 1995, and there are no outstanding stock appreciation rights.

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 137,500 262,500 65,688/35,000 74,097/18,438

Michael W. 158,273 302,697 66,000/27,000 60,313/16,688
Yacenda

Stanley M. Blau 0 0 381,500/15,000 446,719/8,438

Shlomo Shur 286,930 495,854 62,500,17,500 59,219/9,219

Andrew Kontomerkos 578,660 578,660 45,250/13,750 42,078/7,109
</TABLE>

(1) Based upon the last sale price on December 29, 1995 of $2.31 per share of
Common Stock.

Compensation Committee Interlocks and Insider Participation

The members of the Compensation Committee in 1995 were Thurston Moore,
Richard Rosenbloom, and William Smart.

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.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Ownership of Common Stock by Directors, Officers and Principal
Shareholders

The following table sets forth the number of shares of Common Stock
beneficially owned as of March 31, 1996, 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)

<S> <C> <C>
Stanley M. Blau (2) . . . . . . . . . 753,846 1.4
Entities Associated with Hambrecht &
Quist Group (3) . . . . . . . . . 4,822,989 9.3
One Bush Street
San Francisco, CA 94104
Alan Kessman (4) . . . . . . . . . . 1,760,682 3.4
Thurston R. Moore (5) . . . . . . . . 108,635 *
Entities Associated with
Edmund H. Shea, Jr. (6). . . . . 3,249,895 6.3
655 Brea Canyon Road
Walnut Creek, CA 91789
Richard S. Rosenbloom (7) . . . . . . 50,300 *
Jerry M. Seslowe (8) 69,444 *
William R. Smart (9) . . . . . . . . 60,300 *

All Directors and Officers as a Group
(20 persons) (10) . . . . . . . . . 6,079,953 14.3

</TABLE>

* Less than 1%

(1) Based upon 51,865,163 shares of Common Stock outstanding as of
March 31, 1996. In cases where the beneficial ownership of the

individual or group includes options, warrants, or convertible securities,
the percentage is based on the 51,865,163 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 362,750 shares subject to options exercisable within 60 days of
June 3, 1996. Includes 16,250 shares subject to options not exercisable
within 60 days of June 3, 1996.

(3) The Hambrecht & Quist entities share power to vote and dispose of all of
such shares.

(4) Includes 62,500 shares subject to options exercisable within 60 days of
June 3, 1996. Includes 12,500 shares subject to options not exercisable
within 60 days of June 3, 1996. 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
Company's Debentures (of which Mr. Kessman owns $100,000 principal amount
or .5% of the principal amount outstanding).

(5) Includes 28,300 shares subject to options, all of which are exercisable
within 60 days of June 3, 1996.

(6) Includes 11,935 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
$126,812 principal amount. The Shea entities share the power to vote and
dispose of all of such shares.

(7) Mr. Rosenbloom beneficially owns 50,300 shares subject to options and
warrants, all of which are exercisable within 60 days of June 3, 1996.

(8) Mr. Seslowe beneficially owns 37,300 shares of Common Stock subject to
options and warrants, none of which are exercisable within 60 days of June
3, 1996. Includes 12,755 shares owned by Resource Holdings Associates, in
which Mr. Seslowe has a greater than 10% ownership and of which he is a
managing director. Does not include 203,756 shares of Common Stock
contingently issuable upon conversion of the Series A Preferred Stock and
the Series B Preferred Stock owned by Mr. Seslowe, or 45,874 shares of
Common Stock contingently issuable upon conversion of Preferred Stock owned
by Resource Holdings, none of which shares of Preferred Stock are or will
become convertible within 60 days of June 3, 1996.

(9) Mr. Smart beneficially owns 50,300 shares subject to options and warrants,
of which 49,550 are exercisable within 60 days of June 3, 1996.

(10) Includes 976,262 shares subject to options or warrants exercisable within
60 days of June 3, 1996. Includes 196,650 shares subject to options or
warrants not exercisable within 60 days of June 3, 1996. Also includes
64,000 shares of Common Stock issuable upon conversion of the Company's
Debentures (of which the group beneficially owns $680,000 principal amount,
or 3.5% of the principal amount outstanding). Includes 924,978 shares as to
which voting and dispositive power is shared and 289,445 shares as to which
beneficial ownership is disclaimed.

Ownership of Preferred Stock by Directors, Officers and Principal
Shareholders

The following table sets forth the number of shares of Convertible
Cumulative Preferred Stock, Series A, and Contingently Convertible Cumulative
Preferred Stock, Series B, beneficially owned as of March 31, 1996, by all
current directors and officers of the Company who beneficially own any of such
shares, and by each person known to the Company to be a beneficial owner of more
than five percent of the Company's outstanding Preferred Stock. The table also
shows the percentage of each series beneficially owned, based upon 250,000
shares of Series A Stock and 100,000 shares of Series B Stock outstanding as of
March 31, 1996. No other director, nominee for director or officer owns any
shares of the Company's Preferred Stock. Unless otherwise noted, the owner has
sole voting and dispositive power with respect to the securities.

Shares of Preferred Stock Beneficially Owned and Percent of Class
------------------------------------------------------------------
Series A Stock Series B Stock

Name of Beneficial Owner

<S> <C> <C>
Cooper Life Sciences 78,819(31.53%) 31,528(31.53%)
160 Broadway
New York, NY 10038

Jerry M. Seslowe 3,830(1.53%) 1,532(1.53%)

James W. Spencer 26,625(10.65%) 10,650(10.65%)
8446 Bronze Lane
Highlands Ranch, CO 80126

Watermark Investments 127,895(51.16%) 51,157(51.16%)
Limited
730 Fifth Avenue
New York, NY 10019

</TABLE>

<S> <C> <C>
All Directors and Officers 3,830 (1.53%) 1,532(1.53%)
as a Group (20 persons)
</TABLE>

ITEM 13. 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.

In connection with the Company's acquisition of Unistar, the Company paid
or agreed to pay Resource Holdings Ltd, a former shareholder of Unistar, accrued
investment banking fees incurred by Unistar prior to the acquisition of
$105,000, and total finder's fees of $320,000 based on the value of the
transaction. Mr. Seslowe was elected a director of the Company after the
acquisition. Both Resource Holdings and Mr. Seslowe acquired Common Stock and
Preferred Stock of the Company in exchange for their shares of Unistar. Mr.
Seslowe is a managing director of and owns more than 10% of Resource Holdings.
The Company's management believes that the transactions with Resource Holdings
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 October 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 that were outstanding
during 1995 pursuant to the Incentive Plan that are guaranteed by the Company.

<TABLE>
<CAPTION>
Highest Amount of Unpaid
Indebtedness Between Indebtedness at
Name 1/1/95 and 3/31/96(1) 3/31/96 Including Accrued Interest

<S> <C> <C>
Alan Kessman $1,912,500 $2,097,195

Michael W. Yacenda $1,115,625 $1,223,364

Shlomo Shur $ 557,813 $ 611,682

Andrew Kontomerkos $ 557,813 $ 611,682

Barbara C. Anderson $ 318,750 $ 349,533

</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C>
James E. Cooke III $318,750 $349,533

Anthony R. $446,250 $489,345
Guarascio

Israel J. Hersh $ 95,625 $104,860

Robert W. Hopwood $318,750 $348,912

David E. Lee $318,750 $349,533

Frank J. Rotatori $191,250 $209,720
</TABLE>

- ---------------------

(1) Amounts shown are exclusive of accrued interest.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1), (a)(2) and (d). The financial statements required by this item and
incorporated herein by reference are as follows:

Report of Independent Public Accountants

Consolidated Balance Sheets - December 31, 1995 and 1994

Consolidated Statements of Operations - Years ended December 31, 1995,
1994 and 1993

Consolidated Statements of Changes in Stockholders' Equity Three years
ended December 31, 1995

Consolidated Statements of Cash Flows - Years ended December 31, 1995,
1994 and 1993

Notes to Consolidated Financial Statements

The schedules to consolidated financial statements required by this item
and included in this report are as follows:

Report of Independent Public Accountants on Schedule

Schedule II - Valuation and Qualifying Accounts

(a)(3) and (c). The exhibits required by this item and included in this
report or incorporated herein by reference are as follows:

Exhibit No.

2-1 Agreement and Plan of Merger by and among EXECUTONE Information
Systems, Inc., Executone Newco, Inc., and Unistar Gaming Corp., dated
as of December 19, 1995. Incorporated by reference to the Registrant's
Current Report on Form 8-K dated
January 3, 1996.

2-2 Asset Purchase Agreement among V Technology Acquisition Corporation,
EXECUTONE Information Systems, Inc. and Vodavi, Inc. dated November 5,
1993, and Amendment dated February 18, 1994. Incorporated by reference
to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993.

3-1 Articles of Incorporation, as amended through December 18, 1995
(restated for electronic filing). Previously filed.

3-2 Articles of Amendment dated and filed December 19, 1995, amending the
Company's Articles of Incorporation. Incorporated by reference to the
Registrant's Current Report on Form 8-K dated January 3, 1996.

3-3 Bylaws, as amended. Incorporated by reference to the Registrant's
Registration Statement on Form S-3 (File No. 33-62257) filed August
30, 1995.

4-1 Second Amended and Restated Loan and Security Agreement dated as of
August 30, 1994 and First Amendment thereto dated January 1, 1995,
between EXECUTONE Information Systems, Inc., Continental Bank N.A. and
the other Lenders named therein. Incorporated by reference to the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1994.

4-2 Loan Agreement dated as of August 30, 1994, between EXECUTONE
Information Systems, Inc., certain employees thereof, and the Lenders
named therein. Incorporated by reference to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994.

4-3 First Amendment dated January 1, 1995, Second Amendment dated
September 29, 1995, and Third Amendment dated December 29, 1995, to
the Second Amended and Restated Loan and Security Agreement by and
among EXECUTONE Information Systems, Inc., the Financial Institutions
Listed on the Signature Page Thereof, and Bank of America Illinois.
Previously filed.

4-10 Indenture dated March 1, 1986 with United States Trust Company of

New York relating to 7 1/2% Convertible Subordinated Debentures of
Vodavi Technology Corporation due March 15, 2011. Incorporated by
reference to Vodavi Technology Corporation's Registration Statement on
Form S-1 (as amended) (Registration No. 33-3827) filed on March 9,
1986 and amended April 1, 1986.

4-11 First Supplemental Indenture dated August 4, 1989 with United States
Trust Company of New York relating to 7 1/2% Convertible Subordinated
Debentures due March 15, 2011. Incorporated by reference to the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1989.

4-12 Specimen Certificate representing 7 1/2% Convertible Subordinated
Debentures. Incorporated by reference to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1989.

10-1 1984 Employee Stock Purchase Plan of EXECUTONE Information Systems,
Inc. Incorporated by reference to the Registrant's Registration
Statement on Form S-8 (File No. 33-23294) declared effective by the
Commission on August 23, 1988.

10-2 1986 Stock Option Plan of EXECUTONE Information Systems, Inc.
Incorporated by reference to the Registrant's Registration Statement
on Form S-8 (File No. 33-23294) declared effective by the Commission
on August 23, 1988.

10-3 1984 Stock Option Plan of EXECUTONE Information Systems, Inc.
Incorporated by reference to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1990, as amended by Form 8 filed
on August 20, 1991.

10-4 401(k) Savings Plan of Vodavi Technology Corporation dated December
27, 1985. Incorporated by reference to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1989.

10-5 Stock Option Bonus Credit Plan of EXECUTONE Information Systems, Inc.
dated December 31, 1988. Incorporated by reference to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1989.

10-6 1990 Directors' Stock Option Plan. Incorporated by reference to the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1990, as amended by Form 8 filed on August 20, 1991.

10-7 1994 Executive Stock Incentive Plan. Incorporated by reference to the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1994.

10-9 Volume Purchase Agreement dated January 31, 1992, between U. S. Sprint
Communications Company Limited Partnership and

EXECUTONE Information Systems, Inc. Incorporated by reference to the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1991, as amended by Form 8 filed on June 12, 1992.

10-10 Amendments dated as of April 1, 1995, and 1993 to Volume Purchase
Agreement dated January 31, 1992, between U. S. Sprint Communications
Company Limited Partnership and EXECUTONE Information Systems, Inc.
Previously filed.

10-12 Warrant to Purchase 143,181 shares of Common Stock of the Registrant
in favor of Continental Bank N. A. (now Bank of America Illinois)
dated December 28, 1990. Incorporated by reference to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1990, as
amended by Form 8 filed on August 20, 1991.

10-13 Warrant to Purchase 50,000 shares of Common Stock of the Registrant in
favor of Continental Bank N. A. (now Bank of America Illinois) dated
December 28, 1990. Incorporated by reference to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1990, as
amended by Form 8 filed on August 20, 1991.

10-16 Manufacturing Services Agreement dated as of January 10, 1995, between
EXECUTONE Information Systems, Inc. and Compania Dominicana de
Telefonos, C por A (Codetel). Previously filed.

10-17 Manufacturing Services Agreement dated February 9, 1990 between Wong's
Electronics Co., Ltd. and EXECUTONE Information Systems, Inc.
Incorporated by reference to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1990, as amended by Form 8 filed
on August 20, 1991.

10-19 Warrant to Purchase 25,000 Shares of Common Stock of EXECUTONE
Information Systems, Inc. in favor of Richard S. Rosenbloom dated June
23, 1992. Incorporated by reference to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1992.

10-20 Warrant to Purchase 25,000 Shares of Common Stock of EXECUTONE
Information Systems, Inc. in favor of William R. Smart dated September
24, 1992. Incorporated by reference to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1992.

10-21 Management Agreement for the National Indian Lottery dated January
16,1995. Previously filed.

11 Statement regarding computation of per share earnings. Previously
filed.

13 1995 Annual Report to Shareholders of EXECUTONE Information

Systems, Inc. Previously filed.

21 Subsidiaries of EXECUTONE Information Systems, Inc. Previously filed.

23 Consent of Arthur Andersen LLP. Previously filed.

27 Financial Data Schedule. Previously filed.

Undertakings

For the purposes of complying with the rules governing Form S-8 under
the Securities Act of 1933, the undersigned registrant hereby undertakes as
follows, which undertaking shall be incorporated by reference into registrant's
Registration Statements on the following Form S-8 filings:

S-8 Reg. No. 2-91008 filed May 9, 1984 on 1983 Employee Stock Purchase
Plan (650,000 shares)

S-8 Reg. No. 33-959 filed October 17, 1985 on 1984 Stock Option Plan
(390,000 shares)

S-8 Reg. No. 33-6604 filed June 19, 1986 on 1983 Stock Option Plan
(350,000 shares)

S-8 Reg. No. 33-16585 filed August 24, 1987 on 1986 and 1983 Stock
Option Plans (800,000 shares)

S-8 Reg. No. 33-23294 filed August 3, 1988 on 1986 Stock Option Plan
(7,000,000 shares) and Employee Stock Purchase Plan (500,000 shares)

S-8 Reg. No. 33-42561 filed September 4, 1991 on 1984 Employee Stock
Purchase Plan (350,000 shares) and Directors' Stock Option Plan (100,000
shares)

S-8 Reg. No. 33-45015 filed January 2, 1992 on 1984 Employee Stock
Purchase Plan (400,000 shares)

S-8 Reg. No. 33-57519 filed January 31, 1995 on 1984 Employee Stock
Purchase Plan (1,000,000 shares).

Insofar as indemnification arising under the Securities Act of 1933 (the
"Act") may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses

incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to the court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

Reports on Form 8-K

The Registrant filed no reports on Form 8-K during the quarter ended
December 31, 1995.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned thereunto duly authorized.

EXECUTONE Information Systems, Inc.

By: /s/ Alan Kessman
-----------------------------------------
Alan Kessman, Chairman, President
and Chief Executive Officer

April 12, 1996
Milford, Connecticut

Pursuant to the requirements of the Securities and Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

April 12, 1996 /s/ Alan Kessman
---------------------------------------------------------
Alan Kessman
Chairman, President and Chief Executive Officer
(Principal Executive Officer)

April 12, 1996 /s/ Stanley M. Blau
---------------------------------------------------------
Stanley M. Blau
Vice Chairman of the Board of Directors

April 12, 1996 /s/ Anthony R. Guarascio
---------------------------------------------------------
Anthony R. Guarascio
Vice President-Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)

April 12, 1996 /s/ Thurston R. Moore
---------------------------------------------------------
Thurston R. Moore
Director

April 12, 1996 /s/ Richard S. Rosenbloom
---------------------------------------------------------
Richard S. Rosenbloom
Director

April 12, 1996 /s/ Jerry M. Seslowe
---------------------------------------------------------
Jerry M. Seslowe
Director

April 12, 1996
---------------------------------------------------------
William R. Smart
Director

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders of
EXECUTONE Information Systems, Inc.:

We have audited in accordance with generally accepted auditing standards, the
financial statements included in EXECUTONE Information Systems, Inc. and
subsidiaries' annual report to stockholders incorporated by reference in this
Form 10-K, and have issued our report thereon dated January 26, 1996. Our audit
was made for the purpose of forming an opinion on those statements taken as a
whole. The schedule listed in Item 14 is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.

ARTHUR ANDERSEN LLP

Stamford, Connecticut
January 26, 1996

EXECUTONE INFORMATION SYSTEMS, INC.
EXHIBITS TO 1995 ANNUAL REPORT ON FORM 10-K

Exhibit No.

3-1 Articles of Incorporation, as amended through December 18,1995
(restated for electronic filing). Previously filed.

3-3 Bylaws, as amended. Incorporated by reference to the Registrant's
Registration Statement on Form S-3 (File No. 33-62257) filed August
30, 1995.

4-10 Indenture dated March 1, 1986 with United States Trust Company of New
York relating to 7 1/2% Convertible Subordinated Debentures of Vodavi
Technology Corporation due March 15, 2011. Incorporated by reference
to Vodavi Technology Corporation's Registration Statement on Form S-1
(as amended) (Registration No. 33-3827) filed on March

9, 1986 and amended April 1, 1986.

4-12 Specimen Certificate representing 7 1/2% Convertible Subordinated
Debentures. Incorporated by reference to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1989.

10-4 401(k) Savings Plan of Vodavi Technology Corporation dated December
27, 1985. Incorporated by reference to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1989.

10-6 1990 Directors' Stock Option Plan. Incorporated by reference to the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1990, as amended by Form 8 filed on August 20, 1991.

10-7 1994 Executive Stock Incentive Plan. Incorporated by reference to the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1994.

10-9 Volume Purchase Agreement dated January 31, 1992, between U. S. Sprint
Communications Company Limited Partnership and EXECUTONE Information
Systems, Inc. Incorporated by reference to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1991, as amended
by Form 8 filed on June 12, 1992.

10-10 Amendments dated as of April 1, 1995, and 1993 to Volume Purchase
Agreement dated January 31, 1992, between U. S. Sprint

Communications Company Limited Partnership and EXECUTONE Information
Systems, Inc. Previously filed.

10-16 Manufacturing Services Agreement dated as of January 10, 1995, between
EXECUTONE Information Systems, Inc. and Compania Dominicana de
Telefonos, C por A (Codetel). Previously filed.

10-21 Management Agreement for the National Indian Lottery dated January
16,1995, between the Coeur d'Alene Tribe and Unistar Entertainment,
Inc. Previously filed.

11 Statement regarding computation of per share earnings. Previously
filed.

13 1995 Annual Report to Shareholders of EXECUTONE Information Systems,
Inc. Previously filed.

21 Subsidiaries of EXECUTONE Information Systems, Inc. Previously filed.

23 Consent of Arthur Andersen LLP. Previously filed.

27 Financial Data Schedule. Previously filed.

<PAGE>